2016 (9) TMI 1082 - HC - Companies Law

Default of respondents directors of the company in liquidation - commission or omission and/ or negligence on the part of the directors - winding up proceedings - Held that - The case as laid is based on the report dated 6-10-2008 prepared by the Chartered Accountant on the basis of last balance sheet as on 31-3- 1996 and the last annual return dated 30-9-1996. The said report duly proved in court by the Official Liquidator s evidence indicates that the respondent directors had acted totally against the interest of the company in liquidation and in contravention of the various provisions of applicable laws. They did not even care for the Residuary Non Banking Companies (RBI) Directions, 1987 and as against the capital base of the company to an extent of only ₹ 2,10,000/- collected deposits of huge amounts. The amount received from the depositors have not been accounted for. Thus the respondent directors misappropriated the amounts in the account of the company in eroding up and acted in breach of trust to cause loss to the company in liquidation to their corresponding enrichment/ benefits. The conduct of the respondent directors clearly fall within the definition of misfeasance, malfeasance and breach of trust. Further, from the evidence on record it can be gathered that the deeds and acts of the respondent ex-directors/others were of a nature not expected of prudent persons engaged in the business. On consideration of the pleadings and evidence on record, I am of the considered view that the case of misfeasance, malfeasance and breach of trust is made out against Dev Jeet Nag, Ahnish Kamal Bhatnagar and Yogesh Sharma, the respondents directors of the company in liquidation. Steps be taken jointly and severally for recovery from them of ₹ 1,02,57,288/- along with interest @ 6% per annum effective 17-12-2003 (sixty days following the winding up order dated 17-10-2003) till the date of recovery.

Summary

Issues:
Non-filing of statutory returns by respondent directors; Misfeasance, wrongful retention of company funds and property; Breach of trust under Section 543 of the Companies Act 1956.

Analysis:
The matter involved an application under Section 543 of the Companies Act 1956 regarding the winding up of M/s. Triveni Greenery Finlease (India) Limited. The company, a non-banking finance company, was wound up in 2003, and the respondent directors failed to file necessary statements post liquidation. The Official Liquidator, supported by a Chartered Accountant's report, found discrepancies in the handling of company assets by the directors.

The Chartered Accountant's report highlighted various irregularities, including failure to hand over assets, misappropriation of funds, and breach of trust by the directors. The directors were accused of accepting deposits against regulations, not maintaining records, and causing financial loss to the company. The report quantified the recoverable amount from the directors, totaling to Rs. 1,02,57,288.

The Court, after considering the evidence and legal precedents, found the respondent directors guilty of misfeasance, malfeasance, and breach of trust. The directors were held accountable for the mismanagement of company assets, including misappropriation of funds and failure to comply with statutory requirements. The Court ordered the directors to repay the misappropriated amount along with interest, emphasizing their liability for the financial loss caused to the company.

In conclusion, the Court allowed the application under Section 543 of the Companies Act 1956, holding the respondent directors responsible for their actions that led to misfeasance, wrongful retention of company funds and property, and breach of trust. The judgment highlighted the importance of directors' accountability and adherence to legal obligations in managing company affairs.