2014 (2) TMI 1360 - HC - Companies Law

Whether the ex-directors of a company in liquidation can be held accountable for the receivables of the company that can't be recovered by the Official Liquidator for want of requisite information and the complete records of the company? - HELD THAT - In the present case, there is no allegation that the funds of the company in liquidation have been misapplied or retained by the applicant. The only ground on which a claim of compensation has been made is that the applicant is guilty of misfeasance or breach of trust in relation to the company in liquidation - In order to sustain the present claim against the applicant, it would be essential to show that the applicant was guilty of misfeasance or breach of trust. The examination of the conduct of the applicant must indicate that the applicant has committed a breach of his duty and as a result thereof, a loss has been caused to the company. In the present case, the claim for compensation is premised on a breach of the obligation to furnish a complete and accurate Statement of Affairs and providing the necessary documents, required for recovering the money due to the company in liquidation, to the Official Liquidator - A Director is placed in a fiduciary position to that of a company and, therefore, it is the duty of a Director to ensure that the assets of the company are preserved and protected. It is the duty of a Director to ensure that the affairs of the company are conducted in a manner so as to comply with all laws and for the benefit of the company. Given the allegations in the present case, it is not necessary that any separate and specific allegation be made against the applicant since the liability is sought to be imposed on the applicant on account of his being a Director of the company at the relevant time. In the present case, the company itself has accepted that the applicant had tendered his resignation and an affidavit to this effect was placed on record much prior to the Official Liquidator being appointed as a Provisional Liquidator. Thus, there can be no doubt that the applicant had communicated his unequivocal intention to relinquish his office as a Director of the company. In view of the settled law that, unless articles provide otherwise, the acceptance of resignation submitted by a Director is not necessary for the same to take effect, it is clear that the applicant had demitted office as a Director much prior to the Official Liquidator being appointed as a Provisional Liquidator. The present application is allowed and it is clarified that the applicant is not required to deposit 50% of the sum of ₹ 9.23 lacs as directed by the order dated 07.11.2012. List on 30.04.2014.

Summary

Issues Involved:
1. Liability of ex-directors for company's unrecovered receivables.
2. Whether the applicant was a director at the relevant date under Section 454(8) of the Companies Act, 1956.
3. Obligation to file a complete Statement of Affairs and provide necessary documents to the Official Liquidator.

Detailed Analysis:

1. Liability of Ex-Directors for Company's Unrecovered Receivables:
The principal controversy revolves around whether ex-directors of a company in liquidation can be held accountable for the receivables that the Official Liquidator cannot recover due to lack of requisite information and complete records. The court acknowledged that the Official Liquidator had been unable to recover a sum of Rs. 9.23 lacs because the ex-directors failed to provide necessary information. It was argued that the liability imposed on only two ex-directors was arbitrary, especially when other directors, like Mr. Sugani, who were also involved in the company's affairs, were not held accountable.

2. Whether the Applicant was a Director at the Relevant Date:
The applicant contended that he had resigned as a director on 31.03.2008, well before the appointment of the Provisional Liquidator on 15.01.2010. The court examined whether the resignation needed to be accepted by the company's board or filed with the Registrar of Companies to be effective. It was concluded that a director's resignation is a unilateral act and becomes effective upon communication, unless otherwise specified in the company's Articles of Association. The court found that the applicant had communicated his resignation unequivocally and thus was not a director on the relevant date.

3. Obligation to File a Complete Statement of Affairs:
The court noted that under Section 454 of the Companies Act, 1956, directors on the relevant date are required to file a Statement of Affairs. The applicant argued that he had no control over the company's records post-resignation and thus could not be held liable for the incomplete Statement of Affairs. The court agreed, stating that the applicant had no obligation to ensure the submission of complete records since he had resigned before the relevant date.

Conclusion:
The court concluded that the applicant was not liable to deposit 50% of the Rs. 9.23 lacs as he was not a director on the relevant date. The court emphasized that a director's resignation does not require acceptance by the board or filing with the Registrar to be effective. The Official Liquidator's claim for compensation based on the assumption that the applicant was a director on the relevant date was found to be erroneous. The application was allowed, and the applicant was not required to deposit the sum as previously directed. The Provisional Liquidator was instructed to file a fresh status report within eight weeks.

Directions:
The Provisional Liquidator was directed to file a fresh status report within eight weeks, and the matter was listed for further hearing on 30.04.2014.