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TMI Blog1970 (9) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... romotion or formation of the company, or any past or present director, managing agent, secretaries and treasurers, 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 Court may, on the application of the Official Liquidator, of 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, managing agent, secretaries and treasurers, 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 Court 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 Court thinks just". This application under section 543 has to be made, under subsection (2), within five years, (a) from the date of the order of winding-up, or (b) of the first appointment of the liquidator in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, 1913. The Madras High Court followed the Lahore view and held that in similar circumstances limitation would run from the date when the misfeasance was committed: vide Narasimha Aiyangar v. Official Assignee of Madras [1931] 1 Comp. Cas. 39 ; A.I.R. 1931 Mad. 58 ; I.L.R. 54 Mad. 153. Whatever view, however, is taken in the matter, there is no doubt that a suit by the liquidator in the instant case is now hopelessly barred. Mr. R. Chaudhury, counsel for the respondents, who are contesting this application for substitution, submits that section 543 appears in the chapter of "Offences antecedent to or in course of winding-up". Section 538, with which the chapter begins, speaks of offences by officers of companies in liquidation past or present. The heirs of such officers, according to Mr. Chaudhury, cannot be proceeded against under this chapter. That is why, says learned counsel, under section 543 the court can "compel him (that is the delinquent director) to repay or restore". A dead man, says Mr. Chudhury, cannot be compelled to do anything. Learned counsel then drew my attention to section 469 of the Act. This section provides, inter alia, for payment of debts due by a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or cannot be enforced against his legal representative in those proceedings. It is the language of section 235 of the Act that, according to the Madras High Court, decides the issue. It is a limited right that is conferred by the section. It ends when the director dies and does not survive after his death. The same view was expressed by the Allahabad High Court in Official Liquidator v. Jugal Kishore A.I.R. 1939 All. J. It was stated that an official liquidator's proceedings under section 235 of the Companies Act, 1913, against a director during his lifetime could not be continued after his death against his heirs or personal representatives. Section 306 of the Succession Act, says the Allahabad High Court, applies where the law is silent as to whether a right to sue or continue proceedings survives and a proceeding under section 235, being intended to be brought against a director during his lifetime, cannot be continued against his legal representatives under section 306 of the Succession Act. There is nothing, however, to prevent the official liquidator from instituting, in proper cases, according to the Allahabad High Court, regular suits against the legal representatives or h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 543 is the usual legal right and the section prescribes a summary procedure for its enforcement. It does not confer any new right on the liquidator at all. In other words, the fountain or origin of the right of the liquidator under section 543 is the right available to him under the law. And, it is also possible to resort to both section 543 and section 545 simultaneously : vide Sailendra Nath Sinha v. State [1954] 24 Comp. Cas. 539 ; A.I.R. 1955 Cal. 29. Mr. Mullick has also contended that the remedy under section 543 is a statutory remedy against delinquent directors and the statute itself provides in sub-section (2) of section 543 a new period of limitation therefore. In that view of the matter, it would be improper to bring the analogy of a common law action into a statutory remedy. When I discuss in detail the nature and scope of a misfeasance proceeding, it would be apparent that the argument of Mr. Mullick cannot be accepted. At the moment I shall only observe that the statute has prescribed a special period of limitation in respect of a summary procedure for enforcement of an existing legal right. Both Mr. Chaudhury and Mr. Mullick (who adopted Mr. Chaudhury's arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat his assignees in insolvency shall represent him for all the purposes of winding-up and shall be contributories accordingly. Then again, in section 469 provisions have been made for payment of debts due by the contributories and the extent of set-off after a winding-up order has been passed. Section 470 gives power to the court to make calls on contributories after the making of a winding-up order. It is clear, therefore, that the special provisions for making the personal representatives of contributories liable for payment of debts due by them had to be introduced in view of the provisions in sections 426 and 429 of the Companies Act. By the analogy of these special provisions an application for substitution in a misfeasance proceeding cannot, in my opinion, be defeated. Mr. Mullick has also urged that the respondents Nos. 2, 5 and 6, namely, Nemai Charan Maitra, Jitendra Mohan Dutt and Pullin Krishna Roy have not been served with notices of this application. He referred to rules 19, 29, 30 and 31 of the Companies (Court) Rules, 1959. This contention is of no substance. Sub-rule (2) of rule 19 provides, inter alia, that the judge's summons together with a copy of the affidavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orced". These observations are based on the Court of Appeal's judgment in In re Canadian Land Reclaiming & Colonizing Co. [1880] 14 Ch. D. 660 (C.A.) In this case two gentlemen were appointed and for some time acted as directors of a company in which the qualification for a director was the holding of 100 shares. Neither of them was the holder of any shares. No act of misfeasance was alleged against either of them for which he would have been liable if he had been a duly qualified director. The company was now in the course of being wound up. The liquidator applied under section 165 of the Companies Act, 1862, to charge these two gentlemen for misfeasance in acting as directors without qualification. Sir George Jessel M. R. held that by acting as director they had been guilty of misfeasance, for which they were liable under the said section of the Companies Act and they ought to be ordered to pay a sum equal to the nominal amount of the shares requisite to qualify them to be directors. On appeal, it was held that section 165 created no new right but merely provided a summary mode of calling directors to account for acts of impropriety, for which they were liable to an action ; tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The liquidator by launching a proceeding under section 543 seeks an equitable remedy by a summary procedure. In other words, this section deals only with procedure and does not give any new rights. It provides a summary mode of enforcing existing rights: Per Pollock M. R. in In re City Equitable Fire Insurance Co. [1925] Ch. 407 (C.A.) Coming now to Indian decisions, the point under consideration came up before the Madras High Court in Ramaswamy Iyer v. Brahmayya and Co., Official Liquidator of the Hanuman Bank Ltd., Thanjavur ( In Liquidation)[1966] 36 Comp. Cas. 270 (Mad.). A banking company was ordered to be wound up on the 5th November, 1947, on a creditor's petition presented on the 26th July, 1947. The liquidators were appointed on the 12th January, 1948. The liquidators applied in 1950 to the Madras High Court under section 235 of the Companies Act, 1913 (corresponding to section 543 of the present Act), charging the directors with allowing the affairs of the bank to be carried on in a reckless manner in total disregard of their powers and duties in the matter of making loans and advances, making investments, misapplying the funds, declaring dividends out of capital, bre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im. Section 306 of the Succession Act, says the Madras High Court, is confined in dealing with survival of demands and rights of action, to executors and administrators and does not apply to heirs or legal representatives. The Madras High Court propounds that the liability of the representatives originates from and entirely depends upon the liability of the deceased, so that a representative would have all the defences open to the deceased and could rely upon any period of limitation which the deceased could have maintained. I am conscious that this decision of the Madras High Court was not given on an application under section 235 of the Companies Act, 1913, or section 543 of the new Act ; but it lays down the principle that the foundation of a director's liability sought to be established under section 543 is not a mere tort but the breach of a fiduciary relationship or the failure to perform duties undertaken by him in his position as a trustee. And, as such, the liquidator's cause of action survives the death of the director. If section 543 does not create a new right in favour of the liquidator but merely prescribes a summary procedure for enforcement of an existing right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faults of the late trustee must be made good from assets in the hands of his legal representative. The cause of action survives as the loss is the result not of a mere tort committed by the late trustee but of a breach of a fiduciary relation, or a failure to perform a duty. Then again, certain provisions of the Civil Procedure Code, it appears, have been applied to misfeasance proceedings under the Companies Act. For instance, in Vadilal Chatrabhuj Gandhi v. Thakorelal Chimanlal Munshaw [1954] 24 Comp. Cas. 25 ; A.I.R. 1954 Bom. 121 it has been held that proceedings under section 235 of the Companies Act, 1913, by way of misfeasance summons are very similar to proceedings in the nature of a suit and fall within the scope of section 141 of the Code which lays down that the procedure provided in the Code in regard to suits shall be followed as far as it can be made applicable, in all proceedings in any court of civil jurisdiction. Consequently, says the Bombay High Court, the procedure prescribed by the Code, in so far as it can be made applicable, would apply to proceedings under section 235. The Bombay High Court has stated that since there is nothing in section 235 which renders ..... X X X X Extracts X X X X X X X X Extracts X X X X
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