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In Re: F. and C. Osler (India) Ltd. (In Liquidation) - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberMatter No. 310 of 1957 (C.A. No. 166 of 1964)
Judge
Reported in[1978]48CompCas698(Cal)
ActsCompanies Act, 1956 - Section 543 and 543(1)
AppellantIn Re: F. and C. Osler (India) Ltd. (In Liquidation)
Respondent AdvocateJ.N. Roy, Adv. for Respondent Nos. 2 and 3, ;S.B. Mukherjee, Adv. for Manickchand Bagree and ;Bose, Adv. for S.B. Mohta
Cases ReferredOfficial Liquidator v. Raghawa Desikachar
Excerpt:
- ajay k. bash, j. 1. this is a misfeasance summons taken out by the official liquidator in november, 1963, under section 543(1) of the companies act against six respondents, respondent no. 1, haridas mundhra ; respondent no. 2, his father, gwaldas mundhra ; respondent no, 3, his brother,tulsidas mundhra; respondent no. 4, manickchand bagree ; respondent no. 5, l.r. josse, since deceased, and respondent no. 6, shew bux mohta. of the six respondents, haridas mundhra, though he was duly served with the summons yet he has neither entered appearance nor has defended these proceedings or appeared before me except just before the commencement of the proceeding. early this year, an application was filed by him and others by his counsel, mr. partha mukharji, for adjournment on frivolous and mala.....
Judgment:

Ajay K. Bash, J.

1. This is a misfeasance summons taken out by the official liquidator in November, 1963, under Section 543(1) of the Companies Act against six respondents, respondent No. 1, Haridas Mundhra ; respondent No. 2, his father, Gwaldas Mundhra ; respondent No, 3, his brother,Tulsidas Mundhra; respondent No. 4, Manickchand Bagree ; respondent No. 5, L.R. Josse, since deceased, and respondent No. 6, Shew Bux Mohta. Of the six respondents, Haridas Mundhra, though he was duly served with the summons yet he has neither entered appearance nor has defended these proceedings or appeared before me except just before the commencement of the proceeding. Early this year, an application was filed by him and others by his counsel, Mr. Partha Mukharji, for adjournment on frivolous and mala fide grounds which I dismissed by a speaking order.

2. A point was raised by the learned counsel appearing for some other respondents that this application should not continue in its present form as Haridas Mundhra has since been adjudicated as an insolvent in 1974 and the official assignee should be brought on record. As stated earlier, this application was taken out on November 26, 1963, and Haridas Mundhra did not enter appearance or take any part in the proceedings since its inception and he was only adjudicated an insolvent in 1974. In my opinion, a declaration of insolvency of a director during the pendency of a misfeasance summons is of no consequence to the hearing of this matter. It is a personal action and/or enquiry against the director for his past act as director of the company for breach of trust, misappropriation and other wrongful conduct and as such his subsequent insolvency cannot protect him from his personal liability and responsibility for committing breach of trust or misappropriation of the company's funds for which this proceeding has been launched long ago. I, therefore, negative this point of demurrer.

3. Another point raised by some of the respondents is that L.R. Josse having died during the pendency of these proceedings, the proceedings have abated but: I negative that contention following the recent decisions of this court and the Supreme Court in In re Central Calcutta Bank Ltd. [1959] 29 Comp Cas 427 (Cal) and Official Liquidator, Supreme Bank Ltd. v. P.A. Tendolkar [1973] 43 Comp Cas 382 (SC). It is clear that as the liability of directors for misfeasance is joint and several, so the death of one of the directors will not abate the proceedings. I, therefore, reject this preliminary ground also. The other directors have entered appearance, filed their affidavits and are appearing before me through their lawyers but none of them have deposed before me or personally appeared before me.

4. On March 13, 1946, this company F. & C. Osier (India) Ltd. was incorporated with (1) J. Osier, (2) M.C. Bagri, (3) G.D. Mundhra, alternate H.D. Mundhra, (4) P.A. Osier, (5) D. Kothari, (6) F.T. Griffinchif, (7) G.D. Binani, (8) C.C. Pyne and (9) L.R. Josse, being the first directors, and S.B. Industrial development Co. Ltd. was the managing agents of the said company and Mundhras were the directors of the said managing agency having controlling shares. H.D. Mundhra was the chairman of thesaid managing agency company. Exhibit Z is the memorandum and articles of association of the company, F. & C. Osier (India) Ltd.

5. Under Clause 134 of the articles of association of the company, the managing agents, S.B. Industrial Development Co. Ltd., shall, subject to the control and supervision of the directors, be entitled to have the management of the whole affairs of the company and under Article 137 it says:

' Without in any way affecting the generality of the powers given by Clauses 134 and 136 hereof the managing agents shall, unless otherwise decided by the board of directors and subject to the control and supervision of the directors, exercise all the powers specified in Clause 152 hereof and such other powers as the directors may from time to time delegate to them except the power of opening branch offices of the company and except as restricted by the Companies Act.'

6. There had been rapid changes in the board of directors of the company and in 1949-50 the board was constituted with G.D. Mundhra, M.C. Bagri, R. Daga, G.D. Binani, L.R. Josse and H.D. Mundhra. In 1953, H.D. Mundhra became the chairman of the company. G.D. Mundhra, M.C. Bagri, R. Daga, D.N. Sen, L.R. Josse were the other directors. In January, 1958, the directors were G.D. Mundhra, M.C. Bagri, R. Daga, T.D. Mundhra and in March, 1958, the directors were R. Daga, T.D. Mundhra, H.D. Mundhra, G.D. Mundhra and S.B. Mohta and the winding-up order was passed on 26th November, 1958.

7. The subscribed capital of the company was one crore of rupees. The directors of the managing agency company, S.B.I.D. Pvt. Ltd., were H.D. Mundhra, chairman, G.D. Mundhra, M.C. Bagri, T.D. Mundhra and M. Sudhani and practically 99 per cent, of shares of S.B.I.D. Pvt. Ltd. were owned by the Mundhras and the largest block was possessed by H.D. Mundhra and for all practical purposes Haridas Mundhra was controlling and was all in all managing S.B.I.D. Pvt. Ltd. with other members of the Mundhra family.

8. In the judge's summons taken out under Section 543(1) of the Companies Act, the official liquidator has asked for a declaration that the six directors had misapplied, misappropriated, retained and committed breach of trust in respect of the company's funds and so became liable or accountable for the money and the property of the said company, F. & C. Osier Pvt. Ltd., and were guilty of misfeasance, misappropriation or breach of trust in relation to the company's fund in the total sum of Rs. 71,19,355.03 (Rupees seventy-one lakhs, nineteen thousand three hundred fifty-five and paise three) which became wholly lost to the said company and/or the said company suffered loss in respect of the said sum of money due to such misappropriation by the said directors which resulted in the adjudication of the said company as insolvent on 26th November, 1958, and was wound upto the loss and detriment of various shareholders. The official liquidator made before me the following claims:

9. A large sum of money amounting to more than Rs. 20 lakhs was advanced negligently, recklessly, to the various persons and firms from the company's funds. The said sum was not repaid or refunded to the company. The respondents misapplied the said funds and had not taken any steps for recovery of the said sum and the company lost the same due to negligence and callousness of the directors. The respondent-directors are jointly and severally liable to pay or refund the sum of moneys and the same were completely lost to the company.

10. In the year 1955, the respondent-directors misapplied the funds of the company to the extent of Rs. 4,90,000 (Rupees four lakhs and ninety thousand) by showing it as an investment for purchase of shares in Osier Properties Ltd., a public company incorporated on the 17th February, 1955, which was controlled by the respondent, Haridas Mundhra, S.B. Mohta and one G.K. Maheswari. The said company filed only one balance-sheet on 31st March, 1956. The said sum of Rs. 4,90,000 (Rupees four lakhs and ninety thousand) belonging to the company was advanced to this company since defunct with gross carelessness and negligence and without due care or caution. It ultimately became a total loss to the company of the said sum of Rs. 4,90,000 (Rupees four lakhs and ninety thousand) and the respondents are liable and/or accountable for the same.

11. The respondents also invested a sum of Rs. 10,00,000 (Rupees ten lakhs) as unsecured loan to one F. & C. Osier (Pakistan) Ltd. knowing that the said amount could not be received back or recovered under any circumstances and even the interest was never available to the company. The said sum was also a total loss to the company and the respondents are liable for the same.

12. It transpires that on the basis of the alleged resolution of the directors held on the 23rd May, 1951, 5,900 fully paid-up shares of Brahmaputra Tea Company Ltd. of the face value of 5 per share were agreed to be purchased at 24 per share, the total value thereof coming to Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five). The said sum was debited from the account of this company and credited to the account of S.B.I.D. Pvt. Ltd., which was under the control of the respondent No. 1, Haridas Mundhra. The said sum was thereafter transferred to the personal account of the respondent No. 1 by the said S. B. I. D. Pvt. Ltd. The said, resolution was an effective resolution and was brought in the minute book. This huge sum of Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five) taken out of the company's funds was a total loss to the company and the company had no benefit of the said sum or the alleged shares. The respondents are liable for the same.

13. The official liquidator has prayed for an order that the respondent-delinquent directors do jointly and severally contribute and compensate to the assets of the said company and do pay to the official liquidator of the said company all such sums as they may be found liable to contribute to the said assets together with interest and also for costs and other reliefs.

14. As stated earlier, the respondent No. 1, Haridas Mundhra, has not appeared or defended the misfeasance application. But the other respondent-directors have filed their points of defence. In the points of defence filed by Gwaldas Mundhra and Tulsidas Mundhra it is, inter alia, stated:

'Although these respondents were directors, the actual day-to-day work and management of the affairs of the company used to be done by the respondent No. 1, Haridas Mundhra alone. We were directors in name only. We never had the custody of the books, papers and documents of the company....... The respondent No. 1, Haridas Mundhra, was at allmaterial times the chairman of the company and he alone used to manage the affairs of the company.'

15. They have denied the claims stating that they had no knowledge of the affairs of the company.

16. In the defence filed by Manick Chand Bagree, he, inter alia, states :

' I resigned from my position as a director of the company on or about February 25, 1958, and my resignation was duly accepted by the company at a board meeting thereof. I never actively participated in the management and affairs of the company which were under the effective control of the respondent No. 1, Haridas Mundhra, who was the lifetime managing director of the managing agents and who was in effective control of the company and of the day-to-day management of the affairs of the company ...... I say that whatever advances were made by the respondent No. 1,Haridas Mundhra, of his own accord and the other directors of the company were not consulted nor were the matters brought before the board meetings of the company..... I say that the alleged advance, if any, of Rs. 18,91,025(Rupees eighteen lakhs ninety-one thousand and twenty-five) was made at the instance and/or under the directions of the respondent No. 1, Haridas Mundhra, without my knowledge or consent.'

17. Bagree has further stated that though he was convicted by the Presidency Magistrate, Calcutta, for fabrication of certain documents of the company yet on appeal he was ultimately acquitted by this hon'ble court. He has denied all the claims of the official liquidator stating that he had no knowledge of the said transactions. The other respondent, S.B. Mohta, who was appearing through the same solicitor, Mr. G.C. Paul, who was the solicitor for Gwaldas Mundhra and Tulsidas Mundhra, is a closerelation of Haridas Mundhra and Tulsidas Mundhra. He states in his defence :

' Although I was a director, the actual day-to-day work and management of the affairs of the company used to be done by the respondent No. 1 (H.D. Mundhra) alone. I was director in name only. I never had the custody of the books, papers or documents of the company.'

18. Thereafter, he has generally denied all other allegations having no knowledge of the same. It is particularly the point of defence of the directors who have put the fair blame clearly on the respondent No. 1, Haridas Mundhra. The following issues were raised :

1. Were the respondents or any of them directors of the company as alleged in paragraph 3 of the points of claim ?

2. Have the respondents or any of them misapplied the funds of the company as pleaded in paragraphs 4 and 9 of the points of claim ?

3. Did the respondents invest the sum as pleaded in paragraph 10 of the points of claim knowing that the amount would not be received ?

4. As the respondents or any of them liable for the sum as mentionedin paragraph 11 of the points of claim, spent for the purchase of shares ofBrahmaputra Tea ?

5. Are the respondents or any of them liable for any amount to the company ?

6. Whether the entire proceedings abated by virtue of the death of the respondent No. 5, L.R. Josse ?

7. Are these proceedings barred by the law of limitation

19. By an order of the hon'ble court dated 31st March, 1952, Mr. D.N. Guha Roy (since deceased) M.A., F.S.A.A., F.C.A., chartered accountant, of 2 Church Lane, Calcutta-1, was appointed by this court to investigate into the affairs of this company, F. & C. Osier (India) Ltd. in liquidation and he made his report on the 12th September, 1967. Thereafter, unfortunately, Mr. D.N. Guha Roy has since expired and his report has been duly proved and tendered and marked as exhibit AA.

20. I have gone through the report and it appeared to be a herculean task on the part of Mr. Guha Roy to prepare this report by making tireless efforts and on examination of books and documents of this company as far as available to him and produced before him and also by taking inspection of some of the books, in the various other courts under whose custody the books remained.

21. As stated earlier, I have goue through the report and I can say that the conclusions and comments therein are very convincing and based on cogent reasons.

22. I can only say that Mr. Guha Roy did a very good job.

23. Of course, the usual arguments of the respondents are that Mr. D.N. Guha Roy being not available for cross-examination, not much reliance could be placed on his report. True, generally, this argument may be sound but by going through the report which is very exhaustive and based on documents and books of accounts, I do not think usual objections would hold good so far as this report is concerned. This report is thorough and based on sound reasonings and I accept it. None of the directors gave evidence before me to challenge the report. At the conclusion of his report Mr. Guha Roy (since deceased) says that the total loss suffered by this company for the collusive negligence of the directors of the said company comes to Rs, 3,75,14,350 (Rupees three crores seventy-five lakhs fourteen thousand three hundred and fifty):

'The official liquidator has only come forward to prove its case of misfeasance for the sum of Rs. 71,19,355.03 (Rupees seventy-one lakhs nineteen thousand three hundred fifty-five and paise three). Mr. Guha Roy in his report has stated, 'This amount being more than two crores is a loss caused to the company by the managing agents and the contributory negligence of the directors. I have no doubt that the directors Were culpably negligent in the matter of the funds of the company and their role was that of passive sightseers when the entire share capital of the company together with an equal amount of credit advanced by the third parties were looted before their eyes'.'

24. However, the official liquidator strongly relies on this report of late D.N. Guha Roy, the chartered accountant, who was a brother of our ex-colleague, Mr. Justice Guha Roy. This report that was duly signed and proved is admissible under Sections 32(2) and 65(g) of the Evidence Act. The report is reliable and dependable according to me. Coming to the issue No, 1, it has been proved and also particularly admitted that the respondents were directors of the company at all relevant times and I answer the issue No. 1 in the affirmative. Now, coming to the issue No. 2 it has been proved in exhibit ' 002 ' that the sum of Rs. 16,02,013.97 (Rupees sixteen lakhs two thousand thirteen and paise ninety-seven) was advanced to seven parties and the relevant debtors' ledgers, exhibits A to Q, have been duly proved. In exhibit AA, the auditors' report, all these advances have been dealt with.

25. Mr. J.N. Roy, counsel, appears for the respondents Nos. 2 and 3 and Mr. S.B. Mukherjee, counsel, appears for Manick Chand Bagree and Mrs. Bose, counsel for Mr. S.B. Mohta. They challenged the auditors' report but none of the repondents came to the box to deny and/or contradict the said report. The only point urged by the counsel for the respondent No. 3 is that these transactions were bona fide and were made by the company in the usual course of business. The directors were within theirpowers under articles to spend such sum and it may be that they might be careless and even negligent which caused loss to the company due to lack of proper care and caution. But that will be far short oi misfeasance. In any event, the report, exhibit AA, gives an incomplete picture as it has been admitted by the auditor that he could not find all the books and documents of the company.

26. Now, coming to the facts of the present case, the three directors, H.D. Mundhra, G.D. Mundhra and M.C. Bagree, were the directors of the company during the period when the advances were made. Now, these three directors were also directors of S.B.I.D. Co. Ltd. One of the directors, Mr. H.D, Mundhra, was also a director of Brahmaputra Tea Co. (India) Ltd. Another director, Mr. T.D. Mundhra, was a director of the managing agents. G.D. Mundhra and M.C. Bagree were also directors of S.B. Construction Co. (P.) Ltd., one of the debtors. G.D. Mundhra was also a director of S.B.I.D. Co., a debtor, and also S.B. Trading Co. and S.B. Construction Co. (P.) Ltd. S.B. Mohta was also a director of S.B. Trading Co. (P.) Ltd., another debtor. Huge sums of money were drained out from the company's funds to these debtor companies who had the benefit of the said sum at the loss of the company. The directors or the creditors and the debtors were in league for such huge depreciation of the funds and none of these transactions could be bona fide.

27. It has been held that the directors are the trustees of the company and should act like ptudent men and they are liable for misappropriation of the company's funds.

28. Section 543 of the Companies Act gives power to the court to assess damages against delinquent directors. If in the course of winding up a company, it appears that any person, director, etc., of the company has misapplied, or retained, or become liable or accountable for any money or property of the company or has been guilty of any misfeasance or breach of trust in relation to the company, the court may examine into the conduct of the person, director, etc., and compel him to repay or restore the money or property or any part thereof with interest as the court thinks fit or to contribute such sum to the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the court thinks just. The court can also direct criminal proceeding against the delinquent directors. The two words in the section are important, (1) ' appear ' and (2) 'examine '.

29. It is certainly a question of fact, to be determined upon the evidence, whether a director alleged to be liable for misfeasance, had acted reasonably as well as honestly and with due diligence, so that he could not be liable for committing or conniving at fraud.

30. A director may be shown to be so placed and to have been so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognisant of but liable for fraud, though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to everyone who looks after the affairs of the company even though superficially. Haridas Mundhra, Gwaldas Mundhra and Manick Chand Bagree and Tulsidas Mundhra are long associated with this company and they cannot possibly take shelter on the plea that the transactions were honest transactions or if they were fraudulent they were done by Haridas Mundhra without their knowledge. The directors cannot also take advantage of the fact that certain books of the company could not be procured by the liquidator and produced before the auditors. As it has been held in Official Liquidator v. Tendolkar [1973] 43 Comp Cas 382 (SC), where difficulties were encountered in determining the actual total loss to the company because of want of any reliable statement of accounts or books of the company, the state of the records of the company was itself evidence of breach of their duties by the managing director and the board of directors to see that the business of the bank was honestly and efficiently conducted and the books are properly maintained and available. Although the managing director, who was conducting the day-to-day affairs of the company, must be held responsible for a greater share of losses incurred due to misappropriation, dishonesty and misuse of managerial powers, yet, his co-directors could not possibly be ignorant of the nature of such 'dealings and activities of the employees and the managing director simply because they had left everything for the managing director. In Official Liquidator v. P.A. Tendolkar [1973] 43 Comp Cas 382 (SC), it has also been held, where the directors were cognisant of circumstances of such a character, so plain and so manifest, that no men with any ordinary degree of prudence acting on their own behalf would have conducted themselves in the manner the directors of the company have done, an inference of their complicity in concealing the true state of affairs from shareholders, presumably because they were themselves benefiting from it, could not be avoided.

31. It has been submitted by the respondents that the court has no power to make an order against the directors en masse for all acts of misfeasance, etc., without any specific findings as to their dealings. But if the directors wilfully shut their eyes to the acts of those to whom they entrust the management of the affairs of the company and abstain from making all enquiries and recklessly approve of the acts of those in management, they cannot escape liability as their conduct will, in such a case, amount to wilful misconduct or wilful or culpable negligence as in the present case : Central Calcutta Bank Ltd., In re [1959] 29 Comp Cas 437 (Cal). (See also Coventry and Dixon's case [1880] 14 Ch D 660 and also 6 Halsburys' Laws ofEngland, page 662, note (c), para. 1225). None of the directors has come to contradict or deny the said report, being exhibit A, the report which has justifiably come to the conclusion that the respondents are liable for deliberate negligence and are clearly guilty of misfeasance.

32. The shares of the company were never delivered to the official liquidator in respect of Osier Properties Ltd. This investment of Rs. 4,90,000 (Rupees four lakhs and ninety thousand) was made in gross negligence without due care and caution and is clearly motivated. The directors, H.D. Mundhra, G.D. Mundhra, and M.C. Bagree, were parties to the resolution. They along with T.D. Mundhra were directors of the managing agents of S.B.TD. and S.B. Mohta was a director at the time of winding up. The shares of the company were never delivered by the directors to the official liquidator nor any explanation was forthcoming about the whereabouts of these shares. The sleeping directors or directors in name are misnomers under the present Indian Companies Act. The directors are elected by the shareholders to conduct the affairs of the company, faithfully and properly. As prudent and responsible persons they cannot shirk the responsibilities and pocket the fees only. If they do so they are liable for the consequence. Therefore, considering the facts and circumstances of the case and hearing the arguments of the counsel from the Bar, I am satisfied the respondents are guilty and I answer the issue No. 2 in the affirmative and hold the respondents and each one of them are liable for such misappropriation of the funds of the company.

33. Now coming to issue No. 3 for investment of Rs. 10,00,000 (Rupees ten lakhs) as unsecured loan to F. & C. Osier (Pakistan) Co., knowing that the amount could not be received back under any circumstances and even the interest due thereon was never or could not be available to the company and the said sum of Rs. 10,00,000 became a total loss to the company due to the action of the respondents.

34. In the report, exhibit AA, Mr. Guha Roy says that in addition to the investment of Rs. 10,00,000 (Rupees ten lakhs) in shares of the company in Pakistan there was a further investment of Rs. 9,69,038 (Rupees nine lakhs sixty-nine thousand and thirty-eight) and odd pies on loan to the Pakistan company as appears in the balance-sheet of the company on 31st March, 1954. There is no reason or any explanation forthwith why such huge sum of money was advanced from the till of this company to the Pakistan company knowing fully well that there was little or no chance of realisation.

35. In this context it is clear that the entire amount of Rs. 10,00,000 (Rupees ten lakhs) was a loss to the company due to the manipulation of the directors, Haridas Mundhra, Manickchand Bagree and Gwaldas Mundhra, who are all parties and they were all directors of the managing agents ofS.B.I.D. Pvt. Ltd. and T.D. Mundhra and S.B. Mohta were directors of this company at the time of winding up and they not only did not deliver these shares to the official liquidator but they did not offer any explanation for such non-delivery though time without number letters were written to them by the official liquidator for such delivery of shares or for explanation and they never replied back or said as to where the shares are, I, therefore, answer issue No. 3 in the affirmative holding that the entire transaction is mala fide on the part of the respondent.

36. Now, coming to the issue No. 4 paragraph 11 of the points of claim which says by a resolution of the board of directors held on the 23rd day of May, 1951, 5,900 fully paid up shares of Brahmaputra Tea Co. Ltd. of the face value of 5 per share were agreed to be purchased @ 24 per share, the total value thereof coming to Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five) which was debited from the account of the company and credited to the account of S.B.T.D. Company under the control of Mundhras as directors. The said money was taken out of the till of the company and the company had no benefit of the said fund and the said amount is a total loss to the said company caused by -these directors. Even the shares were not traceable nor the directors came forward to explain the reasons for such non-delivery of shares to the official liquidator.

37. In his report Mr. Guha Roy says in exhibit AA :

' Why a company carrying on business as electrical engineers should invest such a large amount--practically 19 per cent, of the company's subscribed capital--in shares of a tea company is beyond anybody's guess. It is not difficult to see that the personal interest of Shri H.D. Mundhra played a large part in this gamble and the gamble ended in a loss of Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five) to the F. & C. Company.'

38. On a reference to the official liquidator, it has been ascertained that 5,900 shares were not received by him from the directors in spite of demands. Neither do the books of account show any trace of the sale of the shares. Without, therefore, entering into any academic discussion about the propriety or legality of the investment, I am of the opinion that the company lost this heavy amount because of this dishonesty, negligence and callousness of the directors who are in duty bound to refund this sum to the company. I feel further strengthened in my opinion from the observation of late Mr. Roy that the shares used to be held on blank transfer for the purpose of facilitating sales in the open market. It is significant that in spite of this report none of the directors or their agents or employees came forward to controvert the said remark of the investigator and the accountant. From the report it is clear that if anybody has personally gained at thecost of the company it was Shri Haridas Mundhra and his men and there is no doubt that he is fully liable and responsible for the said loss to the company but apart from him Mr. M.C. Bagree and G.D. Mundhra were also directors of the said company at the relevant time.

39. The counsel for M.C. Bagree relied on the judgment of a criminal appeal court being Criminal Appeal No. 528 of 1962 and Crl. Appeal No. 529 of 1962. I have gone through the judgment. In my opinion this judgment is hardly relevant to this proceeding or of any assistance to the respondents in this particular case. In the criminal appeal the main charge was forgery and Section 409, Indian Penal Code, which was based on forgery and as the offence of forgery was not proved to the satisfaction of the appeal court particularly as the appeal court was of the opinion that Section 540 of the Code of Criminal Procedure was allowed to be used by the Magistrate by calling handwriting expert after the close of the case, then for other reasons the Division Bench of this court (A.K. Das and K.K. Mitra JJ.) set aside the conviction of Haridas Mundhra and M.C. Bagree. But forgery or no forgery the fact remains that this huge sum of money was allowed to be spirited away from the fund of the company by Haridas Mundhra and M.C. Bagree along with the others who were directors of the company without raising a finger. I, therefore, hold that all the respondents are fully responsible and are liable to the said loss of the company. H.D. Mundhra, G.D. Mundhra and M.C. Bagree were the directors of the company at the relevant time. T.D. Mundhra was director of the managing agents to whom the money was paid and S.B. Mohta was director at the time of winding up who did not deliver up these shares to the official liquidator and did not give any explanation or take any step to possess these shares which positively proves the mala fide conduct of the respondents. I, therefore, answer issue No. 4 in the affirmative and hold that the respondents are liable for the same.

40. Now, coming to issue No. 5 as it has been held in the case of Central Calcutta Bank (In liquidation) [1959] 29 Comp Cas 437 (Cal), the liability of the directors is joint and several, the responsibility is both direct and vicarious.

41. For Tulsidas Mundhra it has been submitted that he has become the director of the company at a very late stage and joined the board on the 17th January, 1958, and practically all these alleged misfeasance on the part of the company were committed before Tulsidas Mundhra came into the board of directors of the company but as stated earlier when he joined the board he came with eyes open and all these manipulations or drainage of the company's funds were done through S.B.I.D. Pvt. Ltd., the managing agents of the said company, of which Tulsidas Mundhra was director at all relevant times. Therefore, I hold all these directors, Haridas Mundhra,Gwaldas Mundhra, Tulsidas Mundhra, M.C. Bagree and S.B. Mohta are liable for such misappropriation of the funds and answer issue No. 5 in the affirmative.

42. Now, I have already held that the proceedings have not abated due to the death of L.R. Josse. I, therefore, answer issue No. 6 in the negative.

43. Coming to the last issue, i. e., issue No. 7, that the proceedings have been barred by law of limitation, the company was wound up on the 26th November, 1958, and the period of limitation for the misfeasance is 5 years from the date of winding-up order. In computing 5 years the first day used to be excluded under Section 12(1) and Section 29(2) of the Limitation Act of 1963. Therefore, the misfeasance summons should be taken out on or before the 26th November, 1963.

44. Even assuming that the last date of limitation expired on the 25th November, 1963, it has been proved that 25th November, 1963, was a holiday. Therefore, under Section 4 of the Limitation Act that date should be excluded. Summons was taken out on the 26th November, 1963. Therefore, it is not barred by limitation. The respondents drew my attention to the correction made in the summons which clearly shows that 27th has been corrected to 26th. It was stated before me by Mr. R. C. Kar, solicitor, that it was his slip or error when he had first written 27th but immediately thereafter corrected it to 26th November, 1963, the correct date. On the statement of Mr. Kar, the respondents do not press this objection. However, I find that the summons was taken out on the 26th November, 1963, and was noted as made on that day and in the court registers it has also been noted as made on 26th November, 1963. Therefore, I answer issue No. 7 in the negative.

45. Now, coming to the individual responsibilities of the directors as stated by the respondents' lawyers that Section 543 should be strictly construed: In re Etic Ltd. [1928] 1 Ch 861 (Ch D). I also agree with the respondent's contention that the onus is on the official liquidator to press the charge of misfeasance : Cavendish Bentinck v. Thomas Fenn [1887] 12 App Cas 652 (HL), Official Liquidator v. Raghawa Desikachar [1975] 45 Comp Cas 136 (SC). I also agree with the view that there should not be any order against the directors en masse. Each charge should be found against the director individually. (Central Calcutta Bank Ltd., In re [1959] 29 Comp Cas 437 (Cal)).

46. Now, coming to the responsibility of directors, as has been rightly stated, it is a collective responsibility. The directors of this company were vested with wide powers of control and supervision under Clauses 151 and 152 of the articles of association of the company. From these clauses, it appears that the powers to acquire and dispose of properties and powerto invest and deal with the funds of the company upon such securities as the directors might think fit, were vested in the board of directors. But these directors permitted reckless investments of the funds of the company and did not even care to see that the securities were properly kept in the custody of the company. Due to the reckless conduct of the directors a solvent company met its death to the great detriment and loss of its shareholders.

47. According to Mr. Guha Roy, who stated in exhibit AA, Haridas Mundhra, the managing director of the managing agents, dominated the entire show. Other directors were mere dummies and spectators of the reckless gamble with the funds of the company. In plain language, the directors allowed and permitted H.D. Mundhra to deal with the funds of the company as he pleased. Had they asserted their rights, things perhaps would have been different. As such, they cannot disown their responsibility either jointly or severally for the many acts of omission or commission perpetrated on this company. Therefore, I am of the opinion, that the respondents are liable to compensate this company for the loss. The directors and each one of them must pay to the company Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five) for Brahmaputra Tea Co. Ltd. and Rs. 4,90,000 (Rupees four lakhs and ninety thousand) for Osier Properties Ltd. and Rs. 10,00,000 (Rupees ten lakhs) for F. & C. Osier Ltd. The cream of these sums were taken out by the managing agents, S.B.I.D. Co. Ltd.

48. I am satisfied that the official liquidator has proved these losses caused to the company by deliberate and wrongful acts of these directors. Apart from proving the report of Mr. Guha Roy, before me Mr. Hiralal Roy-chowdhury from office of the official liquidator, Mr. Karuna Sindhu Chakra-varti, an assistant of the official liquidator, Mr. Santanu Banerjee, a clerk of the Registrar of Companies, and Mr. Adhir Kumar Chakravarti of Paul and Roy Co., the Chartered Accountants, who worked under D.N. Guha Roy, have also been examined before me. Mr. Ram Krishna Dutta, Mr. Kalinath Nag Chowdhury, ex-employees of the company, Mr. Apurba Mohan Ganguly, Mr. Rakhaldas Chowdhury, employees of the company, were examined in de bene esse and also Sneha Ranjan Chowdhury and Santosh Kumar Ghosh. From considering all the evidence, which I accept, I am satisfied that the liquidator has proved his case. I may mention here that an unreported judgment of Pabna Biswas Motor Transport Co. Ltd., by S.C. Ghose J. dated December 13, 1969, was cited before me. It was held there that even auditors' report was sufficient to make directors liable for the results. The report of the auditor goes unchallenged. Considering the entire facts and circumstances of the case, especially because none of the directors came to depose before me to controvert the allega-tions, I hold each and every respondent of the company--Haridas Mundhra, M.C. Bagree, Gwaldas Mundhra, T.D. Mundhra and S.B. Mohta--are liable and they must compensate to the company Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five), Rs. 4,90,000 (Rupees four lakhs ninety thousand) and Rs. 10,00,000 (Rupees ten lakhs) and to pay the cost of these proceedings.

49. Now under Section 545(1) of the Companies Act it is said :

' If it appears to the court in the course of a winding-up by, or subject to the supervision of, the court, that any past or present officer, or any member, of the company has been guilty of any offence in relation to the company, the court may, either on the application of any person interested in the winding-up or of its own motion, direct the liquidator either himself to prosecute the offender or to refer the matter to the Registrar.'

50. There is a huge and colossal drainage of the company's funds much to the loss and detriment of the shareholders of this company. I think it is a fit case where these delinquent directors should be prosecuted for the breach of trust by the liquidator.

51. I, therefore, hold that the directors, Haridas Mundhra, Gwaldas Mundhra, Tulsidas Mundhra, Manickchand Bagree and Shew Bux Mohta are all responsible for misfeasance and must compensate to the official liquidator the sums of Rs. 4,90,000 (Rupees four lakhs ninety thousand), Rs. 10,00,000 (Rupees ten lakhs) and Rs. 18,91,025 (Rupees eighteen lakhs ninety-one thousand and twenty-five) totalling Rs. 33,81,025 (Rupees thirty-three lakhs eighty-one thousand and twenty-five) which they must compensate to the official liquidator jointly and individually. Under Section 543(1) of the Companies Act, they must repay or restore the said sum with interest at the rate of 6 per cent, per annum to the assets of the company by way of compensation in respect of their misapplication, retainer, misfeasance and breach of trust.

52. I also consider that Haridas Mundhra, Gwaldas Mundhra, Tulsidas Mundhra and M.C. Bagree are guilty of breach of trust in respect of the sum of money belonging to the company and I direct that the official liquidator do prosecute the said directors, Haridas Mundhra, Gwaldas Mundhra, Tulsidas Mundhra and M.C. Bagree and inform the Deputy Commissioner, Detective Department, Calcutta, to take proper legal action against them as he thinks necessary. In the circumstances of this case, I do not intend to pass such order for criminal prosecution against Shew Bux Mohta. I further order that the official liquidator is entitled to cost of this application against the respondents. Prayer of Mr. Pal and Mr. Bose for stay of the operation of the order for 3 weeks is granted.


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