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TMI Blog2008 (7) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that the allegations made therein do not disclose any case of misfeasance or breach of trust against any of the respondents named therein. - C.A. NOS. 604 OF 2004 AND 794 OF 2007 - - - Dated:- 28-7-2008 - JAYANTA KUMAR BISWAS, J. P.C. Sen, Utpal Bose, Aniruddha Ray, D.N. Sharma, Ranajit Chowdhury and Kounish Chakraborty for the Appearing Parties. JUDGMENT 1. The first respondent in CA No. 604 of 2004 has taken out this application by the Judge s summons dated 8-8-2007 for an order deleting his name from the array of respondents in CA No. 604 of 2004 and other consequential reliefs. 2. CA No. 604 of 2004 is an application taken out by the Official Liquidator of this Court under section 543 of the Companies Act, 1956 ( the Act ) by the Judge s summons dated 1-10-2004. He took out the application initiating misfeasance proceedings against all the seven respondents named in the Judge s summons as the erstwhile directors of Dewrance Macneill Co. Ltd., the company-in-liquidation. The winding up proceedings in which the winding up order dated 13-10-1999 was made by this Court had been initiated on the basis of an order of the Board for Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liquidator to make, and generally as to the procedure on the summons and for the hearing thereof. Points of claim to be delivered shall be in Form No. 122 or 123 with such variations as may be necessary." 6. The points of claim were delivered in the prescribed Form No. 123 appended to the rules; para 4 of the Form reads as follows : "4. Etc. (Set out in separate paragraphs as may be necessary, the main facts showing the misfeasance or breach of trust committed by each of the respondents and the amounts which they are jointly and severally liable to make good to the company in consequence of such misfeasance or breach of trust.)" 7. The respondents, except the third respondent, in the misfeasance application delivered their respective points of defence. Documents were disclosed and inspected by the parties, and the application became ready for final hearing. At such stage, the first respondent took out this application by the Judge s summons dated 8-8-2007. The Official Liquidator has filed his opposition dated 30-11-2007, and the first respondent has filed his reply affidavit dated 6-12-2007. As a matter of fact, recording of evidence in the proceedings commenced a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation as given by Mr. Chowdhury is accepted, in my view, it will lead to refusal on the part of the company court, while acting judicially, to exercise its powers. In my view, the administrative order dated 25-6-2004 does not in any way prevent this Court from entertaining the first respondent s application and examining it on merits. 10. Mr. Chowdhury has then argued that an application in the nature of one under order 7, rule 11, of the Code is not maintainable in proceedings under section 543 of the Act, for the simple reason that they are summary in nature. Mr. Sen has disagreed with the proposition by saying that as a matter of fact proceedings under section 543 are more akin to suits as will be evident from the provisions of the Companies (Court) Rules, rule 6, that makes the provisions of the Code, so far as applicable, applicable to all proceedings initiated under the provisions of the Act and the Companies (Court) Rules. His argument is that section 543 proceedings which are always decided by holding a trial on evidence are definitely demurrable, based on the provisions of order 7, rule 11, of the Code. 11. It seems to me that Mr. Sen is once again right. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivist Judge is the answer to irresponsible law suits. The trial Courts would insist imperatively on examining the party at the first hearing so that bogus litigation can be shot down at the earliest stage . . . ." (p. 470) 14. Mr. Chowdhury has then argued that at the present stage of the proceedings, the application should not be, and rather cannot be, entertained. His argument is that once the first respondent filed his points of defence, disclosed documents, inspected documents, and recording of evidence commenced, there is no scope for entertaining an application in the nature of one under order 7, rule 11 of the Code. He has said that in all proceedings initiated under section 543, the matters in issue are to be decided invariably after recording evidence, because what the provisions of section 543 provide is only assessment of damages as a consequence of non-compliance with the provisions of its preceding sections by the erstwhile directors of the company-in-liquidation named in the application initiating the misfeasance proceedings. In support of his contention, he relies on P.K. Nedungadi v. Malayalee Bank Ltd. AIR 1971 SC 829; Official Liquidator, Supreme Bank Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged 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 . . . ." (p. 142) 17. Paragraph 4 of the statutory form in which the Official Liquidator is to deliver his points of claim specifically provides that the main facts showing the misfeasance or breach of trust committed by each of the respondents, and the amounts which they are jointly and severally liable to make good to the company in consequence of such misfeasance or breach of trust, must be set out in separate paragraphs, as may be necessary. The view that the application must contain sufficient particulars of acts of misfeasance or breach of trust, as the case may be, is also supported by the decisions in D.C. Mehta, Official Liquidator of Gaya Sugar Mills Ltd. v. Jogeshwar Prasad [1976] 46 Comp. Cas. 671 (Pat.); Premier Credit Motors Co. (P.) Ltd. v. Shafiqur Rehman [1987] 3 Comp. LJ 197 (All.); Security Finance (P.) Ltd. v. B.K. Bedi [1991] 71 Comp. Cas. 101 (Delhi); Chamundi Chemicals Fertilisers Ltd. v. M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We may state that in the context of order 7, rule 11 CPC, a contention that once issues have been framed, the matter has necessarily to go to trial has been clearly rejected by this Court in Azhar Hussain v. Rajiv Gandhi [SCC p. 324] as follows : [SCC para 12] In substance, the argument is that the Court must proceed with the trial, record the evidence, and only after the trial . . . . is concluded that the powers under the Code of Civil Procedure for dealing appropriately with the defective petition which does not disclose cause of action should be exercised. With respect to the learned counsel, it is an argument which is difficult to comprehend. The whole purpose of conferment of such powers is to ensure that a litigation which is meaningless and bound to prove abortive should not be permitted to occupy the time of the Court. . . . The abovesaid judgment which related to an election petition is clearly applicable to suits also and was followed in Samar Singh v. Kedar Nath. We, therefore, hold that the fact that issues have been framed in the suit cannot come in the way of consideration of this application filed by the appellant under order 7, rule 11 CPC." 21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of the order for winding up or of the first appointment of the liquidator in the winding up, or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer. (3) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable." 23. The case stated by the Official Liquidator in the points of claim delivered by him in support of the summons is this. The auditors appointed by this Court in their investigation report have opined that there are enough prima facie facts indicating misfeasance estimated at Rs. 54,48,97,000. During the course of investigation, the auditors could not find any financial and statutory books as well as other documents and records up to the date of winding up of the company. On inspection of the records available with the Registrar of Companies, West Bengal, the auditors found that the company duly filed its annual return on 30-5-1997 and balance sheet up to 30-9-1996. In spite of service of notice under section 454 of the Act and rule 130 of the Companies (Court) Rules, the former directors of the company deliberately failed and neglected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any information or materials other than those stated in the points of claim. The auditors specifically mentioned that their observations noted in the report were based on the particulars and information gathered from the unaudited accounts and documents which were made available to them for verification. They said that the unaudited balance sheet would show that the company had suffered the losses and liabilities due to the mismanagement by its former directors and other officers. The losses and liabilities mentioned in the report were entirely reproduced in the points of claim, and they have been mentioned hereinbefore. In their rather a short report the auditors concluded by saying : "Under the above stated circumstances though the proper investigation could not be made in absence of financial and statutory books as well as correspondence with the Registrar of Companies, West Bengal, Income-tax Department and Excise Department up to the date of winding up as required for investigation, it is submitted that there are enough prima facie facts for misfeasance estimated at Rs. 5,448.97 lakh as described above." 26. The question is whether the facts stated in the points of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e losses of the company-in-liquidation caused by any deliberate and wilful mismanagement of the company by the respondents in the proceedings. No allegation has been made against any of the respondents naming him specifically. As a matter of fact, by making investigation the auditors did not detect anything which was not stated in the unaudited balance sheet of the company. I do not think Mr. Sen was unfairly expressing his surprise by commenting that it was beyond his comprehension how the unaudited balance sheet prepared by the company could reflect the acts of misfeasance and breach of trust indulged in by the respondents. 28. Mr. Chowdhury has strenuously argued that it is definitely a case of misfeasance and breach of trust, since the respondents wilfully and deliberately withheld the books of account and other records of the company-in-liquidation. He has argued that though they were under a statutory obligation to submit the books of account and the records, in violation of the provisions of section 454 they did not submit them. Mr. Sen has rightly responded by saying that the Official Liquidator was not powerless, since in exercise of power under section 456 he could ta ..... 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