1926 (1) TMI 3 - Commissioner - Indian Laws

Summary

Issues:
1. Misfeasance in sanctioning a loan by the directors of a bank.
2. Delegation of powers by the Board to a Committee.
3. Interpretation of Article 86 of the Articles of Association regarding liability of directors.
4. Consistency between Article 86 and Section 235 of the Indian Companies Act, 1913.

Analysis:

The judgment pertains to a case involving allegations of misfeasance against bank directors for sanctioning a loan to an individual who defaulted on repayment. The directors were accused of breaching bank regulations by granting the loan. The Court considered the resolutions passed by the Board of Directors regarding loan approvals, emphasizing the discretion granted to the Board for exceptions. The directors had delegated loan sanctioning powers to a Committee, which included the accused directors. The loan in question was approved by the Committee and subsequently confirmed by the Board. The Court noted that the directors acted in good faith by trusting the Committee's decision, as permitted under the Articles of Association.

Furthermore, the judgment discussed the interpretation of Article 86 of the Articles of Association, which limited the liability of directors for acts or defaults unless willful. The Court cited a previous case to define "willful neglect or default" as requiring knowledge and intention to breach duty. In this case, there was no evidence of willful misconduct by the directors. The Court rejected the argument that Article 86 conflicted with Section 235 of the Indian Companies Act, 1913, stating that the provisions were not inconsistent. The immunity provided under Article 86 applied to misfeasance claims, requiring proof of willful neglect or default for a breach of trust against the directors.

Ultimately, the Court dismissed the application, citing the lack of evidence of willful misconduct by the directors. No costs were awarded as the application was made in good faith by the liquidators to seek a court decision. The concurring judge agreed with the decision to dismiss the application.