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HIGH COURT OF CALCUTTA
CHAKRABARTI, SARMA SARKAR
DWARKADAS AGARWALL - Appellant
Versus
DHARAM CHAND JAIN - Respondent
A. F. O. O. 169 Of 1952
Decided On : APRIL 30, 1953
BANKING COMPANIES ACT - SECTION 38 - WINDING UP - DISCRETION OF COURT - SCHEME OF ARRANGEMENT - VALIDITY - JURISDICTION OF COURT - COMPANY COURT - COMPANY JUDGE - POWERS AND DUTIES - OFFICIAL LIQUIDATOR - APPOINTMENT - PREFERENCE OVER PRIVATE AGENCY.
Fact of the Case:
The Calcutta National Bank Ltd., a fairly large undertaking with an authorized 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, faced financial difficulties and was directed by the Reserve Bank of India not to accept any fresh deposits and not to do any further banking business. The Bank suspended payment on 14-5-1951 and applied for a moratorium to the Court under Section 37, Banking Companies Act. An interim moratorium was granted, but an application was made by one Sachindra Bhattacharyya for a winding up of the Bank on 21-5-1951. While that application was pending, Dwarkadas Agarwalla, the appellant, 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. The scheme was considered and passed at two meetings on October 14, with the Reserve Bank of India's blessings under Section 45 (a), Banking Companies Act. However, the scheme was extensively modified by the Company Judge, Mr. Justice Banerjee, before sanctioning it on 11-2-1952. The modified scheme was not sent back for reconsideration by the creditors, depositors, and shareholders, nor was any certificate of the Reserve Bank asked for or obtained. Meanwhile, another application for a winding up was made by Dharam Chand Jain, a depositor with the Bank, on 27-5-1952, alleging failure to obtain payment of his deposit despite serving a notice under Section 163, Companies Act. The application was joined by Sree Gopal Joshi, a shareholder, who challenged the validity of the scheme on various grounds. Mr. Justice Banerjee refused to admit the application and rejected the legal objections to the scheme, holding that a valid scheme was already in operation. Dharam Chand Jain preferred an appeal to the Appellate Court, which allowed the appeal, admitted Dharam Chand Jain's application for a winding up, and directed the Company Court to issue advertisements and consider objections to the validity of the scheme. The Appellate Court also directed the Special Officer to hand over the assets of the Calcutta National Bank Ltd. to the Bank of Jaipur Ltd., as per the scheme. Dwarkadas Agarwalla then made a fresh application for the consideration of a revised scheme, which was rejected by Mr. Justice S. R. Das Gupta on the ground that it was not a scheme that the Court could properly send to the creditors and shareholders. Mr. Justice S. R. Das Gupta also found that there was no legal bar to Dharam Chand Jain making or the Court entertaining the application for a winding up and proceeded to make a winding up order.
Finding of the Court:
The Court held that Section 38 (1), Banking Companies Act, made it obligatory on the Court to direct a winding up in the circumstances of the case, as the company was a banking company and was unable to pay its debts. The Court rejected the contention that the debts contemplated by Section 38 (1) were only banking debts and that the inability to pay had to be of the kind mentioned in Sub-section (3) of the section. The Court also held that the scheme of arrangement sanctioned by Mr. Justice Banerjee was a nullity as it was not sent back for reconsideration by the creditors, depositors, and shareholders after extensive modifications by the learned Judge. The Court further held that the learned Judge was right in rejecting the application for a scheme and in directing a winding up, considering the facts and circumstances of the case.
Issues: 1. Whether Section 38 (1), Banking Companies Act, made it obligatory on the Court to direct a winding up in the circumstances of the case? 2. Whether the scheme of arrangement sanctioned by Mr. Justice Banerjee was valid? 3. Whether the learned Judge was right in rejecting the application for a scheme and in directing a winding up?
Ratio Decidendi: 1. The Court held that Section 38 (1), Banking Companies Act, made it obligatory on the Court to direct a winding up in the circumstances of the case, as the company was a banking company and was unable to pay its debts. The Court rejected the contention that the debts contemplated by Section 38 (1) were only banking debts and that the inability to pay had to be of the kind mentioned in Sub-section (3) of the section. The Court also held that the scheme of arrangement sanctioned by Mr. Justice Banerjee was a nullity as it was not sent back for reconsideration by the creditors, depositors, and shareholders after extensive modifications by the learned Judge. The Court further held that the learned Judge was right in rejecting the application for a scheme and in directing a winding up, considering the facts and circumstances of the case. 2. The Court held that the scheme of arrangement sanctioned by Mr. Justice Banerjee was a nullity as it was not sent back for reconsideration by the creditors, depositors, and shareholders after extensive modifications by the learned Judge. 3. The Court held that the learned Judge was right in rejecting the application for a scheme and in directing a winding up, considering the facts and circumstances of the case.
Final Decision: Both appeals were dismissed with costs. The Official Liquidator was directed to get his costs out of the assets.
( 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 consider the 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 a
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