H.K. Bose, J.
1. This is an appeal from an order of P. B. Mukharji, J. dated the 1,5th June, 1959 dismissing an application for confirmation of certain alterations in the object clauses of the Memorandum of Association of a company known as Mahaluxmi Bank Ltd.
2. The appellant company was incorporated under the Indian Companies Act in 1910 as a company limited by shares to carry on inter alia the business of banking. On 27th February, 1950 by an order made by this Court a scheme of arrangement between the company and its creditors was sanctioned and by the said order the company was prohibited from receiving further deposits or to function as a bank until further orders from the Reserve Bank of India. The relevant portion of that order read as follows:
'And it is further ordered that the said company shall not be entitled to receive further deposits or to function as a Bank until the Reserve Bank of India permits the said Bank to do so.'
By a letter dated 20th August, 1953 the companyapplied to the Reserve Bank of India for permission to carry on non-banking business. The Reserve Bank of India by its letter dated the 27thAugust 1953, stated that if the company desired toconvert itself into a non-banking company itshould:
(1) pass a resolution declaring in unequivocal terms its intentions to cease carrying on the business of banking;
(2) alter the Memorandum of Association so as to delete therefrom such clauses as enable it to transact the business of banking; and
(3) change its name so as to conform to section 7 of the Banking Companies Act, 1949. In pursuance of these directions of the Reserve Bank of India the company convened two separate meetings of the share-holders and creditors on 28th June, 1954 and 29th June, 1954 respectively to consider the question of conversion ofthe company into a non-banking company and at both these meetings it was unanimously resolved that the name of the company be changed to Mahaluxmi Loan and Trading Company Ltd., and the object clauses in the Memorandum of Association be altered suitably. Thereafter fay a special resolution of the company passed at an Extraordinary General Meeting of the company held on 14th August, 1954, it was resolved that the objects of the company be altered by aban- doning the object clauses relating to banking and to expand the scope of its object with a view to carry on other non-banking business which under existing situation may conveniently and advantageously be taken up and carried on with its existing non-banking business. On 7th September, 1954, the company made an application to this Court for confirmation of the alteration of its objects as passed by the special resolution dated the 14th of August, 1954 and upon presentation of such application directions were given for proper advertisements and for service of notice on the Reserve Bank of India and the Registrar of Joint Stock Companies, West Bengal. It appears that the Registrar of Joint Stock Companies thereafter filed an affidavit-in-opposition in answer to this application and also appeared at the hearing of the application and opposed the application but on the 25th January, 1955 this Court made an order confirming the said alteration. A certified copy of this order was duly filed with the Registrar of Joint Stock Companies as required under the provisions of the Indian Companies Act and it appears that on the 29th May, 1958, the registration was effected by the Registrar of Joint Stock Companies. The alterations that were confirmed by the order were inter alia as follows:
'1. That the object clauses in the Memorandum of Association of the Company be and are, hereby altered and/or modified as follows:
A. Sub-clauses b, g, h, k, n and o of Clause 3 be deleted.
B. The following be added in Clause 3 as Sub-clauses b, c, d and e.
(b) To borrow or to take deposit of money on interest or otherwise and either with or without security from any person or persons, local authorities, Government and Defence Loan and to deposit or lend any such money or other monies of the company either with. Or without security or otherwise as the Company deem expedient. To raise money by issuing debentures charged upon all or any of the Company's property both present and future and to purchase redeem or pay off any such securities.
(c) To carry on the 'business of lending or advancing of money either with or without security and to discount, buy, sell, deal in Bills of Exchange, Hundies, Promissory Notes, shares of Joint Stock Companies and other transferable instruments. To buy, sell or otherwise deal in Bullions, Jewels, Government Promissory Notes, Municipal and Port Trust Debentures, War Bonds, Defence Certificates, Post Office Cash Certificates and like securities,'
It is not necessary to set Out the other sub-clauses of Clause B.
'D. The word 'Bank' be deleted and the word 'Company' be inserted in its Place wherever it occurs in Clause 3 except in the 4th Line of Sub-Clause (c) of Clause 3 and the word 'Banking' in Sub-clause (1) be deleted and in its place the word 'similar' be inserted. The word 'other' in the 4th line of Sub-clause (c) be deleted.
E. That the name of the company be changed to 'Mahaluxmi Loan and Trading Co. Ltd.'
3. On 25th March, 1955 the company applied to the Central Government for approval of the change of the company's name as Mahaluxmi Loan and Trading Co, Ltd. This step was obviously taken in view of the provisions of Section 11 (4) of the Indian Companies Act 1913, which provides that 'any company may by special resolution and subject to the approval of the Central Government signified in writing change its name,' and which corresponds to section 21 of the Companies Act of 1956. The Central Government by its letter dated the 13th of December, 1958 suggested that Sub-clauses 3 (b) and 3 (c) of the object clauses should be suitably altered as to eschew the business of banking and to apply thereafter for change of its name. The relevant portion of the letter dated the 13th of December, 1958 may be set out hereunder.
Shri R. K. Ganguly, L.A. and A.S.
Under Secretary to the Govt. of India.
M/s Mahaluxmi Bank Ltd.,
135, Canning Street,
Subject:--Change of name under Section 21 ofthe Companies Act, 1956.
In continuation of this Department letter of even number dated the 31st July, 1958, I am directed to say that it is observed that the objects clauses of your revised Memorandum, particularly Sub-clauses 3 (b) and 3 (c), permit the company to carry on the business of banking as defined in Section 5 (1) (b) of the Banking Companies Act, 1949. I am, therefore, to advise you to have the provisions of the said sub-clauses suitably altered so as to eschew the business of banking, and, thereafter apply afresh to this Department for change of name under Section 21 of the Companies Act, 1956. A certified copy of the order of the court under Section 17(2) of the Act confirming the alterations should be forwarded to this Department along with the fresh application.
I may add that with a view to eschewing the business of banking the company will be required either to delete the provisions in its Memorandum authorising it to accept deposits from the public or those relating to the lending or advancing of money to the public.
Sd/ R. K. Ganguly,
Under Secretary to the Govt. of India.'
4. It appears that for the purpose of carrying out these directions contained in the letter the company passed a special resolution at an Extra-ordinary General Meeting of the Companyheld on the 26th of March,. 1959 and the resolution was as follows:
'Resolved that the words 'or to take deposit of money' be deleted and the words 'for the business of the Company' be inserted after the words 'to borrow' and the words 'and Defence Loan and to deposit or lend any such money or other monies of the Company either with or without security or otherwise as the Company deem expedient' after the word 'Government'' in Clause 3 (b) of the Memorandum of Association of the Company be deleted.
Resolved further that Clause 3 (e) be deleted and the following be inserted in its place: To lend money to such person or persons or firms and at such terms as may seem expedient and in particular to customers or to other persons having dealings with the Company and to guarantee performance of contracts of members and/or persons having dealings with the Company.'
The result was that the alterations, therefore, read as follows:
3. (b) To borrow on interest Or otherwise and either with Or without security from any person or persons, local authorities, Government. To raise money by issuing Debentures charged uponall or any of the Company's property both present and future and to purchase redeem or pay off any such securities.
3. (c) As stated above.'
5. After this an application was made to this Court for sanction of the special resolution effecting the said alterations. The Court directed certain advertisements to issue and also directed service of the usual notices as required by Section 17 of the Companies Act, 1956. The Registrar of Joint Stock Companies filed an affidavit-in-opposition and at the hearing opposed the application but no creditor or share-holder of the company opposed the application. P. B. Mukharji, j., before whom the application was heard, gave effect to the contentions raised by the Registrar and dismissed the application. In dismissing the application the learned Judge made inter alia the following observations in his judgment:
'At the outset it must be said that it is a curious application. If the object is 'to 'lend money to such person or persons or firms and at such terms as may seem expedient,' then it may-amount to some kind of a banking in disguise. It is quite true that under the Banking Companies Act, banking' is defined to mean the acceptance, 'for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.' With a little clever manipulation, the petitioner might go on doing the banking business under the proposed amendment although by allowing such amendment it will put on the garb of a non-banking company.'
It has been argued that these observations of the learned Judge are due to a misconception of the true nature and character of & banking business.Reliance is placed by the learned counsel for the appellant company on the definition of the word 'banking' as given in Section 5 (1) (b) of the Banking Companies Act, 1949, which is as follows:
' 'Banking' means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.'
Now this definition makes it clear that receiving money on deposit from customers and honouring their cheques is the essential characteristic of banking. The money deposited by the customers can be utilised by the banker for lending it or for investing it but the bank also undertakes the obligation to repay the deposit on demand or otherwise and the mode by which the withdrawal of the deposit can be effected is by the issue of cheques, drafts, orders or otherwise, that is, by like methods.
6. In Hart's Law of Banking, a banker or bank is defined as one who, in the ordinary course of his business, receives money which he pays by honouring the cheques of persons from or on whose account he receives it. Sir John Paget in his book On Banking has pointed out that 'no person or body corporate or otherwise can be a banker who does not (1) take deposit accounts, (2) take current accounts, (3) issue and pay cheques, and (4) collect cheques crossed and uncrossed for his customers.' Sheldon in his book on the Practice and Law of Banking, seventh edition at page 183, formulates the following definition of a banker.
'A person cannot claim to be carrying on the business of banking unless he receives money or instruments representing money on current account, honours cheques drawn thereon, and collects: the proceeds of cheques which his customers place into his hands for collection.''
In the case of Re Bottomgate Industrial Co-operative Society, (1891) 65 LT 712 at P. 714, Smith, J. defines the business of bankers thus:
'The principal part of the business of a banker is receiving money on deposit, allowing the same to be drawn against as and when the depositor desires, and paying interest on the amounts standing on deposit.''
7. Then Section 6 (1) of the Banking Companies Act, 1949, provides that in addition to the business of banking, a banking company may engage in any one or more of the different kinds of business specified in the various Sub-clauses of Sub-section (1) of Section 6. This indicates that the main or real business of a banking company is as stated in Section 5 (1) (b) of the Act but banking companies usually carry on and are permitted to carry on other kinds of business which are auxiliary or incidental to the main business. Subsection (2) of Section 6 Iays down that no banking company shall engage in any form of business other than those referred to in Sub-section (1). So the banking company is expressly prohibited from carrying on any kind of incidental or allied bust-ness other than those enumerated in Sub-clauses (a) to (o) of Sub-section (1) of Section 6 of the Act. Thus it is abundantly clear that the essence ot banking is the relationship which is brought into existence at the time of the deposit; that is the core of banking. It is true that the business ot banking 'covers every possible phase or combination of deposit, custody, investment, loan, ex- change, issue and transmission of money, creation and transfer of credit and other kindred i activities but if the essential characteristic of banking, namely, the power to receive deposits from the public which are repayable in the manner indicated in Section 5 (1) (b) of the Banking Companies Act is absent and merely the power of granting loans is retained and exercised that, in my view, does not make the company a banking company. Lending of money may be one phase of a banking business but it is not the main phase or the distinguishing phase. In the case of Bank of Commerce Ltd. v. Kunja Behari Kar it was. argued before the Federal Court that Bengal Money Lenders Act, 1940, was a legislation which fell within the item of banking in entries Nos. 33 and 38 ot List 1 of Schedule VII of the Government of India Act, 1935 inasmuch as lending money to customers or advancing money on promissory notes is a principal part of the banking business and the case of Tennant v. Union Bank of Canada, 1894 AC 31 was referred to, but the Federal Court did not accept the contention. It was pointed out that money lending by a bank qua bank might make such money lending part of a banking business but not otherwise (per Spens, C. J. at page 389).
8. Moreover, when the principal clauses of the memorandum relating to the carrying on of the banking business have already been deleted by an order of this Court dated the 25th January, 1955 and this order has become conclusive upon registration under Section 18(1) of the Companies Act, one finds it difficult to follow how can the petitioner company transact banking business or function as a bank by clever manipulation or in disguise. If the bank does any transaction of banking, such act would be ultra vires the company and illegal. Reference may be made in this connection to the case of In re Birkbeck Permanent Benefit Building Society, (1912) 2 Ch 183. In this case a building so ciety was formed under the Building Societies Act, 1836 in the year 1851 and it was never registered under the Building Societies Act, 1874. Its shares were divided into two classes--A and B shares. Rule 35 empowered its directors to borrow to an unlimited extent and Rule 97 provided for the formation of a management and contingent fund and that the expenses of management, interest, and bonus on A shares and any losses that might be incurred by the society should be defrayed out of that fund and the deficiency (it any) should be borne by the holders of B shares only in certain proportions. From its inception the society, in addition to the ordinary business of a building society, received money on deposit from its shareholders and the public generally; and this branch of its business grew into a large concern, known as the Birkbeck Bank, which carried on the business of banking in all its branches. It was held that Rule 35 was not ultra vires, for that the power to borrow must be construed as limited to borrowing for the proper objects of the society but that the banking business, was ultra vires, and that the depositors had no legal right to recover their money. At page 196 Neville, J, made the following observations:
'Upon the slender legal foundation of this borrowing power, however, was reared the huge structure of the Birkbeck Bank, and the question arises as to whether the carrying on of this bank was an object of the building society within the statute of 6 and 7 Will. 4 and its rules. I have to consider whether the business of a bank is one of the objects of a building society, and I think there can be only one answer to that question that it is not. It is said that the business of a bank is to borrow money from its customers, so that a society having an unlimited power to borrow, accompanied by a power to invest surplus funds, has all the powers necessary for carrying on a banking business. It appears to me, however, that borrowing and investing are but two branches of a banking business, and that a building society conducting a banking business in all its branches, including the discounting of bills is conducting a business quite foreign to the business of a building society. Here the borrowing was on a scale altogether in excess of the requirement of the society and for that reason alone ultra vires of the directors.'
Fletcher Moulton, L. J. at page 210 in dealing with this aspect of the matter observed:
'It is evident that a business of this kind was ultra vires of the society. It made it something other than a benefit building society, that is to say, other than that which it was permitted to be by the Act under which it was formed. It was pressed upon us in the very able argument of Mr. Buckmaster on behalf of the appellants that inasmuch as there was power of borrowing, each acceptance of a deposit was prima facie within the powers of the society and that it was not for the lender to see that the money was not misapplied. I agree with the view that this would be the case if isolated loans were taken by a society with power to borrow, but in my opinion the acts of the society had brought it entirely beyond that stage, and for good or evil it must be taken to have been carrying on business as a bank.'
Buckley, L. J. at Page 228 observed:
'I 'find it plainly established that the business of banking as an independent and substantial business, not merely ancillary to or in aid of the building society business, was carried on by this society. Such business of banking was ultra vires. It was not authorised by any rule, unless it is Rule 35, and if that rule was one which made the society a bank, then, in the words of Giffard, L. J. in Laing v. Reed, (1869) 5 Ch A 4, the rule was repugnant to the Act, for it made the society a thing different from that which is specified in the Act and meant by the Act.''
9. For ail these reasons the conclusion is inevitable that this ground on which the learned Judge has refused the application cannot be sustained.
10. The next Point urged is that the petitioner company has failed to implement the scheme of arrangement which was sanctioned by this Court under Section 153 of the Indian Companies Act on 27th February, 1950 and it is now trying to get rid of the scheme and the controlling provisions of the Banking Companies Act by this process of abandoning the banking business and, so the application should be refused. The facts relating to this question have been dealt with in paragraphs 3, 4 and 5 of the affidavit-in-opposition which has been affirmed by the Registrar of Companies and it is pointed out that there is no prospect of the company's fulfilling the scheme and the entire attempt to convert itself into a non-backing company is to avoid implementation of the scheme of arrangement. Certain facts are also Set out in the affidavit to establish that the company is financially insolvent and .is not in a position to carry on any business and any confirmation of the alterations would be clearly against the interest of the depositors inasmuch as tney will lose the benefit which they would otherwise have under the Banking Companies Act. Now although this attitude is taken up by the Reserve Bank of India and the Registrar of Joint Stock Companies in their affidavits-in-opposition, it appears that Bachawat, J. had made an order confirming the alteration of some of the very substantial clauses dealing with the banking business of the company in spite of the opposition put forward by the Registrar of Joint Stock Companies on more Or less similar lines in which the application has been opposed before us. The order of Bachawat, J. may be said to have shorn the company of its true banking character and upon the filing of a certified copy of the order with the Registrar, the alteration has become conclusive. It may be noted that even the name of the company was altered by the order of the learned Judge though, perhaps, ineffectively. So, now to refuse a change of the name and the alterations- asked for, and to expose the company under the provisions of Section 46 M) of the Banking Companies Act to penal consequences of contravention of Section 7 of the Banking Companies Act will be unfair and unreasonable. It is clear from the provisions of Sections 12, 13 and 14 of the Indian Companies Act. 1913, which correspond substantially to Section 17; of the Companies Act, 1956, that if the alteration proposed is one of the several things enumerated in clauses (a), (b), (c), (d), (e>, (f) and (g) of Section 12 of the Act of 1913 or Section 17 of the Act of 1956, the Court has jurisdiction to confirm the alteration either wholly or in part. But this exer cise of the power as conferred by these sections is, as has been pointed out by the English Courts, fenced round by safeguards which are calculated to protect the interest of creditors, the interest of shareholders and the interest of the public. The creditors are protected by express provision in the section itself. Their consent has to be pro-' cured and their claims have to be satisfied in certain events which are mentioned in the section itself. The public and the share-holders in- dividually and collectively are protected by the necessary publicity of the proceedings and by the discretion which is entrusted to the Court (See In re Jewish Colonial Trust Ltd., (1908) 2 Ch 257). So. in determining whether the discretionary power of the Court ought to be exercised in favour of the confirmation of the alteration and if so, in what manner, it is necessary to consider the facts of the case and the background on which the alteration is asked for. It is clear that the company has not implemented the scheme of arrangement and having regard to the long period that has elapsed since the sanction of the scheme, it is possible that the company may not be able in future to implement the scheme but it is to be noted that the crediors and the shareholders have all agreed to the alteration. They passed an unanimous resolution in respect of the alteration which had already been sanctioned by Bachawat, J. and the share-holders have also passed an unanimous resolution in respect of the-alterations, the sanction of which is now sought to be obtained from the Court. It is also clear from the records that due advertisements have been issued and due publicity has been given to the proceeding, and notices have been served; on persons On whom they are required to be served under the relevant sections. The Registrar had failed to induce Bachawat, J. to reluse the sanction although he had opposed on practically the same lines as before us. The principal clauses in the memorandum concerning the banking activities have been deleted already by the order of Bachawat, J. The company cannot function as a banking company under the powers which at present exist in the memorandum. In these circumstances, to give effect to the objection of the Reserve Bank of India or the Registrar would be to put the company in an embarrassing and difficult position which it by no means deserves. If any person is aggrieved' by the non-implementation of the scheme of arrangement, it is open to such party to take appropriate steps. Some provision has been made for that purpose in the Order sanctioning the scheme of arrangement. The company already appears to us to be practically free from the controlling provisions of the Banking Companies Act by reason of the order of Bachawat, J. In our opinion, P. B. Mukharji, J. has, in refusing this application of the company, 'been actuated by considerations which should not have weighed with him, in view of the events which had already taken place and to which I have referred in the earlier part of this judgment. It is also to be noted that the learned Judge in the concluding portion of his judgment has put a construction on the order of Bachawat, J. and on Sub-section (5) of Section 12 of the Act of 1913, which is not warranted.
11. Another point has been raised by Mr. Sen to the effect that after the introduction of Section 49C in the Banking Companies Act by the amending Act No. XXXIII of 1959, the application for confirmation out of which this appeal arises has become not maintainable in the ab sence of the necessary certificate of the Reserve Bank of India as contemplated by that section. Section 49C is as follows:
'Notwithstanding anything contained in the Companies Act, 1956, no application for theconfirmation of the alteration of the Memorandum of banking company shall b'e maintainableunless the Reserve Bank certifies that there is no objection to such alteration.'
It is argued that this is a section which relates to procedure pure and simple, and as no one canhave a vested right in procedure this section isattracted to the application for confirmation which is before us and unless the company succeeds in producing before the Court the necessary certificate from the Reserve Bank to the effect that the Reserve Bank has no objection tothe alteration, this Court cannot grant this application for confirmation. It is to be noted that under Section 17 of the Companies Act, 1956,the petitioner company had the right to present a petition for confirmation of an alteration provided the conditions laid down in that sectionhad been fulfilled. What Section 49C has done is to put an additional bar on the presentation ormaintainability of the petition by providing that a certificate is to be obtained from the Reserve Bank stating that it has no objection to the proposed alteration. This has undoubtedly theeffect of affecting the right of the petitioner company as it existed under Section 17 of the Companies Act of 1956. The right to present a peti-tion under Section 17 of the Companies Act appears to us to be a substantive right and not a mere right in a procedure. Our attention was drawnto a decision of the Supreme Court reported in : 1958CriLJ1429 , Anant Gopal Sheorey v. State of Bombay. But that case is distinguishable inasmuch as Section 116 of the Amending Act XXVI of 1955 (Code of Criminal Procedure AmendmentAct, 1955) which came up for construction before the Supreme Court expressly provided that pertain provisions of the Act would apply to proceedings instituted after the commencement of the Act as also to pending proceedings. The Supreme Court, therefore, held that on the plain construction of the words used in Section 116 of the amending Act, Section 342-A is applicable to criminal proceedings which are pending before a Magistrate and! in which the recording of evidence has commenced. No such intention to make Section 49C of the Banking Companies Act retrospective in operation, is deducible from the words of the section. In the case before us the application for confirmation had been disposed of by the order of P. B. Mukharji, J. on 15th June, 1959, before the Banking Companies Amendment Act XXXIII of 1959 came into force in September, 1959, and it is during the pendency of the appeal from that order that this section is sought to be made applicable for the purpose of defeating this application. In our view, the section was not designed to be applicable to a proceeding of the nature which is before us now, and this contention of Mr. Sen, therefore, should not prevail.
12. In our view, therefore, this appealshould be allowed and the judgment and orderof P. B. Mukharji, J. should be set, aside andthere will be an order in terms of prayer (a) ofthe petition.
13. The petitioner company will get its taxed costs of this application of the Trial Court and of the appeal before us Out of the assets of the company.
14. Certified for two counsel.
15. I agree.