2019 (4) TMI 488 - HC - Companies Law

Specific act or act of commission or omission on the part of each Director quantifying the loss to the Company - directors guilty of misfeasance or fraud in terms of Section 543 of the Act of 1956 - Power of Tribunal to assess damages against delinquent directors - HELD THAT - This Court finds that the BIFR had declared the Company in liquidation as a sick unit on 01/08/1994 and had referred the matter to this Court for winding up and an order was passed for winding up of the Company in liquidation on 12/08/1999. The instant company application moved by the Official Liquidator is solely based on the report prepared by the Chartered Accountant dt. 13/07/2004. The Chartered Accountant was examined. Neither in his affidavit nor during the course of crossexamination, he has pinpointed of any particular misfeasance or fraud committed by a particular Director of the Company in liquidation. As noticed, the power under Section 543 of the Act of 1956 is to be exercised by the Court wherein the Court is vested with the jurisdiction to examine conduct of the past or present Director, Manager or any other officer of the Company who is found to be guilty of any misfeasance or breach of trust. Thus, such proceedings have to be treated in the nature of quasi criminal proceedings. Misfeasance is not to be imputed to a Director unless he has dishonestly acted or abstained from acting any conflict with his plain duty. Such allegation must be pointedly put up by the Official Liquidator in the application moved under Section 543 of the Act of 1956. There has to be a positive and specific evidence and pleadings in support of the individual Director of a nature contemplated by the Section. From the documents which have come on record, pleadings of the parties as well as the submissions which have been recorded, this Court has been unable to find a specific allegation as against a particular Director apart from the general allegations of the loss caused to the Company which is difficult to be pinpointed on a particular individual Since there is no detailed narration of a specific act or act of commission or omission on the part of each Director quantifying the loss to the Company nor the Official Liquidator has been able to show any intentional act on the part of a particular Director in causing loss to the Company, merely because of inaction on the part of the Directors as a general allegation, this Court does not find any ground to hold the respondents guilty of misfeasance or fraud in terms of Section 543 of the Act of 1956.

Issues Involved:
1. Liability for compensation or contribution towards assets loss.
2. Liability for compensation or contribution for sold electrical equipment.
3. Liability for compensation or contribution for missing telephones and dialers.
4. Liability for allowing debts to become time-barred.
5. Liability for failing to recover security deposits, earnest money, etc.
6. Liability for loss of plant and machinery.
7. Liability for restoring possession of moulds for plastic parts.
8. Acts constituting misfeasance or breach of trust.
9. Misfeasance in selling assets at lower prices.
10. Directors' action in settling rent and mesne profits.
11. Liability for missing goods post-liquidation.
12. Relief sought.

Detailed Analysis:

Issue 1: Liability for Compensation or Contribution Towards Assets Loss
The court examined the sale of fixed assets by the company on 7th July 1999, which included furniture, fixtures, office equipment, air-conditioners, refrigerators, and electric installations. The sale was conducted without cash payment, and no board resolution authorized the sale. The transaction was deemed void under Section 531 of the Companies Act as it occurred while the winding-up petition was pending.

Issue 2: Liability for Compensation or Contribution for Sold Electrical Equipment
The company sold electrical equipment for ?19,275.00 in cash on 1st April 2000, after the winding-up order. The court noted the absence of details in the voucher and the sale's invalidity post-liquidation.

Issue 3: Liability for Compensation or Contribution for Missing Telephones and Dialers
The company had 93 push-button telephones valued at ?37,200.00, which were missing when the Official Liquidator took possession. The court scrutinized the statement of affairs but found no specific evidence of misfeasance.

Issue 4: Liability for Allowing Debts to Become Time-Barred
The court found that sundry debtors' balances totaling ?2,69,955.87 had become time-barred under the Limitation Act, 1908, due to the ex-directors' failure to obtain balance confirmations or file recovery suits.

Issue 5: Liability for Failing to Recover Security Deposits, Earnest Money, etc.
The court examined the list of loans and advances, noting that the company failed to recover ?2,03,823.00 from various parties, including government departments, due to lack of effort by the ex-directors.

Issue 6: Liability for Loss of Plant and Machinery
Certain plant items were shown as lying with third parties and were not handed over to the Official Liquidator. The court noted the ex-directors' partial compliance but highlighted missing plastic moulds and other items.

Issue 7: Liability for Restoring Possession of Moulds for Plastic Parts
The court found that moulds for plastic parts were not returned by the third parties or ex-directors, despite notices from the Official Liquidator.

Issue 8: Acts Constituting Misfeasance or Breach of Trust
The Chartered Accountant's report did not pinpoint specific acts of misfeasance or fraud by any particular director. The court emphasized the need for positive and specific evidence to establish misfeasance or breach of trust.

Issue 9: Misfeasance in Selling Assets at Lower Prices
The court found no valuation report to show the correct value of goods sold. The sale was conducted without tender or valuation, benefiting particular creditors, thus violating Section 531 of the Companies Act.

Issue 10: Directors' Action in Settling Rent and Mesne Profits
The court examined the settlement with the landlord, which wiped out a liability of over ?10 lakhs by handing over furniture and fixtures. The court noted the lack of board resolution and the questionable sale value.

Issue 11: Liability for Missing Goods Post-Liquidation
The court found that some finished goods were missing when the Official Liquidator took possession. The ex-directors denied liability, citing the Official Liquidator's control over the factory premises.

Issue 12: Relief Sought
The court concluded that the Official Liquidator failed to provide specific evidence of misfeasance or breach of trust by individual directors. The general allegations and lack of detailed narration of specific acts led the court to dismiss the application.

Conclusion:
The court dismissed the company application, finding no specific evidence of misfeasance or breach of trust by the ex-directors. The general allegations and lack of detailed narration of specific acts did not meet the legal requirements under Section 543 of the Companies Act, 1956.

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