9911796707
TMI Blog1986 (2) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... Bengali calendar year. The accounts of the said company were audited from 1359 B. S. corresponding to the English calendar year 1951-52 and until 1375 B. S. corresponding to the English calendar year 1968-69. Books of account of the said company for the years 1376 B. S. corresponding to the English calendar year 1969-70 and 1377 B. S. corresponding to the English calendar year 1970-71 were not audited, and as far as the applicant has been able to ascertain, no sales nor purchases were made by the said company during the said years 1376 B.S. and 1377 B.S. Many of the entries in the cash book of the said company, when made over to the applicant, were found on inspection to have become illegible and/or effaced due to water stains. Minute books of the directors and shareholders of the said company have not been made over by the respondents to the applicant, despite requests made to them in that behalf. Statement as to the affairs of the said company has been filed by respondent No. 2." The applicant states on the basis of records of the said company made available to him by the respondents, that the respondents and each of them have misapplied or retained and/or have become liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d two sums of Rs. 22,509.48 and Rs. 11,716.73 belonging to the said company to be paid towards commission and arat charges respectively. The said payments were made improperly and in consequence of speculation indulged in on their own account by the respondents and each of them and the said sums were lost to the said company. The respondents and each of them are liable or accountable therefor. ( iv )According to the statement of affairs filed by respondent No. 2, out of Rs. 43,120 due and payable to the said company from its sundry debtors, only Rs. 284.87 is recoverable. The respondents and each of them having neglected to take steps to recover the said sum and by allowing the same to become "bad" have become liable or accountable therefor. On the basis of the said statements made in the points of claim, the following orders have been asked for in the judges summons: ( a )A declaration that the respondents and each of them have mis-applied, or retained, and have become liable or accountable for the moneys and property of the company and/or are guilty of misfeasance or breach of trust in relation thereto as stated in the points of claim ; ( b )An order that the respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was a total loss of Rs. 1,42,744 and for the balance six years, there was a profit of Rs. 37,719. So, for the 24 years, there was a net loss of Rs. 1,05,025. For all these years, the company carried on its business with a marginal gross profit and this according to the auditor was an act of misfeasance. That the company did not make any profit and was ran at a loss could not be an act of misfeasance on the part of the directors. It was not shown that the company deliberately created any loss in the books of account or the loss was not a normal incident of the business carried on by the company. A point was also taken by the auditor that the moneys were retained by the directors of the company and were not deposited in the bank and accordingly this is also an act of misfeasance. He has mentioned that on 30th Chaitra, 1370 B.S., there was a heavy cash balance of Rs. l,07,763.19 but strangely enough he did not care to examine the cash balance from the accounts for the days following. He also did not even care to find out whether the sum of Rs. 1,07,763.19 was deposited in the bank or not or whether this amount was retained by the directors. He further said he was of the opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llections from 2-1-72 to 4-1-72 8,527.00 30th Chaitra, 1372, B. S. Cash 4,520.55 Cheques 12,623.94 17,144.49 Less Cash in hand 11-1-73 2,136.25 15,008.24 Deposited on 12-1-73 42,858.51 Collections 2-1-73 to 11-1-73 27,850.27 30th Chaitra, 1373, B. S. not 27-5-64 Cash and Cheques 37,564.01 Deposit at bank 3-1-74 32,000 4-1-74 500 5-1-74 500 33,000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts amounting to Rs. 43,120 and by allowing the said sum to be a bad debt, have become accountable there for. The auditor did not even check up who are the sundry debtors and what were the amounts lying outstanding against each of the sundry debtors. He has not even mentioned in his report that the company filed suits against some of the debtors. The directors took steps but they could not recover. It is not in dispute that some of the amounts of debts are very negligible. It would not have been advisable at all to file suits for realisation of such small sums. It appears from the tenor of the report that the auditor was determined to find fault with the directors. One other aspect that has been mentioned by the auditor in his report is that when there was no or insignificant profit, the directors should not have taken remuneration. This is absolutely a misconceived statement. Each of the directors had taken Rs. 250 per month as remuneration. That cannot be a ground for taking proceedings for misfeasance. Mr. Sinha ultimately has not pressed any of these grounds. The report has been prepared by the auditor carelessly without application of mind. His evidence has not inspired any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h misfeasance on several grounds. The Madras High Court referred to the said decision in the said case and quoted the following passage therefrom (at p. 159): "Section 165 of the Companies Act, 1862, enables a creditor of a company to obtain by summary process any relief to which he is entitled in respect of damages incurred through the misfeasance of an officer of the company, but the remedy afforded by the section is only for the recovery of damages for losses incurred. The misfeasance to which the section is directed is not restricted to acts of commission, but extends to all breaches of trust in relation to a company through which loss is incurred. Misfeasance is not to be imputed to a director unless he has dishonestly acted, or abstained from acting, in conflict with his plain duty and the burden of proof lies on the party making the charge; but in considering the question of the director's liability, there must be imputed to him a special knowledge of the business which he has undertaken. Directors are liable for losses occasioned through acts done by them as directors in matters which are ' ultra vires ' the company, and this liability is not dependent upon any question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. On the contrary, in the report of the auditor, the auditor has referred to the assessment order where the Income-tax Officer held that in view of the financial difficulties, M/s. Abdul Karim Md. (1963) Company at 59, Biplabi, Rash Behari Avenue, Calcutta, took delivery of the goods and sold the same on behalf of the assessee-company. For this the company paid additional commission and 'arat' charges. The auditor has also referred that commission and 'arat' charges were paid as the company was unable to sell its goods. The directors were sought to be made liable for the amount of commission and arat charges paid. I am unable to appreciate the comment of the auditor "that instead of doing regular business in the normal course, the directors were found doing transactions of adventure, some of a wholly risky nature, but offering a chance of great or unusual gain in complete disregard of the objects clauses of the company. Upon scrutiny of the objects clauses, it would be evident that the company was not permitted to do any speculative business as per objects clauses contained in the memorandum of association of the company. But the directors were found doing purely "fatka" busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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