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Associated Banking Corporation of India Ltd. and ors. Vs. Nazaralli Kassambhai and Co. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberO.C.J. Appeal No. 36 of 1951
Judge
Reported inAIR1952Bom223; (1952)54BOMLR22; ILR1952Bom873
ActsBanking Companies Act, 1949 - Sections 41, 42, 43, 45A and 45B; Banking Companies (Amendment) Act, 1950; Companies Act, 1913 - Sections 177B and 179; Bankruptcy Act, 1914 - Sections 105; Presidency-towns Insolvency Act - Sections 7; Provincial Insolvency Act - Sections 4
AppellantAssociated Banking Corporation of India Ltd. and ors.
RespondentNazaralli Kassambhai and Co. and ors.
Appellant AdvocateH.M. Seervai, Adv.
Respondent AdvocateC.N. Daji and ;Jal Vakil, Advs.
Excerpt:
.....act (ix of 1949), sections 54a, b - suit filed by official liquidator to recover claim due to banking company--claim below rs. 25,000--such claim whether matter relating to or arising out of winding up of company--whether high court has jurisdiction to try suit.;a suit filed by the official liquidator to recover a claim due to a banking company in liquidation from its debtor is a matter relating to or arising out of the winding up of the banking company, and, therefore, the high court has jurisdiction under section 45b of the banking companies act, 1949, to try the suit, and the jurisdiction of the city civil court is ousted under section 45a of the act, although the subject-matter of the suit may be below rs. 25,000.;an argument of convenience is never a safe argument in construing..........up. according to the learned judge these provisions only apply when a right is conferred upon the bankingcompany by reason of the winding up. the claim must arise directly by reason of the supervention of the winding up. but if the claim does not so directly arise and the claim already existed, the mere winding up does not make that claim a matter relating to or arising out of the winding up of a banking company. the learned judge has further taken the view that the mere fact that the official liquidator is dominus lite by reason of the winding up does not in any way affect the question to be decided. i must frankly confess tint there is considerable force in the view taken by the learned judge below and the matter we have to consider is by no means entirely free from doubt or.....
Judgment:

Chagla, C.J.

[1] This appeal arises out of a decision of Shah J. holding that the suit of the Associated Banking Corporation of India, Ltd., which is in liquidation, by its Official Liquidator, should be dismissed on the ground that thisCourt had no jurisdiction to try this suit. The suit was to recover a sum of Rs. 20,000 and odd, and it is not disputed that but for certain special legislation to which I shall presently refer the suit would have been triable by the City Civil Court in Bombay as the subject matter of the suit is below Rs. 25,000.

[2] The question that we have to consider is whether the jurisdiction of the City Civil Courthas been ousted and whether special jurisdiction has been conferred upon the High Court by reason of the suit having been fitted by the Official Liquidator in the course of the winding up of the Associated Banking Corporation of India, Ltd, An Act wag passed by the Dominion Legislature, being the Banking Companies Act, 1949 (Act X [10] of 1949), to amend the law relating to Banking Companies, and Part in of that Act deals with suspension of business and winding up of banking companies. When one turns to some of the provisions in that part, it is clear that the object of the legislature was as far as possible to expedite the disposal of winding up of banking companies For instance, Section 41 provides that the liquidator must make his report within two months to the Court from the date of the order giving the information required by Section 177B, Companies Act, 1913. Section 42 provides that meetings of creditors may be dispensed with. Section 43 provides for a special mode of proof of amounts deposited by depositors with banks.

This Act was amended by the Banking Companies (Amendment) Act, 1950 (Act XX [20] of 1950), and Section 45A, which falls in Part IIIA, the heading of which is 'Special provisions for speedy disposal of winding up of proceedings' defined the 'Court' in Part IIIA and in Part III of the earlier Act as the High Court exercising jurisdiction in the place where the registered office of the banking company which is being wound up is situated or, in the case of a banking company incorporated outside India which is being wound up, where its principal place of business is situated, and Section 45A further provided that notwithstanding anything to the contrary contained in the Indian Companies Act on in any notification, order or direction issued thereunder or in any other law for the time being in force, no other Court shall have jurisdiction to entertain any matter relating to or arising out of the winding up of a banking company. Therefore, jurisdiction of all Courts other than the High Court as defined in Section 45A was clearly ousted with regard to all matters which relate to or arise out of the winding up of a banking company. Then Section 45B conferred power upon the High Court to decide all claims made by or against any banking company, including claims by or against any of its branches in India, and all questions of priorities and all other questions whatsoever, whether of law or fact, which may relate to or arise in the course of the winding up of the banking company, coming within the cognisance of the Court.

[3] Now, the narrow question that we have to consider is whether a suit filed by the Official Liquidator to recover a claim due to a banking company from its debtor is a matter relating to or arising out of the winding up of a banking company. It may be pointed out that the Legislature has used a slightly different expression in Section 45B. The expression used in Section 45B is 'which may relate to or arise in the course of the winding up.' It is difficult to hold that the Legislature intended to convey something different by the use of the expression in Section 43A 'arising out of the winding up' from the use of the expression, in Section 45B 'arise in the course of the winding up.' Sections 45A and 45B are co-related. Section 45A ousts the jurisdiction of Courts other than the High Court, and Section 45B confers a special jurisdiction upon the High Court. There can be no doubt that by reason of these two sections extra-territorial jurisdiction has been conferred upon the High Court which it did not possess or enjoy before. Wherever the party may be resident, wherever the cause of action may have arisen, if the matter satisfies the test laid down, via, that it relates to or arises out of the winding up of a banking company, then the High Court is invested with the jurisdiction to decide that matter.

The view taken by the learned Judge below was that there must be a direct connection or a nexus between the winding up and the matter which comes for the decision of the Court before Section 45A or Section 45B would be applicable, and the view taken by the learned Judge was that the present suit arises out of contractual relations between the bank and the debtor, that the suit does not arise out of the winding up, that it is not by reason of the supervention of the winding up that the Official Liquidator became entitled to recover this amount, that the cause of action was already there, and the cause of action did not arise by reason of the banking company being wound up. According to the learned Judge these provisions only apply when a right is conferred upon the bankingcompany by reason of the winding up. The claim must arise directly by reason of the supervention of the winding up. But if the claim does not so directly arise and the claim already existed, the mere winding up does not make that claim a matter relating to or arising out of the winding up of a banking company. The learned Judge has further taken the view that the mere fact that the Official Liquidator is dominus lite by reason of the winding up does not in any way affect the question to be decided. I must frankly confess tint there is considerable force in the view taken by the learned Judge below and the matter we have to consider is by no means entirely free from doubt or difficulty.

[4] Now, it is necessary to consider in the first place Section 179, Companies Act. That section deals with the powers of the Official Liquidator and it provides that 'The official liquidator shall have power, with the sanction of the Court, to do the following things:' and among those things one is to institute or defend any suit or prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of the company. Clause (i) of Section 179 provides : 'to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.' It may be contended, as has been contended by Mr. Daji that the Court sanctions the filing of the suit in the course of the winding up and the sanction to file the suit does arise oat of the winding up, But the actual filing of the suit hag nothing whatever to do with the winding up. Mr. Daji says that once the sanction of the Court is given, the official liquidator must resort to the ordinary Courts of the land in order to enforce the claim of the tanking company against its debtors. But this Argument overlooks one or two important considerations

It is one thing to say that the company before it is wound up is enforcing its contractual right and the contractual obligation of the debtor in filing a suit to recover the debt due to the banking company. It is entirely a different thing to say that the official liquidator with the sanction of the Court is recovering the debt due by the debtor to the company under Section 179 because the official liquidator is not concerned with the contractual rights or obligations. He is primarily concerned to wind up the affairs of the company and to distribute its assets. Therefore, in filing the suit what he is doing is helping to wind up the affairs of the company and also assisting the ultimate distribution of the assets of the company. Even the Court when it gives sanction approaches the matter from the same point of view It has got to consider what are the possibilities of recovering the debt, what costs are likely to be incurred, whether from every point of view it is advisable to prosecute the claim and so on and so forth whereas the company before it is wound up would not be in any way fettered by the considerationswhich would weigh with the liquidator or with the Court under Section 179. Therefore, a suit filed after the Company goes into liquidation by the official liquidator under Section 179 must have a relationship with the winding up of the company. It is also to be borne in mind that the Legislature has not merely used the expression 'arising out of the winding up', hut it also used the expression 'relating to the winding up', and, in my opinion the expression 'relating to the minding up' is much wider and much more extensive than the expression 'arising out of the winding up'. If the Legislature bad restricted itself to the use of the expression 'arising out of', then it may possibly have been argued that there must be a direct connection between the winding up and the matter which is to be determined under Section 45A or Section 45B. But if the matter is merely related to the winding up, no such direct connection is necessary.

One must also look to the object with which these provisions were incorporated into the law. If the official liquidator is compelled to file suits to recover debts in different places in India against the debtors where they might be residing or where the cause of action might have arisen, then a speedy disposal of winding up proceedings would be impossible. The liquidator and the Court would have to wait till all these suits are disposed of before the Court would be in a position to wind up the affairs of the company and distribute its assets. Therefore, if the sole purpose and the whole object of this legislation is to wind up the affairs of banking companies as expeditiously as possible, then it stands to reason that the Legislature must have intended that the assets should be realised as quickly as possible, and when the official liquidator files a suit against 'a debtor of the banking company, all he is doing is to attempt to realise part of the assets to the company.

[5] Our attention has been drawn to analogous law to be found bath in the Insolvency law here and the Bankruptcy law in England. Section 105, Bankruptcy Act, 1914, provides:

'Subject to the provisions of this Act, every Court having jurisdiction in bankruptcy under this Act shall have full power to decide all questions of priorities and all other questions whatever, whether of law or fact, which may arise in any case of bankruptcy coming within the cognizance of the Court.'

And our own Section 7, Presidency-towns Insolvency Act is in identical terms. And there is a similar provision in Section 4, Provincial Insolvency Act. It has been held both in England and here that under this section the Insolvency Court has jurisdiction to try questions of title against strangers to the insolvency and also questions arising out of the contract which a stranger entered into with the insolvent before his insolvency. In other words, the view taken both by the English and Indian Courts is that this section does not restrict the jurisdiction o the Court to trying only those matters which arise by reason of the supervention of the insolvency. Even if the right existed in the solvent and it was that right which was being enforced against a stranger, it by reason of the adjudication the Official Assignee can prosecute that right and that claim, that matter can be considered by the Insolvency Court under Section 7, Presidency-towns Insolvency Act and under Section 105, Bankruptcy Act, 1914,

[6] Now, it will be noticed that the language used by the Legislature in out Section 7 and Section 105 of the English Act is merely a question which may arise in any ease of insolvency. The language used in the Banking Companies Act is much wider. It is not merely a matter arising out of the winding up or a matter arising in the course of the winding up, but also a matter relating to the winding up of a banking company, Mr. Daji has appealed to us not to give a construction to Section 45B and Section 45A which may result in debtors of the company in any part of India having to answer a summons issued by this Court or creditors of a banking company being compelled to file suits in this Court.

An argument of convenience is never a safe argument in construing a section of a statute. Of course, in oases of doubt or ambiguity one must loan against causing inconvenience to litigants which inconvenience could be avoided by putting a different interpretation upon the statute. But when one realises once again the object with which this law was passed, it is clear that all powers were intended to be concentrated in one Court for the purposes of winding up, and irrespective of the territorial aspect of the matter, irrespective of the fact that creditors or con-tributaries might be outside the jurisdiction of the High Court, the Legislature was emphasising more the necessity of expeditiously carrying out the winding up of a banking company than any inconvenience that might be caused to creditors or debtors or contributories.

If we are right in understanding and appreciating the object with which the legislation was passed, then any inconvenience caused to litigants, however much it might be regretted, must be looked upon as unavoidable in the larger interest of society which requires that the affairs of banking companies should not be unduly delayed and the winding up should be completed as soon as possible, I am therefore of the opinion that with great respect the learned Judge was in error in the conclusion he came to and this Court bas jurisdiction under Section 45B to decide this matter and the jurisdiction of the city civil Court has been ousted under Section 45A of Act XX [20] of 1950.

[7] Therefore, the order of dismissal passed by the learned Judge will be set aside and the appeal will be allowed. The liquidator's costs as between attorney and client will come out of the assets of the banking company. There will be no order as to costs of respondent 3. The suit was filed as asummary suit and therefore it will go back to the learned Judge in Chambers for disposal according to law.

Bhagwati, J.

[8] I agree.

[9] Appeal allowed.


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