{"id":266935,"date":"1982-12-17T00:00:00","date_gmt":"1982-12-16T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/the-official-liquidator-vs-parthasarathi-sinha-others-on-17-december-1982"},"modified":"2016-01-23T08:24:04","modified_gmt":"2016-01-23T02:54:04","slug":"the-official-liquidator-vs-parthasarathi-sinha-others-on-17-december-1982","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/the-official-liquidator-vs-parthasarathi-sinha-others-on-17-december-1982","title":{"rendered":"The Official Liquidator vs Parthasarathi Sinha & Others on 17 December, 1982"},"content":{"rendered":"
Supreme Court of India<\/div>\n
The Official Liquidator vs Parthasarathi Sinha & Others on 17 December, 1982<\/div>\n
Equivalent citations: 1983 AIR 188, 1983 SCR (2) 211<\/div>\n
Author: E Venkataramiah<\/div>\n
Bench: Venkataramiah, E.S. (J)<\/div>\n
           PETITIONER:\nTHE OFFICIAL LIQUIDATOR\n\n\tVs.\n\nRESPONDENT:\nPARTHASARATHI SINHA & OTHERS\n\nDATE OF JUDGMENT17\/12\/1982\n\nBENCH:\nVENKATARAMIAH, E.S. (J)\nBENCH:\nVENKATARAMIAH, E.S. (J)\nFAZALALI, SYED MURTAZA\n\nCITATION:\n 1983 AIR  188\t\t  1983 SCR  (2) 211\n 1983 SCC  (1) 538\t  1982 SCALE  (2)1317\n\n\nACT:\n     Companies Act<\/a>,  1956-Sections  543<\/a>\t and  634-Scope<\/a>\t of-\nMisfeasance and breach of trust alleged against directors of\na company in liquidation-Death of a director during pendency\nof proceedings-Heirs  and legal\t representatives of deceased\ndirector, if  could be\tsubstituted  in\t place\tof  deceased\ndirector-After declaration  of\tliability  of  director,  if\namounts due could be realised from legal representatives.\n\n\n\nHEADNOTE:\n     The   respondents\t  were\t the\theirs\tand    legal\nrepresentatives of  one of  the directors  of a\t Company  in\nliquidation. When  the company\twas ordered  to be wound up,\nthe Official  Liquidator took  out summons under section 543<\/a>\n(1) of\tthe  Companies\tAct<\/a>  against  its  directors  for  a\ndeclaration  that   the\t said\tdirectors  were\t  guilty  of\nmisfeasance and\t breach of  trust  and\talso  for  an  order\ndirecting them\tto repay or restore the money or property of\nthe company  in liquidation  which they were alleged to have\nretained wrongfully.  During the pendency of the proceedings\none of\tthe directors  died  intestate\tleaving\t behind\t the\nrespondents as\this heirs  and legal representatives. At the\ninstance of the Official Liquidator the Company Judge passed\nan order  substituting\tthe  respondents  in  place  of\t the\ndeceased director.\n     Allowing the  respondents' appeal,\t a Division Bench of\nthe  High   Court  held\t  that\tno  further  action  in\t the\nmisfeasance proceedings\t could be  taken against  the  legal\nrepresentatives of  the deceased director. In coming to this\nconclusion the\tHigh Court  purported to follow the decision\nof this\t Court in  Official  Liquidator\t v.  P.A.  Tendolkar<\/a>\n(dead) by L. Rs., [1973] 3 S.C.R. 364.\n     Allowing the Appeal,\n^\n     HELD:  The\t liability  arising  under  the\t misfeasance\nproceedings is\tfounded on  the principle  that a person who\nhas caused loss to the company by an act amounting to breach\nof trust  should make  good the loss. Section 543<\/a> of the Act\nprovides for  a summary\t remedy for  determining the  amount\npayable\t by   such  person   on\t proof\t of  the   necessary\ningredients. The section authorises the Court to direct such\npersons chargeable  under it  to pay  a sum  of money to the\nCompany by  way of  compensation. This\tis not\ta  provision\nintended to  punish a  man who\thas  been  found  guilty  of\nmisfeasance  but  is  only  intended  for  compensating\t the\ncompany\t in   respect  of   the\t loss\toccasioned  by\t his\nmisfeasance. Whenever  there  is  a  relationship  based  on\ncontract, quasi\t contract,  some  fiduciary  relation  or  a\nfailure to perform a duty, there is no\n212\nabatement of  the liability  on the death of the wrong doer.\nWhen once  the liability  is declared,\tit is  open  to\t the\nOfficial Liquidator  to realise\t the amount due by resorting\nto section  634<\/a> of  the Act  and section  50 of\t the Code of\nCivil Procedure.  In Tendolkar's  case this  Court  did\t not\nconsider the effect of section 634<\/a> of the Act which made the\nrelevant provisions  of the Code of Civil Procedure relating\nto execution  of decrees  applicable to orders passed by the\nCourt under the Act. [223 C-F]\n     At the  conclusion of the proceedings under section 543<\/a>\na declaration  of the  liability is  made. Such\t declaration\npartakes of  the character  of a decree in a suit. When once\nsuch declaration  is made  it can  be enforced under section\n634<\/a> of\tthe Act and where the order made by one court has to\nbe executed  by another\t court the  procedure prescribed  by\nsection 635<\/a>  of the Act has to be followed. In the course of\nsuch execution\tproceedings the\t provisions of section 50 of\nthe Code  of Civil  Procedure have  to be  applied when\t the\nperson who is made liable dies before the order is satisfied\nand the\t liability of  the legal  representatives should  be\ndetermined accordingly. [223 G-H]\n     Official  Liquidator,   Supreme  Bank   Ltd.  v.\tP.A.\nTendolkar<\/a> (dead)  by L.Rs,  & Ors.,  [1973]  3\tS.C.R.\t364,\napplied.\n     Aleykutty Varkey Tharakan & Anr. v. Official Liquidator\nJUDGMENT<\/a>:\n<\/pre>\n
     Shiwalik Transport\t Co. Ltd. (in liquidation) v. Thakur
\nAjit Singh & Ors., [1978] 48 Comp. Cas. 465, approved.\n<\/p>\n
&
\n     CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 3614 of
\n1982.\n<\/p>\n
     Appeal by\tSpecial Leave  from the\t Judgment and  Order
\ndated the  1st August,\t1975 of\t the Calcutta  High Court in
\nAppeal No. 324 of 1970.\n<\/p>\n
     Shanker  Ghosh,  A.K.  Verma  and\tP.K.  Basu  for\t the
\nAppellant.\n<\/p>\n
     The Judgment of the Court was delivered by
\n     VENKATARAMIAH, J.\tThe short  question which arises for
\ndecision in  this appeal  by special  leave is\twhether\t the
\nproceedings initiated  against a director of a company under
\nsection 543<\/a> of the Companies Act, 1956 (hereinafter referred
\nto as  ‘the Act’)  can be  continued after his death against
\nhis legal representatives and whether any amount declared to
\nbe due\tin such\t proceedings can be realised from the estate
\nof the deceased in the hands of his legal representatives.\n<\/p>\n
213<\/span><\/p>\n
     The facts\tof the\tpresent case  may be  briefly stated
\nthus: Ballygunge  Real Property\t and Building  Society\tLtd.
\n(hereinafter referred  to as  ‘the Company  in liquidation’)
\nwas ordered  to be wound up by the High Court of Calcutta on
\nJanuary 8,1958.\t On January 2, 1963, the Official Liquidator
\ntook out summons under section 543(1)<\/a> of the Act against its
\ndirectors including  Dr.S. N.  Sinha for  a declaration that
\nthe said  directors were guilty of misfeasance and breach of
\ntrust and  also for  an order  directing them  to  repay  or
\nrestore the  money or property of the Company in liquidation
\nwhich they  were alleged to have retained wrongfully. During
\nthe pendency of the said proceedings, Dr. S.N. Sinha died on
\nNovember  16,\t1969  intestate\t  leaving  behind  his\tson,
\nParthasarathi Sinha and two married daughters, Maya Bose and
\nMira Mitra  as\this  heirs  and\t legal\trepresentatives.  On
\nFebruary 12,  1970, Judge’s  summons was  taken out  at\t the
\ninstance of  the Official  Liquidator for  leave to continue
\nthe said  proceedings  against\tthe  said  heirs  and  legal
\nrepresentatives. The  learned Company  Judge passed an order
\non November  9,1970 for\t substitution of  the said heirs and
\nlegal representatives  in  place  of  Dr.  S.N.\t Sinha,\t the
\ndeceased.  Against   that  order,   the\t heirs\t and   legal
\nrepresentatives of Dr. S.N. Sinha preferred an appeal before
\nthe Division  Bench of the Calcutta High Court under section
\n483<\/a> of\tthe Act.  That appeal  was allowed  by the  Division
\nBench on  August 1,  1975 and save and except that the death
\nof Dr.\tS.N. Sinha  was recorded,  the order  of the Company
\nJudge was  set aside. This appeal is filed against the order
\nof the Division Bench.\n<\/p>\n
     Before the\t Division  Bench  of  the  High\t Court,\t the
\nprincipal contention  urged on behalf of the heirs and legal
\nrepresentatives of  Dr. S.N.  Sinha, since deceased was that
\nin  view   of  the   decision  of  this\t Court\tin  Official
\nLiquidator, Supreme Bank Ltd. v. P.A. Tendolkar<\/a> (dead) by L.
\nRs.  &\t Ors.(1)  no   further\taction\tin  the\t misfeasance
\nproceedings could be taken against them and we are concerned
\nonly with  that contention  in this appeal. Since the effect
\nof the\tabove decision\tis understood in one way by the High
\nCourt of  Calcutta in  this case and differently by the High
\nCourt of  Kerala in  Aleykutty Varkey  Tharakan\t &  Anr.  v.
\nOfficial Liquidator  & Ors<\/a>.(2)\tand by\tthe  High  Court  of
\nPunjab and  Haryana  in\t Shiwalik  Transport  Co.  Ltd.\t (in
\nliquidation) v. Thakur Ajit Singh & Ors.(3) we
\n214<\/span>
\nshall proceed  to discuss  the decision\t in Tendolkar’s case
\n(supra) at  some length.  Before doing so, we shall refer to
\nthe relevant  provisions of  law and  the specific averments
\nmade in this case by the Official Liquidator.\n<\/p>\n
     Section 543<\/a> of the Act reads as follows:\n<\/p>\n
\t  “543. Power  of Court\t to assess  damages  against
\n     delinquent directors,  etc.-(1) If\t in  the  course  of
\n     winding up of a company, it appears that any person who
\n     has taken\tpart in\t the promotion\tor formation  of the
\n     company, or  any past  or\tpresent\t director,  managing
\n     agent, secretaries\t and treasurers, manager, liquidator
\n     or officer of the company-\n<\/p>\n
\t  (a)  has misapplied, or retained, or become liable
\n\t       or accountable  for, any money or property of
\n\t       the company; or\n<\/p>\n
\t  (b)  has been\t guilty of any misfeasance or breach
\n\t       of trust in relation to the company;\n<\/p>\n
     the Court\tmay, on\t the  application  of  the  Official
\n     Liquidator, of  the liquidator,  or of  any creditor or
\n     contributory, made\t within the  time specified  in that
\n     behalf in\tsub-section (2), examine into the conduct of
\n     the person,  director, managing  agent, secretaries and
\n     treasurers, manager,  liquidator officer aforesaid, and
\n     compel him to repay or restore the money or property or
\n     any part  thereof respectively,  with interest  at such
\n     rate as  the Court\t thinks just,  or to contribute such
\n     sum to the assets of the company by way of compensation
\n     in respect of the misapplication, retainer, misfeasance
\n     or breach of trust, as the Court thinks just.
\n\t  (2) An  application under sub-section (1) shall be
\n     made within  five years  from the date of the order for
\n     winding  up,   or\tof  the\t first\tappointment  of\t the
\n     liquidator in the winding up, or of the misapplication,
\n     retainer, misfeasance  or breach  of trust, as the case
\n     may be, whichever is longer.\n<\/p>\n
215<\/span><\/p>\n
\t  (3) This  section shall apply notwithstanding that
\n     the matter is one for which the person concerned may be
\n     criminally liable.”\n<\/p>\n
     Section 634<\/a> of the Act reads:\n<\/p>\n
\t  “634. Enforcement  of order  of  Courts-Any  order
\n     made by  a Court  under this Act may be enforced in the
\n     same manner  as a\tdecree made  by the  Court in a suit
\n     pending therein”.\n<\/p>\n
     Section 2(11)  of the  Code of  Civil Procedure defines
\nthe expression\t‘legal representative’\tas ‘a  person who in
\nlaw represents\tthe estate of a deceased person and includes
\nany person  who intermeddles with the estate of the deceased
\nand where  a party  sues or  is\t sued  in  a  representative
\ncharacter the  person on  whom the  estate devolves  on\t the
\ndeath of the party so suing or sued’.\n<\/p>\n
     Section 50 of the Code of Civil Procedure reads:
\n\t  “50. Legal  representative-(1)  Where\t a  judgment
\n     debtor dies before the decree has been fully satisfied,
\n     the holder\t of the\t decree may apply to the Court which
\n     passed  it\t to  execute  the  same\t against  the  legal
\n     representative of the deceased.\n<\/p>\n
\t  (2)\tWhere the  decree is  executed against\tsuch
\n     legal representative,  he shall  be liable\t only to the
\n     extent of\tthe property  of the deceased which has come
\n     to his  hands and\thas not\t been duly disposed of; and,
\n     for the  purpose of  ascertaining such  liability,\t the
\n     Court executing the decree may, of its own motion or on
\n     the application of the decree-holder, compel such legal
\n     representative to\tproduce such  accounts as  it thinks
\n     fit”.\n<\/p>\n
     The Official  Liquidator pleaded  before the High Court
\nthat due  to various  breaches of  trust and\/or\t breaches of
\ncontract, express  or implied  and\/or breaches\tof fiduciary
\nduties and other acts of misfeasance on the part of Dr. S.N.
\nSinha, since  deceased, loss  had been caused to the Company
\nin liquidation\tand that  the assets  of Dr.  S.N. Sinha had
\nbenefitted thereby.  He further\t alleged that  the assets of
\nDr.  S.N.  Sinha  in  the  hands  of  his  heirs  and  legal
\nrepresentatives were  liable for the claims made in the said
\nmisfeasance proceedings.\n<\/p>\n
216<\/span><\/p>\n
     We shall  now revert  to Tendolkar’s case (supra). That
\ncase arose  out of certain misfeasance proceedings commenced
\nby the\tOfficial Liquidator in the winding up proceedings of
\na banking  company against  the managing director, the other
\ndirectors and  some of\tthe employees of the company. Two of
\nthe directors  died while  the proceedings were pending. The
\nCompany\t Judge\t dismissed  the\t  proceedings  against\t the
\nemployees as  time barred  and held  that the  heirs of\t the
\ndeceased directors could not be proceeded against. He was of
\nthe view  that the  misfeasance proceedings being of special
\nnature\tinvolving  an  enquiry\tinto  the  alleged  wrongful
\nconduct of directors personally, the liability of a director
\nfor  such   wrong  doing  was  personal\t in  character\tand,
\ntherefore, vanished  with the  death of the director. But in
\nrespect of  the managing  director and\tthose directors\t who
\nwere alive  when he  gave  his\tdecision,  he  gave  certain
\ndirections regarding  their  individual\t liability.  Against
\nthat decision  five appeals  were filed\t before the Division
\nBench of  the High  Court. In those appeals, the correctness
\nof the decision of the Company Judge to exempt the heirs and
\nlegal representatives  of the two deceased directors was not
\nquestioned by  any party.  In those  appeals,  the  Division
\nBench reduced  the total  liability of the directors and the
\nindividual liability  of the  managing\tdirector  though  it
\nplaced a  larger share\tof the burden of contribution on the
\nmanaging  director.  Against  that  judgment,  the  Official
\nLiquidator  appealed   to  this\t Court\tin  respect  of\t the
\nliability of  the managing director and two other directors.
\nOne of the two directors namely, P.A. Tendolkar died pending
\nthe grant  of his  own application  for a  certificate under
\nArticle 133<\/a>  of the  Constitution. His\theirs got themselves
\nimpleaded and  contended that  the proceedings\tagainst them
\ncould not  be continued\t and also that the claim against the
\ndeceased director  was untenable on merits. Dealing with the
\nliability of  the heirs and legal representatives of persons
\nagainst whom  action was  taken under section 542<\/a> and 543<\/a> of
\nthe Act, this Court observed at page 380 thus:\n<\/p>\n
\t  “The maxim  actio personalis\tmoritur cum persons,
\n     as pointed\t in Winfield’s Law of Tort (Eighth Edn. 603-\n<\/p><\/blockquote>\n
     605), was\tan invention  of English  Common Lawyers. It
\n     seemed to\thave resulted from the strong quasi-criminal
\n     character of  the action  for  trespass.  Just  like  a
\n     prosecution for  a criminal  offence,  the\t action\t for
\n     trespass, which  was “the\tparent of much of our modern
\n     law of tort”, was
\n217<\/span>
\n     held, by  applying\t this  maxim,  to  be  incapable  of
\n     surviving the  death of  the wrongdoer,  and,  in\tsome
\n     cases, even  of the  party injured. The maxim, with its
\n     extensions, was  criticised by Winfield and found to be
\n     “pregnant with  a good deal more mischief than was ever
\n     born of  it”. Whatever view one may take of the justice
\n     of the  principle, it  was clear  that it\twould not be
\n     applicable to  actions based  on contract\tor  where  a
\n     tortfeasor’s estate  had benefitted  from a wrong done.
\n     Its application  was generally  confined to actions for
\n     damages for defamation, seduction, inducing a spouse to
\n     remain apart from the other, and adultery.
\n\t  We see no reason to extend the maxim, as a general
\n     principle,\t even\tto  cases   involving  breaches\t  of
\n     fiduciary duties  or where\t the personal conduct of the
\n     deceased Director has been fully enquired into, and the
\n     only question  for determination,\ton an appeal, is the
\n     extent  of\t the  liability\t incurred  by  the  deceased
\n     Director. Such  liability must  necessarily be confined
\n     to the  assets or\testate left  by the  deceased in the
\n     hands of  the successors. In so far as an heir or legal
\n     representative has\t an interest  in the  assets of\t the
\n     deceased and  represents the estate, and the liquidator
\n     represents the  interests of  the Company, the heirs as
\n     well as  the liquidator  should, in  equity be  able to
\n     question  a   decision  which   affects  the  interests
\n     represented.”<\/p><\/blockquote>\n
     At a  later stage in the same case, this Court made the
\nfollowing observations at pages 381-382:\n<\/p>\n
\t  “It will  be seen  that, while  Section 335<\/a> of the
\n     Act of  1913, like\t Section 543<\/a> of the Companies Act of
\n     1956, to  which it\t corresponds. gives the power to the
\n     Court to  enquire into  the conduct  of  “any  past  or
\n     present Director”,\t yet, both Section 235<\/a> of the Act of
\n     1913 and  Section 543<\/a>  of the  Companies  Act  of\t1956
\n     confine the  power of  the Court  to  make\t orders\t for
\n     repayment\tor  restoration\t of  money  or\tproperty  or
\n     contribution to  the assets  of the Company against the
\n     individuals occupying  the capacities,  either  in\t the
\n     past or  present, mentioned  therein. This\t power\tdoes
\n     not, on  the language  of these  provisions, extend  to
\n     making compulsive orders against heirs of delinquents.\n<\/p><\/blockquote>\n
218<\/span><\/p>\n
     As the  power to  take  these  special  proceedings  is
\n     discretionary and\tdoes  not  exhaust  other  remedies,
\n     although, the  Court may,\tas a  matter of\t justice and
\n     equity, drop  proceedings against delinquent Directors,
\n     Managers, or  Officers who are no longer alive, leaving
\n     the complainant  to his ordinary remedy by a civil suit
\n     against the  assets of  the  deceased,  yet,  where  no
\n     injustice may be caused by continuing these proceedings
\n     against past  Director, even  though he  be  dead,\t the
\n     proceedings could continue after giving persons who may
\n     be interested opportunities to be heard. But, even such
\n     proceedings can  only result  in a\t declaration of\t the
\n     liability, of a deceased director, because the language
\n     of Section\t 235<\/a> of the Act of 1913, as already noticed,
\n     does not authorise passing of orders to compel heirs or
\n     legal representatives  to do  anything. Such compulsive
\n     proceedings as  may become necessary against those upon
\n     whom devolve  the assets  or the  estate of  a deceased
\n     delinquent Director,  who may  have become liable could
\n     only lie outside Section 235<\/a> of the Act of 1913.”<\/p><\/blockquote>\n
     Again in  the same\t case, it was observed by this Court
\nat page 383 thus:\n<\/p>\n
\t  “It may  be possible\t(though we  need express  no
\n     final opinion  on the  matter) where a proceeding under
\n     Section 543<\/a> is covered also by the terms of Section 542<\/a>
\n     of the  Companies Act  of 1956,  to give  directions to
\n     persons other  than those\twhose  conduct\tis  enquired
\n     into,  including\tdirections  to\t heirs\t and   legal
\n     representatives,\tfor   the   purpose   of   enforcing
\n     declaration. But, we think that the power under Section
\n     235<\/a> of  the Act  of 1913,\twhich corresponds to Section
\n     543<\/a> of  the Act of 1956, would not extend beyond making
\n     a declaration  against a deceased Director provided he,
\n     in his  life time,\t or his heirs, after his death, have
\n     had due  opportunity of  putting forward  the  case  on
\n     behalf of\tthe allegedly delinquent Director. If either
\n     a Liquidator  or the  heir of  a  delinquent  Director,
\n     against whom  a declaration of liability has been made,
\n     can question determination of liability of the deceased
\n     delinquent, who  was alive\t at the time of the Judgment
\n     against him,  it is  obvious that\tthe Appellate  Court
\n     could give\t a declaration either reducing or increasing
\n     the liability even though it may not be able to enforce
\n     it by an order under Section 235<\/a> of the Act. If
\n219<\/span>
\n     the declaration  can be  questioned by an appeal, as we
\n     think that\t it can, the liability can be not only wiped
\n     off or  reduced but  also increased  on an appeal heard
\n     after the death of a Director held liable.
\n\t  Applying the\tprinciples laid\t down above  to\t the
\n     case before  us, we  find that  Tendolkar\thad  a\tfull
\n     opportunity   of\t defending   himself   against\t the
\n     misfeasance proceedings  taken by\tthe  liquidator.  He
\n     also exercised his right of appeal against the order of
\n     the Company  Judge.  The  Division\t Bench,\t as  already
\n     observed, reduced\this liability.\tHis heirs were heard
\n     on merits\tin the appeal before us. Any order passed by
\n     us could  only affect  the assets\tor the estate of the
\n     deceased Tendolkar. But, as already indicated by us, we
\n     cannot, in these proceedings, pass an order against the
\n     heirs to Tendolkar so as to compel them to do anything.
\n     The  OFFICIAL   Liquidator\t or  the  co-Directors\tmay,
\n     however, take any other proceeding which may be open to
\n     them under\t the law so as to obtain the contribution of
\n     Tendolkar.”<\/p><\/blockquote>\n
     Finally  this  Court  gave\t inter\talia  the  following
\ndirection occurring at pages 400-401:\n<\/p>\n
\t  “(6) The  case is  remanded to the learned Company
\n     Judge for\tpassing such  orders  against  the  Managing
\n     Director Samant  and Director  Ajgaonkar, under Section
\n     235<\/a>  of   the  Act\t of  1913,  as\tmay  be\t needed\t for
\n     discharging the  liabilities determined  above, but  no
\n     such orders  will be passed against the heirs and legal
\n     representatives of\t deceased  Director  P.A.  Tendolkar
\n     under Section  235<\/a> of  the Act  of 1913, although their
\n     liabilities are  declared. The  Official Liquidator and
\n     L.S. Ajgaonkar  are, however,  left free  to seek\tsuch
\n     other   remedies,\t  if   necessary,   by\t appropriate
\n     proceedings under the law, against the estate or assets
\n     of P.A. Tendolkar. as may be open to them.”<\/p><\/blockquote>\n
     Justice Masud  of the Calcutta High Court who heard the
\ncase under  appeal understood  the above  decision  of\tthis
\nCourt thus:\n<\/p>\n
\t  “The observation  of the  Supreme  Court  give  an
\n     indication that in a proper case the declaration of the
\n220<\/span>
\n     liability of  a delinquent\t Director, who\tsubsequently
\n     dies,  is\tpossible  but  no  order  for  repayment  or
\n     restoring the  money or property lying in possession of
\n     the heirs\tcan be\tpassed against\tthe heirs  or  legal
\n     representatives of such Directors.”<\/p><\/blockquote>\n
     Justice Ghose,  the other\tJudge of  the Division Bench
\nobserved:\n<\/p>\n
\t  “In official\tLiquidator Supreme Bank Ltd. v. P.R.
\n     Tendolkar (Dead<\/a>)  by L. Rs. and Others, respondents AIR
\n     1973 S.C.\t1104 the  Supreme Court\t held that  where  a
\n     delinquent Director  was examined in a proceeding under
\n     Section 235<\/a>  of the  Indian Companies  Act,  1913,\t and
\n     thereafter dies  before an\t order for  payment was made
\n     against him, in such proceeding the order that could be
\n     passed in\tthe said  misfeasance proceeding  as against
\n     the deceased  Director was\t merely a  declaration as to
\n     his liability  to the  Company in liquidation. No order
\n     for payment  for the  discharge of such liability could
\n     be made.  The Supreme  Court  observed  that  before  a
\n     declaration as  to liability could be made against such
\n     Director, his heirs and personal representatives should
\n     be\t heard.\t  The  Supreme\t Court,\t however,  expressly
\n     negatived the  contention that  where a  Director\tdied
\n     after he  had  been  examined  in\ta  proceeding  under
\n     Section 235<\/a>  of the  repealed Act,\t his heirs  or legal
\n     representatives or\t his estate could be directed to pay
\n     up the loss occasioned to the Company on account of the
\n     misfeasance of such Director in such proceeding. It is,
\n     therefore,\t apparent   from  a  perusal  of  the  above
\n     mentioned authorities that Section 543<\/a> has not made any
\n     departures from  the provision contained in Section 235<\/a>
\n     of the  repealed Act  and in  the premises it has to be
\n     held  that\t  the  cause  of  action  in  a\t misfeasance
\n     proceeding initiated  under Section 235<\/a> of the repealed
\n     Act of  Section 543<\/a>  of the Companies Act, 1956 does at
\n     all survive  against the heirs or legal representatives
\n     of a  delinquent Director\tor officer etc. of a company
\n     and such  heirs  or  legal\t representatives  cannot  be
\n     substituted in  the place\tand instead  of\t a  deceased
\n     delinquent Director, Officer etc.”<\/p><\/blockquote>\n
     The effect of the decision of this Court in Tendolkar’s
\ncase (supra)  came up  for consideration in Aleykutty Varkey
\nTharakan’s
\n221<\/span>
\ncase (supra)  before the Kerala High Court. In that case the
\nlegal representatives  of two  persons against\twhom  orders
\nunder Section  543<\/a> of  the Act\thad been  passed by the High
\nCourt and  against which  petitions for leave to appeal were
\npending in  this Court\tafter the  death  of  the  said\t two
\npersons questioned  before the Kerala High Court an order of
\nappointment of\ta receiver  in execution of the order passed
\nunder Section  543<\/a> of  the Act. The contention urged by them
\nwas that  in execution\tof an order under section 543<\/a> of the
\nAct, no\t order such  as the one under appeal could be passed
\nagainst the  legal representatives  of the persons proceeded
\nagainst. In that case the Kerala High Court dealing with the
\ndecision in Tendolkar’s case (supra) observed thus;\n<\/p>\n
\t  “Considerable argument  turned on  the  scope\t and
\n     effect of the above decision of the Supreme Court, and,
\n     in\t  particular, of  the observations in the paragraphs
\n     that we  have quoted  above. As  we understand the said
\n     judgment, we  do not  think that  the decision  or\t the
\n     observations made\tlend countenance  to the proposition
\n     sought to\tbe advanced  before us\tthat an\t order under
\n     Section 543<\/a>  of the  Companies Act,  passed  against  a
\n     director or  directors cannot  be executed in the modes
\n     known to  and sanctioned  by, the Civil Procedure Code,
\n     against  his   estate  in\t the  hands   of  his  legal
\n     representatives. The  proceedings\tbefore\tthe  Supreme
\n     Court, it\tshould be remembered, arose by way of appeal
\n     against the proceedings started under s. 543<\/a> of the Act
\n     itself, and, therefore, were a continuation of the said
\n     proceedings. No  question\tdirectly  arose\t before\t the
\n     Supreme Court  as to  whether  an\torder  passed  under
\n     section 543<\/a>  could, or  could not,\t be executed against
\n     the estate of the deceased director in the hands of his
\n     legal  representatives.   In  paragraph   22   of\t the
\n     judgement, the Supreme Court observed that the possible
\n     liabilities of  the legal representatives of two of the
\n     directors on  whom their assets and properties may have
\n     developed, do  not call  for a decision from the court.
\n     But the  general question\tof liability  of  heirs\t and
\n     legal  representatives   of  delinquent  directors\t had
\n     arisen for\t consideration. It was on this question that
\n     the  Supreme   Court  pronounced.\t We  are  unable  to
\n     understand\t the   decision\t  as   authority   for\t the
\n     proposition which counsel for the appellant put forward
\n     before us.”<\/p><\/blockquote>\n
222<\/span><\/p>\n
     The above view of the Kerala High Court was approved by
\nthe Punjab  and Haryana\t High Court  in\t Shiwalik  Transport
\nCo’s. case  (supra). Chinnappa\tReddy, J.  speaking for\t the
\nHigh Court of Punjab and Haryana observed:\n<\/p>\n
\t  “Section 543<\/a>\tprovides for  the assessment  of the
\n     loss or  damage suffered  by the  company consequent on
\n     acts of  misfeasance or  breach of\t trust committed  by
\n     directors and  officers of\t the  company  and  for\t the
\n     making of\ta compulsive repayment against the director.
\n     Though the\t object of  assessing the damages is for the
\n     purpose  of  recompensing\tthe  loss  suffered  by\t the
\n     company and,  therefore, the  cause  must\tsurvive\t the
\n     death of  the director  to that extent, the language of
\n     the provision  insofar as\tit relates to the compulsive
\n     order is  so peremptorily directed against the director
\n     that  it\tmust  be  held\tthat  the  compulsive  order
\n     contemplated by  the section cannot be made against the
\n     legal representatives.  Thus, while  the loss or damage
\n     may be  determined and declared even after the death of
\n     the delinquent  director, no  compulsive order  may  be
\n     made against the legal representatives. The proceedings
\n     under section  543<\/a> may  be continued  against the legal
\n     representatives for  the  purpose\tof  determining\t and
\n     declaring the loss or damage caused to the company, but
\n     not to  make an order for recovery against them. We are
\n     relieved of  the necessity of considering the matter at
\n     greater length  because of\t a recent  decision  of\t the
\n     Supreme Court in Official Liquidator, Supreme Bank Ltd.
\n     v. P.A.  Tendolkar<\/a> [1973]\t43 Comp Cas 382. The Supreme
\n     Court, there,  considered the  broad question whether a
\n     proceeding under  Section 235<\/a>  of the  Indian Companies
\n     Act of  1913 which\t corresponded to  Section 543<\/a> of the
\n     1956 Act,\tsurvived the  death of the director, though,
\n     on the  facts of  the case,  the  question\t really\t was
\n     whether the  legal representatives\t could\tcontinue  an
\n     appeal filed  by a\t deceased director  against an order
\n     made under Section 235<\/a>.”<\/p><\/blockquote>\n
     Having given  our anxious consideration to the question
\nbefore us, we are of the view that the Kerala and Punjab and
\nHaryana High Courts have applied the decision in Tendolkar’s
\ncase (supra)  correctly and  that the  two learned Judges of
\nthe Calcutta  High Court  who delivered\t the judgment  under
\nappeal erred  in its  application. If  this Court had really
\ncome to the conclusion that on the death of a
\n223<\/span>
\nperson against\twhom proceedings  under Section 543<\/a> had been
\ninitiated such\tproceedings could  not be  proceeded against
\nhis legal  representatives, the\t final order  would not have
\nbeen what  was actually\t made therein. “The true doctrine is
\nthat whenever  you find\t that the deceased person has by his
\nwrong diverted\teither\tproperty  or  the  proceeds  of\t the
\nproperty belonging  to someone else into his own estate, you
\ncan then  have recourse\t to that  estate through  his  legal
\nrepresentative when  he is  dead, to  recover it.” The legal
\nrepresentative, of  course, would  not be liable for any sum
\nbeyond the value of the estate of the deceased in his hands.\n<\/p>\n
     The liability arising under the misfeasance proceedings
\nis founded  on the  principle that  a person  who has caused
\nloss to\t the company  by an act amounting to breach of trust
\nshould make  good the  loss. Section 543<\/a> of the Act does not
\nreally create  any  new\t liability.  It\t only  provides\t for
\nsummary remedy\tfor determining\t the amount  payable by such
\nperson on  proof of  the necessary  ingredients. The section
\nauthorises the Court to direct such persons chargeable under
\nit to  pay  a  sum  of\tmoney  to  the\tcompany\t by  way  of
\ncompensation. This  is not  a provision intended to punish a
\nman who\t has  been  found  guilty  of  misfeasance  but\t for
\ncompensating the  company in  respect of the loss occasioned
\nby his\tmisfeasance. Whenever  there is a relationship based
\non contract,  quasi-contract, some  fiduciary relation\tor a
\nfailure to  perform a  duty, there  is no  abatement of\t the
\nliability on  the death\t of the\t wrong-doer. When  once\t the
\nliability is  declared it is open to the official Liquidator
\nto realise the amount due by resorting to section 634<\/a> of the
\nAct and\t section 50  of the  Code  of  Civil  Procedure.  In
\nTendolkar’s case  (supra) this\tCourt did  not consider\t the
\neffect of  section 634<\/a>\tof the\tAct which  made the relevant
\nprovisions of  the  Code  of  Civil  Procedure\trelating  to
\nexecution of  decrees applicable  to orders  passed  by\t the
\ncourt under the Act.\n<\/p>\n
     At the  conclusion of the proceedings under section 543<\/a>
\na declaration  of the  liability is  made. Such\t declaration
\npartakes of  the character  of a decree in a suit. When once
\nsuch declaration  is made  it can  be enforced under section
\n634<\/a> of\tthe Act and where the order made by one court has to
\nbe executed  by another\t court the  procedure prescribed  by
\nsection 635<\/a>  of the Act has to be followed. In the course of
\nsuch execution\tproceedings the\t provisions of section 50 of
\nthe Code  of Civil  Procedure have  to be  applied when\t the
\nperson who is made liable dies before the order is satisfied
\nand the\t liability of  the legal  representatives should  be
\ndetermined
\n224<\/span>
\naccordingly. Any  other construction  of the  provisions  of
\nsection 543<\/a>  of the  Act would\tmake the  entire process  of
\ndetermination  of   the\t liability   of\t persons   under  it
\nmeaningless.\n<\/p>\n
     We are,  therefore, of  opinion that  the view taken by
\nthe Division  Bench of\tthe High  Court of  Calcutta in this
\ncase is\t erroneous. We,\t therefore, allow  this appeal,\t set
\naside the  judgment of\tthe Division Bench of the High Court
\nand restore  the order\tof the\tlearned Company\t Judge.\t The
\nmisfeasance proceedings\t shall now  be continued accordingly
\nagainst the  heirs and\tlegal representatives  of  Dr.\tS.N.
\nSinha since deceased.\n<\/p>\n
     There shall be no order as to costs.\n<\/p>\n
P.B.R\t\t\t\t\t     Appeal allowed.\n225<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India The Official Liquidator vs Parthasarathi Sinha & Others on 17 December, 1982 Equivalent citations: 1983 AIR 188, 1983 SCR (2) 211 Author: E Venkataramiah Bench: Venkataramiah, E.S. (J) PETITIONER: THE OFFICIAL LIQUIDATOR Vs. RESPONDENT: PARTHASARATHI SINHA & OTHERS DATE OF JUDGMENT17\/12\/1982 BENCH: VENKATARAMIAH, E.S. (J) BENCH: VENKATARAMIAH, E.S. (J) FAZALALI, SYED […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-266935","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nThe Official Liquidator vs Parthasarathi Sinha & Others on 17 December, 1982 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/the-official-liquidator-vs-parthasarathi-sinha-others-on-17-december-1982\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Official Liquidator vs Parthasarathi Sinha & Others on 17 December, 1982 - 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