Personal liability in misfeasance: claims do not survive death; directors remain liable while non-directors' claims are time-barred.

Whether misfeasance proceedings under section 235 survive against legal representatives and which limitation rules apply: the court construes section 235 as creating a personal cause of action confined to specified office-holders and not surviving death, so proceedings cannot continue against legal representatives of deceased respondents. Limitation: misfeasance claims against directors of a banking company fall under the special limitation regime of Part III-A (treated under section 45-O(2)), making the liquidator's claim timely as to directors but time-barred as to non-directors. Liability: surviving directors breached supervisory and management duties by gross negligence; they are ordered jointly and severally to contribute to assets totaling the specified sum with interest, with conditional relief for two directors.

---

---

Issues: (i) Whether misfeasance proceedings under section 235 of the Indian Companies Act, 1913 can be continued against the legal representatives of respondents who died during pendency; (ii) Whether the liquidator's application is within the period of limitation and what limitation rules apply; (iii) Whether the directors (alive) are liable for misfeasance/misapplication and, if so, which directors and the quantum of contribution.

Issue (i): Whether the liquidator can continue proceedings under section 235 of the Indian Companies Act, 1913 against legal representatives of deceased respondents.

Analysis: The text and judicial construction of section 235 (copied from English law) limit its application to the specific persons named (promoter, director, manager, liquidator or officer). English and established Indian authorities hold the liability created by that section is personal and does not survive death; statutory provisions for impleading legal representatives do not override this personal character in misfeasance proceedings.

Conclusion: Proceedings under section 235 cannot be continued against the legal representatives of deceased respondents; the application is dismissed as against those legal representatives.

Issue (ii): Whether the liquidator's application is barred by limitation and which statutory limitation provisions govern.

Analysis: Section 235 of the Indian Companies Act, 1913 prescribes a three-year limitation from first appointment of a liquidator (or from the misapplication, whichever longer). Part III-A of the Banking Companies Act, 1949 (sections 45F / 45-O) modifies limitation for banking companies: (a) section 45-O(2) expressly governs claims by a banking company against its directors (including misfeasance as an "other claim") with special limitation rules (including twelve years from accrual and an alternative five years from first appointment of liquidator); (b) section 45-O(1) excludes the period from presentation of the winding-up petition only for suits/applications whose limitation period commenced before that petition and therefore does not cover misfeasance applications that arise only in winding up. Consequently, misfeasance claims against directors are governed by section 45-O(2), while claims against non-directors fall under section 235 of the 1913 Act.

Conclusion: The application is time-barred as against respondents who are not directors (dismissed as barred by limitation) and is within time as against the directors (governed by section 45-O(2)).

Issue (iii): Whether the surviving directors are liable for misfeasance/misapplication, and if so the persons and amount to be contributed.

Analysis: Applying established principles on directors' duties (honesty; reasonable care and diligence judged by circumstances, knowledge and experience; permissible delegation tempered by supervisory duty), the evidence showed deficient supervision and control enabling dishonest dealings and inadequate procedures (including preferential treatment to directors in loans and lack of formal supervisory resolutions). The managing director bore primary responsibility for day-to-day administration, but the board retained ultimate responsibility to provide for proper management and to act upon circumstances giving rise to suspicion. Evidence did not establish specific proved acts of dishonesty by each director, but did establish gross negligence in providing for good and efficient management; two more recently appointed or less involved directors were not wholly exonerated given their failure to inform themselves or dissociate despite inspections and warning signs. The court used the statutory power to order contribution to assets by way of compensation where specific restitution could not be apportioned to precise sums per respondent.

Conclusion: The surviving directors - the managing director and other named directors - are held jointly and severally liable to contribute to the assets of the company; a total contribution of Rs. 2,50,000 with interest at six percent per annum is ordered, with specified conditional reliefs for two directors who pay Rs. 15,000 within three months.

Final Conclusion: The misfeasance application is dismissed insofar as it is against non-directors and legal representatives of deceased respondents (time-barred or not maintainable), and is allowed in part against the surviving directors by way of a joint and several contribution order totalling Rs. 2,50,000 with interest; other parties bear their own costs and the liquidator may meet the expenses from the estate.

Ratio Decidendi: Section 235 of the Indian Companies Act, 1913 creates a personal cause of action against the specific categories of officers named and does not survive their death; for banking companies claims against directors are governed by section 45-O(2) of the Banking Companies Act, 1949, which prescribes the special limitation regime applicable to misfeasance claims against directors, while misfeasance claims against non-directors remain subject to the Companies Act limitation.

---