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TMI Blog1982 (4) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... that he was not liable to pay the suit claim, that during the relevant period, he and the staff working under him were physically prevented from entering the mills by the workers, that the stock was not verified in the presence of the defendant, that there was no shortage, and that even if there was any, he was not liable to make good the loss. He also contended that the weight of cotton yarn was subject to variation on account of the climatic factors, and, therefore, the shortage in this case can be attributed to the climatic changes. The trial court held that the defendant was liable to pay the amount, and decreed the suit with costs. On appeal by the defendant, the lower appellate court also held the defendant liable to make good the loss arising out of the shortage of yarn. At the appellate stage, the defendant filed an application, LA. No. 1588 of 1974, under section 633 of the Companies Act, alleging that he was physically prevented from entering the mills, that the watchman was having the keys and that no one was allowed to enter the mills, that he could not be expected to check the departments at every stage which was humanly impossible, that he had to accept the statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mills could not have been removed from the mills during the period from November, 1970, to February, 1971. According to the appellant, there was a possibility of pilferage of yarn from the mills during the period when the workers were on strike, and the shortage might also be due to the climatic changes. The trial court had held that even if there was any pilferage of yarn from the mills, as managing director he should have given a complaint to the police. Since he has not given any complaint as regards pilferage, the defendant as managing director should be held liable for the shortage. The lower appellate court also held that the loss of weight due to any climatic conditions cannot exceed 8 per cent. as stated by P.W. 2, and even that 8 per cent. variation should be noted in the accounts. Since the court below held that there was no pilferage but there was a possibility of the yarn being removed from the mills, with the knowledge of the appellant, he should be held liable for the shortage. In the light of these facts, we have to decide the question as to whether the defendant can be held liable for the shortage of yarn. The learned counsel for the appellant refers to the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... check the stock of yarn every day and he has to naturally depend on the subordinate officers of the company to look after that work and if by their negligence there has been no proper check of the stock of yarn, he, as a managing director, cannot be held liable. It is no doubt true that in determining the director's duties, consideration must be given to the nature of the company's business and the director's right to distribute the work in a reasonable way between the officials of the company. In determining the question whether a director has been guilty of negligence, the court will have to take into account the character of the business, the number of directors, the provisions of the articles, the ordinary course of management, the practice of directors, the extent of their knowledge and experience, and, in short, all the special circumstances of the particular case. Romer J., in the case referred to above, has pointed out that there is little resemblance between the duties of a director, and the duties of a trustee, and that the position of a director of a company carrying on a small retail business is very different from the director of a big company. He had observed (p. 426 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, goes away in disregard of that obligation, he is guilty of default; and doing it intentionally it is wilful within the terms of a contract of this kind." Of course that was a case where the vendor's default consisted not merely of an omission to do an act which was his duty to do, but of omission to do an act which he knew was his duty to do. The same view was taken in a later decision by a Court of Chancery Division in In re Mayor of London and Tubbs' Contract [1894] 2 Ch 524 (CA), wherein the default of a vendor consisted of a mis-statement contained in the contract and Lindley L.J. observed that it was difficult to lay down any general definition of "wilful" that the word was relative, and that each case must depend on its own particular circumstance. The learned counsel for the appellant also places reliance on the decision in Thinnappa Chettiar v. Rajagopalan [1944] 14 Comp. Cas. 207 ; [1944] 2 MLJ 85, where a Division Bench has expressed the view that a managing director, like an ordinary director, is entitled to place reliance on the company's auditors and other subordinate officials unless there exists some ground for suspicion. But that decision has no application to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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