2012 (4) TMI 428 - HC - Companies Law

Application filed under Section 543(1) by Official Liquidator alleging misfeasance on the part of the Directors of the Company-in-liquidation Held that - If the question relating to hypothecation of properties belonging to the company in liquidation is to be considered in an appropriate proceedings and if it is not handed over, the same would not make the respondents liable for misfeasance since it is not shown that the respondents have appropriated the said properties to themselves so as to cause loss to the company in liquidation - no specific evidence to indicate the involvement of the respondents prejudicial to the company in liquidation with no other act attributed to them to arrive at a different conclusion -application rejected.

Summary

Issues:
Application under Section 543 (1) of the Companies Act against erstwhile Directors for misfeasance. Allegations of not handing over company assets to Official Liquidator. Disputed claims by respondents. Examination of witnesses and evidence presented. Legal position on strict pleadings and evidence for alleging misfeasance. Claims made under different heads totaling Rs. 1,87,43,810.96 ps. Respondents' objections and contentions. Examination of Upper Division Clerk and erstwhile Director. Reference to previous court order. Detailed analysis of claims made in the application. Respondents' defense regarding property hypothecated to financial institutions. Examination of evidence and cross-examination of witnesses. Lack of specific evidence to prove misfeasance by respondents. Dismissal of the application.

Analysis:
The High Court of Karnataka heard an application under Section 543 (1) of the Companies Act against the former Directors of a company in liquidation for alleged misfeasance. The Official Liquidator claimed Rs. 1,87,43,810.96 ps. under different heads, accusing the Directors of not handing over company assets. The respondents disputed these claims, citing external factors like a Supreme Court order leading to the company's closure. Witnesses were examined, including the Upper Division Clerk and an erstwhile Director, presenting evidence and cross-examinations.

The court considered the legal requirement of strict pleadings and evidence for alleging misfeasance by erstwhile Directors. Reference was made to a previous court order to understand the scope of such proceedings. The claims included unreturned stock, properties, and funds, which the respondents defended by explaining actions taken with financial institutions and Official Liquidator cooperation. Evidence from witnesses and documents were thoroughly analyzed to determine the validity of the claims.

The court noted that there was no specific evidence proving the involvement of the respondents in prejudicial actions against the company in liquidation. The respondents' explanations and evidence presented sufficiently countered the allegations of misfeasance. As a result, the court found no grounds to grant the application and dismissed it, concluding that the allegations did not support the claim of misfeasance.