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TMI Blog2006 (4) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... nding-up was subsequently stayed by order dated 16-9-1988. While the said orders were continuing, another creditor viz., Jaypore Sugar Company Limited, Rayagadh District, Orissa State, filed another petition in C.P. No. 68 of 1988 on 2-11-1988 seeking winding-up of the company under liquidation, pursuant to which an order of winding-up was passed on 27-7-1990 and the Official Liquidator was appointed as liquidator of the company. Subsequent to the winding up order, as per the directions of this Court dated 11-7-1991 in C.A. No. 142 of 1991, the Ex-Managing Director, first respondent herein, filed the statement of affairs on 3-12-1991. The Statement of Affairs contains, apart from other details, Schedules II and III containing the list of sundry debtors (Trade Debtors). As per Schedule II there are about 80 debtors and the total amount due and recoverable was shown at Rs. 12,10,032.75. Similarly, under Schedule III, an amount of Rs. 4,93,815 is due and recoverable from six major debtors. Thus, the total amount of debts due and recoverable comes to Rs. 17,00,088.67 after deducting the amount recovered. It is stated that since the first respondent-Ex. Managing Director did not furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. No. 22 of 1986, C.P. No. 63 of 1987, but they were closed by order dated 11-11-1988 since the company became a sick industrial company and made a reference to BIFR. It is stated that a direction was given to the company under liquidation to inform the respective petitioners, once in six months, about the progress of the case before the BIFR and also shall not alienate the assets without the leave of the BIFR for a period of six months and the winding-up petitions were closed with a liberty to the petitioners therein to make applications for reviving in the event of its become permissible by virtue of the subsequent decision of the BIFR. It is stated that BIFR at its final hearing on 1-2-1988 found that the company is deemed to be a Government Company by virtue of the shares held by the APIDC, and therefore, held that the company under liquidation do not come within the purview of the BIFR and accordingly the proceedings were closed before the BIFR. Thereafter, it is stated that the first respondent approached the APIDC, APSFC and Andhra Bank for revival of the Unit and while the first respondent was busy with the revival proposal, meanwhile, C.P. No. 68 of 1988 was filed by M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, apart from showing various entries made in the Books of Account, which were handed over by him. It is also stated that with reference to Schedule III of the statement of affairs, under the Head 'Loans and Advances' a sum of Rs. 4,93,815 was shown as recoverable by the company from six major debtors. It is further stated that in some cases, these advances were kept as a deposit with Sales Tax Department, A.P. State Electricity Board, Employees Deposit Linked Insurance and deposit with Andhra Bank and Central Excise Department etc. Since these are the advance and security deposits kept with them for the amounts due and payable by the company, these authorities might have adjusted these amounts due from the company and the first respondent is no way responsible for their adjustment, as these amounts are due and payable to them. It is stated that after 13-8-1992, he never called for any clarifications and it is only 3½ years thereafter the present application is filed for which the first respondent denied any personal liability, therefore, sought to dismiss the application as not maintainable. 5. A separate counter is filed on behalf of respondents 3 and 4, which was sworn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in some cases even clarifications were sought for with reference to the purchase orders, sale invoice etc., which could not be supplied for want of those particulars, therefore, the Official Liquidator was not able to realize any amounts and according to P.W. 1, the Managing Director and other Directors of the Company under liquidation are responsible for the loss caused to the company under liquidation on account of non-recoverability of the debts referred to above. P.W. 1 was cross-examined on behalf of the first respondent, where it was suggested that the clarification sought for was furnished by the Ex. Managing Director under Ex. A. 68. 7. In the cross-examination, it was also stated that some of the debtors have sought for clarification under Exs. A.6, A.8, A.12, A.14 and A.16 and admitted that no replies were given for those clarifications, as there are no details available in the statement of affairs. In the cross-examination, it was also admitted that with reference to some of the companies, which are the major debtors, notices would not be sent as the addresses are not clear, therefore, a letter was addressed under Ex. A.69 to the first respondent. This witness admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,10,032.75 paise. Similarly, as per the Schedule III, an amount of Rs. 4,93,815 was shown as due and recoverable from six major debtors. It is the case of the Official Liquidator basing on the addresses of the debtors that are furnished by the 1st respondent, steps were taken to recover the said amounts. But, however, the Official Liquidator could recover only a sum of Rs. 3,759.08 paise out of the debts shown in the Schedule-II of the statement of affairs. With reference to the rest of the debtors, either they disputed the claim of the Company or sought for furnishing of the evidence as to the liability or in some cases, the notices sent by the Official Liquidator were returned un-served for want of full address. With reference to Schedule-III, the information received by the Official Liquidator is that the debtors have adjusted the amounts, which were kept with them in the form of deposits against the amounts payable to them by the company under liquidation. Therefore, the Official Liquidator was unable to recover any amount. 10. According to the Official Liquidator as per the application filed under section 543(1) of the Act, the respondents, who are the Managing Director an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atively, according to them, the Official Liquidator did not take immediate necessary steps to recover the debts, which had resulted in the loss to the Company, and therefore, the respondents are not responsible for the loss caused as a result of the inaction on the part of the Official Liquidator. Therefore, they cannot be held liable either for the misfeasance, negligence, or breach of trust. Therefore, the learned counsel sought for dismissal of the application. 12. The learned counsel also contended that in the application no specific allegations are made with reference to each of the Director or the Managing Director as to the action or omission, which had resulted in misfeasance, negligence or breach of trust. In the absence of any such specific plea, the respondents are not liable to be held guilty of such acts. 13. In support of the said contentions, the learned counsel relied upon the decision of the Apex Court in Official Liquidator v. Raghawa Desikachar AIR 1974 SC 2069. In that case, on an application filed by the former Managing Director of the Company filed an application for compulsory winding-up and the District Court passed an order of winding-up where the Officia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny arising out of such acts or omissions. The burden of proving misfeasance or non-feasance rests on the Official Liquidator. The Official Liquidator, it may be mentioned, merely relied upon the evidence recorded in public examination of the directors and on a few documents tendered in evidence. At the stage of public examination there was no charge of misfeasance against the directors and they were not in a position to know what would be the grounds that would be alleged against them for recovering any amounts for the loss said to have been caused to the Company by reason of such misfeasance. The application made by the Official Liquidator did not give sufficient particulars which, in our view, it should have. Once a show-cause notice was given to respondent Nos. 1 to 4, the Official Liquidator did not lead any evidence nor rely upon any other document, nor did respondent No. 5, who was instrumental in initiating the misfeasance case against the respondent Nos. 1 to 4, lead any evidence. In our view, there was no justification whatsoever for the District Court to reject the evidence which the respondents had intended to lead or to disallow the production of documents other than th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bank since 1982 and the books and records were inside, which were made available to the Company only in the year 1988, it was held that the Directors could not initiate action for recovery of the amounts due to the Company, and therefore, no action was called for against the Directors under section 543 of the Act. In Official Liquidator v. D.P. Gupta [1999] 98 Comp. Cas. 59, the Official Liquidator, who was appointed originally as a Provisional Liquidator, and thereafter the Company was wound-up, filed an application basing on the report prepared by the Chartered Accountant dated 10-9-1992, alleging that certain cash and furniture were not handed over to the Official Liquidator, and, therefore, they are guilty of misfeasance and breach of trust. The other side denied to be guilty of misfeasance or breach of trust. The Court found that basing in a subsequent report the cash on hand as on 20-10-1982 was found to be Rs. 29.28 paise, therefore, it was held that there cannot be any breach of trust with reference to the said amount. Insofar as the furniture and assets of the company are concerned, it was found that they were in possession of the Punjab National Bank since 1982 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which action could be taken under section 543 of the Act. In Expo Expert (P.) Ltd. v. Jai Gopal Angrish [1999] 97 Comp. Cas. 913 a learned Single Judge of Punjab & Haryana High Court while considering the scope of section 543 observed,-- "Where a Company suffers loss on account of breach of duty on the part of a director, he is liable to compensate the Company to the extent of such loss. Where the director and Managing Director of a Company in liquidation fail to take action for realization of debts owing to the Company and the debts become time-barred before the winding-up order is passed by the Court, it would be a fit case for passing a decree against the director and Managing Director for the amount of the debts." 16. If we examine the facts of the present case in the light of the above decisions relied upon by both sides, though it was the case of the respondents that unless specific action of misfeasance, negligence or breach of trust is alleged and proved against each Director, no order can be passed. But according to the learned Counsel for the Official Liquidator no such specific allegation of misfeasance, negligence or breach of trust is required as per the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsence of any such evidence even with reference to the debts shown in the Schedule-III, they have also become unrecoverable due to the negligence and inaction of the respondents. Therefore, they have to make a good the said loss caused to the Company by them. 19. Under the above circumstances, the answer to the first issue is against the respondents and in favour of the applicant-Official Liquidator that the respondents have committed acts of misfeasance, negligence or breach of trust, which had resulted in loss to the Company as those debts became unrecoverable. Therefore, the respondents have to pay the said amount together with interest to the Company. 20. Issue No. 2 : Coming to the issue of limitation, it was contended by the learned counsel for the Official Liquidator that the Official Liquidator was appointed by an order dated 27-7-1990, while the application under section 543(1) is filed on 26-7-1995. Therefore, the same is well within the period of limitation of five years. It was the case of the Official Liquidator that though winding-up order was passed in C.P. No. 35 of 1987 on 19-2-1988, but the said order was set aside at the instance of the respondents by an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly beyond the period of limitation. The learned counsel also relied upon a decision of the Karnataka High Court in Kabini Papers Ltd. v. M.D. Shivananjappa [1999] 98 Comp. Cas. 675, where a learned Single Judge of the Karnataka High Court held that five years period contemplated under section 543(2) with reference to misfeasance shall not be extended by adding the period mentioned in section 458A of the Act. To the same effect is the decision of the Orissa High Court in B. Pattnaik Mines v. Bijoyananda Pattnaik [1994] 80 Comp. Cas. 237, where a learned Single Judge of Orissa High Court held that the general powers vested in the Official Liquidator under section 457 of the Act are distinguishable from the special powers conferred on him under section 543 of the Act. When the liquidator or a creditor or a contributory makes an application under section 543, he does not do so as representing the Company but in his own independent right although for the benefit of the Company. Section 458A of the Act clearly applies only to suits and applications filed by the Official Liquidator on behalf of the Company. An Application filed by the Official Liquidator under section 543 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that date. The intention of the Legislature in fixing up the period of limitation is to put an end to the litigation between the parties so as to complete and conclude the same within a reasonable time. But at the same time it is not intended to deny or deprive the rights of the parties. In fact, it is not the case of the 1st respondent that the Official Liquidator was appointed and he was allowed to take possession, but no such material is placed before this Court (not even a copy of the order dated 19-2-1988). When once the said order was set aside at the instance of the 1st respondent, he cannot take advantage of such an order to deny the Official Liquidator to have the full period of limitation from the date of the winding-up under which he took possession of the assets of the Company. It is not disputed that the Official Liquidator took the charge as Liquidator only in pursuance of the order passed in C.P. No. 68 of 1988, dated 27-7-1990 and not prior to it. Therefore, there is no merit in the contention of the 1st respondent that the first order of winding-up has to be taken into account, which was not specified in sub-section (2) of section 543. Further, as per various deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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