G.C. Bhandari vs Official Liquidator

Amitava Roy, C.J.—The instant appeal witnesses a challenge to the order dated 02.01.2014, thereby dismissing the interim application filed by the appellant under Rule 9 of the Companies(Court) Rules, 1959 (for short, hereafter referred to as ''the Rules''), seeking removal of her name from the array of the parties in S.B. Company Application No. 29/93 as the heir and legal representative of the original respondent No. 1, G.C. Bhandari (since deceased).

We have heard Mr. J.K. Singhi, the learned Senior Counsel assisted by Mr. Kushagra Sharma & Mr. Saurabh Jain, Advocates for the appellant.

For the order proposed to be passed, we do not consider it essential to issue formal notice to the respondents.

The thumbnail facts are that an application was filed before this Court u/s 542 and 543(1) of the Companies Act, 1956 (for short, hereafter referred to as ''the Act''), impleading G.C. Bhandari (since deceased), the then Director of M/s. B.T. Conductors Pvt. Limited (in liquidation) as one of the respondents and the same was registered as S.B. Company Application No. 29/1993. Notices were issued on 29.07.1994 and on being served therewith, he (G.C. Bhandari), impleaded as respondent No. 1, filed his reply, whereafter issues were framed on 22.05.1997. Thereafter, the Official Liquidator filed examination-in-chief in the form of an affidavit and was cross examined by the other respondents. It was, at that stage, that an application came to be filed by Shri T.C. Bhandari, the brother of the respondent No. 1, informing this Court that meanwhile he (G.C. Bhandari) had expired on 07.02.2007 and objected to the continuance of the proceedings against him. On this, the name of G.C. Bhandari was deleted by order dated 05.12.2008, whereafter the Official Liquidator filed an application for recalling the said order. Though, this prayer was opposed, this Court vide order dated 11.10.2012, acceded to the prayer and recalled the order dated 05.12.2008. The Official Liquidator thereafter filed three interim applications under Order 22 Rules 4 & 9 CPC and Section 5 of the Limitation Act, 1963, to bring on record the heirs and legal representatives of the deceased respondent. On the applications, notices were issued and served on the appellant, who filed her reply registering her objection. She also submitted a detailed affidavit to the effect that she could not be impleaded as the legal representative of the deceased as she had neither inherited any property after his death, nor had worked with him, nor had any knowledge pertaining to the affairs of the company. This Court, however, after hearing the learned counsel for the parties, vide order dated 15.02.2013, observed that this plea, raised on behalf of the appellant, would be considered in the pending proceedings and that no order, at that stage, was required to be passed thereon. The applications filed by the Official Liquidator were allowed.

It was thereafter that the appellant filed an application under Rule 9 of the Rules, reiterating her above stand and seeking an order to drop her name from the proceedings. The said application having been rejected by the order impugned, she is in appeal.

Mr. Singhi has urged that having regard to the scope and ambit of Sections 542 and 543 of the Act and in absence of any refutation of the pleadings of the application under Rule 9 of the Rules, the learned Company Judge had grossly erred in declining to delete the name of the appellant from the pending proceedings. Asserting that as the appellant had, at no point of time, either inherited any property from her father (original respondent No. 1), or had any knowledge about his role in the administration of affairs of the company involved, no proceeding u/s 542 and/or 543 of the Act could either be initiated or continued against her in law and thus, the impugned order is patently illegal and is liable to be interfered with, he urged. As the appellant, in any view of the matter, in absence of her any association with the company, would be unable to defend herself in the proceedings, her continuance therein would only be an abuse of the process of the Court, he insisted. To reinforce his pleas, Mr. Singhi placed reliance on the decisions of the Kerala High Court in Mrs. Joselin and Others Vs. Offl. Liquidator, Alwaye Chit Funds (P.) Ltd., Official Liquidator, South India Saw Mills P. Ltd. Vs. Ramakrishna Iyer, Ramanarayanan and Others, and of the Karnataka High Court in Official Liquidator, High Court of Official Liquidator, High Court of Karnataka Vs. Maganlal Hirachand Shah and Others, & Chamundi Chemicals and Fertilisers Ltd. (In Liquidation) Vs. M.C. Cherian and others,

We have applied ourselves to the pleaded facts, the documents on record as well as the arguments advanced.

There is no dissension at the Bar that the appellant, as the daughter of the original respondent No. 1, G.C. Bhandari (since deceased), is, in law, his heir and legal representative. Admittedly, by order dated 15.02.2013, her plea taken in her affidavit filed against the applications by the Official Liquidator under Order 22 Rules 4 & 9 CPC and Section 5 of the Limitation Act, 1963, against impleadment in that capacity in S.B. Company Application No. 29/1993, had been deferred by the learned Company Judge for consideration at a later stage. As would be evident from the application under Rule 9 of the Rules, by the same order, the learned Company Judge had also allowed the applications filed by the Official Liquidator under Order 22 Rules 4 & 9 CPC and Section 5 of the Limitation Act, 1963. Incidentally, there has been no appeal against this order. The application under Rule 9 of the Rules, patently embodies a reiteration of the same plea.

Be that as it may, the learned Company Judge, while taking note of the above backdrop, relied on the decision of the Hon''ble Apex Court in Official Liquidator Vs. Parthasarathi Sinha and Others, and concluded that the question regarding rights of the legal representatives in a proceeding u/s 543, being of civil and summary in nature, can be continued against them, but would confine to the estate of the deceased devolving in the their hands. It was noticed that the proceeding u/s 543 of the Act, had been initiated during the lifetime of the respondent No. 1 and that he had filed his reply, whereafter issues were framed and that when the same was pending at the stage of cross-examination of the Official Liquidator, he expired. The learned Company Judge was of the view that the plea of the appellant that she had neither inherited any property after the death of the respondent No. 1, nor had worked with him, nor had any knowledge about the affairs of the company, was a question, to be examined in the proceedings at an appropriate stage of her defence and that her request for dropping her name prior thereto, was not tenable. The judgments of the Kerala High Court, as above, were distinguished, inter alia, on the ground that misfeasance proceedings involved therein had been commenced after the respondents had died. While rejecting the application, the learned counsel for the appellant, however, was left at liberty to cross examine the witnesses and the matter was directed to be decided expeditiously.

Hon''ble Apex Court in Official Liquidator Vs. Parthasarathi Sinha And Others(supra), was seized with the question, whether the proceedings initiated against the Director of company u/s 543 of the Act, could be continued after his death against his legal representatives and whether any amount found to be due in such proceedings, could be realized from the estate of the deceased in their hands. The contextual facts reveal that the Official Liquidator therein took out summons u/s 543(1) of the Act against the directors including Dr. S.N. Sinha of the company involved for a declaration that they were guilty of misfeasance and breach of trust and also for an order directing them to repay or restore the money or property of the company in liquidation, which they were alleged to have retained wrongfully. During the pendency of the proceedings, Dr. S.N. Sinha died intestate leaving behind his son, Parthasarathi Sinha and two married daughters. Thereafter summons were taken out at the instance of the Official Liquidator for leave to continue the said proceedings against the said heirs and legal representatives. The order passed by the learned Company Judge, allowing substitution, was reversed in appeal. Referring to an earlier decision of the Apex Court in Official Liquidator, Supreme Bank Ltd. Vs. P.A. Tendolkar (Dead) by Lrs. and Others, it had been pleaded before the Division Bench of the jurisdictional High Court in the said appeal that following the demise of Dr. S.N. Sinha, no further action in the misfeasance proceedings could be taken against heirs and legal representatives. After an exhaustive survey of the legal provisions involved and the decisions rendered by various High Courts and also with due and exhaustive reference to the rendering in P.A. Tendolkar(supra), their Lordships held thus:-

Having given our anxious consideration to the question before us, we are of the view that the Kerala and Punjab & Haryana High Courts have applied the decision in Tendolkar case'' correctly and that the two learned Judges of the Calcutta High Court who delivered the judgment under appeal erred in its application. If this Court had really come to the conclusion that on the death of a person against whom proceedings u/s 543 had been initiated such proceedings could not be proceeded against his legal representative, the final order would not have been what was actually made therein. "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 someone else into his own estate, you can then have recourse to that estate through his legal representative when he is dead, to recover it." The legal representative, of course, would not be liable for any sum beyond the value of the estate of the deceased in his hands.

The liability arising under the misfeasance proceedings is founded on the principle that a person who has caused loss to the company by an act amounting to breach of trust should make good the loss. Section 543 of the Act does not really create any new liability. It only provides for a summary remedy for determining the amount payable by such person on proof of the necessary ingredients. The section authorises the court to direct such persons chargeable under it to pay a sum of money to the company by way of compensation. This is not a provision intended to punish a man who has been found guilty of misfeasance but for compensating the company in respect of the loss occasioned by his misfeasance. Whenever there is a relationship based on contract, quashi-contract, some fiduciary relation or a failure to perform a duty, there is no abatement of the liability on the death of the wrong-doer. When once the liability is declared it is open to the Official Liquidator to realise the amount due by resorting to Section 634 of the Act and Section 50 of the Code of Civil Procedure. In Tendolkar case this Court did not consider the effect of Section 634 of the Act which made the relevant provisions of the CPC relating to execution of decrees applicable to orders passed by the Court under the Act.

While negating the proposition that in P.A. Tendolkar''s case(supra), it had been propounded that on the death of a person against whom proceedings u/s 543 of the Act had been initiated, the same could not be proceeded against his legal representatives, their Lordships underlined that true doctrine was that whenever the deceased person was found to have wrongly diverted either the property or the proceeds of the property belonging to someone else into his own estate, recourse could be taken qua that estate through his legal representative when he is dead, to recover it. It was added however that the legal representative, of course, would not be liable for any sum beyond the value of the estate of the deceased in his hands. Their Lordships exposited further that the liability arising under the misfeasance proceedings is founded on the principle that a person who has caused loss to the company by an act amounting to breach of trust should make good the loss and Section 543 authorised the Court to direct such persons chargeable under it to pay a sum of money to the company by way of compensation. It was held that 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 liability on the death of the wrong-doer and that once the same was declared, it was open to the Official Liquidator to realise the amount due by resorting to Section 634 of the Act and Section 50 of the Code of Civil Procedure.

The decisions, relied upon on behalf of the appellant, are not only distinguishable on facts, but also in the face of the authoritative pronouncement in Official Liquidator Vs. Parthasarathi Sinha And Others(supra), in our view, does not clinch the issue in her favour. The applicability of Sections 542 and 543 and invocation of these provisions would be contingent on the proof of the requisites stipulated thereby requiring scrutiny of relevant facts to be introduced by evidence. To reiterate, by the impugned order, the appellant''s plea against initiation/continuance of proceedings against her, though had been rejected, an observation had been made that her defence that she had neither inherited any property after the death of the respondent No. 1, nor had worked with him, nor had any knowledge pertaining to the affairs of the company involved, was a question to be examined at an appropriate stage. The appellant has not been denied the opportunity to take necessary steps to that effect. The application under Rule 9 of the Rules had been to invoke the inherent power of the Court. Having regard to the ratio of the decision in Official Liquidator Vs. Parthasarathi Sinha And Others(supra), and the reasons recorded in the order impugned, we find no convincing or persuasive reason to intervene. The order impugned does not, in our comprehension, suffer from any patent legal infirmity, warranting interference therewith. The view taken is a plausible one, in the attendant facts and circumstances, in the judicious exercise of discretion and does not call for any interference.

The appeal lacks in merit and is dismissed.