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Vastulal Pareek Alias Bastilal Vs. Official Liquidator, Pareek Commercial Bank Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtRajasthan High Court
Decided On
Case NumberSpecial Appeal Nos. 6 and 7 of 1960
Judge
Reported inAIR1962Raj118; [1961]31CompCas77(Raj)
ActsCompanies Act, 1913 - Sections 235; Companies (Amendment) Act, 1956 - Sections 543; Banking Companies Act, 1949 - Sections 45H; Evidence Act, 1872 - Sections 34 and 106
AppellantVastulal Pareek Alias Bastilal
RespondentOfficial Liquidator, Pareek Commercial Bank Ltd.
Appellant Advocate Chandmal and; C.L. Agarwal, Advs.
Respondent Advocate C.D. Mundhra, Adv.
DispositionAppeals dismissed
Excerpt:
.....he made various attempts to obtain possession over the documents and assets of the bank from shri vastulal but was unsuccessful. ' debts considered good for which the bank holds no other security than the debtor's personal security. according to the liquidator, the said amounts were paid to the brokers wrongfully and without authority and shri vastulal committed breach of trust in respect of the moneys with an ulterior motive, knowing fully well that the money of the bank could not be misapplied for his own purposes. though at the same time the learned judge remarked that these respondents failed to exercise any control or supervision over the business of the bank which they were expected to do under the articles of association; under the law all that has to be shown by the..........of shares and securities.it appears that initially the pareek commercial bank had been started by shri vastulal in the year 1921 as his sole proprietary concern. later in 1943, this bank was registered as a public limited company with all its assets and liabilities. the financial condition of the bank eventually started deteriorating and the position became such that in february, 1952 it found itself unable to make payments to its depositors. this led to an application for winding it up under the indian companies act in the court of the district judge, bikaner, in february 1951; but when it was discovered that under the banking companies act of 1949 the high court alone was empowered to wind up a banking company an application to that effect was presented by one of the depositors to.....
Judgment:

Sarjoo Prosad, C.J.

1. These appeals are directed against the order of Jagat Narayan, J. dated 4-1-1960, passed in the course of a proceeding for winding up Pareek Commercial Bank Ltd. which is under liquidation. They arise out of connected applications presented by the official liquidator of the Bank under Section 235 of the Companies Act, 1913.

2. Shri Vastu Lal, respondent No. 1, was the Chairman of the Bank and Shri Ishwardas, Shri Ishwardutta and Shri Ghanshyam Dass, respondents 2 to 4 (no longer parties to the appeal) were its Directors. Under the Articles of Association of the Bank the general management of its business was vested in the Chairman, subject to control and supervision of its Directors'. The Chairman used to preside over the meetings of the Board of Directors and the Directors had conferred full authority on him to carry on the business of the Bankincluding sale and purchase of shares and securities.

It appears that initially the Pareek Commercial Bank had been started by Shri Vastulal in the year 1921 as his sole proprietary concern. Later in 1943, this Bank was registered as a public limited company with all its assets and liabilities. The financial condition of the Bank eventually started deteriorating and the position became such that in February, 1952 it found itself unable to make payments to its depositors. This led to an application for winding it up under the Indian Companies Act in the court of the District Judge, Bikaner, in February 1951; but when it was discovered that under the Banking Companies Act of 1949 the High Court alone was empowered to wind up a Banking Company an application to that effect was presented by one of the depositors to this Court on 15-4-52. This application was allowed on 31st July, 1952 and one Shri Lalita Prasad, an Advocate of Bikaner, had been appointed official liquidator. By an earlier order this gentleman had been appointed provisional liquidator and in this capacity he made various attempts to obtain possession over the documents and assets of the Bank from Shri Vastulal but was unsuccessful. Ultimately, he was able to obtain charge from Shri Vastulal through the intervention of the District Magistrate, Bikaner sometime in 1953.

3. An examination of the books of the Bank disclosed that a sum of Rs. 66,821/- stood in the cash credit accounts of six stock brokers which had been transferred to their accounts from Sundries Register. The items were as follows:

1. Rs. 700/-M/S Lallu Bhai Nagar Das.2. Rs. 8,500/-M/S Naraindas Aidan.3. Rs. 18,500/M/S S. Ramdas.4. Rs. 20,000/-M/S Lewis & Jones.5. Rs. 9,700/-M/S Kantilal Madhodas.6. Rs. 9,421/-M/S Sharaf & Co.____________Rs. 66,821

Payments appear to have been made in the accounts of the above stock brokers in different Banks on instructions issued on behalf of the Bank under liquidation by Shri Vastulal. There was no record in the Bank to show why these payments were made. On the contrary, the Directors' report and the statement of accounts for the year ending 31st December, 1950 contain the following remark under the heading ''Loans, advances, cash credit and over draft.'

'Debts considered good for which the Bank holds no other security than the debtor's personal security.'..............................................

This also includes Rs. 66,821/- which is the balance of various parties' accounts from whom shares were purchased and sold. These are not transacted through share account. Such purchases and sales are unverified owing to the lack of information. It is not known whether this amount represents loss or their costs.'

This inevitably led to public examination of Shri Vastulal at the instance of the liquidator, as contemplated by Section 45-G of the Banking Companies Act 10 of 1949, but the explanation offered by the said respondent was not considered satisfactory. The liquidator then addressed the stock brokers concerned who intimated that the above items were credited by them to the account of M/s. B. R. Pareek and Sons Ltd., a private concern, of which Shri Vastulal was the managing Director and were utilised towards payment of losses or this concern in its dealings in shares through those very stock brokers. The liquidator presented an application under Section 45-D of the Banking Companies Act on 28-4-55 against the first five of the above six stock brokers, against Sahukars Bank Ltd. Ludhiana, against the New Bank of India, Delhi, and against the respondent Shri Vastulal for recovery of the various amounts. His application was dismissed by the court on 6-1-56 on the ground that the payments in question were not apparently advances as simple debts which could be settled on the list of debtors. It was held that the proper course for the liquidator was to file claims under Section 45-B of the Banking Companies Act. The liquidator however preferred to file an application under Section 235 of the Companies Act in relation to the first three items mentioned above.

4. The case made out by the liquidator against Shri Vastulal is that he got various sums of money transferred from the account of the Bank to the account of the three stock brokers, not for the business of the Bank but for utilising the amount for payment of his personal losses which he incurred in transactions of sale and purchase of shares through these stock brokers and these amounts were actually credited by the stock brokers in his personal account. The liquidator accordingly prayed that Shri Vastulal the Director of the Bank under liquidation, should repay the above sums together with interest to the Bank.

As against the other three Directors the case put forward was that they rendered themselves liable under Section 235 of the Companies Act, 1913 because in their capacity of Directors they either abetted or connived at the conduct of Shri Vastulal in mis-using the above sums belonging to the Bank. In substance, therefore the case against the respondents was that in their respective capacities of Chairman and Directors of the Bank, the respondents were guilty of misfeasance or breach of trust in relation to the company, the limited Bank under liquidation.

5. The respondents contested the claim of the liquidator. Certain preliminary issues of law were framed and decided by the learned Judge on 4-9-58 in favour of the liquidator. These questions of law were:

1. Whether the application under Section 235 of the Indian Companies Act, 1913 was maintainable?

2. Whether the provisions of Section 45-O of the Banking Companies Act apply to the cases and

3. Whether the said provision of Section 45-O was ultra vires Article 14 of the Constitution?

These questions have not been reopened in the appeals before us and, therefore, it is not necessary to advert to them.

The only question which falls to be decided is the question of fact; whether the liquidator has succeeded in making out a prima facie case under Section 235 of the Indian Companies Act, 1913, read with Section 45-H of the Banking Companies Act of 1949 against the respondent Vastulal. Mr. C. L. Agarwal for the appellant has contended that the allegations contained in the petitions filed by the official liquidator do not make out a case under Section 235 of the Indian Companies Act so as to justify the court to take action against the appellant in these cases. He points out that before any action can be taken the burden lies on the official liquidator to make out a prima facie case against the appellant in respect of any charge of misfeasance or breach of trust relating to the money of the company; and not only the petition on the face of it must show that such a charge has been made out, but also there should be proof given by the liquidator to establish a prima facie charge of the character indicated above. In the present case, according to the learned counsel these elements are completely absent and, therefore, the learned Judge was in error in allowing these applications and in directing the appellants to repay the amounts. In this connection, he has referred to the contents of the various petitions filed by the appellants.

6. Section 235 of the Indian Companies Act provides inter alia that where in the course of winding up a company, it appears that any past or present director, manager or liquidator, or any officer of the company has mis-applied or retained or become liable or accountable for any money or property of the company, or been guilty of any misfeasance or breach of trust in relation to the company, the Court may, on application and subject to the conditions mentioned in the section compel the person concerned to repay or restore the money or property or any part thereof with interest. This, the court can direct notwithstanding the fact that the offence is one for which the offender may be criminally liable.

Section 45-H of the Banking Companies Act further lays down that where an application is made to the High Court under Section 235 of the Indian Companies Act, 1913, against any such person and the applicant makes Out a prima facie case against the person concerned, the High Court shall make an order against the person to repay or restore the money or property. It is, therefore, to be seen whether on the terms of the sections, a prima facie case has been made out against the appellant. The Bank in this case is in the process of being woundup and it is in the course of the winding up proceedings that the applications giving rise to these appeals, have been presented by the official liquidator. The respondent concerned was the Chairman of the Bank. Therefore, if it is shown that he is liable or accountable for any money or property of the Bank or has been guilty of misfeasance or breach of trust in relation to its assets, the court may pass an appropriate order directing repayment or restoration of the money or property.

Let us, therefore, now turn to the recitals in the petitions under Section 235 to see what the allegations are. After reciting the relevant facts mentioned earlier, the petitions in substance, proceed to say that Shri Vastulal the Chairman and ex-official liquidator of the Bank who was incharge of all the affairs of the company up to the date of the order of winding up, did satta business of buying and selling shares and securities in the name and style of B. L. Pareek and Sons Ltd. at Bombay, through different share brokers and particularly with those whose names have been noted earlier and incurred losses therein amounting to more than Rs. 50,000/- Shri Vastulal therefore made the above payments as advances in connection with his personal and private transactions & in any case not relating to the Pareek Commercial Bank Ltd. In each case, the payments made with their respective dates and the persons to whom paid, have been specified. According to the liquidator, the said amounts were paid to the brokers wrongfully and without authority and Shri Vastulal committed breach of trust in respect of the moneys with an ulterior motive, knowing fully well that the money of the Bank could not be misapplied for his own purposes. Thus it was alleged that Shri Vastulal was guilty of misfeasance, mal-feasance and non-feasance.

It is not necessary for us now to discuss the allegations against the other respondents to the petitions. For purposes of clarity, the learned Judge has separately specified the amounts claimed in each case against the respondent and it is useful to reproduce them here:

Case No. 175

:- Account of M/S LalluBhai Nagardas

Page 75

15-2-50

To amount paid by Bankof India, Bombay vide letter on 11-2-50.

Dr.700

6-12-61

By amount transferredto cash credit account

Cr.700

Case No. 176

: - Account of M/SNarain-das Aidan

Page 75

9-12-49

To amount paid hy Bankof India, Bombay on 13-12-49

Dr.3,500

6-2-50

To amount paid byImperial Bank of India, Bombay on 3-2-50

Dr,5,000

6-12-51

By amount transferredto cash credit account Cr

8,500

Case No. 177

: - Account of M/S S.Ram-das

Page 76

22-12-49

To cash paid byImperial Bank of India on 19-12-49

Dr. 10,000

28-1-50

To cash paid byImperial Bank of India Bombay on 7-l-50

Dr. 2,500

6-5-60

To cash paid byImperial Bank ot India on 20-2-50

Dr. 1,000

6-12-51

By amount transferredto cash credit account

Dr. 18,500

Apart from the above amounts 19 shares of Kohinoor Mills Ltd. which are said to be belonging to the Pareek Commercial Bank were delivered to Section Ramdas. According to the liquidator, the market value of these shares amounted to Rs. 6,346-11-0. This was also transferred to the cash credit amount of Section Ramdas. Therefore, tile balance against M/s. S. Ramdas in the cash credit account came to Rs. 24,846-11-0.

Shri Vastulal was allowed to make a statement on affidavit in these cases. He was cross examined by the liquidator and by the other three respondents in Court; but he did not produce any other evidence in his defence. He did not dispute in the present proceedings that B. R. Pareek and Sons Ltd. in his personal concern which he manages, the initial 'B' standing for Bastulal and ''R' for his son Rameshwarlal. He also did not dispute that the items referred to above were deposited in the accounts of M/s. Lallu Bhai Nagardas, M/s. Narain-das Aidan and M/s. S. Ramdas on his instructions and so were the 19 shares of Kohinoor Mills which were admittedly the property of the Pareek Commercial Bank delivered to M/s. S. Ramdas at his instance, in his capacity of the Chairman of the Bank.

His plea, however, is that the above payments were made and the shares were delivered for purposes of the Bank itself and he never authorised the stock brokers to utilise the amounts and the value of the shares to pay off any personal losses that may have been incurred by him on the transactions of sale and purchase of shares of Pareek and Sons. If the stock brokers of their own accord utilised the various sums of money in that manner without his authority, it is the brokers who were liable to repay the amounts to the Bank and the amounts could not be recovered from him. It is quite clear from the recitals in these petitions that a prima facie case of misfeasance or breach of trust has been sought to be made out against the respondents; and the contention of the learned counsel that the petitions do not disclose any material on which action can be taken under Section 235 of the Companies Act read with Section 45-H of the Banking Companies Act is, therefore, not entertainable.

7. The learned Judge after examination of the relevant available records of the Bank and the entries in the books of accounts and other documents of the Banking Company as also the evidence produced before him held that in each of the cases Vastulal should pay to the Bank in liquidation with interest the amounts which were paid to the various stock brokers. He, however, exonerated the defendants 2 to 4 from liability for the payment and dismissed the applications against them; though at the same time the learned Judge remarked that these respondents failed to exercise any control or supervision over the business of the Bank which they were expected to do under the articles of Association; and even though they put their signatures to the report of the Director made, to the Share-holders ior the year ending 31st December, 1950, in which a remark of the auditors, with regard to the disputed items was incorporated, they took no steps to find out the circumstances in which such huge sums of money belonging to the Bank were paid to various stock brokers or do something to recover them from the latter or from Vastulal.

8. The question then is whether any such prima facie case has been established and the findings of the learned Judge are correct. In dealing with the evidence in the case one has to bear in mind the fact that in a liquidation proceeding the difficulty of establishing a claim against the Director or an officer of the Bank under Section 235 of the Companies Act, 1913, is not inconsiderable. This is so because the material facts in all such cases are, within the special knowledge of the persons against whom the applications are made and the official liquidator appointed in the case at whose instance the application is presented may have no personal knowledge of the details relating to the alleged transactions. He is bound to rely on the records of the Bank, such as are available to him; and, therefore, it is only fair that no such burden of proving act of misfeasance or breach of trust in respect of the assets of the Bank should be placed on the applicant as to render his task impossible, This appears to be the meaning underlying Section 45-H of the Banking Companies Act. Under the law all that has to be shown by the applicant or should appear to the Court from the evidence is that there is a prima facie case made out against the officer, complained against, in order to make it obligatory on the court to pass an order directing the officer to repay or restore the assets, unless the person concerned proves that he is not liable to make the repayment or restore the property.

The Court had to be armed with such summary power in order to protect and pursue the assets of the Bank under liquidation which otherwise may be irretrievable. This principle, therefore, should be the guiding factor in appraising the evidence placed before us. To make out a prima facie case, of course the burden lies upon the applicant; but if the records do show a prima facie case the task of rebutting that evidence or of exonerating himself from liability would lie upon the person against whom the application has been made, since he is the person who knows about the business of the Company and is expected to throw greater light on the points in controversy in order to satisfy the conscience of the court that no liability should rest on him and that his conduct of the affairs of the Bank has been fair and above board. The initial burden on the applicant, having regard to the very nature of the case, has to be lightly placed, so as to compel the officer concerned to disclose his cards, failing which the claim should be allowed against him.

9. (His Lordship considered the evidence and proceeded.)

If the case of Shri Vastulal were correct, it would have been easy enough for Shri Vastulal to produce the books of account in possession of M/s. B. R. Pareek and Sons Ltd to contradict the entries made in Ex. C-1 by Ramdas and to show that none of those advances were utilised for the purposes of his business. The burden o rebutting the case of any misuse or misappropriation of the monies lay upon him, as otherwise prima facie the fact that Ramdas utilised these moneys for the appellant's business would be assumed to be correct.

10-12. It has been contended that the entries in the account books were not admissible under Section 34 of the Evidence Act and that they have not been duly proved by the person who made the entries. These arguments were not advanced before the learned single Judge and we think that they have no force at all. Ramdas of course admitted that several of the entries in the khata were written by his accountant Mr. Vengulkar and this accountant has not been examined.

NON examination of the accountant, however, does not affect the position because the transactions could be equally proved by Ramdas who had knowledge of them. It is also to be remembered that the account books have not been proved in this case for the purpose o fastening any liability. They have been merely proved to show how these disputed advances of money were dealt with by Ramdas. It is beyond dispute that the appellant had transactions with Ramdas in the sale and purchase of Shares and, therefore, Ramdas could as well prove the transactions and the entries made in his books of account. For these reasons, we are unable to entertain the submission of the learned counsel that the entries in the books of account were inadmissible and not of any evidentiary value in this case.

The most impressive argument of Mr. Agarwal, however, is based on the entries in the accounts themselves. He has endeavoured to show that some of the credit entries actually went to the credit of the Bank under liquidation and, therefore, in spite of the fact that the khata stands in the name of M/s. B. R. Pareek and Sons Ltd., the moneys were actually utilised for the purposes of the Bank. This aspect of the case was unfortunately not specifically urged before the learned trial Judge and we have been therefore obliged to scrutinise the argument in some detail. (His Lordship examined and scrutinised the account-book and then proceeded).

13. For the above reasons, we agree with the finding of the learned Judge that the payment of Rs. 18,500/- and the delivery of 19 shares of Kohinoor Mills to Ramdas was not for any purposes of the Bank but the probabilities are that these moneys were utilised for the purposes of M/s. B. R. Pareek and Sons Ltd., which is the private concern of Shri Vastulal and they were utilised as such with the knowledge and at the instance of Shri Vastulal. He is, therefore, liable to repay the amount of Rs. 24,846-11-0 with interest under the provisions of Section 235 of the Companies Act 1913, read with Section 45-H of the Banking Companies Act as ordered by the learned Judge.

14-16. The other appeal relates to the sum of Rs. 8,500/- shown in the cash credit account of the Bank as paid to M/s. Naraindas Aidan. It arises out of case No. 176, the appellant not having challenged the decision of the learned Judge in case No. 175 which related to a sum of Rs. 700/-only. The appellant's position is much weaker in this appeal, which in our opinion has little or no substance. (After considering the evidence his Lordship proceeded).

17. From all those facts, there can be hardly any doubt that Shri Vastulal abused his position as Chairman of the Pareck Commercial Bank Ltd., and paid the above sums belonging to the Bank to the stock brokers M/s. Naraindas Aidan for his own purposes to meet his own personal losses. He is, therefore, liable to repay those amounts as ordered by the learned Judge with interest under Section 235 of the Companies Act, 1913, read with Section 45-H of the Banking Companies Act.

18. These appeals therefore, must fail andare hereby dismissed with costs. The order of thelearned Judge under appeal is upheld. There willbe only one set of hearing fee in both the appeals.


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