1962 (2) TMI 38 - HC - Companies Law

Oppression and mismanagement, Winding up Power of court to assess damages against delinquent directors, etc.

Summary

Issues Involved:
1. Mismanagement by the board of directors.
2. Liability of directors to pay compensation.
3. Investigation into the affairs of the subsidiary company.
4. Sale and purchase of shares.
5. Appointment and tenure of the interim committee of management.

Issue-wise Detailed Analysis:

1. Mismanagement by the board of directors:
The court found that the former board of directors of the British India Corporation Limited (the Corporation) was guilty of mismanagement between 1956 and 1958. However, only Sri Hari Das Mundhra was held responsible for the mismanagement, while other directors were not ordered to pay compensation. The court noted that the affairs of the Corporation were conducted in a manner prejudicial to its interests, bringing the case under clause (a) of sub-section (1) of section 398 of the Companies Act, 1956.

2. Liability of directors to pay compensation:
The appellant, Life Insurance Corporation of India, argued that past directors should pay compensation under section 543 of the Act. The court noted that section 543, as modified by Schedule XI, is applicable in proceedings under section 398. Despite the absence of a separate application under section 543, the court could order a director to pay compensation. The court found Sri Hari Das Mundhra guilty of wilful misconduct and ordered him to pay Rs. 6,65,492 as compensation for the loss incurred due to the sale of Samastipur shares.

3. Investigation into the affairs of the subsidiary company:
The court considered whether it was permissible to investigate the affairs of Messrs. Begg Sutherland and Company (Private) Limited, a subsidiary of the Corporation, in proceedings under sections 397 and 398. The court concluded that the affairs of the subsidiary were relevant under section 398 and section 543 read with Schedule XI, as the subsidiary was treated as a mere department of the Corporation.

4. Sale and purchase of shares:
The court examined the transactions related to the purchase and subsequent sale of shares of the Samastipur Central Sugar Co. Ltd. and the Balrampur Sugar Co. Ltd. It found that H.D. Mundhra had made wrongful gains and was responsible for abandoning a deal that led to the Corporation and the company incurring losses. The court held H.D. Mundhra liable for the difference in prices between the offer made in March 1957 and the actual sale price, amounting to Rs. 6,65,492.

5. Appointment and tenure of the interim committee of management:
The court approved the appointment of an interim committee of management but made modifications, including the removal of Mr. Narendrajit Singh and the appointment of Mr. Jagdish Swarup, advocate, as a member. The tenure of the interim committee was reduced to January 31, 1963, with instructions to call a meeting of the company for electing a new board of directors and handing over charge by February 1, 1963.

Separate Judgments:
Both judges concurred on the findings, but each provided additional reasoning and clarifications on various points of law and fact. The court collectively ordered the removal of the old board of directors, the appointment of an interim committee, and the payment of compensation by Sri Hari Das Mundhra.