L.K.Prabhu V. S.M. Ameerulmillath Case

This was a case which came before the Kerala High Court on the question of maintability of a petition under Section 543[1] of the Companies Act,1956[2] alleging misfeasance against the Official Liquidator.

FACTS OF THE CASE

In this case, the 1st respondent is the one who was holding the office of the Official Liquidator at the material time of sale of the assets of the Company in liquidation, whereas the 2nd respondent is the Official Liquidator itself. The same person is still on the position of the Official Liquidator. Ex-directors of the Company which is in liquidation filed a petition under Section 543 of the Companies Act,1956 alleging that the 2nd respondent while performing his role as the Official Liquidator during conducting the sale of the movable and immovable properties of the Company in liquidation willfully acted in a manner which was detrimental to the interests of the Company and therefore, his action is misfeasance and malfeasance to take the proceedings against him. Therefore, the directors prayed for a declaration which states that the 2nd respondent has committed the misfeasance and breach of trust in context of the company being in liquidation and in this context, necessary inquiries to be made. The Ex-directors also prayed for the accounts to be taken for ascertaining the liabilities of the 1st respondent by contributing into the assets of the company in liquidation as there is a possibility of him being liable as well, with 12% of interest from the date of his misfeasance to the date of repayment.

Against both these M.C.As,the Official Liquidator has filed the preliminary objection that an application under Section 543 of the Companies Act, 1956 will not lie against the Official Liquidator. Therefore, the parties were heard in this case on the issue of maintainability as a preliminary point. Both the objections were firstly taken up to decide the preliminary issue in context of the maintainability of the petition under Section 543 of the Companies Act,1956 against the Official Liquidator who was alleged of misfeasance.

ISSUES OF THE CASE

As stated the preliminary issue which was taken up by the Court in this case was:-

Whether the petition against the Official Liquidator is maintainable under Section 543 of the Companies Act, 1956?

CONTENTION OF THE PARTIES IN THE CASE

Contention of the applicants of the M.C.As:-

The applicants of the M.C.As of the petition which are in question here for the maintainability contended that the bare reading of Section 543 shows that the Official Liquidator does not come under the ambit or definition of ‘Officer’ under this Section 543(1)[3] which only includes a promoter, ex or present director, manager, liquidator or officer of the company. The applications related to misfeasance can be filed only against these officers mentioned under this Section. This does not cover the Official Liquidator into it. It means the application against Official Liquidator cannot be filed.

Scheme of Section 448(2)[4] and 463[5] say it clearly that an Official Liquidator can act as a liquidator but a liquidator cannot act an Official Liquidator. He shall be given the tag of “Official Liquidator of the particular company as per the Section 452[6]. Therefore, it is clear that the Official Liquidator and Liquidator are different. The Official Liquidator may discharge the functions of the Liquidator even then he will be holding the position of the Official Liquidator only and won’t come under the Liquidator definition.

In Section 543, the first and third parts of this Section consist only the liquidator whereas Official Liquidator and Liquidators are mentioned separately in the second part of this Section. From this, it can be concluded that both these words are used to mean separate offices and not the same ones, If both Official Liquidator and Liquidators are meant same, the Legislation should not have consisted the expression “the Court may on the application of the Official Liquidator, or the liquidator”. Therefore the Legislature had considered both different while enacting this Act. That is the reason, the liquidator is not included in the first part of Section 543(1) among the group of persons and officers against whom the application of misfeasance would lie and in the third part among the ones whose conduct shall be examined during the misfeasance application trial by the Court.

Contention of the opposite party:-

They cited many case laws for the Court to give the decision in his favor. The applicant cited Official Liquidators, Baroda Batteries Ltd. v. Registrar of Companies, Gujarat State (1978) 48 Comp Cas 120: (1975 Tax LR 1899), V.P.Nanda v. Registrar of Companies, Delhi and Haryana, (1978) 48 Comp Cas 552 and Prahallad Bai Lath v. Registrar of Companies, (1979) 49 Comp Cas 317 . Through all these citations, they wanted to contend that the Official Liquidator comes within the ambit of an Officer of the Company and therefore the application will lie against him under Section 543 of the Companies Act,1956.

They contended that the “Official Liquidator” comes within the ambit of the Liquidator under the first and third parts of the Section 543(1) of the Companies Act, 1956 . Section 448 states that there shall be an Official Liquidator appointed by the Central Government attached to each High Court and they submitted that the as per Section 449, the Official Liquidator by virtue of his office shall become the Liquidator of the Company. Therefore, this shows that the Official Liquidator comes within the ambit of the Liquidator only.

ANALYSIS

The applicants in this case gave reference to many Sections of the Companies Act,1956 to show that the application filed against the Official Liquidator cannot be maintained under Section 543 of the Companies Act. Therefore, we will look into those provisions which the applicants gave reference to before the Hon’ble Court:-

The first Section which we would take a look is the one under which the application was filed against the applicants,i.e. Section 543 of the Companies Act,1956.

Section 543[7] of the Companies Act, 1956:-

Power of Court to assess damages against delinquent directors, etc.

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-
has misapplied, or retained, or become liable or accountable for, any money or property of the company; or
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, of 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.

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.

This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable.

Section 2(30)[8] of the Companies Act, 1956:-

” officer” includes any director, managing agent, secretaries and treasurers, manager or secretary, or any person in accordance with whose directions or instructions the Board of directors or any one or more of the directors is or are accustomed to act, and also includes-

where the managing agent,or the secretaries and treasures] is or are a firm, any partner in the firm;

where the managing agent or the secretaries and treasurers is or are a body corporate, any director or manager of the body corporate;but save in sections, 477, 478, 539, 543, 545, 621, 625 and 633 does not include an auditor;

Section 448[9] of the Companies Act,1956:-

Appointment of Official Liquidator.

For the purposes of this Act, so far as it relates to the winding up of companies by the Court,-

there shall be attached to each High Court, an Official Liquidator appointed by the Central Government, who shall be a whole- time officer, unless the Central Government considers that there will not be sufficient work for a whole- time officer in which case a part- time officer may be appointed; and

the Official Receiver attached to a District Court for insolvency purposes, or if there is no such Official Receiver, then, such person as the Central Government may, by notification in the Official Gazette appoint for the purpose, shall be the Official Liquidator attached to the District Court.

(1A) The Central Government may appoint one or more Deputy or Assistant Official Liquidators to assist the Official Liquidator in the discharge of his functions.

All references to the” Official Liquidator” in this Act shall be construed as references to the Official Liquidator referred to in clause (a) or clause (b), as the case may be, of sub- section (1) and as including references to Deputy or Assistant Official Liquidators appointed under sub- section (1A).

Section 463[10] of the Companies Act,1956:-

Control of Central Government over liquidators.

The Central Government shall take cognizance of the conduct of liquidators of companies which are being wound up by the Court, and, if a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by this Act or by the Indian Companies Act, 1913, the rules thereunder, or otherwise, with respect to the performance of his duties, or if any complaint is made to the Central Government by any creditor or contributory in regard thereto, the Central Government shall inquire into the matter, and take such action thereon as it may think expedient:

Provided that where the winding up of a company has commenced before the commencement of this Act, the Court may, on the application of the Central Government, appoint in place of such liquidator the Official Liquidator as the liquidator in such winding up.

The Central Government may at any time require any liquidator of a company which is being wound up by the Court to answer any inquiry in relation to any winding up in which he is engaged, and may, if the Central Government thinks fit, apply to the Court to examine him or any other person on oath concerning the winding up.

The Central Government may also direct a local investigation to be made of the books and vouchers of the liquidators. Committee of inspection will be created.

Section 449[11] of the Companies Act,1956:-

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Official Liquidator to be liquidator.

On a winding up order being made in respect of a company, the Official Liquidator shall, by virtue of his office, become the liquidator of the company.

Section 452[12] of the Companies Act,1956:-

Style, etc., of liquidator.

A liquidator shall be described by the style of” The Official Liquidator” of the particular company in respect of which he acts, and not by his individual name.

Section 633[13] of the Companies Act, 1956:-

Power of Court to grant relief in certain cases.

If in any proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company it appears to the Court hearing the case that he is or may be liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused, the Court may relieve him, either wholly or partly, from his liability on such terms as it may think fit.

Provided that in a criminal proceeding under this sub- section, the Court shall have no power to grant relief from any civil liability which may attach to an officer in respect of such negligence, default, breach of duty, misfeasance or breach of trust.

Where any such officer has reason to apprehend that any proceeding will or might be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust, he may apply to the High Court for relief and the High Court on such application shall have the same power to relieve him as it would have had if it had been a Court before which a proceeding against that officer for negligence, default, breach of duty, misfeasance or breach of trust had been brought under sub- section (1).

No Court shall grant any relief to any officer under sub- section (1) or sub- section (2) unless it has, by notice served in the manner specified by it, required the Registrar and such other person, if any, as it thinks necessary, to show cause why such relief should not be granted.

Section 457(3)[14] of the Companies Act, 1956:-

The exercise by the liquidator in a winding up by the Court of the powers conferred by this section shall be subject to the control of the Court; and any creditor or contributory may apply to the Court with respect to the exercise or proposed exercise of any of the powers conferred by this section.

DECISION GIVEN IN THE CASE

The Hon’ble Court while giving the decision stated that the words “Official Liquidator”,“Liquidator” and the “Officer” are used separately. They are not the same in Section 543(1) of the Companies Act,1956 and as in the first and third parts of that sub-section, the word “Official Liquidator” is not mentioned among the persons against whom the application of misfeasance shall be filed or against whom an inquiry shall be executed by the Government. Therefore, after considering all these facts and the other provisions of the Companies Act, 1956, the Hon’ble Court stated that an application under Section 543 of the Companies Act, 1956 cannot be maintained against the “Official Liquidator”. Therefore, the preliminary objection which was raised against the maintainability of the petition is upheld and the applications of misfeasance filed against the Official Liquidator got dismissed as the applications found to be non-maintainable.

CONCLUSION

The Hon’ble Court in this case gave the interpretation of Section 543 and removed the ambiguity among the people that the Liquidator will include Official Liquidator as well in the first and third parts of the sub-section of Section 543(1). This interpretation brought more clarity in this law and made the Court setting a remarkable decision in this regard. The decision of the Court took into account the contention of both the parties, but ultimately tried to satisfy the inherent intention of this Act in this particular Section.

[1] Companies Act, 1956, s. 543.

[2] Companies Act, 1956 (Act No.1 of 1956)

[3] Companies Act, 1956, s. 543(1).

[4] Companies Act, 1956, s. 448(2).

[5] Companies Act, 1956, s. 463.

[6] Companies Act, 1956, s. 452.

[7] Companies Act, 1956, s. 543.

[8] Companies Act, 1956, s. 2(30).

[9] Companies Act, 1956, s. 448.

[10] Companies Act, 1956, s. 463.

[11] Companies Act, 1956, s.449.

[12] Companies Act, 1956, s. 452.

[13] Companies Act, 1956, s. 633.

[14] Companies Act, 1956, s. 457(3).

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