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TMI Blog2010 (12) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, he could not possibly be involved in any acts of alleged misfeasance concerning the company. Thus, on such evidence he should be relieved from the proceeding. Facts in detail : 3. Now, let me examine the facts in more detail. 4. The applicant was appointed a director of the company on November 25, 1987. According to him, he resigned from the board of directors on December 28, 1995. The board accepted such resignation. The statutory Form No. 32 was filed with the Registrar of Companies on January 22, 1996. It was taken on record by the Registrar of Companies only on March 30, 2000. The company was wound up on January 14, 2003. A summons for misfeasance under section 543 of the Companies Act, 1956, was taken out by the official liquidator on December 19, 2007. On April 7, 2009, this summons was taken out by the applicant for being discharged from this proceeding. 5. Generally, after a company is wound up an enquiry is made by the official liquidator as to whether any person in control of the company at the point of time of its winding up or in the past had caused any monetary loss to the company by misappropriation or misapplication of its funds or by not properly dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the misfeasance proceedings were quasi criminal in nature. While initiating such proceedings the charges against the alleged delinquents had to be specified in detail. Otherwise such proceeding could be dismissed on the principles of Order 7, rule 11 of the Code of Civil Procedure, 1908. Such proceedings on unspecific allegations were an abuse of the process of the court. The court could not waste its precious time by holding a trial when the basic facts pleaded at the time of initiation of the proceedings did not disclose a cause of action. 11. On the other hand Mr. A.K. Dhandhania, the learned advocate, representing the official liquidator cited P.K. Nedungadi v. Malayalee Bank Ltd. (in liquidation) [1972] 42 Comp Cas 120 (SC). He has also cited Official Liquidator, Supreme Bank Ltd. v. P.A. Tendolkar [1973] 43 Comp Cas 382 (SC). His argument based on these two decisions is that the official liquidator is entitled to proceed against all the directors jointly, which must necessarily include the applicant, on the existing charges. He submits that the loss caused to the company is such that it is attributable to the directors jointly. No allegation of fraud need be made. 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, 3rd edition, volume 6, it has been stated at page 623 that misfeasance and breach of trust include a breach by a promoter, director, etc., of a duty to the company the direct consequence of which has been a misapplication or loss of its assets for which he could be made responsible in an action. Allegations or proof of fraud are not essential and it is immaterial that the offence is one for which the offender may be criminally liable." 17. Again the Supreme Court decision in Official Liquidator, Supreme Bank Ltd.'s case (supra), lays down the following dictum (page 400) : "It is certainly a question of fact, to be determined upon the evidence in each case, whether a director, alleged to be liable for misfeasance, had acted reasonably as well as honestly and with due diligence, so that he could not be held liable for conniving at fraud and misappropriation which takes place. A director may be shown to be so placed and to have been so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of the business of a company even though no specific act of dishonesty is proved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be not merely cognizant of but liable for fraud in the conduct of the business of a company even though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially. If he does so he could be held liable for dereliction of duties undertaken by him and compelled to make good the losses incurred by the company due to his neglect even if he is not shown to be guilty of participating in the commission of fraud. It is enough if his negligence is of such a character as to enable frauds to be committed and losses thereby incurred by the company." 20. It is also said that the allegation or proof of fraud need not be made (see P.K. Nedungadi's case (supra). 21. Therefore, what is deducible from these two decisions of the Supreme Court is that an allegation of misfeasance has to be made and proved against a director or officer indicating his connection with such loss. Further, if the connection of such director or officer with the company is so inextricable that the act of a director or officer is the act of the company, then there is a presumption of such liability i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment to provide particulars is out of an obligation of a party alleging a case to put the adversary to proper notice (see Sarkar on Civil Procedure Code 11th edition page 1036 relying on the judgments of Thorp v. Holdsworth [1876] 3 Ch. D 637, respectively). The purpose of such a requirement is that the other party is not taken by surprise (Ladli Parshad Jaiswal v. Karnal Distillery Co. Ltd. [1963] 33 Comp Cas 593). If such notice is not given, the court is to take no notice of such allegation (see the English and our decisions referred at page 1037 of the said commentary by Sarkar). 32. Therefore, on the above authorities, when the Code says that particulars of wilful default have to be provided in the plaint, it means that those detailed facts constituting such act have to be brought out. If they are not so brought on record the court might refuse to frame issues or consider evidence on those points. The trial will proceed as if the dispute or issue is absent. But the plaint, in my opinion, cannot be thrown out for want of particulars. There is one exception. If the lack or insufficiency of particulars is so great that the plaint does not disclose a cause of action or the cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly or to the applicant. 36. Relying on the above authorities I hold that if it is proved that a respondent former director or officer had left the company reasonably long before the company went into liquidation, the official liquidator making an allegation of misfeasance is fixed with the additional duty, to enquire in greater detail how this former director or officer was responsible for such loss and make more specific allegations of them with all relevant particulars. Otherwise such proceedings brought against him would be without disclosing a cause of action and an abuse of the process of law and of the court. Here the applicant having resigned more than seven years before the winding up order, the onus of the official liquidator was to furnish such details. He has not done so. Hence the judge's summons and the points of claim do not disclose any cause of action against the applicant. Continuance of such proceeding would be an abuse of the process of law and court. 37. Therefore, on this solitary ground I would allow this application. The above misfeasance proceedings are struck off against the applicant. Although I refrain from making any comment regarding the pleadings c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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