SHARMA, J. - (1.) BY way of Judge's summons taken out under Sections 542 and 543 (1) of the Companies Act, 1956 (for short `the Act') the Official Liquidator has prayed for an order:- (i) to declare that the ex-directors are jointly and severally and personally liable without any limitation of liability for all the debts and other liabilities of the company; and (ii) to make further such other declaration for the purpose of giving effect of the aforesaid declaration; (iii) to punish the ex-directors with such sentence as may be thought fit and proper in the facts and circumstances of the case and further direct the respondents to repay restore the monies and properties which have not been handed over to the official liquidator with interest; (iv) to further direct the ex directors to contribute the assets of the company by way of compensation with such sum in respect of their misapplication, retention and misfeasance and breach of truth.
(2.) CONTEXTUAL facts depict that M/s. Shield Shoe Company Private Limited having its registered office at A-23, Matsya Industrial Area Alwar was directed to be wound up vide order dated May 12, 1989. The official liquidator was required to take all proceedings for winding up as per provisions of the Act to take charge of all the properties and assets of the said company. The ex directors and other officers of the company in liquidation however had not handed over possession of the all records to the official liquidator. Even the statement of affairs under Section 454 of the Act was not filed. The ex-directors have retained the properties of the company in liquidation and they are accountable for the same. The ex directors are guilty of misfeasance and breach of trust in relation to the company. Mr. Fateh Chand Pahwa, ex-director of the company in liquidation filed affidavit and stated that N. K. Arora, being a Chartered Accountant, was responsible for upkeep, maintenance and preparation of final accounts including balance sheet with the assistance of Commercial Manager. In January, 28, 1986. An FIR was lodged to this effect on February 23, 1986 against Sudhir Kumar. On February 26, 1986 the Central Bank of India unilaterally took possession of the entire factory. Remaining books of accounts and other record remained in the possession of the bank until its take over by the official liquidator. The police seized the books and record from the commercial Manager on August 29, 1986 and it was found that Commercial Manager interpolated/changed many entries in the books to cover up his misdeeds. He further stated that he delivered all the records and books of accounts including minutes books of Board 29, 1989 with comprehensive details and explanatory notes. He requested for allowing audit by company's statutory Auditor but there was no response. He also handed over shares of Reckit and Coleman. Bonus shares were allotted directly to Official Liquidator. He did not have any tangible or intangible assets of the company. The Official Liquidator had taken over possession of factory and other assets in August, 1989, but whether inventory was prepared or not it was not known to him as he was not given the list nor the possession was taken in his presence. Bajaj Scooter DHV 7016 belonged to his son Ashok Pahwa. The scooter drove by him 1982 met with an accident. The said scooter on the request of Shri N. K. Arora, Resident Director was kept at Alwar for company's use. He mentioned in FIR itself that Sudhir Kumar had passed on the said scooter to Mr. Rajkumar Bhargava. Liaison Officer. Mr. Bhargava's suit against him for formalizing sale of scooter was dismissed by the court at Alwar, as the company never owned the scooter. Mr. Sudhir Kumar, Commercial Manager of company misappropriate company's record and funds in connivance with N. K. Arora who was resident director of the company and they are culprits who caused wrongful losses to the company. Lastly Mr. Fateh Chand Pahwa stated that neither he nor Smt. Sushma Pahwa, Iqbal Sachdeva and Pradeep Kumar Agrawal were responsible in any manner whatsoever for any of the alleged acts of misfeasance mentioned in the audit report. The audit report was totally based on assumption, inferences drawn from conjectures and without proper scrutiny of the records and totality of the circumstances and facts. Mr. Gopal Garg, learned counsel appearing for the official liquidator conceded that case under Section 542 of the Act is not established against the ex-directors. Learned counsel however, after extensively reading from the points of claim in support of Judge's summons contended that the provisions of Section 543 (1) of the Act are applicable to the facts of the case and ex- directors must be compelled to make good monies with interest which they have retained or become liable or accountable for the property of the company in liquidation. Per contra, Mr. V. L. Mathur learned counsel after reading excessively from the affidavit filed by Mr. Pahwa, ex-director, canvassed that the points of claim being totally vague, general and the official liquidator having failed to make out any case against the individual directors, the application deserves to be rejected. In order to establish the charge of misfeasance against the ex-directors it is required that specific acts of commission or omission and/or negligence on the part of each director are pointed out; the loss arising to the company as a result of such specific act of commission or omission or negligence shall also have to be quantified-as the order of recovery from such a director would be based on the said quantification. The liability under the provision though in the nature of tortious liability, it yet is quasi-criminal in nature and it is a particular director who has caused loss to the company by his act which would amount to mis-appropriation, breach of trust, misappropriation or retention of monies/properties of the company who would be called upon to make goods such loss. Thus, the onus is on the person who alleges such acts of misfeasance. The onus has to be discharged by cogent, reliable and specific evidence which should prove that the alleged misconduct was wilful and amounted to misfeasance with culpable negligence.
(3.) IN Official Liquidator vs. Raghava Desikachar (AIR 19745 SC 2069) their Lordships of the Supreme Court indicated thus:- " It may be mentioned that misfeasance action against the directors is a serious charge. It is a charge of misconduct or misappropriation or breach of trust. For this reason the application should contain a detailed narration of the specific acts of commission and omission on the part of each director quantifying the loss the company arising out of such acts or omissions. The burden of proving misfeasance or non-feasance rests on the official liquidator. The official liquidator, it may be mentioned, merely relied upon the evidence recorded in public examination of the directors and on a few documents tendered in evidence. At the stage of public examination there was no charge of misfeasance against the directors and they were not in a position to know what would be the grounds that would be alleged against them for recovering any amounts, for the loss said to have been caused to the company by reason of such misfeasance. " Following principles were laid down by the Supreme Court in Official Liquidator Supreme Bank Ltd. vs. P. A. Tendolkar (AIR 1973 SC 1104):- " It is certainly a question of fact, to be determined upon the evidence in each case, whether a director, alleged to be liable for misfeasance, had acted reasonably as well as honestly and with due diligence, so that he could not be held liable for conniving at fraud and misappropriation which takes place. A director may be shown to be so placed and to have so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of the business of a company even though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially. If he does so he could be held liable for dereliction of duties undertaken by him and compelled due to his neglect even if he is not shown to be guilty of participating in the commission of fraud. It is enough if his negligence is of such a character as to enable frauds to be committed and losses thereby incurred by the company. " The meaning of misfeasance is the improper performance of some act which a person may lawfully do. A director while carrying out an activity which he is otherwise empowered to carry out under the law, performs it in such a manner that the same is improper and such impropriety has to be willful so as to cause loss to the company. The act of commission or omission or negligence should be with the intent and knowledge to cause loss to the company and at the same time resulting in personal gain. Not all acts which result in loss to the company can be treated as acts of misfeasance, making a director liable under Section 543 of the Act because while carrying on business there is every likelihood that loss may be incurred in a transaction or a number of transactions. It is only when such loss to the company results in wrongful gain to the director that it would fall within the scope of Section 543 of the Act. ;