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

( 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/orand/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,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 Official3 ) IT is necessary to note the following facts: the order of winding up against the Company was made onRespondents 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.

Court's reasoning:
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.