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TMI Blog1975 (6) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... A point was raised by the learned counsel appearing for some other respondents that this application should not continue in its present form as Haridas Mundhra has since been adjudicated as an insolvent in 1974 and the official assignee should be brought on record. As stated earlier, this application was taken out on November 26, 1963, and Haridas Mundhra did not enter appearance or take any part in the proceedings since its inception and he was only adjudicated an insolvent in 1974. In my opinion, a declaration of insolvency of a director during the pendency of a misfeasance summons is of no consequence j to the hearing of this matter. It is a personal action and/or enquiry against the director for his past act as director of the company for breach of trust, misappropriation and other wrongful conduct and as such his subsequent insolvency cannot protect him from his personal liability and responsibility for committing breach of trust or misappropriation of the company's funds for which this proceeding has been launched long ago. I, therefore, negative this point of demurrer. Another point raised by some of the respondents is that L.R. Josse having died during the pendency of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other directors. In January, 1958, the directors were G.D. Mundhra, M.C. Bagri, R. Daga, T.D. Mundhra and in March, 1958, the directors were R. Daga, T.D. Mundhra, H.D. Mundhra, G.D. Mundhra and S.B. Mohta and the winding-up order was passed on 26th November, 1958. The subscribed capital of the company was one crore of rupees. The directors of the managing agency company, S.B.I.D. Pvt. Ltd., were H.D. Mundhra, chairman, G.D. Mundhra, M.C. Bagri, T.D. Mundhra and M. Sudhani and practically 99 per cent. of shares of S.B.I.D. Pvt. Ltd. were owned by the Mundhras and the largest block was possessed by H. D. Mundhra and for all practical purposes Haridas Mundhra was controlling and was all in all managing S.B.I.D. Pvt. Ltd. with other members of the Mundhra family. In the judge's summons taken out under section 543(1) of the Companies Act, the official liquidator has asked for a declaration that the six directors had misapplied, misappropriated, retained and committed breach of trust in respect of the company's funds and so became liable or accountable for the money and the property of the said company, F. & C. Osler Pvt. Ltd., and were guilty of misfeasance, misappropriation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 23rd May, 1951, 5,900 fully paid-up shares of Brahmaputra Tea Company Ltd. of the face value of GBP5 per share were agreed to be purchased at GBP24 per share, the total value thereof coming to Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five). The said sum was debited from the account of this company and credited to the account of S.B.I.D/Pvt. Ltd., which was under the control of the respondent No. 1, Haridas Mundhra. The said sum was thereafter transferred to the personal account of the respondent No. 1 by the said S.B.I.D. Pvt. Ltd. The said resolution was an effective resolution and was brought in the minute book. This huge sum of Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five) taken out of the company's funds was a total loss to the company and the company bad no benefit of the said sum or the alleged shares. The respondents are liable for the same. The official liquidator has prayed for an order that the respondent-delinquent directors do jointly and severally contribute and compensate to the assets of the said company and do pay to the official liquidator of the said company all such sums as they may be found liable to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Paul, who was the solicitor for Gwaldas Mundhra and Tulsidas Mundhra, is a close relation of Haridas Mundhra and Tulsidas Mundhra. He states in his defence: "Although I was a director, the actual day-to-day work and management of the affairs of the company used to be done by the respondent No. 1 (H. D. Mundhra) alone. I was director in name only. I never had the custody of the books, papers or documents of the company." Thereafter, he has generally denied all other allegations having no knowledge of the same. It is particularly the point of defence of the directors who have put the full blame clearly on the respondent No. 1, Haridas Mundhra. The following issues were raised : 1.Were the respondents or any of them directors of the company as alleged in paragraph 3 of the points of claim ? 2.Have the respondents or any of them misapplied the funds of the company as pleaded in paragraphs 4 and 9 of the points of claim ? 3.Did the respondents invest the sum as pleaded in paragraph 10 of the points of claim knowing that the amount would not be received ? 4.As the respondents or any of them liable for the sum as mentioned in paragraph 11 of the points of claim, spent for the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated, 'This amount being more than two crores is a loss caused to the company by the managing agents and the contributory negligence of the directors. I have no doubt that the directors were culpably negligent in the matter of the funds of the company and their role was that of passive sightseers when the entire share capital of the company together with an equal amount of credit advanced by the third parties were looted before their eyes'." However, the official liquidator strongly relies on this report of late D.N. Guha Roy, the chartered accountant, who was a brother of our ex-colleague, Mr. Justice Guha Roy. This report that was duly signed and proved is admissible under sections 32(2) and 65(g) of the Evidence Act. The report is reliable and dependable according to me. Coming to the issue No. 1, it has been proved and also particularly admitted that the respondents were directors of the company at all relevant times and I answer the issue No. 1 in the affirmative. Now, coming to the issue No. 2 it has been proved in exhibit "002" that the sum of Rs. 16,02,013.97 (Rupees sixteen lakhs two thousand thirteen and paise ninety-seven) was advanced to seven parties and the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson, director, etc., of the company has misapplied, or retained, or become liable or accountable for any money or property of the company or has been guilty of any misfeasance or breach of trust in relation to the company, the court may examine into the conduct of the person, director, etc., and compel him to repay or restore the money or property or any part thereof with interest as the court thinks fit or to contribute such sum to the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the court thinks just. The court can also direct criminal proceeding against the delinquent directors. The two words in the section are important, (1) "appear" and (2) "examine". It is certainly a question of fact, to be determined upon the evidence, whether a director alleged to be liable for misfeasance, had acted reasonably as well as honestly and with due diligence, so that he could not be liable for committing or conniving at fraud. A director may be shown to be so placed and to have been so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognisant of but liable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the acts of those to whom they entrust the management of the affairs of the company and abstain from making all enquiries and recklessly approve of the acts of those in management, they cannot escape liability as their conduct will, in such a case, amount to wilful misconduct or wilful or culpable negligence as in the present case: Central Calcutta Bank Ltd., In re [1959] 29 Comp. Cas.437 (Cal.). (See also Coventry and Dixon's case [1880] 14 Ch D 660 and also 6 Halsburys' Laws of England, page 662, note (c), para. 1225). None of the directors has come to contradict or deny the said report, being exhibit A, the report which has justifiably come to the conclusion that the respondents are liable for deliberate negligence and are clearly guilty of misfeasance. The shares of the company were never delivered to the official liquidator in respect of Osier Properties Ltd. This investment of Rs. 4,90,000 (Rupees four lakhs and ninety thousand) was made in gross negligence without due care and caution and is clearly motivated. The directors, H.D. Mundhra, G.D. Mundhra, and M.C. Bagree, were parties to the resolution. They along with T.D. Mundhra were directors of the managing agents of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such non-delivery though time without number letters were written to them by the official liquidator for such delivery of shares or for explanation and they never replied back or said as to where the shares are. I, therefore, answer issue No. 3 in the affirmative holding that the entire transaction is mala fide on the part of the respondent. Now, coming to the issue No. 4 paragraph 11 of the points of claim which says by a resolution of the board of directors held on the 23rd day of May, 1951, 5,900 fully paid up shares of Brahmaputra Tea Co. Ltd. of the face value of GBP 5 per share were agreed to be purchased @ GBP 24 per share, the total value thereof coming to Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five) which was debited from the account of the company and credited to the account of S.B.I.D. Company under the control of Mundhras as directors. The said money was taken out of the till of the company and the company had no benefit of the said fund and the said amount is a total loss to the said company caused by these directors. Even the shares were not traceable nor the directors came forward to explain the reasons for such non-delivery of shares t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Magistrate by calling handwriting expert after the close of the case, then for other reasons the Division Bench of this court (A.K. Das and K.K. Mitra JJ.) set aside the conviction of Haridas Mundhra and M.C. Bagree. But forgery or no forgery the fact remains that this huge sum of money was allowed to be spirited away from the fund of the company by Haridas Mundhra and M.C. Bagree along with the others who were directors of the company without raising a finger. I, therefore, hold that all the, respondents are fully responsible and are liable to the said loss of the company. H.D. Mundhra, G.D. Mundhra and M.C. Bagree were the directors of the company at the relevant time. T.D. Mundhra was director of the managing agents to whom the money was paid and S.B. Mohta was director at the time of winding up who did not deliver up these shares to the official liquidator and did not give any explanation or take any step to possess these shares which positively proves the mala fide conduct of the respondents. I, therefore, answer issue No. 4 in the affirmative and hold that the respondents are liable for the same. Now, coming to issue No. 5 as it has been held in the case of Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on that day and in the court registers it has also been noted as made on 26th November, 1963. Therefore, I answer issue No. 7 in the negative. Now, coming to the individual responsibilities of the directors as stated by the respondents' lawyers that section 543 should be strictly construed: In re Etic Ltd. [1928] 1 Ch 861 (Ch D). I also agree with the respondent's contention that the onus is on the official liquidator to press the charge of misfeasance : Cavendish Bentinck v. Thomas Fenn [1887] 12 App. Cas. 652 (HL), Official Liquidator v. Raghawa Desikachar [1975] 45 Comp. Cas.136 (SC). I also agree with the view that there should not be any order against the directors en masse. Each charge should be found against the director individually. (Central Calcutta Bank Ltd., In re [1959] 29 Comp. Cas.437 (Cal.)). Now, coming to the responsibility of directors, as has been rightly stated, it is a collective responsibility. The directors of this company were vested with wide powers of control and supervision under clauses 151 and 152 of the articles of association of the company. From these clauses, it appears that the powers to acquire and dispose of properties and power to invest an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has proved his case. I may mention here that an unreported judgment of Pabna Biswas Motor Transport Co. Ltd., by S. C. Ghose J. dated December 13, 1969, was cited before me. It was held there that even auditors' report was sufficient to make directors liable for the results. The report of the auditor goes unchallenged. Considering the entire facts and circumstances of the case, especially because none of the directors came to depose before me to controvert the allegations, I hold each and every respondent of the" company-Haridas Mundhra, M.C. Bagree, Gwaldas Mundhra, T.D. Mundhra and S.B. Mohta-are liable and they must compensate to the company Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five), Rs. 4,90,000 (Rupees four lakhs ninety thousand) and Rs. 10,00,000 (Rupees ten lakhs) and to pay the cost of these proceedings. Now under section 545(1) of the Companies Act it is said : "If it appears to the court in the course of a winding-up by, or subject to the supervision of, the court, that any past or present officer, or any member, of the company has been guilty of any offence in relation to the company, the court may, either on the application of any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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