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Official Liquidator Vs. Dr. Sailendra Nath Sinha and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberMatter No. 211 of 1957
Judge
Reported in[1973]43CompCas107(Cal)
ActsCompanies Act, 1956 - Section 543 and 543(1)
AppellantOfficial Liquidator
RespondentDr. Sailendra Nath Sinha and ors.
Appellant AdvocateB. Das and ;R. Pyne, Advs.
Respondent AdvocateR. Chowdhury, Adv.
Cases ReferredIn Ghulam Rashid v. Muhammad
Excerpt:
- sankar prasad mitra, j.1. this is an application by the official liquidator of the ballygunge real property & building society ltd. (in liquidation) for an order that (a) leave be given to the applicant to continue the misfeasance proceedings against the heirs and legal representatives of the respondent no. 1, dr. sailendra nath sinha, since deceased, and (b) for substitution of the said heirs and legal representatives in the place and stead of the deceased and for other incidental and ancillary reliefs. the official liquidator instituted the misfeasance proceedings on the 2nd january, 1963, under section 543(1) of the companies act, 1956, which runs thus :' power of court to assess damages against delinquent directors, etc.--(1) if in the course of winding up a company, it appears that.....
Judgment:

Sankar Prasad Mitra, J.

1. This is an application by the official liquidator of the Ballygunge Real Property & Building Society Ltd. (in liquidation) for an order that (a) leave be given to the applicant to continue the misfeasance proceedings against the heirs and legal representatives of the respondent No. 1, Dr. Sailendra Nath Sinha, since deceased, and (b) for substitution of the said heirs and legal representatives in the place and stead of the deceased and for other incidental and ancillary reliefs. The official liquidator instituted the misfeasance proceedings on the 2nd January, 1963, under Section 543(1) of the Companies Act, 1956, which runs thus :

' 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 of the Official Liquidator, of 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 or restore the money or property or any part thereof respectively, with interest at such rate as the Court thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Court thinks just. '

2. This application under Section 543 has to be made, under Subsection (2), within five years, (a) from the date of the order of winding-up, or (b) of the first appointment of the liquidator in the winding-up, or (c) of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer. In the instant case the order for winding-up was made on the 8th January, 1958, and this court was moved under Section 543(1), as I have said, on the 2nd January, 1963. Sub-section (3) of this section provides that it would apply ' notwithstanding that the matter is one for which the person concerned may be criminally liable '.

3. Dr. Sailendra Nath Sinha, the respondent No. 1, was, at all material times, one of the managing directors of the company. He died on the 16th November, 1969, leaving, it is alleged, (1) Shri Partha Sarathi Sinha, his only son, (2) Smt. Maya Bose, and (3) Smt. Mira Mitra, the last two being his married daughters. These are the persons whom the liquidator is seeking to substitute in his place and stead. Needless to point out that if the liquidator fails in this application he will be without any remedy against the estate of the deceased in respect of the alleged misfeasance as a suit against these legal representatives is now barred by limitation. The Bombay High Court in Kathiawar Trading Co. v. Virchand Dipchand, [1893] I.L.R. 18 Bom. 119 held that a liquidator's suit against the directors for recovery of money spent by them in respect of ultra vires transactions was governed by Article 120 of the then Limitation Act corresponding to Article 113 of the Limitation Act, 1963. In fact, the period under Article 120 was six years from the date the right to sue accrued ; but it has now been reduced to three years. The Bombay High Court in Govind Narayan v. Rangvath Gopal, A.I.R. 1930 Bom. 572; I.L.R. 54 Bom. 226 has held that a suit against directors for misfeasance was also governed by Article 120 and the time would run from the date of loss or injury caused by such misfeasance. The Allahabad High Court in In re Union Bank, Allahabad Ltd. : AIR1925All519 also held that Article 120 applied, but limitation would not run (dissenting from the Lahore High Court in Bank of Multan Ltd. v. Hukam Chand, A.I.R. 1923 Lah. 58(2); [1922] 71 I.C. 899 and Bhim Singh v. Liquidator, Union Bank of India, A.I.R. 1927 Lah. 433 ; I.L.R. 8 Lah. 167), from the date of misfeasance but from the time of appointment of the liquidator, where the application was taken out under Section 235 (now Section 543) of the Companies Act, 1913. The Madras High Court followed the Lahore view and held that in similar circumstances limitation would run from the date when the misfeasance was committed: vide Narasimha Aiyangar v. Official Assignee of Madras, [1931] 1 Comp. Cas. 39 ; A.I.R. 1931Mad. 58; I.L.R. 54 Mad. 153. Whatever view, however, is taken in the matter, there is no doubt that a suit by the liquidator in the instant case is now hopelessly barred.

4. Mr. R. Chaudhury, counsel for the respondents, who are contesting this application for substitution, submits that Section 543 appears in the chapter of ' Offences antecedent to or in course of winding-up'. Section 538, with which the chapter begins, speaks of offences by officers of companies in liquidation past or present. The heirs of such officers, according to Mr. Chaudhury, cannot be proceeded against under this chapter. That is why, says learned counsel, under Section 543 the court can ' compel him (that is the delinquent director) to repay or restore '. A dead man, says Mr. Chudhury, cannot be compelled to do anything. Learned counsel then drew my attention to Section 469 of the Act. This section provides, inter alia, for payment of debts due by a contributory. The section expressly provides that the court can make an order not only against the contributory but also against the person representing his estate after his demise. Such an express provision, says Mr. Chaudhury, does not appear in Section 543. In fact, Section 430 specifically provides, inter alia, that if a contributory dies either before or after he has been placed on the list of contributories, his legal representatives shall be liable in due course of administration, to contribute to the assets of the company in discharge of his liability, and shall be contributories, and accordingly counsel has urged that if we analyse the scheme of the Act we cannot but reach the conclusion that the legal representatives of a deceased officer or director cannot be substituted in a proceeding under Section 543. Mr. Chaudhury relied on the observations in Palmer's Company Law, 21st edition, at page 77. The observations are :

' It has been held that misfeasance proceedings under Section 333 will not lie against the personal representatives of a deceased director, and that the estate of a deceased director was not liable for his tort, except to the extent that he had appropriated funds or property of the company and his estate had benefited.'

5. The cases referred to are. In re British Guardian Life Assurance Co., [1880] 14 Ch. D. 335 (Ch. D.) and William v. Peak Gurney, [1873] L.R. 6 H.L. Cas. 377. Palmer has stated further :

'But, by the Law Reform (Miscellaneous Provisions) Act, 1934, Section 1, on the death of any person all causes of action subsisting against him survived against his estate. This provision would appear to increase the liability of the estate of the deceased director, but it does not, it is submitted, make the procedure under Section 333 apply to a deceased director. '

6. Mr. Chaudhury states that no enactment similar to the Law Reform Act is in vogue in India. In any event, the question of substitution in a misfeasance proceeding does not arise.

7. Reliance was placed on the Madras High Court's judgment in In re Peerdan Juharmal Bank Ltd. (In liquidation), [1958] 28 Comp. Cas. 546 ; A.I.R. 1958 Mad. 583. In this case it has been held that the proceedings taken under Section 235 of the Companies Act, 1913, against a director of a banking company, ordered to be wound up, cannot be continued after his death, and the liability if any of such a director cannot be enforced against his legal representative in those proceedings. It is the language of Section 235 of the Act that, according to the Madras High Court, decides the issue. It is a limited right that is conferred by the section. It ends when the director dies and does not survive after his death.

8. The same view was expressed by the Allahabad High Court in Official Liquidator v. Jugal Kiskore : AIR1939All1 . It was stated that an official liquidator's proceedings under Section 235 of the Companies Act, 1913, against a director during his lifetime could not be continued after his death against his heirs or personal representatives. Section 306 of the Succession Act, says the Allahabad High Court, applies where the law is silent as to whether a right to sue or continue proceedings survives and a proceeding under Section 235, being intended to be brought against a director during his lifetime, cannot be continued against his legal representatives under Section 306 of the Succession Act. There is nothing, however, to prevent the official liquidator from instituting, in proper cases, according to the Allahabad High Court, regular suits against the legal representatives or heirs of the deceased director. Mr. Chaudhury also referred me to S.B. Billimoria v. Cecilia Mary De Souza, A.I.R. 1926 Lah. 624, Manilal Brijlal v. Vendravandas C. Jadan, (1944] 14 Comp. Cas. 147; A.I.R. 1944 Bom. 193 and S.V. Venkatasubbu v. Utilities (India) Ltd., : AIR1964Mad230 . These cases do not lay down any propositions other than those enunciated in the cases cited above.

9. Let us now refer to the English decisions on which Mr. Chaudhury relied. In In re East of England Bank, [1865] I Eq. 219 it has been held that the 165th section of the Companies Act, 1862, which confers power on the court to compel payment by directors and officers of companies in respect of misfeasance or breach of trust relating to the affairs of the company, does not apply as against the executors of a deceased director. This is the leading case on which the decisions in all the other Indian cases cited above has been based. This case was followed in In re British Guardian Life Assurance Co., [1880] 14 Ch. D. 335 (Ch. D.).

10. Broadly speaking, the authorities relied on by Mr. Chaudhury have expressed their opinions on the actual language of the section with which we are concerned. The expression ' compel him to repay or restore' seems to have been the determining factor. These authorities have not, it appears, taken sufficient cognizance of the true scope and effect of misfeasance or breach of trust committed by a director. They are of opinion that the remedy given by the section is a personal remedy only. They do not consider the broader aspect of the matter, namely, that a director's liability in such cases is an ordinary legal liability and this section merely prescribes a summary procedure for enforcement of that liability. I shall develop these propositions a little later.

11. Mr. Mullick, counsel for some other respondents, contends that against a delinquent director four several remedies are open, namely, (1) the remedy prescribed by Section 543, (2) the remedy of prosecution of delinquent officers and members of the company under Section 543, (3) the remedies available under the Indian Penal Code, and (4) the common law remedy for breach of trust. And the analogy of substitution of legal representatives under the common law cannot be applied to the provisions contained in Section 543. To my mind, this contention in untenable. The right that the liquidator exercises under Section 543 is the usual legal right and the section prescribes a summary procedure for its enforcement. It does not confer any new right on the liquidator at all. In other words, the fountain or origin of the right of the liquidator under Section 543 is the right available to him under the law. And, it is also possible to resort to both Section 543 and Section 545 simultaneously : vide Sailendra Nath Sinha v. State, : AIR1955Cal29

12. Mr. Mullick has also contended that the remedy under Section 543 is a statutory remedy against delinquent directors and the statute itself provides in Sub-section (2) of Section 543 a new period of limitation therefor. In that view of the matter, it would be improper to bring the analogy of a common law action into a statutory remedy. When I discuss in detail the nature and scope of a misfeasance proceeding, it would be apparent that the argument of Mr. Mullick cannot be accepted. At the moment I shall only observe that the statute has prescribed a special period of limitation in respect of a summary procedure for enforcement of an existing legal right.

13. Both Mr. Chaudhury and Mr. Mullick (who adopted Mr. Chaudhury's argument) wanted me to consider the special provisions relating to liabilities of contributories under the Companies Act. Let us, therefore, advert to the relevant sections once again. Section 429 discusses the nature of a contributory's liability. It says, inter alia, that the liability of a contributory shall create a debt accruing due from him at the time when his liability commenced, but payable at the time specified in calls made on him for enforcing the liability. This liability of a contributory continues even after a winding-up order is made.

14. In Section 426 it is stated, inter alia, that in the event of a company being wound up, every present and past member shall be liable to contribute to the assets of the company to an amount sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding-up, and for the adjustment of the rights of the contributories amongst themselves. The section corresponding to Section 426 in the earlier Act was Section 156 of the Companies Act, 1913. In Hansraj Gupta v. N.P. Asthana, a person who subsequently died was at the commencement of the winding-up and had for over three years been entered in the register of shareholders as the holder of the shares as the result of a contract between him and the company with his full knowledge and assent. The Privy Council held that on the winding up, Section 156 came into play. His liability under that section in respect of the shares was absolute and flowed from the fact of his being on the register in respect of those shares. The original contract may supply the reason for his name having been placed on the register in respect of the shares, but after the winding-up his liability with regard to the shares arose ex lege and not ex contractu.

15. It is because of the provisions in Sections 426 and 429 that special provisions in Sections 430 and 431 became necessary. Section 430 provides, inter alia, that if a contributory dies either before or after he has been placed on the list of contributories his legal representatives shall be liable in due course of administration, to contribute to the assets of the company in discharge of his liability, and shall be contributories accordingly. Section 431 has made provisions as to what would happen when a contributory is adjudged insolvent. It is provided, inter alia, that his assignees in insolvency shall represent him for all the purposes of winding-up and shall be contributories accordingly. Then again, in Section 469 provisions have been made for payment of debts due by the contributories and the extent of set-off after a winding-up order has been passed. Section 470 gives power to the court to make calls on contributories after the making of a winding-up order. It is clear, therefore, that the special provisions for making the personal representatives of contributories liable for payment of debts due by them had to be introduced in view of the provisions in Sections 426 and 429 of the Companies Act. By the analogy of these special provisions an application for substitution in a misfeasance proceeding cannot, in my opinion, be defeated.

16. Mr. Mullick has also urged that the respondents Nos. 2, 5 and 6, namely, Nemai Charan Maitra, Jitendra Mohan Dutt and Pullin Krishna Roy have not been served with notices of this application. He referred to Rules 19, 29, 30 and 31 of the Companies (Court) Rules, 1959. This contention is of no substance. Sub-rule (2) of Rule 19 provides, inter alia, that the judge's summons together with a copy of the affidavit in support of it shall be served upon every person against whom an order is sought and such other person as the judge may direct. There is no special direction for service given by the judge concerned. The order has been sought against the heirs and legal representatives of Dr. Sailendra Nath Sinha who was the respondent No. 1 and these heirs have all been served. I do not see, therefore, any reason why the application cannot be entertained.

17. Let us now proceed to discuss what is meant by misfeasance. Section 333 of the English Companies Act, 1948, corresponds to Section 543 of our Act. In Buckley on The Companies Acts, 12th edition, at page 676, it is stated :

' This section applies where the person attacked 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. By ' misfeasance ' is meant ' misfeasance in the nature of a breach of trust': It must be an act resulting in actual loss to the company. The section does not give the court power to fine a director for misconduct. It is not, moreover, applicable to a mere money claim against an officer, when there has been nothing in the nature of breach of duty by him.'

18. It appears, therefore, that the two ingredients of misfeasance are, (1) an act in the nature of breach of trust, and (2) an act which results in actual loss to the company.

19. Now, at English common law, under the Rule actio personalis moritur cum persona, proceedings could not be taken against the estate of a deceased director if they were founded on trespass or negligence. This Rule of common law applied to a case of fraud as well unless it could be established that the estate of the deceased had benefited from it. The common law rules, however, did not bar equitable remedies against the director's estate where he had committed a breach of trust: vide Palmer's Company Law, 21st edition, pages 587 to 588. Commenting on the section on misfeasance in the English Companies Act in Gore-Browne's Hand-book on Joint-Stock-Companies, 40th edition, at page 744, it is observed :

' This section does not create any new liability on the persons named, but only provides a method of enforcing rights which might have been enforced by an action before the winding-up, and which even after the winding-up may, if more convenient, be so enforced.'

20. These observations are based on the Court of Appeal's judgment in In re Canadian Land Reclaiming & Colonizing Co., [1880] 14 Ch. D. 660 (C.A.). In this case two gentlemen were appointed and for some time acted as directors of a company in which the qualification for a director was the holding of 100 shares. Neither of them was the holder of any shares. No act of misfeasance was alleged against either of them for which he would have been liable if he had been a duly qualified director. The company was now in the course of being wound up. The liquidator applied under Section 165 of the Companies Act, 1862, to charge these two gentlemen for misfeasance in acting as directors without qualification. Sir George Jessel M.R. held that by acting as director they had been guilty of misfeasance, for which they were liable under the said section of the Companies Act and they ought to be ordered to pay a sum equal to the nominal amount of the shares requisite to qualify them to be directors. On appeal, it was held that Section 165 created no new right but merely provided a summary mode of calling directors to account for acts of impropriety, for which they were liable to an action ; that to make a person liable under it, he must be shown to have been guilty of some misconduct by which the company had suffered loss; and the application must, therefore, be dismissed. At page 670, James L.J. has observed :

'In this case we have only to apply Section 165. I am of opinion that that section does not create any new liability or any new right, but only provides a summary mode of enforcing rights which must otherwise have been enforced by the ordinary procedure of the courts. 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 wound 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 credit improperly pledged. '

21. At page 673 Bramwell L.J. has repeated that 1

'..... the sole object of the Clause is to give a summary remedy for that for which there would be a remedy without that section in the courts of law.'

22. Explaining that it is not a penal section, Bramwell L.J. observes further:

' The section authorizes the court to direct persons chargeable under it to pay a sum of money by way of compensation. Therefore, the official liquidator has to shew, first of all, the misfeasance, and then the damage in respect of which the company is to be compensated. To my mind the liquidator has failed to shew any damage at all. This is not a section for punishing a man who has been guilty of misfeasance, but for compensating the company in respect of the loss occasioned by his misfeasance. It is not shewn that there was any loss, and indeed, if the burden of proof were upon the appellants to shew there was not any loss, I should say they had succeeded in doing it. '

23. From the authorities cited above, it is apparent that a proceeding under Section 543 of the Companies Act, 1956, is nothing but a summary proceeding prescribed by the statute aimed at restoration or restitution of the company's properties which have been lost by reason of specified acts of its directors and other officers in violation of their fiduciary duties by the company. The liquidator by launching a proceeding under Section 543 seeks an equitable remedy by a summary procedure. In other words, this section deals only with procedure and does not give any new rights. It provides a summary mode of enforcing existing rights : Per Pollock M.R. in In re City Equitable Fire Insurance Co., [1925] Ch. 407 (C.A.).

24. Coming now to Indian decisions, the point under consideration came up before the Madras High Court in Ramaswamy Iyer v. Brahmayya and Co., Official Liquidator of the Hanuman Bank Ltd., Thanjavur (In Liquidation, [1966] 36 Comp. Cas. 270 (Mad.)). A banking company was ordered to be wound up on the 5th November, 1947, on a creditor's petition presented on the 26th July, 1947. The liquidators were appointed on the 12th January, 1948. The liquidators applied in 1950 to the Madras High Court under Section 235 of the Companies Act, 1913 (corresponding to Section 543 of the present Act), charging the directors with allowing the affairs of the bank to be carried on in a reckless manner in total disregard of their powers and duties in the matter of making loans and advances, making investments, misapplying the funds, declaring dividends out of capital, breach of trust, etc. Before orders could be passed on the application under Section 235, one of the main directors died on August 16, 1959. Then the liquidators, acting under the provisions of Sections 45A and 45B of the Banking Companies Act, filed the present application against the legal representatives of the deceased director, claiming relief against the estate, for the losses caused by the acts of misfeasance and breach of trust of the deceased. The liquidators' application under the Banking Companies Act was allowed by the trial court. The legal representatives thereupon preferred an appeal contending, inter alia, the extinction of the cause of action and the bar of limitation. The appellate court has held that the cause of action against the legal representatives of the directors survived as being laid not on tort but on a breach of trust. The directors of a company are trustees for the company and not for the individual shareholders thereof, and with reference to their powers of employing the funds of the company and for misuse of the power they could be rendered liable as trustees and, on their death, the cause of action survived against their legal representatives. The maxim actio personalis moritur cum persona does not apply to a liquidator's claim against the legal representatives of a deceased director of a banking company where the foundation of the liability is not laid on tort but laid on a breach of a fiduciary relationship, the failure to perform duties undertaken by a director who is in the position of a trustee. The Madras High Court has said that there is a difference between negligence which is tortious and the neglect of special duty, which a person has undertaken in regard to some specific persons or a group of persons. The latter, when there is a fiduciary relationship, would amount to a breach of trust. It is only negligence which is tortious and that, subject to certain exceptions, dies with the wrongdoer. In other cases the liabilities of the wrongdoer, as when he fails to perform duties undertaken by him in the position of a trustee or in a fiduciary capacity, followed his estate on his death. The maxim has also application to cases outside torts, e.g., contracts of purely personal nature, claims for restitution of conjugal rights and (sic) custody will get extinguished. The extinction is by reason of the very nature of the claim. Section 306 of the Succession Act, says the Madras High Court, is confined in dealing with survival of demands and rights of action, to executors and administrators and does not apply to heirs or legal representatives. The Madras High Court propounds that the liability of the representatives originates from and entirely depends upon the liability of the deceased, so that a representative would have all the defences open to the deceased and could rely upon any period of limitation which the deceased could have maintained.

25. I am conscious that this decision of the Madras High Court was not given on an application under Section 235 of the Companies Act, 1913, or Section 543 of the new Act; but it lays down the principle that the foundation of a director's liability sought to be established under Section 543 is not a mere tort but the breach of a fiduciary relationship or the failure to perform duties undertaken by him in his position as a trustee. And, as such, the liquidator's cause of action survives the death of the director. If Section 543 does not create a new right in favour of the liquidator but merely prescribes a summary procedure for enforcement of an existing right to proceed against a director for breach of fiduciary relationship, I do not see, on principle, why his legal representatives cannot be substituted in this summary proceeding after his death.

26. It would be useful at this stage to refer to another English decision which reiterates the principles involved. In the English Companies Act of 1862 proceedings for misfeasance or breach of trust could be instituted, as we had seen, against a director under Section 165. Lord Macnaghten in Cavendish Bentinck v. Thomas Fenn, [1887] 12 App. Cas. 652, 669 (H.L.) has said :

' The 165th section of the Act of 1862 has often come under discussion, and it has been settled, and I think rightly settled, that that section creates no new offence, and that it gives no new rights, but only provides a summary and efficient remedy in respect of rights which apart from that that section might have been vindicated either at law or in equity. It has also been settled that the misfeasance spoken of in that section is not misfeasance in the abstract, but misfeasance in the nature of a breach of trust resulting in a loss to the company . . . . '

27. It is interesting to observe that in Section 214 of the Indian Companies Act of 1882 (which was enacted about seventeen years after the decision in In re East of England Bank, [1865] 1 Eq. 219), there was an Explanation (Explanation II) specifically making it clear that proceedings could not be taken under that section against the representatives of a deceased officer. Neither Section 235 of the Indian Companies Act of 1913 nor Section 543 of the Companies Act of 1956 is followed by any such Explanation. I agree that this is not necessarily a decisive factor. The point that has to be determined is whether in construing Section 543 one should restrict oneself to the expression ' compel him to repay or restore ' or be guided by the foundation of liability of the persons charged under it. A director is in the position of a trustee. Under Section 543 of the Companies Act, 1956, he is proceeded against for offences in the nature of a breach of trust and the losses occasioned, if any, by such breach ought to be restored to the company (in liquidation) from the assets in the hands of his legal representatives. In Maharaja Srish Chandra Nandy v. Supravat Chandra, : AIR1940Cal337 it was held that the loss occasioned by the negligent acts and omissions or wilful defaults of the late trustee must be made good from assets in the hands of his legal representative. The cause of action survives as the loss is the result not of a mere tort committed by the late trustee but of a breach of a fiduciary relation, or a failure to perform a duty.

28. Then again, certain provisions of the Civil Procedure Code, it appears, have been applied to misfeasance proceedings under the Companies Act. For instance, in Vadilal Chatrabhuj Gandhi v. Thakorelal Chimanlal Munshaw, : AIR1954Bom121 it has been held that proceedings under Section 235 of the Companies Act, 1913, by way of misfeasance summons are verv similar to proceedings in the nature of a suit and fall within the scope of Section 141 of the Code which lays down that the procedure provided in the Code in regard to suits shall be followed as far as it can be made applicable, in all proceedings in any court of civil jurisdiction. Consequently, says the Bombay High Court, the procedure prescribed by the Code, in so far as it can be made applicable, would apply to proceedings under Section 235. The Bombay High Court has stated that since there is nothing in Section 235 which renders the provisions of Order 23, Rule 3, inapplicable to misfeasance proceedings, a compromise which is a fair and proper one should be given effect to by the court.

29. This is only an example of applicability of some of the provisions of the Civil Procedure Code to proceedings for misfeasance. On similar principles, in my opinion, the provisions of Order 22, Rule 1 of the Code which prescribes that the death of a plaintiff or defendant shall not cause the suit to abate if the right to sue survives should be made applicable to misfeasance proceedings under Section 543 of the Companies Act, 1956. In Mulla's Code of Civil Procedure, 12th edition, at page 934, it is observed :

'The true doctrine is that whenever you find that the deceased person has by his wrong diverted either property or the proceeds of the property belonging to some one else into his own estate, you can then have recourse to that estate through his legal representative when he is dead to recover it subject to the limitation that the decree will be limited to the assets of the deceased wrong-doer's estate. Further whenever there is a relationship based on contract, quasi-contract, some fiduciary relation or a failure to perform a duty, there is no abatement of the suit on the death of the wrongdoer. In Ghulam Rashid v. Muhammad : AIR1941All187 it was held that the suit brought against a guardian on the allegation that he had during the plaintiff's minority, appropriated to himself the property of the minor or its value in breach of his duty to the minor did not abate on the death of the guardian and could be continued against his legal representatives.'

30. We have seen that the foundation of liability in misfeasance proceedings is breach of fiduciary relationship or failure to perform duties prescribed by law. In these circumstances there is no reason to hold that these proceedings abate on the death of the delinquent officer or officers concerned. In my view as the liquidator's right to proceed against the legal representatives of such persons survives subject to the limitation that the order for repayment or restoration that is ultimately made would be limited to the assets of the deceased delinquent officer, this application for substitution of the legal representatives of a deceased director cannot be resisted.

31. For all the reasons aforesaid, there will be an order in terms of Clause (a) of the summons herein limited to the assets of Dr. Sailendra Nath Sinha, since deceased, in the hands of the said heirs and legal representatives. There will also be an order in terms of Clauses (b), (c), (d) and (e) of the summons. The costs of and incidental to this application would be costs in the misfeasance proceedings. The official liquidator's costs may be retained and paid out of the assets of the company (in liquidation) in the first instance. Certified for two counsel.


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