Chinnappa Reddy, J.:— The question for our consideration is whether proceedings initiated against the director of a company under sections 542 and 543 of the Companies Act, 1956, may be continued, after his death, against his legal representatives and, if so, what is the nature of the directions that may be issued on them?
2. Sections 542 and 543 are as follows:
“542. (1) If in the course of the winding up of a company, it appears that any business of the company has been carried on, with intent to defraud creditors of the company or any other persons or for any fraudulent purpose, the court, on the application of the official liquidator, or the liquidator or any creditor or contributory of the company, may, if it thinks it proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.
On the hearing of an application under this sub-section, the official liquidator or the liquidator, as the case may be, may himself give evidence or call witnesses.
(2)(a) Where the court makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration.
(b) In particular, the court may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him, or any person on his behalf, or any person claiming as assignee from or through the person liable or any person acting on his behalf.
(c) The court may, from time to time, make such further order as may be necessary for the purpose of enforcing any charge imposed under this sub-section.
(d) For the purpose of this sub-section, the expression ‘assignee’ includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation, mortgage or charge was created, issued or transferred or the interest was created, but does not include an assignee for valuable consideration (not including consideration by way of marriage) given in good faith and without notice of any of the matters on the ground of which the declaration is made.
(3) Where any business of a company is carried on with such intent or for such purpose as is mentioned in sub-section (1), every person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to five thousand rupees, or with both.
(4) This section shall apply notwithstanding that the person concerned may be criminally liable in respect of the matters on the ground of which the declaration is to be made.”
“543. (1) 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—
(a) has misapplied, or retained, or become liable or accountable for, any money or property of the company; or
(b) 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.
(2) 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.
(3) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable.”
3. The submission on behalf of the person proposed to be impleaded as legal representatives of the deceased director is that the liability sought to be imposed upon a director under sections 542 and 543 of the Companies Act is, in its nature, so personal and peculiar to the director that it cannot be foisted on his legal representatives in the absence of clear and specific provisions for so doing in sections 542 and 543.
4. In our view, the question whether proceedings under sections 542 and 543 survive the death of the director is not to be answered with reference to the maxim actio personalis moritur cum persona or on a consideration of the question whether the liability sought to be imposed by sections 542 and 543 is tortious, quasi-contractual or otherwise. The question has to be answered with reference to the object and the language of the two provisions. If the object of the provisions is punitive, to punish the wrongdoing director, the proceedings must the with the director. If the object of the provisions is also to recompense the company for the injury done to it or the loss suffered by it on account of the fraudulent acts or acts of misfeasance or acts in breach of trust, of a director, then the cause must survive the death of the director and attach itself to the estate of the director. The language of the provisions has to be examined. If the language is clear and compelling that an order can only be made against the director personally, the proceeding must, of course, abate; but, if the language is not restrictive and is such that the provisions cannot be said to be directed personally against the director, the proceeding must bate.
5. Now, section 542(1) provides for the declaration of the personal responsibility, for the debts and other liabilities of the company, of persons who were knowingly parties to the carrying on of the business of the company with intent to defraud creditors of the company or any other persons or for any fraudulent purpose. Thus, the discharge of debts and other liabilities of the company consequent on the fraudulent conduct of the business of the company is squarely made the personal responsibilitys of those who knowingly participated in such fraudulent activity. That is the object of the provision. The expression “personal liability” is, here, not to be confused with liability arising from purely personal actions such as defamation, seduction, adultery and the like. It is not used in that sense at all. The expression “personal responsibility” is used to contra-distinguish it from the liability of the company. While the former is expressly declared to be “without any limitation of the liability”, the latter is, per force, limited by the constitution of the company and the provisions of the Companies Act. While section 542(1) provides for declaration of personal liability of persons concerned with the fraudulent conduct of business, section 542(2) provides for the giving of appropriate directions for the purpose of giving effect to that declaration. Again, the language of both sub-sections (1) and (2) is wide and there is nothing in the language to bar the power of the court to make the declaration and to give directions after the death of the director or other person concerned, naturally, after giving the legal representatives an opportunity of being heard, if the deceased director had not been heard before his death, of course, the liability declared, after hearing the legal representatives, will be that of the deceased director and the directions, if any, given to the legal representatives will natually be limited to the estate of the deceased director in the possession of the legal representatives.
6. Section 543 provides for the assessment of the loss or damage suffered by the company consequent on acts of misfeasance or breach of trust committed by directors and officers of the company and for the making of a compulsive order of repayment against the director. Though the object of assessing the damages is for the purpose of recompensing the loss suffered by the company and, therefore, the cause must survive the death of the director to that extent, the language of the provision in so far as it relates to the compulsive order is so peremptorily directed against the director that it must be held that the compulsive order contemplated by the section cannot be made against the legal representatives. Thus, while the loss or damage may be determined and declared even after the death of the delinquent director, no compulsive order may be made against the legal representatives. The proceedings under section 543 may be continued against the legal representatives for the purpose of determining and declaring the loss or damage caused to the company, but not to make an order for recovery against them. We are relieved of the necessity of considering the matter at greater length because of a recent decision of the Supreme Court in Official Liquidator, Supreme Bank Ltd. v. P.A Tendolkar, [1973] 43 Comp Cas 382. The Supreme Court, there, considered the broad question whether a proceeding under section 235 of the Indian Companies Act of 1913 which corresponded to section 543 of the 1956 Act, survived the death of the director, though, on the facts of the case, the question really was whether the legal representatives could continue an appeal filed by a deceased director against an order made under section 235. The Supreme Court first observed that the maxim actio personalis moritur cum persona was “generally confined to actions for damages for defamation, seduction, inducing a spouse to remain apart from the other, and adultery” and that the question of the survival of the cause should be considered “more on an interpretation of the provisions of section 235 than on the application of that maxim”. Proceeding to interpret section 235, the Supreme Court said (pages 396, 397, 398):
“It will be seen that, while section 235 of the Act of 1913, like section 543 of the Companies Act of 1956, to which it corresponds, gives the power to the court to enquire into the conduct of any past or present director yet, both section 235 of the Act of 1913 and section 543 of the Companies Act of 1956, confine the power of the court to make orders for repayment or restoration of money or property or contribution to the assets of the company against the individuals occupying the capacities, either in the past or present, mentioned therein. This power does not, on the language of these provisions, extend to making compulsive orders against heirs of delinquents. As the power to take these special proceedings is discretionary and does not exhaust other remedies, although the court may, as a matter of justice and equity, drop proceedings against delinquent directors, managers or officers who are no longer alive, leaving the complainant to his ordinary remedy by a civil suit against the assets of the deceased, yet where no injustice may be caused by continuing these proceedings against a past director, even though he be dead, the proceedings could continue after giving persons who may be interested opportunities to be heard. But even such proceedings can only result in a declaration of the liability of a deceased director, because the language of section 235 of the Act of 1913, as already noticed, does not authorise passing of orders to compel heirs or legal representatives to do anything. Such compulsive proceedings as may become necessary against those upon whom devolve the assets or the estate of a deceased delinquent director, who may have become liable, could only lie outside section 235 of the Act of 1913 ……It may be possible (though we need express no final opinion on the matter) where a proceeding under section 543 is covered also by the terms of section 542 of the Companies Act of 1956, to give directions to persons other than those whose conduct is enquired into, including directions to heirs and legal representatives, for the purpose of enforcing a declaration. But we think that the power under section 235 of the Act of 1913, which corresponds to section 543 of the Act of 1956, would not extend beyond making a declaration against a deceased director provided he, in his lifetime, or his heirs, after his death, have had due opportunity of putting forward the case on behalf of the allegedly delinquent director.”
7. We have refrained from referring to the decisions of the various High Courts rendered before the decision of the Supreme Court in Official Liquidator, Supreme Bank Ltd. v. P.A Tendolkar, [1973] 43 Comp Cas 382, as we think no purpose would be served by referring to them. Subsequent to the decision of the Supreme Court, in Aleykutty Varkey v. Official Liquidator (see page 472 infra) the Kerala High Court considered the further question whether an order made against a deceased director under section 543 of the Companies Act could be executed against his legal representatives.
8. The Kerala High Court, relying on the provisions of section 634 of the Companies Act, which provides that any order made by the court under the Act may be enforced in the same manner as a decree made by the court in a suit, held that execution could proceed against the legal representatives of the delinquent director to the extent provided by section 50, Civil Procedure Code. We are inclined to agree with the view expressed by the Kerala High Court.
9. In Parthasarathi Sinha v. Official Liquidator, Bally gunge Real Property and Building Society Ltd., [1976] 46 Comp Cas 555 (Cal), the Calcutta High Court held that a proceeding under section 543 of the Companies Act cannot be continued against the legal representatives of the delinquent director and that the legal representatives could not be substituted in the place of the deceased director. They purported to rely upon the decision of the Supreme Court in Official Liquidator, Supreme Bank Ltd. v. P.A Tendolkar, [1973] 43 Comp Cas 382. We are unable to understand how the decision of the Supreme Court could be relied upon by the learned judges in arriving at their conclusion. The sentences underlined* by us in the passage already extracted by us from the decision of the Supreme Court are clearly against the conclusion of the Calcutta High Court.
10. We are of the view that proceedings initiated against the director of a company under sections 542 and 543 of the Companies Act, 1956, may be continued after his death against his legal representatives to the extent indicated by us earlier in this judgment. The case will now go back to the learned company judge.
Bhopinder Singh Dhillon, J.:— I agree.