2001 (11) TMI 957 - HC - Companies Law

Summary

Issues:
1. Liability of the respondent under Section 543(1) of the Companies Act.
2. Specific acts of commission and omission by the respondent.
3. Misfeasance and breach of trust allegations.
4. Prima facie case requirement for application under Section 543.
5. Responsibility for National Savings Certificate (NSC) and other financial discrepancies.

Detailed Analysis:

1. Liability of the respondent under Section 543(1) of the Companies Act:
The application was taken out by the Official Liquidator under Section 543(1) of the Companies Act, seeking to declare the respondent liable to pay Rs. 61,36,824.99 with interest. Section 543 allows the court to assess damages against delinquent directors for misapplication, retention, or misfeasance in relation to the company's property. The court emphasized the need for specific acts of commission and omission to be detailed in the application.

2. Specific acts of commission and omission by the respondent:
The court referred to precedent cases, such as Official Liquidator, Karnataka High Court v. R.C. Marathe, which required a detailed narration of specific acts of commission and omission. The court noted that the application must spell out the specific case of misappropriation and quantify the loss to the company. The application in this case alleged that the respondent misapplied and retained company funds, but it lacked specific details of the respondent's tenure and actions.

3. Misfeasance and breach of trust allegations:
The Official Liquidator alleged that the respondent was guilty of misfeasance and breach of trust for failing to deliver National Savings Certificates (NSC) and for not recovering debts and balances. However, the court found that there was no evidence that the respondent was responsible for these actions during his tenure. The respondent was co-opted as a director to meet statutory requirements and provided legal assistance rather than being involved in the company's financial transactions.

4. Prima facie case requirement for application under Section 543:
The court referred to Chamundi Chemicals & Fertilisers Ltd. v. M.C. Cherian, which stated that the court has inherent power to reject an application in limine if no prima facie case is made out. The court found that no prima facie case was established against the respondent, as there was no evidence of transactions or misappropriation during his tenure. The court highlighted that the company was declared sick by the BIFR in 1987, and no transactions occurred from 1990 to 1995 when the respondent was a director.

5. Responsibility for National Savings Certificate (NSC) and other financial discrepancies:
The main contention was regarding an NSC amounting to Rs. 55,150. The court found that there was no evidence that the NSC was encashed during the respondent's tenure. The NSC was reflected in the balance sheet before the respondent's tenure, and the Official Liquidator was responsible for tracing and encashing it. The court held that no prima facie case was made against the respondent regarding the NSC or other financial discrepancies, as these issues predated his tenure.

Conclusion:
The court concluded that no prima facie case was made out against the respondent under Section 543(1) of the Companies Act. The allegations of misfeasance and breach of trust were not supported by specific details or evidence of the respondent's actions during his tenure. Consequently, the company application was dismissed.