Case: Official Liquidator, High Court, Bombay Vs. Taru Jethmal Lalvani

SUJATA MANOHAR, J.( 1 ) THE appellant is the Official Liquidator of Jai Hind Estate and Housing Co. Ltd. (in Liquidation ). He had taken out Company Application No. 161 of 1981 against 16 respondents under section 543 (1) of the Companies Act, 1956 for a declaration that respondent Nos. 1 to 16 being Directors and/or Officers and/or Auditors of the above Company had misapplied and/or become liable and/or accountable for the money or property of the Company and/or were guilty of misfeasance and/or malfeasance and/or non-feasance and/or breach of trust in relation to the said Company in respect of various amounts as set out in the prayers to that Company Application. This Company application was taken out on 15th June, 1981. ( 2 ) EIGHT years thereafter, the Official Liquidator took out Company Application No. 75 of 1988 by which the Official Liquidator sought to bring on record the heirs of deceased respondent Nos. 1 and 16 in Company Application No. 161 of 1981. This Company Application No. 75 of 1988 has been dismissed by the learned Single Judge. Hence the present appeal is preferred by the Official Liquidator. For the sake of convenience respondent Nos. 1 and 16 in Company Application No. 161 of 1981 are hereinafter referred to as respondent Nos. 1 and 16. ( 3 ) IT is necessary to note the following facts: the order of winding up against the Company was made on 23-6-1976. Respondents Nos. 1 and 16 being the Managing Director and Auditor of the Company respectively, both died prior to 1980. Respondent No. 16 died in September 1977. The misfeasance Summons (Company Application No. 161 of 1981) was taken out by the Official Liquidator on 16th June, 1981. Therefore, at the time when the Misfeasance Summons was taken out against respondent Nos. 1 and 16, both were dead. It seems that respondent No. 9 in the Misfeasance Summons filed an affidavit dated 11th September, 1981 in which he set out that the Misfeasance Summons was bad in law inasmuch as it was taken out against respondent Nos. 1, 2, 4, 5, 6, 12, 13 and 16 who had all died prior to 1980.( 4 ) ACCORDING to the Official Liquidator in view of this statement in the affidavit of 11th September, 1981, he made certain enquiries but was unable to find out the heirs of the dead respondents. It is not clear what these inquiries were. According to the Official Liquidator he received information for the first time from the Advocates of respondent No. 13 in the misfeasance summons when they wrote a letter dated 12th January, 1988 informing the Official Liquidator of the heirs of deceased respondent No. 1. The Official Liquidator has not set out anywhere how he discovered the name of the heir of the deceased respondent No. 16. But he appears to have written a letter dated 11th December, 1987 to Dilip Jayantilal Thakkar, the son and heir of respondent No. 16 asking for the date of death of respondent No. 16 and enquiring about other heirs and legal representatives of the deceased respondent No. 16. Therefore, the name of at least one heir of respondent No. 16 was known to the Official Liquidator in December, 1987. He thereafter took out the present Company Application No. 75 of 1988 on 19th February, 1988 to bring the heirs of respondent No. 1 who are arraigned before us as respondent Nos. 9, 10 and 11 in the appeal and the heir of respondent No. 16 viz. , Dilip Jayantilal Thakkar who is respondent No. 12 in the appeal. ( 5 ) UNDER section 543 of the Companies Act sub-sections (1) and (2) provide as under :543. Power of the 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, or 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) an application under sub-section (1) shall be made within five 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. "therefore, in view of section 543 (2), in the present case the Official Liquidator should have taken out Misfeasance Summons within 5 years of the winding up order. He has done so by taking out the Misfeasance Summons on 15th June, 1981 which is before the expiry of five years from the date of the winding up order. He has, however, joined as party respondents at least two persons who were dead at that time viz. ,respondent Nos. 1 and 16. No Misfeasance Summons could have been taken out against a dead person. Therefore, Misfeasance Summons No. 161 of 1981 cannot be considered as having been instituted against respondent Nos. 1 and 16 on 15-6-1981.( 6 ) UNDER Order 1, Rule 10 of the Code of Civil Procedure the Court has the power to strikes out or add parties to the suit. However, where the suit is brought against a person who is found to have died before institution of the suit (he being the only defendant), the plaint cannot be amended by bringing his legal representatives on record though the suit may have been filed in ignorance of his death. This is because a suit against a dead man is a nullity. Of course if a suit is against several defendants and only one of them is found to have died before its institution, the entire suit will not fail and can proceed against the other defendants. The legal representatives of the deceased defendants can be joined, provided a fresh suit could have been filed on that date. Therefore, on analogous principles, if a misfeasance summons is instituted against several respondents and some of them are dead, the heirs of the dead respondents can be joined as party respondents by amendment, provided that a fresh misfeasance summons could have been taken out against the heirs on the date on which they are sought to be joined. In the present case, on the date of the Company Application No. 75 of 1988 no misfeasance summons could have been taken out against the heirs of respondent Nos. 1 and 16, because the time for taking out such misfeasance summons prescribed under section 543 (2) of the Companies Act had expired long prior to the taking out of Company Application No. 75 of 1988. ( 7 ) IT was submitted by Mr. Parikh, learned Counsel for the appellant that the principles of Order 1, Rule 10 and of section 21 of the Limitation Act which provide that when a new plaintiff or defendant is substituted or added, a suit as regards him shall be deemed to have been instituted when he is so made a party, apply only to a suit. We do not see why a misfeasance summons should not be governed by the same principles. He further submits that even though the misfeasance summons is taken out against dead respondents, their heirs can be subsequently brought on record even beyond the period prescribed under section 543 (2), because according to him, under section 543 (2) only an application is required to be made within the prescribed period. Once an application is made, somebody can be subsequently joined as a party to it. Such an interpretation cannot be accepted. Section 543 (2), when it refers to an application, must necessarily refer to an application against a specified person or persons. It cannot be an application in the abstract. Therefore, when the heir of a respondent who was non-existent at the time when the original misfeasance summons was taken out, is brought on record, it is equivalent to taking out a fresh misfeasance summons against the heir. There is no question here of the amendment relating back to the date of the original misfeasance summons against some other parties. Therefore, this contention must be rejected. In view of this position, we do not see how the present Company Application No. 75 of 1988 can be granted. ( 8 ) IT was submitted by Mr. Parikh that the Official Liquidator was not aware of the heirs of the deceased respondents, nor was he aware of the fact that some of the respondents had died before he took out the Misfeasance Summons. Assuming that this was so, the Official Liquidator came to know, at least in September 1981, that a number of respondents including respondent Nos. 1 and 16 had died prior to 1980. Yet he did not make any inquiries in this connection, nor did he attempt to ascertain the names of the heirs of the deceased respondents until 1988. No allowance can be made on this count in favour of the Official Liquidator.( 9 ) THE next important question that we have to consider is whether the misfeasance summons can at all continue against the heirs of the deceased Directors or Officers of the Company or whether it comes to an end on the death of the tortfeasor. The Supreme Court considered this question in the case of (Official Liquidator v. P. A. Tendolkar) reported in 43 Company Cases pg. 382. In that case, in a misfeasance proceedings taken out against a Director of the Banking Company in liquidation, the winding up Court had given a decision against the Director under section 235 of the Indian Companies Act, 1913 (which is equivalent to section 543 of the Companies Act, 1956 ). The Director had appealed to the Division Bench of the High Court from this decision. He died pending an application for the grant of a certificate of fitness for appeal to the Supreme Court. Thereafter his heirs got themselves impleaded, and after obtaining the certificate, filed their appeal in the Supreme Court. They raised a preliminary objection that the proceedings against them could not continue. The Supreme Court held that the proceedings could continue against the legal representatives of the Director. The Supreme Court said that the maxim, actio personalis moritur cum persona, as a general principle, could not be extended to cases involving breaches of fiduciary duties or where the personal conduct of the deceased director had been fully enquired into, and the only question for determination, in an appeal, was the extent of the liability incurred by the deceased director. The Supreme Court held that section 235 of the Indian Companies Act, 1913, and section 543 of the Companies Act, 1956 confined the power of the Court to make orders for repayment or restoration of money or property or contribution to the assets of the company against certain individuals. This power did not extend to making compulsive orders against the heirs of the delinquents. Although the Court might, as a matter of justice and enquiry, drop proceedings against delinquent directors, managers, or officers who were no longer alive, leaving the complainant to his ordinary remedy by a civil suit against the assets of the deceased, yet, where no injustice would be caused by continuing these proceedings against the past director even though he be dead, the proceedings could continue after giving persons who might be interested, an opportunity to be heard. But even such proceedings could only result in a declaration of the liability of the deceased director. The language of the section did not authorise passing of orders to compel heirs or legal representatives to do anything. Further any orders passed under section 235 could only affect the assets of the estate of the deceased director.( 10 ) THIS case came up for consideration before the Supreme Court in the case of (Official Liquidator v. Parthasarathi Sinha) reported in 53 Company Cases pg. 163. In view of different views taken by different High Courts regarding the interpretation to be put on the ratio of the Supreme Court judgment in the case of Official Liquidator v. Tendolkar, the Supreme Court has clarified its own earlier decision in Tendolkars case. The Supreme Court has said that section 543 does not create any new liability. It only provides for a summary remedy for determining the amount payable by a person who has caused loss to the Company by an act amounting to a breach of trust. The section authorises the Court to direct such persons to pay a sum of money to the company by way of compensation or to bring back the money. 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. 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 Companies Act and section 50 of the Code of Civil Procedure. ( 11 ) THE Supreme Court, therefore, held that in a proceeding under section 543 of the Companies Act, the death of one of the officers will not result in abatement of his liability. His heirs can be brought on record for the purpose of pursuing the remedy under section 543 as against the estate of the deceased officer or director. In this case, the Supreme Court was concerned with a situation where, during the pendency of misfeasance proceedings one of the directors died. The Court allowed the substitution of his heirs and legal representatives in the misfeasance proceedings. In view of this judgment, the contention of respondent No. 12 (son of deceased respondent No. 16 in Company Application No. 16 of 1981) that the liability of the deceased respondent No. 16 does not survive and hence he as an heir, cannot be brought on record, cannot be accepted. ( 12 ) THE present case, however, is somewhat different from the above cases decided by the Supreme Court. In the present case, respondent Nos. 1 and 16 had died before the misfeasance summons was taken out. So that the misfeasance summons itself is being taken out against the heirs and legal representatives of the deceased. The appellant contends that in view of the principle laid down by the Supreme Court that the liability of a director or officer does not abate on his death, a misfeasance summons can be taken out against the heirs and legal representatives of such a deceased director or officer. Kerala High Court, however, in the case of (Official Liquidator v. Ramakrishna Iyer) reported in 64 Company Cases, pg. 855, held that under section 543, a proceedings cannot be initiated against the legal representatives of a deceased director. The Kerala High Court has referred to the language of section 543 which contemplates a proceeding being taken out only against director, managing agent, secretary, treasurer, liquidator or officer of the company. The view taken by the Kerala High Court is supported by the decision in the case of (Feltoms Executors) 1865-66 1 L. R. Eq. pg. 219, where section 165 of the English Companies Act, 1862, which is similar to our section 543 was considered. Vice Chancellor Kindersley held that the words "compel him to pay" in that section cannot be applied to executors and administrators of a deceased director. The same ratio was applied in the case of (In re British Guardian Life Assurance Company) 1880 14 Ch. D. pg. 335.( 13 ) THE Kerala High Court has also emphasised the aspect of difficulty faced by legal representatives in defending such an action and consequently whether it would be just, fair or equitable to allow such proceedings to be initiated and continued. This letter aspect has been referred to by the Supreme Court also in its judgment in the case of Official Liquidator v. Tendolkar, (supra ). The Kerala High Court held that bearing all these aspects in mind, the proceedings cannot be initiated under section 543 against the legal representatives of a delinquent director or officer. The aspect of practical difficulties of the heirs of the deceased director or officer to defend such a proceeding and whether it would be just and fair to permit such a proceeding to be initiated do need to be considered when misfeasance proceedings are sought to be initiated against the heirs. This aspect will have to be considered by the Court on the basis of circumstances of each case. In the case before us, however, the very initiation of proceedings against the heirs and legal representatives of the deceased respondent No. 16 is far beyond the period of limitation under section 543 (2) of the Companies Act. Therefore, we have not examined the question raised by the Kerala High Court in the present case. There is no doubt that the misfeasance summons is hopelessly time barred in so far as it is sought to be directed against the heirs of respondent No. 16. ( 14 ) IN the case of respondent No. 1, however, his son who is one of his heirs, has been a party to the misfeasance summons right from inception as one of the delinquent officers of the Company. As far as he is concerned, the Official Liquidator is merely required to change his description as an heir and legal representative of respondent No. 1 also. However, the Official Liquidator cannot ask for any compulsive order against him in his capacity as an heir of deceased respondent No. 1. The Official Liquidator can certainly ask for a declaratory order against him as held by the Supreme Court in the above decisions. The Official Liquidator is, therefore, entitled to pursue his remedy against the estate of the deceased respondent No. 1 coming to the share of respondent No. 9 in Company Application No. 75 of 1988. In the Company Application No. 75 of 1988 for amendment however no such amendments are asked for. Therefore, no relief can be granted to the Official Liquidator under the present Company Application which has been rightly dismissed by the learned Single Judge. We are also informed that Misfeasance Summons itself has also been dismissed and an appeal from that order is before us for consideration. Therefore, if the misfeasance summons is restored the Official Liquidator is at liberty to take out an appropriate application to amend the misfeasance summons to bring on record respondent No. 9 in Company Application No. 75 of 1988 in his capacity as an heir of original respondent No. 1 also. ( 15 ) AS regards the other heirs of respondent No. 1 that the Official Liquidator is seeking to bring on record the application may not be hit by section 543 (2) of the Companies Act, 1956. But the Official Liquidator became aware in 1981 about the death of respondent No. 1. He was throughout aware of the fact one of the sons of respondent No. 1 viz. , respondent No. 9 (in Company Application No. 75 of 1988) was already on record as a party to the misfeasance summons. He has made no attempt to enquire from respondent No. 9 regarding other heirs of respondent No. 1. Only in 1988 he made an application to bring on record the other heirs of respondent No. 1. Such an application, made 7 years after the knowledge of the death of respondent No. 1, would also be barred under Article 137 of the Limitation Act. This, however, does not preclude the Official Liquidator from taking out any other proceedings in accordance with law against the heirs and legal representatives of the deceased respondent Nos. 1 and 16.( 16 ) IN the premises the learned Judge has rightly dismissed the Company Application.

Decision reasoning: 0[ds]We do not see why a misfeasance summons should not be governed by the same principles. He further submits that even though the misfeasance summons is taken out against dead respondents, their heirs can be subsequently brought on record even beyond the period prescribed under section 543 (2), because according to him, under section 543 (2) only an application is required to be made within the prescribed period. Once an application is made, somebody can be subsequently joined as a party to it. Such an interpretation cannot be accepted. Section 543 (2), when it refers to an application, must necessarily refer to an application against a specified person or persons. It cannot be an application in the abstract. Therefore, when the heir of a respondent who wasat the time when the original misfeasance summons was taken out, is brought on record, it is equivalent to taking out a fresh misfeasance summons against the heir. There is no question here of the amendment relating back to the date of the original misfeasance summons against some other parties. Therefore, this contention must be rejected. In view of this position, we do not see how the present Company Application No. 75 of 1988 can be11 ) THE Supreme Court, therefore, held that in a proceeding under section 543 of the Companies Act, the death of one of the officers will not result in abatement of his liability. His heirs can be brought on record for the purpose of pursuing the remedy under section 543 as against the estate of the deceased officer or director. In this case, the Supreme Court was concerned with a situation where, during the pendency of misfeasance proceedings one of the directors died. The Court allowed the substitution of his heirs and legal representatives in the misfeasance proceedings. In view of this judgment, the contention of respondent No. 12 (son of deceased respondent No. 16 in Company Application No. 16 of 1981) that the liability of the deceased respondent No. 16 does not survive and hence he as an heir, cannot be brought on record, cannot be13 ) THE Kerala High Court has also emphasised the aspect of difficulty faced by legal representatives in defending such an action and consequently whether it would be just, fair or equitable to allow such proceedings to be initiated and continued. This letter aspect has been referred to by the Supreme Court also in its judgment in the case of Official Liquidator v. Tendolkar, (supra ). The Kerala High Court held that bearing all these aspects in mind, the proceedings cannot be initiated under section 543 against the legal representatives of a delinquent director or officer. The aspect of practical difficulties of the heirs of the deceased director or officer to defend such a proceeding and whether it would be just and fair to permit such a proceeding to be initiated do need to be considered when misfeasance proceedings are sought to be initiated against the heirs. This aspect will have to be considered by the Court on the basis of circumstances of each case. In the case before us, however, the very initiation of proceedings against the heirs and legal representatives of the deceased respondent No. 16 is far beyond the period of limitation under section 543 (2) of the Companies Act. Therefore, we have not examined the question raised by the Kerala High Court in the present case. There is no doubt that the misfeasance summons is hopelessly time barred in so far as it is sought to be directed against the heirs of respondent No.14 ) IN the case of respondent No. 1, however, his son who is one of his heirs, has been a party to the misfeasance summons right from inception as one of the delinquent officers of the Company. As far as he is concerned, the Official Liquidator is merely required to change his description as an heir and legal representative of respondent No. 1 also. However, the Official Liquidator cannot ask for any compulsive order against him in his capacity as an heir of deceased respondent No. 1. The Official Liquidator can certainly ask for a declaratory order against him as held by the Supreme Court in the above decisions. The Official Liquidator is, therefore, entitled to pursue his remedy against the estate of the deceased respondent No. 1 coming to the share of respondent No. 9 in Company Application No. 75 of 1988. In the Company Application No. 75 of 1988 for amendment however no such amendments are asked for. Therefore, no relief can be granted to the Official Liquidator under the present Company Application which has been rightly dismissed by the learned Single Judge. We are also informed that Misfeasance Summons itself has also been dismissed and an appeal from that order is before us for consideration. Therefore, if the misfeasance summons is restored the Official Liquidator is at liberty to take out an appropriate application to amend the misfeasance summons to bring on record respondent No. 9 in Company Application No. 75 of 1988 in his capacity as an heir of original respondent No. 115 ) AS regards the other heirs of respondent No. 1 that the Official Liquidator is seeking to bring on record the application may not be hit by section 543 (2) of the Companies Act, 1956. But the Official Liquidator became aware in 1981 about the death of respondent No. 1. He was throughout aware of the fact one of the sons of respondent No. 1 viz. , respondent No. 9 (in Company Application No. 75 of 1988) was already on record as a party to the misfeasance summons. He has made no attempt to enquire from respondent No. 9 regarding other heirs of respondent No. 1. Only in 1988 he made an application to bring on record the other heirs of respondent No. 1. Such an application, made 7 years after the knowledge of the death of respondent No. 1, would also be barred under Article 137 of the Limitation Act. This, however, does not preclude the Official Liquidator from taking out any other proceedings in accordance with law against the heirs and legal representatives of the deceased respondent Nos. 1 and 16.( 16 ) IN the premises the learned Judge has rightly dismissed the Company Application.