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TMI Blog1969 (4) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... ing director of the company from 21st March, 1946, to 31st December, 1948. The company is a public company and it has been alleged that, taking undue advantage of his position as its managing director the respondent took and utilised Rs. 2,07,832 for his personal use and thereafter transferred the money in the name of his father, Rameshwar Das Patodia, on 29th April, 1948. It has also been alleged that the respondent took Rs. 19,588-4-6 from the funds of the company. Both the sums were not repaid, and that is why it has been contended that the respondent has misapplied, retained and became liable and accountable for the money of the company. An order for the winding up of the company was made on 9th March, 1960, and it has therefore been prayed that this court should examine into the conduct of the respondent and make the aforesaid order under section 543. The respondent has filed a reply in which he has denied the allegation that he had taken any undue advantage of his position as the managing director of the company. He has stated that the sum of Rs. 2,07,832 was treated as a loan and a lien was created under article 16 of the articles of association of the company which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point for consideration is whether he misapplied, or retained, or became liable or accountable for the sums of Rs. 2,07,832 and Rs. 19,588-4-6 during that period. So far as the sum of Rs. 2,07,832 is concerned, a perusal of article 99 of the articles of association of the company shows that the business of the company was managed by the managing director or directors subject to the control of the board of directors. The respondent was therefore in a position to manage the affairs of the company. The official liquidator has stated that the respondent withdrew a sum of Rs. 1,00,000 from the funds of the company as per entry, exhibit I, and debited the amount to the account of Mahaveer Cotton Spinning and Weaving Mills, Delhi, as per entry, exhibit 2. He has also stated that on 29th April, 1948, the amount due to the company from Mahaveer Cotton Spinning and Weaving Mills, Delhi, was Rs. 1,03,180-12-0 and that it was then transferred to the account of the respondent under entry, exhibit 3. He has made a reference to "khata" entry, exhibit 5, and has stated that the amount due from the respondent in that account on 29th April, 1948, was Rs. 2,07,832, because some other amounts were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice by the company. A perusal of entry, exhibit 3, also shows that the amount was debited to the respondent under his instructions. The respondent has also admitted that he took more money from the company from time to time and that exhibit 5 showing the liability for Rs. 1,03,180-12-0 is correct, and so also subsequent entry, exhibit 7, showing that the liability rose to Rs. 2,07,832 thereafter. It cannot therefore be doubted that the official liquidator has succeeded in proving that the sum of Rs. 2,07,832 was due from the respondent as he had withdrawn various sums of money from the company from time to time. It is not at all in dispute that this amount has not been repaid so far. It has however been argued on behalf of the respondent that it was the business of the company to advance loans to its members and create liens on their shares, and that there is nothing in his conduct to attract section 543 of the Companies Act. This' argument is quite incorrect because a perusal of the memorandum of association of the company shows that it was not the object of the company to advance loans to its members. Moreover, section 86D of the Jaipur Companies Act prohibited the company fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company against entry, exhibit 12, but has stated that he did so as the money was due on account of his commission as managing director. He claims that he was entitled to a commission at the rate of 10 per cent, on the net profits. But he has also admitted that the commission was payable to him after settling the account for the whole of the year. Further, he has admitted that :the final account was not settled up to the date when he withdrew the sum of Rs. 20,000. It is therefore quite apparent that the respondent was not entitled to take the money as it had not fallen due on the date when it was taken. Section 87C of the Jaipur Companies Act, which admittedly governed the matter, provided that the remuneration of the managing agent was to be the sum based on a fixed percentage of the net annual profits of the company and that the net profits were to be calculated after allowing for all the usual working charges, interest on loans and advances, etc., in each year. The respondent could not therefore calculate the remuneration at his own will and pleasure and withdraw it as he pleased. The balance-sheet (exhibit A-6) of the company was not ready until 11th January, 1949, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Point No 2 : The next point relates to the question of interest. The official liquidator has stated that the liability of the respondent in regard to the initial withdrawal of Rs. 1,00,000 stood at Rs. 2,07,832 as per entry, exhibit 7. He has also stated that this khata entry included interest at 6 per cent, per annum.. It is therefore clear that interest at that rate was charged even during the period of the managing directorship of the respondent and there is no reason why it should not be allowed thereafter. So also, when it has been shown that the respondent unjustifiably retained Rs. 19,588-4-6, there is no reason why, in the absence of any evidence to the contrary, he should not be liable to pay interest at 6 per cent, per annum on this amount from the date of the application until realisation. It may be mentioned that section 235 of the Jaipur Companies Act and the Indian Companies Act of 1913 provided for the payment of interest, and so also section 543 of the Companies Act of 1956, and nothing has been shown why the interest should be disallowed in the present case. Point No. 3 : The third point for consideration is whether the present application is not maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on behalf of the plaintiff in the suits in question, ( ii ) the present application is a fresh suit, and ( iii ) it relates to the same cause of action? For reasons to be stated presently, these questions must be answered in the negative. Now a past director is liable for money owed by him to the company. He is also liable in action by the company if he has been negligent or has committed some breach of his duty towards the company: Joint Stock Discount Company v. Brown [1869] LR 8 Eq. 381 and Nant-Y-Glo and Blaina Iron works Company v. Grave [1878] 12 Ch. D. 738 . But, in the normal course, only the company is entitled to sue on any such cause of action, as has been held in Foss v. Harbottle [1843] 2 Hare 461 and Pavlides v. Jensen [1956] Ch. 565 ; [1957] 27 Comp. Cas. 191. Some exceptions have been recognised to this rule but they have not been pleaded or proved in the present case. A perusal of the plaint in the two suits shows that in Civil Suit No. 20 of 1953, the company took the plea that Shyam Sunder Lal Patodia had paid Rs. 1,00,000 to Mahaveer Cotton Spinning and Weaving Mills, Delhi, from the funds of the company on 6th June, 1947, and that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted by the presentation of a plaint." Their Lordships were no doubt considering the question with reference to the provisions of section 3 of the Limitation Act of 1908, but it is quite apparent from their judgment that they took this view on the basis of the general law, for they held that the explanation to section 3 of the Limitation Act was not concerned with the question of what is a suit, and their observation cannot be said to be limited to that section. There is therefore high authority for the view that the word "suit" ordinarily means a civil proceeding instituted by the presentation of a plaint unless of course there is anything repugnant in the subject or the context. In the present case, it cannot be said that there is any such repugnancy so as to exclude the application of the general view of their Lordships. Therefore a proceeding which does not commence with a plaint, and which is not required to be treated as a suit under any other law, is not a "suit" N.K.R.M. Rajagopala Chettiar v. Hindu Religious Endowments Board, Madras [1934] ILR 57 Mad. 271. So when there is no provision in the Companies Act that an application under section 543 would be a "suit", it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Funds Assurance Company [1878] 10 Ch. D. 118. In that case it has further been held that the new rights created by the winding up did not exist before the winding up and could be enforced only under the winding up proceedings. The same view has been taken in In re Whitehouse Company [1878] 9 Ch. D. 595, Burgess's case [1880] 15 Ch. D. 507 and Flitcroft's case [1882] 21 Ch. D. 519. In fact section 543 cannot be said to enable the company to recover from a director or past director a mere monetary claim owed to the company. This is the view taken of the provisions of section 333 of the Companies Act, 1948, in force in England (which is substantially similar to section 543 of our Act) and I may only refer to In re Etic Ltd. [1928] Ch. 861 in this connection. For this reason also, it cannot be said that an application under section 543 is based on the same cause of action. Then there is one other feature which distinguishes the two proceedings. It has been stated regarding the court's discretion under section 333 of the Companies Act, 1948, of England in Palmer's Company Law, twentieth edition, page 575 : "The court is given a discretion, both as to whether or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 9, Civil Procedure Code, within this extended period of limitation, and it cannot be said that the application would have been barred by limitation on account of the expiry of the normal period of thirty days prescribed for it. Two alternative courses were therefore open to the official liquidator : ( i ) he could make an application under section 543 of the Companies Act for recovery of damages from the delinquent past director, or ( ii ) he could apply under order 9, rule 9, Civil Procedure Code, for orders to set the dismissals of the suits aside. It cannot however be doubted that the former was the speedier remedy and the official liquidator cannot be blamed if he chose it in preference to the remedy under order 9, rule 9, Civil Procedure Code. It is not disputed, and is in fact admitted at the Bar, that the suits had not made any progress worth the name in the trial court and their restoration would have led to lengthy trials. That, in turn, would have delayed the winding up proceedings. If therefore the official liquidator preferred the remedy by way of an application under section 543 of the Companies Act, which had the added advantage of providing a longer period of limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, that sub-section (2) of section 543 of the Companies Act provides, inter alia, that an application under sub-section (1) shall be male within five years from the date of the order for the winding up of the company. As has been stated, it is not disputed that order was made on 9th March, 1960, and as the present application was filed on 5th November, 1963, it is undoubtedly within the prescribed period of limitation and the objection to the contrary is quite futile. Finding that the odds were against him, Mr. Bhargava, learned counsel for the respondent, tried to raise the argument that because the Jaipur Companies Act of 1942 and the Indian Companies Act of 1913 were repealed on the coming into force of the Companies Act, 1956, the applicant lost any right he had to make an application under section 235 of the repealed Acts or section 543 of the Companies Act, 1956. The learned counsel made repeated references to section 6 of the General Clauses Act to support his argument. It is however quite unsustainable. No such objection was taken in the reply, and the point was not pressed for consideration when the points for determination were drawn up. Section 3(1)( i ) of the Ind ..... 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