2013 (5) TMI 38 - HC - Companies Law

Application u/s 543 Directors of respondent Company abused their fiduciary position breach of trust - non-furnishing the books of account for completing winding up proceeding and other omissions O.L. is of the view that (i) there is a willful suppression of materials which has resulted in non-recovery of amounts due to the company in liquidation and (ii) such amounts required to be recovered from the respondent directors and initiated a proceedings against Ex-Directors under Section 454 (5) & (5A) of the Companies Act. Held that - An application under Section 543 of the Companies Act, 1956 cannot be made in vague terms and it cannot be used as a power to conduct a roving enquiry in these proceedings and to ascertain as to whether there is any act of misfeasance on the part of erstwhile directors. In fact, Section 543 proceedings is only proceedings to quantify loss sustained by the company (in liquidation) on account of acts of misfeasance committed by its ex-directors. Until and unless these ingredients are satisfied and official liquidator arrives at the conclusion that the deeds and acts of ex-directors was of such nature which was not expected of a prudent person and thereby it has resulted in non-recovery of the said amount, fault cannot be laid on the door steps of the ex-directors. For the reasons aforesaid, point Nos.(i) and (ii) hereinabove is to be answered against the applicant-official liquidator and in favour of respondents - ex-directors of the company. Dismissed.

Summary

Issues Involved:
1. Wilful suppression of materials by the directors.
2. Misfeasance and breach of trust by the directors.
3. Recovery of amounts from the directors.

Detailed Analysis:

Issue 1: Wilful Suppression of Materials
The Official Liquidator (OL) alleged that the directors of the company in liquidation, M/s. Zenith Power Constructions (I) Limited, failed to furnish necessary details, resulting in the non-recovery of amounts due to the company. The OL contended that the directors did not provide details of sundry debtors, loans, and advances, which caused a loss of Rs. 45,31,865/- to the company. The OL could only recover Rs. 4,93,492/- from the sundry debtors due to the non-availability of debtor details. The directors argued that they had provided all necessary information and that the OL had not taken adequate steps to recover the remaining amounts. The court found that the OL did not provide sufficient evidence to prove that the directors wilfully suppressed information. The court noted that the OL recovered some amounts based on the information provided by the directors, indicating that the directors had cooperated to some extent.

Issue 2: Misfeasance and Breach of Trust
The OL argued that the directors committed acts of misfeasance and breach of trust by not protecting the company's interests and failing to provide necessary details for recovery. The directors contended that there was no wilful withholding of information and that they had cooperated with the OL. The court examined the evidence and found that the allegations against the directors were vague and not specific. The court emphasized that charges of misfeasance and breach of trust should be clear and specific against each director, not general and en masse. The court concluded that the OL failed to establish any acts of misfeasance or breach of trust by the directors.

Issue 3: Recovery of Amounts from Directors
The OL sought to recover Rs. 32,28,542/- from sundry debtors and Rs. 12,88,742/- from loans and advances. The court found that the OL did not provide sufficient evidence to show that the directors were responsible for the non-recovery of these amounts. The court noted that the OL had recovered some amounts from the sundry debtors based on the information provided by the directors. The court also found that the directors had furnished details of loans and advances, and there was no evidence of wilful withholding of information. The court concluded that the OL failed to prove that the directors were liable for the non-recovery of the amounts.

Conclusion:
The court dismissed the application filed by the OL under Section 543 of the Companies Act, 1956. The court found that the OL failed to establish wilful suppression of materials, acts of misfeasance, or breach of trust by the directors. The court emphasized the need for clear and specific charges against each director and found that the allegations in the application were vague and general. The court concluded that the OL did not provide sufficient evidence to hold the directors liable for the non-recovery of the amounts due to the company.