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Issues Involved:
1. Liability for misfeasance or breach of trust. 2. Protection under articles of association. 3. Honest and reasonable conduct under Section 281 of the Indian Companies Act. 4. Barred by limitation. Detailed Analysis: 1. Liability for Misfeasance or Breach of Trust: The appellant, Govind Narayaii Kakade, was found liable for misfeasance or breach of trust as a director of the Sholapur Bank, Limited, in the sum of Rs. 12,000. The main defences were that he was not guilty of any wilful neglect or default and that he acted honestly and reasonably. The history of the bank revealed that it faced financial trouble starting in 1913, leading to its voluntary liquidation in 1917. The firm K. B. Kale and Company, which acted as the bank's managing agents, was primarily responsible for the defalcations. The appellant, although a director, had no connection with this firm and was found guiltless of any fraud. However, he faced charges of wilful negligence. The bank, despite being called a bank, resembled a glorified money lender with limited resources. The directors, including the appellant, failed to exercise effective supervision over the agents, leading to significant financial losses. The directors held only a few meetings annually and did not establish general rules for making advances. The balance sheets for the years 1913 and 1914 were found to be false, showing exaggerated amounts of secured debts and good unsecured debts. 2. Protection Under Articles of Association: The appellant sought protection under articles 98 and 99 of the articles of association, which provided indemnity except in cases of wilful neglect or default. The court held that the appellant's negligence amounted to wilful negligence as he consciously failed to act in a reprehensible manner. The appellant's conduct was compared to the standards set in City Equitable Fire Insurance Co., In re, where it was held that wilful neglect or default involves conscious wrongdoing or reckless disregard for duty. The appellant's lack of attention to the bank's affairs and failure to enforce resolutions or investigate allegations of fraud demonstrated wilful neglect. 3. Honest and Reasonable Conduct Under Section 281 of the Indian Companies Act: The appellant argued that he acted honestly and reasonably and should be excused under Section 281 of the Indian Companies Act. However, the court found that his gross neglect over a long period did not meet the criteria for being excused. The appellant's failure to supervise the agents and prevent fraudulent activities indicated that he did not act reasonably or fairly. 4. Barred by Limitation: The appellant contended that the claim was barred by limitation under Article 36 or alternatively Article 115 of the Indian Limitation Act. The court, however, held that the appropriate Article was 120, which provides a six-year limitation period for suits not specifically provided for. The right to sue accrued when the specific injury (financial loss) became apparent, which was when the balance sheet for the year ending August 31, 1914, was laid before the company on February 28, 1915. The application by the liquidator on November 18, 1920, was within the six-year period, making the claim timely. Conclusion: The appeal was dismissed, and the appellant was held liable for Rs. 12,000. The court emphasized the need for directors to perform their duties diligently and the limitations of indemnity clauses in cases of wilful neglect. The judgment also highlighted the necessity for legislative amendments to address issues related to director liability and indemnity provisions in the Indian Companies Act.
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