2012 (4) TMI 459 - HC - Companies Law

Application of official liquidator alleging misfeasance on the part, of the erstwhile Directors of the Company-in-liquidation - held that - KSFC has sold the plant and machinery and the issue is pending, the first respondent who was the Director in any event cannot be held liable for the said auction and the question as to whether the KSFC could have sold the machinery and as to whether it could have been sold for a better value and as to whether the valuation had been appropriately made by the KSFC are issues which would have to be inter se decided between the Official Liquidator and the KSFC - the very same value of the plant and machinery which had been seized by the KSFC and sold cannot be considered as an amount which was due to be realized from the Directors for the misfeasance of not accounting for the said amount, when the facts are clear in the instant case. - Application is dismissed

Summary

Issues: Misfeasance by Directors of Company-in-liquidation, Liability of Directors for Losses, Evidence in Absence of a Respondent, Value of Realizable Assets

The judgment delivered by the High Court pertained to an application filed by the Official Liquidator under Section 543(1) of the Companies Act, 1956 alleging misfeasance by the former Directors of the Company-in-liquidation. The Court noted that one of the Directors had been discharged in previous proceedings as he was not a Director during the relevant period. The focus then shifted to the liability of the remaining Director, who did not appear in the current proceedings. The Court considered the evidence presented by the Official Liquidator's Assistant, which was based on the balance sheet dated 31.03.1992. The claim was for a loss of Rs. 37,68,031 due to unaccounted immovable properties and plant machinery. However, the Court highlighted the absence of evidence from the non-appearing Director, emphasizing the importance of specific allegations in misfeasance cases.

Regarding the liability of the absent Director, the Court examined the proceedings under Section 454 initiated against her in the past. It was noted that she had rectified defects in her statement of affairs, leading to the closure of those proceedings. The Court considered the value of realizable assets indicated as Nil in her subsequent statement of affairs. Despite discrepancies with the balance sheet, the Court accepted the statement due to the Karnataka State Financial Corporation taking possession of assets before the winding-up petition. The Court also mentioned an ongoing appeal related to the sale of plant machinery by the KSFC, indicating that the issue of liability should be resolved separately between the Official Liquidator and the KSFC.

In conclusion, the Court dismissed the application, stating that the absent Director could not be held liable for the value of the plant machinery sold by the KSFC, as the circumstances surrounding the sale were subject to the pending appeal. The Court emphasized that the lack of clarity and ongoing legal issues regarding the asset sale prevented the Director from being held accountable for misfeasance in this specific case.