1963 (11) TMI 32 - HC - Companies Law

Winding up Power of court to assess damages against delinquent, directors, etc. and Savings of pending proceedings for winding up

Summary

Issues Involved:
1. Misfeasance and Breach of Trust by directors and employees.
2. Examination of Conduct of directors and employees under Section 235 of the Indian Companies Act, 1913.
3. Liability of Legal Representatives of deceased respondents.
4. Limitation Period for filing the application.
5. Responsibility and Negligence of directors and managing director.
6. Assessment of Damages and contribution to the company's assets.

Detailed Analysis:

1. Misfeasance and Breach of Trust:
The liquidator sought to examine the conduct of fourteen respondents, including directors, an auditor, and employees, alleging misapplication or retention of Rs. 4,26,000 due to misfeasance, breach of trust, or fraudulent conduct. The liquidator's case was based on reports by auditors and the Reserve Bank, which highlighted irregularities and discrepancies in the company's accounts.

2. Examination of Conduct under Section 235:
The application was filed under Section 235 of the Indian Companies Act, 1913, read with Section 45H of the Banking Companies Act, 1949. The court examined the conduct of the respondents in relation to the company's affairs. The liquidator's case relied on reports (exhibits A-4, A-9, A-21) and sought to hold the respondents accountable for the alleged financial discrepancies.

3. Liability of Legal Representatives:
The court considered whether proceedings under Section 235 could be continued against the legal representatives of deceased respondents. The legal representatives argued that such proceedings could not be continued against them. The court held that the liability under Section 235 is personal and does not survive the death of the person. Therefore, the application against the legal representatives was dismissed.

4. Limitation Period:
The court examined whether the application was barred by limitation. The winding-up petition was presented on March 13, 1956, and the application was filed on August 27, 1960. The court held that the application was governed by Section 235 of the Indian Companies Act, 1913, and Section 45-O of the Banking Companies Act, 1949. The application was within time for directors but barred by time for other respondents.

5. Responsibility and Negligence of Directors and Managing Director:
The court analyzed the responsibility of directors and the managing director. It was held that the directors failed to exercise due control and supervision over the company's affairs, leading to financial losses. The managing director was found to have acted fraudulently, while the other directors were found grossly negligent. The court emphasized that directors cannot divest themselves of responsibility by delegating duties to the managing director.

6. Assessment of Damages:
The court assessed the damages and held the directors jointly and severally liable to contribute Rs. 2,50,000 to the company's assets. The managing director and other directors were found responsible for the loss due to their failure to provide proper management and supervision. The court provided conditional relief to two directors, Porwal and Kalghatgi, based on their lesser involvement and recent appointments.

Conclusion:
The court concluded that the directors, including the managing director, were responsible for the financial losses due to their negligence and failure to supervise the company's affairs. The application against the legal representatives of deceased respondents and non-director respondents was dismissed. The directors were ordered to contribute to the company's assets to compensate for the loss.