TMI Blog1963 (2) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the misfeasance had been proved. Respondents Nos. 3 and 4 in that application had died before the decision, and in the view that section 235 of the Indian Companies Act was a summary procedure available only against the directors themselves and not their legal representatives, no order for compensation was made in respect of those two respondents. The order for compensation for the sum of Rs. 9,19,884-5-0 was passed against the remaining respondents Nos. 1, 2, 5, 6 and 7. Of them the fifth respondent in the application, K. N. Srinivasa Iyer, has filed 0. S. A. No. 2 of 1961. The sixth respondent in the application, M. P. Ananthasubramania Iyer, has filed O. S. A. No. 4 of 1961 and the managing director, N. R. Lakshmana Iyer, has filed O. S. A. No. 22 of 1962. The facts and the prior history have been set out in sufficient detail in the judgment under appeal and, hence, it is sufficient to recapitulate them here briefly. The Nurani Union Bank Ltd. was started in 1929. It was, so to say, a village institution serving the residents of the small village, Nurani, in Palghat. The residents of the village were mostly Brahmins and most of them were closely inter-related. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the official liquidators mentions 13 items making up the total of Rs. 9,19,884-5-0 and charges 1 to 6 relate to items 1 to 3. The first item represents an advance of Rs. 1,25.000 and odd to N.R. Lakshmana Iyer, the managing director. The second item represents an advance of Rs. 2,22,000 and odd to the managing director and the secretary, K. N. Ramalinga Iyer, jointly. The third represents an advance of Rs. 3,34,000 and odd to the secretary alone. The charges themselves specified the resolutions according to which such huge advances were impermissible. Thus, the resolution on July 10, 1937, permitted overdraft accommodation to N. R. Lakshmana Iyer only for Rs. 3,000. Another resolution of 1940 prohibited advances exceeding Rs. 5,000 except on the recommendation of the majority of the directors. A resolution of 1941 also was to the same effect. Yet these and the other advances were made by the managing director and the secretary without consulting the other directors. Charges 13 and 15 specified how the other directors totally failed to exercise any supervision. Such total absence of supervision was either due to gross negligence or due to some of the directors having themselve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfeasance has been clearly proved in his case. So far as K. N. Srinivasa Iyer, appellant in 0. S. A. No. 2 of 1961, is concened, it will be seen that though the limit of overdraft in his case was only Rs. 15,000, according to the resolution on 18th July, 1943, exhibit A-18, he had overdrawn that amount consistently as the account from 12th December, 1945, to 3rd August, 1948, at pages 17 to 22 of book 5 shows. It is seen that his indebtedness once rose even to the extent of Rs. 36,890-14-4 (on 17th May, 1947). It is true he repaid the amount, but that is immaterial so far as the question we are considering is concerned. The point is that he should have known that the resolutions had been violated in his own case and that should have put him on enquiry as to whether there had been similar violation of the resolutions of the board of directors in the case of any other director or any other constituent. It is significant that Sri K.N. Ramalinga Iyer from whom over five lakhs of rupees was due was none other than the brother of this appellant. Even in his case he should have known that the balance-sheet was not in conformity with the prescribed Form F because it did not mention his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him. We accordingly allow his appeal straightaway. Reverting to the other two appeals, one more point remains, viz ., that of limitation. The contention of the learned counsel for the appellants in those appeals is that the application for misfeasance is time-barred because it was made more than three years from the date of the appointment of the provisional liquidators, viz ., December 16, 1947. Section 235(1) so far as is relevant says: "Where, in the course of winding up a company, it appears that any person, who has taken part in the formation or promotion of the company, or any past or present director, manager or liquidator, or any officer of the company has misapplied or retained or become liable *or accountable for any money or property of the company, or been guilty of any misfeasance or breach of trust in relation to the company, the court may, on th-2 application of the liquidator, or of any creditor, or contributory made within three years from the dale of the first appointment of a liquidator in the winding up or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer, examine into the conduct of the promoter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidator (after the winding up) and he is replaced later by another person B or another person C is associated with A as joint liquidator. In such cases the starting point of limitation would be the date of appointment of A in the first instance. Again it is no doubt true that under section 168 a winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding up. But, in our opinion, that legal fiction has no relevancy on the question of limitation for an application under section 235. The natural meaning of the words "the date of the first appointment of the liquidator in the winding up" is only the date of appointment of the official liquidator under section 175(1). The reason underlying the provision also suggests the same meaning, for it is only after the official liquidator investigates the affairs of the company, the acts of misfeasance usually come to light and the provisional liquidator may not be able to discover the acts of misfeasance at all in fact it is not his primary duty to discover such acts of misfeasance. To interpret the section as meaning that limitation should start even from the first appointme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of the directors and the other delinquents, and, therefore, deleted the earlier provision and made the date of the first appointment of the liquidator in the winding up as the starting point. The object underlying this change could be sub-served and promoted only by the construction we are placing on the section, viz ., that the commencement of the period of limitation is the date of the appointment of the regular liquidator under section 175(1) and not of the provisional liquidator under section 175(2). A Bench of the Allahabad High Court has recently interpreted section 235(1) as we are now doing : vide Vishwapal v. Sukh Sanckarrak Co. [1962] 32 Comp Cas 947 There is a decision of this court in Official Liquidator v. Krishnaswami lyengar [1947] 17 Comp Cas 77 In that case the contention on behalf of the directors was that notwithstanding the legislative changes in section 235 effected in 1936, the principle would apply that if a suit against the directors would have been time-barred under article 36 of the Limitation Act, the application under section 235 also would be time-barred. Clark J. held that this position had been altered by the legislative changes ef ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
