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In Re: Aryan Bank Ltd. (In Liqn.) - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberOrdinary Original Civil Appln.
Judge
Reported inAIR1957Cal532
ActsCompanies Act, 1956 - Sections 448 and 449; ;Banking Companies Act, 1949 - Section 38A
AppellantIn Re: Aryan Bank Ltd. (In Liqn.)
Advocates:T. Banerji, Adv.
Excerpt:
- .....cash account of the different banks in his charge.2. the previous court liquidator was asked to furnish security by this court for the sum of rs. 2,00,000. the court made such order following the previous practice when liquidators were private liquidators or official receiver appointed as liquidators by the orders of court in specific cases.3. that practice however now requires to be reviewed in the light of the new companies act, 1956, and the banking companies act. the legal situation has now considerably changed. the question is also an important one from the point of view of administration.4. under the old companies act of 1913 there was authority for this court to order security to be furnished by the liquidators of companies and it was the almost invariable practice of this.....
Judgment:
ORDER

P.B. Mukharji, J.

1. This is an application by the present Court Liquidator attached to the High Court at Calcutta for an order or direction whether the security is to be furnished by him and if so, for fixing the amount of such security and in case security is to be furnished, then he asks leave to be granted to pay the annual premium and the surcharge premium payable to the Insurance Co. in respect of such security out of the funds lying in the separate interest cash account of the different banks in his charge.

2. The previous Court Liquidator was asked to furnish security by this Court for the sum of Rs. 2,00,000. The Court made such order following the previous practice when liquidators were private liquidators or Official Receiver appointed as liquidators by the orders of Court in specific cases.

3. That practice however now requires to be reviewed in the light of the new Companies Act, 1956, and the Banking Companies Act. The legal situation has now considerably changed. The question is also an important one from the point of view of administration.

4. Under the old Companies Act of 1913 there was authority for this Court to order security to be furnished by the liquidators of companies and it was the almost invariable practice of this Court to make such orders for security. Under Section 171-A (2) of the old Companies Act, 1913, it is provided that on the making of a winding up order, the Official Receiver shall become the Official Liquidator of the company and shall continue to act as such until his further continuance was terminated by an order of the Court. By Sub-section (4) of Section 171-A the Court was empowered to fix the remuneration of the Official Liquidator. One other provision in the old Act material for the purpose of deciding this question is Section 175. Sub-section (4) of Section 175 ol the old Companies Act provides 'the Court may determine whether any, and what, security is lo be given by any Official Liquidator on his appointment''. Thus Section 175 (4) of the previous Companies Act, 1913, was the express authority given to the Court to determine what, if any, security was to be given by the liquidator.

5. Rules were framed by this Court, on the basis of these statutory provisions under the old Act. The relevant rules are Rules 79 to 84, in appendix 7 of the Company Rules of this Court on the Original Side. An analysis of those Rules shows that if the provisional liquidator or the Official Liquidator failed to furnish the required security within the time ordered, then the Judge could rescind the order and make such other appointment as it considered fit and proper; in fact, the Judge could remove the provisional liquidator or the Official Liquidator who failed to maintain the security ordered to be furnished. The Judge also had the power, in case the security provided was either inadequate or excessive, to increase or reduce the amount of security.

6. Following these statutory provisions and the Rules, the previous Court Liquidator was asked to furnish security, as indicated above.

7. It is contended before me on behalf of the present Court Liquidator that those statutory provisions and Rules are no longer applicable to the Court Liquidator, having regard to the changes brought about by the Statutes. I consider that contention to be right in law. I shall state my reasons very briefly.

8. The statutory provision empowering the Court to order security, to be furnished by a liquidator under Section 175 (4) of the old Companies Act, 1913,has now been removed by the new provisions of Sections 448 and 449 of the Companies Act, 1956. Section 448 oi: the Companies Act, 1956, provides that there shall be attached to each High Court an Official Liquidator appointed by the Central Government, who shall be a wholetime officer unless the Central Government considers that there may not be sufficient work for a whole-time officer, in which case a part-time officer may be appointed. But Section 449 of the Companies Act, 1956, provides 'On a winding up order being made in respect of a company, the Official Liquidator shall, by virtue of his office, become the liquidator of the Company.'' I find that similar provision has also been made in Section 58-A of the Banking Companies Act which provides that there shall be attached to every High Court a Court Liquidator to be appointed by the Central Government for the purpose of conducting all proceedings for the winding up of a banking company and performing such other duties in respect thereof as the High Court may impose. It also provides expressly that where there is a Court Liquidator attached to a High Court and an order passed by the High Court for the winding up of any banking company, then, notwithstanding anything contained in Section 171-A or Section 175 of the Indian Companies Act, 1913, the Court Liquidator shall become the Official Liquidator of the company.

9. It does therefore appear to me now that the Court's power to ask for security from the Court Liquidator is no longer in existence. Deliberate exclusion of such power by not reacting the provisions of Section 175 (4) of the Indian Companies Act, 1913, is an argument in favour of such view. Neither the Government order of the appointment of the Court Liquidator nor the official Notification thereof published in the Gazette of India requires any security to be furnished by the Court Liquidator of this High Court. Under Section 448 of the Companies Act, 1956, it is for the Central Government to appoint the Official Liquidator and presumably therefore as such appointing authority, to lay down the terms and conditions of his appointment. No term or condition lays down that the Official Liquidator shall furnish security and if so to what extent and how. When therefore the Central Government, the appointing authority, has not chosen to impose security as a term or condition of his appointment, I do not think that this Court should, even if it could, add a new term or new condition of his appointment, by asking the Court Liquidator to furnish security as a condition of his service. I am told by Mr. T. Banerji, solicitor, who appeared for the Court Liquidator, that Court Liquidators in some other High Courts in India have not been, called upon to furnish security. I do not think that in the present statutory position the Court can call for such security.

10. I do not however think that the Central Government while introducing these statutory changes was alive to the need of security in case of officers like the Court Liquidators. This is a matter of considerable importance. Neither the terms nor conditions of service are such that they can cover the liabilities that might fasten personally on the Court Liquidator in an appropriate case. The Court Liquidator has in his charge assets and funds of numerous companies and banks worth huge sums of money and he has many onerous duties to perform in respect of the same. Instances are not difficult to imagine where serious loss may result to share-holders,creditors, contributors, depositors and others interested in the liquidation of companies and banks by the action and management of the Court Liquidator. The Court Liquidator's salary or emoluments may not be sufficient at all to answer for that loss even if the Court comes to the conclusion in any appropriate case that he should be answerable for the loss. The Government of India may in that case be liable for such loss or any part thereof, because he as a public servant or a public officer will be supposed to represent the Government. The public revenues and the public exchequer will therefore run the risk, without adequate arrangements for satisfying such loss.

11. It appears to mo therefore that some such provision as already exists in Section 6 of the Calcutta Official Receivers Act, 1938, should be made in the case of Court Liquidator. Section 6 of that Act provides that the revenues of the State shall be liable to make good ail sums required to discharge any liability which the Official Receiver may, as a receiver appointed by the Court, be personally liable to discharge. Express exception is made in that Statute by saying that neither the revenues of the State nor the Official Receiver shall be liable to discharge any liability to which neither the Official Receiver nor any of his officers has in any way contributed or which neither he nor any of his officers could by exercise of reasonable diligence have averted. Similar provision with similar exception is in my opinion, desirable in the case of Court Liquidators. There appears to be no such charge on the revenues of the Government of India made either in the Companies Act, 1956, or in the terms and conditions on which the Central Government appears to appoint these Court Liquidators.

12. I must record here that Mr. Banerji, appearing for the Court Liquidator, has very fairly stated that he would certainly submit to an order of this Court, even if I directed him to furnish security in the manner I have set out above in the beginning of this Judgment. The sum that he suggests is Rs. 1,00,000, because the predecessor of the present Court Liquidator furnished security to the extent of Rs. 2,00,000, but then most of the available cash and dividends have already been distributed and some liquidation proceedings of companies have already concluded since then. He had suggested, therefore, the reduced sum of Rs. 1,00,000.

13. As I do not think that this Court has, under the Companies Act, 1956, and the Banking Companies Act any power to call for security, and as I feel that there is no statutory power given to this Court to take steps in case of failure to furnish security by appointing some other persons as liquidators, the order cannot be made any more by the Court.

14. At the same time, I feel that this is a case which should be reported to the Government of India for consideration whether they should not in making these appointments, make some provision for furnishing security by the Court Liquidator, and how in fact the premium in respect thereof should be paid and whether the liabilities would be a charge on the revenues, as provided in Section 6 of the Calcutta Official Receivers Act, 1938. Interest of fairness, prudence and safety appears to demand such a provision.

15. I therefore direct that a copy of this Judgment be sent to the Secretary, Government of India,Ministry and Finance (Companies and Economic Affairs).

16. For the present, I therefore direct that thepresent Court Liquidator need not furnish any security, and I hold that I have no power or jurisdiction toask him to furnish security.

17. The costs of this application will be as prayed for in prayer D of the petition and are assessed at Rs. 102.


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