TaxTMI 
TaxTMI 
2007 (11) TMI 404
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.... of the company in liquidation. (d)declare the liabilities of respondent Nos. 1 to 5 for the said sum of Rs. 13,84,13,871.36 (rupees thirteen crores eighty four lakhs thirteen thousand eight hundred and seventy one and paise thirty six only) and future claims of the creditors together with interest thereon shall constitute the first charge on the property and effects in their possession. (e)direct the respondents to pay the applicant the cost and incidental expenses of these proceedings. (f)permit the Official Liquidator to engage the services of a senior counsel of the Madras Bar to conduct this case on behalf of the Official Liquidator. (g)allow the Official Liquidator to place/accept further facts at the time of hearing this case. (h)permit the Official Liquidator to meet the cost of this application and the cost of engaging a senior counsel and other costs from the funds of the company and if it is insufficient may be borne from the Common Establishment Charges Account. 2. This application has been filed by the official liquidator under sections 460(4), 542 and 543 of the Companies Act, 1956. In the report dated 5-4-2005, filed in support of the above application, the off....
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....ars of the purported instances of breach of trust and misfeasance committed by respondent Nos. 1 to 3. 7. According to them, in spite of their best management, the company went into liquidation because of recession uplifting the cotton industry and the hostile attitude of the secured creditor bank. In fact, it was pointed out in the counter that the first respondent was awarded the Udyog Patra Award and Shri Rajiv Gandhi Memorial Award in 1995 in recognition of his entrepreneurial abilities. Only after realising that it would not be feasible to run this company without incurring loss, they took the decision to effect a closure in 1998. 8. Insofar as the four charges framed by the official liquidator are concerned, it is stated that the entire assets and the books of account were handed over to the official liquidator and the sums representing the assets not specifically pledged were not recoverable as the major portion was appropriated by the banks towards interest, TDS and other deposits. The respondents assert that the value of the plant and machinery and other assets are correctly valued and they refer to the certificate of the operating agency certifying the value of net bloc....
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....ciated with regard to sections 542 and 543 of the Companies Act. 14. In Official Liquidator v. Raghawa Desikachar [1975] 45 Comp. Cas. 136 , the hon'ble Supreme Court held a misfeasance application against the directors being a serious charge of misconduct or breach of trust. The application by the official liquidator should contain a detailed narration of the specific acts of commissions and omissions and the burden of proving misfeasance or non-feasance rests on the official liquidator. The relevant paragraph of the judgment read as under (page 142) : "7. The above proceedings clearly show that no opportunity was given to respondent Nos. 1 to 4 because proceedings of 12-1-1958, show that as soon as written statement was filed on 30-12-1957, the District Judge fixed the case for argument. The proceedings of 7-7-1958, further show that Mr. Amin had brought to the notice of the official liquidator that he should be supplied with materials on which the official liquidator would rely for the alleged malfeasance on the part of his clients, but no materials were furnished by the official liquidator. Accordingly, on the second hearing after the aforesaid application, a petition for sub....
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....542. Liability for fraudulent conduct of business.-(1) If in the course of the winding up of a company, it appears that any business of the company has been carried on, with intent to defraud creditors of the company or any other persons, or for any fraudulent purpose, the Court, on the application of the official liquidator, or the liquidator or any creditor or contributory of the company, may, if it thinks it proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court may direct. On the hearing of an application under this sub-section, the official liquidator or the liquidator, as the case may be, may himself give evidence or call witnesses. (2)(a) Where the Court makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration. (b) In particular, the Court may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company....
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....s of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Court thinks just. (2) An application under sub-section (1) shall be made within five years from the date of the order for winding up, or of the first appointment of the liquidator in the winding up or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer. (3) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable.' In my view, there is no need to treat the present application as one under section 633 of the Act. Depending upon the facts and circumstances of a case and to meet the ends of justice and/or to prevent the abuse of the process of Court, the Court can drop proceedings under sections 542 and 543 of the Act or dismiss such an application against any party to the proceedings at any stage . . . Under section 542 of the Act, the courts may declare that any person, who was knowingly a party to the carrying on of the business of the company, which was carried on with an intent to defraud its creditors or other persons, or was for fraudulen....
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....son is personally found to be liable for misapplication, etc., of the money or property of the company or, otherwise, is guilty of any misfeasance or breach of trust in relation to the company. It is thus clear that, to enable the Court to examine the conduct of an individual director or officer and to pass an effective order to make him personally liable for misapplication, etc., of the money or the property of the company, there has to be positive and specific evidence and pleadings in respect of the individual director of an act of the nature contemplated by the section. In the absence of such specific allegations and positive evidence, it is not possible or proper for the Court to indulge in a fishing or roving enquiry so as to compel the individual director to reimburse and/or compensate the company. The principles with regard to the pleadings and proof are well-settled. There cannot be a general and roving enquiry into the conduct of a person sought to be made liable. As held in Central Calcutta Bank Ltd., In re [1959] 29 Comp. Cas. 437 (Cal.); AIR 1959 Cal. 625, the general principle of liability of joint tort-feasors cannot apply to misfeasance proceedings and, in order th....