Directors' misfeasance liability turns on wilful neglect: no liability for trusted officers' misuse, but liability for knowing statutory non-compliance.

Directors were held liable only where their conduct amounted to wilful neglect or conscious, reckless breach of duty under the misfeasance and relief provisions. For misappropriated employee security deposits handled by the chairman and promoter, liability was not established because there was no material showing that the directors had grounds to suspect dishonesty or knowingly permitted the breach. By contrast, liability was sustained for allowing the company to commence and continue business without compliance with mandatory statutory commencement conditions and without the required paid-up capital, because the directors knew of the false declaration and the non-compliance. Relief from liability was refused since the conduct was not honest and reasonable.

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Issues: (i) Whether the directors were liable under the misfeasance provision for the amount misappropriated by the promoter from employee security deposits; (ii) Whether the directors were liable for loss caused by allowing the company to commence and continue business without compliance with the statutory conditions for commencement of business and without the requisite paid-up share contributions, and whether relief from liability could be granted.

Issue (i): Whether the directors were liable under the misfeasance provision for the amount misappropriated by the promoter from employee security deposits.

Analysis: The governing standard for directors' liability was wilful neglect or wilful default, not mere negligence. A director may rely, in the absence of grounds for suspicion, on responsible officers entrusted with the relevant function. The misappropriated deposits were handled by the chairman and the promoter, and there was no material showing that the appellants had reason to suspect dishonesty or that they knowingly permitted a breach of duty. The conduct did not cross the threshold of reckless disregard or conscious breach required for liability under the indemnity regime.

Conclusion: The directors were not liable for the first item, and the appeal succeeded on that part.

Issue (ii): Whether the directors were liable for loss caused by allowing the company to commence and continue business without compliance with the statutory conditions for commencement of business and without the requisite paid-up share contributions, and whether relief from liability could be granted.

Analysis: The statutory condition for commencement of business required compliance with the prescribed share subscription and payment requirements before business could begin. The directors knew the certificate had been procured on a false declaration, knew the company lacked the necessary paid-up capital, and allowed business to proceed notwithstanding that knowledge. That conduct amounted to wilful negligence and brought the case within the misfeasance provision. Relief was unavailable because the statutory power to excuse liability applies only where the person acted honestly and reasonably, and the conduct here was not reasonable.

Conclusion: The directors were liable for the second item, and no relief from liability was granted.

Final Conclusion: The appeal was allowed to the extent of deleting liability for the misappropriated security deposits, but liability for the loss arising from unlawful commencement and continuation of business was sustained.

Ratio Decidendi: Under the misfeasance and relief provisions, directors are liable only where their conduct amounts to wilful neglect or conscious/reckless breach of duty; mere negligence is insufficient where they are entitled to rely on responsible officers, but knowing allowance of business to commence in breach of mandatory statutory conditions attracts liability and cannot be excused unless the conduct was both honest and reasonable.

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