TMI Blog1977 (4) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... s were recovered by the official liquidator from the police custody on March 17, 1971. According to the applicant, respondent No. 1 was the director of the company from its incorporation and continued to be so until it was ordered to be wound up. Respondent No. 2 was director-in-charge of accounts from August, 1962, till the date of the winding-up order. Respondent No. 3 was its director from May 22, 1964, to February 17, 1965. Respondents Nos. 4, 5 and 6 were also the directors of the company for limited periods. The statement of affairs of the company was not filed within the time allowed by law as a sequel to which a complaint of an offence under section 454(4) and (5A) of the Act was filed against respondents Nos. 1, 2, 3 and 5 on April 26, 1969, being Cr. O. No. 26 of 1969. During the hearing of the complaint a direction was made requiring respondent No. 2 to file a statement of affairs within the time allowed by the court which was extended from time to time. The statement of affairs was eventually filed some time in September, 1972. By an order made by Kapur J. in the complaint on March 27, 1974, the four respondents were acquitted on the ground that three of them were not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edies. Even otherwise this court would have no jurisdiction to entertain a complaint under sections 538 and 539 of the Act. On behalf of the applicant the objection is not contested. Learned counsel for the applicant sought permission to withdraw the application in so far as it invokes sections 538 and 539 and the application being proceeded with under sections 542 and 543 of the Act. In the alternative, leave was sought to suitably amend the application so as to confine the application to permissible provisions. It was also pointed out that a notice under sections 542 and 543 of the Act alone was issued impliedly rejecting the claim under sections 538 and 539 of the Act. In the circumstances, the application would be treated as being one under sections 542 and 543 of the Act with liberty to the applicant to suitably amend the application so as to eliminate references to the other provisions and to delete the allegations which are not relevant for the purpose of sections 542 and 543 of the Act. It was, however, not disputed that the application under sections 542 and 543 of the Act could proceed subject to the aforesaid direction. It was next urged that the present proceedings wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es provision to determine and enforce the civil liability of persons who were parties to the carrying on of business of the company with intent to defraud the creditors or any other persons or for any fraudulent purposes and for certain matters connected therewith, except sub-section (3) of this section which deals with criminal liability of such persons. It has been held that the provision seems to postulate some nexus between fraudulent trading or purpose and the extent of liability of directors or other persons ( K. Nagendra Prabhu v. Popular Bank Ltd. [1969] 39 Comp. Cas. 685 ; AIR 1970 Ker. 120). Rule 269 of the Companies (Court) Rules, 1959 (for short, "the Rules"), inter alia , lays down the procedure to be followed in proceedings under section 542 of the Act. Form 120 envisages that the declaration under section 542 must have relation to specified acts of fraud or fraudulent purpose and the liability of the person sought to be proceeded against must be quantified. Section 543 of the Act, which is based on section 333 of the English Act of 1948, confers powers on the court to assess damages against delinquent directors and others and provides that where in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of winding up from which it appears that the requirement of the two sections are satisfied the proceedings could be initiated without awaiting definite proof of the allegations or admission in respect of the commission or omission of acts which can be impeached under these provisions. It is also not possible to accept the contention that these proceedings could be initiated only if there is a shortfall. The civil liability under the two provisions has not been made dependent on the existence of a shortfall. While the liability under section 542 arises out of fraudulent acts, the power of the court under section 543 to assess damages against delinquent directors and others is based on the impeached acts of misfeasance, breach of trust, wrongful application and retention in respect of the money or property of the company. It is true that the primary object of the winding up of the company is to realise the assets and to discharge its liabilities but the liability of the directors and others does not end with the payment of all the liabilities out of the realisations made from the assets because if there is a surplus the members of the company would be entitled to the amount by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... division relating to applications under the Act makes no provision for applications under the Act. Article 137 provides a limitation of 3 years for such applications and the time for such applications begins to run "when the right to apply accrues". It is a well-known common law principle that for the purpose of any proceeding time is to run from the moment the party first gets the right to initiate it. Ordinarily, therefore, the right would accrue when the cause of action for the proceeding first arises. It is equally well known that by the words "the right to apply" is intended the right to apply on a particular cause of action. And where there are different causes of action there would accrue the right to apply as and when the subsequent cause of action arises. On an application of these principles, ordinarily, the right to apply under section 542 of the Act would accrue when the parsons sought to be liable committed the fraudulent acts or conduct in relation to which relief is sought. The scheme of the section is, however, such that the conduct of business complained of would not confer the right to apply because the right to apply is also dependent on two other conditions. One ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cient to attract the provisions of sections 542 and 543 of the Act this objection is, therefore, overruled. On behalf of respondent No. 3 it is urged that this respondent remained a director only for a period of 7 months during which no business was transacted by the company and that, in any event, the respondent having no control over the affairs of the company or of its accounts or records could not be held liable under the aforesaid provisions. It is further urged that the application could not proceed against this respondent in view of the provisions of section 426 of the Act. The question whether any business was conducted by the company during the period this respondent was a director and the extent to which the respondent was concerned with the conduct of the business of the company involves a controversy of fact which would require evidence for decision. This matter cannot, therefore, be decided on a preliminary objection. There is no substance in the contention that the present proceedings are in any manner barred by the provisions of section 426 of the Act. It, however, appears on a perusal of the application that apart from the vague allegations made against all the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is alleged against this respondent. It is further urged that this respondent was one of the shareholders of the company who had failed to pay the 50% of the value of the shares which was payable on March 31, 1965. A sum of Rs. 3,000 is thus shown as payable by this respondent. As has been pointed out above the liability of a member to pay for the unpaid value of a share could be enforced under section 426 of the Act and the failure of a member to make such a payment would not attract the provisions of sections 542 and 543 of the Act, even if he happened to be a director of the company. The liability to pay such an amount can neither be considered a fraudulent act nor tantamount to misapplication or retention of money or property of the company or be described as an act of misfeasance or breach of trust in relation to the company. It amounts to a failure to discharge legal obligation as a member which can be enforced in accordance with law. The petition must, therefore, fail as against this respondent as well. In the result the application is dismissed as against respondents Nos. 3 to 6. C.A. No. 157/75 is disposed of in these terms. The application is, however, proper and compet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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