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The First National Bank Ltd. Vs. Om Parkash Sharma and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany;Contempt of Court
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Original No. 10 of 1958
Judge
Reported inAIR1962P& H433; [1963]33CompCas1043(P& H)
ActsBanking Companies Act - Sections 3 and 45-H; Code of Civil Procedure (CPC), 1908 - Sections 151 - Order 6, Rule 17; Indian Companies Act, 1956 - Sections 441 and 543
AppellantThe First National Bank Ltd.
RespondentOm Parkash Sharma and ors.
Cases Referred(see Sabapathi Rao v. Sabapathi Press Co.
Excerpt:
- sections 80 (2) & 89 & punjab motor vehicles rules, 1989, rules 85 & 80: [t.s. thakur, cj, jasbir singh & surya kant, jj] appeal against orders of state or regional transport authority imitation held, a stipulation regarding the period of limitation available for invoking the remedy shall have to be strictly construed. that is because any provision by way of limitation is in the nature of a restraint on the remedy provided under the act. so viewed two inferences are clear viz., (1) sections 80 and 89 of the act read with rule 85 of the rules make it obligatory for the authorities making the order to communicate it to the applicant concerned and (2) the period of limitation for any appeal against the order is reckonable from the date of such communication of the reasons would imply.....order(1) an application was made on 4th march, 1958, under section 45h of the banking companies act and under section 3 of the contempt of courts act, against eight respondents. after making several allegations in the body of the petition, the official liquidator of the bank prayed-- (a) respondents nos. 1 to 6 be committed for contempt of court, (b) they be ordered to restore to the bank the amounts which were illegally disbursed from 20th march, 1957, to 1st april, 1957, amounting to rs. 6788.38, (c) set aside the sale of the machinery in favour of respondent no. 7. or, direct that the sale shall be deemed to be subject to the mortgagee rights of the bank. (2) the respondents put in their written statements to the several allegations made. as many as ten issues were framed including.....
Judgment:
ORDER

(1) An application was made on 4th March, 1958, under section 45H of the Banking Companies Act and under section 3 of the Contempt of Courts Act, against eight respondents. After making several allegations in the body of the petition, the official liquidator of the bank prayed--

(a) Respondents Nos. 1 to 6 be committed for contempt of Court,

(b) They be ordered to restore to the bank the amounts which were illegally disbursed from 20th March, 1957, to 1st April, 1957, amounting to Rs. 6788.38,

(c) Set aside the sale of the machinery in favour of respondent No. 7. or, direct that the sale shall be

deemed to be subject to the mortgagee rights of the bank.

(2) The respondents put in their written statements to the several allegations made. As many as ten issues were framed including those relating to the sale of the machinery, withdrawal of the amounts on account. of salary and covering the various points referred to in the parties' pleadings. The parties produced a fairly voluminous evidence in support of their respective cases.

(3) During the course of the arguments, Mr. D. N. Avasthy raised an objection which was of a preliminary character, He contended on behalf of his clients that proceedings under section 45-H of the Banking Companies Act were not competent because the condition precedent was that an application is made to the High Court under section 543 of the Companies Act, 1956 against directors and other persons specified therein. Mr. Avasthy maintained that there was to reference whatever in this application to section 543 of the Companies Act and that it was in the main an application for contempt of Court.

(4) Mr. Hem Raj Mahajan, after taking an opportunity to consider the objection raised, has filed an application purporting to be under Order 6, Rule 17, and section 151 of the Civil Procedure Code. His contention was that when the application was styled as one under section 45-H of the Banking Companies Act, it was also intended to be under section 543 of the Companies Act. He maintained that whatever matter was required to be included in a petition under section 543 had been covered by the main petition. but, in order to obviate the objection raised by the respondent, he prayed that the heading of the petition may be allowed to be amended by inserting section 543 of the Companies Act, 1956, as well. It was also prayed that the petitioner may be permitted to pay the balance of the court-fee, namely, Rs. 10.35 nP. This application on behalf of the official liquidator made under Order 6, Rule 17, has been opposed by respondents Nos. 2, 3 and 5.

(5) I have heard arguments of the learned counsel for both sides. Mr. D. N. Avasthy contends that throughout the proceedings of this case, his clients were materially prejudiced in so far as they were materially prejudiced in so far as they were treating the petition to be one under Contempt of Courts Act despite the fact that section 45-H had been expressly mentioned in the heading of the petition. Mr. Avasthy also contends that opportunity for defence had not been availed of which would have been done if it was known to his clients that they had to met the allegations made in a petition under Section 543. His grievance is that there is a likelihood of serious prejudice to his clients if this petition is treated as one under section 543 of the Companies Act.

(6) After carefully considering the respective submissions, I am of the view that the petition as worded included all the material that was required to be alleged for a petition under section 543 and the omission of section 543 in the heading of the petition has not created any material prejudice in the minds of the respondents. By way or abundant caution, I allow the official liquidator to amend the plaint by indicating in the heading that it is also under section 543 of the Indian Companies Act, 1956. The requisite court-fee may also be paid.

(7) Lest respondents Nos. 2, 3 and 5 should feel that they have been prejudiced in offering effective defence to the case set out by the official liquidator, I give them one opportunity to lead any further evidence if they so desire. I therefore, adjourn this case to 21st July, 1961, when such evidence as respondents Nos. 2, 3 and 5 may wish to lead on their behalf with a view to meet the petitioner's case under section 543 of the Companies Act will be recorded. Further arguments will be heard after the conclusion of the additional evidence of these three respondents.

(On the application coming on for hearing on the adjourned date the Court passed the following order:-)

(8) My order dated April 28, 1961, may be read as part of this order. By that order I had allowed the official liquidator to amend the plaint by indicating in the heading that it was also under section 543 of the companies Act, 1956. I had also directed that the requisite court-fee which was required in addition, may also be paid. An opportunity was given to respondents Nos, 2, 3 and 5 that in case they desired to lead any further evidence they could do so, but no further evidence has been led in this case.

(9) The present petition is now under section 543 of the Companies Act, 1956, on behalf of the First National Bank Limited, in liquidation, through the official liquidator and is against eight respondents. The first respondent was the Manager at the central office of the Bank at Delhi and respondent Nos. 2 to 6 were the Directors. Respondent No. 7 is the purchaser of the property which was mortgaged with the Bank by respondent No. 8, the judgment-debtor.

(10) On 10th March, 1957, an application for winding up of the Bank was made by Northern India Radhaswami Education Society Limited. On 5th March, 1957, a similar application was also moved on behalf of the Reserve Bank of India and on 14th March, 1957, the official liquidator was appointed as the provisional liquidator. On 17th May, 1957, the Bank was ordered to be wound up.

(11) In accordance with the provisions of section 441 of the Companies Act, the winding-up of the Bank is deemed to commence at the time of the presentation of the petition for the winding-up.

(12) The Bank had obtained a decree in suit No. 135 of 1951 against Central Metal Industries, Delhi, through S. S. Kashyap, respondent No. 8, for Rs. 34,000/-. Execution proceedings No. 427 of 1955 were taken out against the judgment-debtor in the court of the Sub-Judge 1st Class, Delhi, and have been transferred to this court. It is alleged by the official liquidator in this petition that despite the fact that on the appointment of the provisional liquidator the powers of the Directors and of the Manager of the Bank had come to an end they entered into a compromise on behalf of the Bank without reference to the official liquidator or to this Court. The Bank's decretal claim of Rs. 34,000/- against the judgment-debtor, respondent No. 8, was compromised for Rs. 6,500/- and the machinery mortgaged with the Bank was released from mortgage and sold to respondent No. 7 for Rs. 8,000/-. Out of this amount Rs. 6,500/- were accepted by the Bank in full and final satisfaction of its claim and Rs. 1,500/- were paid by the purchaser to the landlord of the premises where the machinery had been placed as arrears of rent.

It is claimed that the sale of the machinery in favour of respondent No. 7 freed from the Bank's mortgagee rights was illegal and void and not binding on the official liquidator. In the alternative, it was also submitted that the sale should be deemed to be subject to the Bank's mortgagee rights. It was then said that the first respondent in conspiracy with respondents Nos. 2 to 6, but without any authority from the official liquidator, opened a new account with the Bank of Patiala at Delhi where the above mentioned sum of Rs. 6,500/- was deposited along with two other sums of Rs. 2,000/- and Rs. 100/- belonging to the Bank. The total amount of Rs. 6,788.38 was then illegally disposed of between the four Directors, the Manager and their friends between 23rd March, 1957 and 1st April, 1957, with the result that only a sum of Rs. 1,811.62 was left in the said account when it came effectively under the control of the official liquidator. The disbursements were shown as under by respondent No. 1--

(a) Rs. 950/- on account of the alleged security deposit of Om Prakash Sharma with the Bank;

(b) Rs. 159-10-9 on account of his alleged salary from 10th January, 1957, to 31st January, 1957, during which period he claimed to have been in the service of the Bank though, according to the contention of the official liquidator, that was not so;

(c) the four Directors, respondents Nos. 2 to 5, appropriated to themselves the following sums--

(i) Raghunath Sahai Rs. 260/- (ii) Surinder Kumar Rs. 240/- (iii) Balwant Chand Nayar Rs. 274/- (iv) Basheshar Nath Rs. 20/-.; (d) some disbursements were made to other alleged creditors of the Bank.

On the above allegations, it was prayed that respondents Nos. 1 to 6 be ordered to restore to the Bank the sum of Rs. 6,788.38 which they had illegally disbursed; the sale of the machinery in favour of respondent No.7 should be either set aside or should be deemed to be subject to the mortgage charge of the Bank and the respondents Nos. 1 to 6 be further committed for contempt of Court in so far as they were party to the unauthorised disposal of the property in the custody of this Court.

(13) Separate written statements were filed by the respondents.

(14) In reply, respondent No. 1 stated that he had no knowledge of the dates on which the winding-up application was presented and the provisional liquidator was appointed. He learnt for the first time on 29th March, 1957, when a letter from the provisional liquidator informing his appointment, was brought to the respondents notice. It was also stated that he was not in the service of the Bank from 1947 till his appointment as Recovery Manager by the Directors on 10th January, 1957.

Regarding the decree of Rs. 34,000/- its passing in 1951 was admitted but it was said that nothing was realised up-till 1955. On 27th December, 1955, the Board of Directors had passed a resolution that a compromise be effected and the machinery sold to P. C. Jain Motor Company Limited of Delhi, at Rs. 10,000/- but the negotiations did not materialise. It was in March, 1957, that the respondent was able to sell the machinery and a buyer was found in respondent No. 7 to whom the machinery was sold with the approval of the Directors and the Judgment-debtor. The respondent then averred that 'in the compromise effected by him on 25th of March, 1957, he did everything under the directions of the directors and he was acting in the interest of the Bank'.

He also stated that the account was opened in the Bank of Patiala under the authority and directions of the Board of Directors and this was done for the Bank's benefit. He said that he did so in the expectation of securing accommodation from the Bank of Patiala as the First National Bank was passing through critical and hard times and was not even in a position to defray minor expenses. The employees who had not received their pay for months together wee threatening to go on strike unless their salaries were paid. Disbursements were claimed to be bona fide having been made to the Directors as their remuneration for attending Board meetings and to the employees on account of the arrears of their salary.

Respondent No. 1 said that he was appointed Manager of the central office and Chief Executive Officer on 6th February, 1957, with the unanimous approval of the Board. As to his personal claim, the case of this respondent is that he was in the service of the Bank from 1941 till 8th July, 1947, when he had to leave the service of the Bank on account of illness. The established fact, however, is that he was dismissed on account of his having remained absent without leave. He said that the Bank used to make small deductions every month from out of the salary and when his services were terminated he had become entitled to Rs. 665/-. When he re-joined the Bank on 10th January 1957, he was permitted by the Directors, on 12th February, 1957, to receive this amount of Rs. 665/- with interest up to that date and thus he received the total sum of Rs. 950/- to which he was legally entitled. The other sum which he had received was of Rs.159-10-9 on account of his pay from 10th January, 1957 to 31st January, 1957. He claimed to have disbursed the sum of Rs. 794/- to the Directors under their orders.

He denied misappropriating any sum and maintained that the payments made by him were in accordance with law and in the Bank's interest and whatever he did was under the orders of the Directors. The Bank in its replication traversed these pleas and reiterated what was said in the petition.

(15) The written statements of respondents Nos. 2 to 5 who were the Directors, run on similar lines. They have denied knowledge of the appointment of the provisional liquidator till 1st April, 1957. The knowledge of the compromise entered into by respondent No. 1 with the judgment-debtor was also denied. Regarding the new account opened with the Bank of Patiala at Delhi, it was stated that this was done in pursuance of the resolution of the Board dated 26th February, 1952. The receipt of the amount as Directors fee was admitted. It was admitted that respondent No. 1 was not on the paid staff of the Bank before 6th February, 1957, when he was appointed Manager in place of Lachhmi Narain with effect from that date. The knowledge of the other disbursements to the employees and others was denied.

Respondent No. 6 Pakhar Singh, another Director, denied being a party to the compromise entered into by respondent No. 1 with the judgment-debtor which, according to him, was without his knowledge. He said that after the appointment of the provisional liquidator, he advised respondent No. 1 not to transact any business on behalf of the Bank and that he should fully co-operate with the provisional liquidator. The new account was opened without his knowledge or consent and respondent No. 1 did so on his own risk and on his own responsibility. This respondent also denied having been a party to anything done by the rest of the respondents. Nothing was disbursed to him to account of any remuneration.

(16) Respondent No. 7 is Surinder Kumar Raheja. He denied knowledge of any conspiracy between other respondents and claimed himself to be a transferee for value in good faith and without notice of the mortgage in Bank's favour. He further stated that he was not award of the actual circumstances preceding the sale and that he had purchased a second hand, incomplete, and defective machinery in due course of business on the basis of information he got from an advertisement in the columns of the Hindustan Times Weekly New Delhi, dated December 18, 1955.

(17) Respondent No. 8 did not file any written statement.

(18) The pleadings of the parties gave rise to the following issues--

(1) Has the Compromise been effected by the respondents?

(2) Whether the compromise was in accordance with law?

(3) Whether the sale of the machinery for Rs. 6,500/- is void?

(4) Was respondent No. 1 justified in withdrawing any amount on account of salary from 10th of January, 1957, to 6th of February, 1957?

(5) Has respondents No. 1 any security deposit with the Bank? If so, as he entitled to withdraw it without the sanction of the provisional liquidator?

(6) Was the disbursement of the amount of Rs. 6,788.38 after the appointment of provisional liquidator justified and if not, which of the respondents are responsible for doing so?

(7) Was the sum of Rs. 794/- appropriated by the respondents to their own accounts, and if so, whether they were justified in doing it?

(8) Whether respondent No. 7 purchased the machinery in good faith?

(9) whether the respondents, and if so, Who, are guilty of contempt of Court?

(10) Relief.

(19) Issues Nos. 1, 2, 3, 6 and 9 relate to respondents, Nos. 1, 2, 3 and 6. Issues Nos. 4 and 5 exclusively refer to respondent No.1 Issue No. 7 relates to respondents Nos. 2 to 5 Issue No. 8 is in respect of respondent No. 7 only.

(20) The parties examined a number of witnesses and produced some documents. The following points were made by the learned following points were made by the learned counsel on behalf of the Bank. He first contened that respondents Nos. 1to 6 were aware of the order, dated 14th March, 1957, relating to the appointment of the provisional liquidator and they had acquired this knowledge before 25th March, 1957, the date of the compromise and the sale of the machinery.

(21-26) (His Lordship referred to the evidence and proceeded)--

The circumstances of this case and other facts on the record referred to above warrant a conclusion that the Directors and Om Parkash Sharma were aware of the appointment of the provisional liquidator before 25th March, 1957, the day of the sale of the machinery.

(27) I may next deal with the arguments on the second and third issues.

(28) The Bank was owed a sum of Rs. 34,000/- by respondent No. 8 against which the machinery in question had been pledged. No evidence has been led as to the actual value of this machinery either at the time it was pledged with the Bank or at the time of its sale and in the absence of material on the record to show that its price exceeded Rs. 8,000/- it is difficult for me to accept merely on a suspicion that the machinery was sold at an undervalue. I, therefore, assume that the machinery fetched its market value.

(29) I may now refer to certain provisions of the Act. My attention has been drawn to sections 441, 450, 456 and 457 of the Companies Act, 1956.

Under section 441(2), the winding up of a company by the Court in cases other than those of voluntary winding-up shall be deemed to commence at the time of the presentation of the petition for the winding up, and under section 536(2), in the case of winding-up by or subject to the supervision of the Court, any disposition of property of the company, made after the commencement of the winding-up shall, unless the Court otherwise orders, be void. The effect of the last-mentioned provision is that Director or any other employee who has disposed of the property of the company becomes liable for all monies of the company expended by him since the commencement of the winding-up. It is, of course, open to a Court to validate transactions bona fide entered into by the company for its benefit. Directors or other employees who enter into a contract and make payments on behalf of the company during the winding-up proceedings do so at their peril, as, such payments are unauthorised and amount to a wrongful disposal of the property of the company. Section 450(1) deals with courts nower to appoint provisional liquidator after the presentation of a winding-up petition and before the making of a winding-up order. Under section 456, the company's property, after the appointment of provisional liquidator has to be in his custody. Section 457(3) provides that in a winding-up by the Court the powers exercisable by the liquidator are subject to the control or the Court.

On the appointment of a liquidator, the powers of the Directors come to an end. Lord Watson in Gosling v. Gaskell, 1897 AC 575 (587), remarked--

'The company when in liquidation although by no means defunct could no longer act by its directors and appoint or employ agents capable of binding the corporation or its estate, and was represented by the liquidator who could not himself carry on its business without the special leave of the Court.'

(30) The Directors' powers cannot be exercised once the property and estate of the company come under the custody of the Court. So long as the order of the appointment of the provisional liquidator is operative, the powers of the Directors must remain in abeyance. (vide Shree Tej Protap Textile Mills v. Granaries Ltd., 65 Cal WN 665). The result therefore, is that all dispositions of the property of the company made between the date of the presentation of the petition for winding up and the winding up order, are void. The Courts, however, allow such dispositions if they have been made honestly and in the ordinary course of the business. (see Sabapathi Rao v. Sabapathi Press Co., Ltd., AIR 1930 Mad 1012).

(30a) On issue No. 2, therefore, I am of the view that the compromise, dated 25th March, 1957, after the order or appointment of the provisional liquidator had been passed, was not in accordance with law. On the third issue, in the absence of proof that the machinery had been sold at an under value, I would order that the sale of the machinery is subject to the Bank's charge.

(31) I may now deal with issues Nos. 4 and 5. The case of respondent No. 1 is that he had withdrawn out of the sale price of the machinery, which he had deposited in the Bank of Patiala, a sum of Rs. 159-10-9 on account of his salary from 10th January, 1957, to 6th February, 1957. The case of the official liquidator is that Om Prakash Sharma was appointed as Manager on 6th February, 1957, and was not appointed on 10th January, 1957, as Recovery Manager as stated by him. (His Lordship after discussing the evidence continued). There is thus no satisfactory evidence on the record to show that any salary was due to Om Prakash Sharma between 10th January 1957 and 6th February, 1957, and therefore, there could be no justification whatever for withdrawing the amount of Rs. 159-10-9. The fourth issue is, therefore, decided against respondent No. 1.

(32) Turning to fifth issue, the case of Om Parkash Sharma is that a sum of Rs. 665/- was in deposit with the Bank as security when he was dismissed in 1947. When he was re-employed as Manager on 6th February, 1957, he withdrew this amount with interest and disbursed it to himself. (His Lordship, going through the evidence, proceeded).

I am satisfied on this record that there was no security deposit with the Bank of respondent No. 1 and that he was not entitled to withdraw any such amount without obtaining the sanction of the provisional liquidator. In my view, he is liable to refund the amount of Rs. 159-10-9 and also the amount of Rs. 950/- totaling Rs. 1,109-10-9 which he had wrongly withdrawn. He is thus personally liable to refund this amount I, therefore, decide issue No. 5 also against respondent No. 1

(33) The Next Issue, Issue No. 6, is to the effect whether the disbursement of the sum of Rs. 6,788.38 after the appointment of the provisional liquidator was justified an, if not, which of the respondents are responsible. This sum represents disbursements already referred to above in his own favour by respondent No. 1 and a payment of Rs. 794/- paid to the four Directors referred to in the earlier part of the judgment. Amounts were also paid to the other employees of the Bank on account of their salaries in arrears. This also included payment to the broker, rent to the landlord and fees paid to the lawyers, Messrs. Balbir Singh and Manohar Lal. All these disbursements had been made after the appointment of the provisional liquidator and mainly out of the amount realised by sale of the machinery. For reasons already discussed, disbursements, whether by Om Parkash Sharma or by the Director after the appointment of the provisional liquidator, were contrary to law unless sanction of the Court was obtained. So far as Directors' remunerations are concerned, they have, during the pendency of these proceedings, refunded the respective amounts which had been withdrawn by them. There is satisfactory proof on the record that the sums paid to the employees and to the others was actually due to them and no attempt has been on behalf of the official liquidator to show that the payments actually made were not owed by the Bank. There is not doubt whatsoever that these payments were entirely unauthorised, but in so far as the payments were actually owed, in the case of employees were actually owed, in the case of employees were in the nature of arrears of their salaries and in the case of lawyers were on account of fees already earned, it will not be proper of this Court to order respondents to refund such amounts as they were the just obligations of the Bank.

On issue No. 6, I, therefore, find that though the disbursements of the amount after the appointment of the amount after the appointment of provisional liquidator was not justified, but I would not order the respondents, excepted, but I would not order the respondents, except Om Parkash Sharma, to refund the same. So far as Om Parkash Sharma is concerned, he is only liable to refund two sums of Rs. 159-10-9 and Rs. 950/-, that is, Rs. 1109/10-9, which he misappropriated to himself.

(34) With these observations, issue No. 7 also stands disposed of. This sum of Rs. 794/- has been wrongly appropriated by the four Directors and they were liable to refund it, but as they have already done, so no further order in respect of this amount can now be made.

(35) Issue No. 8 relates to respondent No. 7, Surinder Kumar Raheja, who purchased the machinery. According to his written statement, he purchased the machinery which was second hand, incomplete, and defective, and was not aware of any conspiracy on the part of other respondents. He had paid the money in good faith and without notice of illegality. According to his enquiries, this was a transfer by the ostensible owner, that is, the Bank, and for full consideration. No Connection between him and any one of the Directors of respondent No. 1 has been established on the record and in the absence of proof that the price was inadequate it cannot be said that the transaction was unconscionable or in fraud of the Bank.

There are, however, some suspicious circumstances and one of them is the unconvincing explanation furnished by this respondent that he had purchased the machinery in March 1957 on the basis of an advertisement in the columns of the Hindustan Times Weekly dated December 18, 1955. It is unlikely that it was on the basis of the advertisement of 1955 which led him to buy this machinery in March 1957. Another circumstance against him is that he has no cared to appear as a witness and has led no other evidence.

It was also urged by the learned counsel for the official liquidator that the onus probandi or this issue rested on the respondent. I do not think. however, that a case is made out for setting aside the sale, but as already mentioned by me, this sale shall be subject to the Bank's charge. Issue No. 8 is decided accordingly.

(36) Before taking up discussion on the ninth issue, I wish to advert to certain contentions raised on behalf of respondents' counsel. It has been urged that the provisions of Section 543(1) are not attracted to the facts of this case. It is said that neither has there been breach of trust nor have the transactions resulted in any loss to the Bank. Section 543(1) runs as under:

'543. Power of Court to assess damages against delinquent directors etc.--

(1) 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, managing agent, secretaries and treasurers, manager, liquidator or officer of the company--

(a) has misapplied or retained or become liable or accountable for any money or property of the company, or

(b) has been guilty of any misfeasance or breach of trust in relation to the company;

the Court may, on the application the Official Liquidator, or the liquidator, or of any creditor or contributory, made within the time specified in that behalf in sub-section (2), examine into the conduct of the person, director, managing agent secretaries and treasurers, manager. Liquidator or officer aforesaid, and compel him to repay of restore the money or property or any part thereof respectively, with interest at such rate as the Court think just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplications, retainer, misfeasance or breach of trust as the Court thinks just'.

(37) The funds had been misapplied by Om Parkash Sharma so far as withdrawal of Rs. 1,109-10-9 for himself. The four Directors had also is applied the funds amounting to Rs. 794/- representing the unpaid remuneration to themselves. It is true that during the pendency of these proceedings the Directors have refunded the amount, but the act of delinquency had been committed by them when they applied these funds for themselves. To the extent that the Bank has been deprived of this amount, it has obviously incurred loss. Om Parkash Sharma has misapplied and retained the funds and the four Directors had also misapplied the funds and had also retained them till, on a later consideration, they thought it advisable to refund the money. On the proof of above, the case falls within the purview of S. 543(1)(a); the provisions of S. 543 are attracted in either case whether coming under cls. (a) or (b) of subsection (1). It is true that this section is permissive and leaves a discretion with the Court to take action or not against the delinquent Directors and others. The Court, however, has to satisfy itself that there has been a breach of trust; and, further, that his has resulted in a pecuniary loss to the company. Once a case is made out against the respondents under (a) it is not further necessary to bring the case under (b) as well in view of disjunctive 'or' inserted between (a) and (b). What is, however, important is that the act of delinquency must result in a actual loss to the company to sustain a claim under this provision. The applicant must show (i) misapplication, retention or liability or accountability for any money or property of the company, (ii) breach of trust or misfeasance in the nature of breach of trust or duty, (iii) resultant loss therefrom, and (iv) an interest in the result of the application. Misconduct in general will not suffice unless the misconduct is in the nature of an accountable wrong specified in the section. According to Buckley, 12th Edition p. 677--

'The true definition is that the section (section 333 of the English Companies Act, 1948, 1956) includes all cases in which an officer has been guilty of a breach of duty as officer which has caused pecuniary loss to the company, by misapplication of its assets for which he might have been sued'.

The burden of proof of misfeasance is of course on the applicant.

(38) My attention has been drawn to the following observations of James, L. J., In re Canadian Land Reclaiming and Colonizing Co., (1880) 14 Ch. D. 660 (670)--

'In order to enable the Court to apply that section, the liquidator, as it seems to me, must shew something which would have been the ground of an action by the company if it had not been would up. I am of opinion also that the word 'misfeasance' in that section means misfeasance in the nature of a breach of trust, that is to say, it refers to something which the officer of such company has done wrongly by misapplying or retaining in his own hands any moneys of the company, or by which the company's property has been wasted, or the company's property has been wasted, or the company's credit improperly pledged. It must be some act resulting in some actual loss to the company'.

These observations have been followed by Courts in India. On the facts of this case, respondent No. 1 cannot successfully derive any benefit from the above observations. So far as the Directors are a concerned, in view of the fact that they have refunded the amounts and have thus made up the loss and that no further liability can be saddled upon them, their act of misfeasance is now only theoretical, and I will not be justified in exercising the discretionary powers against them. As against them, the official liquidator had to show not only the misfeasance but also the damage in respect of which the Bank to be Compensated An act of misfeasance will not without damage suffice any justification of action of action against misfeasor. The principal object of this provision is to compensate the company in respect of the losses resultant on misfeasance. In my opinion, in this case the loss suffered by the Bank is to the extent of Rs. 1,109-10-9 wrongfully retained by Om Parkash Sharma.

(39) The next question in whether the Directors can be called upon to compensate the Bank in Respect of this amount on account of the act of misappropriation of Om Parkash Sharma. In other words, if the amount had been withdrawn by Om Parkash Sharma in conspiracy or in collusion with the Directors they would also be liable equally with him. The Bank has not led any proof substantiating the connivance of the Directors in the withdrawal of the amounts by Om Parkash. Those Directors who appeared as their own witnesses have denied knowledge of the compromise entered into by Om Parkash Sharma with the purchaser, respondent No. 8. It is true that the Directors had been negligent and if they had shown vigilance in the discharge of their duties the Bank could not have come to grief, at any rate, in the matter of the withdrawals in question. Such suspicion as may be raised against the Directors does not suffice to substantiate their implication in the withdrawals by Om Parkash Sharma for himself. In these circumstances, I cannot hold them directly or vicariously liable.

It is, however, true that, according to Om Parkash Sharma, he disbursed the amount to the employees and to the lawyers under the orders of B. C. Nayar, which fact the latter denies. But so far as the deductions of the amount by him on account of his alleged security and pay, even he does not state that he did it after obtaining the consent of the Board of Directors. The Directors therefore cannot be held liable for the fact of misfeasance, misapplication and retention of the Bank's moneys by Om Parkash Sharma.

(40) To sum up, I find that the four Directors and Om Prakash Sharma were aware of the appointment of the provisional liquidator before 25th March, 1957, and also of the compromise with respondent No. 8 for Rs. 8,000/-. The four Directors and Om Parkash Sharma were liable for acts of misfeasance, but I do not propose taking any action against the four Directors as they have refunded the moneys which were wrongly retained by them. So far as Om Parkash Sharma, respondent No. 1, is concerned, I direct him to refund the sum of Rs. 1,109-10-9 which was wrongly withdrawn and retained by him and his act amounts to misfeasance. By this act of misfeasance, he has caused loss to the Bank for which he must compensate. I do not pass any order against the other respondents.

(41) The ninth issue raises the question whether the respondents are guilty of contempt of Court. The case of the official liquidator in regard to this issue is that respondent No. 1, Om Parkash Sharma, in conspiracy with respondents Raghunath Sahai, Surinder Kumar Marwah, Balwant Chand Nayar, Bisheshwar Nath Kochhar and Pakhar Singh Gill, had opened, on 20th March, 1957, without any authority from the official liquidator, a new account with the Bank of Patiala at Delhi and had deposited the sum of Rs. 6,500/- together with two other sums of Rs. 2,000/- and Rs. 100/- belonging to the Bank in that account. Further, without any authority from the official liquidator he had illegally disbursed sums aggregating to Rs. 6,788.38 to himself and to others. He had paid to himself Rs. 950/- on one account and Rs. 159-10-9 on another account. Out of this deposit, the four Directors had also appropriated to themselves an amount of Rs. 794/-. Raghu Nath Sahai respondent No. 2, took Rs. 260/- Surinder Kumar, respondent No. 3, Rs. 240/-, Balwant Chand Nayar, respondent No. 4 appropriated Rs. 274/- and Bisheshar Nath, respondent No. 5, took Rs. 20/-.

It was prayed that for the above acts, respondents Nos. 1 to 6 be committed for contempt of Court am not award of any act of contempt committed by respondent No. 6 Pakhar Singh Gill, who had not appropriated any amount for himself. He did not dispose of any amount of the Bank for any purpose and I cannot, therefore, find him guilty of having committed and contempt of the Court.

(42) Regarding Om Parkash Sharma, I am satisfied that the was aware of the appointment of the provisional liquidator by this Court when he disposed of the property belonging to the Bank which he obviously could not. The property of the Bank is deemed to be in custodia curiae and any conduct which amounts to removal of the property of the Bank from the custody of the Court or from that of its officer amounts to contempt of Court. It is also contempt of Court if, after the appointment of the liquidator and before he is able to take possession of the property entrusted to him, the property is disposed of this case, Om Prakash has undoubtedly disposed of the property of the Bank illegally. Some allowance might have been given if the interference was unwitting. In may view, it was deliberate and cannot be condoned. I am, therefore, satisfied that Om Parkash is clearly guilty of contempt of Court and I, therefore, order him to pay a fine of Rs. 200/- and in default to undergo one month's simple imprisonment. In my view, respondents Nos. 2 to 5, Raghunath Sahai, Surinder Kumar Marwah, Balwant Chand Nayar and Basheshwar Nath Kochhar, are also guilty of contempt of Court. These Directors were aware of the appointment of the provisional liquidator before 25th March, 1957.

It is no defence on their part that they had appropriated the sums but after these proceedings had been started against them they had refunded the amounts. The gravity of their offence is mitigated because of their subsequent conduct in refunding the amounts taken by them. I, therefore, take a lenient view of their conduct. I order respondents Raghunath Sahai, Surinder Kumar Marwah and Balwant Chand Nayar to pay a fine of Rs. 100/- each, and Basheshar Nath Kochhar to pay a fine of Rs. 50/- ; and in case of default in payment of the fine, to undergo sentence of fifteen days simple imprisonment.

(43) Order accordingly.


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