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K.V. Lakshminarayana Sastry Vs. Vijaya Commercial Bank Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty;Civil
CourtAndhra Pradesh High Court
Decided On
Case NumberAppln. No. 204 of 1959
Judge
Reported inAIR1962AP17; [1962]32CompCas886(AP)
ActsBanking Companies Act, 1949 - Sections 45-D(6), 54-A and 54-B; Banking Companies (Amendment) Act, 1953; Provincial Insolvency Act - Sections 11
AppellantK.V. Lakshminarayana Sastry
RespondentVijaya Commercial Bank Ltd. and ors.
Appellant AdvocateK. Ramachandra Rao, Adv. Official Liquidator, for the Company
Respondent AdvocateO. Chinnappa Reddy and ;C. Padmanabha Reddy, Advs.
Excerpt:
civil - attachment - sections 45-d (6), 54-a and 54-b of banking companies act, 1949, banking companies (amendment) act, 1953 and section 11 of provincial insolvency act - bank under liquidation attached property of its debtor to realise outstanding debt from him - debtor declared insolvent on petition by one of his creditor and official receiver took possession of property already attached by bank - whether such order binding on bank in view of provisions of act of 1953 - after enactment of act only high court has jurisdiction to decide claims by or against bank arising in course of winding up - held, order of insolvency and consequential vesting of property in official receiver untenable in law as without jurisdiction. - - there can be no doubt that by reason of these two sections..........to this application are these: the vijaya commercial bank limited (hereinafter referred to as 'the banking company') was would up by an order of the high court of judicature, madras, made in o. p. no. 417 of 1953. as nadela sivaramakrishniah (hereinafter referred to as 'the debtor') was, on the date of the winding up order, indebted to the banking company, he was included in the list of debtors prepared by the liquidator. by an order of the madras high court, dated 7th december, 1954, he was directed to pay a sum of rs. 7,693-9-9 with further interest and a certificate ws accordingly issued under sec. 45-d(6) of the banking companies act (hereinafter referred to as 'the act').the debtor having defaulted to pay the amount within the time allowed, the liquidator initiated proceedings in.....
Judgment:
ORDER

(1) This is an application, under sections 45-A and 45-B of the Banking Companies Act (X of 1949) as amended by Act LII of 1953), for a declaration that the proceedings in I. P. No. 19 of 1958, on the file of the Sub-court, Masulipatam, and the order of adjudication passed therein are null and void and not binding on the Vijaya Commercial Bank, Limited (in liquidation.

(2) The facts giving rise to this application are these: The Vijaya Commercial Bank Limited (hereinafter referred to as 'the Banking Company') was would up by an order of the High Court of Judicature, Madras, made in O. P. No. 417 of 1953. As Nadela Sivaramakrishniah (hereinafter referred to as 'the debtor') was, on the date of the winding up order, indebted to the Banking Company, he was included in the list of debtors prepared by the Liquidator. By an order of the Madras High Court, dated 7th December, 1954, he was directed to pay a sum of Rs. 7,693-9-9 with further interest and a certificate ws accordingly issued under Sec. 45-D(6) of the Banking Companies Act (hereinafter referred to as 'the Act').

The debtor having defaulted to pay the amount within the time allowed, the Liquidator initiated proceedings in execution and a extent of ac. 3-35 cents of which he was the owner, was attached on the 19th October 1957, in E. P. No. 43 of 1957 on the file of the Sub- Court, Masulipatam. While so, on the 10th October, 1958, Nadella Rama Subbiah (2nd respondent) who, it is alleged, is closely related to the debtor, filed a petition under Sec. 11 of the Provincial Insolvency Act for the adjudication the debtor as an insolvent. The 2nd respondent alleged that the debtor and another owed him a sum of Rs. 1,200/- under a promissory note executed by then and that the debtor had fraudulently executed a mortgage deed in favour of one Basaviah. The debtor was adjudged insolvent by an order of the Sub-Court, dated 17th January 1959.

(3) It would appear that notice of the insolvency proceedings was not given to the Banking company. Pursuant to the order of attachment obtained by him, the Liquidator attempted to bring to sale the properties of the debtor. At this juncture, the Official Receiver, Krishna, moved the Sub-court for stay of the sale on the ground that the debtor had been adjudged insolvent and that his properties had vested in him. Thereupon the court stayed the sale and dismissed the execution petition filed by the Liquidator.

(4) It is contended by the Liquidator before me that the order of adjudication passed by the Sub-court, Masulipatam, in I. P. No. 19 of 1958 is null and void in view of Ss. 45-A and 45-B of the Act.

(5) The debtor, on whom notice of this application was served, remained expert. The Official Receiver, Krishna, to whom also notice was given, took no interest sin the matter.

(6) The 2nd respondent filed a counter-affidavit contending inter alia that Secs. 45-A and 45-B of the Act could not be invoked by the Banking Company, that if the Company ws aggrieved by the order of adjudication passed by the Sub-court, it should have filed an appeal against that order, and that the relief sought by the applicant in the present application is misconceived.

(7) On these contentions, the questions for decision is whether the order adjudging the debtor an insolvent passed by the Sub-court, Masulipatam, in O. P. No. 19 of 1958 is null and void by reason of Secs. 45-A and 45-B of the Act.

(8) For appreciating the point in controversy it is necessary to refer to the relevant statutory provisions. With the object of consolidating and amending the law relating to the Banking Companies, the Banking Companies Act (X of 1949) was enacted. One of the stated objects of the legislation was to provide a machinery by which proceedings sin liquidation of Banking Companies could be expedited and speedily terminated. It was found, however, that the Act of 1949, as originally enacted, was inadequate to achieve that purpose. It was in this situation that on the 19th September, 1949, the Banking Companies (Amendment) Ordinance, 1949, was promulgated. The Ordinance was later replaced by the Amendment Act of 1950, which introduced into the Act an entire Chapter, Part III-A, consisting of Secs. 45-A and 45-B under the heading 'Special provisions for speedy disposal of winding up proceedings'. However, the necessity for amending the new provisions was very soon felt and the Act was further amended by the Central Ordinance of 1953, later replaced by the Banking Companies (Amendment) Act (LII of 1953).

(9) Sections 45-A and 45-B as amended by the Amendment Act of 1953, are as follows:

PART III-

SPECIAL PROVISIONS FOR SPEEDY DISPOSAL

OF WINDING UP PROCEEDINGS

45-A. PartIII-A to override other laws.-- The provisions of this Part and the rules made thereunder shall have effect notwithstanding anything inconsistent therewith contained in the Indian Companies Act, 1913 (VII of 1913) or the Code of Civil Procedure, 1908 (Act V of 1908) or the Code of Criminal Procedure, 1898 (Act V of 1898) or any other law for the time being in force or any instrument having effect by virtue of any such law; but the provisions of any such law or instrument in so far s the same are not varied by, or inconsistent with, the provisions of this Part or rules made thereunder shall apply to all proceedings under this Part.

45-B. Power of High Court to decide all claims in respect of banking companies.-- The High Court shall, see as otherwise expressly provided in S. 45-C have exclusive jurisdiction to entertain and decide anay claim made by or against a banking company which is being would up (including claims by or against any of its branches in India) or any application made under S. 153 of the Indian Companies Act, 1913 (VII of 1913), by or in respect of a banking company or any question of priorities or anay another question whatsoever, whether of law or fact which may relate to or arise in the course of the winding up of a 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'.

(10) Having set out the relevant statutory provisions, it will be convenient to notice the decided cases which have a bearing on the question arising for decision

(11) In Associated Banking Corporation of India Ltd. v. Nazaralli Kasambhai and Co., : AIR1952Bom223 , a Division Bench of the Bombay High Court, consisting of Chaagla, C. J. and Bhagwati, J., had to consider the question, whether a suit filed by the Official Liquidator to recover a claim due to a Banking Company from its debtor was a matter relating to or arising out of the winding up of the banking company. The learned Judges pointed out that Sec. 45-A had the effect of ousting the jurisdiction of Courts, other than the High Court, and S. 45-B conferred a special jurisdiction upon the High Court. They observed:

'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 possessors enjoy before. Wherever the party may be resident, wherever the cause of action may have arisen, if the matter satisfies the test laid down, viz. that it relates to or arises out of the winding invested with the jurisdiction to decide that matter'.

On a consideration of the purpose and object of the legislation and the wider amplitude of the expression' relating to the winding up', the learned Judges held that the High Court had jurisdiction to decide the suit under S. 45-B and the jurisdiction of the City Civil Court had been ousted under S. 45-A.

(12) In Jadunath Roy v. Bank of Calcutta Ltd. : AIR1952Cal506 , Special Bench consisting of Harries, C. J. and Das, and Banerjee, JJ. held that,

'it is the High Court (and no other court) which has jurisdiction to decide any matter which relates to or arises cut of the winding up of banking companies when the registered office is within the jurisdiction of the High Court and the High Court alone has power to decide all questions whatsoever, whether of law or fact which may relate to or arise in the course of the winding up of the banking companies coming within the cognizance of the Court.'

(13) In H.Naik v. Jitendranath Das, 0043/1954 : AIR1954Ori139 ,Narasimham J. ( as he then was), held that,

' the question s to whether a debtor of a banking company under liquidation should be adjudged an insolvent and should get the protection of the insolvency law is a matter relating to the winding up of the banking company and consequently, the High Court alone has exclusive jurisdiction under Ss. 45-A and 45-B(1) to decide this question and all other questions arising out of the same.'

The above decisions were rendered with reference to the provisions of Ss. 45-A and 45-B as they stood before their amendment in 1953.

(14) Dealing with the effect of the amended provisions, Ramaswami J. of the Madras High Court, held in Thangia v. Hanuman Bank Ltd., AIR 1958 Mad 403, that it would not only be opposed to the scheme of the amending Act but it would also materially affect speedy realisation of the assets of a banking company under liquidation if the various debtors of that company were given leave by the High Court to prosecute their petitions for insolvency in the various District Court.

(15) As pointed out by their Lordships of the Supreme Court in Ram Narain v. The Simla Banking and Industrial Co., : [1956]1SCR603 :

'.................the pre-existing law relating to the winding up of a company involved considerable delay and expense. This was sought to be obviated so far as Banks are concerned by vesting exclusive jurisdiction in the appropriate High Court in respect of all matters arising ins relating or in the course of winding up of the company and by investing the provisions of the Banking Companies Act with an overriding effect. This result was brought about first by the Banking Companies (Amendment) Act, 1950, and later by the Banking Companies (Amendment) Act, 1953. Section 45-A and 45-B of Part III brought in by the 1950 Act are far more comprehensive and vest not merely exclusive jurisdiction but specifically provides for the overriding effect of other provisions also '.

There the question for consideration was whether the provisions of the Banking Companies Act could override the provisions of the Displaced Persons (Debts Adjustment) Act, 1951, and their Lordships held that having regard to the wide and comprehensive language of Ss. 45-A and 45-B of the Act, a proceeding to execute a decree obtained by a displaced creditor against a banking company from a tribunal functioning under Act LXX of 1952 and all other incidental matters arising therefrom, such as attachment and so forth, were matter within the exclusive jurisdiction of the Punjab High Court subject to the provisions of S. 45-C of the Act as regards pending matters.

(16) Learned counsel for the 2nd respondent, however, relied upon a decision of Remachandra Iyer, J. in V. R. Shenoy v. Raghunath Shenoy, 1959-29 Com. Cas 175: 72 Mad LW 199. There the learned Judge held that.

'an application for the partition of the properties mortgaged to a banking company on the ground that they are the properties of a joint Hindu family cannot be said to be a claim against the banking company, and such an application is not congnizable by the High Court under S. 45-B of the Banking Companies Act, in the course of the windidng up of the banking company'.

The learned Judge pointed out that the claim under section 45-B of the Act being one by or against a banking company in liquidation it should have a relation to the liquidation of the Banking Company; and it is only those matters which will facilitate the winding up the banking company, viz. the realisation of its assets and their distribution amongst the various persons entitled to them, that can properly be the subject-matter of an enquiry under S. 45-B'.

(17) For the purpose of this case, it is not necessary to consider the soundness of this view. The matter arising in this application is one relating to the liquidation of the Banking Company viz. the realization of its assets and their distribution among the various persons entitled to them, which, the aforesaid decision itself points out, can be the subject matter of an enquiry under S. 45-B.

(18) It was pointed out by their Lordships of the Supreme Court in Kiran Singh v. Singh v. Chaman Paswan, : [1955]1SCR117 :

'It is a fundamental principle well established that a decree passed by a court without jurisdiction in a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject matter of the action, strikes at the very authority of the court to pass any decree, and such a defect cannot be cured even by consent of parties'.

Sections 45-A and 45-B, inserted in the statute by the Amending Act of 1950, vested exclusive jurisdiction in the appropriate High Court to decide all claims by or against a Banking Company relating to, or arising in the course of winding up. Sections 45-A and 45-B, substituted by the Amending Act, of 1953, are far more comprehensive and vest not merely exclusive jurisdiction but specifically provide for the overriding effect of other provisions also. It may be noted that S. 45-A specifically provides that the provisions of Part III and the rules made thereunder shall have effect notwithstanding anything contained in the Indian Companies Act

1913, or the Code of Civil Procedure or the Criminal Procedure Code or any other law for the time being in force or any instrument having effect by virtue of such law.

The High Court having been vested with exclusive jurisdiction with regard to all matters arising in relation to or in the course of winding up of a company, the order of adjudication made by the Insolvency Court and the consequent vesting of the properties of the insolvent in the Official Receiver, are without jurisdiction and must, therefore, be held to be null and void.

(19) On this conclusion, it follows that the application must be allowed with costs against the 2nd respondent.

(20) Application allowed.


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