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of <h1>Director held liable for misfeasance in company winding up, emphasizing fiduciary duties and accountability</h1> <h3>MA Malik Versus VS Thiruvengadaswami Mudaliar</h3> The High Court of Madras held a director liable for misfeasance during a company's winding up, ordering payment for incurred losses and allowing arrest ... Directors – Power of Issues:1. Liability of a director for misfeasance during the winding up of a company.2. Interpretation of section 51 of the Civil Procedure Code regarding arrest of a judgment debtor.3. Legal relationship between a director and a company.4. Director's fiduciary duties towards the company and its members.5. Director's liability for breach of trust and misfeasance.Analysis:The judgment by the High Court of Madras, delivered by Horwill and Balakrishna Ayyar, JJ., dealt with misfeasance proceedings against a director during the winding up of a company. The court directed the director to pay a specified sum for losses incurred due to share brokerage, preliminary expenses, and investments in unauthorized banks. The respondent, holding an assignment of the decree, sought the director's arrest for non-payment. The key issue was whether the respondent, as a judgment debtor, could be arrested under section 51 of the Civil Procedure Code. The court found that the director's breach of duty led to the company's loss, invoking the proviso to section 51, which applies when the debtor is bound in a fiduciary capacity to account for the sum owed.The judgment delved into the legal relationship between a director and a company, emphasizing the fiduciary duty directors owe to the company and its members. While not explicitly labeled as trustees, directors are considered to hold a fiduciary position akin to trustees, responsible for managing the company's affairs diligently. The court cited precedents like Cavendish Bentinc v. Fenn and New Fleming Spinning and Weaving Co., Ltd. v. Kessowji Naik to establish the fiduciary nature of a director's role and the duty to prevent misapplication of company funds.Furthermore, the judgment clarified that a director's liability for misfeasance or breach of trust stems from their fiduciary position towards the company and its members. Even if a director claims pauper status, the fiduciary duty requires them to be accountable for the company's property under their control. The court referenced Halsbury's Laws of England to affirm that directors are trustees of the company's property and must be answerable for it. Ultimately, the court upheld the lower court's decision, affirming the director's liability and dismissing the appeal with costs.In conclusion, the judgment underscores the legal principles governing a director's responsibilities, fiduciary duties, and liability for breaches during the winding up of a company. It establishes that directors, though not express trustees, hold a fiduciary position towards the company and its members, necessitating accountability for any misfeasance or breach of trust resulting in losses to the company.
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