V. RAMACHANDRAN, Vs. OFFICIAL LIQUIDATOR

JUDGEMENT

(1.) A company, namely, M/s.Velton Prefan Elements Limited was under liquidation. The official liquidator filed company application under Section 542 and 543(1) of the Companies Act read with Rule 260 of the Companies (Court) Rules, 1959 for recovering Rs. 47,637.25 from all the directors of the company (appellants in these appeals) contending that the above debts became time -barred due to the inaction on the part of the ex -directors. The above debt became time -barred before winding up proceedings started. According to the official liquidator, if proper action was taken, this amount would not have become time -barred. Hence, the above amount should be realised from the ex -directors together. The company court after detailed consideration found that the managing director did not bring to the notice of this fact to the director board and found that the debt amounting to Rs. 48,137.25 became time -barred due to the negligence or omission on the part of the board of directors for not taking proper steps for recovering the same and one -half of the liability was cast on the managing director and the other half amount in equal proportion from other directors, respondents 2 to 5 in the company application. Therefore, first respondent managing director was directed to pay Rs. 24,068.63 and other directors were directed to pay an amount of Rs. 6,017.18 to the company. The managing director (first respondent) filed Company Appeal No. 38 of 2003 and respondent Nos. 3 to 5 filed M.F.A. No. 237 of 2002. Appellants in M.F.A. No. 237 of 2002, apart from contending that the order of the company court is illegal as no allegation was alleged for taking action against the directors jointly under Section 542 and 543(1) of the Companies Act. It was also argued that they are directors nominated by the Financial Corporation under Section 27(1) of the State Financial Corporation Act for protecting the interests of the Financial Corporation and securing that the accommodation granted by it is put to the best interest of the industrial concerned. It was argued that no action can be taken against them under Section 543(1). If they are not doing their duties in not conducting the interest of the Financial Corporation, only the Financial Corporation which nominated them can taken action. The learned Counsel for the official liquidator argued that even though the Financial Corporation can nominate any person notwithstanding the provisions in the Memorandum of Articles of Association or Companies Act, but, they are also accountable once they are in the Board. If amounts from the company are advanced to others and no proper action is taken to recover the same, the repaying capacity will be lost and in that way, the Financial Corporation also will be interfered and also cited the decision of the Calcutta High Court in A Stock and Company v. Dilip Kumar Chakraborti . wherein it was held that nominee directors can also be held liable depending upon the role which they played in the conduct of affairs, i.e., whether they performed their statutory duties in good faith. It was held in Official Liquidator v. Ram Swarup, (1997) 88 Comp. Cas. 569 that nominee director cannot be permitted to defend themselves against liability just by saying that they only knew that the directors were withdrawing heavy amounts from the company free of interest. If action taken under Section 542 and 543 are not maintainable on the facts of this case, this legal question need not be considered for academic interest.

(2.) SECTIONS 542 and 543 of the Companies Act reads as follows:

(3.) THE company was incorporated in 1980 with authorised capital of Rs. 50 lakhs and invested capital of Rs. 20lakhs in the year 1980. Trial production was started in the year 1983. The unit became financially unviable, in view of the fire in Cochin Port Trust which destroyed some machineries which were imported and for various other reasons beyond the control of directors and the company was referred to B.I.F.R. and in the year 1988, B.I.F.R. declared the unit as a sick unit and proposed liquidation. The B.I.F.R. appointed a special director when the company when the company was declared as a sick unit. Two items of amount due to the company mentioned above were not barred at that time when the matter was pending before the B.I.F.R. The special director appointed by the B.I.F.R. also did not take any action as the debts were written off by the company as it was not feasible to get the amount returned. In the manufacturing and trading of the company, there will be some amounts which may not be returnable. There is no allegation that the directors gave advances to themselves or their relatives. The amounts were due in bona fide commercial transaction. The only allegation is that no case was filed before it was time -barred. With regard to the amount of Rs. 33,770.25 due from Silver Stone Trading Company, the Silver Stone Trading Company was an agent appointed by the company in Bombay unit which was appointed for marketing company's products at Bombay. A consignment was sent. They paid an advance of Rs. 12,000/ - and a promissory note was taken for the balance amount. Balance amount was not paid. Earnest attempt was made by the then directors and officers for getting the amount. A representative was sent from the company to Bombay. Lawyer notice was also issued to the above proprietary company. Owner of the company fell ill. Wife of the proprietor requested for more time. That company also requested by letter dated 27.2.1986 asking for 35 days to settle their liability as can be seen from Ext.R1 (e). The letter sent by the wife of the proprietor of that company is Ext.R1(f). The company sent registered letters again. Again, lawyer notice was sent on 21.4.1987. These letters are proved by Exts.R1 (g) and (h). Acknowledgment card is Ext.R1 (i). Therefore, earnest efforts were made by the directors. It is not an advance made. It is balance received amount of a consignment. It was not practicable to recover the amount. On the facts of the case, there is no gross negligence on the part of the directors. Even though B.I.F.R. appointed a special director, he also did not take any action as it was not feasible or viable to file a suit. It was already declared as a bad debt.