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Judgment
Jagadisan, J.—This appeal is from the judgment and decree in O.S. No. 216 of 1958 on the file of the Sub-Court, Coimbatore. The decree
has been passed against the appellants, defendants in the suit, for payment of a sum of Rs. 19,585.23 nP. to the plaintiff-respondent, which is a
company under voluntary liquidation. The correctness of this decree is called in question by the appellants, mainly on the ground that the suit is not
maintainable.
The facts are these. The Utilities (India) Ltd., a company registered under the Indian Companies Act, which will be referred to in this judgment
as the company, was managed by a certain Venkatesalu Naidu. The defendants are his sons. The company did not function properly, and
consequently, the members (share-holders) passed a special resolution in the General Body meeting held on 24-8-1955, that the company be
wound up voluntarily. One of the directors, R. T. Naidu, was appointed as the liquidator. The Managing Director, Venkatesalu Naidu had in his
hands a sum of Rs. 25,585.23 nP. belonging to the company, and was also in possession of the company''s account books. In spite of the request
of the liquidator, he failed to hand over the cash or the account books. He, however, remitted into the bank to the credit of the company various
amounts between 21-10-1955 and 18-4-1957, aggregating to Rs. 6,000. Venkatesalu Naidu died in or about July 1957. In this suit, the liquidator
claims, after giving credit to the sum. of Rs. 6,000/- paid by Venkatesalu, balance of Rs. 19585.23 nP. left with him. It is alleged in the plaint that
the defendants are his undivided sons, and that the amount claimed belong to the company, but was improperly utilised by Venkatesalu, for the
purpose of his family business and for improving his family lands. It is stated further that the defendants were benefited by reason of the utilisation
of the company''s funds, and that therefore they are liable to re-pay the amount to the company from and out of the assets of their joint family.
The defendants no doubt resisted the suit, but they did not deny that Venkatesalu, their father, had with him the amount claimed in the suit,
belonging to the company. They contended that Venkatesalu was not the only managing director, that the management of the company was with a
firm of managing agents called Mitra and Co. consisting of two partners, Venkatesalu Naidu and the present liquidator K. T. Naidu. They pleaded
that the liquidator was as much a person liable to make good the payment to the company as Venkatesalu. himself and that therefore, the suit
against the legal representatives of Venkatesalu would not be maintainable. They also stated that no amount of the company remained with them.
They alleged that a sum of Rs. 15,000/- was used by Venkatesalu himself, for the purpose of acquisition of the shares belonging to the other
members of the company, and that another sum of Rs. 12,000/- had been paid by Venkatesalu on various occasions. In effect therefore, their plea
was twofold: (1) discharge and (2) non-maintainability of the suit. At the time of the trial of the suit, it appears that the defendants further pleaded
that the suit itself was barred by reason of Section 543 of the Indian Companies Act. These contentions on the part of the defendants were
overruled by the learned Subordinate Judge, who, as stated already, granted a decree in favour of the plaintiff as prayed for.
Learned counsel for the appellants frankly conceded that the finding of the Court below, as regards the plea of alleged discharge, cannot be
successfully challenged, in view of the state of evidence in the case. It is, therefore, clear that Venkatesalu was liable to pay the sum of Rs. 19,000
and odd, and his legal representatives, the present defendants having got or being in possession of the joint family assets, are equally liable for the
payment of the amount. Learned counsel, however, strenuously contends that Section 543 of the Indian Companies Act operates as a bar to the
maintainability of the suit, and also contends that R. T. Naidu, the liquidator, being himself a member of the managing agency firm, cannot maintain
the suit. We may at once state that there is no sub. stance in the point that R. T. Naidu cannot institute the suit, as the suit has been filed by him in
his capacity as liquidator. Whether R. T. Naidu is also jointly and severally liable for the suit amount is a matter upon which we express no opinion
in this appeal.
The only point which deserves serious consideration is as regards the scope of Section 543 of the Indian Companies Act, and whether that
provision negatives the jurisdiction of the Civil Court to sustain a claim of the present description. We shall immediately refer to the provision itself,
in so far as it is material:.
Section 543(1):
If in the course of winding up a company, it appears that any person who has taken part of 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 01 breach of trust in relation to the company;
the Court may, on the application of the Official liquidator, or the liquidator ............ made within the time specified in that behalf in subsection (2),
examine into the conduct of the person, director, managing agent ...... 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 brech of trust as the Court thinks just.
(2) An application under sub-section (1) shall be made within 5 years from the date of the order for winding up, or of the first appointment of the
liquidator in the winding up, or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer.
(3) (Omitted).
Section 425 of the Indian Companies Act provides for three modes of winding up. Section 543 comprehends in its scope all the modes of winding
up, and this is made clear by the generality of the language used. ""If in the course of winding up a company it appears ........."" The liquidator, in a
voluntary winding up, is within the section. Vemuri Parandhamiah Vs. R. Narasimha Rao and Another, .
The learned Subordinate Judge has missed the real scope of the section in stating that what can be done thereunder is to assess damages against
delinquent directors. The compensation for misapplication of company''s moneys or for misfeasance or breach of trust is only one of the reliefs
contained in the section. Repayment or restoration of the money or property of the company retained or misapplied by a director can be asked for
under the machinery of this section. It cannot be said that what falls within the section is only an unliquidated claim for damages. A claim for
recovery of a specified sum of money is plainly within its compass. The view of the learned Subordinate Judge that the suit claim is outside the
section militates against its language and cannot be supported.
But then the question is, does the section bar the remedy of a suit in a civil Court as regards matters covered by it? Learned counsel for the
appellants contends that, if an application is competent under the section in respect of any claim, the claimant should pursue only that remedy and
no other remedy. In other words, the contention is that there cannot be two remedies in respect of the same cause of action, one by way of suit
and another by way of an application in the company Court, and that the special procedure in the shape of application excludes the general
procedure in a civil forum. This argument is interesting but unsustainable. Section 9, C. P. Code enacts -
The Court shall (subject to the provision* herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their
cognizance is either expressly or impliedly barred"" (Explanation omitted).
Any civil right can be agitated in a suit, but the legislature can enact a measure barring the jurisdiction of civil Courts, in respect of certain classes of
suits. Generally, the barring statute contains express words like, ""No civil Court shall entertain a suit ........."" or, ""the decision passed by a certain
officer shall not be called in question in any Civil Court.........."" There can be no difficulty in understanding such explicit words as ousting the
jurisdiction of the civil Court. The problem assumed proportions, when the question is, whether in any given case, the civil Court''s jurisdiction is
impliedly barred. This is a vexed question, which has often come up for consideration before the Courts. Cases on the subject are many. They are
of such varied types that they elude analysis and formulation, notwithstanding the development of law to attune to the needs of a fast changing
society, the locus classicus on the subject is the following observation of Willes, J., in Wolverhampton New Water Works Co. v. Hawkesford,
(1859) 6 CB (NS) 336
There are three classes of cases in which a liability may be established founded upon statute. One is, where there was a liability existing at
common law, and that liability is affirmed by a statute, which gives a special and peculiar form of remedy different from the remedy which existed at
common law; there unless the statute contains words which expressly or by necessary implication exclude the common law remedy, the party suing
has his election to pursue either that or the statutory remedy. The second class of cases is, where the statute gives the right to sue merely, but
provides no particular form of remedy; there, the party can only proceed by action at common law. But there is a third class viz., where a liability
not existing at common law, is created by a statute which at the same time gives a special and particular remedy for enforcing it.......... The remedy
provided by the statute must be followed; and it is not competent to the party to pursue the course applicable to cases of the second class. The
form given by the statute must be adopted and adhered to."" The House of Lords approved this enunciation of the principle of law in Neville v.
London Express Newspaper Ltd., 1919 AC 368, and the Judicial. Committee re-affirmed it in Attorney General for Trinidad and Tobago v.
Gordon Grant and Co., 1935 AC 532 and AIR 1940 105 (Privy Council) .
The liability of a director to pay or return the company''s money or property is a general or a common law liability, if such an expression can be
used, with reference to the law in India. The obligation to restore any money or property to the original owner is not merely common honesty but a
legal liability. The fact that the debtor is a director and the creditor a company in liquidation would not affect the true nature of the liability. In such a
case, the liability is not one arising under the Indian Companies Act. The relationship between the director and the share-holders of the company is
of a fiduciary character and is analogous to that of a trustee and cestui que trust. Of course, a director is not an express trustee. The right of the
company to realise its money from the hands of a fraudulent director is in no sense a special statutory right.
In Halsbury''s Laws of England, 3rd Edn. Vol. 6, Simonds Edn. page 622, the nature of misfeasance proceedings is described thus:
The foregoing provision does not create any new liability or new right; it only provides a summary mode of enforcing rights including rights created
by the winding up which must otherwise have been enforced by the ordinary jurisdiction, of the Court.
We are of opinion that Section 543 is only an enabling provision, and it cannot be construed as depriving the aggrieved parties of a remedy by way
of suit by reason only of the special procedure provided for therein. The present case falls directly within the first category of cases described by
Willes, J., in (1859) 6 CB (NS) 336. There is no principle of law, so far as we are able to see, which would disable a suitor from pursuing one of
several remedies which he may have under the law of the land. The utmost that can be said is that he should not pursue all the remedies
concurrently, as that would result in multiplicity of proceedings and perhaps also in conflicting judicial pronouncements. So long as a right of suit
cannot be said to have been taken away expressly or by necessary implication, the suit must be held to be maintainable. In our opinion, the Court
below reached the correct conclusion, in holding that the suit is not barred u/s 543, though the reasons given are not sound.
There is another aspect of the matter, which would also go to show that the suit is maintainable. The suit is not laid against a director as such. It
is only a claim against the legal representatives of the director quoad his estate in their hands. In In Re: Peerdan Juharmal Bank (in liquidation) by
Joint Official Liquidator, , a Division Bench of this Court held that the proceedings taken u/s 235 of the Indian Companies Act, I913 (the provision
corresponding to the present Section 543) against a director of a banking company which has been ordered to be wound up, for assessing
damages on charges of misfeasance, etc., cannot be continued after his death, and the liabiliy of such director cannot be enforced against his legal
representatives in those proceedings. The ratio of that decision is that the misfeasance proceedings under the Companies Act are only available
against the specified enumerated persons mentioned therein and not against their executors, administrators, heirs or legal representatives.
Section 543 corresponds to Section 333 of the English Act of 1948. Buckley (Companies Act, 12th Edn.) states at page 682:
The section is personal only against the director or officer and does not apply as against the executors of a deceased director or officer."" In
England, the law has been materially altered by the Law Reform (Miscellaneous Provisions) Act, 1934, under which, subject to the provisions of
Section 1, on the death of any person after the commencement of the Act, all causes of action subsisting against or vested in him survive against or,
as the case may be, for the benefit of his estate. In Halsbury''s Laws of England Volume 6, 3rd Edn. the following rule is stated at page 622 -
The executors of a deceased officer are not officers and were therefore not liable before the commencement of the Law Reform (Miscellaneous
Provisions) Act, 1934, to misfeasance proceedings.
The foot-note refers to the case in Re British Guardians Life Assurance Co., (1880) 14 Ch D 335. That case arose u/s 165 of the English Act of
X862 (which was substantially in the same form as Section 333 of the 19.48 Act) and it was held that proceedings against executors must be by
action and not by summons under the section. But whatever the position may be in England, as far as proceedings u/s 543 are concerned, we
respectfully agree with the view taken in In Re: Peerdan Juharmal Bank (in liquidation) by Joint Official Liquidator, . On this ground, we are of
opinion that the suit was competent. The liquidator could not have proceeded against the defendants, who are the heirs of a deceased director u/s
543.
In the result, the appeal fails and is dismissed with costs.