TaxTMI 
TaxTMI 
1986 (2) TMI 273
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....he accounts of the said company were audited from 1359 B. S. corresponding to the English calendar year 1951-52 and until 1375 B. S. corresponding to the English calendar year 1968-69. Books of account of the said company for the years 1376 B. S. corresponding to the English calendar year 1969-70 and 1377 B. S. corresponding to the English calendar year 1970-71 were not audited, and as far as the applicant has been able to ascertain, no sales nor purchases were made by the said company during the said years 1376 B.S. and 1377 B.S. Many of the entries in the cash book of the said company, when made over to the applicant, were found on inspection to have become illegible and/or effaced due to water stains. Minute books of the directors and shareholders of the said company have not been made over by the respondents to the applicant, despite requests made to them in that behalf. Statement as to the affairs of the said company has been filed by respondent No. 2." The applicant states on the basis of records of the said company made available to him by the respondents, that the respondents and each of them have misapplied or retained and/or have become liable or accountable for the mo....
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....d in on their own account by the respondents and each of them and the said sums were lost to the said company. The respondents and each of them are liable or accountable therefor. (iv)According to the statement of affairs filed by respondent No. 2, out of Rs. 43,120 due and payable to the said company from its sundry debtors, only Rs. 284.87 is recoverable. The respondents and each of them having neglected to take steps to recover the said sum and by allowing the same to become "bad" have become liable or accountable therefor. On the basis of the said statements made in the points of claim, the following orders have been asked for in the judges summons: (a)A declaration that the respondents and each of them have mis-applied, or retained, and have become liable or accountable for the moneys and property of the company and/or are guilty of misfeasance or breach of trust in relation thereto as stated in the points of claim ; (b)An order that the respondents and each of them do repay to the official liquidator of the said company the amounts mentioned in the points of claim together with interest at the rate of 6 per cent, per annum from September 7, 1970, to the date of repayment;....
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....l gross profit and this according to the auditor was an act of misfeasance. That the company did not make any profit and was ran at a loss could not be an act of misfeasance on the part of the directors. It was not shown that the company deliberately created any loss in the books of account or the loss was not a normal incident of the business carried on by the company. A point was also taken by the auditor that the moneys were retained by the directors of the company and were not deposited in the bank and accordingly this is also an act of misfeasance. He has mentioned that on 30th Chaitra, 1370 B.S., there was a heavy cash balance of Rs. l,07,763.19 but strangely enough he did not care to examine the cash balance from the accounts for the days following. He also did not even care to find out whether the sum of Rs. 1,07,763.19 was deposited in the bank or not or whether this amount was retained by the directors. He further said he was of the opinion that when the capital of the company was only Rs. 56,200, the company should not have kept the cash balance of Rs. 1,07,763.19 with them in hand in spite of the overdraft account of Rs. 43,168 which overdraft account could have been e....
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....3 42,858.51 Collections 2-1-73 to 11-1-73 27,850.27 30th Chaitra, 1373, B. S. not 27-5-64 Cash and Cheques 37,564.01 Deposit at bank 3-1-74 32,000 4-1-74 500 5-1-74 500 33,000.00 4,564.01" In his deposition it has also been said by the auditor that the directors kept the cash balance with them but that does not amount to misfeasance at all. In the points of claim and as well as in the report of the auditor, it is suggested that the directors are liable to pay interest on the cash lying in their hands at the usual bank rate for the days the cash was retained by them. The auditor has admitted that there is only a few days' delay if at all in depositing the amount with the bank. The case which is sought to be made out is wholly untenable. Admittedly, the deposits were made in the bank within three or four days. The delay in depositing the ....
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....ect that has been mentioned by the auditor in his report is that when there was no or insignificant profit, the directors should not have taken remuneration. This is absolutely a misconceived statement. Each of the directors had taken Rs. 250 per month as remuneration. That cannot be a ground for taking proceedings for misfeasance. Mr. Sinha ultimately has not pressed any of these grounds. The report has been prepared by the auditor carelessly without application of mind. His evidence has not inspired any confidence. Mr. Sinha has left no stone unturned to substantiate a case of misfeasance. Failing in other grounds, he has at last based his case on speculation business allegedly undertaken by the directors. The auditor in his report has stated that the company was engaged "in buying and selling the goods and thereafter getting the difference" which, according to him, is speculation business. He has also said that the objects clause does not permit the company to do so. Mr. Sinha has contended that under the memorandum of association, the company was entitled to carry on business in buying and selling edible oils but the company could not engage itself in speculation business. Acco....
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....or unless he has dishonestly acted, or abstained from acting, in conflict with his plain duty and the burden of proof lies on the party making the charge; but in considering the question of the director's liability, there must be imputed to him a special knowledge of the business which he has undertaken. Directors are liable for losses occasioned through acts done by them as directors in matters which are 'ultra vires' the company, and this liability is not dependent upon any question of honesty of intention." The principles are well-settled but the question is whether, on the facts and in the circumstances of this case, the principles laid down by the aforesaid decisions can be applied at all. There is no allegation of misapplication of the assets of the company by the directors. The ground now urged by Mr. Sinha, learned advocate for the official liquidator, is that the company carried on business which is ultra vires the object clause and, accordingly, the directors are liable to make good the loss arising therefrom. Even if the business carried on by the directors is ultra vires, it cannot by itself constitute an act of misfeasance. The word "misfeasance" does not cover every ....