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2010 Supreme(Kar) 1174
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
Ram Mohan Reddy, J.
Official Liquidator, Bangalore Batteries (P.) Ltd. (in Liquidation) —Appellant
Vs.
N.S. Gopal —Respondent
Company Application No. 147 of 2004 and Company Petition No. 21 of 1998
Decided on : 28-05-2010
Advocate Appeared:
Mr. K.S. Mahadevan, V. Jayaram, for the Appellant
Mr. Vishwanath R. Hegde, for the Respondent
The main legal point established is that the difference in value of assets alone does not constitute misfeasance or breach of trust, but misapplication and retention of company funds by directors can lead to liability under the Companies Act, 1956.
Headnote:
Companies Act, 1956 - Misfeasance - Section 543 - The court invoked section 543 of the Companies Act, 1956 to summon the respondents for examination and to direct the ex-directors to make good certain amounts to the Official Liquidator. The court rejected the claim for recovery of Rs. 26,83,000 but allowed the claim for Rs. 1,85,827 with interest at 12 per cent.
Fact of the Case:
The company in liquidation invoked section 543 of the Companies Act, 1956 to seek reliefs against the ex-directors for misfeasance and breach of trust. The respondents were found liable to pay a certain amount with interest to the Official Liquidator.
Finding of the Court:
The court found that the ex-directors were liable to pay a certain amount with interest to the Official Liquidator, but rejected another claim for recovery of a different amount.
Issues: The issues involved whether the respondents were liable to make good certain amounts to the Official Liquidator as per the Companies Act, 1956.
Ratio Decidendi: The court held that the difference in value of assets alone did not constitute misfeasance or breach of trust, but found the ex-directors guilty of misapplication and retention of certain amounts, holding them liable to pay with interest at a reduced rate.
Final Decision: The application was allowed in part, with the respondents being jointly and severely liable to pay Rs. 1,85,827 with interest at 12 per cent.
Ram Mohan Reddy, J.— The company in liquidation represented by the Official Liquidator has presented this petition invoking section 543 of the Companies Act, 1956 for short 'the Act', for the following reliefs:
(a) to summon the respondents 1 to 3 for the purpose of examination with regard to the matter specified therein.
(b) Direct the ex-directors to make good the said amount of Rs. 26,83,000 to the Official Liquidator together with interest at the rate of 18 per cent p.a. with effect from the date of winding up order, i.e., 26-2-1999 till the date of payment.
(c) Direct the ex-directors to make good the said amount Rs. 1,61,605 to the Official Liquidator together with interest at the rate of 18 per cent p.a. with effect from the date of winding up order, i.e., 26-2-1999 till the date of payment.
(d) Direct the ex-directors to make good the said amount of Rs. 24,222 to the Official Liquidator together with interest at the rate of 18 per cent p.a. with effect from the date of winding up order, i.e., 26-2-1999 till the date of payment.
(e) To order that the respondents do pay the costs of and incidental to this application.
(f) To order that liberty be reserved to the applicant/Official Liquidator to file additional points of claim after submitting investigation report by the chartered accountant appointed by this Hon'ble Court.
(g) To pass such other Order or orders as this Hon'ble Court may deem fit and proper in the circumstances of the case.
2. The respondents 1 and 2, Ex-directors of the company-in-liquidation when served with the notice of this application, have engaged counsel, while the 3rd respondent though served remained absent and was placed ex parte by order dated 10-8-2007. The application is not opposed by filing statement of objections of respondents 1 and 2. The applicant examined one witness as PW-1 and marked three documents as Ex.P1 to P3, and when tendered for cross-examination, as there was no representation, cross-examination was taken as nil and the witnesses discharged. The respondents have not chosen to examine witness nor produce documents.
3. It is stated that the applicant-company was ordered to be wound up on 26-2-1999 in COP 21/1998. That company, it is stated carried on business of manufacture, production, purchase, sale, import, of all type of storage of all kinds of battery plates, cells, dry batteries, etc., and the balance sheet made up to 31-3-1998 disclosed the Authorised share capital of Rs. 20 lakhs, while subscribed, paid-up capital Rs. 7,50,000. Respondents were the directors of the company as on the date of winding up order. The factory, land and building, plant and machinery of the applicant located at Doddaballapura were under the custody M/s. Karnataka State Financial Corporation. The applicant filed CA No. 1149/1999 under Section 454(5A) of the Act against the ex-directors of the company-in-liquidation for not filing statement of affairs. One of the ex-directors, 1st respondent herein filed statement of affairs, since defective, notices were issued to the ex-directors for rectification and that application is said to be pending disposal.
4. This Court having directed the Official Liquidator to engage the services of M/s. K.S. Ramprasad and Company to investigate into the affairs of the company, the report when not received within time limited, i.e., 26-2-2004, hence, the application was presented reserving liberty to file additional grounds and claims of misfeasance, if any committed by the respondents.
5. The first claim relates to Rs. 26,83,000 being the difference in the value of the fixed assets, plant and machinery, furniture and fittings valued at Rs. 60,15,000 in the statement of affairs filed by the 1st respondent, while the very same assets are valued at Rs. 33,32,000 by M/s. KSFC. The second claim for Rs. 1,61,605 is based upon the entries in the audited balance sheet as on 31-3-1998 against the head of account loans and advances. The respondents having failed to realise the s
