Holding

Liability for misfeasance survives the death of a director and may be declared against the deceased, but compulsory orders of repayment cannot be directed at the heirs; the declaration can be enforced against the estate under Section 634 of the Companies Act and Section 50 of the CPC.

Summary

The Official Liquidator instituted misfeasance proceedings under Section 543 of the Companies Act, 1956 against the directors of a company in liquidation, including Dr. S.N. Sinha. Dr. Sinha died intestate during the pendency of the suit, and his heirs and legal representatives were substituted in his place. The Calcutta High Court held that no further action could be taken against the heirs, setting aside the substitution order. On appeal, the Supreme Court held that the liability for misfeasance does not abate on death; the court may declare the deceased director’s liability, but cannot issue a compulsory order of repayment against the heirs. The declaration can be enforced against the estate under Section 634 of the Companies Act and Section 50 of the CPC. Consequently, the Supreme Court allowed the appeal, restored the substitution order, and permitted the continuation of the misfeasance proceedings against the heirs and legal representatives.

Issues considered

Whether misfeasance proceedings under Section 543 of the Companies Act, 1956 can be continued against the legal representatives/heirs of a director who dies during the proceedings.
Whether any amount declared payable by the deceased director can be realized from his estate under the execution provisions of the Act and the CPC.
What is the scope of Section 543 and Section 634 in relation to enforcement against heirs or legal representatives.

Legislation cited

Code of Civil Procedure, 1908s. 2(11), s. 50
Companies Act, 1913s. 235, s. 335
Companies Act, 1956s. 483, s. 543, s. 634, s. 635

Subjects

misfeasancebreach of trustdirector liabilitydeath of directorlegal representativesCompanies Act 1956Section 543execution of decreeliquidation

Judgment

211
A
THE OFFICIAL LIQUIDATOR
v.
PARTHASARATHI SINHA & OTHERS
B
December 17, 1982

(S. MURTAZA FAZAL ALI AND E.S. VENKATARAMIAH, JJ.J
..rr
Companies Ac/, 1956-Sections 543 and 634-Scope of-Misfeasance tJNl
breach of trust alleged against dirttctorsof a coinpany in liquidation-Death ofa C
director during pendency of prOcetdings-Hefrs and legal representatives of
deceased director, if could be substituted in place of deceased director-After
declaration of liability of director, if amounts due could be realised from legal
representatires.
. ,. The respondents were the heirs and legal repre.!ientatives of one of the
directors of a Company in 1iquidatio9. When the company was ordered to be
wound up, the Official Liquidator took out summons under section 543 (1)
D
of the Companies Act against its directors for a declaration that the said
directors were guilty of misfeasa.qce and breach of trust and also fOr an order
directing them to repay or restore the money or property of the company in
liquidation which they were alleged_ to have retained wrongfully. During the
pendency of the proceedings one of the directors died intestate leaving behind
the respondenta as his heirs and legal representatives. At the instance of the
Official Liquidator tho Company Judge passed an order substituting the E
respondents in place of the deceased director.

; Allowing the respondents' appeal, a Division Bench of the High Court
held that µo further action in the misfeasance proceedings could be taken
against the legal representatives of the deceased director. In coming to this
conclusion the High Court purported to follow the decision of this Court in F
Official Liquidator v. P.A.. Tendolkar (dead) by L. Rs., [1973] 3 S.C.R. 364.

Allowing the Appeal,

HELD : The liability ans1ng under the misfeasance proceedings is
founded on the principle that a person who bas caused loss to the company G
by an act amounting to breach of trust should make good the loss. Section
543 of the Act provides for a summary remedy for determining the amount
payable by sllch person on proof of the necessary ingredients. The section
authorises the Court to direct such persons chargeable under it to pay a sum of
money to the Company by way of compensation. This is not a provision
intended to punish a man who has been found guilty of misfeasance but is only
intended for compensating the company in respect of the loss occa~ioned by H
his misfeasance. Whenever there is a relationship based on contract. quasi- ·
contract, some fiduciary relatio!l 0r a
failure to perforll! a dutr, there is DQ

·~-
212 SUPREME COURT RBPORTP (1983] 2 S.C.R.

A abatement of the liability on thi: death of the wrong doer. When once the
liability is declared, it is open to the Official Liquidator to realise the amount
due by resorting to section 634 of the Act and section 50 of the Code of Civil
Procedure. In Tendo/kar"s case this Court did not consider the effect of section
.,..
634 of the Act which made the rekvant provisions of the Code of Civil Procedure
relating to execution of decrees applicable to orders passed by; the Court under
the Act. [223 C·F]
B
At the conclusion of th~: proceedings under section 543 a declaration of
the liability is made. Such dec',aration partakes of the charact_er of a decree
in a suit. When once such declaration is made it can be enfotced under section
634 of 1he Act and where the order made by oae court has to be executed by
another court the procedure prescribed by section 635 of the Act has to be
followed. In the course of suet. execution proceedings the provisions of section
c SO of.the Code of Civil Procedu:~~ have to. be- applied when the person who is
made liable dies before the order is satisfied and the liability of the legal
representatives should be determined accordingly. [223 G-H]

Official Liquidato', Supr.!me Bank Ltd. v. P.A. Tendolkar (dead) by L. Rs,
& Ors., [1973] 3 S.C.R. 364, applied. > •
0
A/eykutty Varkey Thai·akan & Anr. v. Official Liquidator & Ors., [1978]
4 Comp. Cas. 472, approved.

Shiwalik Transport Co. Ltd. (in liquidation) v. Thakur Ajit Singh & Ors.,
[1978] 48 Comp. Cas. 465, approved.
E
CIVIL APPELLATE JURISDICTION Civil AppealJNo. 3614 of
1982.

Appeal by Special Leave from the Judgment and Order dated
the !st August, 1975 of the Calcutta High Court in Appeal No. /~
F 324 Of i 97Q. .

Shanker Ghosh, A.'K. Verma and P.K. Basu for the Appellant.

The Judgment oftbe Court was delivered by

G VENKATARAMIAH, J. The short question which arises for
decision in this appeal by special leave is whether the proceedings
initiated against a director of a company under section 543 of the
Companies Act, 1956 (hereinafter referred to as 'the Act') can be
continued after his death against his legal representatives and > ..,..
whether any amount declared to be due in such proceediqgs can be·
ff realised from the esi:ate of the deceased in the hands of his legal
representatives,
OFFICIAL LIQUIDATOR v: PARTHASARATHI (Venkatararniah, J.) 213

The facts of the present case may be briefly stated thus·: A
Ballygunge Real Property and Building Society Ltd. (hereinafter
y -· referred to as 'the Company in liquidation') was ordered to be
wound up by the Fligh Court of Calcutta on houary 8, \ 9 58. On
January 2, 1963, the Official Liquidator took out summons under
section 543(1) of the Act against its directors including Dr. ·
S. N. Sinha for a declaration that the said directors were guilty of B
misfeasance and breach of trust and also for an order directing
them to repay or restore the money or property of the Company in
liquidation which they were alleged to have retained wrongfully.
During the pendency of the said proceedings, Dr. S.N. Sinha died
on November 16, 1969 intestate leaving behind his son, Parthasara·
thi Sinha and two married daughters, Maya Bose and Mira Mitra
c
as his heirs and legal representatives. On February 12, 1970,
Judge's summons was taken out at the instance of the Official
Liquidator for leave to continue the said proceedings
against the said heirs and legal representatives. The learned
Company Judge passed an order on November 9,1970
D
for substitution of the said heirs and legal representatives in place
of. Dr. S.N. Sinha, the deceased. Against that order, the heirs
and legal representatives of Dr. S.N. Sinha preferred an appeal
before the Division ·Bench of the Calcutta High Court under
section 483 of the Act. That appeal was allowed by the Division
Bench on August I, 1975 and save and except that the death of Dr. E
S.N. Sinha was recorded, the order of the Company Judge was set
aside. This appeal is filed against the order of the Division Bench.

Before the Division Bench of the High Court, the principal
contention urged on behalf of the heirs and legal representatives of
Dr. S.N. Sinha, since deceased was that in view of the decision of F
this Court in Official Liquidator, Supreme Bank Ltd. v. P.A.
Tendolkar (dead) by L. Rs. & Ors.(') no further action in t be
misfeasance proceedings could be taken against them and we are
concerned only with that contention in this appeal. Since the effect
of the above decision is understood in one way by the High Court
of Calcutta in this case and differently by the High Court of Kerala G
in Aleykutty Varkey Tharakan & Anr. v. Official Li!fuidator &
Ors.( 2) and by the High Court of Punjab and Haryana in Shiwalik
Transport Co. Ltd. (in liquidation) v. Thakur Ajit Singh & Ors,(3) we

(I) (1973) 3 S.C.R. 364. a
(2) [1978] 48 Comp, Cas, 472.
(3) [1978] 48 Comp. C~s. 465.
SUPREME COURT REPORTS (1983) 2 s.c.R.

A shall proceed to discuss the decision in Tendolkar's case (supra) at
some length. Before doing so, we shall refer to the relevant
provisions of law and the specific averments made in this case by
the Official Liquidator.

Section 543 of the Act reads as follows :

"543. Power of Court to assess damages against
delinquent directors, etc.-(!) If in the course of winding up
of a company, it appears that any person who bas taken
part in the promotion or formation of the company, or
any past or presc:nt director, managing agent, secretaries
and treasurers, manager, liquidator or officer of the
company-

(a) bas misapplied, or retained, or become liable
or accountable for, any money or property of the
,.
D company; or

(b) has been guilty of any misfeasance or breach of
trust in relation to the company;

E 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 officer ' aforesaid, and compel
F 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 Co·~rt thinks just.
G
12> An a.pplication under sub-section (I) shall be
made within five years from the date of the -0rder
for winding up, or of the first appointment of the
H liquidator in the winding up, or of the misapplication,
retainer, misfoasaoce or breach of trust, as ·the case may
be, whichever is longer.
OFFICIAL LIQUIDATOR v, PARTHASARATHI (Venkataramiah, J.) 215

(3) This section shall apply notwsthstanding that A
the matter is one for which the person concerned may be
criminally liable."

Section 634 of the Act reads :

"634. Enforcement of order of Courts - Any order B
made by a Court under this Act may be enforced in the
same manner as a decree made by the Court .in a suit
pending therein''.

Section 2(11) of the Code of Civil Procedure defines the
expression 'legal representative' as 'a person who in law represents c
the estate of a deceased person and includes any person who
intermeddles with the estate of the deceased and where a party
sues or is sued in a representative character the person on whom
• l
the estate devolves on the death of the party so suing or sued'.

Section 50 of the Code of Civil Procedure reads : D
"50. Legal representative - (I) Where a judgment-
debtor dies before the decree has been fully satisfied, the
holder of the decree may apply to the Court which passed
it to execute the same against the legal representative of
the deceased. E
(2) Where the decree is executed against such legal
representative, he shall be liable only to the extent of the
property of the deceased which has come to his hands
· and has not been duly disposed of; and, for the purpose of
ascertaining such liability, the Court executing the decree
may, of its own motion or on the application of the
decree-holder, compel such legal representative to produce
such accounts as it thinks fit".

The Official Liquidator pleaded before the High Court that
due to various breaches of trust and/or breaches of contract, express G
or implied and/or breaches of fiduciary duties and other acts of
___ ..J
misfeasance on the part of Dr. S.N. Sinha, since deceased, loss had
been caused to the Company in liquidation and that the assets of
Dr. S.N. Sinha had benefitted thereby. He further alleged that
the assets of Dr. S.N. Sinha in the hands of his heirs and legal
H
representatives were liable for the claims made in the said
misfeasance proceedings.

;,.··-·
216 SUPRErtlE COURT RFPO'ltTS [1983] 2 S.C.R.

A We shall now revert to Tendo/kar's case (supra). That case
arose out of certain misfeasance proceeding• commenced by the
Official Liquidator in the winding up proceedings of a banking
company against the managing director, the other directors and
some of the employees of the company. Two of the directors died
while the proceedings wen: pending. The Company Judge dismissed
the proceedings against the employees as time barred and
held that the heirs of the deceased directors could not be proceeded
against. He was of the vi ow that the misfeasance proceedings being
of special nature involving an enquiry into the alleged wrongful
conduct of directors personally, the liability of a director for such
wrong doing was personal in character and, therefore, vanished
with the death of the director. But in respect of the managing
director and those directors who were alive when he gave his
decision, he gave certain directions regarding theif individual
liability. Against that decision five appeals were filed before the
Division Bench of the High Court. In those appeals, the correct- A •
ness of the decision of the Company Judge to exempt the heirs and
D
legal representatives of the two deceased directors was not
questioned by any partv. In those appeals, the Division Bench
reduced the total liability of the directors and the individual
liability of the managing director though it placed a larger share of
the burden of contribudon on the managing director. Against
E that judgment, the Official Liquidator appealed to this Court in
respect of the liability of the managing director and two other
directors. One of the two directors namely, P.A. Tendolkar died
pending the grant of bis own application for a certificate under
Article 133 of the Constitution. His heirs got themselves impleaded
and contended that the' proceedings against them could not be
F continued and also that the claim against the deceased director was
untenable on merits. Dealing with the liability of the heirs and
legal representatives of persons against whoni action was taken
under section 542 and :iB of the Act, this Court observed at page
380 thus :

G
"The maxim rzctio persona/is moritur cum persons,
as pointed fr, Winfield's Law of Tort (Eighth Edn.
603-605), was an invention of English Common Lawyers.
It seemed to have resulted from the strong quasi-criminal
H character of the. action for trespass. Just like a prosecu-
tion fo~ a criminal offence, the action for trespass, which
. was "the parent c,f much of our modern law of tort", was
OFFICIAL LIQUID.ATOR v. PARTHASARATHI (Venkataramiah, J.) 217

held, by applying this maxim, to be incapable of suriving
the death of the wrongdoer, and, in some cases, even of
the party injured .. The maxim, with its extensions, was
criticised by Winfield and found to be "pregnant with a
good deal more mischief than was ever born of it".
Whatever view one may take of the justice of the
principle, it was clear that it would not be applicable B
to actions based on contract or where a tortfeasor's
estate had benefitted from a wrong done. ~ts application
was generally confined to actions for damages for· defama-
tion, seduction, inducing a spouse to remain apart from
the other, and adultery.
c
We see no reason to extend the maxim, as a general
principle, even to cases involving breaches of fiduciary
duties or where the personal conduct of the deceased
Director has been fully enquired into, and the only ques-
tion for determination, on an appeal, is the extent of the D
liability incurred by the deceased Director. Such liability
must necessarily be confined to the assets or estate left by
the deceased in the hands of the successors. In so far
as an heir or legal representative has an interest in the
assets of the deceased and represents the estate, and the
liquidator represents the interests of the Company, the E
heirs as well as the liquidator should, in eq11ity be able to
question a decision which affects the interests represented."

At a later stage in the same case, this Court made the follow-
ing observations at pages 381-382: F

"It will be seen that, while Section 335 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", G
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 H
power d,oes not, on the language of these provisions, extend
to making compulsive orders against ·heirs of delinquents.
218 SUPREME COURT REPORTS [1983] 2 S.C.R.

A As the power to take these special proceedings is discre.
tionary and does not exhaust other remedies, although, the
Court may, as a matter o:r justice and equity, drop proceed-
ings 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
B deceased, yet, where no injustice may be caused by continu·
ing these proceedings against 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 i:•roceedings can only result in a
declaration of the liability, of a deceased director, because
c 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 com-
pulsive proceedings as mi.y become necessary against those
upon whom devolve the assets or the estate of a deceased
delinquent Director, wh·J may have become liable could
D only lie outside Section 235 of the Act of 1913."

Again in the same case, it was observed by this Court at page
383 thus:

E "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
F of enforcing a declaratio11. 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 life time, or his heirs, after his death, have had
due opportunity of putting forward the case on behalf of
G the allegedly delinquent Director. If either a Liquidator
or the heir,of a delinquen:t Director, against whom a declara-
tion of liability has been made, can question determination
of liability of the deceased delinquent, who was alive at
the time of the Judgment against him, it is obvious that
H the Appellate Court could give a declaration either reducing
or increasing the liability even though it may not be able
to enforce it by an order under Section 235 of the Act. If
OFFICIAL LIQUIDATOR v. PARTHASARATHl (Venkataramiah, J.) 219

the declaratfon can be questioned by an appeal, as we think
that it can, the liability can be not only wiped off or
reduced but also increased on an appeal heard after the
death of a Director held liable.

Applying the principles laid down above to the case
before us, we find ·that Tendolkar had a full!opportunity B
of defending himself against the misfeasance proceedings
taken by the liquidator. He also exercised his right of
appeal against the order of the Company Judge. The
Division Bench, as already observed, reduced his liability.
His heirs were heard on merits in the · appeal before us.
Any order passed by us could only 11.ffect the assets or the
c
estate of the deceased Tendolkar. But, as already indi-
cated by us, we cannot, in these proceedings, pass [an order

. ;
against the heirs to Tendolkar so as to compel them to do
anything. The Official Liquidator or the co-Directors may,
however, take any other proceeding which may be open D
to them under the law so as to obtain the contribution of
Tendcilkar."

Finally this Court gave inter alia the following direction
occurring at pages 400-401 :
E
"(6) The case is remanded to the learned Company
Judge for passing such orders against the Managing Director
Samant and Director Ajgaonkar, under Section 235 of the
Act of 1913, as may be needed for discharging the liabilities
determined above, but no such orders will be passed against
the heirs and legal representatives of deceased Director F
P.A. Tendolkar under Section 235 of the Act of 1913,
although their liabilities are declared. The Official Liqui-
dator and L.S. Ajgaonkar are, however, left free to seek
such other remedies, if necessary, by appfopriate proceed-
ings under the law, against the estate or assets of P.A.
Tendolkar. as may. be open to them."
. Justice Masud of the Calcutta High Court who heard the
case under appeal understood the above decision of this Court
.-..-. "" thus :
H
"The observ.ation of the Supreme Court give an
indication that in a proper case the declaration of the
220 SUPREME COURT RE•ORTS (J 983] 2 S.C.R.

A liability of a delinquent Director, who subsequently dies, is
possible but no order for repayment or restoring the money
or property lying in possession of the heirs can be
passed against the heirs or legal representatives of such
Directors."

B Justice Ghose, the other Judge of the Division Bench
observed :

"In Official Liquidator Supreme Bank Ltd. v. P.R.
Tendolkar (Dead) i\y L. Rs. and OJhers, respondents AIR
1973 S.C. 1104 the Supreme Court held that where a
c delinquent Director was examined in a proceeding under
Section 235 of the Indian Companies Act, 1913, and
thereafter dies before an order for payment was made
against him, in such proceeding the order that could be
passed in the said misfeasance proceeding as against the
deceased Director was merely a declaration as to his
D liability to the Company in liquidation. No order for
payment for the di:;charge of such liability could be made.
The Supreme Court observed that before a declaration as
to liability could b~ made against such Director, his heirs
and personal representatives should be heard. The Supreme
Court, however, expressly negatived the contention
l!I that wh~re a Director died after he had been examined in
a proceeding under Section 235 of the repealed Act, his
heirs or legal repr<!sentatives or his estate could be directed
to pay up the loss occasioned to the Company on account
of the misfeasance of such Director in such proceeding.
It is, therefore, apparent from a perusal of the above
F mentioned authorities that Section 543 has not made any
·'
departures from the provMon contained in Section 23 5 of
the repealed Act a.nd in the premises it has to be held that
the cause of action in a misfeasance proceeding initiated
under Section 235 of the repealed Act of Section 543 of
the Companies Act, 1956 does at all survive against the
G
heirs or legal representatives of a delinquent Director or
officer etc.· of a company and such heirs or legal represen-
tatives cannot be substituted in the place and instead of a
deceased delinquunt Director, Officer etc."
H
The effect of the decision of this Court in Tendolkar'·s case
(supra) came up for '::onsideration in Aleykutly Varkey Tharakan' s
OFFICIAL LIQUIDATOR v. PARTHASARATHI (Venkataramlah, J.) 221

case (supra) before the Kerala High Court. Iu that case the legal A
representatives of two persons against whom orders under Section
543 of tlie Act had beelf passed by the High Court and against
which petitions for leave to appeal were pending in this Court after
th~ death of the said two persons questioned before the Kerala
High Court an order of appointment of a receiver in execution of
the order passed under Section 543 of the Act. The contention
;B
urged by them was that in execution of an order under section 543
of the Act, no order such as the one under appeal could be passed
against the legal representatives of the persons proceeded against.
In that case the Kerala High Court dealing with the decision in
Tendolkar' s case (supra) observed thus :

"Considerable argument turned on the scope and effect
of the above decision of· the Supreme Court, and, in
particular, of the observations in the paragraphs that.we
have quoted above. As we understand the said judgment,
we do not think that the decision or the observations made
lend countenance to the proposition sought to be advanced
before us that an order under Section 543 of the
Companies Act, passed against a director or directors
cannot be executed in the modes known to and sanctioned
by, the Civil Procedure Code, against bis eitate Jn the
bands of bis legal representatives. The proceedings before E
the Supreme Court, it should be remembered, arose by way
of appeal against the proceedings started under s. 543 of the
Act itself, and, therefore, were a continuation of the said
proceedings. No question directly arose before the Supreme
Court as to whether an order passed under section 543
could; or could not, be executed against the estate of the F
deceased director in the hands of his legal representatives.
In paragraph 22 of the judgment, the Supreme Court
observed that the possible liabilities of the legal represen-
tatives of two of the directors on whom their assets and
properties may have developed, do not call for a decision
from the court. But the general question of liability of
heirs and legal representatives of delinquent directors had
arisen for consideration. It was on this question that the
Supreme Court pronounced. We are unable to understand
the decision as authority for the proposition which counsel
for the appellant put forward before us," H
222 SUPREME COUIRT REPORTS [1983) 2 s.c.R.

A The above view of the Kcrala High Court was approved by ·
the Punjab and Haryana High Court in Shiwalik Transport Co's.
case (supra). Chinnappa Reddy, J. speaking for the High Court
of Punjab and Haryana observed :

"Section 543 provides for the assessment of the loss
B or damage suffered by the c:ompany consequent on acts of
misfeasance or breach of trust committed by directors and
officers of the company and for the making of a compulsive
repayment against the director. Though the object of
assessing the damages is fo< the purpose of recompensing
the Joss suffered by the co·npany and, therefore, the cause
c must survive the death of the director to that extent, the
language of the· provision insofar as it relates to the
compulsive order is so pi:remptorily 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
D be determined and decla·red 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 represen-
tatives for the purpose of determining and declaring the loss .
or damage caused to the company, but not to make an
E order for recovery against them. We are relieved of the
necessity of considering th1: matter at greater length 1'ecause
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 wheth1:r a proceeding under Section 235
F oftbt 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 dei:eased director against an order
made under Section 235."
G
•
Having given our anxious consideration to the question before
us, we are of the view that the Kerala and Punjab and Haryana High
Courts have· applied the decision in Tendolkar's case (supra)
correctly and that the two learned Judges of the Calcutta High Court
H
who delivered the judgment under appeal erred in its application. If
this co11rt bad really come to tl!e 9009l11sion that on the death of a
•

OFFICIAL LIQOIDATOR v. PARTHASARTHI (Venkataramiah, J.) 223

person against whom proceedings under Section 543 had been A
·initiated such proceedings could not be proceeded against bis legal
representatives, the final order would not have been what was
actually made therein· "The true doctrine is that whenever you
find that the deceased person has by his wrong diverted either
property or the proceeds of the •property belonging to someone
else into his own estate, you can then have recourse to that estate B
through his leg\ll representative when he is dead, to recover it."
The legal representative, of course, would not be liable for any
sum beyond the value of the estate of the deceased in his hands.

The liability arising under the misfeasance proceedings is
founded on the principle that a person who bas caused Joss to the c
company by an act amounting to breach of trust should ·make good
• the loss. Section 543 of the Act does not really create any new
liability. It only provides for summary remedy for determining
the amount payabfe by such person on proof of the necessary
.., ' ingredients. The section authorises the Court to direct such persons
chargeable under it to pay a sum of money to the company by way D
of compensation. This is not a provision intended to punish
a man who bas been found guilty or misfeasance but for compen-
sating the company in respect of th_e loss occasioned by his
· misfeasance. Whenever there is a relationship based on contract,
quasi-contract, some fiduciary relation or a failure _to perform a
duty, there is no abatement of the liability on the death of the
E
wrong-doer. When once the liability is declared it is open to the
Official Liquidator to realise the amount due by resorting to section
634 of the Act and section 50 of the Code of Civil Procedure. In
Tendolkar' s case (supra) this Court did not consider the effect of
section 634 of the Act which made the relevant provisions of the
Code of Civil Procedure relating to execution of decrees applicable ·
F
;
to orders passed by the court under the Act.

At the conclusion of the proceedings under section 543 a
declaration of the liability is made. Such declaration partakes of
the character of a decree in a suit. When once such declaration is G
made it can be enforced under section 634 of the Act and where
the order made by one court has to be executed by another court
the procedure prescribed by section 635 · of the Act has to be
followed. In the course of such execution proceedings the provisions.
of section 50 of the Code of Civil Procedure have to be applied
when the person who is made liable dies before the orde1 is satisfied
3nd the liability of the legal representatives should be determin~~
•

224 SUPREME COURT REPORTS [1983) 2 s.c.R.

·A accordingly. Any other construction of the provisions of section
543 of the Act would make th1~ entire process of determination of
the liability of persons under it meaningl~ss .

. We are, therefore, of opinion that the view taken by the
. Division Bench of the High .Court of Calcutta in this case is
'B erroneous. We, therefore, allow this appeal, set aside the judgment
of the Division Bench of the High Court and restore the order of
the learned Company Judge. The misfeasance proceedings shall
now l>e continued accordingly against the heirs and legal represen-
tatives of Dr. S.N. Sinha since deceased.

c; There sh~ll be no order 3s to ~<:>sis,

P.B.R. Appeal allowed.