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Dwarkadas Agarwall Vs. Dharam Chand JaIn and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberA.F.O.O. Nos. 157 and 169 of 1952
Judge
Reported inAIR1954Cal583,[1954]24CompCas283(Cal),58CWN517
ActsCompanies Act, 1913 - Sections 162, 163 and 163(1); ;Banking Companies Act, 1949 - Sections 37, 38(1) and 38(3); ;Code of Civil Procedure (CPC) , 1908
AppellantDwarkadas Agarwall
RespondentDharam Chand JaIn and ors.
Appellant AdvocateB. Das, Adv. for Jaipur Bank and ;A.K. Dutt, Adv.
Respondent AdvocateS.K. Dutt, Adv.
DispositionAppeals dismissed
Excerpt:
- chakravartti, c.j. 1. these are two appeals arising out of the affairs of the calcutta national bank ltd. appeal no. 157 of 1952 being directed against an order dismissing an application for a scheme and appeal no. 169 of 1952 being directed against an order for the winding up of the company. the appellant in both the appeals is one dwarkadas agarwalla, who has described himself as the president of the depositors* association of the bank. 2. the appeals form the last chapter of a long story which commenced as long as on 14-5-1951, if not a little earlier. it appears that the calcutta national bank ltd. is a fairly large undertaking with an authorised capital of rs. 50,00,000/-, divided into 5,00,000 shares of rs. 10/- each, all of which are fully subscribed and paid up. the assets of the.....
Judgment:

Chakravartti, C.J.

1. These are two appeals arising out of the affairs of the Calcutta National Bank Ltd. Appeal No. 157 of 1952 being directed against an order dismissing an application for a scheme and Appeal No. 169 of 1952 being directed against an order for the winding up of the company. The appellant in both the appeals is one Dwarkadas Agarwalla, who has described himself as the President of the Depositors* Association of the Bank.

2. The appeals form the last chapter of a long story which commenced as long as on 14-5-1951, if not a little earlier. It appears that the Calcutta National Bank Ltd. is a fairly large undertaking with an authorised capital of Rs. 50,00,000/-, divided into 5,00,000 shares of Rs. 10/- each, all of which are fully subscribed and paid up. The assets of the Bank, as would appear from a report submitted by certain auditors under the directions of the Company Court, are considerable, but so are the liabilities of the Bank not inconsiderable.

Apparently, the affairs of the Bank were not being conducted in a prudent and businesslike manner which attracted the attention of the Reserve Bank of India, and shortly before the date which I have mentioned, namely, 14-5-1951, the Reserve Bank of India appears to have carried out some kind of investigation, presumably under Section 35, Banking Companies Act. As a result of the examination of the affairs of the Bank made by it, the Reserve Bank of India felt it necessary to take some action and the action it took, or caused to be taken, was to direct the Bank not to accept any fresh deposits and not to do any further banking business. Upon that direction being given, the Bank suspended payment on 14-5-1951, and applied for a moratorium to this Court under Section 37, Banking Companies Act.

An interim moratorium was granted, but within seven days thereof, an application was made by one Sachindra Bhattacharyya for a winding up of the Bank on 21-5-1951. While that application was still pending, the present appellant, Dwarkadas Agarwalla, appeared on the scene and on 3-9-1951, he made an application under Section 153, Companies Act, for the adoption of a scheme of arrangement which he proposed. Reference to the details of the scheme will have to be made later. On that application being made, Mr. Justice Banerjee, who was the Company Judge at the time, directed meetings of the creditors and depositors and of the shareholders to be held on October 14, to considerthe scheme. On October 14 the scheme was considered and passed at two meetings.

3. The Reserve Bank of India gave its blessings to the scheme under Section 45(a), Banking Companies Act, and certified that the arrangement would not be detrimental to the interests of the depositors of the company. When the scheme came up finally before Mr. Justice Banerjee with the certificate of the Reserve Bank of India, he sanctioned it on 11-2-1952, but before he did so, he made extensive, modifications in it himself. The scheme, as so modified by the learned Judge, was not sent back for reconsideration by the creditors, depositors and shareholders, nor was any certificate of the Reserve Bank asked for or obtained. All that was done was that a copy of the scheme, as revised and modified, was sent to the solicitors for the Reserve Bank of India who were acting in the matter for the Reserve Bank in its capacity as a secured creditor. It also appears that although by the initial order the learned Judge had directed individual notices to be issued to all the creditors and depositors, no such notice was issued to the creditors in Pakistan.

4. The substance of the scheme was that the assets of the company would be realised, the creditors and depositors paid off so far as possible and if after they had been paid up in full, any surplus was left, the same would be distributed among the shareholders. The essence of the scheme, therefore, was a winding up of the company, but the special feature which has created all the subsequent trouble was that instead of the winding up being carried out officially by a liquidator appointed by the Court, it was to be carried out under the scheme by a private agency, namely, the Bank of Jaipur, acting as the agent of the Calcutta National Bank Ltd.

5. At the time when Mr. Justice Banerjee made the initial order on 3-9-1951, he also appointed a Special Officer in the person of one Mr. P. C. Chaudhury, who had been at one time an Accountant General. It appears that even after the scheme had been finally sanctioned, he continued to remain in office.

6. Between February 11, 1952, and May 27 following, the scheme was apparently in operation, but the interval seems to have been spent mostly over wrangles between the Special Officer on the one hand and the Bank of Jaipur on the other, either directly or indirectly. On 27-5-1952, another person appeared on the scene with an application for a winding up. He was Dharam Chand Jain, one of the respondents to these appeals, who had an amount of Rs. 1,105-10-0 in deposit with the Gaya Branch of the Bank in a current account. Dharam Chand Jain alleged that on 2-5-1952, he had served a notice on the Bank under Section 163, Companies Act, for the repayment of his money, but bad not obtained payment. On the basis of that failure to obtain payment, he alleged that the company was unable to pay its debts and asked for a winding up order.

7. On 9-6-1952, Dharam Chand Jain was joined by one Sree Gopal Joshi who was a shareholder, holding eight ordinary shares in the Calcutta National Bank. On his behalf an affidavit was affirmedand filed by one Biswanath Arora in which the scheme was attacked on various grounds.

8. The application for a winding up came to be heard by Mr. Justice Banerjee on 17-6-1952, when he refused to admit it. He overruled the legal objections taken to the scheme which he had already sanctioned and rejected the application for a winding up on the ground that a good and valid scheme having already been sanctioned and being in operation, no question of entertaining an application for a vinding up could possibly arise.

9. On 2-7-1952, Dharam Chand Jain preferred an appeal to this Court and when that appeal was. pending, the Bank of Jaipur made an application to the Appellate Court on 28-7-1952, for a direction on the Special Officer to make over to the Bank of Jaipur the assets of the Calcutta National Bank Ltd, I should state here that one of the terms, and indeed the first term, of the scheme of arrangement, was that the Bank of Jaipur would take over and run in its name the branches of the Calcutta National Bank Ltd. at certain places. The application made by the Bank of Jaipur for an order on the Special Officer was made for the purpose of obtaining from the Special Officer possession of some of the branches of the Bank which, it was alleged, were continuing to be in the Special Officer's possession.

10. The appeal was disposed of on 14-8-1952, when it was allowed. It was allowed in the form that Dharam Chand Jain's application for a winding up was admitted and the Company Court was directed to issue the usual advertisements and to make special mention of the fact that objections taken to the validity of the scheme would be considered. The Special Officer was directed by the Appellate Court to hand over the assets of the Calcutta National Bank Ltd., which might still be in his hands, to the Bank of Jaipur Ltd. With those directions the matter went back to the Company Court.

11. After the matter had gone back, the appellant, Dwarkadas Agarwalla, appeared again on the scene with another application for the consideration of another scheme. He said in his application that he had been advised that the previous order of the Company Court sanctioning the scheme of arrangement was without jurisdiction and a nullity and he submitted that in those circumstances, there was no legal bar to his making a fresh application and proposing a fresh scheme The fresh scheme he proposed for the consideration of the creditors and shareholders was a revised version of the old. scheme, the Bank of Jaipur still figuring as the prospective agent of the Calcutta National Bank Ltd., to be charged with the duty of winding up the affairs of the Bank and to be remunerated more or less in the same way as under the previous scheme.

Certain alterations, however, were made, to which reference will be made later. The second application of Dwarkadas Agarwalla was made on 25-11-1952, and was disposed of by Mr. Justice S. R. Das Gupta on December 2 following. By the same order the learned Judge also disposed of the application made by Dharam Chand Jain for the winding up of the Bank. He held that the scheme of arrangement sanctioned on the previous occasion by Mr. Justice Banerjee was a nullity and, therefore, there was no legal bar to Dharam Chand Jain making or the Court entertaining the application for a winding up.

As regards the second application for the adoption of a revised scheme, the learned Judge held that in view of the provisions of Section 38, Banking Companies Act, it was obligatory upon him to direct a winding up and not open to him to entertain an application for a scheme. He, however, proceeded to examine the scheme on the merits and came to the conclusion that it was not a scheme which the Court could properly send to the creditors and shareholders for their consideration and further that the scheme was of such a nature that the Court ought not to take any steps in order to the framing of a scheme of arrangement on the lines of such a scheme.

Turning then to the application for a winding up the learned Judge pointed out that so far as the winding up of the affairs of the Bank was concerned, it had not been opposed by any of the parties and all the debate before him had been as regards the maintainability of Dharam Chand Jain's application and as regards the agency through which the winding up should He carried out. Accordingly, after rejecting the application for a scheme, the learned Judge found nothing which could incline him not to direct a winding up of the company and he proceeded to make a winding up order. As already stated, it is against those two orders that the two appeals before us were preferred.

12. I have already stated that Mr. Justice S. R. Das Gupta rejected the application for a scheme on a ground of law, but not on a ground of law alone. He said that he had also carefully considered the scheme itself, which had been presented before him, and he did not feel justified in making an order under Section 153(1), Companies Act. He said again towards the close of his judgment that he was clearly of opinion that even if he had any option under Section 38, Banking Companies Act, which he thought he had not, he should not grant the application before him, because to do so would be to disregard the true interests of the poor and ignorant depositors. 'I cannot', observed the learned Judge,

'even if the majority of the creditors present at the meeting proposed to be called are foolishenough to accept this position, put my seal onit'.

In view of the two lines of reasoning upon which the learned Judge proceeded, the argument before us naturally took the same two lines.

13. Before us, Dwarkadas Agarwalla was represented by the learned Standing Counsel and the Bank of Jaipur for some time by Mr. S. Chaudhuri and during the final stages of the hearing by the learned Advocate-General. It was contended by the learned Standing Counsel that the view taken by Mr. Justice S. R. Das Gupta of Section 38, Banking Companies Act, was erroneous, and the error had been caused by the fact that the learned Judge had overlooked the opening and qualifying words occurring in Sub-section (1) of the section.

It was submitted that if proper regard was paid to those words, it would appear that even under Section 38, Banking Companies Act, the Court had a discretion to order or not to order a winding up and that it had not been made obligatory on the Court to order a winding up in the circumstances stated in the section. The learned Advocate-General took a different line, but I shall deal first with the contention of the learned Standing Counsel.

14. Section 38(1), Banking Companies Act, is thus expressed:

'Without prejudice to the provisions contained in Section 162 or Section 271 of the Indian Companies Act, 1913 (7 of 1913), and without prejudice to its powers under Section 37, the Court shall order the winding up of a banking company if it is unable to pay its debts and the Court shall also order the winding up of a banking company if the Reserve Bank applies in this behalf to the Court.'

15. Mr. Justice S. R. Das Gupta held that the company in the present case was a banking company, that it was unable to pay its debts as appeared from the fact that Dharam Chand Jain's debt had not been paid and also from the fact that the company had to apply for a moratorium. According to the learned Judge, the conditions precedent to the applicability of Section 38(1) were all present and that being so, the Court was bound to carry out the mandate contained in the section by ordering, a winding up.

16. It was contended by the learned Standing. Counsel that while the closing portion of Section 38(1) was expressed in an absolute and a mandatory form, the section began with an important reservation which was that whatever obligations were going;, to be laid upon the Court they would be

'without prejudice to the provisions contained ins. Section 162 or Section 271 of the Indian Companies Act,.....and without prejudice to its powers:.under Section 37.'

We need not for the present concern ourselves with either Section 271, Indian Companies Act, or Section 37, Banking Companies Act. Confining ourselves to Section 162, it is pertinent first to enquire what the provisions of that section are. The section, it will appear, provides when a company may be wound, up by the Court and contains an enumeration of six contingencies in which a winding up order cam be made. The only contingencies which is relevant to the present discussion is that numbered fv) which is: 'if the company is unable to pay its debts'. As; the section begins with the word 'may', its effect, read by itself, is to confer a discretion on the Court to order or not to order a widing up even when the inability of a company to pay its debts is proved.

So far as the contingency in which a company is unable to pay its debt is concerned, it will appear that if the company is a banking company, the effect of Section 38(1), Banking Companies Act, is clearly to give a direction to the Court contrary to that, contained in Section 162, Companies Act. 'Prima facie', therefore, it would seem that while the Legislature, by Section 162, Companies Act, was saying that even if a company was unable to pay its debts, it would; be entirely optional for the Court to direct or not to direct a winding up, the same Legislature, byS. 38(1), Banking Companies Act, was saying that if the company unable to pay its debts was a banking company, the Court would be bound to orderits winding up.

Had Section 38(1) contained only a simple provision that in the case of a banking company being unableto pay its debts, the Court must order its winding up, it would be easy to construe it as superseding the general provision applicable to all companies contained in Section 162, Companies Act. Section 38(1), Banking Companies Act, however, saves the provisions of Section 162, Companies Act, for it begins, as I have already stated, with the words 'without prejudice to the provisions contained in Section 162'.

The learned Standing Counsel contended that the effect of the opening words was to preserve the discretion or option conferred by Section 162, Companies Act, even in the case of banking companies which were unable to pay their debts. But I do not see how that can possibly be the true construction. If the opening words of Section 38(1) also comprise the case of a banking company which is unable to pay its debts and if the effect of those words be to maintain the operation of Section 162, Companies Act, even on banking companies in that condition, the subsequent provision making it obligatory on the Court to direct a winding up when a banking company is unable to pay its debts, is perfectly meaning-less and a plainly inconsistent provision.

There can be no doubt that the section is mostclumsily drafted and does no credit to the drafts-man. The only reasonable and sensible meaningthat can be spelt out of it is that the openingwords preserve the discretion of the Court only ineases specified in Clauses (i) to (iv) and Clause (vi) of Section 162,but so far as Clause (v) is concerned, namely, a casewhere a company is unable to pay its debts, theprovisions of Section 38(1), Banking Companies Act, mustprevail in the case of a banking company.

The only use of the opening words, therefore, is to preserve the discretion of the Court in cases where although the company is a banking company, the reason for which its winding up is sought is not the reason given in Clause (v) of Section 162, but a reason contained in one or other of the remaining five clauses. If that be the true meaning which I consider to be the only reasonable construction of which Section 38(1) will admit, Mr. Justice S. R. Das Gupta was right in holding that Section 38(1) required him to direct a winding up in the facts of the present case.

17. The learned Advocate-General, as I have said, took a different line lie conceded that the effect if Section 38(1) was to supersede the provisions of Section 162, Companies Act, in cases where the company was a banking company and the ground for asking its winding up was that it was unable to pay its debts. He, however, contended that the debts contemplated by Section 38(1) were not any debts, but only hanking debts. He proceeded to contend that, under Section 38, not only must the debts, which a banking company was unable to pay, be banking debts, but the inability must also be of the kind defined or explained in Sub-section (3) of the section. That subjection provides that

'a banking company shall be deemed to be unable to pay its debts if it has refused to meet anylawful demand for payment made at any of itsoffices or branches within two working days, if such demand is made at a place where there is an office, branch or agency of the Reserve Bank, or within five working days, if such demand is made elsewhere, and if the Reseive Bank certifies in writing that the banking company is unable to pay its debts.'

But Sub-section (3) is also prefaced by an introductory phrase and that phrase is, 'without prejudice to the provisions contained in Section 163 of the Indian Companies Act, 1913'.

18. The learned Advocate-General's contention was that what Section 38(1), Banking Companies Act, contemplated was a case where the company concerned was a banking company and the debts which it was unable to pay were banking debts and its inability to pay had been of the kind mentioned in Sub-section (3) of the section and, to such inability, a certificate of the Reserve Bank that the bank was unable to pay its debts was added.

The conclusion to which that argument led was that the default in the present case had not been of the kind mentioned in Sub-section (3) of Section 38, nor had there been any certificate by the Reserve Bank to the effect that the Calcutta National Bank Ltd. was unable to pay its debts. Consequently. Section 38(1) did not apply end the discretion given to the Court by Section 162, Indian Companies Act, remained unaffected.

19. I find it extremely difficult to accept even this construction suggested by the learned Advocate-General. In aid of his argument he referred to the provisions contained in Section 38(1) to the effect that the duty laid on the Court by that section would be 'without prejudice to its powers under Section 37'. Section 37 is the section which empowers the Court to grant a moratorium and the learned Advocate-General asked how, if it was obligatory on the Court to direct a winding up in the circumstances mentioned in Section 38(1), it could grant a moratorium at all.

It appears to me that it was precisely to save the powers of the Court to grant a moratorium that the words 'without prejudice to its powers under Section 37' were inserted in Section 38(1). The effect of the insertion of that qualifying phrase is that the obligation lying on the Court to direct a winding up of a banking company in the circumstances stated in the section, would be subject to the exception that the Court would be at liberty to exercise the powers conferred by Section 37. I do not, therefore, find anything in the qualifying phrase to which the learned Advocate-General referred to aid construction which he would put upon Section 38(1).

20. Nor do I find any reason to think that by the word 'debts' in Section 38(1) the Legislature was meaning banking debts. If it had that meaning in contemplation, there was nothing to prevent it from saying so. The word 'debts' is used in the section simpliciter and unless there is something else in the context or other parts of the section which suggests a limited meaning, there would seem to be no reason why a word, apparently used in the general sense, should be understood as limited to a particular meaning.

21. Nor do I find any reason to accede to the learned Advocate-General's contention that the inability to pay its debts, contemplated by Section 38(1), Banking Companies Act, must be such inability as is described in Sub-section (3) of the section. It is quite true that if the provisions of Sub-section (1) of Section 38 were not to be attracted unless the banking company had defaulted in the manner laid down in Sub-section (3) and unless the Reserve Bank of India had certified that the bank was unable to pay its debts, the present case would go out of the operation of the section.

But I cannot understand how the meaning of the words 'is unable to pay its debts', occurring in Section 38(1), can be limited to the particular variety of inability specified in Sub-section (3). The learned Advocate-General frankly conceded that upon the construction of Sub-section (3) which he was suggesting, there was absolutely no room for the introductory words 'without prejudice to the provisions contained inS. 163 of the Indian Companies Act.'

Those words, he said, were utterly irrelevant and lie could not suggest any use for them, consistently with the construction which he was proposing for the sub-section. It seems to me, however, that on another construction of Sub-section (3), some use for the introductory words can be found.

22. The introductory words are, as I have already said, 'without prejudice to the provisions contained in Section 163 of the Indian Companies Act, 1913.' Sub-section (1) of Section 163 is concerned with enumerating the cases when a company shall be deemed to be unable to pay its debts. Case (1) is it case where upon a demand being made, the company neglects to pay the demand for three weeks or to make an arrangement for its payment. Case (2) is a case where some order for payment in favour of a creditor is not complied with and execution or other process, issued in respect thereof, is returned unsatisfied.

Case (3) is a case where it is proved to the satisfaction of the Court 'aliunde' that the company is unable to pay its debts. What Sub-section (3) of Section 38 docs is to say that a banking company shall be deemed to be unable to pay its debts in another case as well, but such deeming of the company to be unable to pay its debts shall be without prejudice to the provisions contained in Section 163, Companies Act.

The effect of these two provisions, read together, appears to me to be that the fact that a particular contingency is being specified in Sub-section (3) of Section 38 as to when a banking company shall be deemed to be unable to pay its debts, must not be understood to exclude the contingencies enumerated in Sub-section (1) of Section 163, Companies Act; in other words, in addition to the cases mentioned in the latter section, there will be a fourth case mentioned in Section 38(3), Banking Companies Act, when also a banking company shall be deemed to be unable to pay its debts.

If that be so, then the result which follows appears to me to be that if any one relies on the kind of default specified in Section 38(3), Banking Companies Act, he will have to establish that such default has occurred and also that the Reserve Bank has given the certificate contemplated by the section. But if any one desires to rely on one or other of the cases of default contemplated by Section 163(1), Companies Act, it is still open to him to do so, and if in a case a default of a nature specified in Section 163, Companies Act, is alleged, it will be sufficient to satisfy the requirements of that section in order to attract the provisions of Section 38(1), Banking Companies Act. In no other view can I explain the presence of the introductory words in Section 38(3), Banking Companies Act.

23. If it was the intention of the Legislature to provide that Section 38(1) would apply only when a default of the kind mentioned in Section 38(3) had occurred, one would expect that intention to be expressed by saying in Section 38(1) that that sub-section would apply if a banking company was unable to pay its debts within the meaning of Sub-section (3), or perhaps the same intention would be expressed with equal clarity, if the Legislature had said in Sub-section (3) that 'for the purposes of Sub-section (1)' a banking company shall be deemed to be unable to pay its debts in the circumstances stated in the sub-section.

Neither of these forms of expression has been used and the result; it seems to me, is that so far as Section 38(1) is concerned, its provisions are attracted as soon as it is proved that a company is a banking company and it is unable to pay its debts either within the meaning of Section 163(1), Companies Act, or within the meaning of Section 38(3), Banking Companies Act. So far as Sub-section (3) of Section 38 is concerned, the effect, it seems to me, is only to add a fourth case where also a company, if it is a banking company, shall be deemed to be unable to pay its debts.

I am accordingly of opinion that the constructions respectively suggested by the learned Standing Counsel and the learned Advocate-General will not bear examination and that the view taken by Mr. Justice S. R. Das Gupta was the right view.

24. I have discussed this matter at such length, because it was argued before us with some elaboration. The present case, however, does not require to be dealt with on grounds of law at all. As I have stated, Mr. Justice S. R. Das Gupta, after he had dealt with the question of law, proceeded to deal with the facts and he came to the conclusion that the facts were sufficient to justify him in throwing out the application for a scheme. If the application or the scheme recommended thereby is not a fit one to be sent to the creditors and shareholders for consideration, it is wholly immaterial whether Section 38 makes it obligatory on the Court to reject an application for a scheme or not.

(His Lordship considered the second part of the appeal and concluded:)

25-32. I am satisfied in my mind that in all the circumstances of the case, the creditors and the employees will benefit substantially more by a liquidation by an Official Liquidator than by the agents proposed and that the learned Judge, in preferring the Official Liquidator, acted wisely and exercised his discretion correctly.

33. So far as the other appeal is concerned, namely, the appeal against the winding up order, no argument was addressed to us and as the learned Judge points out, there was no affidavit against the application at all. That was natural, because it is common ground of all parties that the company must be wound up and if it is not going to be wound up by means of a scheme to be worked out by the proposed agents, it must be wound up officially as prayed for by Dharam Chand Jain and as ordered by the Court.

(His Lordship considered other circumstances of the case and concluded:)

34-35. In the result, both the appeals are dismissed with costs. Certified for two Counsel where two Counsel appeared. The Official Liquidator will get his costs out of the assets. Let two orders be drawn up, but there will be one set of costs.

(Further portion of judgment is omitted as not material for reporting.--Ed.)

Sarkar, J.

36. I agree.


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