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Union Of India Thru' The Secy, Ministry Of Finance, N.Delhi v. P.C.Seth - COMPANY PETITION No. 107 of 2000  RD-AH 5905 (2 April 2007)
Court No. 30
COMPANY PETITION NO. 107 OF 2007
Union of India through the Secretary
Ministry of Finance, New Delhi- Petitioner
P.C. Seth S/o Sri Shiv Prasad Seth,
R/o Kothi Kashi nath, Moti Chowk, Shahjahanpur
Hon. Sunil Ambwani, J.
Heard Shri Subodh Kumar for petitioner and Shri S.O.P. Agarwal for respondent.
These proceedings have been initiated uner Section 45 (H) (s) of the Banking Regulation Act, 1949 read with Section 543 of Companies Act 1956 for recovery of Rs. 30.47 lakhs along with interest from the respondent P.C. Seth.
The Kashinath Seth Bank Limited was taken over by the State Government under the scheme prepared by the Reserve Bank of India and resolution thereof w.e.f. 1.1.1996 with which the Kashinath Seth Bank Limited stood wound up. Two years prior to this date, the competent authority was directed to scrutinize the matters and found that the Bank had suffered losses on account of several acts of misappropriate and misfeasance by the Board of Directors of the Bank. This matter is connected with 16 other matters with regard to misfeasance by the Directors.
Shri Subodh Kumar states that respondent P.C. Seth was director of the Company from 30.6.1966 to 14.2.1984 and 9.6.1992 to 13.3.1994. He along with members of the Board of Directors is jointly and severely liable for loss to the Bank to the tune of Rs. 133.94 lacs on account of loan extended to Dinesh Cold Storage, Shahjahanpur. A term loan of Rs. 28 lacs as sanctioned by the Board of Directors on 28.11.1988. When he was not Director of the Bank, the cash credit (Hyp.) limit of Rs. 10.00 lacs was later on sanctioned by the Board on 26.4.1989. Even then the overdrawings beyond the sanctioned limite were allowed by the Branch Managers from time to time. The Board of Directors tried to regularise the overdrawings by enhancing the credit limit upto Rs. 50 lacs in a Board meeting held on 1.8.1992 in which the respondent participated inspite of default in payments. It is further contended that Dinesh Cold Storage had in fact purchased Viraj Cold Storage which has in turn purchased Shyam Cold Storage. Shri Daya Vinod is proprietor of Viraj Cold Storage. Shei Daya Vinod was son-in-law of Shri B.D. Seth, founder of bank and brother-in-law of respondent P.C. Seth.
In para 12 it is stated that the bank approved Rs. 19.80 lacs by approving loans granted to Seth Ice and Cold Storage, Harpur, District Ballia. The proprietor of the borrowing unit Sri A.K. Seth besides being the brother-in-law of the respondent was himself a Director in the Bank till march, 1989. Soon thereafter, he was sanctioned a term loan of Rs. 10 lacs in April, 1989. The Branch Manager, however, released Rs. 4.96 lacs in excess and other term loan of Rs. 20 lacs was sanctioned inspite of unauthorised release and approved by Board on 22.12.1989. Despite these two irregular loans reported to the head office, the accommodation to the extent of Rs. 25 lacs was allowed which was approved by the Board on 1.8.1992 in which the respondent participated.
Shri Subhodh Kumar has relied upon judgments of Rajasthan High Court in Official Liquidator, Janhitkari Alap Bachat Rindayatri Sansthan Pvt. Ltd vs. Vishnu Kumar Pradhan and others, 2001 CC 1026; K Madhava Nayak and others vs. Popular Bank Ltd, AIR 1970 Kerala 131 and P.K. Nedungadi vs. The Malayalee Bank Ltd and others AIR 1971 SC 829 in support of his submission that even if Directors are not misapplied or retained the properties the fact that he acted reckless manner without taking care of statutory requirement of applying basic common sense in sanction of the amounts which could not be recovered, conduct misfeasance which is covered by Section 543 (2) of the Companies Act 1956. According to Shri Subodh Kumar, apart from misapplication or retainer, the misfeasance also includes breach of trust i.e to show it refers to something which the officer of company has done by which the companies properties have been vested and company credit or improperly pledged.
On the other hand, Shri S.O.P. Agarwal appearing for respondent submits that in none of these transaction, the respondent is alleged to have gained anything personally or retained to himself for the purposes of repayment or retained by him to the company. According to Shri S.O.P. Agarwal, the Director may not exercise prudence for sanction of loans which may be required by law but that by itself cannot be treated to be misfeasance or breach of trust. Perhaps to be element of misfeasance is criminal law and as such there is element which may bring it within the mischiefs of misfeasance of proceedings are quasi criminal and are of serious nature which may also ultimately making respondent liable to criminal act. Shri S.O.P. Agarwal submits that out of transactions mentioned that the respondent were Director of the company only upto 1992, for which following loan accounts are said to be settled:-
"1. Lala Kashi Nath Seth Jewellers, Bahadurganj, Shahjahanpur.
Loss shown in the petitioner-Rs. 489.40 lacs
A compromise proposal dated 26.3.2001 pending consideration before the State Bank of India.
2. Dinesh Cold Storage, Shahjahanpur
Loss shown in the Petition-Rs. 133.94 lacs
Account settled with the State Bank of India under the One Time Settlement Scheme for Rs. 94 lacs, by its order dated 26.07.2006 of the said amount, Rs. 84 lacs have been paid and a sum of Rs. 10 lacs are to be deposited by 02.4.2007.
3. General and Motor Finance Company, Kapsenda
Loss shown in the Petition-Rs. 15.67 lacs.
Present status is not known.
4. Viraj Cold Storage & Allied Industry, Misripur
Loss shown in the petition-Rs. 65.05 lacs.
Account settled with the State Bank of India under the One Time Settlement Scheme for Rs. 115.50 lacs, by its order dated 8.8.2005. The said amount has been deposited and a no dues certificate has been issued to the said firm. A withdrawal application has been filed by the Bank before Debt Recovery Tribunal, Lucknow in terms of the compromise.
5. Lal Kashi Nath Seth Jewellers, Tundla, Agar
Loss shown in the Petition-Rs. 38.87 lacs.
Account settled with the State Bank of India under the One Time Settlement Scheme for Rs. 38.77 lacs. The said amount has been deposited and the case pending before the Debt Recovery Tribunal, Allahabad was decided 24.7.2001 in terms of the compromise.
6. Seth Jewellers, Oktenganj, Ballia
Loss shown in the Petition-Rs. 29.48 lacs
Accounted settled with the State Bank of India under the One Time Settlement Scheme for Rs. 30.48 lacs, by its order dated 30.3.2001. The said amount has been deposited and the suit pending before the Debt Recovery Tribunal, Allahabad and has been dismissed in the full satisfaction of the compromise by the order dated 14.3.2002.
7. Seth Ice & Cold Storage, Harpur, Ballia
Loss shown in the Petition-Rs. 19.80 lacs.
Account settled with the State Bank of India under the One Time Settlement Scheme for Rs. 72.61 lacs, by its order dated 31.3.2001. The said amount has been deposited and the suit pending before the Debt Recovery Tribunal, Allahabad and has been dismissed in terms of the compromise by the order dated 11.3.2002.
I have considered the facts alleged by Reserve Bank of India for taking action of misfeasance of breach of trust and for recovering Rs. 29 lacs with interest @ 18% from the respondent either individual or jointly along with other Directors. The respondent was Director of the Bank from 6.4.1984 to 8.5.1992. There is no allegation that he was proprietor or partner in the firm to which the loans were advanced. He may have participated in the meeting but there is no element of unviable against him. There is absolutely no allegation that he gained anything out of these transactions except that he should have been more careful and should have considered the viability of the loans and advances which ultimately resulted into loss to the bank. I find that these decisions which may have very bad commercial decision but that alone cannot constitute misappropriation, misfeasance or breach of trust which led to the falls of the bank and on account of which it was wound up as detailed in the status of the loan accounts, the loans given to Dinesh Cold Storage Shahjahanpur; Viraj Cold Storage & Allied Industry, Misripur; Lala Kashi Nath Seth Jewellers, Bahadurganj, Shahjahanpur; Seth Ice & Cold Storage, Harpur, Ballia and Saraswati G are in the process of settlement and that the State Bank of India has accepted One Time Settlement of these amounts.
In all the judgments cited by the applicant, the Directors or Chairman found to have misapplied for retaining the advances which ultimately led to collapse of the bank In the present case, it cannot be said that the fact and evidence on record do not establish that the
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