Misfeasance liability of directors remains tied to supervisory duty, while special limitation governs banking-company claims against directors.

Section 235 of the Indian Companies Act, 1913 creates a personal liability against the officer whose conduct is under inquiry, so misfeasance proceedings do not survive against the legal representatives of deceased respondents. The special limitation in section 45-O(2) of the Banking Companies Act, 1949 applies to a banking company's misfeasance claim against directors, while the ordinary three-year limitation continues to govern claims against non-directors. On the merits, directors cannot avoid responsibility by leaving management entirely to a managing director or staff; they retain a continuing duty of supervision and may be liable where control and scrutiny were inadequate, though liability may be moderated according to individual participation.

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Issues: (i) whether proceedings under section 235 of the Indian Companies Act, 1913 could be continued against the legal representatives of deceased respondents; (ii) whether the misfeasance application was barred by limitation as against directors and non-directors; and (iii) whether the surviving directors were liable to make good the loss and, if so, to what extent.

Issue (i): whether proceedings under section 235 of the Indian Companies Act, 1913 could be continued against the legal representatives of deceased respondents

Analysis: The liability created by section 235 is personal to the promoter, director, manager, liquidator or officer whose conduct is under inquiry. The provision authorises examination into that person's conduct and an order compelling him to repay, restore, or contribute compensation. On that construction, the cause does not survive against executors, heirs, or legal representatives, and the procedural law relating to substitution cannot enlarge a right that the substantive provision does not confer.

Conclusion: The application could not be continued against the legal representatives of the deceased respondents, and the related impleading applications were liable to be dismissed.

Issue (ii): whether the misfeasance application was barred by limitation as against directors and non-directors

Analysis: The winding up had commenced before the Companies Act, 1956, so the application remained governed by section 235 of the Indian Companies Act, 1913, read with the Banking Companies Act, 1949. The special limitation in section 45-O(2) of the Banking Companies Act applied to claims by a banking company against its directors and included a misfeasance claim as an "other claim". But section 45-O(1) could not govern misfeasance proceedings because it deals with claims whose right to sue arose before the winding up petition, whereas a misfeasance application arises only in winding up. For persons who were not directors, the ordinary three-year limit under section 235 continued to apply.

Conclusion: The application was within time against the directors, but barred by limitation against the non-director respondents.

Issue (iii): whether the surviving directors were liable to make good the loss and, if so, to what extent

Analysis: A director is not a mere figurehead and cannot wholly abdicate responsibility by leaving all affairs to a managing director or staff. The board retained the ultimate duty of supervision, and the evidence showed lack of effective control, permissive and irregular administration, and inadequate scrutiny of the bank's working. The directors who continued to rely blindly on the managing director and the supervisory staff could not claim complete exoneration, although the younger and less closely associated directors deserved some mitigation in quantum. At the same time, the proof did not justify fastening the entire estimated loss on every director in full measure.

Conclusion: The surviving directors were held liable, but only to the extent of Rs. 2,50,000 jointly and severally, with limited conditional relief of Rs. 15,000 each for two directors.

Final Conclusion: The application succeeded in part: it failed against the legal representatives and the non-director respondents, but it was sustained against the surviving directors, who were directed to contribute a reduced sum to the assets of the company in liquidation.

Ratio Decidendi: A banking company's directors cannot escape misfeasance liability by wholly delegating management to a managing director or staff; they remain under a continuing duty of supervision, and a misfeasance claim against directors is governed by the special limitation in section 45-O(2) of the Banking Companies Act, 1949, while the personal liability under section 235 of the Indian Companies Act, 1913 does not survive against legal representatives.

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