TMI Blog1991 (5) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... resentatives of the deceased, V. N. Bhaskar, are neither necessary parties nor proper parties. The learned judge observed that the acts of oppression which have been alleged against the deceased, V. N. Bhaskar, cannot be ascribed to his legal representatives and no cause of action can be said to exist against the legal representatives of the deceased, V. N. Bhaskar. It was also observed by the learned judge that this court cannot pass any orders against the legal representatives which could have been passed under some other provisions of the law. It may be stated that the deceased, V. N. Bhaskar, died during the pendency of company petition under sections 397, 398 and 433 of the Companies Act. The petitioner, in the aforesaid petition, has averred how and in what manner the deceased acted resulting in diversion of the company's funds whereby promoting and supporting his various concerns at the cost and to the detriment of the company and for their own benefit and benefit of their company. In this connection, averments made in para 25 of the petition are relevant which are as under: "25. It is submitted that these poor results of the company have been caused and achieved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, respectively, exclusively from the pay-rolls of Bhaskar Stoneware Pipes Pvt. Ltd. and were debiting the said company for all their expenses for the other companies/concerns aforesaid. ( v )Further, funds have been diverted by payments of commission and other charges by the company to General Refractories Pvt. Ltd. which is believed to be a paper concern of the B. N. Bhaskar family. ( vi )It is reasonably believed and apprehended that there are other firms and concerns with whom the company deals, in which members of the B. N. Bhaskar family have substantial undisclosed interest, and from or through whom purchases are made or through whom sales are made on considerations other than the prevailing market prices, to the prejudice of the company. The petitioners crave leave to refer to and rely upon the company's records when produced. ( vii )In addition, the petitioners reasonably believe that respondents Nos. 2 and 3 have diverted monies from the coffers of the company for other means, for which the petitioners crave inspection of the company's records." Further, we may reproduce the prayer clause made in the petition so that it can be judged as to whether, in view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in annexure E representing the erstwhile share of Rajendra Nath Bhaskar in the company at the value of Rs. 50 per share. Thus, in this petition, a prayer with regard to repurchase of shares issued to B. N. Bhaskar Cement Products P. Ltd. has also been made and repurchase of shares which were got transferred from the members of the R. N. Bhaskar group to the members of B. N. Bhaskar group has also been sought. Mr. V. N. Kaura, learned counsel for the appellant submitted that, in an application under sections 397 and 398 of the Companies Act, the allegations made by the petitioner would be investigated and enquired into and if those allegations are found in favour of the petitioner, after inquiry, necessary orders under section 402 of the Companies Act can be passed by the company judge and if the allegations relating to misfeasance, misapplication of funds, breach of trust are prima facie found true, then an application under section 543 can -be moved for getting necessary relief for assessment of damages. Even for claiming that relief, a finding is required to be arrived at and it would be in the fitness of things that such allegations be enquired into in the presence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, 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 court 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 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. (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 winding up, or of the misapplication, retainer, mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be made if any such relief is prayed for in the course of winding up proceedings. If, during the winding up proceedings, prima facie it is found that any such misconduct as mentioned in section 543 is committed, then, an application seeking relief as contemplated in the said provision can be made. Such a relief can be sought against the heirs and legal representatives of the deceased director or other officer as mentioned in the said provision and no relief, in our opinion, can be granted to the petitioner in the absence of heirs and legal representatives of the director or any other officer as provided in section 543. The liability may be limited to the extent of property inherited by them but no order can be passed against them in their absence without giving them an opportunity of being heard. What is material is that an application with the necessary prayer should be there. It is only in that event that the heirs and legal representatives of the deceased are to be heard. In the present case, there is no such prayer asking for compensation or claiming for payment or restoration of any money or property. So, at this stage, with respect to the relief under section 543, the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sections 397 and 398, heirs of the deceased director are not required to be substituted and reliance is placed by him on the authority referred to by the learned single judge which is a Division Bench decision of the Allahabad High Court referred to above. It has been laid down in that decision that, in proceedings instituted under sections 397 and 398, it is not permissible to implead the legal heirs and legal representatives of the deceased director and to continue proceedings against them. This question was considered as to whether, in proceedings under sections 397 and 398, the legal representatives are to be impleaded or not. It was observed that, by application of sections 539 to 544, the liability of respondent No. 5 as a director could be enforced in the present proceedings. It was also observed that it is settled that the liability can be enforced only against a living director and not against the heirs and the legal representatives after his death. It was further observed that it is, therefore, not possible to accept the argument that the heirs of the deceased, Shri H. S. Bagla, cannot be brought on record and proceeded against in these proceedings without having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er requiring the company to purchase the shares issued to B. N. Bhaskar Company P. Ltd. and the shareholding which were got transferred from the members of the Ravinder Bhaskar group to the members of B. N. Bhaskar group and T. N. Bhaskar group. If such an order is passed by the court, which, in our opinion, could be passed under section 402 of the Companies Act, the rights of the heirs and legal representatives of the deceased may be affected. For the grant of such a relief to the petitioner, in our opinion, the heirs and legal representatives are required to be heard and it would not be proper that orders to that effect may be passed by the court without giving an opportunity of hearing. In our opinion, that would be in violation of the principles of natural justice as well. If the heirs and legal representatives of the deceased are allowed to be substituted and joined as parties, then they will have an opportunity of meeting the petitioner's case in respect of the aforesaid prayer. So, in our opinion, looking to the nature of the pleading and the prayer, the learned judge should have allowed substitution of the heirs and legal representatives in place of the deceased. In the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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