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TMI Blog2014 (2) TMI 1360X X X X Extracts X X X X X X X X Extracts X X X X ..... . The applicant being aggrieved by the order dated 07.11.2012 had preferred an appeal being Company Appeal No.4/2013 before a Division Bench of this court. The said appeal was disposed of by the Division Bench by an order dated 23.01.2013 whereby the Division Bench had permitted the applicant to file an application to take all contentions and raise all issues with respect to the liability of the applicant to compensate the company for its receivables which could not be recovered. The Division Bench further clarified that the order dated 07.11.2012 would not come in the way of this Court deciding all the issues and contentions on merits. The learned counsel for the parties have submitted that in view of the order dated 23.01.2013 passed by the Division Bench, the question whether the applicant could be held liable for paying the amount as directed, has to be decided afresh. 3. The principal controversy in the present application relates to the question whether the ex-directors of a company in liquidation can be held accountable for the receivables of the company that can't be recovered by the Official Liquidator for want of requisite information and the complete records of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Division Bench of Kerala High Court in K. Subramony v. Official Liquidator, Malabar Phyto Chemicals Ltd. (in liquidation): 2010 (157) Comp. Cas. 61 (Ker.) and the decision of the Allahabad High Court in Vijai Laxmi Sugar Mills Ltd. (in liquidation), Official Liquidator v. Mathura Prasad and Ors.: AIR 1963 Allahabad 55. The learned counsel further submitted that as the applicant was not incharge of the day-to-day affairs of the company, the applicant could not be held to be liable to compensate the company for the loss caused to the company on account of lack of documents/records. It was further submitted that since the applicant had resigned on 31.03.2008, the applicant did not have any control over the assets or the books of accounts of the company. He submitted that in order to fasten a liability on an exdirector it must be shown that the director was in possession or in control of any assets of the company and had failed to surrender the same to the Official Liquidator. 7. The learned counsel for the Official Liquidator, at the outset, submitted that the prayers made in the status report (report no.650/2012) were not directed against the applicant alone but agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company in order to make the concerned director liable for the loss suffered by the company on account of its inability to recover the debts from its debtors due to inadequate information. The other question that needs to be considered is whether the applicant had resigned from the company prior to the appointment of the provisional liquidator and, if so, whether he could be held liable for not providing the requisite details to the Official Liquidator. 10. In the present case, the learned counsel for the Official Liquidator has sought to justify the claim for compensation on the basis of Section 543 of the Act. Section 543 of the Act being relevant is quoted below:- "543. - Power of Tribunal to assess damages against delinquent directors, etc. - (1) If in the course of winding up of 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 Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result thereof, a loss has been caused to the company. 13. It is well settled that a charge of misfeasance or a breach of fiduciary duty is a serious charge and may result in a personal liability. The nature of the said liability has been explained by the Supreme Court in Official Liquidator v. Parthasarathi Sinha: (1983) 1 SCC 538 as under:- "18. The liability arising under the misfeasance proceedings is founded on the principle that a person who has caused loss to the company by an act amounting to breach of trust should make good of the loss. Section 543 of the Act does not really create any new liability. It only provides for a summary remedy for determining the amount payable by such person on proof of the necessary ingredients. The section authorises the court to direct such persons chargeable under it to pay a sum of money to the company by way of compensation. ...." 14. It necessarily follows that the charge/allegation would have to be specifically pleaded in order that the person accused of the same has due opportunity to meet the accusation. The Supreme Court in its decision in Official Liquidator v. Raghawa Desikachar: (1974) 2 SCC 741, expressed this view as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of this Court in Ashoka Auto & General (supra) and has also been reaffirmed by the Andhra Pradesh High Court in Official Liquidator v. T.J. Swamy and Ors.: (1996) 86 Comp Cas 696 (AP). 16. In the present case, the claim for compensation is premised on a breach of the obligation to furnish a complete and accurate Statement of Affairs and providing the necessary documents, required for recovering the money due to the company in liquidation, to the Official Liquidator. The learned counsel for the Official Liquidator has rightly submitted that in such circumstances the application for claiming compensation could be sustained by establishing that: (a) The documents/information provided to the Official Liquidator were insufficient to effect recovery of the amounts due to the company; (b) That the company had suffered a loss on account of its inability to pursue its claims for recovery; and (c) the person from whom compensation is claimed was under a duty to provide the documents/information to the Official Liquidator. 17. It has been pointed out in the report (no. 650/2012) that the Official Liquidator has been unable to recover the amount due to the company for want of sufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of a fraud, it was enough if it could be shown that the Director was negligent which enabled the fraud to be committed. The Directors of a company are placed in a position of trust thus, it is not necessary to show that the Directors themselves have participated in pilfering or secreting the assets of a company, it would be sufficient to point out that the affairs of the company have been carried on negligently which made it possible for the assets to be pilfered or misappropriated. The Directors, by virtue of their position, would have to accept the liability for the conduct of affairs of the company. In the case of Official Liquidator, Suganti Alloys Castings Limited (supra), the Andhra Pradesh High Court held the Directors were liable to compensate a company on account of certain receivables of the company that had become time barred. The rationale being that it was the duty of the Directors to ensure that steps are taken for recovery of the debts due to the company. The failure to initiate appropriate steps for recovery of debts was found to be sufficient to hold the Directors liable to compensate the company. 19. Given the allegations in the present case, it is not necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. 24. Section 454 of the Companies Act, 1956 enjoins all persons who are Directors on the relevant date to file a statement of affairs. The relevant provisions of Section 454 of the Act are quoted below:- "454. Statement of affairs to be made to Official Liquidator- (1) Where the Tribunal has made a winding up order or appointed the Official Liquidator as provisional liquidator, unless the Tribunal in its discretion otherwise orders, there shall be made out and submitted to the Official Liquidator a statement as to the affairs of the company in the prescribed form, verified by an affidavit, and containing the following particulars, namely : - (a) the assets of the company, stating separately the cash balance in hand and at the bank, if any, and negotiable securities, if any, held by the company; (b) its debts and liabilities; (c) the names, residences and occupations of its creditors, stating separately the amount of secured and unsecured debts; and in the case of secured debts, particulars of the securities given, whether by the company or an officer thereof, their value and the dates on which they were given ; (d) the debts due to the company and the names, res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxxx xxxx xxxx (8) In this section, the expression "the relevant date‟ means, in a case where a provisional liquidator is appointed, the date of his appointment, and in a case where no such appointment is made, the date of the winding up order." 25. A plain reading of Section 454(2) of the Act indicates that a Statement of Affairs has to be filed by persons who are Directors on the relevant date. Sub-section 8 of Section 454 defines the relevant date to be the date on which a Provisional Liquidator is appointed. And, in case where no such appointment is made, the relevant date is defined to be the date on which the winding up order is passed. In the present case, the relevant date would be 15.01.2010 when the order appointing the Official Liquidator as a Provisional Liquidator was passed by this Court. Thus, all persons who were Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e intention to relinquish the office as a Director is communicated. 29. The law on the question as to when does a resignation by a director become effective, is stated in Palmer's Company Precedents, seventeenth edition, part 1, at page 565 as under:- "Where there is no provision in the Articles as to the procedure for resignation it would seems that resignation will take effect until it has been tendered to the company as a whole, but the company cannot refuse it. xxxx xxxx xxxx xxxx xxxx Even in the absence of any express power to resign, it is submitted that, unless the articles are specially framed, a director may by notice to the company resign his directorship. Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors, managers or secretaries specifying the date of the change. The period within which the said return is to be sent shall be a period of thirty days from the appointment of the first directors of the company and the period within which the said notification of a change is to be sent shall be thirty days from the happening thereof." e-Form No. 32 of the Companies (Central Government‟s) General Rules and Forms, 1956 is the prescribed form in which the relevant return in accordance with section 303(2) of the Act is to be filed. It is thus apparent that filing of Form 32 is an obligation of the company and not of the Director who is demitting office. The filing of Form 32 with the Registrar of Companies is an action which is required to be taken by a company and not by a Director who has tendered his resignation. And, the same is required to be initiated after the resignation by a Director has become effective. It is obvious that once a Director has demitted his office, he would have no authority to file any form on behalf of the company. 33. In the present case, the company itself has accepted that the applicant had tendered his resignation and an affidavit to this effec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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