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TMI Blog1961 (12) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten statements to the several allegations made. As many as ten issues were framed including those relating to the sale of the machinery, withdrawal of the amounts an account of salary and covering the various points referred to in the parties' pleadings. The parties produced a fairly voluminous evidence in support of their respective cases. During the course of the arguments, Mr. D. N. Awasthy raised an objection which was of a preliminary character. He contended on behalf of his clients that proceedings under section 45H of the Banking Companies Act were not competent because the condition precedent was that an application is made to the High Court under section 543 of the Companies Act, 1956, against directors and other persons specified therein. Mr. Awasthy maintained that there was no reference whatever in this application to section 543 of the Companies Act and that it was in the main an application for contempt of court. Mr. Hem Raj Mahajan, after taking an opportunity to consider the objection raised, has filed an application purporting to be under. Order VI, rule 17, and section 151 of the Civil Procedure Code. His contention was that when the application was styled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act will be recorded. Further arguments will be heard after the conclusion of the additional evidence of these three respondents. [On the application coming on for hearing on the adjourned date, the court passed the following order :] My order dated April 28, 1961, may be read as part of this order. By that order I had allowed the official liquidator to amend the plaint by indicating in the heading that it was also under section 543 of the Companies Act, 1956. I had also directed that the requisite court-fee, which was required in addition, may also be paid. An opportunity was given to respondents Nos. 2, 3 and 5 that in case they desired to lead any further evidence they could do so, but no further evidence has been led in this case. The present petition is now under section 543 of the Companies Act, 1956, on behalf of the First National Bank Limited, in liquidation, through the official liquidator and is against eight respondents. The first respondent was the manager at the central office of the bank at Delhi, and respondents Nos. 2 to 6 were the directors. Respondent No. 7 is the purchaser of the property which was mortgaged with the bank by respondent No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of between the four directors, the manager and their friends between 23rd March, 1957, and 1st April, 1957, with the result that only a sum of Rs. 1,811.62 was left in the said account when it came effectively under the control of the official liquidator. **** Respondent No. 7 is Surinder Kumar Raheja. He denied knowledge of any conspiracy between other respondents and claimed himself to be a transferee for value in good faith and without notice of the mortgage in the bank's favour. He further stated that he was not aware of the actual circumstances preceding the sale and that he had purchased a second hand, incomplete, and defective machinery in due course of business on the basis of information he got from an advertisement in the columns of the Hindustan Times Weekly, New Delhi, dated December 18, 1955. Respondent No. 8 did not file any written statement. The pleadings of the parties gave rise to the following issues: (1)Has the compromise been effected by the respondents ? (2)Whether the compromise was in accordance with law ? (3)Whether the sale of the machinery for Rs. 6,500 is void ? **** (8)Whether respondent No. 7 purchased the machinery in good fait ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of provisional liquidators has to be in his custody. Section 457(3) provides that in a winding up by the court the powers exercisable by the liquidator are subject to the control of the court. On the appointment of a liquidator the powers of the directors come to an end. Lord Watson in Gosling v. Gaskkell [1897] AC. 575. 587 remarked : "The company, when in liquidation, although by no means defunct, could no longer act by its directors, and appoint or employ agents capable of binding the corporation or its estate, and was represented by the liquidator who could not himself carry on its business without the special leave of the court." The directors' powers cannot be exercised once the property and the estate of the company come under the custody of the court. So long as the order of the appointment of the provisional liquidator is operative, the powers of the directors must remain in abeyance (vide Shree Trj Protap Textile Mills v. Granaries Ltd. [1961] 31 Comp. Cas. 610 ). The result, therefore, is that all dispositions of the property of the company made between the date of the presentation of the petition for the winding up and they winding up order, unless o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 543(1) are not attracted to the facts of this case. It is said that neither has there been breach of trust nor have the transactions resulted in any loss to the bank. Section 543(1) runs as under: " 543. Power of court to assess damages against delinquent directors etc. (1) If in the course of winding up a company, it appears that any person who has taken part in the promotion or formation of the company, or any past or present director, managing agent, secretaries and treasurers, manager, liquidator or officer of the company (a) has misapplied or retained, or become liable or accountable for any money or property of the company ; or (b) has been guilty of any misfeasance or breach of trust in relation to the company; the court may, on the application of the official liquidator, of the liquidator, or any creditor or contributory, made within the time specified in that behalf in sub-section (2), examine into the conduct of the person, director, managing agent, secretaries and treasurers, manager, liquidator officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the court thinks just, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h an officer has been guilty of a breach of duty as officer which has caused pecuniary loss to the company, by misapplication of its assets for which he might have been sued." The burden of proof of misfeasance is of course on the applicant. My attention has been drawn to the following observations of James L. J. in In re Canadian Land Reclaiming and Colonizing Co. [1880] 14 Ch. D 660, 670. "In order to enable the court to apply that section, the liquidator, as it seems to me, must shew something which would have been the ground of an action by the company if it had not been wound up. I am of opinion also that the word ' misfeasance' in that section means misfeasance in the nature of a breach of trust, that is to say, it refers to something which the officer of such company has done wrongly by misapplying or retaining in his own hands any moneys of the company, or by which the company's property has been wasted or the company's credit improperly pledged. It must be some act resulting in some actual loss to the company." These observations have been followed by courts in India. On the facts of this case, respondent No. 1 cannot successfully derive any benefit from the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank's moneys by Om Parkash Sharma. To sum up, I find that the four directors and Om Parkash Sharma were aware of the appointment of the provisional liquidator before 25th March, 1957, and also of the compromise with respondent No. 8 for Rs. 8,000. The four directors and Om Parkash Sharma were liable for acts of misfeasance, but I do not propose taking any action against the four directors as they have refunded the moneys which were wrongly retained by them. So far as Om Parkash Sharma, respondent No. 1, is concerned, I direct him to refund the sum of Rs. 1,109-10-9 which was wrongly Withdrawn and retained by him and his act amounts to misfeasance. By this act of misfeasance he has caused loss to the bank for which he must compensate. I do not pass any order against the other respondents. The ninth issue raises the question whether the respondents are guilty of contempt of court. The case of the official liquidator in regard to this issue is that respondent No. 1, Om Parkash Sharma, in conspiracy with respondents, Raghunath Sahai, Surinder Kumar Marwah, Balwant Chand Nayar, Bisheshwar Nath Kochhar and Pakhar Singh Gill, had opened, on 20th March, 1957, without any authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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