Director liability for misapplication of company funds upheld where breach of duty caused loss without proof of fraud.

A bank director was held liable under section 235 of the Indian Companies Act, 1913 for misfeasance, misapplication of funds and breach of trust arising from mortgage-related transactions. The court treated the arrangement as a deliberate scheme, not a mere error of judgment, because an illusory security was taken from a defunct company to regularise liabilities and benefit selected persons. The director knew the true position, participated in the transaction and derived a benefit from it. Proof of fraud was not essential under section 235; it was sufficient that breach of duty caused misapplication or loss of company assets, making the director liable to restore or compensate the loss.

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Issues: Whether the appellant, as a director of the bank, was liable under section 235 of the Indian Companies Act, 1913 for misfeasance, misapplication of funds, and breach of trust arising out of the mortgage and related transactions.

Analysis: The evidence showed that the impugned transactions were not mere errors of judgment but a designed arrangement by which an illusory security was taken from a defunct company to regularise liabilities and confer benefits on selected persons, including the appellant. The appellant had knowledge of the true position, participated in the transaction, and derived a benefit from it. Under section 235, proof of fraud was not essential; it was enough that the director had, by breach of duty, caused a misapplication or loss of the company's assets and could be ordered to restore or compensate for it.

Conclusion: The appellant was liable under section 235 and could not escape responsibility for the amount found recoverable by the High Court.

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