2002 (4) TMI 868 - HC - Companies Law

Summary

Issues Involved:
1. Misfeasance, breach of trust, breach of duty, and gross negligence by directors.
2. Liability for misapplication or retention of company money or property.
3. Necessity of inquiries and accounts to ascertain sums liable for contribution.
4. Joint and several contribution to company assets by directors.
5. Payment of costs and incidental expenses by respondents.

Summary:

1. Misfeasance, Breach of Trust, Breach of Duty, and Gross Negligence by Directors:
The Official Liquidator initiated proceedings u/s 543(1) of the Companies Act, 1956, seeking declarations that the directors were guilty of misfeasance, breach of trust, breach of duty, and gross negligence in managing the company's affairs. The Chartered Accountants' report indicated that the company incurred losses due to poor debtors management, high interest and production costs, and lower sales pricing. However, the court emphasized that specific acts of commission or omission by each director must be pointed out and quantified to establish liability. The Supreme Court in *Official Liquidator v. Raghava Desikachar* and *Official Liquidator, Supreme Bank Limited v. P.A. Tendolkar* highlighted the necessity of detailed narration of specific acts and quantification of loss for misfeasance charges.

2. Liability for Misapplication or Retention of Company Money or Property:
The Chartered Accountants' report did not identify any specific act of misapplication or retention of company money or property by individual directors. The court noted that the report only suggested the possibility of misfeasance or breach of trust without concrete evidence. Therefore, the court concluded that the provisions of section 543(1) were not applicable in the absence of specific and cogent material.

3. Necessity of Inquiries and Accounts to Ascertain Sums Liable for Contribution:
The court directed the liquidator to identify specific instances of misfeasance. The Chartered Accountants examined the company's records but did not provide definitive findings of misfeasance. The court held that the onus of proving misfeasance lies with the Official Liquidator, who must provide reliable and specific evidence of misconduct.

4. Joint and Several Contribution to Company Assets by Directors:
The court found no evidence to support the claim that the directors should jointly and severally contribute to the company's assets. The Chartered Accountants' report did not establish any wrongful gain by the directors or specific acts leading to the company's loss.

5. Payment of Costs and Incidental Expenses by Respondents:
The court rejected the application and discharged the notice, stating that the Official Liquidator failed to discharge the onus of proving misfeasance. Consequently, there was no order as to costs.

Conclusion:
The court rejected the application for lack of specific evidence of misfeasance, breach of trust, or gross negligence by the directors. The Chartered Accountants' report did not provide concrete findings to support the allegations, and the Official Liquidator failed to meet the burden of proof required u/s 543(1) of the Companies Act, 1956.