TMI Blog2017 (10) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... eing filed in view of report of Mr. NC Jain, Chartered Accountant and the record as available with him, there does not appear to be any single particular specific act which can be said to have been committed by any of the particular Director as required within the meaning of the provisions of Section 443(1) of the Act of 1956. The allegations which were originally made, have not been found to be correct by the Income Tax Authorities and the appeal thereto has also been dismissed. In the written submissions, a new case is sought to be made out which is not in any manner coming out from the report of Mr. NC Jain or his statements. The allegations are vague and bald which could not be said to be sufficient to hold the respondents guilty of causing breach of trust or misfeasance within meaning of Section 543 of the Act. - S. B. Company Application No. 14 / 2007, S.B. Company Petition No. 15/1999 - - - Dated:- 4-10-2017 - Sanjeev Prakash Sharma, J. For the Petitioner : Mr. KJ Mehta, Adv. With Mr. US Patole, OL For the Respondent : Mr. VL Mathur, Adv. With Mr. LN Acharya, Adv. Sanjeev Prakash Sharma JUDGMENT 1. Instant company application has been filed by the Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicants from out of a group of 1000 members in each category selected by Computer on payment of subscription of EMI s. The scheme had targeted to enroll 4000 members within a time period of 40 months. The records of the Company show that it had registered 4491 subscribers through the agent M/s. Tribhuvan Estates Bureau, a proprietary concern owned by Ms. Meena Agarwal, a Director of the Company M/s. Swastik House Leasing Limited and the daughter of Shri Manak Chand Agarwal, the promoter and Director of the Company M/s. Swastik House Leasing Limited and had collected ₹ 87.40 lakhs and ₹ 19.55 lakhs by the end of 31.03.1993 under the first and second schemes respectively. However, the said schemes could not run after the detection by the Income Tax authorities about the said schemes being false and bogus after search and investigation having been carried out by the Income Tax Authorities on 06.02.1994. The entire deposits held in the name of registration fees and subscriptions were returned by the Company through the same agent M/s. Tribhuvan Estates Bureau in March 1994. As the transactions were found to be bogus, the Income Tax Authorities had framed huge tax demands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y proof for having the amount paid by the agent to the members for interest amount collected by them form Swastik House Leasing Limited was not available on record in the last balance sheet drawn by the Company on 31.03.2000, the Company has shown a liability of 18,55,606/- against accrued interest. Meaning thereby that it had paid ₹ 6,10,363 out of an aggregated sum of ₹ 24,65,969/-. The entire payments were bogus in view of the finding by the Income tax authorities and therefore the payments towards interest of ₹ 6,10,363 made by the Company in the name of the Company were liable to be recovered form the Respondents as the aforesaid are acts and omissions being in breach of the provisions of Section 543 of the Companies Act, 1956. As the aforesaid facts show that the respondents had committed a misappropriation of the sum of ₹ 6,10,363/- of the Company as such they were liable to make good this amount to the Company. b) That the Report of the Chartered Accountant (Annex-1) further discloses that the Company had paid commission of ₹ 1,30,638/- during 1991-92 to the agent M/s. Tribhuvan Estates Bureau for soliciting registration of members but no su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying on entry/ hawala business by the Company and further disclosing the fact about the members/ Subscribers as fictitious. Further, during the assessment as well an appeal proceedings before the CIT (Appeals) the Company had failed to submit requisite details, documents and information in respect of the deposits against registration fees and installments form depositors and various expenditures in order to prove the claim of genuineness of depositors and allowing expenditure as business expenditure. The Company had repaid all the money to its depositors except some portion of accrued interest. In the light of the above stated facts and information it was established that the Company was engaged in an illegal hawala/ entry business which was against the objects and provisions of the Companies Act, 1956. Therefore the ex-director, the respondent no. 1 who was managing the affairs of the Company had committed a breach of trust in relation to the company within the meaning of section 543 of the Companies Act, 1956 and was liable for the Tax demand of ₹ 2,24,55,422 raised and demanded by the Income tax Department for running an illegal hawala/ entry business during the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In defence, they have pointed out that the work was being managed by his late father Mr. Manik Chand Agarwal and neither DW.1 nor DW.2 have derived any monetary benefit from the assets of the Company. As regards Mr. Dharmendra Agarwal, he submits that he had no idea that he was a Director of the Company. He had no knowledge of M/s. Tribhuvan Estates Bureau. It is stated that he has no property of the Company and it was late Mr. Manik Chand Agarwal who was looking after entire affairs of the Company. Smt. Meena Agarwal (DW.2) has stated that she was not managing affairs of the Company and she had no knowledge about the functioning of M/s. Tribhuvan Estates Bureau. She also is not in a position to state anything relating to the report of Chartered Accountant and has shown and felt complete ignorance why it was closed. 12. The written submissions were also submitted by learned counsel for the OL and the submissions as quoted have been reiterated. 13. Heard learned counsel for the parties. 14. Learned counsel for the respondents submits that the allegation should be rejected as the allegations alleged are wholly vague. There is no individual culpability proved by the evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to be repaid or restored with interest. If there has been a breach of duty of the Director towards the Company which has resulted in causing loss on its assets, the Director can be held responsible. 19. In the case of Official Liquidator, Supreme Bank Ltd. Vs. PA Tendolkar: AIR 1973(SC) 1104, it has been held as under:- 41. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul and amounted to misfeasance with culpable negligence. But here a caveat has to be lodged that not all acts which result in loss to the company can be treated as misfeasance because while carrying business, there is every likelihood that loss may be incurred in a transaction or number of transactions. If therefore any loss is caused to the company, all its directors may not thereby automatically became jointly and severally liable therefor. The meaning of misfeasance is the improper performance of some act for the purpose of Section 545, which a person may lawfully do. In other words, it should be such a Director while carrying out an activity is otherwise empowered to carry out under the law, but performs it in such a manner that the same is improper and such impropriety has to be willful so as to cause loss to the company. 18. The allegation of misfeasance has to be therefore pleaded and proved against each of the Director(s) or erstwhile Directors(s) indicating thereby that such act or omission on his part has led to the loss caused to the company or that such loss resulted from his act or omission. If such connection is proved, then only it can be held that loss of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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