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PETITIONER:

THE OFFICIAL LIQUIDATOR

Vs.

RESPONDENT:

PARTHASARATHI SINHA & OTHERS

DATE OF JUDGMENT17/12/1982

BENCH:

VENKATARAMIAH, E.S. (J)

BENCH:

VENKATARAMIAH, E.S. (J)

FAZALALI, SYED MURTAZA

CITATION:

1983 AIR 188 1983 SCR (2) 211

1983 SCC (1) 538 1982 SCALE (2)1317

ACT:

Companies Act, 1956-Sections 543 and 634-Scope of-

Misfeasance and breach of trust alleged against directors of

a company in liquidation-Death of a director during pendency

of proceedings-Heirs and legal representatives of deceased

director, if could be substituted in place of deceased

director-After declaration of liability of director, if

amounts due could be realised from legal representatives.

HEADNOTE:

The respondents were the heirs and legal

representatives of one of the directors of a Company in

liquidation. When the company was ordered to be wound up,

the Official Liquidator took out summons under section 543

(1) of the Companies Act against its directors for a

declaration that the said directors were guilty of

misfeasance and breach of trust and also for an order

directing them to repay or restore the money or property of

the company in liquidation which they were alleged to have

retained wrongfully. During the pendency of the proceedings

one of the directors died intestate leaving behind the

respondents as his heirs and legal representatives. At the

instance of the Official Liquidator the Company Judge passed

an order substituting the respondents in place of the

deceased director.

Allowing the respondents’ appeal, a Division Bench of

the High Court held that no further action in the

misfeasance proceedings could be taken against the legal

representatives of the deceased director. In coming to this

conclusion the High Court purported to follow the decision

of this Court in Official Liquidator v. P.A. Tendolkar

(dead) by L. Rs., [1973] 3 S.C.R. 364.

Allowing the Appeal,

^

HELD: The liability arising under the misfeasance

proceedings is founded on the principle that a person who

has caused loss to the company by an act amounting to breach

of trust should make good the loss. Section 543 of the Act

provides for a summary remedy for determining the amount

payable by such person on proof of the necessary

ingredients. The section authorises the Court to direct such

persons chargeable under it to pay a sum of money to the

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Company by way of compensation. This is not a provision

intended to punish a man who has been found guilty of

misfeasance but is only intended for compensating the

company in respect of the loss occasioned by his

misfeasance. Whenever there is a relationship based on

contract, quasi contract, some fiduciary relation or a

failure to perform a duty, there is no

212

abatement of the liability on the death of the wrong doer.

When once the liability is declared, it is open to the

Official Liquidator to realise the amount due by resorting

to section 634 of the Act and section 50 of the Code of

Civil Procedure. In Tendolkar’s case this Court did not

consider the effect of section 634 of the Act which made the

relevant provisions of the Code of Civil Procedure relating

to execution of decrees applicable to orders passed by the

Court under the Act. [223 C-F]

At the conclusion of the proceedings under section 543

a declaration of the liability is made. Such declaration

partakes of the character of a decree in a suit. When once

such declaration is made it can be enforced under section

634 of the Act and where the order made by one court has to

be executed by another court the procedure prescribed by

section 635 of the Act has to be followed. In the co