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Mrs. JoselIn and ors. Vs. Offl. Liquidator, Alwaye Chit Funds (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKerala High Court
Decided On
Case NumberM.F.A. Nos. 134, 136 and 144 of 1977
Judge
Reported in[1979]49CompCas170(Ker)
ActsCompanies Act, 1956 - Sections 543; Indian Companies Act, 1913 - Sections 235
AppellantMrs. JoselIn and ors.
RespondentOffl. Liquidator, Alwaye Chit Funds (P.) Ltd.
Appellant Advocate K.N. Narayana Pillai,; T.K. Venugopalan,; K.N. Parameswa
Respondent Advocate T.V. Ramakrishnan, Adv.
DispositionAppeal allowed
Cases Referred(See Gopal Ganesh Abhyankar v. Ramchandra Sadashiv Sahasrabudhe
Excerpt:
.....- not just, fair or equitable to continue misfeasance proceedings against appellants who were legal representatives of those directors - held, impugned order set aside. - - it seemed to have resulted from the strong quasi-criminal character of the action for trespass. just like a prosecution for a criminal offence, the action for trespass, which was 'the parent of much of our modern law of tort',was held, by applying this maxim, to be incapable of surviving the death of the wrongdoer, and, in some cases, even of the party injured. the maxim, with its extensions, was criticised by winfield and found to be 'pregnant with a good deal more mischief than was ever born of it'.whatever view one may take of the justice of the principle, it was clear that it would not be applicable to..........under section 543 of the companies act, 1956 (hereinafter referred to as ' the act'), the legal representatives of three directors who died during the pendency of the misfeasance petition. the question raised in these appeals is whether it was legally open to the company court to direct the impleading of the legal representatives of the deceased directors in the proceedings started under section 543. the appellants who have raised this question are the legal representatives of the three deceased directors. 2. a company by name alwaye chit funds (p.) ltd. was ordered to be wound up in c.p. no. 27 of 1965 and in the winding-up proceedings the official liquidator filed application no. 153 of 1971 praying that action should be initiated under section 543 of the act against the past.....
Judgment:

Balakrishna Eradi, J.

1. These appeals have been filed against an order passed by the learned company judge allowing three applications filed by the official liquidator to bring on record in a misfeasance proceeding--Application No. 153 of 1971 in C.P. No. 27 of 1965--initiated under Section 543 of the Companies Act, 1956 (hereinafter referred to as ' the Act'), the legal representatives of three directors who died during the pendency of the misfeasance petition. The question raised in these appeals is whether it was legally open to the company court to direct the impleading of the legal representatives of the deceased directors in the proceedings started under Section 543. The appellants who have raised this question are the legal representatives of the three deceased directors.

2. A company by name Alwaye Chit Funds (P.) Ltd. was ordered to be wound up in C.P. No. 27 of 1965 and in the winding-up proceedings the official liquidator filed Application No. 153 of 1971 praying that action should be initiated under Section 543 of the Act against the past directors of the company on the ground that they had committed acts of misfeasance, breach of trust, etc., in relation to the company. During the pendency of that application three of the respondents died. The 1st respondent died on 21st November, 1973. The 8th respondent died on 20th May, 1974, and the 9th respondent died on 18th August, 1976. Applications were filed by the official liquidator for impleading the legal representatives of these respondents only on 22nd November, 1976. The liquidator also prayed for condonation of the delay and for setting aside the abatement. Those applications were resisted by the legal representatives of the deceased respondents, who are the appellants before us, by contending that the special remedy given under Section 543 of the Act does not survive the death of the concerned director and that in any event sufficient grounds were not shown by the liquidator for condonation of the inordinate delay and setting aside the abatement that had already taken place. The learned company judge overruled the objections raised by the legal representatives and allowed the applications filed by the official liquidator. Hence, these three appeals by the legal representatives of the three respondents.

3. Although it was contended before us on behalf of the appellants that the maxim actio personalis moritur cum persona is applicable in respect of the proceedings initiated against a delinquent director under Section 543 of the Act and the rulings in Manilal Brijlal v. Vendravandas C. Jadav [1944] 14 Comp Cas 147 (Bom), Sankaran Nambiar v. Kottayam Bank by Official Liquidator [1946] 16 Comp Cas 36 (Mad) and In re Peerdhan Juharmal Bank Ltd. (In liquidation) by its Joint Official Liquidator [1958] 28 Comp Cas 546 (Mad), were strongly relied on by the learned advocate for the appellants in support of the above contention, the matter is directly concluded against the appellants by the pronouncement of the Supreme Court in Supreme Bank Ltd. by Offl. Liquidator v. P.A. Tendolkar [1973] 43 Comp Cas 382. After an exhaustive review of the decisions rendered on the point by the various High Courts in India inclusive of the decisions in [1944] 14 Comp Cas 147 (Bom), [1946] 16 Comp Cas 36 (Mad) and [1958] 28 Comp Cas 546 (Mad), the Supreme Court stated its conclusion as follows (p. 395):

' The decisions of our High Courts, while keeping in view the consideration that a misfeasance proceeding, contemplated by Section 235 of the Act of 1913, involving an inquiry into the personal conduct of persons acting in capacities mentioned therein, may attract the application of the maxim actio personalis moritur cum persona, have proceeded, very rightly, more on an interpretation of the provisions of Section 235 than on the application of that maxim.

The maxim actio personalis moritur cum persona, as pointed out in Winfield's 'Law of Torts' (eighth edn., pp. 603-605), was an invention of English common lawyers. It seemed to have resulted from the strong quasi-criminal character of the action for trespass. Just like a prosecution for a criminal offence, the action for trespass, which was ' the parent of much of our modern law of tort', was held, by applying this maxim, to be incapable of surviving the death of the wrongdoer, and, in some cases, even of the party injured. The maxim, with its extensions, was criticised by Winfield and found to be ' pregnant with a good deal more mischief than was ever born of it'. Whatever view one may take of the justice of the principle, it was clear that it would not be applicable to actions based on contract or where a tortfeasor's estate had benefited from a wrong done. Its application was generally confined to actions for damages for defamation, seduction, inducing a spouse to remain apart from the other and adultery.

We see no reason to extend the maxim, as a general principle, even to cases involving breaches of fiduciary duties or where the personal conduct of the deceased director has been fully enquired into, and the only question for determination, on an appeal, is the extent of the liability incurred by the deceased director. Such liability must necessarily be confined tothe assets or estate left by the deceased in the hands of the successors. In so far as an heir or legal representative has an interest in the assets of the deceased and represents the estate, and the liquidator represents the interests of the company, the heirs as well as the liquidator should, in equity, be able to question a decision which affects the interests represented. ' Explaining the position further with specific reference to the nature of the power conferred on the court by Section 543 of the Act and the object and purpose underlying the said provision, the Supreme Court pointed out that both Section 235 of the Indian Companies Act, 1913, and Section 543 of the Companies Act, 1956, to which the former corresponds, confine the power of the court to make orders for repayment or restoration of money or property or contribution to the assets of the company against the individuals occupying the capacities mentioned therein either in the past or present, and went on to observe (pages 397-398):

'This power does not, on the language of these provisions, extend to making compulsive orders against heirs of delinquents. As the power to take these special proceedings is discretionary and does not exhaust other remedies, although the court may, as a matter of justice and equity, drop proceedings against delinquent directors, managers or officers who are no longer alive, leaving the complainant to his ordinary remedy by a civil suit against the assets of the deceased, yet where no injustice may be caused by continuing these proceedings against a past director, even though he be dead, the proceedings could continue after giving persons who may be interested opportunities to be heard. But, even such proceedings can only result in a declaration of the liability of a deceased director, because the language of Section 235 of the Act of 1913, as already noticed, does not authorise passing of orders to compel heirs or legal representatives to do anything. Such compulsive proceedings as may become necessary against those upon whom devolve the assets or the estate of a deceased delinquent director, who may have become liable, could only lie outside Section 235 of the Act of 1913......

It may be possible (though we need express no final opinion on the matter) where a proceeding under Section 543 is covered also by the terms of Section 542 of the Companies Act of 1956, to give directions to persons other than those whose conduct is enquired into, including directions to heirs and legal representatives, for the purpose of enforcing a declaration. But we think that the power under Section 235 of the Act of 1913, which corresponds to Section 543 of the Act of 1956, would not extend beyond making a declaration against a deceased director provided he, in his lifetime, or his heirs, after his death, have had due opportunity of putting forward the case on behalf of the allegedly delinquent director. If either a liquidator or the heirs of a delinquent director, against whom a declarationof liability has been made, can question the determination of liability of the deceased delinquent, who was alive at the time of the judgment against him, it is obvious that the appellate court could give a declaration either reducing or increasing the liability even though it may not be able to enforce it by an order under Section 235 of the Act. If the declaration can be questioned by an appeal, as we think that it can, the liability can be not only wiped off or reduced but also increased on an appeal heard after the death of a director held liable. '

4. In the light of this pronouncement it is not possible to accept the contention of the appellants that proceedings initiated against a director under Section 543 of the Act would in all cases necessarily come to an automatic termination on the death of the concerned director by reason of the operation of the maxim that personal actions will not survive the death of the wrongdoer. The court has jurisdiction in appropriate cases to continue the proceedings against the legal representatives of a deceased director provided it is satisfied that no injustice would be caused by such a course. Alternatively, the court may, as a matter of justice and equity, drop the proceedings against the deceased directors and leave the liquidator to pursue his ordinary remedy by a civil suit against the assets of the deceased. Even in cases where the court sanctions the continuance of the proceedings against the legal representatives of a deceased director such proceedings can only result in a declaration of the liability of the deceased and no compulsive order can be passed against the legal representatives under Section 543.

5. In the case before the Supreme Court two of the directors had died before the company judge gave his decision in the misfeasance application. The company judge thereupon dropped the proceedings against those directors and it was only against the remaining directors that the proceedings were pursued. The correctness of the decision of the company judge to exempt the heirs of the legal representatives of the two directors who died during the course of the proceedings before him was not questioned by any party either in the appeal before the Division Bench of the Karnataka High Court or in the appeal before the Supreme Court. Another director by name Tendolkar, who was alive at the time when the company judge gave his decision on November 8, 1963, and also at the time when the Appellate Bench of the High Court dismissed his appeal against the order passed by the company judge, had filed an application before the Division Bench for the grant of a certificate of fitness of the case for appeal to the Supreme Court. While that application was pending he died on August 10, 1966. Thereupon Tendolkar's heirs got themselves impleaded in that application and a certificate under Article 133 of the Constitution was granted to them by the High Court. On the basis of the said certificate they filed the appeal before the Supreme Court challenging the decision holding Tendolkarliable under Section 543 of the Act. The official liquidator also filed an appeal before the Supreme Court praying that the quantum of liability of the deceased director should be further enhanced. It was against the background of these facts that the Supreme Court had to consider the question whether the proceedings initiated under Section 235 of the Indian Companies Act, 1913, against Sri Tendolkar could not be continued after his death. It is necessary to notice that the concerned director by whose legal representatives the question was raised, was alive throughout the course of the proceedings until the case had ended in a judgment against him by the company court and an appeal filed by him against the said judgment before a Division Bench of the High Court had also been dismissed. It was only thereafter, while an application filed by him for the grant of a certificate under Article 133 of the Constitution, that he died. While dealing with this aspect the Supreme Court has extracted the following passage from the Full Bench judgment of the Allahabad High Court in Muhammad Husain v. Khushalo [1886] ILR 9 All 131, 134:

' I have always understood the law to be that in those cases in which an action would abate upon the death of the plaintiff before judgment, the action would not abate if final judgment had been obtained before the death of the plaintiff.... ...The result of these authorities would clearly seem to bethat, where the claim has been perfected by a judgment, the nature of the relief claimed on appeal stands on a different footing and there will be no abatement' (See Gopal Ganesh Abhyankar v. Ramchandra Sadashiv Sahasrabudhe [1902] ILR 26 Bom 597, 608, 609) and observed that 'the ratio decidendi of this case helps the official liquidator in his contention in the appeal'. Thus, in cases where the proceedings initiated against a director under Section 543 of the Act have already culminated in a judgment by the company court, there cannot be any doubt that the matter may be further pursued before an appellate court either by the official liquidator against the legal representatives of the deceased director or by the legal representatives of the deceased director against the liquidator. The further question is whether in the event of the concerned director dying during the course of the proceedings under Section 543 before the company court such proceedings may be continued against the legal representatives of the deceased director. In the light of the observations of the Supreme Court in the above case, the position appears to be that there is power in the court to continue the proceedings against the legal representatives of the deceased director in appropriate cases and the court can make an order declaring the liability of the deceased. But, in our opinion, such a course should ordinarily be adopted only in cases where, prior to his death, the deceased director had already had full opportunity to give evidence and substantiate his defence before the company court, so much so that no prejudicewould be caused to the legal representatives by the proceedings being continued even after the death of the concerned director. Where, however, the concerned director dies at an early stage of the proceedings in the company court before he has had a full and fair opportunity to adduce before the court the evidence in support of his contentions, it may not be just, fair or equitable to implead the legal representatives and continue the summary proceedings against those persons who may be totally ignorant of the details of transactions of the company or the dealings which the deceased had with the company. In such a case, it will be a just and proper exercise of the discretion to* drop the proceedings under Section 543 of the Act against the deceased directors as was done in the case that went up to the Supreme Court and to leave the liquidator to pursue his ordinary remedy of instituting a civil suit against the estate of the deceased.

6. In the present case, the three directors, whose legal representatives are the appellants before us, had died at an early stage of the proceedings before the company court. They had not been examined in the misfeasance proceedings nor had they an opportunity to place before the company court the evidence in support of their contentions, prior to their death. In these circumstances, we do not think that it would be just, fair or equitable to continue the misfeasance proceedings against the appellants who are the legal representatives of those three directors. The orders under appeal are, therefore, Set aside and the petitions filed by the liquidator for impleading the appellants herein as supplemental respondents in Application No. 153 of 1971 will stand dismissed. The appeals are allowed as above. The parties will bear their respective costs.


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