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TMI Blog1975 (5) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... of this company and was all in all. According to Mr. Law, Mr. Choudhuri and also other directors are not directly responsible for the alleged act of misfeasance or breach of trust. However, on the points of claim and defence filed by R. Chowdhury the following issues were raised: 1.Whether the respondent No. 3, Ranadeb Choudhuri, barrister-at-law, is liable as a director for the sum of Rs. 83,700 or any part thereof to the company ? 2.Are the directors or any of them liable for the said sum of Rs. 83,700 or any part thereof to the company ? 3.Whether this application is barred by the law of limitation ? and 4.To what relief, if any, is the official liquidator entitled ? I should first decide issue No. 3, i.e. , whether this application is barred by the law of limitation. Mr. Bikash Sen, appearing for the respondent No. 3, says that the order for winding up of this company, National Sugar Mills Ltd., was made by this hon'ble court on 1st February, 1966, and this application for misfeasance was noted as made on 2nd February, 1971. Under section 543(2) it says : "An application under sub-section (1) shall be made within 5 years from the date of the order for winding up . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment was made and/or allowed to be made in complete disregard of the best interests of the shareholders and the company and in violation of the provisions of law and the articles of association of the company. The directors thereby caused a loss to be suffered by the company to the extent of the said sum. 3.The directors wrongfully and illegally paid and/or allowed to be paid a sum of Rs. 3,000 on account of travelling and conveyance expenses to a member of the staff of the said company without any justification whatsoever and for certain unspecified work and thereby causing loss to the said company to the extent of the said sum." One M/s. S.K. Bhattacharyya and Co., auditors, were appointed by this court to investigate the accounts of the said company, National Sugar Mills Ltd. (In liquidation), from 1955 up to the date of the winding up. The said auditors have made a report which says it is an interim report but was ultimately treated to be the final report dated 30th December, 1970, which was tendered by the official liquidator and marked as exhibit A. I must say that the auditors' report is not so exhaustive as it should have been. The auditors should have taken little more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natural to come to the conclusion that the payments have been made to a dummy person unless of course it is proved otherwise." Of course one Mr. Rajendra Lal Dutta, chief accountant of the company, who was called to prove M.N. Mitra's signature wanted to state that there was in fact a person called P. Mitra but I am not satisfied with his evidence as it was plain from his evidence and demeanour that he came to support his ex-employee in any event. The auditor further opined regarding commission for securing unsecured loans and deposits. "I observe that following amounts of commission were paid to different persons for securing finance, unsecured loans, etc. from various persons" and then he gives a list of more than Rs. 52,000 having been paid up to September 30, 1963, as commission for securing unsecured loans and advances. The auditor opines : "I have to state that such type of expenses does not appear to be permissible under the provisions of the memorandum and articles of association of the company and the said payments may, therefore, be deemed to have been made in contravention thereof." The official liquidator has produced before me the various vouchers upon which the cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try and the managing director must have made a personal gain out of these transactions." Coming to the responsibility of the directors, section 543 of the Indian Companies Act gives power to the court to assess damages in the case of delinquent directors. If in the course of winding up of a company it appears that any director has misapplied or retained or has become liable or accountable, i.e. , he cannot properly account for any money or property of the company and appears to be guilty of misfeasance or breach of trust in relation to the company, the court may examine into the conduct of such a director and compel him to re-pay or restore the money or property or any part thereof with interest as the court thinks fit and to contribute such sum of money to the company by way of compensation in respect of such misapplication, retainer, misfeasance, breach of trust as the court thinks fit and proper. It is clearly a question of fact to determine on evidence whether a director alleged to be liable for such misfeasance has acted reasonably as well as honestly and with due diligence so that he could not be held liable for conniving at fraud or misapplication of the fund of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves unfaithful. Directors are trustees of the funds and assets of the company. In order to establish a case of misfeasance, the applicant must prove, ( i ) that there has been a breach of trust, and ( ii ) the breach has resulted in pecuniary loss to the company. An innocent director is not liable for the fraud of his co-director. The general principle of liability of joint tort-feasors cannot apply to misfeasance proceedings. In this particular case, there is no doubt that a sum of Rs. 83,000 and odd has been totally lost to the company without any benefit to the company which directly resulted in the liquidation of the said company. So, there is no reason to doubt that there was a breach of trust by director or directors in respect of this sum and this breach of trust has undoubtedly resulted in pecuniary loss to the company resulting in its liquidation to the great detriment of its shareholders. If the directors acted honestly, they would not have committed any breach of trust and consequently there would not have been any loss to the company. But from the evidence on record as adduced by the official liquidator I am satisfied that the respondent No. 3, Ranadeb Chowdhury, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cas. 382 (SC). Now, the official liquidator restricted his attack only on M.N. Mitra. I can only say that the conduct of some of the other directors, past and present, might not be above board. But, none the less, the official liquidator has neither produced any material or specific evidence against any of them nor has pressed his case or produced any materials against any of the other directors except M.N. Mitra. So, however suspicious I may be in respect of the activities of the past and present directors of the company, I cannot make any order against them. It is alleged that the company secured crores of rupees but none the less went into liquidation because of bad management by these persons, both its past and present directors. The court is powerless unless the official liquidator furnishes materials for enquiry. The official liquidator examined Mr. S.K. Bhattacharjee, the investigating auditor appointed by this court, and Jyotirmoy Ghosh, an employee of the official liquidator who took possession of the books and documents of this company, Adhip Chandra Kar, the solicitor and Nagendra Nath Dutta, the chief accountant of the said company. Mr. Sudhir Kumar Bhattacharjee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors who signified their inability to comply with the same on the plea of very old files not being traceable in the office. As far as possible I made an indirect attempt to ascertain the accuracy or otherwise of the figures contained in the said statement of affairs as made out on behalf of the directors, but has not yet been able to reconcile the variation that has come to my notice However, I am still trying to reconcile the said figures which requires considerable time and searching out various papers and documents relating thereto so as to allay my suspicion as to the genuineness of the figures given in the said statement of affairs on behalf of the directors. My further report will follow as and when I come to a definite conclusion." Needless to say that he did not file any further report. But this statement itself proves the utter negligence of the managing director and the directors in maintaining the proper books of the company which were not maintained or made available to the official liquidator. It is no defence that as all the books are not forthcoming before the investigator, therefore, the directors should not be held liable. If that be so, then the obvious and mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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