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TMI Blog1956 (7) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry, therefore, must be confined to these three concerns. The three persons Manindra Nath Ghosal, Kanai Lal Tarafdar and Sudhangsu Kumar Bose were intimately concerned with a company called Indo-Burma Industries Ltd. Manindra and Kanai were the directors of the company & Sudhangsu Kumar Bose was its manager. This company was incorporated in 1945 as a public limited company. It failed to file its statutory report and an application was made in February, 1949, by one Kiron Kumar Majumdar and the said Manindra Nath Ghosal for directions for filing the statutory report, for an order directing the holding of the general meeting of the company under section 79(3) of the Indian Companies Act and alternatively for winding up of the company. The ultimate result was that by an order dated 30th March, 1949, Sarkar J. wound up the company. On 20th April, 1949, Mr. Basu was appointed the liquidator and the order of his appointment gave him power to act as liquidator without security and with a remuneration of 5 per cent. of gross realisation of the assets of the company. On 19th August, 1949, some contributories made an application for leave to be granted to the liquidator to require Manin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also is now proved that the business of Electric Corporation was from 24th July, 1948, to 30th July, 1948, carried on by the director Manindra Nath Ghosal as the sole proprietor thereof. Thereafter from 30th July to 17th December, 1948, the director, Manindra Nath Ghosal, carried on the business of Electric Corporation as a partner with one Sachindra Nath Nandi. It is also proved now that director, Manindra Nath Ghosal, was at all material times the sole proprietor of the business of Bhowanipore Wayside Garage. Naturally, the liquidator upon the discovery of these facts from the report of the auditor was of the opinion that a fraud had been committed by Manindra Nath Ghosal, Kanai Lal Tarafdar and Sudhangsu Kumar Bose and he duly filed his report under section 177B (2) of the Indian Companies Act and was, by an order made by this court dated 3rd April, 1951, given leave to make an application under section 196 of the Indian Companies Act. On 16th April, 1951, this court made an order on the liquidator's application that Kanai Lal Tarafdar, Manindra Nath Ghosal and Sudhangsu Kumar Basu be publicly examined. The order was duly drawn up and served on these three persons. On or about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before me, and their evidence has been cross-examined also. Kanai Lal Chatterjee, Chartered Accountant of the firm of S.C. Sen Gupta, has also given evidence. He audited the account and made the report of Indo-Burma Industries Ltd. From the evidence of the auditor as well as of Sudhangsu Kumar Basu, Manindra Nath Ghosal and Kanai Lal Tarafdar it is now clearly established that the amount of the loan to Ghosal Biswas & Co., by the Indo-Burma Industries Ltd. is Rs. 34,477-12-0 being the difference between Rs. 54,477-12-0 and Rs. 20,000 repaid. It is also proved that the company gave a loan of Rs. 46,397-8-3 to the Bhowanipur Wayside Garage out of which it received back the sum of Rs. 5,564-5-0 leaving outstanding a debt of Rs. 40,833-3-3 as due to the company. It is also proved that the company gave loan to the Electric Corporation to the extent of Rs. 19,222-9-0 out of which it received back only Rs. 3,960-1-0 with the result that the outstanding amount due from the Electric Corporation to the company is Rs. 15,262-8-0. The auditor's report proves that altogether a sum of Rs. 90,573-7-3 is the loss caused to the company's funds and assets being made up of (1) Ghosal Biswas & Co., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntravention of sections 86D, 87D and 87E, of the Indian Companies Act. The remarkable feature further disclosed and proved before me is that the concern by the name of Inland Traders happened to be the managing agent of the company but the Inland Traders was nothing else but a name for Manindra Nath Ghosal, so that the net result is that a director of the company, Manindra Nath Ghosal, was the managing agent of the company itself managed by himself as a director along with the other directors. My own view is that the manager and the director on the facts of this case committed acts of gross illegality not authorised and permitted by the provisions of the Indian Companies Act. On that ground I am satisfied that they are and each one of them is guilty of misfeasance and causing loss to the company. The next defence is that the acts do not constitute misfeasance. These acts are defended on the ground that they are at best acts of indiscretion or bad management of the company and its finances. I am unable to accept that contention. The word "misfeasance" in section 235 has not been denned. The counterpart of the English Companies Act making similar provisions for misfeasance has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on certain purchases and sales, and entered such payment in the books of the company, but made no mention of it in their reports or balance sheets, and it was held there that they were jointly and severally liable to repay that amount with interest at 5 per cent. This case is important because it has been contended here before me that at best the directors and manager did something bona fide and in good faith and in the belief that these loans will ultimately turn out to be for the good of the company. On this point Kay J. in that case at page 512 of the report observes: "It has been argued that this was done bona fide, and that where directors in good faith have made an error in the computation on which their balance sheets are founded, the court will not lightly visit them with the consequences of a bona fide mistake. I confess I hardly know what is meant by bona fides in such an argument. I inquired whether there was any evidence that the directors had considered the meaning of the articles or had taken any advice upon them. There is no suggestion that they ever did so. There is nothing obscure or difficult in the construction, and it seems to me incredible that any man of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Works and Bhowanipore Wayside Garage. In other words, the defence is that they were intended ultimately to come under the business of the company. But whatever the ultimate intention may be-and that cannot be judged by any evidence-this much is clear that while these persons remained as directors they were lending money to concerns of which they themselves were either sole proprietors or partners. I, therefore, do not think that a scheme that all these different businesses were ultimately to be put under the company's business can at all avail against the charge of misfeasance and misapplication of the company's moneys. It will be appropriate in this connection to refer to the provisions of section 235 of the Companies Act of 1913. It is a section which has acquired the rather inadequate description of being called a "misfeasance section". The section, however, covers many acts other than misfeasance. To my mind, it is clear that this section covers misapplication of any money or property of the company or liability or accountability for any money or property of the company in addition to any act of misfeasance or breach of trust. It is plain and undisputable in the facts of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orandum of association in that clause permit the company to carry on the business of managing agents and resolutions of the company are cited in support thereof, although my interpretation of the resolution relied on does not support the respondent's argument. No doubt, that is the provision in the memorandum. But the facts here show that the company was doing very much more than carrying on business of managing agents of the independent concerns. Indeed, resolution No. 3 of the meeting of the board of directors of 25th May, 1946, purports to approve the action of the managing agents in accepting the managing agency of Bhowanipore Wayside Garage and of Chetla Iron & Brass Works which is very different from the company, Indo-Burma Industries Ltd., carrying on the business of managing agents. This was a case of the managing agent becoming itself the managing agent of some other concern. As I have already indicated, the position at best was that Inland Traders was the managing agent of the company and the company was the managing agents of Inland Traders, Electric Corporation, Bhowanipore Wayside Garage and Ghosal Biswas and Company. But Inland Traders was nobody else other than Manin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own concerns and there was nothing illegal in that transaction. I have already held that such lending is illegal and I am satisfied that it is so under the Indian Companies Act, But certain misconception about the facts must here be cleared. It is not true to say that the entire share capital of the company belonged to Manindra and Kanai. The position is that Manindra and his wife held shares worth about Rs. 8,000 and Kanai and his wife held shares worth about Rs. 15,350 and Sudhangsu Basu held shares worth about Rs. 4,000. So, between these three persons the total amount of share capital which they held was Rs. 27,350. But the total share capital of the company was Rs. 72,270. Even adding shares held by the servants or employees or relatives of Manindra and Kanai to the extent of Rs. 16,050, the total amount of share capital held or controlled by Manindra and his wife, Kanai and his wife, Sundhangsu Basu and other servants or employees aforesaid would be about Rs. 43,400. There was another about Rs. 29,000 worth of shares held by others. This argument, therefore, neither on law or on facts helps the cause of the respondents. There is one other aspect of this case which requires ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng has not only been explained, but legally and even technically it is not a defence to this application. Even though it is made on the last date of limitation, the liquidator has the whole period granted by section 235 of the Indian Companies Act within which to move. The application for the removal of the liquidator does not make this application bad. The application for the removal of the liquidator was made on 22nd June, 1951, by Kalidas Nandi and Kali Prosonna Nandi who were in the company of Manindra and Kanai and their wives. The date of the application, as I have already said, clearly indicates that it was an attempt by Manindra and Kanai to stop their public examination which the liquidator had already undertaken. In fact, this application for the removal of the liquidator was made while Sudhangsu Basu was actually being publicly examined. But that is not all. This application on 2nd July, 1951, was adjourned by Banerjee J. until after the conclusion of the public examination. The reason for his Lordship's doing so is obvious as his Lordship thought that he would not permit the public examination to be stifled by this application for the removal of the liquidator. But the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut a summons under section 235 of the Companies Act and when he has assets of the company in his hands, the charge usually made is that he is frittering away the assets of the company and I find that the charge now is being made that because he has no assets in the company, therefore he should not have taken out this summons. These are the arguments of despair with no merit behind them. Finally, it is said that the liquidator took possession of the assets of these subsidiary concerns. Correspondence marked Exhibits C,D,E and Exhibits 8 and O indicate that there is no truth in such allegation. In fact, no receipt has been produced by any of the respondents to show that the liquidator took possession of any and if so what assets of these subsidiary concerns. I am satisfied on the record that the liquidator only took possession of the assets of the company at its registered office. The point of making this allegation against the liquidator is that he could have realised all this money from such assets. But the fact remains that the liquidator did not realise any asset whatever except one table, two chairs, one easy chair and Rs. 7-14-3 and certain old and incomplete books. I, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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