1970 (9) TMI 59 - HC - Companies Law

Summary

Issues Involved:
1. Liability of directors for malfeasance and misfeasance.
2. Assessment of damages.
3. Apportionment of liability among directors.
4. Evidence of company operations post-partition.

Detailed Analysis:

1. Liability of Directors for Malfeasance and Misfeasance:
The judgment addresses a petition filed under Sections 542 and 543 of the Companies Act, 1956, alleging malfeasance and misfeasance by three directors of the company. The directors, who were closely related, were found to have managed the company and its assets without proper accounting. The company judge fixed their liability at Rs. 26,600, with varying amounts for each director. The directors' plea that the vehicles were taken to Pakistan during communal disturbances was rejected due to lack of evidence.

2. Assessment of Damages:
The court assessed the damages using a "rule of thumb" due to the unavailability of company books. The vehicles, which were purchased from the U.P. Government and fitted with gas plants, were sold, and the proceeds were unaccounted for. The judge adopted a low measure of Rs. 500 to Rs. 1,000 per vehicle, considering them as junk, to assess the sale proceeds and profits. This approach was seen as lenient but necessary due to the lack of better data.

3. Apportionment of Liability Among Directors:
The judgment discusses the apportionment of liability among the three directors. The company judge made Mulkh Raj and Dewan Chand liable for Rs. 10,000 each and Gian Chand for Rs. 6,600. However, the court held that the directors were jointly and severally liable for the entire amount, as they acted in concert and were entrusted with the company's assets. The principle of joint and several liability was emphasized, drawing from the precedent in Peninsular Locomotive Co. Ltd. v. H. Langham Reed.

4. Evidence of Company Operations Post-Partition:
The directors claimed that the vehicles were taken to Pakistan, but the court found no evidence to support this. Evidence showed that taxes were paid on the company's vehicles for years after partition, and the vehicles were operational. The directors failed to produce evidence to account for the vehicles, leading the court to conclude that the company continued its operations post-partition.

Conclusion:
The court dismissed the appeal by the directors and partly allowed the cross-appeal by the official liquidator and judgment-creditor, making the directors jointly and severally liable for Rs. 26,600. The judgment emphasizes the directors' fiduciary duty and their failure to account for the company's assets, leading to their liability for damages.