Liaqat Husain v. Official Liquidator

Young, J.:— This is an application under section 280 of the Indian Companies Act praying that the official liquidator of the U.P Oil Mills Co., Ltd., in liquidation, should provide security for the applicant's costs. The applicant was one of the original directors of the company, and on the company going into liquidation was appointed voluntary liquidator. Subsequently a compulsory winding up order was passed by this Court, and an official liquidator was appointed. On an investigation of the company's books the official liquidator has thought proper to file a misfeasance summons under section 235 of the Indian Companies Act against the applicant. It is upon that application under section 235 that the applicant wishes the official liquidator to furnish security for his costs.

In my opinion there is nothing in this application. section 280 of the Indian Companies Act reads as follows: “Where a limited company is plaintiff or petitioner in any suit or other legal proceeding, any court having jurisdiction in the matter may, if it thinks that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for his costs.” Counsel for the applicant has referred me to an English case, Pure Spirit Co. v. Fowler(1), where it was held that the court was bound to order security for costs where the company is in liquidation and there is no evidence to rebut the presumption that the assets will be insufficient to pay the defendant's costs, if he succeeds. In my opinion, the case relied upon by the counsel for the applicant is no authority for the applicant's contention. That case was an action brought by one company against another company, the plaintiff company happening to be in liquidation. That authority cannot affect an application under section 235, which is the section dealing with the misfeasance summons. A misfeasance proceeding is merely an examination by the court into the conduct of an officer of the company, and as a result of that examination the court may order the officer to restore the money or the property of the company, as the court may think just. Such proceedings cannot be said in any way to be a “suit or other legal proceeding” within the meaning of section 280 of the Indian Companies Act. I am supported in this view by a consideration of another English authority, In re Strand Wood Co.(2), where it was held that it was not the practice of the court to require a liquidator on the ground of poverty to give security for the costs of a misfeasance summons. It is to be noted that the section of the English Act at the date of this authority was precisely the same as section 280 of the Indian Companies Act.

On grounds of general policy also it appears to me that it is impossible for any such rule to exist. The result of any such practice would be that directors or other officers of a company could fraudulently misappropriate, or otherwise do away with, all the funds and properties of the company, and the more thoroughly they so exhausted the funds the more certain it would be that they would escape the consequences of their fraud. All they would have to do, if the applicant's contention is sound, would be, on a misfeasance summons being directed against them, to apply to the court for the liquidator to provide security for their costs, as the company had no assets,—the fact that the company had no assets being entirely due to the fraud of the officers of the company themselves. This application is dismissed with costs. I fix counsel's fee at Rs. 32.