1990 (3) TMI 283 - HC - Companies Law

Summary

Issues Involved:
1. Application for quashing proceedings u/s 542 and 543 of the Companies Act, 1956.
2. Allegations of misfeasance and breach of trust against directors.
3. Specific allegations against respondent No. 4 and his resignation as director.
4. Maintainability of the application under rule 9 of the Companies (Court) Rules, 1959.

Summary:

1. Application for Quashing Proceedings u/s 542 and 543 of the Companies Act, 1956:
Shri P.S. Bedi, respondent No. 4, filed an application under rule 9 of the Companies (Court) Rules, 1959, read with section 151 of the Civil Procedure Code, 1908, praying for quashing proceedings initiated against him u/s 542 and 543 of the Companies Act, 1956.

2. Allegations of Misfeasance and Breach of Trust Against Directors:
The official liquidator filed Company Application No. 311 of 1974 seeking reliefs against the directors for carrying on business with intent to defraud creditors and for misfeasance and breach of trust. The application alleged that directors misapplied and retained company funds and failed to maintain proper books of account.

3. Specific Allegations Against Respondent No. 4 and His Resignation as Director:
Respondent No. 4 argued that he was not involved in the company's management and resigned on October 14, 1967, which was accepted on March 6, 1968. He contended that no prima facie case was made against him and that the proceedings were an abuse of the court process. The court found that the specific allegation regarding car No. RSL 800 was baseless as respondent No. 4 handed it over based on instructions from the joint managing director. The court noted that respondent No. 4 was not in control of the company's affairs and acted honestly and diligently during his tenure.

4. Maintainability of the Application Under Rule 9 of the Companies (Court) Rules, 1959:
The court held that the application was maintainable under rule 9, and it could drop proceedings u/s 542 and 543 against any party to prevent abuse of the court process. It was emphasized that specific allegations and positive evidence are required to hold a director liable for misfeasance or breach of trust.

Conclusion:
The court concluded that there were no specific allegations or evidence against respondent No. 4 to justify proceeding against him. It was deemed an abuse of the court process to continue the proceedings, and thus, the application against respondent No. 4 was dismissed, and the proceedings were dropped.