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TMI Blog2009 (7) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the respondents, viz., ex-directors of the company under liquidation for misfeasance under sections 542 and 543 of the Companies Act and, therefore, the application stands dismissed. - C.A. NO. 1549 OF 2005 IN C.P. NO. 138 OF 1998 - - - Dated:- 10-7-2009 - P. JYOTHIMANI, J. Murali for the Respondent. JUDGMENT 1. This application is taken out by the Official Liquidator to make the respondents who are the ex-directors of the company under liquidation liable for misfeasance under sections 542 and 543(1) of the Companies Act, 1956, and also to hold that they are liable jointly and severally to pay compensation of Rs. 27,85,940 being the loss caused to the company and also the future claims from the creditors with interest at the rate of 12 per cent per annum from the date of winding up, viz., 15-9-2000; and to declare that the respondents are personally liable and that the above liability shall constitute the first charge on the properties and effects in possession of the respondents. 2. By an order dated 15-9-2000, passed in C.P. No. 138 of 1998, the Official Liquidator was appointed as the provisional Liquidator for M/s. South Point Enterprises (P.) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no unsecured creditors and, therefore, the claim of Rs. 19,89,038 is not pressed. 8. In addition to that, it is relevant to note that in respect of the abovesaid letters dated 10-4-2007, 16-9-2007 and 18-9-2007, the concerned persons have given certificates to the effect that the amounts paid by M/s. Afcons Infrastructure Ltd., Col. V.V.M. Muthu, M/s. L.U. Krishnan Co., Chartered Accountants and M/s. L.U.K. Consultancy (P.) Ltd., were all amounts received by the first respondent only towards remuneration and they were never advanced as loan either to the first respondent or to the company under liquidation. The said certificates given by those which have been filed in the typed-set of papers would go to show that there are no claim of unsecured creditors. However, as it is stated earlier, the learned Official Liquidator has given up the claim in respect of it. 9. In respect of the other head, viz., Trade debtors, it is stated that the respondent themselves have taken steps with the addresses available in the records and the persons who are liable to pay the amount to the extent of Rs. 97,000 have left the places and the respondents were not able to take, any further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise. 13. Section 543(1) of the Companies Act makes it very clear that the liability is attributable to the ex-directors only if it is found that the moneys of the company under liquidation have been misapplied or there has been misfeasance or breach of trust. Section 543 is as follows : "543. Power of Court to assess damages against delinquent directors, etc. (1) If in the course of winding up a company, it appears that any person who has taken part in the promotion or formation of the company, or any past or present director, manager, Liquidator or officer of the company ( a )has misapplied, or retained, or become liable or accountable for, any money or property of the company ; or ( b )has been guilty of any misfeasance or breach of trust in relation to the company, the Court may, on the application of the Official Liquidator, or the Liquidator, or of any creditor or contributory, made within the time specified in that behalf in sub-section (2), examine into the conduct of the person, director, manager, Liquidator or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defect or discrepancy. It is also admitted that it is correct to state that without specifically mentioning the names of ex-directors, the misfeasance report has been filed generally. 16. In Official Liquidator, Milan Chit Fund Finance (P.) Ltd. s case ( supra ), while referring to the tents of the statement of affairs filed by the ex-director under section 454 and also with reference to section 543 of the Companies Act, 1956, the Delhi High Court has held as follows : "16. No specific conduct is attributed to any of these respondents. However, in paragraph 11, it is alleged that a number of members of the company, including respondent No. 4 had made default in payment of the final call of Rs. 40 per share which was payable by March 31, 1965. The liability of a member of a joint stock company to contribute to the assets of the company is provided under section 426 of the Act. The failure to make the requisite contribution does not appear to attract any of the provisions of sections 542 and 543 of the Act. The Official Liquidator is entitled to take appropriate proceedings to enforce this liability. Counsel for the applicant was unable to show how such a liability could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business for fraudulent purpose. Under law, the particulars of fraud must be given in the application so as to afford an opportunity to that person to meet the allegation. Dishonesty is an essential ingredient of fraudulent conduct of business. Hence, the pleadings must be specific with regard to the alleged delinquency of a director. The words any person who was knowingly a party to the carrying on of the business in the manner aforesaid are very significant and the intention of the Legislature is very clear in inserting these words. Mere vague and general allegations are not sufficient to meet the requirement of this section, because the Court has come to the conclusion that the business of the company was carried on with an intention to defraud the creditors and/or for any fraudulent purpose. Further, that the person against whom the allegations are made was knowingly a party to the carrying on of such business. If the allegations are not specific and details of fraud are not given, then, the Court cannot indulge in a fishing or roving enquiry. Thus, the enquiry, therefore, is to be confined to the purpose with which the business of the company had been carried on and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt parties and allowed the same to become barred by time, his negligence and inaction amounts to misfeasance on his part within the meaning of section 543 of the Act and he is, therefore, liable to compensate the company for these amounts. I find no merit in this contention. The Official Liquidator has not alleged any fraud or dishonesty on the part of the directors in not recovering the amounts for the company. As per the statement of account filed by the respondent the aforesaid amounts were due to the company from different parties but the directors including the respondent took no steps to recover the same and the recovery of the amounts had become barred by time by the time the Liquidator tookover. The question that arises is whether the mere fact that a few debts due to the company had been allowed to become barred by time amounts to misfeasance on the part of the directors. The matter is not res integra. A similar matter arose before Falshaw, J. in Kaithal Grain Bullion Exchange Ltd. v. Lachhman Das [1954] 56 PLR 486 where the learned Judge relying on the observations of Jessel M. R. in Forest of Dean Coal Mining Co., In re [1878] 10 Ch. D 450, held that mere inactio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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