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The Union Bank of Bijapur Vs. Bhimrao Shrinivasrao Jorapur - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case NumberCivil Revision Application No. 328 of 1927
Judge
Reported in(1929)31BOMLR463
AppellantThe Union Bank of Bijapur
RespondentBhimrao Shrinivasrao Jorapur
Excerpt:
provincial insolvency act (v of 1920), section 47-secured creditor, right of-proof by the creditor of the whole of ms claim-receipt of dividend for the full amount-relinquishment of security-'relinquish' meaning of-inadvertence to rely on security, piea of.;in proceedings in insolvency a secured creditor may adopt one of three alternatives; (a) he can prove for the whole debt and abandon his security; or (6) he may value his security, and prove for the balance; or (c) he may ignore the insolvency proceedings altogether and rely on his security.;the defendant bank had, under their articles of association, a lien on the corpus as well as the dividends of shares held by a shareholder in respect of any amount owed by him to the bank. a shareholder who was indebted to the bank was adjudicated.....amberson marten, kt., c.j.1. in this case, the applicant, the defendant bank, claimed to be secured creditors of one nenchand rayachand, now an insolvent, by reason of certain provisions in the articles of association of the bank, for instance, article 14 provides: 'the company shall have a first and paramount lien upon all the shares of any member for all moneys from time to time due or payable to the company from him alone, or jointly with any other person or persons'. it was also given power to sell the shares to satisfy the lien, then, there are other articles! such sections 141 and 142, which allowed the company to deduct any money due to it from the shareholder out of any dividend or bonus payable to the shareholder.2. stopping there for a moment, we thinly it clear that the lien.....
Judgment:

Amberson Marten, Kt., C.J.

1. In this case, the applicant, the defendant bank, claimed to be secured creditors of one Nenchand Rayachand, now an insolvent, by reason of certain provisions in the articles of association of the bank, For instance, Article 14 provides: 'The company shall have a first and paramount lien upon all the shares of any member for all moneys from time to time due or payable to the company from him alone, or jointly with any other person or persons'. It was also given power to sell the shares to satisfy the lien, then, there are other articles! such Sections 141 and 142, which allowed the company to deduct any money due to it from the shareholder out of any dividend or bonus payable to the shareholder.

2. Stopping there for a moment, we thinly it clear that the lien given by Article 14 is not confined to the corpus of the shares, but covers as well the produce of the shares, viz., the dividends. Therefore, to that extent, we cannot agree with the judgment of the learned Judge, For instance, a mortgage or charge of land covers the income or rents and profits without express mention.

3. Now it appears that this insolvent, Nemchand Rayachand, held some partly paid up shares in the bank, and that he became insolvent, o we are told, many years ago, viz., in 1922. The bank claimed that at that date he was indebted to them in a sum of approximately Rs. 874. We are told that their claim is in respect of a money bond. I should explain that we have to rely for the facts very much on the statements of counsel, because, unfortunately, the detailed facts have not been set out in any clear documents that are at the present moment before us. It also appears, from what we are told, that the bank proceeded to put in a proof in the insolvency for the whole amount of their debt, notwithstanding the fact that they were secured creditors. Further than that, they received a dividend on their proof for the whole amount of the debt. Subsequently the present proceedings have been initiated by the Receiver in the insolvency claiming payment from the bank of the dividends due on these particular shares.

4. The learned Judge has held that, by their action, it must be taken that the bank relinquished their security and elected to prove for their whole debt, and he has, consequently, passed judgment in favour of the Receiver. I may here notice that it is a striking fact that, as far as we can see, the bank in the Court below never made the slightest attempt to amend their original proof, nor to refund the dividend they had already received, and that it was not until this Court asked their counsel whether the bank still proposed to retain the dividend that we were for the first time told that the bank was prepared to restore the dividend. Even then it was not until- their counsel made his speech in final reply that we were, for the first time, told that the bank would now rely on their security merely and were prepared to abandon their proof in the insolvency and to restore the dividend with, I assume, interest.

5. Now, what is the correct legal position here A secured creditor, as is well known, may adopt one of three alternatives. He can prove for the whole debt and abandon his security; or he may value his security, and prove for the balance; or he may ignore the insolvency proceedings altogether and rely on his security.

6. The question then to be considered here is what is the proper 1928 inference to be drawn from the conduct of| the bank Here, I must point out that we are governed by the provincial Insolvency Act, and that, unfortunately, that Act, -with reference at any rate to the rights of secured creditors, is in a very attenuated form compared with either the English Bankruptcy Act or Presidency-towns Insolvency Act. In particular, both the English Act and the Presidency-towns Insolvency Act contain express provisions to this effect, that if a creditor puts in a proof for his whole debt, then he is deemed to surrender his security, unless he can show that his action was due to inadvertence. That particular provision will be found in the English Bankruptcy Act of 1883, Schedule I, Rule 10, and in the corresponding Consolidation Bankruptcy Act of later years. Then, as far as the Indian Presidency-towns Insolvency! Act is concerned, this particular provision will be found in Schedule I, Rule 11.

7. Further, the English authorities illustrate the cases where a creditor is deemed to have relinquished his security. One instance will be found in In re Rowe: Ex parte West Coast Gold Fields, Limited [1904] 2 K.B. 489 a case somewhat resembling the present case und it was held in that particular case j that there was no inadvertence, and accordingly, the company was refused liberty to amend its proof.

8. Then In re Safety Explosives, Limited [1904] 1 Ch. 226 a decision of the Court of Appeal, certain solicitors, who had a lien for co3ts, handed over their security to a purchaser, and they were refused leave to amend their proof. Another decision in point is by Lord Chelmsford in Stammers v. Elliott (1868) L.R. 3 Ch. 195 which is under the old Bankruptcy law. There an executor proved a debt in the Bankruptcy and received a dividend, and it was held that he had thereby abandoned his right of retainer.

9. On the other hand, in In re. Henry Lifter & Co,, Limited : Ex parte Hudders field Banking Company [1892] 2 Ch. 417 Mr. Justice North allowed a creditor to amend his proof where he had made the mistake of thinking that a particular security was collateral and not a direct security. In In re Maxson: Ex parte The Trustee : Ex parte Lawrence & Lawrence, Ld. [1919] 2 K.B. 330 Mr. Justice Horridge also allowed an amendment of the proof where he thought that the proof originally put in by the secured creditor had been put in by inadvertence.

10. We have not been referred to any authority on the Indian Presidency-towns Insolvency Act, nor have we been referred to any authority on the Act we have to deal with. And here I must emphasise that the English authorities are based on special rules, whereas here we have no specific rules of the kind. On the other hand, the Act which we have to deal with does lay down what a creditor is obliged to do. Section 47 deals with the duties of a secured creditor, and Sub-section (2) says:-

Where a secured creditor relinquishes his security for the general benefit of the creditors, ho may prove for his whole debt.

and then, Sub-section (6) says :-

Where a securad creditor does not comply with the provisions of this section, he shall be excluded from all share in any dividend.

As regards the expression 'relinquishes his security', I think the word 'relinquish' is sufficient to cover an abandonment by conduct.

11. Now here, not only, was there proof for the whole debt, but the bank has actually received a dividend on the whole debt. Under these circumstances, I think, the correct view to take is that by their conduct the bank must be taken to have relinquished their security, because, unless they did not, they had no right to take the step, which they did, of proving, and still less had they any right whatever to receive the dividend, which they did receive. Indeed if the contrary course was the one adopted by the bank, viz., that they wished to retain their security, then they deliberately adopted a course of conduct, which would be something like obtaining money by false pretences. Therefore, weighing those two alternatives, I hesitatingly adopt the first as being consistent with honest conduct, and I would refer to Section 114 of the Indian Evidence Act as assisting the Court in arriving at that conclusion.

12. There is one further alternative which I have yet to consider, that is, the point of alleged inadvertence by the bank of their rights as secured creditors under the Articles of Association, Now as far as we can see there is not one word in this case from first to last of inadvertence by the bank until their pleader made mention of it to us. On the contrary, as I have already pointed out, the bank took this extraordinary course that even in the lower Court they never attempted to amend the proof, nor is there anything to show that they were ever willing to refund the money. In fact, therefore, the line that they took before the learned Judge was really carrying out the line of conduct which they first of all adopted, by which they intended to prove |or the whole debt and intended to receive the dividend. In law, therefore, they could not also retain their security. Under these circumstances, there is really no question of inadvertence. Nobody has ever gone into the witness-box to up or explain the inadvertence. This present plea breaks down therefore on the facts, quite apart from the objection that a new case of this nature should not be allowed m revision.

13. In the result have come to the conclusion that there were here materials on which the learned Judge in law was entitled to arrive at a decision against the bank. Accordingly, I would direct this rule to be discharged with costs.

Murphy, J.

14. I agree, It seems, looking it the conduct of the defendant bank, that the only inference we can draw is the one which has been arrived at by the learned Subordinate Judge, i. e., that the bank elected to act under the first part of 8. 47 of the Provincial Insolvency Act. The bank has never attempted to show that there was a mistake and has never applied for an amendment, or put forward the plea of inadvertence, and, on the facts of the case, I think that the learned Subordinate Judge's decree was correct and should not be interfered with in revision.


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