TMI Blog2015 (6) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the matter, can compel an officer or other persons mentioned in section 543 to repay or restore the property with interest at such rate as the court may think fit or to contribute such sums to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as it thinks fit. The allegation of misfeasance and misapplication has to be specifically pleaded with material particulars against each of the directors/erstwhile directors of the company. It is necessary that specific acts of commission or omission and/or negligence on the part of each director are pointed out and it is shown that the loss suffered by the company was result of such omission, commission or negligence. It is only then that the loss can possibly be quantified as the order of recovery of such loss shall have to be directed against such or any of the directors. In the circumstances, therefore, the petitioner cannot be said to have proved the ingredients of section 543 of the Companies Act, necessary for holding the respondents-erstwhile directors of the company guilty of misfeasance, misapplication, breach of trust or retention of the money of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , learned senior counsel for the applicant assisted by Shri Gaurav Sharma on behalf of the official liquidator and Shri V. L. Mathur, learned counsel for the respondent. 4. Shri G. K. Garg, learned senior counsel for the applicant submitted that the winding up order was passed on the own request of the directors of company as voluntary winding up and that Shri R. M. Khandelwal, the chartered accountant was appointed on their own request for preparing the statement of affairs. He had to prepare report on the basis of whatever records were available. As no records for the period dated January 1, 1988 to November 3, 1989, were made available, in absence of that, it cannot be said that the statement of affairs prepared by him were having full particulars or gave true picture of assets and liabilities of the company. This fact has been proved by Shri R. M. Khandelwal, the chartered accountant in his affidavit/statement made before this court. M/s. N. C. Jain and Associates, the chartered accountant was appointed to investigate the accounts with respect to misfeasance, etc. He also in his report dated October 5, 1994, clearly stated that it was not possible for him to carry out the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill continued as director. Neither he appeared as witness, nor has specified his defence, nor placed on record the certificate of the company or general rules and Form 56 as required under sections 303, 305 and 306 of the Companies Act. The fact about the alleged resignation of respondent No. 3 has been refuted by the other two respondents, i.e., Shri D. D. Sinha and Smt. Kusum Sinha, who in their counter affidavit/cross-examination have maintained that respondent No. 3 continued to be director of the company and did not resign. They have stated that respondent No. 3 was very much director of the company and therefore, it is argued that respondent No. 3 cannot escape from liability. 7. Shri G. K. Garg, learned senior counsel in support of his arguments has relied on the judgment of the Karnataka High Court in Shivmoni Steel Tubes Ltd. v. A. Murali [2002] 35 SCL 258 the judgment of the Gujarat High Court in Official Liquidator, Dhavalgiri Paper Mills (P.) Ltd. v. Chinubhai Khilachand [2003] 46 SCL 103 and judgment of the Calcutta High Court in Baldev Raj Taneja v. Official Liquidator. 8. Shri V. L. Mathur, learned counsel appearing for the respondents has argued that originall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misfeasance, nor any such act has been pointed out by Shri N. C. Jain in his report dated October 5, 1994. This report, in fact, lacks in specific instances. In fact, he has shown his helplessness to prepare the report unless the books of account and other records of the company would be available. Lack of evidence cannot be taken as substitute of proof. The official liquidator has therefore miserably failed to prove the act of misfeasance against any of the directors. The application under section 543(1) of the Companies Act is liable to be dismissed with cost. Shri V. L. Mathur, learned counsel for the respondents in support of his arguments has relied on the judgments in Official Liquidator of Shield Shoe Co. (P.) Ltd. v. Fateh Chand Pahwa[2007] 75 SCL 41 (Raj.) and judgment in Shivmoni Steel Tubes Ltd. (supra), Chinubhai Khilachand (supra) and Baldev Raj Taneja (supra). 10. Before embarking upon the merits of the case, this court, in view of the kind of the material produced on record to bring home the guilt of the respondent-directors, deems it appropriate to examine the position of law as to in what circumstances, director and for that matter, the ex-director of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any 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. 13. In Union of India v. S.P. Mathur [2009] 89 SCL 6 (All.) in a proceeding under section 543 of the Companies Act on allegation of negligence, misfeasance or breach of trust against the ex-directors of the company in liquidation, it was held by the Allahabad High Court that even if the directors have not misapplied or retained the properties and it is proved that they have acted in reckless manner without taking care of statutory requirement and applying basic common sense in sanction of the amounts, which could not be recovered, such directors commits misfeasance. 14. The Gujarat High Court in Official Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editor or contributory of the company. This has to be so because the purpose of the application is to ensure that any past or present director, or managing agent, etc., having a controlling interest in the company may not be able to evade his liability either by the weight of his influence in the affairs of the company or by pleading that under the law it is only the company which has the right to sue and no one else. Even if action by way of a suit is found to be barred by the law of limitation in any particular case, the remedy by an application under section 543 of the Companies Act is still available to the official liquidator if the extended period of limitation prescribed by the section happens to be available to him. 17. The Calcutta High Court in Central Calcutta Bank Ltd., In re [1959] 29 Comp Cas 437 held that in order to appreciate the case within the purview of section 543, it is essential to establish that there has been a breach of trust and that the breach has resulted in pecuniary loss to the company. The Calcutta High Court in Indo-Burma Industries Ltd., In re [1957] 27 Comp Cas 390, held that the order misfeasance in section 235 has not been defined. The coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Smt. Shyama Shrivastava, Shri Raisuddin Qureshi became director and continued as such till the date of presentation of the winding up petition. Shri Rakesh Shrivastava claims to have resigned from the company on September 28, 1988, whereas the official liquidator has disputed such assertion contending that he never appeared in the witness box to substantiate the said defence, nor placed on record Form 34 of the Companies (Central Government's) General Rules and Forms, 1956 as required by sections 303(2), 305 and 306 of the Companies Act, 1956. Even if therefore we proceed on the assumption that he did not resign, yet the official liquidator is required to specifically allege the negligence on the part of each of the directors. The allegation of misfeasance and misapplication has to be specifically pleaded with material particulars against each of the directors/erstwhile directors of the company. It is necessary that specific acts of commission or omission and/or negligence on the part of each director are pointed out and it is shown that the loss suffered by the company was result of such omission, commission or negligence. It is only then that the loss can possibly be quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was originally incorporated on November 8, 1995, but after retirement of Smt. Shyama Shrivastava, Shri Raisuddin Qureshi became director and remained till the date of presentation of winding up petition. The official liquidator has failed to implead him as party-respondent. While Shri Rakesh Shrivastava has asserted that he resigned as director of the company on September 28, 1988 and that he was in full time employment elsewhere and never took part in the affairs of the company. Shri Vijay Kumar Kaushal, the original director died in road accident on January 4, 1988. It was after his death that his widow Smt. Kusum Sinha and one Shri D. D. Sinha became directors on January 8, 1988. The respondents have demanded the accounts of the company. Smt. Kusum Sinha was given cash balance of ₹ 2,667 when these two directors were newly appointed and that the other money that was shown to have been in the hands of different branches was never recovered except the amount of ₹ 5,64,000 which was lying in the company bank account with the State Bank of Bikaner and Jaipur, Tilak Marg, Jaipur, which is still lying there. It is a question of fact to determine from the evidence whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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