Karnataka Films Limited v. Official Liquidator Chitrakala Movietone Limited and Others

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The company which is beneath liquidation is an unregistered company not has been enrolled beneath the Indian Companies Act and in regard of which a winding-up arrangement has been made. The company had its head office in Colombo, and a department of which was in Madurai has presently been wound up. Respondents 3 to 11 who are the executives of this company are all changeless inhabitants of Ceylon and the candidates inquire for an arrangement that these respondents who were executives of the company may be coordinated to yield themselves for open examination beneath Section 195 of the Indian Companies Act which they may be continued against for misfeasance beneath Section 235 of the Act. There’s too an assist supplication that the candidate claim for the installment of the store sum may be treated as the particular claim.

The candidates entered into an assertion on 7th September 1946, with the company and they were designated merchants for the company’s generation for certain regions and the entirety of Rs. 50, 000 was paid as store as takes after Rs. 15, 000 on 7th September 1946, Rs. 10, 000 against the conveyance of duplicates of “Kumaraguru” and the adjustment of Rs. 25, 000 was to be paid or sometime recently 27th October 1946. The grievance of the candidates is that in show disdain toward of request the company has not discounted the store of Rs. 50, 000 or such other sum as would be found really due out of the store, that is the negation of the terms of the understanding these monies were used by the company which the executives ought to be made obligated to pay for breach of belief or misfeasance caused by them which they ought to too yield for open examination with respect to their managing and other things concerning the company.

Separated from the merits, a preparatory complaint was taken as to the locale of this court to consider an application of this nature beneath Sections 195 and 235 of the Indian Companies Act. It is fought that the executives who are lasting inhabitants of Ceylon which may be a foreign domain cannot proceed against which no summons can be issued beneath Section 195 compelling them to seem which no arrangement can be made coordinating them to repay any misfortune or to create any installment for any misfeasance on their portion beneath Section 235 of the Indian Companies Act. The choice in Bishadendu Gupta v. H. Langham Reed is cited in the back of this dispute. In that case in regard of a company which was enrolled inside the Territory but a few of whose chiefs were dwelling in Britain and against whom an application beneath Section 235 was made in arrange to investigate into their conduct, it was held that the High Court had no locale over people dwelling in Britain but had ward as it were on people dwelling in British India, in spite of the fact that in a distinctive Territory, which hence an inquiry ought to be made as it were with regard to the chiefs dwelling in British India and not with regard to those dwelling exterior British India. It was watched by Wort, Ag. C.J., as takes after: “It could be a rule of worldwide law that a court should not serve its forms on people outside its possessive purviews and upon people against whom, in case an arrangement was made, the arrangement cannot be implemented. It is communicated in these words: ‘extra territorium jus decenti non paretur legis extra terrorum non obligant”. An entry from the judgment of their Lordships of the Privy Board in Gurdayal Singh v. Rajah of Faridkot is cited. It is as takes after:

“All jurisdictions are legitimately regional and additional territorium jus decenti, impune non paretur. Regional locale joins (with uncommon special cases) upon all people either for all time or briefly inhabitant inside the region whereas they are inside it, but it does not take after them after they have pulled back from it, and when they are living in another autonomous nation. It exists continuously as to arrive inside the region, and it may be worked out over movables inside the domain and, in questions of status or progression administered by the house, it may exist as to people domiciled, or who when living was domiciled, inside the region.” 

Reliance has moreover been set on an entry in Cheshire’s Private Worldwide Law: – “The common doctrine of English law is that the work out of the respectful ward, within the nonappearance of an Act of Parliament, must in all cases be established upon one or other of two standards, specifically, the standards of effectiveness or the guideline of accommodation.

The guideline of viability implies that a judge has no right to articulate a judgment in the event that he cannot uphold it inside his claim region. The basic reality a few times expressed by Holmes, J., that ‘the establishment of purview is physical power’, is commendable of consideration, in spite of the fact that, as we should see, there are certain remarkable cases in which ward may be accepted by ethicalness of statute over people who are overseas and in this way not inside the control of the court. Control in this association implies that physical control which gets to be exercisable since the property which is the subject matter of the suit is in Britain or since the litigant is displayed at the time of benefit of the summons in Britain, and, broadly talking it is genuine to say that an English court does not consider itself competent to arbitrate upon a claim on the off chance that not one or the other of these components is the display. In such a case the adage is on-screen character acquitur forum rei and the offended party has no elective but to sue the litigant within the nation where he happens to be”. It is contended depending on this section that the reason for an application beneath Section 195 is to summon any officer of the company and look at him on pledge concerning any managing or undertaking or property of the company or coordinate him or require him to create any report and in case he denied to come to court at the time designated, the court may cause him to be secured and cause him to be brought before it for the examination which executives of the the company, not being subject to the ward of the High Court, cannot be summoned and compelled to seem and no process for the reason may be executed in a remote domain, which there’s no reason in issuing a summons under Section 195 because it cannot be upheld by this court be any prepare which is accessible which hence this court cannot work out purview knowing that the work out of it would not be effective. It is additionally contended that this court has no locale to issue a summons beneath Section 195 since procedures beneath Sections 195 and 235 don’t relate to any properties which the non-resident nonnative is of and no continuing against him can be started within the Tall Court which hence this court has no locale.

This company is an unregistered company and carrying on its trade inside the purview of the High Court can be wound up beneath the arrangements of Portion IX of the Indian Companies Act and for the purposes of winding up, an unregistered company is considered to be a company enlisted within the Area, and the arrangements of the Act with regard to winding up are held to apply to unregistered companies which have been would up with certain special cases counted beneath Section 20.


The candidate maintains that since all the arrangements relating to winding up are made pertinent to the winding up of an unregistered company, Sections 195 and 235 which are commonly pertinent in cases of winding up of companies enrolled within the Indian Union can be made appropriate and so the application is viable. Encourage, it is pointed out that indeed in regard of companies which are enlisted exterior British India, Part IX of the Companies Act is made appropriate to them and such companies which are consolidated exterior the India Union should comply with certain demands of the Enlistment center to record certified copies of the Constitution or articles of the company, the complete address of the enrolled or central office of the company, a list of chiefs and directors of the company, the names and particulars of people inhabitant inside India approved to acknowledge on the sake of the company handle and any takes note required to be served on the company, etc. 

This company has complied with the arrangements of Section 277 and it is hence contended that there has been an accommodation to the purview of the courts of this State which subsequently indeed in the event that at first the court had no ward they have obtained locale by ethicalness of the remote company submitting itself to the purview of the Indian courts. Purview over people and property, separated from standards of worldwide law where outside subjects are included, is represented by legislation passed within the nation where it is looked for to be worked out. As distant as suits are concerned the Civil Procedure Code and the Letters Patent apply. Section 20 of the Civil Procedure Code gives the gathering in which suits can be foundations. Section 19 of the Civil Procedure Code gives that where a suit is for remuneration for off-base done to an individual or to mobile property, in case the off-base was done inside the neighbourhood limits of the locale of one court and the litigant dwells, or carries on a trade, or actually works for pick up, inside the nearby limits of the purview of another court, the suit may be foundations at the alternative of the offended party in either of the said courts. There are rules for benefit of summons on people who are dwelling outside the purview of such courts and indeed in remote domains. It is in this manner open to the offended party to found a suit within the court inside the limits of which the cause of activity emerges indeed in spite of the fact that the litigant dwells exterior the limits of the locale of the court in which the suit is foundations and where the cause of activity emerged. The benefit is made more often than not by enrolled post, on the off chance that the respondent who is in a remote region acknowledges summons but does not show up, the suit may be continued with a proclamation passed in case the offended party builds up his claim. This position was considered in Maistry Rajabai Narain v. Haji Karim Mamood, where on a complaint taken that a nearby court isn’t entitled to work out purview over a non-resident outsider where the cause of activity emerges inside the purview of the court, it was observed by Krishnan, J: 

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“This complaint isn’t substantial, as a civil court is entitled to work outward over a non-resident outsider where the cause of activity emerges within its purview. The question whether it can be declared well be upheld against him within the outside State may be an address for transfer of that State.”

In Neelakanda Pillai v. Kunju Pillai, Venkatasubba Rao, J., considered the address whether the application of Section 20 was avoided by reason of the reality that the litigant may be a non-resident foreigner. After alluding to the taking after entry within the Faridkot case (Gurdayal Singh v. Raja of Faridkot), specifically, “It (the remote proclaim) must be respected as a simple nullity by the courts of other countries but (when approved by extraordinary nearby enactment) within the nation of the gathering by which it was pronounced”, it was observed: 

“That appears that in spite of the fact that by universal law such  proclaim can be a nullity, in other words, will not be perceived by courts of other countries, it is by the by substantial when approved by uncommon nearby enactment, within the nation of the gathering by which that proclaim was pronounced.” 

“This refinement is exceptionally clearly brought out within the judgment of Sterling, J., in Girdhar Damodar v. Kassigar Hiragar. The learned Judge watches that it would be the obligation of the courts acting within the execution of a statutory sanctioning, to allow the impact to it, it being unimportant whether the judgment rendered would within the circumstances be perceived by outside tribunals as being reliable with worldwide law and the common standards of equity, and in bolster of this see he cites the perceptions of James, L.J., and Cotton, L.J., in Ex parte Blain, In re Sawers.”

It is subsequently not fundamental to consider what would be the impact of an arrange or proclaim which is passed by this court given it is approved by neighborhood enactment enabling the court to engage continuing for the reason and pass an arrange or proclaim as is given and whether that arrange or declare would be treated as a nullity, whether the individual against whom the arrange or proclaim is passed would comply with it or whether it may be worked out. These are all things which don’t arise in order to empower a court to work out locale, to get and arbitrate upon things which it is competent to do by ideals of the enactment approving the court to act. It is contended that these are things in personam and heading against a person compelling him to do certain things ought to not be given on the off chance that the court might not implement the same and it would be worthless to pass such orders coordinating the non-resident outsider to yield himself for examination and such ineffectual orders should not be passed. There’s constraint in this dispute, but that does not cruel that the court has no control to pass an arrangement beneath Area 195 coordinating the non-resident outsider to seem sometime recently the court and yield himself for examination in spite of the fact that more regularly it is likely to be overlooked and in such circumstances, the court will be defenceless. The address is whether in such circumstances it is fitting, knowing that such an arrangement would be ineffectual, to utilize its tact and not pass the arrangement which it cannot conceivably uphold. This rule is articulated in Vocalic (Foreign) Ltd., In re, by Maugham, J., where he watches as follows” 

“The court in common is exceptionally hesitant to work out a locale is personam against an outsider in connection to a matter in which there cannot be a successful arrangement. It may be included that the court got to be fulfilled some time recently making the arrangement that it’ll not delay, on the off chance that the arrangement is resisted, to commit or sequestrate the property of the individual or company in default.” 

The choice in Kshetra Mohan Dass v. Basu, may be a choice on the point raised in this application. The address that emerged for thought there was almost the nature of a store made by an offering operator of the company’s merchandise. The contract of office given for a security store of Rs. 10, 500 carrying intrigued at the rate of 3% per annum. There was an arrangement within the assertion that the company would be entitled to fitting any harm or any sums for which the offering operator did not account for from and out of the security deposit. It was held that the security store of the operator within the hands of the company must be regarded as awed with a belief or held in a fiduciary capacity by such company which the specialist is entitled to induce back the entire of the security store indeed after such company goes to liquidation. Both in In re Travancore Quilon Bank Ltd. and in Kshetra Mohan Dass v. Basu, there was in specific a stipulation as to arrangement for the installment of intrigued by the company which suggested that the company seem to use the monies. It was contended that it might not hence have been expecting that the store ought to be kept partitioned or must be regarded to be paid into the hands of the company to be held by them in a guardian capacity. Within the display case, there’s no arrangement as to the installment of intrigued. The dialect of the archive here is straightforward. It is given that the entirety of Rs. 50, 000 might be a changeless store with the company for a period of five a long time and should be discounted at the conclusion of the over a period or on prior assurance of the dissemination organization that the sum might not carry any interest at all. There’s in this manner nothing to recognize this case from the choice in Kshetra Mohan Dass v. Basu that there was an arrangement for the installment of interest which might be contended as circumstances to be taken into thought in support of the company that the depositor never planning the sum to be kept as partitioned support but permitted it to be utilized fair as any kind of store which subsequently it would as it were a leader and not a cestui que believe. I concur with the thinking of the learned Judges in Kshetra Mohan Dass v. Basu and hold that the sum of Rs. 50, 000 within the hands of the company is awed with a trust. It is fought for the sake of the executive by Mr. Lakshmayya that the components of a belief as are required for the creation of a belief laid down by Section 6 of the Trusts Act are missing in this case. Section 3 characterizes believe as takes after:-

“A ‘trust’ is a commitment added to the proprietorship of property, and emerging out of a certainty rested in and acknowledged by the proprietor, or pronounced and acknowledged by him, for the advantage of another, or of another and the proprietor.”


The dispute for the sake of the candidates is that the executive misapplied the sum and committed an off-base in using the sum, which was a belief in finance, for purposes other than for which it was planning and so committed a breach of trust. 

The section within the Indian Companies Act respects the risk of the directors for misfeasance in Section 235 (1), which is within the taking after terms:- 

“Where, within the course of winding up of a company it shows up that any individual who has taken portion within the arrangement or advancement of the company, or any part of show executive, director or outlet, or any officer of the company has misapplied, or held or ended up at risk or responsibility for any cash or property of the company, been blameworthy of any misfeasance or breach of believing in connection to the company, the court may on the application of the vendor, or of any lender or contributory made inside three a long time from the date of the primary arrangement of an outlet within the winding up of the misapplication, retainer, misfeasance, or breach of belief, as the case may be, whichever is longer, look at into the conduct of the promoter, chief, chief, outlet, or officer, and compel him to repay or re-establish the cash or property or any portion thereof separately with intrigued at such rate as the court considers fair, or to contribute such whole to the resources of the company by way of recompense in regard of the misapplication, retainer, misfeasance or breach of believing as the court considers just”. Certain English and Indian choices bearing on the subject have been alluded to and it’ll be valuable to allude to a few of them to get it as to what is the exact nature of risk which the statute forces upon the executives in regard to wrongs committed by them.

“A limited company by its notice of affiliation announces that its capital is to be connected for the reason of the commerce. It cannot diminish its capital but within the way and with the shields given by statute, and looking at Act 40 and 41 Vict. C. 26, it clearly is against the purpose of the Assembly that any parcel of the capital ought to be returned to the shareholders without the statutory conditions being complied with. A restricted company cannot in any other way make a return of capital, the endorsement of a common assembly can donate no legitimacy to such continuing, and indeed the authorize of each shareholder cannot bring inside the powers of the company an act which isn’t inside its powers. In case, hence, the shareholders had all been shown at the gatherings, and had all known the actualities, and had all concurred in pronouncing the profits, the installment of the profits would not be practically endorsed.”

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The thinking of the choice is that the capital of the company was used for a reason not approved by the reminder of affiliations, that the chiefs were semi trustee for the company and not for the person shareholders in regard of this capital and thus the acts of the chiefs produced to a breach of believe, and in like manner they would be liable. 

In that case, a chief obtained for the company a property in which, sometime recently he got to be executive, he had procured an intrigued. The executive having been continued against after liquidation on the ground of misfeasance or breach of belief for having permitted the company to form the buy without uncovering his possess intrigued and at a cost distant surpassing the esteem it was held that the proof shown by the candidate fizzled to appear either that the executive had not uncovered his intrigued or that the buy cost was over the value. Lord Herschell in that case was of supposition “that accepting that a breach of obligation such as is recommended would be of a misfeasance giving rise to an application beneath the 165th section such an application seem as it succeeded where it may appear that the breach of obligation had come about in misfortune to the stores and resources of the company”. All these cases are alluded to by Kekewich, J., in In re Liverpool Household Stores Association Ltd. The executives, in this case, were charged with malfeasance on a few grounds. This choice lays down:

“Section 165 of the Companies Act, 1862, empowers a leader of a company to get by outline prepare and alleviation to which he is entitled in regard of harms caused through the misfeasance of an officer of the company, but the cure managed by the section is as it were for the recuperation of harms for misfortunes brought about. The misfeasance to which the area is coordinated isn’t limited to acts of the commission but expands to all breaches of belief in connection to a company through which misfortune is brought about. Misfeasance isn’t to be ascribed to an executive unless he has insincerely acted, or went without from acting, in a struggle with his plain obligation and the burden of confirmation lies on the party making the charge; but in considering the address of the director’s risk, there must be ascribed to him extraordinary information of the trade which he has embraced. Directors are at risk for misfortunes occasioned through acts done by them as executives in things which are ultra vires the company, and this obligation isn’t subordinate upon any address of trustworthiness of purposefulness.”


The Indian decisions that are cited are: Gopalaswami v. Krishnaswami; National Bank of Upper India, Lucknow v. Dina Nath Sapru; Connell v. The Himalaya Bank Ltd.  and Bhim Singh v. Outlet, Union Bank of India. The Indian Courts consistently hold that misfeasance must be such as would sum to breach of belief in connection to the company and must result in misfortune to the company. It is fundamental that in all cases, misfortune to the company must be set up and as watched by Edge, C.J., and Banerji, J., being within the nature of harms, it is fundamental that the misfortune to the company in regard of which stipend is inquired for ought to be the coordinate, and not a farther and more or less theoretical, result of the misfeasance or disregard of obligation on the portion of the executive or other officer of the company from whom such emolument is looked for. Within the display case, the sum which was paid by the candidates was obtained as a store beneath the understanding and alluded to as a “distribution store”. There was no heading by the candidates that this sum ought to not be used for any other reason and must be kept in a partitioned account to be returned to the candidates or balanced to the collections in terms of the assertion between the candidates and the company. There was moreover no determination of the company as to the way in which this sum was to be managed and whether it ought to be contributed independently. There was not one or the other by understanding not by way of determination of the company anything to demonstrate that the sum ought to not be used for the purposes of the standard business of the company. There’s no arrangement indeed within the notice and articles of affiliation overseeing such sums gotten as stores either from workers or from specialists. Within the nonappearance of any such course, on the off chance that the executives had used the sum for the authentic purpose of the company within the course of their administration and not appropriated any parcel of the same for their individual utilize and not used it for any reason not approved by the reminder and articles of affiliation, might it be said that they had misapplied the stores of the company or committed a breach of belief in connection to the company? The word ‘misapplication ‘ in Section 235 has been contended to be an application for purposes other than for which the stores were planning. Prima facie, this argument sounds conceivable. But, as pointed out as of now, there’s no affirmation that the candidate craved that the sum ought to be contributed and kept independently. Misapplication by an executive of the stores of the company was expecting to the cruel application of the stores having a place to the company for his own purposes, or application for purposes other than that of the company, or for reason not authorized by the notice and articles of affiliation or applying the reserves in the negation of any particular arrangement of law, or heading, or determination of the company. In case the chief bona fide accepts that the finance, which has come into the company, such as the applicants’ store, being the stores of the company, might be really connected for the bona fide needs of the company, it cannot be said that the executive was doing something off-base by so applying. It isn’t a case of maintenance of the sum in his hands and not bookkeeping for it. The utilization of the money for the commerce of the company by the executive would not moreover sum to an act said to be ultra vires. In re British Gatekeeper and Life Assurance Co., and In re Trade Banking Co., the acts of the executives were held to be ultra vires and acts tired repudiation of the remainder and articles of affiliation. The breach of the belief that contemplated under Section 235 could be a breach of belief in connection to the company and it isn’t proposed that any monies of the company have been misused by the chiefs or that any obligation was forced on the chiefs by the company in regard of which the executives have committed a breach. In arrange to create the chiefs by and by obligated beneath Section 235 for misfeasance, it is vital to appear that the executives have untrustworthily acted, or went without from acting, in conflict with their plain obligation which by reason of the act of the executives, the company has caused a misfortune. But this untrustworthy deliberate need not to appear in cases where the chiefs have been dependable for acts which were ultra vires of the company and misfortunes have subsequently been occasioned to the company by such ultra vires acts. The candidates tried to appear that in this case misfortune has occurred to the company since the vanishing of the money, which ought to have been there, has made a risk on the company which can be said to be a misfortune which the company has brought about. The contention is that in the event that the support had been there, the same seems to have been paid over to the candidates and the company would not be made at risk to the candidates presently. The obligation, in case any, had continuously been there which risk ought to, in any occasion, have been released, the distinction is that in case the whole way there as a store it might have been paid presently. But since the company is continuously obligated, I consider that no modern liability has emerged, and thus it may not be said that the company has maintained a misfortune by reason of the usage of this money.

It is additionally contended that by reason of the chiefs not having kept this sum independently and made it accessible to the candidates, it would be gotten to be necessary for the outlets to form a call on the contributors for the unpaid capital to that degree, which implies that the shareholders have endured a misfortune since they have to be pay uncalled for share capital. The obligation of the shareholders to pay unpaid calls is once more an obligation that existed at the initiation when they got to be shareholders and has not been made by reason of any ensuing occasion counting the vanishing of cash and it’s having been used for the reason of the company. In any occasion, the misfortune affirmed to have been maintained by the company shows up to be or maybe theoretical than genuine and as well farther that it cannot be said that the company has maintained a misfortune as a coordinate result of the acts of the executive in investing the sum as a matter of fact for the genuine commerce of the company. The executives have acted bonafide and have not negated any arrangement of law, or any heading or order of the company in using the sums for the company’s commerce. I hence hold that they are not obligated for any misfeasance, or misapplication, or breach of belief beneath Section 235 of the Indian Companies Act. The result is: Supplications (a) and (b) are rejected. Supplication (c). The candidates will be entitled to rank as special lenders, but not in inclination to the claim of the moment respondent against the company out of the properties sold and hypothecated to the bank.