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1987 Supreme(P&H) 629
PUNJAB & HARYANA HIGH COURT
R.N.Mittal, J.
Smart Advertising Co.(P.) Ltd.(In Liquidation)
Versus
Ramesh K.Nanchahal
Company Petition No. 41 of 1983,
Decided On : SEPTEMBER 17, 1987
Directors are liable to reimburse the company for any loss suffered by the company due to their breach of duty.
Headnote:
COMPANY LAW - WINDING UP - MISFEASANCE AND BREACH OF TRUST - LIABILITY OF DIRECTORS - SECTION 543 OF THE COMPANIES ACT - INTERPRETATION AND APPLICATION - DIRECTORS HELD LIABLE FOR LOSS SUFFERED BY COMPANY DUE TO THEIR BREACH OF DUTY.
Fact of the Case:
The petitioner company was ordered to be wound up and the official liquidator was appointed. The respondents, who were the managing director and director of the company, were alleged to have committed misfeasance and breach of trust in relation to the company. It was found that they did not take any action to recover debts due to the company, which had become time-barred before the winding-up order.
Finding of the Court:
The court found that the respondents were guilty of misfeasance and breach of trust in relation to the company, as they failed to take any action to recover the debts due to the company, which resulted in the debts becoming time-barred. The court held that the respondents were liable to reimburse the company to the tune of Rs. 4,056.77, which was the amount of the debts that had become time-barred.
Issues: Whether the respondents were guilty of misfeasance and breach of trust in relation to the company.
Ratio Decidendi: The court held that the respondents were guilty of misfeasance and breach of trust in relation to the company, as they failed to take any action to recover the debts due to the company, which resulted in the debts becoming time-barred. The court relied on Section 543 of the Companies Act, which provides that if it appears that any past or present director of the company has been guilty of misfeasance or breach of trust in relation to the company, the court may, on the application of the official liquidator, or the liquidator, examine-into the conduct of the director and compel him to contribute such sum to the assets of the company by way of compensation in respect of misfeasance or breach of trust as the court thinks just.
Final Decision: The court passed a decree for recovery of Rs. 4,056.77 with interest at the rate of 12% per annum from the date of filing of the petition till the amount is realised jointly and severally against the respondents. The respondents were also ordered to pay the costs of the petition.
R.N.Mittal, J.
1. The petitioner-company was ordered to be wound up by this court, vide order dated August 31, 1984, in Company Petition No. 41 of 1983 and the official liquidator was appointed as its liquidator. Respondents Nos. 1 and 2 were its managing director and director, respectively, during the time it functioned. The respondents, it is alleged, did not take any active part in the functioning of the company and some of their acts were considered fraudulent and against the interest of the company and its creditors. They are, therefore, guilty of misfeasance and breach of trust in relation to the company.
2. It was further pleaded that on going through the statement of affairs, it was found that all the debts due from various parties to the company had become time-barred before it came into liquidation and the respondents did not take any action for realisation of those debts. The debts aggregate to Rs. 4,056.77 as detailed below :
Serial No.
Name and address
Amount Rs. P.
1.
The Indian Farming Ministry of Agriculture, Govt. of India
44.10
2.
The Indian Express, Delhi
19.80
3.
The Indian Express, Mount Road, Madras
29.40
4.
The Times of India, Ahmedabad
6.00
5.
Sh. Ajit Singh, Sherpur Engg., Garh Road, Meerut
16.20
6.
Pt. Hem Raj Sharma Raj Jyotishi, V. & P. O., Kartarpur
600.00
7.
M/s Bagga Art Studio, Gill Road, Rani Market, Ludhiana
3395.07
8.
Ramesh K. Nanchahal, Impression International, G. T. Road. Miller Ganj, Ludhiana
3718.48
9.
The Director of Commercials, All India Radio, Backbay Reclamation, Bombay
11,443.75
10.
M/s. Dynamic Sales Corpn., Rohit House, Tolstoy Marg, New Delhi
100.00
11.
Gurunanak Fertilizers, V. & P. O. Gill, Ludhiana
139.20
12.
M/s. Peshawar Perfumery Products, Janta Nagar, Gill Road, Ludhiana
210.00
13.
M/s. Sellaids, G. T. Road, Miller Ganj, Ludhiana
3274.41
14.
The Harathweda, Aurangabad
60.36
Total
4,056.77
3. The above debts are the only assets-of the company and the creditors can be paid on realisation thereof. The respondents are personally liable to pay the aforesaid amount. Consequently, it is prayed that a decree for recovery of Rs. 4,056.77 with interest at the rate of 12% per annum from the date of the winding-up order, i.e., August 31, 1984, till the date of realisation of the amount, be passed in favour of the petitioner company and against the respondents jointly and severally.
Notice of the petition was issued to the respondents. The respondents did not appear to contest the case. Consequently, they were proceeded against ex parte.
4. The petitioner, in order to prove the case, produced Shri R. S. Negi, official liquidator. He deposed about the aforesaid facts. He further deposed that respondent No. 1 filed the statement of affairs with the list of debtors and creditors on November 17, 1984. After going through the statement, it was found that a sum of Rs. 4,056.77 was realisable from the debtors by the company (in liquidation). The amount had become time-barred before the winding-up order passed by the court.
From the aforesaid statement, it is clear that the respondents did not institute any proceedings against the debtors for recovery of the amounts due to the company and allowed them to become time-barred. Section 543 of the Companies Act, inter alia, provides that if it appears that any past or present director of the company has been guilty of misfeasance or breach of trust in relation to the company, the court may, on the application of the official liquidator, or the liquidator, examine-into the conduct of the director and compel him to contribute such sum to the assets of the company by way of compensation in respect of misfeasance or breach of trust as the court thinks just. The words "misfeasance and breach of trust" have been denned by the Supreme Court in P.K. Nedungadi v. Malay alee Bank Ltd. [1972] 42 Comp Cas 120; AIR 1971 SC 829, wherein it was observed that misfeasance and breach of trust include breach of duty to the company resulting directly in mis
