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Section 543 in The Companies Act, 1956
Section 542 in The Companies Act, 1956
The Companies Act, 1956
Section 397 in The Companies Act, 1956
Section 542(1) in The Companies Act, 1956

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Allahabad High Court
Official Liquidator vs Ram Swarup And Etc. on 27 March, 1996
Equivalent citations: AIR 1997 All 72, 1997 88 CompCas 569 All
Bench: A Banerji



ORDER
 

1. Company Application No. 15of 1977 has been filed by the Official Liquidator under Sections 542, 543, 468, 469 and 466 of the Companies Act, 1956 against Ram Swarup, Ex-director of M/s Ram Chand & Sons Sugar Milts (P) Limited (in liq.) (in short Company in liq.). Company Application No. 16 of 1977 has been filed under similar provisions against Raj Rajeshwar Swarup and 3 others who are (he heirs of Late Lala Roshan Lal, one of the directors of the Company (in liq.). Substantially the points involved in the aforesaid cases are almost same and as such are being decided by a common judgment.

2. The relevant facts, in brief, are that Panna Lal and Roshan Lal were two brothers. In the year 1932 a registered partnership Firm was started of which Roshan Lal and his son Ram Swamp and his two nephews namely, Purshottam Dass and Jugal Kishore (sons of Panna Lal) were the partners. In the year 1951 me partnership Firm was converted into a Private Limited Company of which the four partners mentioned above were the first directors. Purshottam Das died on 31-10-1960 and by a resolution of the Board of Directors his widow, namely Smt. Padmavati, was indupted as a director. On 28-4-1963 Roshan Lal also died and his grandson Raj Rajeshwar Swarup was inducted as a director. The Company which was carrying on the business of manufacturing sugar at Barabanki in the State of Uttar Pradesh suffered heavy loss and proceedings for winding up were initiated against the company in the year 1968 by filing Company Petition No. 9 of 1968. By an order dated 22-8-1972 passed in Company Petition No. 9of 1968 the Company was ordered tp be wound upand the Official Liquidator, High Court, Allahabad, was appointed the Liquidator. On the date of the winding up order the four directors of the company were (i) Jugal Kishore, (ii) Smt. Padamavati, (iii) Ram Swarup and (iv) Raj Rajeshwar Swarup. The Liquidator called upon the directors to submit the statement of affairs under Section 454 of the Act. In response to the same initially an affidavit was filed by Ram Swarup and other directors, inter alia, admitting that as per the books of account of the Company certain amounts specified, in the said affidavit were received by the directors. Subsequently, a revised statement of affairs as required under the Act was filed on 23-12-1975 with the Official Liquidator. This discloses that about rupees Forty Lacks were due to the Company from the Ex-directors of the Company who had withdrawn the said sum from time to time from the Company. The statement further reveals that this money had been taken by the directors as interest free loan but had not been returned to the Company despite the fact that the financial condition of the Company was in a dire stale and huge amounts were due towards Income-tax, Provident Fund of the workmen and other dues. The Official Liquidator served notices individually to the Ex-directors and the heirs of the deceased directors calling upon them to pay back the amount withdrawn by them from the Company prior to the date of the winding up order along with interest. However, as there was no response from the said parties Company Application No. 31 of 1976 was filed against Smt. Padmavati and others in their capacity as the heirs of deceased director Purshottam Das under Sections 542, 543, 468, 469 and 466 of the Companies Act, 1956 on the ground that the money had been unlawfully retained and had been misapplied by holding it without paying any interest and applying the same for the personal gain. Therefore, a charge of misfeasance and fraudulent trading is made out against the said parties. Similarly, under the same provisions of the Act, Company Application No. 32 of 1976 was filed against Smt. Padmavati in her capacity as director of the Company; Company Application No. 34 of 1976 was filed against Jugal Kishore, another director and Company Application No. 33 of 1976 was filed against one Tirath Ram, who had also withdrawn certain sum of money as one of the heirs of late Ex-director Purshotiam Dass, praying for the same relief. Similarly, Company Application No. 15 of 1977 was filed against the Ex-director Ram Swarup and Company Application No. 16 of 1977 was filed against Raj Rajeshwar Swarup and other heirs of late Ex-director Roshan Lal. Company Applications Nos. 31,32,33 and 34 of 1976 were contested by the said opposite parties by filing counter affidavits. Vide the order dated 11-12-1978 Company Judge dismissed Company Application No. 31 of 1976 by relying upon the Supreme Court decision in the case of Official Liquidator Supreme Bank v. P. A. Tendulkar, reported in AIR 1973 SC 1104 on the ground that to order under the aforesaid sections could be passed against the heirs of a deceased director. Similar order was passed by the Company Judge while dismissing Company Application No. 33 of 1976 filed against Tirath Raj. However, vide other orders of the same date Company Applications Nos. 32 of 1976 and 34 of 1976 filed against Smt. Padmavati and Jugal Kishore (Ex-directors) were decreed and the said directors were ordered to refund the amount withdrawn by them to the Official Liquidator along with interest (r) 12%per annum. Against the said orders4 Special Appeals were filed before this Court. Special Appeal No. 7 of 1979 was filed by Smt. Padmavati, Special Appeal No. 8 of 1989 was filed by Jugal Kishore whereas the Official Liquidator filed Special Appeal No. 9 of 1979 against the dismissal of Company Application No. 33 of 1976 and Special Appeal No. 10 of 1979 against the decision in Company Application No. 31 of 1976. Vide the orders dated 24-9-1982 the Division Bench dismissed Special Appeals No. 7 and 8 of 1979 filed by the Ex-directors Smt. Padmavati and Jugal Kishore and upheld the decision of the Company Judge in Company Applications Nos. 32 of 1976 and 34 of 1976. By a separate judgment of the same date Special Appeal Nos. 9 and 10 of 1979 filed by the Official Liquidator against the judgment of the Company Judge in Company Application Nos. 31 of 1976 and 33 of 1976 were also dismissed not on the ground that the proceedings against the heirs of the deceased directors were not maintainable but on the ground that in the facts and circumstances of the case interest of justice would be met by exercising the discretion of the Court in favour of the Ex-directors in dropping the proceeding. The said orders passed by the Special Appeal Bench have become final.

3. The present Company Applications Nos. 15 of 1977 and 16 of 1977 to which we are concerned at present, could not be heard along with Company Applications of 1976 and were got separated for the reasons that to counter affidavits were filed in the said cases either by the Ex-directors Ram Swarup or Raj Rajeshwar Swarup or other heirs of late Roshan Lal. The Company Judge vide the order dated 6-2-1978, therefore, allowed the Company Application No. 15 of 1977 ex parte and directed the Ex-director Ram Swarup to pay a sum of Rs. 9,78,711.20 along with interest @ 12% per annum to the Official Liquidator. Vide a similar order dated 19-4-1978 passed in Company Application No. 16 of 1977 Raj Rajeshwar Swarup and 3 other heirs were directed to pay a sum of Rs. 12,34,020.31 P. alongwith interest @ 12% per annum to the Official Liquidator. After the said decrees were passed the opposite parties appeared and filed applications for recalling the ex parte orders passed against them. The said applications were rejected by the Company Judge. Against the said orders Special Appeals were filed before the Division Bench which were also rejected. Thereafter the opposite parties filed Special Leave Petitions before the Supreme Court which were allowed subject to the condition that the said opposite parties shall deposit a sum of Rs. 11,00,000.00 with the Official Liquidator. On the said amount being deposited this Court vide the orders dated 8-7-1992 recalled the two ex parte decrees dated 6-2-1978 and 19-4-1978 and directed that company applications Nos. 15 and 16 of 1977 be listed for hearing afresh. Thereafter the opposite parties filed their counter affidavit to the said Company Applications. The main stand of the opposite parties was that the amounts were not withdrawn by the said parties but the dues shown against them were actually the dues of the partners in the erstwhile partnership Firm which after the incorporation of the Company were carried over in the Accounts Book of the Company. Consequently, the provisions of Sec-lions 542 and 543 of the Act were not attracted in the present case. Besides, a Receiver was appointed over the properties of the Company in proceedings taken under Section 182A of the Land Revenue Act in the year 1969 and subsequently on 3-7-1991 by virtue of the notification issued under Section 3 of the U. P, Sugar Undertaking (Acquisition) Act, 1971 the Company vested in the U. P. Sugar Corporation Limited. The dues, if any, shown against the directors were actually incurred at the time when the Receiver had taken over possession of the Company and, therefore, also the provisions of the Act were not attracted against the said opposite parties. In Company Application No. 16 of 1977 Raj Rajeshwar Swarup and other heirs of late Roshan Lal stated that they had never actively participated in the functioning of the Company and they cannot be made liable for any misfeasance or breach of trust committed by the Ex-director. Apart from the aforesaid objections the jurisdiction of the Court to hear these Company Applications were also challenged as the registered office of the company was at Barabanki and consequently the Lucknow Bench of the Court could only hear the mailer. A detailed rejoinder affidavit has been filed on behalf of the Official Liquidator to the allegations made in the counter affidavit and reiterating the case as set out in the aforesaid Company Applications.

4. I have heard Shri Sunil Ambwani, learned counsel appearing for the Official Liquidator and Shri Sudhir Chandra, learned Senior Counsel assisted by Shri Tarun Agarwal for the contesting opposite parties. I have also perused the record of the case. As already stated above the points involved in the aforesaid two cases are almost the same and as such both these cases are being decided by this common judgment.

5. Appearing for the Official Liquidator, Shri Ambwani has submitted that in the affidavit filed by the Ex-directors as well as in the revised statement of affairs filed by them it has been admitted that the contributors of the Company, who were the members of the same family, borrowed huge amount from the Company and the details of these borrowings were given in Schedule VI at List "A" and the total debt due from the contributors was Rs. 39,81,760.37P. From the statement of affairs filed by the Ex-directors themselves it is evident that Ram Swarup, Ex-director, was indebted to the Company for a sum of Rs. 9,78,711.20P. His other family members who are also the heirs of late Roshan Lal and have been arrayed as opposite parties owed another sum of Rs.12,34,080.31 p. which was borrowed by late Roshan Lal prior to his deathon 28-4-1963 the benefit of which amount has been taken by the Ex-director and his family members and was being illegally retained. On account of the said Act on the part of the Ex-director and his heirs by not refunding the amount to the Company when needed, the said Company had to face its ruin. Had the Ex-directors not misapplied the funds of the Company by holding them over for their benefit and the benefit of their heirs without paying any interest thereon the Company probably would not have to face liquidation and, at any rate, the Ex-directors and their heirs are personally responsible and accountable for retaining these amounts and for applying the same for their personal gains. Learned counsel, therefore, submitted that the charge of misfeasance and fraudulent trading has been made out against the Ex-directors and their heirs attracting the provisions of sections 542 and 543 of the Act. It has been further contended that the points taken in the counter affidavit and the arguments sought to be raised were taken by other directors which were repelled by the Company Judge and the said contentions were also rejected by the Division Bench vide its judgment dated 24-9-1982 in Special Appeals No. 7 and 8 of 1979 and the said judgments will also operate against the Ex-directors in the present case. So far as the Company Application No. 16 of 1977 is concerned, learned counsel has submitted that after the death of a director the amount declared to be due in misfeasance proceedings can be realised from the estate of the deceased in the hands of his legal representatives and, therefore, the heirs of late Roshan Lal are liable to refund the said amount to the Official Liquidator.

6. Shri Sudhir Chandra has contended on behalf of the opposite parties that the provisions of sections 542 and 543 of the Act are not attracted in the fads of the present case as the Company was a Private Limited Company the shareholders of which were close relations and family members. It was initially started as a partnership business and if a private limited company of which erstwhile partners of the Firm were the shareholders and contributors the partnership principle will apply. It was, therefore, open for the erstwhile partners to withdraw money from the Company and there was no question of misfeasance or breach of trust or any shareholder being defrauded. Learned counsel has further contended that it is open to the partners to share the profits. Besides, the money was taken as a loan against security of the shares without interest in accordance with the resolution of the Board of Directors. The question of misfeasance or breach of trust, therefore, does not arise and at the worst only a direct ion can be given to refund the amount withdrawn by them without any order for payment of interest as there was already a resolution of the Board of Directors granting interest-free loan. Learned counsel has further contended that these proceedings being quasi criminal no orders can be passed under the provisions of Sections 542 and 543 of the Act unless mens rea is established against the opposite parties by the Official Liquidator. In the facts of the presenlcase there was no question of any mens rea as the directors of the Company were authorised to withdraw the amount from the Company as loan against the security of their shares.

7.1 have carefully considered the submissions made by learned counsel for the parties. It is noteworthy that on the record of this case there is an affidavit filed by Shri Ram Swarup, Ex-director in response to the notice issued by the Official Liquidator in which it has been clearly and categorically admitted that a sum of Rs. 9,78,711.20 p. is outstanding against the said director in the books of account of the Company. In the revised statement of affairs filed by Jugal Kishore jointly on behalf of other directors, copy of which is also on record, Schedule VI at List 'A' clearly depicts that the total dues from the contributors was to the extent of Rs. 39,81,760.37 p. These amounts were found to be due at the lime when the winding up order was passed and is based upon the entries made in the books of account of the Company which has been duly audited by the Chartered Accountant of the said Company. In fact, from the record of the case it is apparent that the withdrawals were made by the directors between the period 1952 and 1959 after the incorporation of the Company. The submission made by learned counsel that the amounts shown as dues against the Ex-directors were the dues-against the partners of the erstwhile partnership Firm and were carried over in the account books of the Company is, therefore, contrary to the records and without any basis. That apart, there are neither specific pleadings to this effect nor there is any evidence on record to substantiate the allegations of the opposite parties regarding the same. It is further noteworthy that similar arguments were raised before the Special Appeal Bench by the Ex-directors, Smt. Padmavati and Jugal Kishore in Special Appeals Nos. 7 and 8 of 1979 and the Division Bench in its judgment dated 24-9-1982 observed as follows:--

"The next argument of the learned counsel was that before the Company was constituted or incorporated in 1951 it was a partnership Firm and as at that lime the withdrawals were made the same was done by the persons acting as partners, their activities of that period could not be looked into for the purpose of the present application. The statement of affairs filed by the Ex-directors themselves indicated that the withdrawals were made after the incorporation of the Company. For instance, Smt. Padmavati withdrew the amount of Rs. 43,000/- after 1960. There was no evidence to show that these withdrawals were made before the Company was incorporated in 1951. This is al together a new point which the learned counsel has urged before us. This argument has no legs to stand upon. It is undoubtedly correct that in a partnership the property of the Firm is the property of individuals composing it. But in a Company it belongs to the Company but not to the individuals composing it. So long its the Company continues to exist ...... Learned counsel for the appellants was, therefore, not right in suggesting that being a private Company the Ex-directors had full authorities and rights to withdraw the amount whenever it was so intended."

Learned counsel has, however, referred to a decision of the Delhi High Court in the case of Krishan Lal Ahuja v. Suresh Kumar Ahuja, reported in (1983) 53 Com Cas 60. I have carefully perused the said decisions but, in my opinion, the same is totally distinguishable on facts and does not help learned counsel in any manner. In the said case a family partnership business was convened into a private limited company of which entire issue capital was held by different members of the family. There was a scramble for control of the Company between the four brothers and the heirs of fifth deceased brother. As a sequal thereof a petition under Section 397 and 398 of the Act was filed. In the background of the said case an observation was made by the Court to the effect "...... But private joint stock companies and even closely held public companies are recognised exceptions as, in the present stage of the development of corporate management in this country, they are no better than glorified partnerships, where the holding does not represent mere investment for gain but has for its motivation the desire to be directly associated with the course of management." As already stated above this case arose out of a petition under Sections 397 and 398 of the Act and the observations made by the Court were in the facts of the said case. In the case at hand the question involved is totally different.

8. That apart, it is well settled that a Company is an independent and legal personality distinct from the individuals who are its members and it is not a partnership where there is nothing to show that the rights and obligations of the parties while they were partners in a Firm remain the same after the Firm was converted into a limited liability Company, and the Articles of Association of the Company which govern the rights and obligations of the parties do not provide that the rights of me partners of the pre existing partnership Firm as regards the management of the affairs, share of profits etc. would remain unaltered and preserved. The mere fact that the pre existing partnership Firm has been converted into a private limited company does not by itself mean that the company retains its character of a partnership (See: Gadadhar Dixit v. Utkal Flour Mills Pvt. Limited (1989) 66 Com Cas 188) (Orissa). In the facts of the present case at hand also nothing has been staled that the rights and obligations of the panics white they were partners of the Firm remain the same after the Finn was converted into a limited liability company. In fact, the partnership Firm having dissolved there can be no link between the Company and the partnership Firm. In view of what has been stated above, I do not find any substance in this submission made by the learned counsel for the opposite parties.

9. It has been next contended that as the money was taken as loan against security without interest, according to the resolution of the Board of Directors, there was no question of any misfeasance or fraud and consequently the provisions of Sections 452 and 453 of the Act were not attracted. Learned counsel has further contended that as the partners of the erstwhile Firm were the shareholders of the present company there was no question of defrauding any shareholder of the company which would attract the provisions of Sections 542 and 543. Besides, the burden was squarely on the Official Liquidator to prove the allegations of fraud, fraudulent trading and misfeasance which he had failed to prove. It was also required by the Official Liquidator to prove the mens rea on the part of the opposite parties which he has also utterly failed to prove. I have also carefully considered this submission made by the learned counsel. Section 542 of the Act provides that if in the course of a winding of a Company it appears that any business of the Company has been carried on with the intent to defraud the creditors of the Company or any other person, or for any fraudulent purpose, the Court on the application of the Official Liquidator or any creditor or contributor of the Company, may, if it thinks it proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible. The object of Section 542(1) of the Act is to make the discharge of debts and other liabilities of the Company consequent on the fraudulent conduct of the business of the Company the personal liability of those who have knowingly participated in such fraudulent activity. The expression 'personal liability' is used to contra distinguish it from the liability of the Company. While Section 542(1) provides for the declaration of the personal liability of the persons concerned with fraudulent conduct of business, Section 542(2) provides for giving of appropriate directions for the purpose of giving effect to that declaration. Therefore, the inquiry which has to be made under Section 542 is with regard to the purpose with which the business of the Company had been carried on by the persons who were knowingly parties to the same. In the facts of the present case it will be noticed that the directors of the Company had unjustifiably withdrawn huge amount out of the capita! of me Company and continued to carry on the business of the Com-pany even thereafter knowing fully well that the company is running at a loss and was unable to pay, Its dues to the Government or to the work-men. It has already been found that the losses did noi pertain to the period in which the Receiver was appointed in the year 1969 but the Receiver had to be appointed only because me company was running at a loss and was unable to pay off its dues. Thus the creditors were not paid while the directors had the use of the Company's money and that too free of interest. I find substance in the submission made by the learned counsel for the Official Liquidator that the money was withdrawn by the directors so as to deprive the creditors from being paid. From the facts and circum-stances of the case an inference can legitimately be drawn that the directors were aware that the Company was running into heavy losses and was likely to be liquidated and, therefore, withdrew their capital from the Company. It also appears that to camouflage their action it was shown that the withdrawals being made by the directors were in the shape of interest free loan against the security of their shares. I am, therefore, of the view that the provisions of Section 542 of the Act were applicable against the Ex-directors of the Company, namely, Ram Swarup and Raj Rajeshwar Swarup. Section 543 of the Act provides that if in the course of winding up a company, it appears that any person who has taken part in the promotion or formation of the company, or any past or present director or officer of the company has misapplied, or retained, or become liable or accountable for, any money or property of the company; or has been guilty of any misfeasance or breach of trust in relation to the company, the Court may, on the application of the Official Liquidator or creditor or contributor examine the conduct of the director or the person concerned, and compel him to repay or restore the money or property or any part thereof with interest or to compensate the company in respect of the misapplication, retainer, misfeasance or branch of trust, as the Court thinks just. It has been submitted on behalf of the Official Liquidator that the Ex-directors of the company in their affidavit filed before this Court as well as in the statement of affairs which has been filed, has categorically admitted that certain amount as specified in the statement of affairs is due from them to the company which they had withdrawn as loan. Since these directors had illegally retained the said money knowing fully well that the financial condition of the company was in dire states, this proves misfeasance and breach of trust on the part of the said Ex-directors of the Company. It is well settled that before Section 543 of the Act can be applied it has to be shown that monetary loss has accrued to the company and the said toss has not been made good by the concerned persons. A director is an agent of the company and owes twin duties to the company, first; the duly of loyalty and second the duty of care. Breach of these duties amounts to breach of trust and misfeasance. In other words misfeasance arises when there is breach of trust qua the company resulting in loss to the said company. Applying these tests to the facts of the present case we find that the Ex-directors of the company having withdrawn the major part of the share capital of the Company even while the company was functioning and thus having caused loss to the company, have committed breach of trust and consequently can be held to be liable for misfeasance. Further, where the conduct of the directors is clearly in breach of their duly of loyalty to the company, the directors are liable to compensate the company for the loss caused by their conduct to the Company. I am further of the view that from the admission made in the affidavit filed by the Ex-director Ram Swarup before this Court and also from the admissions made in the statement of affairs filed by the Ex-directors before the Official Liquidator, the onus on the Official Liquidator to prove misfeasance and breach of trust on the part of the Ex-director is adequately discharged. So far as the submission of the learned counsel that the Official Liquidator has not been able tp establish mens rea on the part of the Ex-directors regarding misfeasance and breach of trust is concerned, I am of the view that the said submission is misconceived. It is well established that it is not necessary in order to give rise to a liability on the part of a director under Section 543 of the Act the conduct of the erring director must have been a criminal one. In fact, this provision is not for punishing a person found guilty of misfeasance but for compensating the company for the loss occasioned by his misfeasance. The directors of a company occupy a fiuciary position. Therefore, this section provides relief by a summary procedure to assess their liability. The Court in the course of winding up a company assesses and compels a delinquent director or officer to make payment in respect of the acts of misfeasance or malfeasance, breach of trust or wrongful retention or other misconduct. The proceedings are civil in nature and the question of establishing mens rea by the Official Liquidator does not arise. From the facts of the case placed before me I am satisfied that the provisions of Sections 542 and 543 of the Act are attracted against the Ex-directors, namely, Ram Swarup and Raj Rajeshwar Swarup and consequently I find force in the submission made in behalf of the Official Liquidator.

10. Learned counsel for the opposite parties has, however, referred to an English decision in the case of re, Patrick & Lyon Limited, reported in 1933 All ER. (Reprint) 590 and has submitted that in view of the said decision the provisions of Section's 542 and 543 can not be applied against me Ex-directors. In the said case an application was filed on the ground that the Ex-director of the company had been a party to carrying on the company's business with the intent to defraud its creditors and he had carried on the business of the company and delayed the liquidation for six months after issuing certain debentures to himself in order to deprive the unsecured creditors of the company of their right to challenge those debentures under Section 266 of the English Companies Act, 1929. On the facts of the said case it was held that "intent to defraud" and fraudulent purpose" in Section 275 of the English Companies Act connote actual dishonsety involving according to current notion of fair trading among commercial men real moral blame. On the facts of the said case applying the interpretation of the Section it was held that the business of the company had not been carried on by the opposite parties for a fraudulent purpose or to defraud the creditors and, therefore, the Court would not make a declaration to the said effect. The observations made by the Chancery Division in the case of Patrick & Lyon Limited (supra) were on the facts of the said case. In the present case at hand, I am of the view that the observations made in the decision cited by the learned counsel will not be applicable.

11. Learned counsel for the opposite parties then contended, though half-heartedly, that the statement of affairs was filed by Jugal Kishore, one of the Ex-directors, and the affidavit filed by Ram Swarup was signed in good faith without going through the records which were with [the Receiver. I am not going to accept this submission for the reason that after having filed the affidavit before this Court and after having filed the statement of affairs it is not open to the Ex-directors to say that the said documents were signed in good faith or without ascertaining the figures from the record. In fact, no such arguments were advanced by the other directors in other petitions. This argument, therefore, appears to be an after thought. While filing the statement of affairs under Section 454 of the Act it was not the case of the Ex-directors that they were not in a position to file the statement of affairs as the records were with the Receiver. I have perused the copy of the statement of affairs which has been filed by the Official Liquidator along with the rejoinder affidavit and from the same it cannot be said by any stretch of imagination that the details furnished therein were not based on the records or based upon conjectures. That apart, it is well settled that the Ex-directors of the company cannot succeed on the bald plea that they were only nominal directors and were not incharge of affairs of the company (See: Kolhari (Madras) Limiled v. Myleaf Tabacoo Development Company (P) Ltd (1985) 57 Com Cas 690 : (1984 Tax LR 2168) (Kant).

12. Learned Counsel for the opposite parties lastly submitted that even though in the other Apedal Appeals filed by the Ex-directors, namely, Smt. Padmavati and Jugal Kishore, the Division Bench of this Court vide its judgement (supra) has held that the applications filed by the Official Liquidator were not barred by Limitation and that this Court had jurisdiction to hear the applications. In the present case, the objections of the opposite parties regarding limitation and jurisdiction are being pressed. So far as the question of jurisdiction is concerned, the Division Bench of this Court in the Special Appeal Nos. 7 and 8 of 1979 decided on 24-9-1982 in the case of Smt. Padmavati and Jugal Kishore has considered the submissions made on behalf of the said directors at length and has found that this Court had jurisdiction to entertain the application of the Official Liquidator filed under Sections 542 and 543 of the Act against the said Ex-directors. The said judgment has become final and the same reasonings, as given by the Division Bench, will apply in the present case also. I thus hold that this Court has jurisdiction to entertain the applications filed by the Official Liquidator.

13. Similarly regarding limitation % Division Bench has in the decision referred to above held that the application filed by the Official Liquidator was well within limitation. That apart the submission made by the learned counsel has no substance as the limitation provided under Section 543 of the Act is 5 years. The application was filed by the Official Liquidator on 14-11-1977. Excluding one year as provided under Section 458A of the Act, the application was well within time. I, therefore, do not find any substance in this argument of the learned counsel for the opposite parties either.

14. With regards to Company Application No. 16 of 1977 filed by the Official Liquidator against Raj Rajeshwar Swarup and 3 others who were the heirs of the deceased Ex-director Lala Roshan. Lal, learned counsel for the opposite parties has submitted that the heirs of the deceased director cannot be held liable for misfeasance committed by the deceased Ex-director. In support of his submission learned counsel has placed strong reliance upon the decision of the Supreme Court in the case of Official Liquidator Supreme Bank Limited v. P. A. Tendolkar, reported in AIR 1973 SC 1104. It is noteworthy that the decision in the case of P. A.-Tendolkar was subsequently considered by the Supreme Court in its subsequent decision in the case of the Official Liquidator v. Partha Sarthi Sinha, AIR 1983 SC 188 in which after discussing the Tendolkar's case at length it was held that in Tendolkar's case the Supreme Court had not concluded that on the death of a person against whom proceedings under Section 543 had been initiated the same could not be proceeded against the legal heirs. Had it been so, the final order would not have been what was actually made therein. The Supreme Court had proceeded to hold as follows :-- (at P. 194 of AIR) "The true doctrine is that whenever you find that the deceased person has by his wrong diverted either property or the proceeds of the property belonging to someone else into his own estate, you can then have recourse to that estate through his legal representatives when he is dead, to recover it."

However, it was clarified in the same judgment that the legal representative would not be liable for any sum beyond the value of the estate of the deceased in his hand. On the basis of the subsequent decision of the Supreme Court in the case of Partha Sarthi Sinha (Supra) Shri Ambwani on behalf of the Official Liquidator has contended that as the amount withdrawn by Lala Roshan Lal had come to me hands of his heirs and legal representatives who, were also retaining it, consequently the said legal representatives are liable to refund the said amount to the Official Liquidator. I find force in the submission made by the learned counsel, in view of the observations made by the Supreme Court, quoted above. Moreover, in this case the heirs of the deceased Ex-director Lala Roshan Lal had filed a counter affidavit and had contested the claim of the Official Liquidator. They had, therefore, adequate opportunity to meet the case of the Official Liquidator. Besides, they had been heard by this Court and it cannot be said that a declaration has been given by this Court without hearing the heirs of the deceased director. I am, therefore, of the view that the legal heirs of Lala Roshan Lal would be liable for refunding to the Official Liquidator the sum to the extent of the value of the estate of the deceased which has come in the hands of the said heirs.

15. It has also been contended by learned counsel for the opposite parties that Raj Rajeshwar Swarup, one of the heirs of late Lala Roshan Lal and also an Ex-director of the company who had been inducted after the death of Lala Roshan Lal in the year 1991 during the pendency of the proceedings before the Supreme Court and as his heirs have not been brought on record the Company Application No. 16 of 1977 against the heirs of Lala Roshan Lal has abated. I am unable to agree. The other heirs of Lala Roshan Lal are on record and the estate is represented through them. There is, therefore, no question of abatement of company Application No. 16 of 1977.

16. As a result, Company Applications No. 15 and 16 of 1977 are allowed. It is hereby declared that the Ex-director of the Company (in liq.) namely. Ram Swarup shall pay a sum of Rs. 9,78,711.20 p. along with interest at the rate of 12% per annum from the date of the winding up order to the Official Liquidator. Similarly, it is also declared that the opposite parties Smt. Swarn Lata Pravin Kumar, Ashok Kumar, legal heirs and representatives of Lala Roshan Lal shall pay a sum of Rs. 12,34,020.31 p. along with interest at the rate of 12% per annum from the date of the winding up order to the Official Liquidator. The opposite parties shall be entitled to the adjustment of the amount deposited by them under the directions of the Supreme Court. The opposite party in Company Petition No. 15 of 1977 is directed to pay costs of this application to the Official Liquidator which I assess at Rs. 3000/- only. Similarly the opposite parties No. 2, 3 and 4 in Company Applications No. 16 of 1977 are directed to pay costs of Rs. 3000/- only to the Official Liquidator.

17. Order accordingly.