2007 (5) TMI 343 - HC - Companies Law

Summary

Issues Involved:
1. Initiation of proceedings u/s 45, 45H(2), and 45L(4) of the Banking Regulation Act, 1949 read with section 543 of the Companies Act, 1956.
2. Allegations of negligence, misfeasance, and breach of trust against the respondent.
3. Specific transactions leading to alleged losses.
4. Legal precedents and arguments presented by both parties.
5. Final judgment on the liability of the respondent.

Summary:

1. Initiation of Proceedings:
The proceedings were initiated u/s 45, 45H(2), and 45L(4) of the Banking Regulation Act, 1949 read with section 543 of the Companies Act, 1956 for recovery of Rs. 253.54 lakhs along with interest from the respondent, S.P. Mathur, the Ex-Director of Kashinath Seth Bank, for negligence, misfeasance, and breach of trust causing mismanagement and losses to the bank.

2. Allegations of Negligence, Misfeasance, and Breach of Trust:
The petitioner alleged that the respondent, along with other directors, was jointly and severally liable for the loss of Rs. 253.54 lakhs due to negligence and misfeasance, which the respondent must pay to the bank as damages along with interest at the rate of 18% per annum. The allegations included several acts of misappropriation and misfeasance by the Board of Directors leading to the bank's losses.

3. Specific Transactions Leading to Alleged Losses:
- Dinesh Cold Storage: A term loan of Rs. 28 lakhs was sanctioned despite the unit's valuation being significantly lower.
- General and Motor Finance Co.: The limit was enhanced from Rs. 5 lakhs to Rs. 15 lakhs within five months, involving a partner who was also a board member.
- Viraj Cold Storage and Allied Industries: A term loan of Rs. 30 lakhs was sanctioned despite previous loans being in arrears.
- Lala Kashinath Seth Jewellers: A Cash Credit Limit of Rs. 25 lakhs was sanctioned without proper appraisal and collateral security.

4. Legal Precedents and Arguments:
The petitioner relied on several judgments to support the claim that directors acting recklessly without statutory care constitute misfeasance. The respondent's counsel argued that there was no personal gain or retention of funds by the respondent, and the directors' lack of prudence alone does not amount to misfeasance or breach of trust.

5. Final Judgment:
The court found no evidence that the respondent had misapplied, misappropriated, or committed any misfeasance and breach of trust. The respondent's participation in collective decisions of the Board of Directors, which led to bad commercial decisions, did not establish individual gain or retention of funds. The court dismissed the Company Petition against the respondent, S.P. Mathur, concluding that the directors who sanctioned the loans cannot be held responsible for damages in the misfeasance proceedings.