Judgment

BEG, J. :- These are five appeals by grant of certificates under Art. 133(1) (a) of the Constitution by the Mysore High Court where the orders of the learned Company Judge, in misfeasance proceedings, under Section 45H of the Banking Companies Act, 1949, (hereinafter referred to as the Act ), read with Section 235 of the Indian Companies Act, 1913, (hereinafter referred to as the Act of 1913 ) had been modified by a Division Bench. These proceedings were instituted by the Official Liquidator against seven Directors, including the Chairman of the Board of Directors and the Managing Director, and the Cashiers, the Accountant, two Branch Managers, another officer, and an auditor of the Supreme Bank of India Ltd., Belgaum, (hereinafter referred to as the Bank under liquidation. The Bank, incorporated on 27-5-1939, commenced business on 6th October, 1939. It suspended business on 27-11-1954 as a result of gross mismanagement which enabled large sums of money to be misappropriated and false and fictitious entries to be made in its account books.

2. Out of the seven Directors mentioned above, five, namely, S. G. Pant, the Chairman of the Board of Directors, S. K. Samant, the managing Director from July, 1946, P. A. Tendolkar, D. R. Angolkar and L. S. Ajgaonkar, were promoter or founder Directors. The sixth Director, P. W. Porwal, joined the Board in 1951. The seventh Director, B. N. Kalghatgi, took charge of his office in July, 1953, on the death of his elder brother G. N. Kalghatgi. Before the Company Judge could give his decision, on 8-11-1963, S. G. Pant, the Chairman of the Board of Directors, had expired on 29-8-1961, and D. R. Angolkar, Director, had died on 10-10-1962. During the pendency of the applications for certification, under Article 133 of the Constitution, for appeals to this Court, another founder Director, P. A. Tendolkar died, on 10-8-1966, so that his legal representatives were substituted for subsequent proceedings.

3. The Official Liquidator had alleged, in the application for misfeasance proceedings, dated 27-8-1960, that "the Directors and the employees of the Bank had misappropriated or become liable or accountable for a total sum of Rs. 4,26,000/-" due to the Company, and were guilty of "misfeasance, breach of trust, and fraudulent conduct in relation to the Company". The Official Liquidator had prayed that the Court may be pleased to take cognizance of the application against the Respondents and examine their conduct and "direct them all or such of them as may be held liable, particularly or generally, severally or jointly, and, in such manner as it may deem just, fit and proper, to repay and restore the money of the bank, together with interest, or, to contribute such amounts to the assets of the Company by way of compensation in respect of misapplication, retainer, misfeasance or breach of trust" as the Court may deem just. Thus, the prayer for relief covered every type of order the learned Company Judge could consider fit and proper to meet the needs of the case.

4. We may now glance at the background of investigations and reports made which led up to the misfeasance proceedings, before we consider the issue raised and decisions given on these by the learned Company Judge and then by the Division Bench.

5. On 7-3-1951, after the coming into force of the Banking Companies Act 1940, on 16-3-1949, the Reserve Bank of India had given its short inspection report (A-1) on the affairs of the Bank under Section 22 of the Act. This report showed that even necessary formalities with regard to opening of deposit accounts were not complied with, over-drafts were allowed in savings Bank accounts, unsecured advances were disproportionately large, rates offered on some fixed deposits were abnormally high, the Bank was constantly borrowing from other Banks by pledging its investments, 16 of the advances were irregular, records to indicate the correct value of goods pledged or hypothecated were not maintained