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Merchants Bank Ltd., Tanjore Vs. M. Dharmasambarthani Ammal and ors - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberAppeal No. 399 of 1962
Judge
Reported inAIR1966Mad26; [1967]37CompCas227(Mad); (1965)2MLJ443
ActsBanking Companies Act, 1949 - Sections 45(5) and 45-H; Companies Act, 1956 - Sections 45L, 45L(4) and 543; Transfer of Property Act - Sections 2 and 6
AppellantMerchants Bank Ltd., Tanjore
RespondentM. Dharmasambarthani Ammal and ors.
Cases ReferredNokes v. Doncaster Amalgamated Collieries Ltd.
Excerpt:
.....45 (5) (e)--scope and applicability--bank suing its employees for misfeasance and malfeasance--pending suit another bank being amalgamated with this bank--whether suit can be continued by amalgamated bank--section 6(e) of transfer of property act (iv of 1882)--whether applicable to transfer by operation of law ; the first plaintiff filed a suit against the several defendants for the recovery of certain amounts the basis of the claim being that as employees of the first plaintiff, defendants 2 to 8 and the husband of the first defendant were guilty of various acts of misfeasance and malfeasance in respect of the funds of the first plaintiff and misappropriated the same. the first plaintiff also prayed for a mortgage decree on the foot of a security which the second defendant had..........date, any suit, appeal or other legal proceeding of whatever nature by or against the transferor-bank is pending, the same shall not abate, or be discontinued or be in any way prejudicially affected but shall, subject to the other provisions of the scheme, be prosecuted and enforced by or against the transferee bank. it is, therefore, clear as was the case in the calcutta decision, that the right to continue the suit was something which was attached to the property to which it was incidental and which was under the scheme of amalgamation transferred from the first plaintiff to the second plaintiff.(4) on that view it may not be necessary even to consider whether on the averments in the plaint, the cause of action was something more than a mere right to sue for damages. but it is clear.....
Judgment:
(1) This appeal by the second plaintiff turns on the maintainability of the suit originally brought by the first plaintiff. The suit was for recovery from the several defendants of a sum of Rs. 60,000 with subsequent interest, the basis of the claim being that, as employees of the first plaintiff, defendants 2 to 8 and the husband of the first defendant were guilty of various acts of misfeasance and malfeasance in respect of the funds of the first plaintiff, and misappropriated the same to a tune of Rs. 1,16,000. The first plaintiff also prayed for a mortgage decree on the foot of a security which the second defendant had executed in his favour in relation to the same mishandling of the funds. The first defendant's husband was the secretary of the first plaintiff from 1926 till 18-3-1957, when he died, leaving his widow, the first defendant. Though the articles of association vested the management of the first bank in a Board of Directors, the Board would appear to have confided and entrusted to the secretary the actual transactions and control of the affairs of the first plaintiff.

But between 1945 and 1957 a number of fraudulent misappropriations were committed by the first defendant's husband with the help of the rest of the defendants, who were the first plaintiff's employees like, cashier, accountant, bill collector, confidential clerk and peon. On inspection by the Reserve Bank and as per its report in August 1957, and the audit report dated 29-4-1957, it was discovered that there was a heavy shortage of Rs. 1,16,510-7-7. The first plaintiff charged the husband of the first defendant and the rest of the defendants with misappropriation, misfeasance, acts of gross and fraudulent negligence and misconduct, and, though the amount misappropriated was much larger, limited its claim in the plaint to the amount we have already mentioned. The fourth defendant had already executed a promissory note for a sum of Rs. 2000 in favour of the first plaintiff to cover his portion of the responsibility in regard to the acts of misfeasance. While the suit was pending, on the intervention of the Reserve Bank, the first plaintiff was amalgamated with the second plaintiff bank on and from 4-9-1961, by orders of the Central Government published in the Gazette of India, Extraordinary, dated 29-8-1961.

On the application of the second plaintiff it was impleaded in that capacity on the ground that the interests of the first plaintiff had developed on the second. Thereupon an additional issue was framed, namely, "Whether the Tanjore Permanent Bank, the newly constituted plaintiff, is entitled to continue the suit and get the reliefs prayed for in the suit". The parties went to trial on this preliminary issue, with the result the learned Subordinate Judge took the view that the second plaintiff had no locus standi to continue the suit and that, in fact, the suit was not a proper remedy, and dismissed the suit.

(2) The Court below formed that view as, in its opinion, the suit was in substance one for damages for misfeasance, which could not survive the amalgation of the first plaintiff with the second plaintiff bank. The court below was of the further view that the relative provisions in the Banking Companies Act 1949, for continuance of suits and proceedings in cases of amalgamation of banks, did not help the second plaintiff, as there was a lacuna in S. 45(5)(e) of the Act, and the scheme of amalgamation could not be read as filling up the lacuna or having an overriding effect. The court below also thought that the remedy of the second plaintiff was to file an application before the proper forum under S. 543 of the Companies Act 1956, read with S. 45-H of the Banking Companies Act 1949. We have come to the conclusion that the court below is not right on any or these matters.

(3) It is not a matter or doubt a cause of action based on a act like negligence or misfeasance or malfeasance is in the nature of a personal claim which abates or terminates with the death of the tort-feasor. That a mere right to sue is not transferable and cannot be assigned does not also require authority, S. 6(e) of the Transfer of Property Act is expressly to that effect. Even apart from statute, the position is the same even under the general law. But it should be noted that this limitation to transferability or assignability is confined to contractual transactions and does not in any way affect a transfer or assignment by operation of law, by statute or otherwise. In the present context, New Central Jute Mills Co. Ltd. v. Rivers Steam Navigation Co. Ltd., , appears to be directly in point. That was a

case of sanction by court of a scheme of amalgamation of two companies. The scheme ordered by the court provided that any suit or other legal proceeding, if pending in any court by or against the company which was amalgamated, be continued by or against the company with which the latter was amalgamated. On that basis an application was made for bringing the companye after amalgamation, on record, but, it was dismissed on the view that the transfer to the applicant was no more than a mere right to sue for damages for breach of contract.

Das Gupta C. J. as he then was, and Bachawat J. held that the transfer being by order of court of competent jurisdiction, S. 6(e) of the Transfer of Property Act had no application, having regard to S. 2(d) of the same Act, and that even independent of that, an accrued right to sue for damages was not a right which by its very nature was incapable of being transferred. Such right might be transferred with property to which it was incidental without infringing any rule of law. In taking the view, the learned Judges distinguished Nokes v. Doncaster Amalgamated Collieries Ltd., 1939-2 KB 578. This Calcutta case clearly decided that where transfer of such a right to sue is by operation of law, as in that case, by order of court, S. 6(e) of the Transfer of Property Act would have no application thereto. The position in the instant case is practically analogous to that in the Calcutta case with this difference, that here the scheme of amalgamation was brought about by the Government of India and not by an order of court. But that makes no difference to the legal position, because a scheme of amalgamation settled by Central Government has the force of law, as we shall point out in due course.

The scheme with which we are concerned transferred the first plaintiff's assets, liabilities and other rights and interests to the second plaintiff, including all rights of action. Apart from the generality, the scheme also specifically provided that if, on the prescribed date, any suit, appeal or other legal proceeding of whatever nature by or against the transferor-bank is pending, the same shall not abate, or be discontinued or be in any way prejudicially affected but shall, subject to the other provisions of the scheme, be prosecuted and enforced by or against the transferee bank. It is, therefore, clear as was the case in the Calcutta decision, that the right to continue the suit was something which was attached to the property to which it was incidental and which was under the scheme of amalgamation transferred from the first plaintiff to the second plaintiff.

(4) On that view it may not be necessary even to consider whether on the averments in the plaint, the cause of action was something more than a mere right to sue for damages. But it is clear from the plaint that the second defendant had, as a matter of fact, executed a security, so is the averment, for a sum of Rs. 30,000, to cover liability on account of misfeasance and the second prayer, as we already indicated, in the plaint is for a mortgage decree on the basis of the security. The security is obviously a tangible asset and surely is transferable or assignable. The fourth defendant also, as seen from the plaint allegations, had executed a promissory note for Rs. 2000 in respect of his share of liability for misfeasance. It does not appear the attention of the Court below was directed to this aspect of the matter.

(5) In any event, S. 45(5)(e) of the Banking Companies Act 1949 which was introduced by Act 37 of 1960, puts the maintainability of the suit by the second plaintiff beyond doubt. Sub-section (5) says that the scheme of amalgamation may contain provisions for all or any of the matters mentioned therein, and one of the matters mentioned therein, and one of them is contained in Cl.(e) which reads--

"Subject to the provisions of the scheme, the continuation by or against the banking company on its reconstruction or, as the case may be, the transferee bank, of any actions or proceedings pending against the banking company immediately before the date of the order of moratorium".

Factually, in this case there had been a moratorium before the scheme of amalgamation was settled and published by the Central Government. The Court below construed this sub-s, as disclosing a lacuna because it thought that it only enabled the transferee bank to continue an action pending against the banking company merged with it on amalgamation. That, in our opinion, is clearly a wrong view to take of the scope of the Sub-section. It is true the Sub-section has not been cautiously worded and clarity has been sacrified, apparently, for the sake of brevity. The object of the Sub-s. ex facie is to enable a banking company on its reconstruction or a transferee bank to continue certain things. It is clear that an action against either the one or the other pending on the relevant date is to continue. But it is argued that so far as the transferee bank is concerned, what the Sub-s. contemplates is only the continuance of action against the banking company which was amalgamated with it, and not an action filed by the latter and pending on the date of the order of moratorium.

This argument fails to give effect to the preposition "by" which, in our view, controls the meaning of the sub-section. The words "continuation by the transferee bank" can obviously relate to not an action pending against it, for this is also provided for in the section itself, but only to an action filed by it and pending on the relevant date. It was suggested that "continuation by the transferee bank of an action pending against it" refers to continuation of defence. But, if that is the meaning, the words "continuation against the bank" and "proceedings pending against the banking company" can hardly have any content. By those words actions against the transferee company are continued. In our view notwithstanding the somewhat unhappy phraseology used in clause(e), its clear intention is to enable the transferee bank to continue actions or proceedings started by a banking company and pending immediately before the date of the order of moratorium. On that view of the scope of sub-section(e), the further argument that the scheme which provides for continuance of suits filed by the first plaintiff, could not prevail over sub-clause(e) of sub-section(5), cannot be supported.

On the other hand, sub-section(14) of S. 45 clearly points out the effect of a scheme. It says that the provisions of S. 45, and of any scheme made under it, shall have effect, notwithstanding anything to the contrary, contained in any other provisions of the Act or in any other law or any agreement, award or other instrument for the time being in force. Obviously, the provisions of the scheme have an overriding effect and prevail over any other law. It is true equally sub-clause(e) of sub-section(5) will prevail, but, in this context, the opening words of sub-clause(e), namely, "subject to the provisions of the scheme" assume importance. By those words it is plain that the provisions of the scheme will even prevail over the express provisions in that sub-clause as to the continuance, of suits or proceedings. It was suggested at the bar that those words "subject to the provisions of the scheme" pertained to the provisions in the scheme relating to the manner of continuance. We do not think that we can read the words in such a limited way. It follows from our view of this statutory provision that the second plaintiff is entitled to continue the suit.

(6) That takes us to the last point as to whether the suit is the proper remedy. On that, there can be no difficulty because, as far as we are aware, there is nothing in the Companies Act 1956 or the Banking Companies Act, 1949, which, on amalgamation of a bank with another bank, automatically puts an end to a pending suit based on misfeasance, and requires the transferee company to resort to S. 45L and apply under S. 543 of the Companies Act. For one of the respondents, it was argued with reference to sub-section (4) of S. 45L that, by reason of it, all the provisions of the Companies Act relating to winding up would be attracted to a scheme of amalgamation approved and published by the Central Government under the provisions of the Banking Companies Act 1949. But it is well known that a fiction or a deeming provision cannot be extended beyond the purpose for which it was made. Further, sub-section (4) of S. 45L itself makes it clear that by reason of it all that would be attracted from the Companies Act is only S. 543. Quite apart from these considerations, it should be remembered that the suit was filed by the first plaintiff along before its amalgamation and when it was filed, it was maintainable and constituted a proper remedy. There is no statutory provision under which it has ceased to be a remedy and the jurisdiction has been shifted from one forum to another in respect of it. Nor do we think that a change-over has been brought about so that not a suit, but an application for misfeasance alone would lie at this stage.

(7) The appeal is allowed, and the decree of the court below is set aside. The suit is remitted to it for trial and disposal. Cost of this appeal will be cost in the cause. The court fee paid on the Memorandum of Appeal will be refunded.

(8) Appeal allowed.


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