1936 (11) TMI 20 - HC - Companies Law

Powers of court to grant relief in certain cases, Winding up Power of court to assess damages against delinquent directors, etc and Winding up Avoidance of transfer, etc., after commencement of

Summary

Issues Involved:
1. Misfeasance or breach of trust by the director.
2. Liability to repay the sum of lb6000.
3. Applicability of Section 281 for excusing the director.
4. Jurisdiction of the court.
5. Limitation period for the application.

Detailed Analysis:

1. Misfeasance or Breach of Trust by the Director:
The Official Liquidator of the Peninsular Locomotive Co., Ltd., filed an application under Section 235 of the Companies Act for compensation for damages suffered by the company due to the payment of lb6000 during the winding up, which was void under Section 227 of the Act. This payment was considered a misfeasance or breach of trust. The director argued that he was not guilty of any misfeasance or breach of trust and that he acted honestly and reasonably, thus seeking to be excused under Section 281.

2. Liability to Repay the Sum of lb6000:
The court found that the director, Mr. Subedar, was responsible for the payment of lb4625 out of the lb6000, as he acted in concert with the other directors and facilitated the transfer of funds from Bombay to London, which made the payment possible. The court held that the payment was not in the ordinary course of business and was void under Section 227. The director's argument that he was merely following instructions from the English Board was not accepted, as he was a director and thus responsible for the company's policy.

3. Applicability of Section 281 for Excusing the Director:
The director sought relief under Section 281, arguing that he acted honestly and reasonably. However, the court found no grounds to excuse him, as the payment was ultra vires and the directors must have known it was unauthorized. The court cited various precedents, including the Neath Harbour case and Masonic General Life Assurance Co. v. Sharpe, to support its decision that the directors were liable for the unauthorized payment.

4. Jurisdiction of the Court:
The court confirmed its jurisdiction over Mr. Subedar, who was residing in India, dismissing his initial contention that the court lacked jurisdiction. The court noted that although it had no jurisdiction over the directors in England, it had jurisdiction over those in India.

5. Limitation Period for the Application:
The court addressed the issue of limitation, determining that Article 120 of the Limitation Act applied, which provides a six-year period. This brought the liquidator's application within time. The court preferred the reasoning in cases like Govind Narayan v. Rangnath Gopal and In the matter of Union Bank, Allahabad, Ltd., over the Lahore High Court's decision in Bank of Multan Ltd. v. Hukum Chand.

Conclusion:
The court held Mr. Subedar liable for one-quarter of the sum of lb4625, as it was a question of damages and he was one of four directors. The court assessed costs at Rs. 500, payable at the rate of 1/6 to the rupee.