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TMI Blog2012 (5) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. K. Chandranath Ariga, Vishwanath R. Hegde and Narendra for the Respondent. ORDER The instant application is filed by the Official Liquidator under Section 543(1) of the Companies Act read with Rule 260 of the Companies (Court) Rules, 1959 on behalf of the Company-in-liquidation. 2. The points of claim have been raised in the application contending that the amounts indicated therein is recoverable from the respondents who are the erstwhile Directors. In that regard, act of misfeasance is alleged against them. The respondents have appeared and disputed the claim. Respondent No. 1 has filed his exclusive objection statement, The respondent Nos.2 to 5 have filed their joint statement of objections. The parties have also tendered their evidence. 3. Heard Sri V. Jayaram, learned counsel for the applicant, Sri Chandranath Ariga, learned counsel for the respondent No.1, and Srt Vishwanath Hegde, learned counsel for respondent Nos.2 to 5 and perused the material on record. 4. The Company-in-liquidation was ordered to be wound up by this Court vide the order dated 31.10.1996 passed in Co.P.No.22/1993. The first respondent thereafter filed the Statement of Affai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owner of the property. The cash in hand amounting to Rs.2,97,477/- is alleged to have not been handed over as also the saving certificates. Further certain payments made other than by way of demand draft or cheque though the amount exceeded Rs. 20,000/- is referred as misapplication of company's fund. 6. The first respondent in his objection statement has at the outset referred to the previous history of the Company-in-liquidation, the manner in which it was set up by the first respondent, who was a Professor of Electronics and was serving in USA, subsequently, the first respondent who was-in-change of the day-to-day activities is stated to have suffered a serious Heart-ailment and therefore the company had to suffer, The company having become sick, the proceedings before the BIFR has also been referred to point out the manner in which the first respondent had nurtured the Company in liquidation without even receiving salary from the beginning. Insofar as the winding up proceedings are concerned, it is stated that the order dated 31,10,1996 is an ex parte order and was not within the knowledge of the first respondent. In any event, it is asserted that there is no transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 138 of Negotiable Instruments Act and the said payments in fact are expenses and not receivables. Further, from the said list, it is pointed out that the amounts payable to the employees Sri Raghavendra. Rao, Smt. Anitha Chethan and Smt. C.M. Sheela have been shown as receivable when in fact they were payable. The deposit of Rs.3,37,273/- with the CED is not in fact a receivable amount but the benefit that would accrue if the company was in production, it is in that contend, the journal entries relating to Rs.27,09,863/- has been explained. The other journal entries made on 31.03.1996 relating to RC International is not the receivable of Rs. 4,79,194/- but an amount of Rs.8,22,375/- was payable by the company. The manner in which the journal entries were made in the previous year is for the purpose of proper accounting and are not entries made on 31,03,1997. The guarantee given by the company to BISCAYNE India and MCE Capacitors being creditors to the extent of Rs. 13,48,397/- and Rs. 1,02,653/- respectively, and the settlement made for cash payment of Rs.3,05,477/ - is for the benefit of the company since they have agreed for not claiming their dues. The said cash pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd amounting to Rs.2,97,477/- is paid, towards settlement of the dues of Capacitors and BISCAYNE which is indicated above to the total extent of Rs. 14,51,050/-. Insofar as the Bank accounts, it is contended that the details of the Banks have been furnished. The cash payments made have been accounted for by indicating that they are the expenses incurred for attending the BIFR meetings in Delhi, payments made to Sri Misra who had made cash adjustments for payment of salaries and also to the employees. Thus referring to each aspect in detail the first respondent has pointed out that though certain adjustments have been made towards the payments, they were in the business interests of the company as all efforts were made to revive the company. The Directors have not derived any personal benefit and as such the same does not constitute misfeasance or breach of trust, 12. Though the respondent Nos.2 to 5 have also filed a detailed objection statement, in my view, it is not necessary to refer to the same, since the first respondent has not only exonerated the said respondents by taking upon him the entire responsibility but also due to the fact that the first respondent has provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Shakti Enterprises is also admitted and he has further explained the nature of transaction. The learned counsel for the respondent Nos.2 to 5 has also cross-examined him and he has categorically stated that respondent Nos.2 to 5 are not responsible as he was in-charge of the affairs of the company. The respondent Nos.2 to 5 have also been examined as RW.2 to RW.4 and they have been cross-examined. 15. From the pleadings noticed above and the evidence tendered by the parties, it is evident that the claim put forth in the application is on verification of the records which had been submitted along with the statement of affairs. The allegation basically is with regard to the certain journal entries which could not have been made subsequent to the order of winding up on 31.10.1996 and in that regard, certain entries are noticed as on 31.03.1997. The allegation is also that certain amounts have been indicated as expenses towards vehicles, without owning such vehicles, certain amounts are paid to R C Exports and R C International which are sister concerns wherein the first respondent is also a Director and certain payments made to Asian Electronic company. 16. On behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h decisions were taken despite knowing that it would be detrimental to the company but he would be benefited by the same. 18. In fact on the said proposition the learned counsel for the first respondent has placed reliance on a decision of the Calcutta High court in the case of Bholanath Kundu v. Official Liquidator, Bholanath Kundu Co. (P.) Ltd. [1987] 61 Comp. Cas. 10 (Cal.) wherein it is held that in order to constitute misfeasance, the same does not cover every misconduct of a Director but it should be a breach of trust whereby the Director misapplies or retains in his own hands the money of the company and had wasted the company's property resulting actual loss. 19. The decision of this Court in the ease of Chamundi Chemicals Fertilizers Ltd. in liquidation v. M.C. Cherian [1993] 77 Comp. Cas. 1 (Kar.) to a similar effect has also been relied. 20 . The above decisions coupled with the explanation by the first respondent on accepting the entries as pointed out by the applicant referring to each of the entries and the manner in which the payments and adjustments were made in the course of the business will not show misdemeanour. The same further does not i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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