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N. Ekambaram and ors. Vs. Sri Venkatachalapathi Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberC.R.P. Nos. 872-874 of 1966
Judge
Reported in[1967]37CompCas693(AP)
ActsIndian Companies Act, 1913 - Sections 86D, 86D(2) and 235
AppellantN. Ekambaram and ors.
RespondentSri Venkatachalapathi Mills Ltd.
Appellant AdvocateR. Venugopalareddy and ;V. Narasimhareddy, Advs.
Respondent AdvocateA. Kuppuswamy and ;S.V. Sundararajan, Advs.
DispositionRevision petition dismissed
Excerpt:
.....application of company to set aside abatement of liability against deceased and to bring his legal representatives on record - ignorance of death caused delay in application - such delay can be excused - liability imposed under section 86d does not extinguishes on death of defendant - held, abatement of deceased defendant rightly set aside. - - 2. the basis on which the suit was filed was that the defendants, when they were the directors of the plaintiff-company, advanced a loan to a firm of which they were partners or to a private company of which they were directors or members and this was contrary to the provisions of section 86d of the indian companies act, 1913. therefore, it was claimed by the plaintiff-company that the defendants, who were the ex-directors and who..........filed an application in the lower court on 17th february, 1964, tobring on record the legal representatives of the deceased 4th defendant with the allegation that the 4th defendant died within 90 days from the date of the filing of the application. the proposed legal representatives of the 4th defendant filed a counter dated 24th march, 1964, pointing out that the 4th defendant died about 11 months before that date. the exact date is not given. there is controversy as to when this counter was filed in court. mr. kuppuswamy, the learned counsel for the respondent in this revision petition, says that this counter was filed only in april, 1964. thereafter, the plaintiff-company filed two applications on 31st july, 1964, one to excuse the delay in seeking to set aside the.....
Judgment:

Chandrasekhara Sastry, J.

1. The suit O.S. No. 75 of 1959 on the file of the Subordinate Judge's Court, Chittoor, was filed by Sri Venkatachalapathy Mills Ltd., Puttur, represented by its managing director Sri A. Chengiah Chetty, against five defendants, who were said to be the ex-directors of the plaintiff-company. The suit was filed for a decree directing the defendants jointly and severally to pay the plaintiff-company the amount claimed, viz., Rs. 96,419 with further interest at 51/2 per cent. from the date of the plaint till realisation, and for directing the defendants jointly and severally to pay the plaintiff-company the costs of the suit with interest thereon.

2. The basis on which the suit was filed was that the defendants, when they were the directors of the plaintiff-company, advanced a loan to a firm of which they were partners or to a private company of which they were directors or members and this was contrary to the provisions of Section 86D of the Indian Companies Act, 1913. Therefore, it was claimed by the plaintiff-company that the defendants, who were the ex-directors and who caused the loss to the company by acting contrary to the provisions of Section 86D of the Indian Companies Act, 1913, were jointly and severally liable to the plaintiff-company to make good the loss suffered by it. Pending the suit, the 4th defendant had died on 24th April, 1963. The plaintiff-company filed an application in the lower court on 17th February, 1964, tobring on record the legal representatives of the deceased 4th defendant with the allegation that the 4th defendant died within 90 days from the date of the filing of the application. The proposed legal representatives of the 4th defendant filed a counter dated 24th March, 1964, pointing out that the 4th defendant died about 11 months before that date. The exact date is not given. There is controversy as to when this counter was filed in court. Mr. Kuppuswamy, the learned counsel for the respondent in this revision petition, says that this counter was filed only in April, 1964. Thereafter, the plaintiff-company filed two applications on 31st July, 1964, one to excuse the delay in seeking to set aside the abatement caused by the death of the 4th defendant and another to set aside the abatement. It is stated that the petition to bring on record the legal representatives was already filed on 17th February, 1964. These applications were opposed on behalf of the legal representatives of the 4th defendant on two grounds : that no sufficient reasons are disclosed by the plaintiff-company for not filing the petition to bring on record the legal representatives within the period of 90 days prescribed by the Limitation Act and that there is no reason for the delay at any rate in filing the petition to set aside the abatement. It is pointed out that such a petition will have to be filed within 60 days after the expiry of the 90 days prescribed for bringing on record the legal representatives. Secondly, it was urged that the cause of action did not survive against the legal representatives of the 4th defendant and that the suit therefore abated so far as the deceased 4th defendant was concerned. These two objections were over-ruled by the lower court and the legal representatives of the 4th defendant were brought on record. Hence, these civil revision petitions under Section 115 of the Code of Civil Procedure are filed by the legal representatives of the 4th defendant.

3. Before me again the two objections which were urged before the lower court were raised. It is pointed out that, even assuming that the plaintiff did not know the exact date of death of the 4th defendant when the petition for bringing on record the legal representatives was filed on 17th February, 1964, the plaintiff should have known about it on the date when the counter was filed in the lower court, but still the petition to excuse the delay in seeking to set aside the abatement was filed only on 31st July, 1964. It is argued that there is no explanation for this delay and that the fact that the plaintiff is a company is no ground for excusing the delay. Reliance also is placed upon the decision of the Supreme Court in Union of India, v. Ram Charan, : [1964]3SCR467 where it was pointed out that the mere allegation about the belated knowledge of the death of the opposite party was not sufficient for excusing the delay in bringing on record the legal representatives of a deceased defendant or respondent and that the party in default being the Government is not asufficient cause for excusing the delay. It was further pointed out in the decision that it is for the appellant or the plaintiff in the first instance to allege why he did not know of the death of the respondent earlier or why he could not know about it despite his efforts, if he had made any efforts on having some cause to apprehend that the respondent might have died and the court will have to decide how far those reasons have been established and suffice to hold that the appellant or plaintiff had sufficient cause for not filing an application to bring on record the legal representatives of the deceased defendant or respondent earlier on the record.

4. It may be noticed that, in that particular case, there was no application to set aside the abatement or to excuse the delay in seeking to set aside the abatement and there was no specific prayer for setting aside the abatement. In that case the Punjab High Court refused to excuse the delay in bringing on record the legal representatives of the deceased appellant on an application filed by the Union of India and that order was not interfered with by the Supreme Court on appeal. But, at the same time, the Supreme Court observed that the court in considering whether the appellant or a plaintiff has established sufficient cause for his not continuing the suit in time or for not applying for the setting aside of the abatement within time, need not be over-strict in expecting such proof of the suggested cause as it would accept for holding a certain fact established, both because the question does not relate to the merits of the dispute between the parties and because if the abatement is set aside, the merits of the dispute can be determined while, if the abatement is not set aside, the appellant is deprived of his proving his claim on account of his culpable negligence or lack of vigilance.

5. In the present case the counter-affidavit dated 24th March, 1964, merely contains a vague statement that the 4th defendant died about eleven months before that date. It did not specify the exact date on which the 4th defendant died and the plaintiff-company is situated at Tirupathi and the 4th defendant, when he was alive, was a resident of a village in Chingle-put District. Under the circumstances, the lower court held that there was sufficient cause for not filing the petition for setting aside the abatement in time or for bringing on record his legal representatives and therefore excused the delay. This being a revision under Section 115 of the Code of Civil Procedure, I do not find any error of jurisdiction committed by the lower court in excusing the delay in seeking to set aside the abatement caused by the death of the 4th defendant, in setting aside the abatement and in bringing on record his legal representatives.

6. The next question is whether the right to sue the 4th defendant survives and his legal representatives can be brought on record. As already noticed, the claim in the plaint is one to recover money against all thedefendants jointly and severally. The basis of the claim is under Section 86D of the Indian Companies Act, 1913. I do not see how a suit of this kind to recover money filed against a person would abate and would not survive as against the legal representatives on the death of that person. Section 86D of the Indian Companies Act, 1913, is as follows :

'86D. (1) No company shall make any loan or guarantee any loan made to a director of the company or to a firm of which such director is a partner or to a private company of which such director is a member or director,

(2) In the event of any contravention of Sub-section (1) any director of the company who is a party to such contravention shall be punishable with fine which may extend to five hundred rupees, and if default is made in repayment of the loan or in discharging the guarantee shall be liable jointly and severally for the amount unpaid.

(3) This section shall not apply to a private company (except a private company which is the subsidiary company of a public company) or to a banking company. '

7. The allegation in the present case is that, when the defendants were the directors of the plaintiff-company, they made loans to the firm of which the defendants were partners or to a private company of which the defendants were members or directors within the meaning of Clause (1) of Section 86D and the liability is said to arise because of Clause (2) of the said section, which provides that, if default is made in repayment of the loan or in discharging the guarantee, those directors shall be liable jointly and severally for the amount unpaid. Prima facie, the suit, which is one to recover money on the basis of the liability imposed under Section 86D from the defendants, does not abate as against the 4th defendant on his death.

8. But Mr. Venugopalareddy, the learned counsel for the petitioners, drew my attention to Section 235 of the Indian Companies Act, 1913, which reads :

'235. (1) Where, in the course of winding up a company, it appears that any person who has taken part in the formation or promotion of the company, or any past or present director, manager or liquidator, or any officer of the company has misapplied or retained or become liable or accountable for any money or property of the company, or been guilty of any misfeasance or breach of trust in relation to the company, the Court may, on the application of the liquidator, or of any creditor or contributory made within three years from the date of the first appointment of a liquidator in the winding up or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer, examine into the conduct of the promoter, director, manager, liquidator or officer, and compel him to repay or restore the money or property or any part thereof respectively with interest at such rate as the Court thinks just, or to contributesuch sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the Court thinks just.

(2) This section shall apply notwithstanding that the offence is one for which the offender may be criminally responsible. '

9. This section empowers the court to assess damages against delinquent directors and other persons mentioned in the section. It empowers the court, on an application made within a particular period, to examine into the conduct of the promoter, director, manager, liquidator or officer and compel him to repay or restore the money or property or any part thereof respectively with interest or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the court thinks just. Reliance is also placed upon a decision of the Division Bench of the Madras High Court in Peerdan Juharmal Bank Ltd., In re., [1958] 28 Comp. Cas. 546, 549The learned judges, after referring to the several decisions, English and Indian, and the corresponding sections of the English Acts, held that the proceedings taken under Section 235 of the Indian Companies Act, 1913, against a director of a banking company, ordered to be wound up, cannot be continued after his death, and the liability, if any of such a director cannot be enforced against his legal representative in those proceedings. It is pointed out that it is the language of Section 235 of the Act that decides the issue; that the right conferred under Section 235 to file an application is a limited right and that it ends when the director dies and does not survive after his death. The learned judges followed the decision in Sankaran Nambiar v. Kottayam Bank. On the basis of Section 235 and on the said decision, it is argued by Mr. Venugopalareddy that, in the present case also, the right to sue the 4th defendant does not survive after his death. He also pointed out that any claim based upon Section 86D of the Act will also come under Section 235 of the Act. Therefore, it is argued that the decision of the Madras High Court given under Section 235 equally covers this suit and it has to be held that the suit has abated as against the 4th defendant.

10. I am unable to accept this argument. Section 235 provides for a special procedure and a limited right to be exercised in the course of winding up of a company. It enables the court to examine the delinquent directors and other persons mentioned in the section and compel them to repay or restore the money or property to the company. It does not take away the general right of suit that the company has to proceed against any of its ex-directors, who, under law, would be liable to make good any amount under the provisions of the Companies Act. What the learned judges in Peerdan Juharmal Bank Ltd., In re, [1946] 16 Comp. Cas. 36held was that, on the language of Section 235, it has tobe held that an application under that section could not be continued against the legal representatives of a deceased director. The learned judges did not hold that the liability of the deceased director to the company is extinguished on his death. On the other hand, they pointed out:

'It is the language of Section 235 of the Act that decides the issue. It was a limited right. It ended when Gopalachariar died. We are not concerned with the question whether the liquidators have any other remedies against the estate of the deceased Gopalachariar. All we are concerned with is to answer the question we have set out above : Can the proceedings under Section 235 of the Act be continued against the deceased Gopalachariar ?'

11. That was the limited scope of the decision of the learned judges and that decision does not support the argument that the suit to recover money from the defendants based on the liability created by Section 86D of the Indian Companies Act, 1913, would abate on the death of the concerned director. It follows that these revision petitions fail and are dismissed with costs in C. R. P. No. 872 of 1966. There will be no order as to costs in the other revision petitions.


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