1975 (6) TMI 48 - HC - Companies Law

Summary

Issues Involved:
1. Whether the respondents were directors of the company.
2. Whether the respondents misapplied the funds of the company.
3. Whether the respondents invested the sum knowing it would not be received back.
4. Whether the respondents are liable for the sum spent for the purchase of shares of Brahmaputra Tea.
5. Whether the respondents are liable for any amount to the company.
6. Whether the proceedings abated by virtue of the death of respondent No. 5, L.R. Josse.
7. Whether the proceedings are barred by the law of limitation.

Detailed Analysis:

Issue 1: Directors of the Company
It has been proved and admitted that the respondents were directors of the company at all relevant times. The court answered this issue in the affirmative.

Issue 2: Misapplication of Funds
The official liquidator claimed that a sum of Rs. 16,02,013.97 was advanced to various parties negligently and recklessly, resulting in a total loss to the company. The court found that the directors, including H.D. Mundhra, G.D. Mundhra, and M.C. Bagree, were involved in these transactions and held them liable for misappropriation of the company's funds. The court emphasized that directors are trustees of the company and must act prudently. The court answered this issue in the affirmative.

Issue 3: Investment Knowing Amount Would Not Be Received
The respondents invested Rs. 10,00,000 as an unsecured loan to F. & C. Osier (Pakistan) Ltd., fully aware that the amount could not be recovered. The court found this transaction to be mala fide and held the directors liable for the total loss to the company. The court answered this issue in the affirmative.

Issue 4: Purchase of Shares of Brahmaputra Tea
The court examined the resolution to purchase 5,900 fully paid-up shares of Brahmaputra Tea Co. Ltd. for Rs. 18,91,025, which resulted in a total loss to the company. The court found that the directors, including H.D. Mundhra, G.D. Mundhra, and M.C. Bagree, were responsible for this loss due to their negligence and dishonesty. The court answered this issue in the affirmative.

Issue 5: Liability to the Company
The court held that the directors' liability is joint and several, both direct and vicarious. Despite Tulsidas Mundhra joining the board at a later stage, he was held liable due to his involvement with the managing agents. The court answered this issue in the affirmative.

Issue 6: Abatement Due to Death of L.R. Josse
The court ruled that the proceedings did not abate due to the death of L.R. Josse, following precedents from previous court decisions. The court answered this issue in the negative.

Issue 7: Barred by Law of Limitation
The court found that the misfeasance summons was taken out within the limitation period, considering the relevant provisions of the Limitation Act. The court answered this issue in the negative.

Conclusion:
The court found that the directors, Haridas Mundhra, Gwaldas Mundhra, Tulsidas Mundhra, M.C. Bagree, and S.B. Mohta, were guilty of misfeasance and must compensate the company for the losses amounting to Rs. 33,81,025. Additionally, the court directed the official liquidator to prosecute Haridas Mundhra, Gwaldas Mundhra, Tulsidas Mundhra, and M.C. Bagree for breach of trust. The official liquidator was also awarded the cost of the application.