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Judgment
Mishra, J.—These appeals are preferred against an order of substitution after setting aside the abatement and condonation of delay of 2203
days in filing the application therefor.
The official liquidator filed a report in the application in C.A. No. 272 of 1971 of misfeasance u/s 543 of the Companies Act, 1956, stating,
inter alia, that the said petition was posted for orders on August 17, 1984, and August 24, 1984, and not earlier and that since counsel for the first
respondent had not intimated the death of his client and the above application was not posted for orders earlier, the official liquidator was not in a
position to make enquiries earlier. Thus, the official liquidator stated :
The delay in filing the application to set aside the abatement and the application to bring on record the legal representatives of the deceased first
respondent is neither wilful nor deliberate. If the legal representatives of the deceased first respondent are not brought on record and the delay in
filing the application to set aside the abatement and the application for setting aside the abatement are not ordered, the body of creditors will be put
to irreparable injury and prejudice.
The misfeasance application, according to the liquidator, is based upon a special auditor''s report which disclose that the first respondent has
appropriated large cash and other assets of the company and has been a party and privy to repledge several jewels of the parties who have
pledged the same with the Nidhi, that is to say, the Purasawalkam Hindu Santhatha Sanga Nidhi Limited. The liquidator, it is said, attempted to
trace the money and other effects and thus filed C.A. No. 272 of 1971 in the court u/s 543 of the Companies Act, 1956. The first respondent
therein N. R. Sadagopa Mudaliar, however, died on July 11, 1973. No application to substitute his heirs and legal representatives could, however,
be filed earlier than the report filed in court by the official liquidator on August 29, 1984. This happened, according to the liquidator, for the reason
of C.A. No. 272 of 1971 not being listed any time earlier than August 17, 1984, and August 24, 1984, and for the reason that the liquidator had
no knowledge until enquiries revealed about the death of the first respondent above named and about the legal representatives, namely,
respondents Nos. 9 to 12.
Section 543 of the Companies Act says that 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, manager, liquidator or officer 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, on the application of the official 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, 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.
Sub-section (2) thereof says that the application for the said purpose shall be made within five years from the date of the order for winding up, or
of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer.
The learned company judge has ordered substitution stating, inter alia :
As long as the official liquidator is neither informed by her own counsel or by counsel for the first respondent, she is entitled to call in aid Order
22, rule 10A and in such a case, the delay caused has to be excused as laid down by the Supreme Court in O.P. Kathpalia Vs. Lakhmir Singh
(Dead) and Others, .
O.P. Kathpalia Vs. Lakhmir Singh (Dead) and Others, , was a case of substitution of legal representatives in a suit for eviction for the reason of
the death of the original landlord. The pleader of the transferee intimated about the death of the original landlord to the registry after six years of the
death; then filed an application for substitution within three weeks from the date of the letter. The Supreme Court took the view that since the
materials in the said case justified that the appellant came to know about the death for the first time from the letter of the pleader of the transferee
there was good and sufficient season for condoning the delay and granting substitution in the facts of the case.
A Bench of this court in In Re: Peerdan Juharmal Bank (in liquidation) by Joint Official Liquidator, , has taken the view that the proceedings
taken u/s 235 of the Indian Companies Act, 1913, similar to the provision in section 543 of the Companies Act, 1956, against a director of a
banking company which had been ordered to be wound up for assessing damages on charges of misfeasance, etc., cannot be continued after his
death and the liability of such director cannot be enforced against his legal representatives in those proceedings. Some other courts of the country
held a similar view. In Official Liquidator Vs. Parthasarathi Sinha and Others, , however, the Supreme Court has taken the view that the
proceedings initiated against a director of a company in liquidation u/s 543 of the Companies Act, 1956, can be continued after his death against
his legal representatives and the amount declared to be due in such misfeasance proceedings can be realised from the estate of the deceased in the
hands of his legal representatives. The legal representatives, 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 compensation the company in respect of the loss occasioned by his
misfeasance. 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 wrongdoer. 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. The Supreme Court distinguished an earlier judgment in
Official Liquidator, Supreme Bank Ltd. Vs. P.A. Tendolkar (Dead) by Lrs. and Others, , stating that the court had not considered the effect of
section 634 of the Companies Act, which made the relevant provisions of the CPC relation to execution of decrees applicable to orders passed by
the court under the Companies Act.
The settled judicial view is that there is no abatement in execution proceedings on account of the death of a judgment-debtor. Thus, any delay in
the substitution of the heirs and legal representatives of the deceased judgment-debtor shall not cause any abatement and/or loss of/or any relation
of the decree. There are proceedings, sometimes, in accounting of a liability already determined in a suit for partition or dissolution of a partnership
and thus, there is a judgment-debtor duly identified in the decree; but, before execution proceedings to finalise the liability continues called ""final
decree proceedings"". Since the liability stands fully determined, the judgment-debtor is known. Merely because there are final decree proceedings
continuing, courts do not permit the abatement of the decree on account of the death of judgment-debtor.
In Official Liquidator Vs. Parthasarathi Sinha and Others, , the Supreme Court has found parity in a proceeding in execution of a decree and a
proceeding u/s 543 of the Companies Act, 1956, for the reason of the express language used in section 634 of the Act which states that any order
made by a court under the Act may be enforced in the same manner as the decree made by the court in a suit pending therein. In the words of the
Supreme Court, 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, quasi-contract, some fiduciary relation or a
failure to perform a duty, there is no abatement of the liability on the death of the wrongdoer.
Learned counsel for the appellant has, however, contended that in the decision in Official Liquidator Vs. Parthasarathi Sinha and Others, , it
has not been decided that before the liability is determined if the director or other person of the company charged u/s 543(1) of the Act dies, it will
be a proceeding in execution and not a proceeding otherwise to decide the liability itself. According to him, these observations of the Supreme
Court must not be extended to apply to the proceedings that do not finally determine the liability.
We, however, have noticed already and reiterate that the order of winding up is always in the nature of a decree which has to be executed by
the liquidator and in the course of the execution of the decree, the liquidator is expected to find out where the properties of the company are and
realise from all concerned the properties of the company for discharging the liabilities under liquidation. The parallel between the proceedings after
the winding up and execution of a decree, thus, are noticeable and established.
Learned counsel for the appellant has contended that assuming that counsel for the deceased respondent failed to comply with rule 10A of
Order 22 of the Code of Civil Procedure, still, it was necessary that the liquidator explained the delay in filling the petition for substitution of the
heirs and legal representatives of the deceased first respondent in C.A. No. 272 of 1971. According to him, whether it is treated as a cause for
setting aside the abatement or a cause to excuse the delay in bringing the heirs and legal representatives on record otherwise, the court ought to
have taken notice of the laches on the part of the liquidator and, in the absence of any explanation or material in the report of the liquidator, ignored
the report and thus the substitution claimed by the liquidator. He has pointed out that the liquidator stated that she made some enquiries. But what
those enquiries were, when those enquiries were held and how these enquiries were conducted are not stated by her in the report. He has
submitted that the court in the absence of proper and full disclosure of such details shall not be justified in accepting the petition of the liquidator to
substitute the appellants as the legal representatives of the deceased first respondent.
Courts have held and one such judgment of the Supreme Court has been noticed by the learned single judge that rule 10A of Order 22 of the
CPC is a rule that has been introduced to ensure that information as to the death of a party is given to the court and thus to counsel for the
plaintiff/appellant so that if any legal representative or heir is required to be brought on record, steps are taken in time. Absence of compliance with
this rule by counsel for the deceased defendant/respondent will itself provide a cause for condonation of delay in filing a petition for substitution
and/or setting aside the abatement. It, however, will not mean that even if the plaintiff/appellant knew about the death, yet he need not make any
application for substitution or that counsel for the defendant/respondent need not inform the court about the factum of death. If there are materials
showing that the death was within the knowledge of the plaintiff/appellant and/or that the defendant/respondent learn about the death long before
he decided to file an application for substitution for bringing the heirs or legal representatives of the deceased person, the court may take the view
that the plaintiff/appellant was guilty of laches and that he failed to make out a case for condonation of delay u/s 5 of the Limitation Act. The court
can take notice of the laches on the part of the plaintiff/appellant even in a case where there is no abatement as such and refuse indulgence if steps
are taken after a long and inordinate delay. This, however, shall not and cannot mean that the court cannot order substitution unless there are such
details disclosed in the petition for condonation of delay in a case where no petition to condone the delay is necessary. Where only substitution is
asked for and there is no legal bar, the court can order substitution. It will always depend upon the facts of each case. The instant case is one in
which some better particulars should have been furnished by the liquidator. The liquidator should have given some account of the enquiries made
by her. She, however, has given to such account. This, however, in our opinion, is not fatal to the substitution for the reason (i) that there is no
abatement involved, and (ii) counsel for the deceased respondent also owed a duty which he failed to discharge in the instant case.
For the reasons aforesaid, we do not find any merit in the appeals. The appeals are accordingly dismissed. There shall, however, be no order
as to costs. Hearing fee for counsel for the liquidator is fixed at Rs. 1,500.
Before we part with this judgment, we must state that while a proceeding after the order of winding up may be in the nature of a proceeding in
execution, the liability of the deceased director is yet to be determined. The rules that apply in such circumstances are stated in the judgment of
Supreme Court in Official Liquidator, Supreme Bank Ltd. Vs. P.A. Tendolkar (Dead) by Lrs. and Others, .