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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 ..... cessary documents, required for recovering the money due to the company in liquidation, to the Official Liquidator - A Director is placed in a fiduciary position to that of a company and, therefore, it is the duty of a Director to ensure that the assets of the company are preserved and protected. It is the duty of a Director to ensure that the affairs of the company are conducted in a manner so as to comply with all laws and for the benefit of the company. Given the allegations in the present case, it is not necessary that any separate and specific allegation be made against the applicant since the liability is sought to be imposed on the applicant on account of his being a Director of the company at the relevant time. In the present case, the company itself has accepted that the applicant had tendered his resignation and an affidavit to this effect was placed on record much prior to the Official Liquidator being appointed as a Provisional Liquidator. Thus, there can be no doubt that the applicant had communicated his unequivocal intention to relinquish his office as a Director of the company. In view of the settled law that, unless articles provide otherwise, the acceptance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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 company. The other controversy that needs to be considered is whether the applicant was a director of the company at the relevant date as defined in Section 454(8) of the Companies Act, 1956 (hereinafter referred to as the Act‟). 4. The learned counsel for the applicant submitted that Millennium Heath Institute and Diagnostics Pvt. Ltd. (i.e. the company in liquidation) had four Directors out of which two Directors were in charge of the day-today affairs of the company. He contended that the action of the Official Liquidator in fixing the liability for making good the receivable only upon two Ex-Directors of the company is wholly arbitrary and amounts to the Official Liquidator picking and choosing the Directors against whom the Official Liquidator wishes to proceed. It was further contended that the pleadings in the winding up petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 against all Ex-Directors including Mr Sugani. He submitted that although the company had four Directors, this Court had found that Shri Jagjivan Kumar Jain had resigned much earlier and, therefore, was not concerned with the present proceedings. The remaining three Directors were thus liable to compensate the company on account of the failure on the part of the Directors to provide all requisite information. He submitted that it was not necessary to allege or prove that the Ex-Directors were guilty of malfeasance and misfeasance in order to fasten the liability for the loss suffered by the company on account of non submission of requisite information. He further submitted that the statement of the applicant that he had resigned from the company could not be accepted at the threshold and the applicant would be required to prove t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Tribunal 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 Tribunal thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Tribunal thinks just. (2) An application under sub-section (1) shall be made within five years from the date of the order for winding up, or of the first appointment of the liquidator in the wind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under: 7. ..... It may be mentioned that misfeasance action against the Directors is a serious charge. It is a charge of misconduct or misappropriation or breach of trust. For this reason the application should contain a detailed narration of the specific acts of commission and omission on the part of each Director quantifying the loss to the Company arising out of such acts or omissions. ..... 15. This Court has in the case of Security and Finance Pvt. Ltd. v. B.K. Bedi: (1991) 71 Comp Cas 101 (Del.) articulated the settled position in law as under :- Under Section 543 of the Act, the court is vested with jurisdiction to examine the conduct of the past or present director, manager, liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided 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 sufficient documents and information. It is alleged that the exdirectors of the company have failed in their obligation to furnish a complete Statement of Affairs and provide the necessary documents. The applicant is also named one of the ex-directors. 18. A Director is placed in a fiduciary position to that of a company and, therefore, it is the duty of a Director to ensure that the assets of the company are preserved and protected. It is the duty of a Director to ensure that the affairs of the company are conducted in a manner so as to comply with all laws and for the benefit of the company. Indisputably, the Directors of the company would be liable if the records of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited (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 necessary that any separate and specific allegation be made against the applicant since the liability is sought to be imposed on the applicant on account of his being a Director of the company at the relevant time. 20. If the report of the Official Liquidator is viewed in the above perspective, it is apparent that it does contain the necessary allegations on the basis of which a claim of compensation can be based. Thus, the requirement that an application under section 543 of the Act must contain specific allegations on which the claim is based, is duly met. 21. The next step is to examine whether the allegations made in the report are establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, residences and occupations of the persons from whom they are due and the amount likely to be realised on account thereof ; (e) such further or other information as may be prescribed, or as the Official Liquidator may require. (2) The statement shall be submitted and verified by one or more of the persons who are at the relevant date the directors and by the person who is at that date the manager, secretary or other chief officer of the company, or by such of the persons hereinafter in this sub-section mentioned, as the Official Liquidator, subject to the direction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Directors on 15.01.2010 were obliged to file a Statement of Affairs. 26. The Official Liquidator could also require other persons as specified in Section 454(2) of the Act to file a statement of affairs, however, such a direction could only be passed in cases where the Official Liquidator believed that such persons had control over certain records of the company or had particular knowledge regarding the affairs of the company. In the present case, the liability was sought to be imposed on the applicant on the assumption that the applicant was a Director of the company at the relevant date (15.01.2010) and was thus, obliged to file a Statement of Affairs. The Official Liquidator has proceeded on the basis that the applicant was a Director solely on basis that the records of the Registrar of Companies indicated the respondent to be a Director of the company on the relevant date. 27. As st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e his agency. xxxx xxxx xxxx xxxx xxxx Where a director has resigned he is not liable for a report made after his resignation, even though his resignation was not communicated to the company and his name appeared in the report. 30. The statement of law on the subject in Gore-Browne's Handbook on Joint Stock Companies, 41st edition, page 358, reads as under:- Articles usually permit a director to resign. Even in the absence of such a power, unless the articles contain conditions, he may resign, and his resignation is complete where notice is given to the secretary, and cannot subsequently be withdrawn and even though no acceptance has taken place. Notwithstanding that the articles contemplate a written resignation a verbal notice of resignation given and accepted at a general meeting of the company is binding. 31. In the present case, the Articles of Association also provides that the resignation would take effect from such date as may be specified. Article 35 of the Articles of Association of the respondent company is relevant and is quoted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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