1991 (12) TMI 224 - HC - Companies Law

Issues Involved:
1. Substitution after setting aside abatement.
2. Condonation of delay in filing the application for substitution.
3. Applicability of Section 543 of the Companies Act, 1956.
4. Legal precedents on the continuation of misfeasance proceedings against legal representatives.
5. Duties and responsibilities under Order 22, Rule 10A of the Code of Civil Procedure.

Issue-wise Detailed Analysis:

1. Substitution after setting aside abatement:
The appeals were preferred against an order of substitution after setting aside the abatement. The official liquidator filed a report stating that the delay in filing the application to set aside the abatement and bring on record the legal representatives of the deceased first respondent was neither willful nor deliberate. The court noted that the misfeasance application was based on a special auditor's report, alleging that the first respondent had appropriated large cash and other assets of the company. The first respondent died on July 11, 1973, and no application for substitution was filed until August 29, 1984. The liquidator attributed this delay to the case not being listed earlier and lack of knowledge about the death.

2. Condonation of delay in filing the application for substitution:
The learned company judge condoned the delay, referencing Order 22, Rule 10A of the Code of Civil Procedure, and cited the Supreme Court's decision in O.P. Kathpalia v. Lakhmir Singh, AIR 1984 SC 1744. The Supreme Court in that case allowed substitution despite a six-year delay, as the appellant only became aware of the death of the original landlord through a letter from the pleader. The court found that the delay in the present case was excusable since the official liquidator was not informed of the death by either her counsel or the counsel for the first respondent.

3. Applicability of Section 543 of the Companies Act, 1956:
Section 543 of the Companies Act allows the court to examine the conduct of any person involved in the misapplication or retention of company property and to compel them to repay or restore the money or property. The court reiterated that the liability arising under misfeasance proceedings is based on the principle that a person who has caused loss to the company by an act amounting to breach of trust should make good the loss. The section provides a summary remedy for determining the amount payable by such a person.

4. Legal precedents on the continuation of misfeasance proceedings against legal representatives:
The court referenced the Supreme Court's decision in Official Liquidator v. Parthasarathi Sinha [1983] 53 Comp Cas 163; AIR 1983 SC 188, which held that misfeasance proceedings could continue against the legal representatives of a deceased director. The liability of the legal representatives is limited to the value of the estate of the deceased in their hands. The court distinguished this from the earlier decision in Official Liquidator, Supreme Bank Ltd. v. P. A. Tendolhar [1973] 43 Comp Cas 382; AIR 1973 SC 1104, where the effect of Section 634 of the Companies Act, which makes the relevant provisions of the Code of Civil Procedure applicable to orders passed by the court under the Companies Act, was not considered.

5. Duties and responsibilities under Order 22, Rule 10A of the Code of Civil Procedure:
The court emphasized that Rule 10A was introduced to ensure that information about the death of a party is communicated to the court and the counsel for the plaintiff/appellant. Failure to comply with this rule by the counsel for the deceased respondent can itself provide a cause for condonation of delay. However, the court also noted that if the plaintiff/appellant had knowledge of the death, they are still required to file an application for substitution. The court found that the liquidator did not provide sufficient details about the enquiries made regarding the death of the first respondent, but this was not fatal to the substitution due to the absence of abatement and the duty owed by the counsel for the deceased respondent.

Conclusion:
The court dismissed the appeals, finding no merit in them. The court held that there was no abatement involved and that the delay in filing the application for substitution was excusable. The appeals were dismissed without any order as to costs, and the hearing fee for counsel for the liquidator was fixed at Rs. 1,500. The court reiterated that while proceedings after the order of winding up may be in the nature of execution proceedings, the liability of the deceased director is yet to be determined.

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