Judgment :- VENKATARAMAN J. These three appeals arise out of a misfeasance application (Appln. no. 420 of 1952) filed by the joint Official Liquidators of the Nurani Union Bank Ltd., Palghat (in liquidation ) under section 235 of the Indian Companies Act, 1913 (Act VII of 1913) , seeking to make the sevenrespondents in that application pay a sum of Rs. 9, 19, 884-5-0. The sevenpersons who were impleaded as respondents in the application were directorsof the company. The first respondents in the application were directors ofthe company. The first respondent in that application, N.R. Lakshmana Iyerwas the managing director and the seventh respondent, K.N. Ramalinga Iyerwas the secretary. The application was tried by Ramaswami J. who held thatthe misfeasance had been proved. Respondents Nos. 3 and 4 in thatapplication had died before the decision, and in the view that section 235 ofthe Indian Companies Act was a summary procedure available only against thedirectors themselves and not their legal representatives, no order forcompensation was made in respect of those two respondents. The order forcompensation for the sum of Rs. 9, 19, 884-5-0 was passed against the remainingrespondents Nos. 1, 2, 5, 6, and 7. Of them the fifth respondent in theapplication, K.N. Srinivasa Iyer, has filed O.S.A. No 2 of 1961. The sixthrespondent in the application, M.P. ananthasubramania Iyer, has filed O.S.ANo. 4 of 1961 and the managing director, N.R. Lakshmana Iyer, has filedO.S.A. No, 22 of 1962 The facts and the prior history have been set out in sufficient detail in thejudgment under appeal and, hence, it is sufficient to recapitulate them herebriefly. The Nureani Union Bank Ltd. was started in 1929. It was, so tosay, a village institution serving the residents of the small villageNurani, in Palghat. The residents of the village were mostly Brahmins andmost of them were closely inter-related. The directors themselves wereclosely inter-related. In spite of resolutions which had been passed thatadvances should be made only to solvent persons and on adequate security andwith proper safeguards and also only with the sanction of the board ofdirectors in cases where the amount of the loans exceeded a particular sumadvances were made in contravetion of the resolutions. The application ofthe official liquidators shows that the bulk of the advances was shared bySri N.R.Ramaswami Iyer, was the managing director. Sri Ramalinga Iyer was thesecretary. The application ofthe official liquidators shows that the bulk of the advances was shared bySri N.R.Ramaswami Iyer, was the managing director. Sri Ramalinga Iyer was thesecretary. The unauthorised advances were because the other directorsabdicated their duty of exercising even the minimum amount of supervisionexpected of them, particularly in view of the resolutions which they hadpassed. Indeed, they themselves took out advances in excess of thesanctioned amounts and evidently for that reason they were not prepared toexercise any supervision over the acts of the managing directors and thesecretary. Indeed according to the finding of the learned judge they theyall conspired together to loot the money of the bank. The result was thatthe bank crashed. On October 15, 1947, a notice was put up stating that allpayments were suspended On December 9, 1947, a creditor filed an application, O.P.No. 371 of 1947for the winding up of the company. On December 16, 1947, two advocates [SriP.G.Krishna Iyer and C.S.Vidyasankar] were appointed provisional liquidatorsLater in Application No. 194 of 1948, a scheme of composition was proposedand sanctioned according to which the directors undertook to pay 12 annas inthe rupee to the creditors. Actually only 8 annas was paid. Theapplication, O.P. No. 371 of 1947, was revived and the winding up was orderedon November 1, 1949, and the official liquidators were appointed. The publicexamination of the directors took place in 1950, and on February 2, 1952, theofficial liquidators filed Application No. 420 of 1952, for misfeasance undersection 235 of the Indian Companies Act Fifteen detailed charges were framed. Of them the more important charges are1 to 6 involving nearly seven lakhs of rupees. It may be mentioned here thatthe application of the official liquidators mentions 13 items making up thetotal of Rs. 9, 19, 884-5-0 and charges 1 to 6 relate to items 1 to 3. Thefirst item represents an advance of Rs. 1, 25, 000 and odd to N.R.LakshmanIyer, the managing director. The second item represents as advance of Rs2, 22, 000 and odd to the managing director and the secretary, K.N.RamalingaIyer, jointlyThe third represents an advance of Rs. 3, 34, 000 and odd to the secretaryalone. The charges themselves specified the resolutions according towhich such huge advances were impermissible. Thus, the resolution on July10, 1937, permitted overdraft accommodation to N. R. Lakshmana Iyer only forRs. 3, 000. 3, 34, 000 and odd to the secretaryalone. The charges themselves specified the resolutions according towhich such huge advances were impermissible. Thus, the resolution on July10, 1937, permitted overdraft accommodation to N. R. Lakshmana Iyer only forRs. 3, 000. Another resolution of 1940 prohibited advances exceeding Rs.5, 000except on the recommendation of the majority of the directors. A resolutionof 1941 also was to the same effect. Yet these and the other advances weremade by the managing director and the secretary without consulting the otherdirectors. Charges 13 and 15 specified how the other directors totallyfailed to exercise any supervision. Such total absence of supervision waswither due to gross negligence or due to some of the directors havingthemselves violated the resolutions by drawing monies from the bank in excessof the permitted amounts. Of course they repaid the advances. But thelearned judge thinks that because they themselves had been granted suchunauthorised facilities, they were unwilling to exercise any check over themanaging director and the secretary. Further, they were all closely relatedand the unauthorised advances were spread over a long period and almostcontinuous and they could not have escaped the knowledge of the otherdirectors. In f act, except M .P. Ananthasubramania Iyer, the appellant inO.S.A. No. 4 of 1961, the other directors proceeded to ratify these advancesby a resolution dated September 27, 1947. It is on these facts that thelearned judge has held that the charge of misfeasance has been proved. Inour opinion this conclusion of the learned judge is fully justified exceptwith respect to M.P. Ananthasubramania Iyer Taking first the appeal of N.R. Lakshmana Iyer, appellant in O.S.A. No. 22 of1962, no doubt he became the managing director only on September 11, 1947but till then his own father was the managing director. It will be seen thathe took away in his own name as much as Rs. 1, 25, 021-7-0 and a sum of Rs2, 22, 658-5-8 jointly with the secretary, K.N. Ramalinga Iyer. Thus, he wasdirectly guilty of misfeasance for these substantial amounts. Further, heshould have known that though under Form F the balance-sheet should specifythe debt due from each director, the various balance-sheets did not exhibithis own indebtedness. That should have put him on enquiry as to whethersimilar loans had been granted unauthorisedly to any of the other directorsor even to other constituents of the bank. Further, heshould have known that though under Form F the balance-sheet should specifythe debt due from each director, the various balance-sheets did not exhibithis own indebtedness. That should have put him on enquiry as to whethersimilar loans had been granted unauthorisedly to any of the other directorsor even to other constituents of the bank. The inference most charitable tohim would only be that he wilfully abstained from such enquiry and that wouldconstitute gross negligence and breach of his duty. In short, it would bemisfeasance. Actually, he would say in his evidence that all these loans inexcess of the amounts mentioned in the special resolutions mentioned in thecharges were also sanctioned by the body of directors but he would say thatthe sanction was oral. The resolutions require the written consent of themajority of the directors in the case of unsecured loan in excess of Rs5, 000 and it is impossible to accept his naive explanation that there w asan oral sanction by all the directors. Misfeasance has been clearly provedin his case So far as K.N. Srinivasa Iyer, appellant in O.S.A. No. 2 of 1961, isconcerned, it will be seen that though the limit of overdraft in his case wasonly Rs. 15, 000, according to the resolution on 18th July, 1943, exhibit A-18, he had overdrawn that amount consistently as the account from 12thDecember, 1945, to 3rd August, 1948, at pages 17 to 22 of book 5 shows. Itis seen that his indebtedness once rose even to the extent of Rs. 36, 890-14-4 (on 17th May, 1947). It is true he repaid the amount, but that isimmaterial so far as the question we are considering is concerned. The pointis that he should have known that the resolutions had been violated in hisown case ad that should have put him on enquiry as to whether there had beensimilar violation of the resolutions of the board o directors in the case ofany other director or any other constituent. It is significant that Sri K.NRamalinga Iyer from whom over five lakhs of rupees was due was none otherthan the brother of this appellant. Even in his case he should have knownthat the balance-sheet was not in conformity with the prescribed Form Fbecause it did not mention his own indebtedness. It is significant that Sri K.NRamalinga Iyer from whom over five lakhs of rupees was due was none otherthan the brother of this appellant. Even in his case he should have knownthat the balance-sheet was not in conformity with the prescribed Form Fbecause it did not mention his own indebtedness. In our opinion, he too isguilty of misfeasanceBefore proceeding further we must express our surprise that no action wastaken against the auditor who wrongly certified to the correctness of thebalance-sheets. He must have known that the balance-sheet did not mentionthe indebtedness of the directors and the violation of the resolutions ofthe board of directors The case of M.P. Ananthasubramania Iyer, appellant in O.S.A. No. 4 of 1961stands on a different footing. In his counter-affidavit he states that hewas in re village only for two years between 1943 and 1945, and was thentransferred-he was a Thasildar. He became as director in 1944, not on his ownseeking, but because one of the shareholders proposed his name. The bank wasapparently in good working condition then and the managing director was theheadmaster of the local high School and a respectable man. the otherdirectors were respectable people and he was told t hat he had only toattend the meetings of the directors according to his convenience and nothingmore. That was why he agreed to be a director. When he had to leave Nuranivillage in 1945, he wanted to resign, but the other directors asked him tocontinue, stating that all that he had to do was to attend some annualmeetings. He fully believed in the solvency of the bank and deposited moniesin the names of himself, his wife his daughter and his sister to the tune ofRs. 8, 000. These deposits still remain outstanding. He did not take anyoverdraft and he only took a small loan of Rs. 400in 1947. He was not awareof any of the unauthorised advances. He has given evidence supporting theseaverments. We accept these averments as true. The balance-sheets and theaudit reports did not mention the indebtedness of the other directors andunauthorised loans granted to the other constituents. There was nothing toexcite his suspicion about the correctness of the balance-sheets and theaudit reports as in the case of others. We feel that so far as he isconcerned the charge of misteasance has not been brought home. The balance-sheets and theaudit reports did not mention the indebtedness of the other directors andunauthorised loans granted to the other constituents. There was nothing toexcite his suspicion about the correctness of the balance-sheets and theaudit reports as in the case of others. We feel that so far as he isconcerned the charge of misteasance has not been brought home. Ramaswami Jhimself was conscious that his case stood on a slightly different footingbut thought that it was sufficient to direct that the decree could beenforced against him only after proceeding against the other respondentsIn our opinion, however, the charge itself has not been brought home to himWe accordingly allow his appeal straightway Reverting to the other two appeals, one more point remains, viz., that oflimitation. The contention of the learned counsel for the appellants in thoseappeals is that the application for misfeasance is time-barred because itwas made more than three years from the date of the appointment of theprovisional liquidators, viz., December 16, 1947. Section 235(1) so far asis relevant says "Where in the course of winding up a company, it appears that any personwho has taken part in the formation or promotion of the company, or any pastor present director, manager or liquidator, or any officer of the company hasmisapplied or retained or become liable or accountable for any money orproperty of the company, or been guilty of any misfeasance or breach of trustin relation to the company, the court may, on the application of theliquidator, or of any creditor, or contributory made within three years fromthe date of the first appointment of a liquidator in the winding up or of themisapplication, retainer, misfeasance or breach of trust, as the case may bewhichever is longer, examine into the conduct of the promoter, directormanager, liquidator or officer, and compel him to repay or restore the moneyor property or any part thereof respectively with interest at such rate asthe court thinks just, or to contribute such sum to the assets of the companyby way of compensation in respect of the misapplication, retainermisfeasance or breach of trust as the court thinks just." * Sri V.R. Narayanan, learned counsel for the official liquidators, respondentsin these appeals, replies that the liquidator referred to for the purpose ofthe commencement of limitation is not the provisional liquidator but theliquidator or liquidators appointed after the company is ordered to be woundup, in this case, November 1, 1949. We have no hesitation in accepting thissubmission and in repelling the contention of the learned counsel for theappellants. The relevant provision is "made within three years from the dateof the first appointment of a liquidator in the winding up." * This has to beconstrued along with section 175, which runs thus (relevant portion alonequoted) "175. (1) For the purpose of conducting the proceedings in winding up acompany and performing such duties in reference thereto as the court mayimpose, the court may appoint a person or persons other than the officialreceiver to be called an official liquidator or official liquidators (2) The court may such an appointment provisionally at any time after thepresentation of a petition and before the making of an order for winding upbut shall before making any such appointment give notice to the companyunless for reasons to be recorded it thinks fit to dispense with notice." * Section 175 shows that the liquidator is appointed only for the purpose ofconducting the proceedings in winding up the company and that could be onlyafter the order for winding up is made. No doubt such, appointment could bemade provisionally even before the making of the order for winding up, butthat is only provisional and it is not that appointment which is contemplatedin section 235, though the use of the word "first" in the relevant portion ofthe section "from the date of the first appointment of the liquidator" is nothappy. It would apply to a case where, even after the winding up orderthere happen to be more than one order of appointment of liquidator; forinstance, it may happen that first a person A is appointed liquidator (afterthe winding up) and he is replaced later by another person B or anotherperson C is associated with A as joint liquidator. In such cases thestarting point of limitation would be the date of appointment of A in thefirsts instance. Against is no doubt true that under section 168 a winding upof a company by the court shall be deemed to commence at the time of thepresentation of the petition for the winding up. But, in our opinion, thatlegal fiction has no relevancy on the question of limitation for anapplication under section 235. The natural meaning of the words "the dateof the first appointment of the liquidator in the winding up" is only thedate of appointment of the official liquidator under section 175(1). But, in our opinion, thatlegal fiction has no relevancy on the question of limitation for anapplication under section 235. The natural meaning of the words "the dateof the first appointment of the liquidator in the winding up" is only thedate of appointment of the official liquidator under section 175(1). Thereason underlying the provision also suggests the same meaning, for it isonly after the official liquidator investigates the affairs of the companythe acts of misfeasance usually come to light and the provisional liquidatormay not be able to discover the acts of misfeasance at all-in fact it is nothis primary duty to discover such acts of misfeasance. To interpret thesection as meaning that limitation should start even from the firstappointment of the provisional liquidator would really defeat the purpose ofthe section In this connection, what happened in this very case itself illustrates thepoint. It will be noticed that it was because of the scheme of compositionthat the order for winding up and the appointment of the official liquidatorwere delayed. But for the scheme of composition, the winding up order wouldhave been made much earlier and the official liquidator would have beenappointed much earlier and the would have filed the application much earlierwithin three years of December 16, 1947, itself (the date of the appointmentof the provisional liquidator). But because of the scheme of composition, allthe delay took place. If the construction put on the section by theappellants were to be accepted, all that the guilty directors need do tosucceed on the plea of limitation is to put forward some such scheme ofcomposition even though it may not be bona fide, and delay the passing of theorder of winding up and the appointment of the official liquidator undersection 175(1). This would clearly defeat the purpose of section 235 The legislative changes in the section also suggest the interpretation whichwe place on the section. This would clearly defeat the purpose of section 235 The legislative changes in the section also suggest the interpretation whichwe place on the section. Originally the application had to be made withinthree years from the date of the misfeasance and there was also a third sub-section in section 235 to the following effect "The Indian Limitation Act, 1908, shall apply to an application under thissection as if such application were a suit." * There was a conflict of decisions in the High Court, whether article 36 ofthe Limitation Act providing for a period of two years from the date ofmisfeasance or article 120providing for a period of six years from the datewhen the right to sue accrues, would apply. In this state of conflict ofauthority, the legislature made an amendment in 1936 deleting sub-section (3)and substituting the words "made within three years from the date of thefirst appointment of a liquidator in the winding up or of the misapplicationretainer, misfeasance or breach of trust, as the case may be, whichever islonger," * in the place of the original words. This clearly shows that thelegislature realised that the acts of misfeasance may not at all come tolight till after the order for winding up is made and the affairs of thecompany are investigated with a view to fix the liability of the directorsand the other delinquents, and, therefore, deleted the earlier provision andmade the date of the first appointment of the liquidator in the winding up asthe starting point. The object underlying this change could be sub servedand promoted only by the construction we are placing on the section, vizthat the commencement of the period of limitation is the date of theappointment of the regular liquidator under section 175(1) and not of theprovisional liquidator under section 175(2) A Bench of the Allahabad High Court has recently interpreted section 235 (1)as we are now doing : vide Vishwapal v. Sukh Sancharrak Co. 1. There is adecision of this court in Official Liquidator v. Krishnaswami Iyengar 2. Inthat case the contention on behalf of the directors was that notwithstadingthe legislative changes in section 235 effected in 1936, the principle wouldapply that if a suit against the directors would have been time-barred underarticle 36 of the Limitation Act, , the application under section 235 alsowould be time-barred. Inthat case the contention on behalf of the directors was that notwithstadingthe legislative changes in section 235 effected in 1936, the principle wouldapply that if a suit against the directors would have been time-barred underarticle 36 of the Limitation Act, , the application under section 235 alsowould be time-barred. Clerk J. held that this position had been altered bythe legislative changes effected in 1936 and pointed out that section 235(1)formed a complete code in itself on the question of limitation for thepurpose of the application under that section, and he observed that in thatcase the first appointment of a liquidator in the winding up was on 19thNovember, 1941, when provisional liquidators were appointed and theapplication under section 235 was presented within three years thereof, viz8th November, 1944, and was clearly within time. Actually, the winding uporder was made on 9th January, 1942. Merely because the learned judgepointed out that the application was within three years from the date of theappointment of the provisional liquidators, the decision cannot be taken asan authority on the question we are now considering. The learned judge wasnot called upon to consider the question which we are now considering, andindeed the reasoning of the learned judge in repelling the actual contentionwhich was put forward before him and in holding that the legislative changeseffected in 1936 altered the law, would rather support the view which we are taking The learned counsel for the appellants in O.S.A. No. 2 of 1961 and 22 of 1962relies on the decision of Ramesam and Cornish JJ. in Narasimha Iyengar vOfficial Assignee, Madras 3l. There, the company was ordered to be wound upby an order in 1922. The application (3) 1931 (54) ILR(Mad) 153; under section 235 was made in 1923. In other words, the question arose fordecision before the legislative changes had been effected in section 235 in1936. The court proceeded on the footing that the Limitation Act wouldapply as if the application were a suit. The application (3) 1931 (54) ILR(Mad) 153; under section 235 was made in 1923. In other words, the question arose fordecision before the legislative changes had been effected in section 235 in1936. The court proceeded on the footing that the Limitation Act wouldapply as if the application were a suit. The acts of misfeasance hadoccurred more than six years prior to the presentation of the applicationunder section 235 and in view of that circumstance, it was contended onbehalf of the directors that the application was time-barred whether article36 or 120 of the Limitation Act applied, the argument being that even ifonly article 120 applied, the right to sue had accrued even at the time ofthe commission of the act of misfeasance and any shareholder or creditor ofthe company could have filed a suit immediately thereafter and that all thatthe summary remedy provided under section 235 was only for the same reliefswhich would previously have been enforced by a suit and was not for a newrelief. On the other hand, the contention of the official liquidator wasthat article 120 applied and the right to sue accrued to the officialliquidator only on the date of the order of winding up. The learned judgerejected the contention of the official liquidator and accepted the argumentof the counsel for the directors. In our opinion, this decision is notrelevant at all on the question we are considering in view of the legislativechanges effected in 1936In the result, the appeals, O.S.A. Nos. 2 of 1961 and 22 of 1962, aredismissed with costs. Advocate's fee one set. Appeal O.S.A. No. 4 of 1961is allowed but without costs Appeals Nos. 2 of 1961 and 22 of 1962 dismissed Appeal No. 4 of 1961 allowed.