1970 (9) TMI 79 - HC - Companies Law

Summary

Issues Involved:
1. Substitution of legal representatives in misfeasance proceedings under Section 543 of the Companies Act, 1956.
2. Applicability of Section 543 to legal representatives of deceased directors.
3. Limitation period for misfeasance proceedings.
4. Nature and scope of misfeasance under Section 543.
5. Applicability of Civil Procedure Code provisions to misfeasance proceedings.

Detailed Analysis:

1. Substitution of Legal Representatives in Misfeasance Proceedings:
The primary issue was whether the legal representatives of a deceased director could be substituted in ongoing misfeasance proceedings. The court held that the substitution was permissible. The judgment emphasized that the liquidator's right to proceed against the legal representatives survives, subject to the limitation that any order for repayment or restoration would be limited to the assets of the deceased delinquent officer.

2. Applicability of Section 543 to Legal Representatives:
The court examined whether Section 543 of the Companies Act, 1956, which deals with misfeasance proceedings, could be applied to the legal representatives of a deceased director. The court noted that Section 543 does not create a new right but provides a summary procedure for enforcing existing rights. It was held that the section deals with breaches of fiduciary duty, and the cause of action survives the death of the director. The court concluded that the legal representatives could be substituted in the proceedings.

3. Limitation Period for Misfeasance Proceedings:
The court addressed the issue of limitation, noting that the application under Section 543 must be made within five years from the date of the winding-up order, the first appointment of the liquidator, or the misapplication, retainer, misfeasance, or breach of trust, whichever is longer. In this case, the winding-up order was made on January 8, 1958, and the application was made on January 2, 1963, within the permissible period.

4. Nature and Scope of Misfeasance under Section 543:
The court elaborated on the nature of misfeasance, stating that it involves an act in the nature of a breach of trust that results in actual loss to the company. The court cited various authorities to support the view that misfeasance proceedings are aimed at restoring the company's lost assets due to the directors' breaches of fiduciary duty. The court emphasized that the section provides a summary mode of enforcing rights that could otherwise be enforced through ordinary legal proceedings.

5. Applicability of Civil Procedure Code Provisions to Misfeasance Proceedings:
The court discussed the applicability of certain provisions of the Civil Procedure Code (CPC) to misfeasance proceedings. It was noted that the provisions of Order 22, Rule 1 of the CPC, which state that the death of a plaintiff or defendant does not cause the suit to abate if the right to sue survives, should be applied to misfeasance proceedings under Section 543. The court referenced the Bombay High Court's decision in Vadilal Chatrabhuj Gandhi v. Thakorelal Chimanlal Munshaw, which held that misfeasance proceedings are similar to suits and fall within the scope of Section 141 of the CPC.

Conclusion:
The court ordered the substitution of the legal representatives of the deceased director in the ongoing misfeasance proceedings, limited to the assets of the deceased in their hands. The court also granted the official liquidator's application for other incidental and ancillary reliefs, with costs to be borne from the assets of the company in liquidation.