Managing director held liable for misfeasance, ordered to compensate company. Exonerated co-director. Criminal proceedings initiated.

The court held Mr. M.N. Mitra, the managing director, personally liable for misfeasance and breach of trust, ordering him to compensate the company for Rs. 83,700 with interest. Respondent No. 3, Ranadeb Choudhuri, was exonerated from liability due to lack of involvement in the company's fraudulent activities. The official liquidator was directed to initiate criminal proceedings against M.N. Mitra and receive costs from him, with initial payment from the company's assets.

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Issues Involved:
1. Liability of respondent No. 3, Ranadeb Choudhuri, as a director for the sum of Rs. 83,700.
2. Liability of the directors or any of them for the sum of Rs. 83,700.
3. Whether the application is barred by the law of limitation.
4. Relief entitled to the official liquidator.

Issue-wise Detailed Analysis:

Issue 3: Whether this application is barred by the law of limitation.
The application was filed under section 543 of the Companies Act, 1956, which mandates a five-year limitation period from the date of the winding-up order. The winding-up order was made on 1st February 1966, making the limitation period expire on 1st February 1971. The application was noted as made on 2nd February 1971. However, it was argued that 31st January 1971 was a Sunday and 1st February 1971 was a holiday for Saraswati Puja immersion. Evidence, including a witness and documents, confirmed that 1st February 1971 was indeed a holiday. Consequently, the application was deemed timely, and issue No. 3 was answered in the negative.

Issues 1 and 2: Liability of Respondent No. 3, Ranadeb Choudhuri, and other directors for the sum of Rs. 83,700.
The official liquidator's misfeasance application cited three main grounds:
1. Wrongful and illegal payment of Rs. 29,000 as commission for share sales.
2. Unjustified payment of Rs. 52,700 as commission and interest for procuring finance.
3. Unjustified payment of Rs. 3,000 for travelling and conveyance expenses.

An auditor's report, treated as final, indicated several discrepancies and unauthorized payments. The managing director, Mr. M.N. Mitra, was found to have authorized these payments, many of which lacked proper documentation and appeared suspicious. The report suggested that some payments were made to non-existent or dummy persons. The auditor also highlighted that the company's records were poorly maintained, further implicating mismanagement.

Liability of Directors:
Section 543 of the Companies Act empowers the court to assess damages against delinquent directors. A director closely associated with the management is liable for misfeasance if they fail to act with reasonable diligence. The managing director, M.N. Mitra, was found personally liable for the misfeasance and breach of trust, resulting in a loss of Rs. 83,700 to the company. The court held that the non-availability of proper books was strong evidence of deliberate negligence by the managing director.

Exoneration of Respondent No. 3:
The evidence showed that respondent No. 3, Ranadeb Choudhuri, did not participate in the day-to-day affairs of the company and had no knowledge of the misappropriations. It was not his duty to scrutinize the books of accounts, and there was no evidence of his involvement in the fraudulent activities. Consequently, he was exonerated from liability.

Relief Entitled to the Official Liquidator:
The court directed Mr. M.N. Mitra to compensate the company for Rs. 83,700 with interest at 6% per annum from 1st February 1971 until realization. The official liquidator was also instructed to initiate criminal proceedings against M.N. Mitra and hand over the investigation to the Deputy Commissioner, Detective Department, Calcutta. The official liquidator was entitled to costs from M.N. Mitra, with initial payment from the company's assets.

Conclusion:
Mr. M.N. Mitra, the managing director, was held personally liable for misfeasance and breach of trust, while respondent No. 3, Ranadeb Choudhuri, was exonerated. The court ordered compensation and criminal proceedings against M.N. Mitra and awarded costs to the official liquidator.

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