Skip to content


Official Liquidator, Modern Transporters Private Ltd. (In Liquidation) and anr. Vs. Mulkh Raj Mehta (Deceased) and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtPunjab and Haryana High Court
Decided On
Case NumberLetters Patent Appeal No. 359 of 1966 and Writ No. 364 of 1966
Judge
Reported in[1971]41CompCas573(P& H)
ActsCompanies Act, 1956 - Sections 542 and 543
AppellantOfficial Liquidator, Modern Transporters Private Ltd. (In Liquidation) and anr.
RespondentMulkh Raj Mehta (Deceased) and ors.
Appellant Advocate H.L. Soni,; K.S. Keer and; V.K. Bhandari, Advs.
Respondent Advocate Bhagirath Dass,; B.K. hingan and; S.K. Hirajee, Advs
Excerpt:
.....about the cancellation of the registration, the re-registration and the like in respect of the company's vehicles were being made in the official records of the transport authorities in a manner which suggested that the vehicles of the company had continued operating even after the partition of the country. 1,000 within a few months and the other trucks could not have been quite as bad as this junk. i, however, find that the liability of these three directors in respect of breaches of trust committed by them was joint and several and that all three of them should have been made equally liable severally as well as jointly. this, however, is a grievance which could validly be urged by the official liquidator and the judgment-creditor of the company and the directors cannot possibly..........the official liquidator to show that taxes were being paid against the registration numbers of the company's vehicles for a number of years after the partition of the country. at places the condition of the vehicles was being shown as dilapidated and repairs and maintenance bills for these vehicles were being charged to the company's account. the regional transport authority at meerut had prepared detailed chart, exhibit pw-7/1, of the vehicles of the company. this chart shows that taxes were being paid regularly. a vehicle had to be sold almost as a junk for about rs. 500 to 1,000 and this transaction has been adopted as the measure for assessing the sale proceeds and profits of other vehicles. where the lowest measure has been adopted as the quantum of damages or compensation in.....
Judgment:

1. Cross-appeals, L.P.A. Nos. 359 of 1966 and 364 of 1966, have been filed against the order dated September 2, 1966, of the company judge of this court. The matters agitated in the two appeals are so interlinked that these have to be disposed of together.

2. The facts of the case are that Modern Transporters (Private) Ltd., a company which later went into liquidation (hereinafter briefly referred to as ' the company ') was carrying on the business of goods carriers before the partition of the country. Even though the company had been incorporated at Lahore, now a part of West Pakistan, the vehicles of the company were mostly operating in Meerut Division (U.P.). When the country was partitioned into the dominions of India and Pakistan, the incorporation of the company was transferred to Jullundur and it may appear that the books and records of the company had been brought to this side of the Indo-Pakistan border and that some of these books of the company had been produced before a civil court in Delhi in or about the year 1950 during the hearing of a suit filed by one Bine Chand, a creditor of the company, for the recovery of the price of coal gas plants supplied by him in the years 1943-44 for being installed on the vehicles of the company in the days of shortage of petrol during the Second World War. Shri Bine Chand had been granted a decree by the civil court on March 28, 1951, for the recovery of a sum of Rs. 27,000 with costs and future interest.

3. The company continued functioning and carrying on business of goods carriers after the partition of the country in Meerut Division until the decree-holder filed a petition for the compulsory winding-up of the company in December, 1958. The winding-up proceedings of the company continued for about 5 years and the judgment-creditor, Bine Chand, along with the official liquidator, filed a petition on December 9, 1963, under Sections 542 and 543 of the Companies Act, 1956 (hereinafter briefly referred to as 'the Act'), alleging malfeasance and misfeasance on the part of the three directors, Sarvshri Mulkh Raj, Gian Chand and Dewan Chand. Gian Chand and Dewan Chand are real brothers, being the sons of Shri Banka Mal, deceased, who was also a director of the company in his life-time while Mulkh Raj is the son-in-law of Shri Banka Mal. Shri Mulkh Raj had held the office of the managing director of the company from 1946 to 1952 while Dewan Chand had held that office from August, 1952, up to the date of compulsory liquidation of the company in 1958. Gian Chand has been taking active part in the management of the company as a director and used to attend all meetings in which resolutions regarding the acts of alleged malfeasance and misfeasance of these directors had been passed. These three closely related members of the family are alleged to have acted in concert and to be equally liable in respect of these acts of malfeasance and misfeasance.

4. The parties examined evidence at length with regard to this petition of the judgment-creditor but the books of the company have not been made available by the directors. It was, however, found by the learned company judge that from August, 1945, onwards the company was owned and had been managed in its entirety by the three directors named above. When these persons had taken over, 15 goods carriers belonging to the company were operating in the Meerut division and each goods carrier had a route permit. Four route permits had been cancelled in 1952 but 11 goods carriers had continued to be with the company and it is the petitioner's case that these 11 vehicles of the company had later on been sold along with the route permits. All the 15 goods carriers had been purchased by the company from the U.P. Government and were of 1944 model. These had later on to be fitted with gas plants which had been supplied by the judgment-creditor, Shri Bine Chand. Taxes on the vehicles of the companywere being paid from 1946 onwards and in respect of 2 of these vehichles taxes had been paid even up to 1957, The proceeds or profits of this business were, however, not credited to the books and even the price realized by the sale of these vehicles remained unaccounted for. The learned company judge, therefore, fixed the liability of the three directors named above at the total sum of Rs. 26,600 and made them severally liable for varying amounts. Sarvshri Mulkh Raj and Dewan Chand who had held the office of managing director during certain separate periods were made liable for a sum of Rs. 10,000 each while Gian Chand who had been assisting them was made liable for the smaller amount of Rs. 6,600,

5. This judgment does not appear to have satisfied any of the parties and has led to two cross-appeals. The three directors who are inter-related have filed one joint appeal while the cross-appeal has been filed by the official liquidator and the judgment-creditor, Shri Bine Chand. The same type of criticism may appear to have been levelled against the impugned order of the learned company judge in both these appeals. It has been alleged that the assessment of quantum of damages has proceeded, more or less, on a Rule of thumb and that the same could be said about the manner of the liability over the three directors. The party who may appear to have benefited by this so-called adoption of a Rule of thumb cannot make any valid grievance of it and the fact that the parties express dissatisfaction may, in fact, be an indication of the fair approach to the points in controversy.

6. Shri Bhagirath Dass, the learned counsel for the directors of the company, has tried to show that there were, in fact, no vehicles with the company after the partition of the country and that these vehicles had been taken away to Pakistan during the communal disturbances by the employees of the company, who were mostly Muslims. Owners of other vehicles are said to have been allowed to use the route permits which continued to be with the company even after the vehicles had been taken away to Pakistan. This may appear to be rather an unusual position to take up but one further weakness is that no evidence worth the name has been examined in support of this unusual plea. Owners of other vehicles who were allowed to use these route permits are said to have changed the real registration numbers of their vehicles and to have adopted the registration numbers of the vehicles of the company so as to be able to utilize the route permits. Such illegal substitution of registration numbers was sure to have involved the owners of the vehicles and to have at least made them liable for payment of taxes against both the real and the assumed registration numbers. There is no evidence from the official records of the registering or the licensing authority or the authority issuing the route permits, to suggest any such unauthorised and illegal activity. Ithas not been shown by reference to these official records that at the time suggested any vehicles stopped payment of taxes against their old registration numbers. The names of the persons who utilized the route permits in this unauthorised manner or the real registration numbers of their vehicles have not been disclosed. As against this, evidence had been led by the official liquidator to show that taxes were being paid against the registration numbers of the company's vehicles for a number of years after the partition of the country. At places the condition of the vehicles was being shown as dilapidated and repairs and maintenance bills for these vehicles were being charged to the company's account. The regional transport authority at Meerut had prepared detailed chart, exhibit PW-7/1, of the vehicles of the company. This chart shows that taxes were being paid regularly. A vehicle had to be sold almost as a junk for about Rs. 500 to 1,000 and this transaction has been adopted as the measure for assessing the sale proceeds and profits of other vehicles. Where the lowest measure has been adopted as the quantum of damages or compensation in respect of acts of misappropriation of the price of other vehicles or for assessing the profits made by the running of other vehicles which could not have been as bad as junk which had necessarily to be sold within a few months, the real grievance may appear to be of the party defrauded that a low measure had been adopted. The party who has been guilty of misappropriating the sale proceeds of the other vehicles or the profits accruing from running them would not have any valid grievance that in other cases also they had been made liable for the rock bottom assessment of sale proceeds and profits. The argument that the route-permits were allowed to be used by others without getting any substantial return also does not appeal to me and there was no fun in keeping the route permits alive if no profit was expected to be made from these route-permits. If in the bargain the directors of the company were breaking the law, it can very well be presumed that they were not doing so for the mere fun of it. Entries about the cancellation of the registration, the re-registration and the like in respect of the company's vehicles were being made in the official records of the transport authorities in a manner which suggested that the vehicles of the company had continued operating even after the partition of the country. Loss of as many as 15 trucks or goods carriers was not such a minor thing that there would have been no report about the incident to the authorities. The law and order situation in Meerut divison had not deteriorated to an extent that a report about such thefts or misappropriations of property worth lakhs of rupees could not have been made to the police. The least that could be expected was that the transport authorities would have been apprised of such a situation so as to put an end to the liability of the company for payment of taxes at least.

7. The Indo-Pakistan border was at some distance from the area of operation of these vehicles and if prompt reports had been made to the authorities, steps could have been taken to stop the vehicles from going across the border. Under the circumstances, the learned company judge was fully justified in rejecting the plea of the directors that they had lost all the vehicles belonging to the company during the communal disturbances that followed the partition of the country. If a Rule of thumb has been adopted to assess the value of the sale proceeds of these 15 goods carriers and the profits made by operating them for a number of years at the comparatively low sum of Rs. 26,600 the party aggrieved may appear to be the official liquidator and the judgment-creditor. The measure adopted for assessing the damages was that a truck had to be sold almost as a junk for a price about Rs. 500 to Rs. 1,000 within a few months and the other trucks could not have been quite as bad as this junk. Even some of the witnesses examined by the directors have stated that the income from the running of such goods carriers was much more than the figure that has been adopted by the learned company judge. He has, however, taken into account that certain amounts would have to be spent on the maintenance and repairs of these vehicles to keep them running and the net profit may not really be at the rate that has been given by some of these witnesses.

8. As regards the apportionment of the liability over the three directors, the grievance may again appear to be that of the creditor of the company and not of the directors. In Peninsular Locomotive Co. Ltd, v. H. Langham Reed, [1837] 7 Comp Cas 212 ; A.I.R. 1937 Pat. 293 it was held that even though the position of the directors differs from the trustees in some respects yet to the extent of their being entrusted with moneys of the company, they are jointly and severally liable for the breach of trust. When the assets of a company are entrusted to the directors to be applied to certain defined objects, then they would be liable for breach of trust if they applied these assets to other objects. The finding was that these three members were acting in concert and that is why Shri Gian Chand who had never worked as a managing directqr was made liable for a substantial part of the damages. He was made liable simply because he had been attending certain meetings of the board of directors. If in his case the principle of vicarious liability had to come in, then there was no reason why the other two who had acted as managing directors should not have been made severally and jointly liable in respect of the entire amount. If they were taken to have incurred a higher liability because of the office of managing director that they held, then the periods over which they had held that office were known and if any individual liability had to be fixed then they should have been made liable only for the acts of malfeasance or misfeasance committed during their respective terms of office. I, however, find that the liability of these three directors in respect of breaches of trust committed by them was joint and several and that all three of them should have been made equally liable severally as well as jointly. This, however, is a grievance which could validly be urged by the official liquidator and the judgment-creditor of the company and the directors cannot possibly escape liability by advancing the argument that the apportionment of liability was not made on any well recognised principles. I find no force in the argument of Shri Bhagirath Dass that there is no reliable evidence that the company was operating any vehicles after the partition of the country. It was in fact for the directors to properly account for the property that had been placed in their charge and to prove by reliable evidence that these vehicles had disappeared for no fault of theirs. The directors have miserably failed in proving any such thing and the evidence, on the other hand, shows that the company was actually operating these vehicles for profit for a number of years after the partition of the country. The three directors who were taking active interest in the management of the company and who were acting as a team, being members of the family, were jointly and severally liable for their acts of misfeasance or malfeasance. The directors had failed to produce the best evidence which was in their possession and which could have helped the court in determining the correct measure of damages. If inferior type of evidence or surmises have been relied upon to assess the measure of damages, the party aggrieved is not the board of directors but the official liquidator and the judgment-creditor. In this view of the matter, the appeal filed by the directors has no merit whatsoever.

9. As I have already said the damages have been assessed rather leniently but there was no better data available with the learned company judge. The amount awarded would hardly be enough to pay out the expenses of the winding up and it is doubtful whether anything would be left over for the satisfaction of Shri Bine Chand's decree. It was, however, for the official liquidator and judgment-creditor to work out a detailed statement about the assets and liabilities of the company and with the help that was forthcoming from these quarters, the learned company judge could not have made a better job of assessing the damages. He has taken into account all the material made available to him by the parties and has tried to work out the damages in a judicious manner. The only plea in the cross-appeal of the official liquidator, etc., that succeeds is that the liability of the three directors is made joint and several.

10. For reasons given above, L.P.A. No. 364 of 1966 filed by Mulkh Raj Mehta and others is dismissed with costs while L.P.A. No. 359 by the official liquidator and Bine Chand partly succeeds only to this extent that all the three directors are made jointly and severally liable in respect of the sumof Rs. 26,600. There shall be no order as to costs in L. P. A. No. 359 of 1966.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //