Case: Umashankar Vs. Rai Bahadur Shreeram Durgaprasad Company Limited

ORAL JUDGMENT: (DHARMADHIKARI, J.) 1] By this appeal under Section 483 of the Companies Act the order dated 29.09.1985 passed by Company Judge of this Court on Company Application Nos. 17 of 1993 and 27 of 1994 granting applications moved by respondent-Official Liquidator to bring legal representatives of deceased respondent no.1 and of one of his legal heirs has been questioned. The legal representatives are permitted to be brought on record in Company Application Nos. 27 of 1986 under Section 542 and 543 of Companies Act. 2] Rai Bahadur Shreeram Durgaprasad Limited is the company being wound up as per orders dated 16.11.1981 in Company Petition 1 of 1981. The Official Liquidator on behalf of said company filed application No. 27 of 1986 on 04.11.1986 under Sections 542 and 543 of Companies Act 1956, against deceased Durgaprasad son of Shreeram Saraf and 6 other persons. On 21.11.1986 Company Judge issued notices in the matter. The Official Liquidator took out misfeasance summons dated 19.02.1987. Respondent no.1 therein namely said Durgaprasad expired on 25.07.1988. His Advocate filed Counsel Note dated 19.08.1988 and communicated that death. 3] Because of that pursis application was moved by Official Liquidator seeking direction to furnish names of legal representatives of deceased. It was stated that two of his heirs were already on record. On 27.01.1989 three names were supplied. Application No. 21 of 1989 was then filed on 17.02.1989 and it was allowed on 24.02.1989. It appears that accordingly three names i.e. Vithaldas, Ramkrishna and Murlidhar all sons of deceased Durgaprasad were substituted on record as respondents 1A, 1B, 1C. In the process names of two ladies in the family were not disclosed. Another application was then filed vide Company Application 17 of 1993 pointing out that these ladies were not impleaded. But on 03.09.1993 Company Judge directed issuance of notices to proposed legal representatives of deceased respondent no.1 Durgaprasad. It appears that order dated 03.09.1993 issuing notice to proposed legal representatives was not on any application. On 17.09.1993 after application came to be filed an order issuing notice was again passed. Office of this Court accordingly issued notice dated 05.10.1993 calling upon legal representatives to show cause. Along with that notice copy of application dated 17.09.1993 was also supplied. In the meanwhile and on 26.01.1993 heir Vithaldas (respondent 1A) had also expired. Because of that death Misc. Civil Application No. 27 of 1994 was moved by Official Liquidator. He sought leave to bring on record legal representatives of Vithaldas but there his serial number was mentioned as 1B. He also gave names of Vinodkumar and Vinitkumar, both sons of Vithaldas and Smt. Veenadevi daughter of Vithaldas, as those legal representatives. These three persons are appellants 7, 8 and 9 before this Court. The legal representatives filed their reply on 30.03.1995 opposing the application to bring legal representatives of deceased respondent no.1. Second reply was filed on 31.03.1995 by legal representatives of deceased Vithaldas opposing the similar application. Various objections were raised. Learned Company Judge after hearing counsel for the respondents before him including these legal representatives and counsel for Official Liquidator passed impugned order on 29.09.1995. 4] We have heard Advocate Shri V. R. Thakur for appellants and Advocate Shri De for respondent-Official Liquidator in this background. 5] After narrating the facts briefly, Shri Thakur has at the out set contended that impugned order contains the conclusions in para 6. The background in which order is passed with rival contentions are narrated in paragraphs 1 to 5. Hence according to learned counsel there are no reasons recorded any where in the impugned order to support the conclusions recorded in para 6. He has, therefore, prayed for remand of matter back to learned Company Judge so as to have appropriate consideration of the contentions raised in defence before that Court. 6] To show to this Court the contentions raised, the earlier part of the impugned order is relied upon along with replies filed by legal representatives on 30.03.1995 and 31.03.1995. Learned counsel has stated that Misc. Civil Application no. 17 of 1993 was itself filed after more than five years of death of respondent no.1 Durgaprasad. He has further contended that orders dated 24.02.1989 permitting legal representatives of Durgaprasad to be brought on record or then orders dated 14.03.1990 permitting names of three sons of Durgaprasad to be brought on record are without any notice or opportunity to legal representatives and hence not binding. Learned counsel states that for the first time an appropriate application was moved on 17.09.1993 as Misc. Civil Application No. 17 of 1993 and opportunity to show cause was extended to these appellants. Accordingly a valid cause raising various defences was raised and substantiated but have not been appreciated. 7] It is pointed out that when Durgaprasad died the proceedings before learned Company Judge were at initial stage. At that stage Durgaprasad had no opportunity to effectively defend himself and in view of his death at that stage, his legal representatives cannot be brought on record. Judgment of Honble Apex Court reported at A. I. R. 1973(SC) 1104 (Official Liquidator, Suypreme Bank Ltd. Vs. P. A. Tendolkar (dead) by L. Rs. And others )is pressed into service to urge that only when deceased Director had opportunity and defended himself, the Honble Apex Court has upheld the continuation of action against his legal representatives. For same purpose judgment of Honble Apex Courtreported at (1983)53 Company Cases 163 (SC) Official Liquidator Vs. Parthasarathi Si nha & Others, is also relied upon. According to him as the proceedings in present matter were at initial stage when Durgaprasad expired, there is no scope for bringing legal representatives on record. Our attention has also been invited to Division Bench judgment of Kerala High Court in (1979) 49 Company Cases 170 (Kerala) Mrs. Joselin And Others Vs. Official Liquidator Alwaye Chit Funds (P.) Ltd. to show how the view of Honble Apex Court in (Official Liquidator Supreme Bank Ltd. Vs. P. A. Tendolkar (dead) by L. Rs. And others (supra) has been applied in similar circumstances there. The Division Bench view of this Court reported at A. I. R. 1994 (Bombay) 74 The Official Liquidator High Court Bombay and Liquidator of Jai Hind Estate & Housing Co. Ltd. Vs. Taru Jethmal Lalvani and Othersis also pressed into service to support this proposition. The judgment of Kerala High Court referred to by said Division Bench in para 13 of its judgment reported at (1988) 64 Company Cases 855 (Official Liquidator Vs. Ramkrishna Iyer)is also read out to us for this purpose. 8] In the alternative and without prejudice to these contentions, the learned counsel has stated that even if it is presumed that proceedings can be continued, in order to constitute the appellants legal representatives of deceased Durgaprasad it must be shown that they have inherited some property from deceased Durgaprasad. Our attention is invited to specific stand of these legal representatives on affidavit with relevant documents to urge that they have not inherited anything from Durgaprasad. It is contended that this assertion on affidavit has not been countered by official liquidator and hence it cannot be said that any disputed question arose before learned Company Judge. As such there is no reason for holding any enquiry and this un-rebutted fact ought to have been accepted and acted upon. The learned counsel states that here due to death at very initial stage and lapse of time legal representatives cannot effectively defend deceased Durgaprasad in proceedings under Section 542 and 543 of Companies Act and said proceedings therefore ought to have been treated as abated insofar as claim against Durgaprasad is concerned. 9] Shri De learned counsel on behalf of Official Liquidator has contended that after pursis was filed and Court was informed about death of Durgaprasad, learned Company Judge on 24.02.1989 permitted Official Liquidator to bring his legal representatives on record. This order was not challenged and names supplied as legal representatives of Durgaprasad were added on record as respondents 1A, 1B, 1C on 14.03.1990. Even this action was never questioned. He contends that after the names of remaining legal representatives were learnt an application was moved on 17.09.1993 to bring total 7 persons on record as legal representatives of deceased Durgaprasad. As two legal representatives of Durgaprasad were on record since beginning and three were permitted to be added and were brought on record on 14.03.1990, the application has been rightly allowed by learned Company Judge. 10] He had invited attention to provision of Section 10 of Limitation Act, 1963 to urge that in any such dispute for accounts, limitation is not applicable. He has further contended that question whether the legal representatives of deceased Durgaprasad have received any property or not is a disputed question which can be resolved only after enquiry. He had attempted to distinguish various judgments on which Shri Thakur, learned counsel for appellant has placed reliance by contending that opportunity needs to be extended to either the delinquent Director or then to his legal representatives. He contends that all defences available to appellants because of death of respondent no.1 on 25.07.1988 are still open and none of it is eclipsed. Defences raised, in order to prevail need some factual data and it can come on record only during further trial. He, therefore, prays for dismissal of appeal. 11] The perusal of judgment of Honble Apex Court reported at (Official Liquidator, Supreme Bank Ltd. Vs. P. A. Tendolkar (dead) by L. Rs. And others)reveals that there the Apex Court has in para 29 referred to maxim actio personalis moritur cum persona and in para 30 found no reason to extend the maxim, as a general principle, even to cases involving breaches of fiduciary duties or where the personal conduct of the deceased Director has been fully enquired into and the only question for determination on an appeal was the extent of liability incurred by the deceased Director. In para 32 it has noted that power to take special proceedings is discretionary and it does not exhaust other remedies although, the Court may, as a matter of justice and equity, drop proceedings against the delinquent who are no longer alive leaving the complainant to his ordinary remedy by way of civil suit against the assets of the deceased. Honble Apex Court has also noted that where no injustice may be caused by continuing these proceedings against the past director, even though he be dead, the proceedings could continue after giving persons who may be interested, opportunities of being heard. Honble Apex Court has then stated that such proceedings can only result in a declaration of liability of the deceased director and it does not authorise passing of orders to compel heirs or legal representatives to do anything. It is noted that such compulsive proceedings may be necessary only against those upon whom the estate of deceased delinquent Director has devolved. In para 33 Honble Apex Court has extracted Section 542 of Companies Act and then observed that where proceedings under Section 543 are covered also by the terms of Section 542, it may be possible to give directions to persons other than those whose conduct is enquired into including directions to heirs and legal representatives for the purpose of enforcing a declaration. Honble Apex Court has however found it not necessary to express any final opinion on this issue. Little later in very same paragraphs with reference to Section 543 proceedings the Honbe Apex Court has stated that power there under would not extend beyond making a declaration against a deceased Director provided he, in his life time or his heirs after his death, were given due opportunity of putting forward the case on behalf of alleged delinquent Director. 12] In (Official Liquidator Vs. Parthasarathi Sinha & Others) the proceedings were under Section 543 of the Companies Act. The order of winding up was passed by High Court of Kolkata on 08.01.1958 and summons under Section 543(1) against directors including one Dr. S. N. Sinha were taken out on 02.01.1963. Said Dr. S. N. Sinha died on 16.11.1969 leaving behind him his son Parthasarathy Sinha who was respondent before Honble Apex Court. The Company Judge on 09.11.1970 allowed substitution of legal representatives and appeal preferred by legal representatives against that order was allowed by Division Bench of High Court on 01.08.1975. The death of Dr. S. N. Sinha was only recorded and rest of the order of Company Judge was set aside. It is in this background that the Honble Apex Court referred to its earlier view in (Official Liquidator, Supreme Bank Ltd. Vs. P. A. Tendolkar (dead) by L. Rs. And others) (supra) and found that if in that judgment it (Supreme Court) had really come to conclusion that on the death of a person against whom proceedings under Section 543 had been initiated, such proceedings could not be proceeded against his legal representatives, final order would not have been what was actually made therein. The true doctrine noted by Apex Court is stated to be 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 representatives when he is dead, to recover it. Honble Apex Court has then noted that liability arising under misfeasance proceedings is founded on the principle that a person who has caused loss to the company by an act amounting to a breach of trust should make good the loss. It is noted that Section 543 of the Act does not really create any new liability. Whenever there is relationship based on contract, quasi contract, some fiduciary relationship or failure to perform a duty, there is no abatement of the liability on the death of the wrongdoer. It is in this background the view taken by Division Bench of Calcutta High Court has been set aside and misfeasance proceedings are directed to be continued against the heirs and legal representatives of Dr. S. N. Sinha. 13] The judgment of the Division Bench of Kerala High Court (supra) considers very same provision of Companies Act. The Division Bench of Kerala High Court has noted view of Honble Apex Court in (Official Liquidator, Supreme Bank Ltd. Vs. P. A. Tendolkar (dead) by L. Rs. And others)(supra). It must be noted that later view in ((Official Liquidator Vs. Parthasarathi Sinha & Others) (supra) was not pressed into service. The said Division Bench has stated that when delinquent Director dies during the course of proceedings under Section 543, as per the observation of Honble Apex Court, there is power in court it continue against legal representatives of deceased in appropriate cases and the Court can make an order declaring liability of deceased. It opined that such a course ordinarily be adopted only in cases where prior to his death deceased Director had already had full opportunity to give evidence and substantiate his defence before the Company Court. It has then noted that in matter before it, the proceedings were at early stage when death occurred. The three Directors had not been examined in misfeasance proceedings and they had no opportunity to place before Company Court evidence in support of their contentions prior to their death. Because of these facts Kerala High Court found it just fair and equitable to discontinue misfeasance proceedings against legal representatives. 14] In (The Official Liquidator High Court Bombay and Liquidator of Jai Hind Estate & Housing Co. Ltd. Vs. Taru Jethmal Lalvani and Others) (supra) Division Bench of this Court has looked into misfeasance proceedings under Section 543(1) of Companies Act, it noted that misfeasance summons itself was bad as it was taken out against respondents nos. 1, 2, 4, 5, 6, 12, 13 and 16 who had already died prior to 1980. The Official Liquidator had taken out Company Application No. 161 of 1981 under Section 543(1) and Company Application no. 75 of 1988 was then moved almost 8 years later to bring on record the heirs of deceased respondent no.1 and 16 in that Company Application. That application was dismissed by learned Single Judge and then matter went in appeal before the Division Bench. In this background, Division Bench in para 13 has, after making reference to judgment of Honble Apex Court in (Official Liquidator, Supreme Bank Ltd. Vs. P. A. Tendolkar (dead) by L. Rs. And others)(supra) found that the very initiation of proceedings against legal representatives of deceased respondent no.16 was far beyond the period of limitation under Section 543(2) of Companies Act. The judgment of learned Single Judge of Kerala High Court is then referred to note the emphasis therein on the aspect of difficulty faced by legal representatives in defending such an action. This judgment therefore shows that when Company Application No. 161 of 1981 was filed invoking Section 543(1) of Companies Act, respondent no.16 therein with many other respondents were already dead. The perusal of judgment of learned Single Judge of Kerala High Court reported at ((Official Liquidator Vs. Ramkrishna Iyer) (supra) shows that there Misc. C. A. 12 of 1985 was filed on 03.06.1985 under Section 543 of Companies Act. 3rd respondent in said matter had died on 06.09.1973 and 4th respondent died on 18.09.1981. Petition for winding up was filed in 1979. In this situation learned Single Judge has stated that he would have permitted misfeasance proceedings to continue against legal representatives only if he was satisfied that no injustice would be caused by such a course. It has been observed that if director dies at the threshold of the proceedings before he had full and fair opportunity to defend the case by adducing evidence to substantiate his contentions, it would not be just, fair and equitable to allow continuation of the proceedings against legal representatives. Mandate of Section 543 is found to be to examine into conduct of delinquent Director. In peculiar circumstances before it, learned Single Judge did not find it proper to exercise discretion in favour of Official Liquidator. 15] Perusal of these judgments therefore do not show that as a matter of course after death of a Director, during proceedings under Section 543 of Companies Act, legal heirs cannot be allowed to be brought on record. The judgment of Honble Apex Court in (Official Liquidator Vs. Parthasarathi Si nha & Others)(supra) after noticing earlier view of Honble Apex Court in (Official Liquidator Supreme Bank Ltd. Vs. P. A. Tendolkar (dead) by L. Rs. And others)(supra) allowed legal heir/representative to be brought on record. It is, therefore, apparent that each case needs to be looked into on its facts and thereafter an appropriate order is to be passed. 16] In present matter deceased Durgaprasad had engaged Advocate who had appeared on 27.03.1987. Thereafter matter was listed on various occasion and on 05.02.1988 Company Judge has recorded that no reply was filed inspite of above five opportunities, hence directed matter to proceed further and official liquidator was directed to file list of witnesses within two weeks. It is, therefore, obvious that deceased Durgaprasad had not raised any defence before Company Judge. It is in this situation that he expired on 25.07.1988. The subsequent events are already mentioned by us above. On 24.02.1989 Company Judge permitted Official Liquidator to bring legal heirs on record. Order is not passed on any application but because of counsel note/pursis dated 19.08.1988. On 14.03.1990, Official Liquidator, accordingly substituted three names as legal representatives of deceased Durgaprasad. All these three persons are sons of deceased Durgaprasad. Vithaldas son of Durgaprasad thus came on record on 14.03.1990 and he expired on 26.01.1993. In this situation when 5 legal representatives of deceased Durgaprasad were already on record, Misc. Civil Application No. 17 of 1993 was moved on 17.09.1993 seeking leave to bring on record as legal representatives of deceased Durgaprasad total 7 persons. Five out of them were already on record. Objections being pressed into service before us have been raised while opposing this application No. 17 of 1993. 17] It is, therefore, apparent that the legal representatives who were already on record before filing of Misc. Civil Application No. 17 of 1993 had not raised any defence till then. This observation made by us does not mean that they could not have or cannot, at any point of time thereafter raised any such defence. We, in this background, find substance in the contention of learned counsel for respondent that by allowing said application vide impugned order dated 29.09.1995, no legal right of legal representatives of either deceased Durgaprasad or Vithaldas is violated or eclipsed. The perusal of impugned order reveals that learned Company Judge referred to all these developments and to citations pressed into service before him. Even provision of Rule 6 of Company (Court) Rules 1959, are looked into along with provisions of Rule 266 and 262. Then judgment of Honble Apex Court reported at (Official Liquidator Supreme Bank Ltd. Vs. P. A. Tendolkar (dead) by L. Rs. And othersand Division Bench judgment reported at The Official Liquidator High Court Bombay and Liquidator of Jai Hind Estate & Housing Co. Ltd. Vs. Taru Jethmal Lalvani and Others both(Supra), are mentioned and relevant paragraphs therein are also quoted. Thereafter conclusions in para 6 are recorded. It is found that the statement about devolution of the estate of deceased has been disputed and it therefore is a matter of enquiry. Though there is no counter by Official Liquidator on record disputing this statement made by legal representatives in their replies, it cannot be lost sight of, that application was for permission to substitute legal representatives on record. We, therefore, do not find the appreciation in this respect by learned Single Judge perverse. Very perusal of application for bringing legal representatives on record reveals the statement in para 2 by Official Liquidator on affidavit that said legal representatives have inherited the property of deceased respondent 1A. In Misc. Civil Application 17 of 1993, Official Liquidator has disclosed gathering of details of legal heirs of Durgaprasad through police. It is apparent that appellants are not disputing relationship with deceased. Learned Company Judge has correctly approached the situation presented before him by parties and has recorded necessary reasons to grant the prayers made by Official Liquidator. Details not relevant and requiring inquiry have not been commented to avoid any prejudice to the appellants. We find the order perfect and valid. 18] Whether as legal representatives the persons substituted are in position to effectively defend their legal rights will become apparent during trial. Upon enquiry Shri De learned counsel has disclosed that other directors have taken appropriate defence in reply to charge under Section 542 and 543 of Companies Act. Hence at this stage, without anything more on record, we are not in a position to apprehend any prejudice to the interest of the legal representatives of deceased Durgaprasad or deceased Vithaldas in the matter.

Decision reasoning: 1[ds]17] It is, therefore, apparent that the legal representatives who were already on record before filing of Misc. Civil Application No. 17 of 1993 had not raised any defence till then. This observation made by us does not mean that they could not have or cannot, at any point of time thereafter raised any such defence. We, in this background, find substance in the contention of learned counsel for respondent that by allowing said application vide impugned order dated 29.09.1995, no legal right of legal representatives of either deceased Durgaprasad or Vithaldas is violated or eclipsed. The perusal of impugned order reveals that learned Company Judge referred to all these developments and to citations pressed into service before him. Even provision of Rule 6 of Company (Court) Rules 1959, are looked into along with provisions of Rule 266 and 262. Then judgment of Honble Apex Court reported at (Official Liquidator Supreme Bank Ltd. Vs. P. A. Tendolkar (dead) by L. Rs. And othersand Division Bench judgment reported at The Official Liquidator High Court Bombay and Liquidator of Jai Hind Estate & Housing Co. Ltd. Vs. Taru Jethmal Lalvani and Others both(Supra), are mentioned and relevant paragraphs therein are also quoted. Thereafter conclusions in para 6 are recorded. It is found that the statement about devolution of the estate of deceased has been disputed and it therefore is a matter of enquiry. Though there is no counter by Official Liquidator on record disputing this statement made by legal representatives in their replies, it cannot be lost sight of, that application was for permission to substitute legal representatives on record. We, therefore, do not find the appreciation in this respect by learned Single Judge perverse. Very perusal of application for bringing legal representatives on record reveals the statement in para 2 by Official Liquidator on affidavit that said legal representatives have inherited the property of deceased respondent 1A. In Misc. Civil Application 17 of 1993, Official Liquidator has disclosed gathering of details of legal heirs of Durgaprasad through police. It is apparent that appellants are not disputing relationship with deceased. Learned Company Judge has correctly approached the situation presented before him by parties and has recorded necessary reasons to grant the prayers made by Official Liquidator. Details not relevant and requiring inquiry have not been commented to avoid any prejudice to the appellants. We find the order perfect and valid18] Whether as legal representatives the persons substituted are in position to effectively defend their legal rights will become apparent during trial. Upon enquiry Shri De learned counsel has disclosed that other directors have taken appropriate defence in reply to charge under Section 542 and 543 of Companies Act. Hence at this stage, without anything more on record, we are not in a position to apprehend any prejudice to the interest of the legal representatives of deceased Durgaprasad or deceased Vithaldas in the matter.