TaxTMI 
TaxTMI 
2007 (5) TMI 343
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....d up. 3. Two years prior to this date, a moratorium was declared and the competent authority was directed to scrutinize the matter. It was found that the Bank had suffered losses on account of several acts of misappropriation and misfeasance by the Board of Directors of the Bank leading to filing of this Company Petition. The matter is connected with 16 other Company Petitions with regard to misfeasance by the Ex-Directors for various periods beginning from 1984 to December, 1994. 4. Shri Subodh Kumar, learned counsel for Union of India states that respondent-S.P. Mathur was Director of the Bank from 6-4-1984 to 9-2-1992. He along with members of Board of Directors is jointly and severally liable to the loss of Rs. 253.54 lakhs caused to the Government of India and or/to the State Bank of India due to negligence and misfeasance of the respondent, which the respondent must pay to the bank as damages along with interest at the rate of 18 per cent per annum. 5. In a supplementary affidavit filed in connected Company Petition No. 112 of 2000, the loss caused to the bank explained after investigations is stated as follows :- "10A. That till 12-9-1993, the affairs of the Kash....
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.... Act were invoked vide order dated 8-9-1993 which continued till 19-6-1994. During the restriction, the officers of the Reserve Bank of India found that the condition of the Bank was worse and actual loss to the Bank till 31-3-1994 was Rs. 24,08,47,285.82. To prove this fact a copy of the balance sheet and annual report dated 31-3-1994 is being annexed herewith and marked as Annexure No. 2 to this company petition. Ultimately while exercising the powers under section 45(2) of the Banking Regulation Act, the Government of India passed an order of Moratorium on 20-6-1994 suspending the business of the Bank. The said Moratorium continued till 19-12-1994. The Bank was again placed under the Reserve Bank of India's directions from 20-12-1994. Consequently second order of Moratorium was passed on 30-6-1995 which continued till the Bank was financially amalgamated with transferee bank. 10D. That in the year ending on 31-3-1995 (financial year 1994-95) (assessment year 1995-96), the Bank was found to be in loss of Rs. 35,18,82,619. Copy of the Director's Report and balance sheet is being annexed herewith and marked as Annexure No. 3 to this company petition. 10E. That, the financial ....
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....oceedings. Two copies of the chairman's letters dated 30-11-1987, proceedings of the board meeting dated 30-10-1987, chairman's letter dated 12-3-1988 and 21-12-1991. partnership deed and proceeding of the board meeting dated 22-2-1989 and 20-12-1991 and copy of the C. C. ledger extract are annexed in support of the charges. 9. The third transaction is of Viraj Cold Storage and Allied Industries, Misripur to which a term loan of Rs. 30 lakhs was sanctioned on 17-6-1989. The sanction was given in spite of the fact that first term loan of Rs. 10 lakhs given in the year 1985 was in assurance and the unit was incurring loss. Shri Daya Vinod, brother-in-law of Shri P.C. Seth is director of the bank. These bad debts were joint and several liability of the respondent and his successor chairman Shri R.S. Chanana and other board members in its meeting dated 28-8-1989 resolving into loss of Rs. 65.06 lakhs. The sanction letter, brief report of the borrower credit report dated 25-5-1989 and the proceeding of the board meeting dated 28-8-1989 have been annexed in support of the charge. 10. The four transactions is in regard to loss of Rs. 38.87 lakhs on account of loan to Lala Kashinath ....
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.....A. Tendolkar AIR 1973 SC 1104, the question which arose for consideration was as to whether a director having regard to the provisions of section 235 of the Companies Act, committed acts of misfeasance. The said decision ex facie has no application in the present case. Therein, this Court was concerned with a case where the director was held to be not merely cognizant of but guilty of commission of fraud in the conduct of the business of a company even though no specific act of dishonesty was proved against him personally. The duties of a Managing Director are provided for in the Companies Act as also articles of association of the company. He, thus, holds a position of trust vis-a-vis the shareholders of the company. In that case all the directors were found to have committed acts of fraud. The Court took recourse to the provisions of section 45H of the Companies Act wherein special provisions for assessing damages against delinquent directors have been laid down. Even in England where award of exemplary or aggravated damages for insult etc. to a person has now been held to be punitive, exception has been carved out if the injury is due to, 'oppressive, arbitrary or unconstitutio....
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....nstead of standing against it. Therefore the award of compensation for harassment by public authorities not only compensates the individual, satisfies him personally but helps in curing social evil. It may result in improving the work culture and help in changing the outlook. Wade in his book Administrative Law has observed that it is to the credit of public authorities that there are simply few reported English decisions on this form of malpractice, namely, misfeasance in public offices which includes malicious use of power, deliberate maladministration and perhaps also other unlawful acts causing injury. One of the reasons for this appears to be development of law which apart, from other factors succeeded in keeping a salutary check on the functioning in the Government or semi-Government offices by holding the officers personally responsible for their capricious or even ultra vires action resulting in injury or loss to a citizen by awarding damages against them. Various decisions rendered from time to time have been referred to by Wade on Misfeasance by Public Authorities. We shall refer to some of them to demonstrate how necessary it is for our society. In Ashby v. White (1703) ....
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....cannot be treated to be misfeasance or breach of trust. The misfeasance has an element of criminal liability. The proceedings are quasi-criminal in name which may also ultimately make respondent liable to criminal acts. He submits that out of transactions detailed in the Company Petition, when the respondent was director of the bank up to 1992, the current status of loan accounts is as follows :- "1. Lala Kashi Nath Seth Jewellers, Bahadurganj, Shahjahanpur. Loss shown in the petition Rs. 489.40 lakhs. A compromise proposal dated 26-3-2001 pending consideration before the State Bank of India. 2. Dinesh Cold Storage, Shahjahanpur. Loss shown in the Petition - Rs. 133.94 lakhs. Account settled with the State Bank of India under the One Time Settlement Scheme for Rs. 94 lakhs, by its order dated 26-7-2006 of the said amount, Rs. 84 lakhs have been paid and a sum of Rs. 10 lakhs are to be deposited by 2-4-2007. 3. General and Motor Finance Company, Kapsenda. Loss shown in the Petition-Rs. 15.67 lakhs. Present status is not known. 4. Viraj Cold Storage and Allied Industry, Misripur. Loss shown in the Petition-Rs. 65.05 lakhs. Account settled with the State ....
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....each of trust and for recovering Rs. 253.54 lakhs with interest at the rate of 18 per cent from the respondent either individual or jointly along with other directors. The respondent was director of the Bank from 6-4-1984 to 9-2-1992. There is no allegation that he was a proprietor or partner in any of firms to which the loans were advanced. He may have participated in the meetings of the Board of Directors, which regularized and sanctioned the grant of further loans or credit limits. There is however absolutely no allegation that he gained anything out of these transactions, except that he should have been more careful and should have considered the viability of the loans and advances which ultimately resulted into losses to the bank. The respondent may have been a party to the collective decisions of the Board of Directors and taken bad commercial decisions but that alone cannot be taken to have led to the fall of the bank, on account of which it was wound up. The status of these loan accounts shows that loans given to Dinesh Cold Storage Shahjahanpur; Viraj Cold Storage and Allied Industry, Misripur; Lala Kashi Nath Seth Jewellers, Bahadurganj, Shahjahanpur; Seth Jewellers, Okte....