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The Exchange Bank of India and Africa Ltd. (In Liquidation) Vs. Laxmichand Kuverji Shah - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtMumbai High Court
Decided On
Case NumberAppeal No. 68 of 1960 and Insolvency No. 45 of 1959
Judge
Reported in1961(63)BLJR889
ActsBanking Companies Act, 1949 - Sections 45A and 45B
AppellantThe Exchange Bank of India and Africa Ltd. (In Liquidation)
RespondentLaxmichand Kuverji Shah
Appellant AdvocateY.B. Rege, Adv.
Respondent AdvocateF.S. Nariman and ;Zaiwalla, Advs.
Excerpt:
.....section 45b - presidency-towns insolvency act (iii of 1909), sections 11, 9a -- application by banking company in liquidation for issue of insolvency notice -- debtor not residing within limits of jurisdiction of high court -- high court's power to entertain and decide such application.;under section 45b of the banking companies act, 1949, the high court alone can entertain and decide an application for the issue of an insolvency notice made by a banking company in liquidation, notwithstanding the fact that the debtor does not reside within the limits of its jurisdiction.;h. naik v. jitendranath das [1954] a.i.r. orissa 139 agreed with.;ass. bkg. corp. v. nazaralli (1951) 54 bom. l.r. 22, dhirendra chandra pal v. associated bank of tripura ltd. [1955] 1 s.c.r. 1098 and ram narain v...........of india and africa ltd. through its liquidator. the respondent was a share-holder of the above banking company before it went in liquidation. on 20th february 1955 a balance order was made as regards the call liability of the respondent in respect of the shares held by him. under this order he was called upon to pay rs. 74,125/- to the company. as he did not pay the amount a notice under o. 21 r. 22 was issued to him. that notice was made absolute in november 1958. on 25th february 1959 the liquidator got issued an insolvency notice under section 9a of the presidency towns insolvency act. this notice called upon the respondent to pay rs. 74, 125/- or to furnish security for the payment of this sum within 35 days after service of the notice. this notice was served upon the respondent.....
Judgment:

Chainani, C.J.

1. The appellant is a Banking Company, to Exchange Bank of India and Africa Ltd. Through its liquidator. The respondent was a share-holder of the above Banking Company before it went in liquidation. On 20th February 1955 a balance order was made as regards the call liability of the respondent in respect of the shares held by him. Under this order he was called upon to pay Rs. 74,125/- to the Company. As he did not pay the amount a notice under O. 21 R. 22 was issued to him. That notice was made absolute in November 1958. On 25th February 1959 the liquidator got issued an insolvency notice under Section 9A of the Presidency Towns Insolvency Act. This notice called upon the respondent to pay Rs. 74, 125/- or to furnish security for the payment of this sum within 35 days after service of the notice. This notice was served upon the respondent on 15th August 1959. On 14th September 1959 he took out a notice of motion for setting aside the insolvency notice. Section 11 of the Presidency Towns Insolvency Act states that the Court shall not have jurisdiction to make an order of adjudication, unless the debtor, within a year before the date or the presentation of the insolvency petition, has ordinarily resided or had a dwelling house or has carried on business either in person or through an agent within the limits of the ordinary original civil jurisdiction of the Court. Rule 3 of the Bombay Insolvency Rules framed by this Court provides that the forms in Appendix I shall be used with such variations as circumstances may require. Form 1A is the form prescribed for making an application for the issue of an insolvency notice. Under foot-note (b), in para 2 of the form, words have to be inserted showing the Court's jurisdiction in terms of Section 11 of the Act. The respondent had not resided within the jurisdiction of this Court during 12 months before the date of the presentation of the application for the issue of the insolvency notice. It was therefore contended by the respondent that the Court had no jurisdiction to issue the insolvency notice. This contention was accepted by Mr. Justice K. K. Desai, who heard the notice of motion. It was, however, urged before him by the appellant that even though the Court may not have been able to issue the insolvency notice under the provisions of the Presidency Towns Insolvency Act and the rules framed thereunder, it had jurisdiction to issue such notice under Section 45B of the Banking Companies Act, 1949. This argument was rejected by Mr. Justice Desai. In the result, therefore, he made absolute the notice of motion taken out by the respondent and set aside the insolvency notice. Against the order made by him, the Company has come in appeal.

(2) Mr. Rege, who appears on behalf of the appellant, has raised two points. He has first urged that the view taken by Mr. Justice Desai that this Court had no jurisdiction to issue the insolvency notice because the respondent had not resided within its jurisdiction during the period of 12 months before the application for the issue of the notice was made to this Court, is erroneous. He has also urged that Mr. Justice Deasi was wrong in holding that Section 45B did not enable the Court to issue such a notice. He has contended that after the balance order was made against the respondent on 20th February 1955, there was a debt due from the respondent to the appellant Company, that the proceeding by way of insolvency notice was resorted to in order to recover the debt due to the Company, that it was consequently a proceeding for the realisation of the asset of the Banking Company, that therefore it related to the winding up of the Company, and that consequently this Court alone had jurisdiction to entertain the application for the issue of the insolvency notice. Mr. Nariman, who appears on behalf of the respondent, has on the other hand contended that the main question, which the Court has to decide in a notice of motion for setting aside an insolvency notice, is whether the debtor has shown sufficient cause for setting aside the notice. He has urged that the principal question, which the Court has to decide in such cases, is whether an act of insolvency was committed, and that consequently such a proceeding cannot be said to relate to the winding up of the company. Mr. Nariman has also contended that Section 45B cannot be availed of in execution proceedings. He has also urged that an insolvency proceedings is not a civil proceeding and that consequently section 45B will not apply to such a proceeding. He has further contended that Section 45B applied only in cases of proceedings taken under this section and not in cases of proceedings instituted under the provisions of some law.

(3) Sections 45A to 45X are contained in Part IIIA of the Banking Companies Act, the heading of which is 'Special Provisions for Speedy Disposal of Winding up Proceedings' Section 45A states that the provisions of this Part and the rules made thereunder shall have effect notwithstanding anything inconsistent therewith contained in the Companies Act, 1956 or the Code of Civil Procedure or the Code of Criminal Procedure, or any other law for the time being in force or any instrument having effect by virtue of any such law. The provisions contained in Section 45A and other sections in this Part are therefore to take effect notwithstanding anything contained in any other law. Section 45B provides as follows:

'The High Court shall, save as otherwise expressly provided in Section 45C, have exclusive jurisdiction to entertain and decide any claim made by or against a banking company which is being wound up (including claims by or against any of its branches in India) or any application made under Section 391 of the Companies Act, 1956, by or in respect of banking company or any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in the course of the winding up of banking company, whether such claim or question has arisen or arises or such application has been made or is made before or after the date of the order for the winding up of the banking company or before or after the commencement of the Banking Companies (Amendment) Act 1953.'

This section confers exclusive jurisdiction on the High Court in respect of the matters referred to therein. The object of these two sections and the other sections contained in this Part is to expedite the winding up of a banking company and to ensure speedy realisation of the assets of the Banking Company, so as to effect expeditious and effective distribution of the assets of the banking company amongst its various creditors. For this purpose all powers are concentrated in one Court and the High Court alone is empowered to decide all matters relating to the winding up of a banking company, notwithstanding anything to the contrary contained in any other law. The High Court is thus vested with extra-territorial jurisdiction and it may decide matters relating to the winding up of a banking company, wherever the cause of action may arise and even if the parties affected reside outside its jurisdiction.

(4) The matters, which under Section 45B the High Court is competent to entertain and decide, are(1) any claim made by or against a banking company which is being wound up, (2) any application made under Section 391 of the Companies Act, 1956, (3) any question of priorities, and (4) any other question whatsoever, whether of law or fact, which may relate to or arise in the course of the winding up of a banking company. The words 'relate to' are very wide and so are the words 'any question whatsoever'. The Legislature has used very comprehensive language in order to emphasise its intention that every question affecting a banking company, wherever and in whichever proceeding it may arise, should be decided by the High Court, if it satisfies one condition, viz., that it arises in or relates to proceedings for the winding up of the company.

(5) The primary function of the liquidator of a company in liquidation is to realise the assets of the company for the purpose of distributing them amongst its creditors. Any action, which the liquidator takes in order to recover the company's assets, can therefore be said to relate to the winding up of the company. This view has been taken in Associated Banking Corporation v. Nazaralli, : AIR1952Bom223 . In that case it was held that 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 that therefore the High Court alone has jurisdiction to try such a suit under Section 45B of the Banking Companies Act. In an insolvency notice the debtor is called upon to pay the amount of the debt referred to therein or to furnish security for its payment. In the notice, which was issued to the respondent, he was also asked to pay within 35 days from the date of the service of the notice the amount due from him to the appellant company or to furnish security for its payment. Such a notice is therefore taken out for the purpose of realising in whole or in part the debt due to the company. Consequently, it can be said to relate to the winding up of the company. It will therefore fall under (4) above and the High Court alone will be competent to issue such a notice, even though the debtor may not be residing within its jurisdiction.

(6) One of the questions, which under Section 45B of the High Court alone is competent to decide, is the question of priorities. Under Section 7 of the Presidency Towns Insolvency Act and the corresponding provisions contained in the Provincial Insolvency Act, the insolvency Court alone has power to decide all question of priorities. If it is held that the High Court has no jurisdiction to entertain an insolvency petition, in cases in which the debtor of a banking company resides outside the limits of its jurisdiction the question of priorities will have to be decided by the Insolvency Court and not by the High Court. This will be contrary to the provisions of S. 45B under which all questions of priorities in respect of claims by or against the banking company are to be decided by the High Court.

(7) The views which we are inclined to take would also result in carrying out the object of the Legislature, which is to provide for a machinery for the expeditious and speedy disposal of proceedings in liquidation. A banking company may have a large number of debtor and if insolvency applications were entertained by the large number of Courts within the jurisdiction of which the debtors may be residing the winding up proceedings may be considerably delayed. This will not be in accordance with the scheme of the Act, which is to secure speedy termination of the winding up proceedings.

(8) Mr. Nariman has urged that Section 45B applies only to proceedings taken under this section and not to proceedings taken under some other law, such as the Presidency Towns Insolvency Act. He has relied on the observation of the Supreme Court in Dhirendra Chandra Pal v. Associated Bank of Tripura Ltd. : 1955CriLJ555 that the normal proceeding under section 45B would be a proceeding by way of an application . Section 45B, however, applies when any question of law or fact, which may relate to or arise in the course of the winding up of a banking company, has to be decided. If, therefore such a question arises in any legal proceedings the it is to be determined by the High Court under Section 45B and it is immaterial under what provisions of law the proceeding was instituted. This is clear from Section 45A, which provides that Section 45B would apply, notwithstanding anything contained in any other law for the time being in force. There is also no force in the argument of Mr. Nariman that an insolvency proceeding is not a civil proceeding. Section 45B does not also restrict the jurisdiction of the High Court to civil proceedings only.

(9) Mr. Nariman has also contended that Section 45B does not apply to a notice of motion for setting aside an insolvency notice, because in such a motion the principal question, which is to be decided, is whether there is sufficient cause for setting aside the insolvency notice. That may be so, but if the whole proceeding can be said to relate to the winding up of a company, then Section 45-B will in terms apply. As I have pointed out above by the insolvency notice the debtor is called upon to pay the debt specified. Consequently in taking out such a notice the liquidator of the company is making an attempt to recover the debt due to the company. It can therefore be said to relate to the winding up of the company.

(10) Mr. Nariman has relied on Sections 45D and 45T and has urged that Section 45B cannot apply to execution proceedings. Sub-section (5) of Section 45D says that every order made under this section shall be deemed to be a decree in a suit, Sub-section (1) of Section 45-T provides that all orders made in any civil proceeding by a High Court may be enforced in the same manner in which decrees of such Court made in any suit pending therein may be enforced. Mr. Nariman has urged that as the provisions contained in Section 45D and 45T lay down the manner in which the orders made by the High Court are to be executed, Section 45B will not apply to execution proceedings. This argument cannot be accepted in view of the decision of the Supreme Court in Ram Narain v. Simla Banking and Industrial Co., : [1956]1SCR603 , in which at p, 619 it was observed:

'There has been some faint argument before us that the questions that arise in execution in this case and particularly the question relating to attachment which has been effected by the Bombay High Court, are not questions which fall within the scope of Section 45B. In our opinion this contention is so obviously untenable, in view of the very wide and comprehensive language of the Section that, it required no more than to be mentioned and rejected.'

(11) Mr. Nariman has also urged that the view, which we are taking, might result in hardship to debtors, who reside outside the jurisdiction of the High Court. The same argument was advanced in : AIR1952Bom223 and was not accepted. At pp. 27-28 (of Bom LR) : (at p. 226 of AIR) it was observed:

'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 contributories 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.'

(12) We are accordingly of the opinion that when an insolvency notice is taken out by a banking company in liquidation, the matter relates to the winding up of the company and consequently the High Court alone can entertain and decide the application for the issue of such a notice, notwithstanding the fact that the debtor does not reside within the limits of its jurisdiction. The Orissa High Court has taken the same view in the case of an insolvency petition made by a debtor of a banking company in H. Naik v. Jitendranath Das, : AIR1954Ori139 .

(13) In this view, it is not necessary to consider the other question whether issue of the Insolvency notice in this case was improper, because the respondent did not reside within the jurisdiction of this Court during 12 months before the presentation of the application for the issue of the insolvency notice.

(14) The appeal is therefore allowed and the order passed by Mr. Justice Desai is set aside. The period mentioned in the notice of Insolvency taken out by the appellant for compliance therewith is extended until 18th August 1961.

(15) The respondent should pay the costs of the appellant, both of the appeal and of the hearing before Mr. Justice Deasi.

(16) Appeal allowed.


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