Oak, J. - (1.) I have read the judgment prepared by my learned brother, Dwivedi J. I agree with him that the former board of directors of the British India Corporation Limited (hereafter referred to as the Corporation) was guilty of mismanagement between 1956 and 1958, but directors other than Sri Hari Das Mundhra cannot be ordered to pay compensation to the Corporation. Considering that certain important questions of law have arisen in this case, I wish to add a few words.
(2.) The Life Insurance Corporation of India (hereafter referred to as the appellant) has established that the affairs of the Corporation were being conducted in a manner prejudicial to the interests of the Corporation. That brings the case under Clause (a) of Sub-section (1) of Section 398 of the Companies Act, 1956 (hereafter referred to as the Act). Sri Hari Das Mundhra was elected chairman of the board of directors of the Corporation in April, 1956. At the same time his brother, Sri Tulsi Das Mundhra, was elected a director of the Corporation. That was the starting point of mismanagement. In view of his conviction, Sri Hari Das Mundhra is not capable of being appointed a director of a company (section 274 of the Act). But Sri Tulsi Das Mundhra does not suffer from any such disqualification. If Sri Tulsi Das Mundhra is permitted to function as a director, he is likely to be under the influence of his brother, Sri Hari Das Mundhra. There is good reason for believing that the affairs of the Corporation would be conducted in a manner prejudicial to the interests of the Corporation, unless the court takes suitable action to prevent mismanagement. The situation attracts Clause (b) of Sub-section (1) of Section 398 of the Act. The appellant having succeeded in establishing a case under Sub-section (1) of Section 398 of the Act, the learned company judge was justified in taking action under Sub-section (2) of Section 398.
(3.) It has been pressed for the appellant that the court should order the past directors to pay compensation under Section 543 of the Act. The learned company judge thought that, for various reasons, it was not possible to take action under Section 543 of the Act. None of the reasons given by the learned judge is convincing. Section 406 of the Act makes it clear that Section 543, as modified by Schedule XI of the Act, is applicable in proceedings under Section 398 of the Act.;