Decided on August 09,1978

JOSELIN Appellant


Balakrishna Eradi, J. - (1.) These appeals have been filed against an order passed by the learned Company Judge allowing three applications filed by the Official Liquidator to bring on record in a misfeasance proceeding Application No. 153 of 1971 in C.P. No. 27 of 1965 Initiated under S.543 of the Companies Act. 1956 (hereinafter referred to as the Act) the legal representatives of three Directors who died during the pendency of the misfeasance petition. The question raised in these appeals is whether it was legally open to the Company Court to direct the impleadment of the legal representatives of the deceased Directors in the proceedings started under S.543. The appellants who have raised this question are the legal representatives of the three deceased Directors.
(2.) A Company by name Alwaye Chit Funds (P) Ltd. was ordered to be wound up in C.P. No. 27 of 1965 and in the winding up proceedings the Official Liquidator filed Application No. 153 of 1971 praying that action should be initiated under S.543 of the Act against the past Directors of the Company on the ground that they had committed acts of misfeasance, breach of trust, etc., in relation to the Company. During the pendency of that application three of the respondents died. The 1st respondent died on 21st November, 1973. The 8th respondent died on 20th May, 1974 and the 9th respondent died on 18th August, 1976. Applications were filed by the Official Liquidator for impleading the legal representatives of these respondents only on 22nd November, 1976. The Liquidator also prayed for condonation of the delay and for setting aside the abatement. Those applications were resisted by the legal representatives of the deceased respondents, who are the appellants before us, by contending that the special remedy given under S.543 of the Act does not survive the death of the concerned Director and that in any event sufficient grounds were not shown by the Liquidator for condonation of the inordinate delay and setting aside the abatement that had already taken place. The learned Company Judge overruled the objections raised by the legal representatives and allowed the applications filed by the Official Liquidator. Hence these three appeals by the legal representatives of the three respondents.
(3.) Although it was contended before us on behalf of the appellants that the maxim 'actio personalis moritur cum persona' is applicable in respect of the proceedings initiated against a delinquent Director under S.543 of the Act and the rulings in Manilal Brijlal v. Vendravandas C. Jadav and others, (AIR 1944 Bom. 193) Pattiam Veettil Menokki Sankaran Nambiar v. Kottayam Bank by Official Liquidator, Tellicherry and others, ( AIR 1946 Mad. 304 ) and In re The Peerdan Juharmal Bank Ltd. (in liquidation) by its Joint Official Liquidator, ( AIR 1958 Mad. 583 ) were strongly relied on by the learned advocate for the appellants in support of the above contention, the matter is directly concluded against the appellants by the pronouncement of the Supreme Court in Supreme Bank v. P. A. Tendolkar, ( AIR 1973 SC 1104 ). After an exhaustive review of the decisions rendered on the point by the various High Courts in India inclusive of the decisions in AIR 1944 Bombay 193, AIR 1946 Mad. 304 and AIR 1958 Madras 583, the Supreme Court stated its conclusion as follows :- "The decisions of our High Courts, while keeping in view the consideration that a misfeasance proceeding contemplated by S.235 of the Act of 1913, involving an inquiry into the personal conduct of persons acting in capacities mentioned therein, may attract the application of the maxim 'actio personalis moritur cum persona', have proceeded, very rightly, more on an interpretation of the provisions of S.235 than on the application of that maxim. The maxim actio personalis moritur cum persona, as pointed out in Winfield's 'Law of Tort (Eighth Edn. pp. 603-605), was an invention of English Common Lawyers. It seemed to have resulted from the strong quasi criminal character of the action for trespass. Just like a prosecution for a criminal offence, the section for trespass, which was 'the parent of much of our modern law of tort', was held, by applying this maxim, to be incapable of surviving the death of the wrongdoer, and, in some cases, even of the party injured. The maxim, with its extensions, was criticised by Winfield and found to be 'pregnant with a good deal more mischief than was ever born of it". Whatever view one may take of the justice of the principle, it was clear that it would not be applicable to actions based on contract or where a tortfeaser's estate had benefited from a wrong done. Its application was generally confined to actions for damages for defamation, seduction, inducing a spouse to remain apart from the other, and adultery. We see no reason to extend the maxim, as a general principle, even to cases involving breaches of fiduciary duties or where the personal conduct of the deceased Director has been fully enquired into, and the only question for determination, on an appeal, is the extent of the liability incurred by the deceased Director. Such liability must necessarily be confined to the assets or estate left by the deceased in the hands of the successors. In so far as an heir or legal representative has an interest in the assets of the deceased and represents the estate, and the liquidator represents the interests of the Company, the heirs as well as the liquidator should, in equity, be able to question a decision which affects the interests represented. Explaining the position further with specific reference to the nature of the power conferred on the court by S.543 of the Act and the object and purpose underlying the said provision, the Supreme Court pointed out that both S.235 of the Companies Act, 1913 and 543 of the Companies Act, 1956 to which the former corresponds, confine the power of the court to make orders for repayment or restoration of money or property or contribution to the assets of the company against the individuals occupying the capacities mentioned therein either in the past or present, and went on to observe: "This power does not on the language of these provisions, extend to making compulsive orders against heirs of delinquents. As the power to take these special proceedings is discretionary and does not exhaust other remedies, although, the Court may, as a matter of justice and equity, drop proceedings against delinquent Directors, Managers or Officers who are no longer alive, leaving the complainant to his ordinary remedy by a civil suit against the assets of the deceased, yet where no injustice may be caused by continuing these proceedings against a past Director, eventhough he be dead, the proceedings could continue after giving persons who may be interested opportunities to be heard. But, even such proceedings can only result in a declaration of the liability, of a deceased director, because the language of S.235 of the Act of 1913, as already noticed, does not authorise passing of orders to compel heirs or legal representatives to do anything. Such compulsive proceedings as may become necessary against those upon whom devolve the assets or the estate of a deceased delinquent Director, who may have become liable, could only lie outside S.235 of the Act of 1913. * * * * * It may be possible (though we need express no final opinion on the matter) where a proceeding under S.543 is covered also by the terms of S.542 of the Companies Act of 1956, to give directions to persons other than those whose conduct is enquired into, including directions to heirs and legal representatives, for the purpose of enforcing a declaration. But, we think that the power under S.235 of the Act of 1935, which corresponds to S.543 of the Act of 1956, would not extend beyond making a declaration against a Deceased Director provided he, in his lifetime, or his heirs, after his death, have had due opportunity of putting forward the case on behalf of the allegedly delinquent Director. If either a Liquidator or the heirs of a delinquent Director, against whom a declaration of liability has been made, can question the determination of liability of the deceased delinquent, who was alive at the time of the Judgment against him, it is obvious that the Appellate Court could give a declaration either reducing or increasing the liability eventhough it may not be able to enforce it by an order under S.235 of the Act. If the declaration can be questioned by an appeal, as we think that it can, the liability can be not only wiped off or reduced but also increased on an appeal heard after the death of a Director held liable." In the light of this pronouncement it is not possible to accept the contention of the appellants that proceedings initiated against a Director under S.543 of the Act would in all cases necessarily come to an automatic termination on the death of the concerned Director by reason of the operation of the maxim that personal actions will not survive the death of the wrong doer. The court has jurisdiction in appropriate cases to continue the proceedings against the legal representatives of a deceased Director provided it satisfied that no injustice would be caused by such a course. Alternatively the court may, as a matter of justice and equity, drop the proceedings against the deceased Directors and leave the Liquidator to pursue his ordinary remedy by a civil suit against the assets of the deceased. Even in cases where the court sanctions the continuance of the proceedings against the legal representatives of a deceased Director such proceedings can only result in a declaration of the liability of the deceased and no compulsive order can be passed against the legal representatives under S.543.;

Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.