2012 (5) TMI 36 - 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 - As per the scope of Section 543 of the Act and having noticed the fact that within the period of one year between the two balance sheets dated 31.03.1995 and 31.03.1996, the respondents have made efforts and have recovered the major portion of the amount for unrecovered portion, a satisfactory explanation has been provided as to why the Directors could not recover the said amount - with regard to the adjustments made by the bankers and the landlord from the deposits which were available in the bank the Directors cannot be held directly responsible of the acts in adjusting the amount available with them and the Directors in no way could have prevented the same - with regard to the loans and advances the witness (PW-1) has admitted that these are the statutory deposits and are recoverable and it can still be recovered in accordance with law and the same cannot be considered as an act of misfeasance to hold that the respondents are guilty against Official Liquidator

Summary

Issues: Misfeasance by Directors of Company-in-liquidation

Analysis:
1. The Official Liquidator filed an application under Section 543(1) of the Companies Act, 1956 alleging misfeasance by the Directors of the Company-in-liquidation and sought to recover Rs. 8,53,477 from the respondents.
2. The Company-in-liquidation was ordered to be wound up in 1999, and the Directors' statement of affairs indicated outstanding amounts under sundry debtors, cash/bank balances, and loans and advances which were not accounted for.
3. The respondents disputed the claims of misfeasance, stating they had valid reasons for actions taken to reduce the company's financial burden and make adjustments with bankers. They argued that the application was not sustainable and should be rejected.
4. Evidence was recorded, including witness testimonies and cross-examinations. The Official Liquidator's evidence was based on the balance sheet of 31.03.1996, while the respondents provided explanations for outstanding amounts and adjustments made.
5. The scope of consideration under Section 543(1) was examined, referencing previous judgments. Lack of specific averments regarding misfeasance in the application was noted.
6. The evidence presented by both parties was analyzed to determine the validity of the misfeasance allegations against the Directors.
7. The recovery of outstanding amounts from sundry debtors, bank adjustments, and loans and advances were scrutinized. Efforts made by the Directors to recover amounts within a year were acknowledged.
8. The adjustments made by bankers and landlords were considered beyond the Directors' control, and the inability to prevent such actions was highlighted.
9. The recoverability of statutory deposits and amounts with other entities was discussed, with the conclusion that the Directors could not be held directly responsible for these actions.
10. Ultimately, the court held that the allegations of misfeasance against the respondents were not proven, leading to the dismissal of the application for recovery from the Directors.