1966 (1) TMI 45 - 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. Whether the misfeasance proceedings could be continued against the legal representatives of the deceased respondents.
2. Whether the application filed by the official liquidator was barred by time against respondents Nos. 8 to 14.
3. Whether the directors were liable to contribute to the assets of the bank.
4. The extent of liability of each director.
5. Whether the application was barred by limitation.
6. The appropriate standard of care required from the directors.
7. The responsibility of the managing director for the losses.

Detailed Analysis:

1. Continuation of Misfeasance Proceedings Against Legal Representatives:
The learned company judge held that the misfeasance proceedings could not be continued against the legal representatives of the four deceased respondents. Consequently, the application was dismissed as against those legal representatives.

2. Application Barred by Time Against Respondents Nos. 8 to 14:
The learned company judge held that the application filed by the official liquidator was barred by time against respondents Nos. 8 to 14, who were not directors of the bank. However, it was within time against respondents Nos. 1 to 7, who were the directors. Consequently, the application against respondents Nos. 8 to 14 was dismissed as being barred by time.

3. Directors' Liability to Contribute to the Assets of the Bank:
The learned company judge directed respondents Nos. 2, 3, 5, 6, and 7 to contribute jointly and severally a sum of Rs. 2,50,000 to the assets of the bank in winding up, with interest thereon at six percent per annum from the date of the order till payment. Specific relief was granted to respondents Nos. 6 and 7 if they contributed Rs. 15,000 each within three months from the date of the order.

4. Extent of Liability of Each Director:
The judgment detailed the roles and responsibilities of the directors and the managing director. The directors were found to have failed in their duty of providing for good and efficient management of the affairs of the company. The managing director was found to be responsible for the losses due to his lack of supervision and control over the bank's employees.

5. Application Barred by Limitation:
The contention regarding the application being barred by limitation was addressed by referring to section 235 of the Indian Companies Act, 1913, and section 45-O of the Banking Companies Act, 1949. The court concluded that the application was within time as against the directors under the extended period of limitation provided by section 45-O (2) of the Banking Companies Act.

6. Appropriate Standard of Care Required from the Directors:
The court examined the extent of the responsibility of the directors under law, referring to various judgments. It was held that the directors were not bound to give continuous attention to the affairs of the bank but were expected to exercise supervision and control over the managing director. The directors were entitled to trust the managing director until there were grounds for suspicion.

7. Responsibility of the Managing Director for the Losses:
The managing director was found to be responsible for the losses due to his failure to exercise proper control and supervision over the staff of the bank. The court fixed the liability of the managing director at Rs. 73,500, considering his admissions and the evidence presented.

Conclusion:
The appeals were allowed in part, modifying the order of the learned company judge. The court directed specific contributions to the assets of the company in winding up from the respondents, with interest at six percent per annum from the date of the order till payment. The liability of respondents Nos. 6 and 7 was limited to Rs. 10,000 and Rs. 5,000 respectively, while the liability of the managing director was fixed at Rs. 73,500. Respondents Nos. 6 and 7 were entitled to a refund of any excess amounts paid. The parties were directed to bear their own costs in the appeals.