1. The petitioner 1 before me, Ranjan Guha, is the Managing Director of a Bank, called the New National Bank limited and petitioner 2 N. Chakravarty, appsara to hold a multiplicity of offices, seeing that be describes himself as 'Director, Chief Controller and Chief Auditor' of the Bank. The present role is directed against an order of the learned Chief Presidency Magistrate, refusing to stay certain proceedings which the petitioners asked stayed on the ground that they were covered by a stay order passed by this Court on its Original. Side under Section 153 (5), Companies Act.
2. The material facts are the following: On 20th May 1917, the New National Bank Limited made an application on the Original Side of this Court under Section 153, Companies Act and on the same day obtained a stay order from Edgley J. That order was in the following terms.
And it is further ordered that until the final determination of this application or until the further order of this Court the commencement and or continuation of all suits and proceedings against the said Company, its Directors and officers in the meantime be and the same are hereby stayed.
On 13th July 1947, the opposite party filed a complaint before the learned Chief Presidency Magistrate, Calcutta, charging the petitioners and one B. Mujamdar with offences under Sections 403, 406 and 409/114, Penal Code. The substance of his complaint was that he had a current account with the Bank and the petitioners as officers of the Bank, had purchased a number of shares for him and on his instructions with money drawn from his current account. In spite, however of repeated requests they had not delivered the shares to him, although under the contract between the parties the shares were liable to be delivered on demand. On this application being made, warrants were issued against the accused persons under Section 409, Penal Code, and a search warrant was also issued for the seizure of the shares concerned as also certain books of the Company. The petitioners surrendered on 26-7-1947 and were released on bail. On 30th September, they made an application, praying that the proceedings might be stayed and the search warrant recalled in view of the order passed by Edgley J. Thereupon the search warrant was recalled and a date was fixed for the hearing of the application. On 28-8-1947, the learned Magistrate, after hearing the parties, decided that the order of the High Court did not touch a case like the one he had before him and therefore it should proceed. He directed fresh search warrants to issue. Thereupon the petitioners moved this Court and obtained the present rule.
3. Mr. Basu, who appeared on behalf of the petitioners, contended that the proceedings before the learned Magistrate were clearly covered by the order made under Section 153, Companies Act, and the learned Magistrate had been in error in refusing to stay them. He placed his contention on the footing that the petition of complaint charged the accused persons with certain offences only in the capacity of bankers and agents and what had been alleged there was not so much criminal breach of trust as cheating by the bank as a bank. He relied upon the broad proposition of Company Law that any one having any kind of claim, be it even a claim for damages, had a right to intervene in a winding up or proceedings under Section 158 and contended that even if the opposite party had alleged criminal breach of trust, a liability sounding in damages had arisen against the Bank on the footing of which the opposite party would have his relief in the Section 153 proceedings as a creditor.
4. Mr. Basu further contended that even if the petition of complaint was capable of the construction that criminal breach of trust was alleged therein, if it was also capable of the construction that mere fraudulent operation of the banking account was being alleged, his clients ought to get the benefit of the ambiguity and the proceedings ought to be stayed, as prima facie coming within the ambit of the order passed under Section 153, Companies Act.
5. Mr. N.C. Talukdar, who appeared on behalf of the opposite party, contended that his client was not a creditor of the Bank at all and therefore would have no locus standi to intervene in proceedings under Section 153. According to him, the opposite party had simply kept certain shares with the Bank in safe custody and having failed to obtain delivery of those shares was proceeding against the accused persons for criminal breach of trust. The shares never became a part of the assets of the Bank and there could be no question of the opposite party participating in the distribution of the assets of the Company or in any composition scheme on the footing that he was a creditor of the company as the depositor of the said shares. Mr. Talukdar contended further that although expressions might have been used in the petition of complaint here and there, charging the accused persons as bankers and agents, what had really been alleged was personal misconduct as individuals.
6. It will be noticed from the terms of Edgley J.'s order which has already been recited that it purports to stay all proceedings, not merely against the company but also against its Directors and officers. Section 153 (5), Companies Act, speaks of proceedings against the company alone. Edgley J. could not have intended to go beyond the terms of the section when he added the words 'Directors and Officers.' It was agreed before me by both the parties, and it seems to me to be the correct view, that 'Directors and Officers' in the order mean Directors and Officers as representing the Bank in its banking operations and not Directors and Officers in their personal capacity in private life.
7. It is also not seriously disputed that although the language of Section 153 and the order passed by Edgley J. are both extremely wide, no proceedings are intended to be stayed unless they are proceedings relating to matters which can be adjusted under Section 153. An application under Section 153 raises questions between a company and its creditors and members. The proceedings before the Magistrate in the present case can come within an order made under Section 153 if only they are proceedings as between the same parties and in the same capacities. The opposite party, I understand, is also a shareholder of the company, but he is not trying to enforce any rights in that status. All that he is trying is to obtain relief in respect of wrongs alleged to have been suffered in the capacity of a customer of the Bank who had put money therein and deposited chattels in specie. The primary question before me therefore is whether the opposite party could be regarded as a creditor of the company, constituted by the facts which he alleges.
8. That brings me to the petition of complaint which requires to be analysed in some detail. The case, as laid there is that the opposite party is a new-comer to Calcutta and came to be acquainted with petitioner 1 during a visit to Ranchi. The acquaintance continued after the return of the parties to Calcutta and sometime later petitioner 2 was introduced to the opposite party by petitioner 1. Gradually the two petitioners ingratiated themselves into the confidence of the complainant and induced him to open a current account with the Bank by various representations of its stability. Subsequently they induced him to enter into an arrangement for the purchase of shares through the Bank. The arrangement it is alleged was that the Bank would purchase shares as and when instructed with the money lying to the credit of the complainant in his current account that those shares would be held in safe custody by the Bank, that they would be liable to be delivered on demand, that they would form no part of the assets of the Bank and that the Bank would have no right to transfer, mortgage or encumber them in any manner whatsoever or have any lien thereon. The complainant proceeds to allege that he was informed by a letter dated 23-10-1946 that the Bank had purchased for him 12 sets of shares and he found that the price had been debited to his account with the Bank. He, however, failed to obtain delivery of the shares and on 3-3-1947 served a lawyer's letter in which he alleged that the Bank was holding the shares in safe custody for him. That letter elicited a reply in which it was proposed that ten of the 12 sets of shares would be delivered to the complainant in three instalments. The complainant thereupon grew suspicious and wrote another letter dated 21-3-1947, to which no reply had been received.
9. On the above allegations the opposite party stated that the accused had been guilty of fraudulent conversion in complete violation of the trust and responsibility imposed on them as bankers and agents and that they had committed the offences specified in the petition of complaint.
10. The question is what is the basis on which the complainant is making his case before the criminal Court. Is he alleging that, acting under his instructions, the Bank had purchased certain specific shares for him and in his interest and that, on such purchase, the shares became immediately his separate property by the force of the contract with the Bank or is he merely alleging that the bank had represented to him that it had applied a part of his money lying in the current account to the purchase of certain shares and had debited a certain sum, but was not accounting for the debit by producing the shares said to have been purchased? If the case is the first it is a case of criminal breach of trust in respect of the specified shares but if it is the second, it is something else if any criminal offence at all.
11. It is convenient at this stage to dispose of certain questions of law which were debated at great length. Mr. Basu contended that any person, having any kind of pecuniary claim, was entitled to rank as a creditor in a proceeding under Section 153 of the Act, It is true that all conceivable kinds of creditors are entitled to be so ranked bat the basic requirement is that the persons concerned must be creditors. Dealing with that question, Mr. Basu contended that even on the footing that the Bank was holding certain specified shares in safe custody on behalf of the complainant, still if it failed to deliver the shares to him it became liable foe damages as a bailee and this liability made the complainant a creditor. Mr. Basu reminded me that not merely persons having a claim in presenti but also contingent and prospective creditors had been held to be creditors within the meaning of the Companies Act. I am unable to accept the broad proposition contended for by Mr. Basu. It is true that even contingent or prospective creditors are creditors within the meaning of the Companies Act, but a person holding specified chattels deposited with him by another person for safe custody is not a debtor of any kind, whether present or contingent or prospective. A contingent creditor is one to whom nothing is at present due but a right in whose favour will arise on the happening of a contingency which is already clearly provided for. A prospective creditor again is a person to whom money is not immediately payable but will be payable on a certain day still in future. Applying these definitions to the facts of the present case, I am unable to see how, on the allegations made in the petition of complaint, the petitioners or the Bank could be said to be debtors of the opposite party or how he could be said to be their creditor, contingent or prospective. On those allegations the clear position is that he had left certain specified goods in the custody of the Bank merely for the purposes of custody and they never became a part of the assets of the Bank. Mr. Basu drew my attention to the case in In re Midland Coal Coke and Iron Co. (1895) 1 Ch. 267 at 275, where it was held that under Section 158 of the English Companies Act of 1862, even a claim sounding only in damages was admissible in proof against a company and a just estimate was to be made so far as was possible of the value of the claim. That decision, in my view, does not take Mr. Basu very far. For one thing it is a decision under a specified section of the English Act concerned. For another, it is a decision which speaks of damages arising out of a breach of contract. It is fairly well settled that a winding up order cannot be obtained by a person, claiming unliquidated damages, and his proper course is to change the claim for damages into a judgment and thus make himself a creditor (See Halsbury's Laws of England, Hailsham edition, Vol. V, page 550). In any event, although persons claiming damages for breach of contract may have been held in certain cases to be entitled to prove their claim, it has, so far as I am aware, never been held that damages in tort, if they have not been liquidated by agreement or by judgment, can be proved. On the allegations in the present case the damages to which the complainant would be entitled, would be damages not for breach of contract but for fraudulent conversion as expressly stated in the petition of complaint, that is to say, damages in tort. I am of opinion that the opposite party could not, as a person entitled to such damages, expect to be accepted as a creditor of the Bank in the proceedings under the Companies Act. He is a person who is simply trying to recover specific goods deposited with the Bank which remained his property even after such deposit or to punish the petitioners for failure to return them.
12. I am accordingly of opinion that if the proceedings before the Chief Presidency Magistrate are proceedings in respect of a criminal breach of trust, the complainant not being a creditor of the Company with respect to the shares which are the subject-matter of the charge, those proceedings are outside the order made by Edgley J. Mr. Basu however pointed out that it had not been alleged in the petition of complaint that shares had actually been purchased as represented to the opposite party, or that even if any shares had been purchased, that they had been received by the Company, or that even if received by the Company, they had actually been allotted to the complainant and transferred to his ownership. It was contended that allegations material to these matters not having been made in the petition of complaint no case of entrustment had been pleaded. What had actually been pleaded was that the complainant had some money in the Bank, had been told that some shares had been purchased with a part of that money, but had not been given either the shares or the money. The latter, Mr. Basu contended, disclosed only a case of the Bank failing to account for the complainant's money fraudulently and without just cause and the right of the complainant being to demand from the Bank the amount of his deposit, the alleged expenditure of a part of which had not been proved, he was clearly a creditor within the meaning of the Companies Act.
13. I do not agree with Mr. Basu that the petition of complaint must be severely scanned in order to see whether every constituent part of the operations between the parties has been specifically pleaded. The complainant was not bound to plead evidence in the petition of complaint. It is perfectly clear that his petition, in at least a part of it, proceeds on the footing that the shares were actually purchased and the shares had become his separate property by the force of the contract he had entered into with the petitioners as officers of the Bank. Unless such were his case, there could be no meaning in his asking repeatedly for the delivery of his shares. At the same time, the fact remains that the complainant has never been shown any shares or any transfer slips. It has not yet been found whether any specific shares were actually allotted to the opposite party in the books of the Company. It is not known whether the representation made to the opposite party that certain shares had been purchased was true or false. It is quite possible that although the Bank told the opposite party that certain shares had been purchased none had in fact been purchased at all. On the other hand, it may be that although the complainant cannot point to any specific shares which had actually been purchased and allotted to him, since he can give no particulars, still the shares can be sufficiently identified if appropriate entries are discovered in the relevant books of the Company. It may be that the gaps which Mr. Basu pointed out will be filled up when further evidence is produced. On the other band, it may transpire that there is no basis for a case of criminal breach of trust at all, whether or not there is any basis for a case of any other offence.
14. In the circumstances it seems to me that the case must proceed a little further till a point is reached when it can be seen more clearly whether there is a case of criminal breach of trust in respect of specified shares deposited or a case of fraudulent operation of the banking account. I am not referring to the final finding, because if the case proceeds up to the final finding there will remain nothing to be stayed. But before it can be held that the petitioner being a depositor of specified chattels, is not a creditor it has to be found that certain specified shares were actually purchased on his behalf, allotted to him and became his property in law at the time or before they are said to have been entrusted, If it be found that there was an entrustment of goods of this kind in this manner, the case will be found to be one outside the order under Section 153, Companies Act, and it will then have to be decided whether the offence of criminal breach of trust has been proved. If, on the other hand, it transpires that there was never in law or in fact a deposit of specific shares for the purpose of safe custody-shares which had become the separate property of the complainant, he will be found not to be a mere depositor of specific chattels but in fact a creditor on the basis of the current account. The case will then be found to be one within the ambit of the order under Section 153 and will have to be stayed.
15. In the result the Rule is made absolute in part. The case is remitted to the learned Chief Presidency Magistrate in order that he may proceed with it till he can decide whether or not there was a legal entrustment of specific shares which had already become the property of the complainant for the purpose of safe custody. If the answer be in the affirmative the case will proceed further up to decision. If the answer be in the negative, the case will remain stayed if it is not dismissed.
16. The present decision is limited to the application on which the Rule was issued namely an application for stay. Nothing which I have said will prevent the petitioners from challenging the validity of the proceedings themselves, if they are so advised, on the ground that no criminal offence has been alleged or disclosed.