JUDGMENT Das, J. - This is an application by the Calcutta Industrial Bank, Ltd. (hereinafter called the Company) for sanction of a scheme of arrangement u/s 153 of the Indian Companies Act. 2. The Company was incorporated under the Indian Companies Act in the year 1930 under the name and style of Kasiani Loans and Trading Company, Ltd. The Memorandum and Articles of Association filed with the Registrar of Joint Stock Companies have been produced before me under a subpoena. In 1936, the name of the Company was changed to its present name, the Calcutta Industrial Bank, Ltd. The registered office of the Company is situate at No. 14/5, Clive Bow, in the town of Calcutta. The present authorised capital of the Company is Rs. 30,00,000 divided into 3,00,000 ordinary shares of Rs. 10 each. The subscribed capital of the Company is Rs. 5,87,000 and the paid up capital is Rs. 4,45,000 as on August 31, 1947. The uncalled capital is, therefore, Rs. 1,42,000 as on that date. The Company has 14 branches, one of which is in Bogra in Eastern Pakistan. 3. On September 16, 1947, the present petition was presented before Clough J. The allegations in the petition may be summarised as follows:--The present management is said to have taken control of the Company in October, 1939 and it its claimed that the position of the Company improved immensely since then and certain figures are mentioned in a table set out in para 6 of the petition, purporting to show the progressive improvement of the Company during the year 1940 to 1946. Reference is then made to the communal disturbances and various strikes in Calcutta and elsewhere since August, 1946, which seriously affected various banks, names of some of which are set out in para. 7 of the petition. In August, 1947, there was a strike of the employees of the head office of the Company, which added to its difficulties. It is said that from August, 1946, to August 31, 1947, the Company made payments to various creditors and depositors to the extent of Rs. 60,00,000, which is said to amount to about 58 per cent of its demand and time liabilities. It is said that from August, 1946, to August 31, 1947, the Company made payments to various creditors and depositors to the extent of Rs. 60,00,000, which is said to amount to about 58 per cent of its demand and time liabilities. By reason of the various strikes and disturbances, the Company, it is said, has not been able to do much business except meeting demands of its depositors and in the premises its cash and bank balances have been considerably depleted and have not been replenished since then by any fresh deposits. The present liability of the Company to its depositors and creditors is stated to be about Rs. 42,33,000, out of which, liability towards secured creditors is said to be about Rs. 4,50,000. Against this liability the Company is said to have good and realisable assets to the. extent of about Rs. 45,00,000. The position of the Company, as on August 31, 1946, is shown in a copy of the trial balance-sheet annexed to the petition and marked "B." The annexure "B" to the petition is headed--"Approximate Position of Calcutta. "Industrial Bank, Ltd., as on 31st August 1947." It is signed by the accountant, Deputy Chief Accountant, Superintendent, two directors, namely, R.K. Ghosh and B.C. Datta and the Managing Director, A.M. Gupta. It appears from this trial balance-sheet that on August 31, 1947, the liabilities of the Company, apart from share liability and reserve, were Rs. 42,33,000 made up of the following: deposits--Rs. 35,79,000, Loan Account--Rs. 1,50,000, other liabilities--Rs. 54,000 (including Rs. 14,000 on account of establishment, house rent and staff provident fund) and Bank Account--Rs. 4,50,000, which in the petition is said to be secured. On the assets side are shown Rs. 3,11,000 (cash in hand), Rs. 1,65,000 (with bank), Rs. 10,30,000 (investments), Rs. 11,000 (outstanding interest on loans and G.P. Notes), Rs. 29,52,000 (loans and overdrafts) and Rs. 1,80,000 (other assets). Out of Rs. 29,52,000 (loans and overdrafts) Rs. 21,50,000 are shown as secured by Fixed, Current and Savings Account deposits, gold ornaments and G.P. Notes, hypothecation of godowns and factory, bills (Government, railway and commercial) and shares and only Rs. 8,02,000 as unsecured. The total liability including the share liability and reserve is shown as Rs. 47,43,000 and the excess of the total liability over assets is shown as Rs. 94,000. 8,02,000 as unsecured. The total liability including the share liability and reserve is shown as Rs. 47,43,000 and the excess of the total liability over assets is shown as Rs. 94,000. If, however, the share liability and reserve, which are not payable to any creditor are omitted, the total liability immediately payable comes to Rs. 42,33,000 as against which the total assets as shown amount to Rs. 46,49,000 (i.e., Rs. 47,43,000 minus Rs. 94,000). On this computation the assets exceed the liabilities by Rs. 4,16,000. After setting out its position brought about, according to the Company, by circumstances over which it had no control, the Company expresses its desire, said to be supported by a large body of creditors and depositors, to place a scheme of arrangement for gradual payment of the liabilities. 4. The scheme, a copy of which was annexed to the petition, may be summarised as follows: (i) Sundry liabilities for salaries, allowances for office expenses, legal charges and house-rent will not be affected by the scheme but shall be paid in full (Clause 3). (ii) Secured creditors to the extent of their securities will not be affected by the scheme (Clause 14). (iii) All depositors up to Rs. 50 and all staff Provident Fund, Staff Security, bill collection proceeds for which advices had been received or drafts or pay orders issued against bill proceeds or cash payment shall be converted into current account to be paid within four months from date of sanction (Clause 4). (iv) The creditors will give up all arrears of interest and will not be entitled to any interest in future (Clause 5). (v) Eighty per cent, of the principal amount due to the creditors except the secured creditors shall be paid as follows: (a) 10 per cent within six months from date of sanction. (b) 20 per cent, within one year from the last payment. (c) 20 per cent, within two years six months from date of sanction. (d) 30 per cent, shall be paid within three years six months from the date of sanction (Clause 6). (vi) 20 per cent, will be satisfied by allotment of fully paid up shares and if such allotment cannot be made within two years from the date of sanction, the amount will be kept in suspense and repaid out of the profits before any dividend is declared (Clause 7). (vi) 20 per cent, will be satisfied by allotment of fully paid up shares and if such allotment cannot be made within two years from the date of sanction, the amount will be kept in suspense and repaid out of the profits before any dividend is declared (Clause 7). (vii) The present directors will not get their 80 per cent, until 80 per cent is paid to each creditor in full (Clause 8). (viii) The amount outstanding on shares shall be called up and realised in full and in default of payment the shares will be forfeited (Clause 9). (ix) 30 per cent, of the paid up share capital shall be reduced by writing off (Clause 10). (x) The Board of directors shall be reshuffled and will consist of six directors from amongst the creditors and five from amongst the shareholders, to be elected at meetings to be convened within three months after date of sanction (Clause 11). 5. On the presentation of the petition on September 16, 1947, Clough J. gave leave to the Company to convene meetings of its creditors and shareholders to consider the scheme of arrangement proposed by the Company and gave necessary directions fixing the time and place of the meetings and for advertisements in the newspapers and for service of notices on individual creditors. Mr. B. Das and failing him Mr. D.N. Sinha, was appointed to act as chairman of the meetings and Mr. D.N. Guha Ray, a Chartered Accountant, was appointed to make an investigation into the affairs of the Company and. make a report which was directed to be made available for inspection at the Company's head office at least two weeks before the meetings. The directions given to Mr. D.N. Guha Ray were as follows: In his report he should indicate with reasons his views as to the feasibility and practicability of the scheme; he should give special attention to the extent to which the book debts of the Company were secured and so far as he was able to express an opinion, the extent to which the unsecured debts were likely to be realised. 6. On October 11, 1947, a petition for winding up of the Company was presented before Clough J. on behalf of Bhupati Nath Datta, Jaharlal Datta and Pashupati Nath Datta, who claimed to be creditors of the Company for the total sum of Rs. 1,63,705-12-6. 6. On October 11, 1947, a petition for winding up of the Company was presented before Clough J. on behalf of Bhupati Nath Datta, Jaharlal Datta and Pashupati Nath Datta, who claimed to be creditors of the Company for the total sum of Rs. 1,63,705-12-6. Clough J. admitted that petition and fixed November 29, 1947, for its hearing and gave directions for advertisements. At the same time, upon the application of the petitioning creditors supported by Gopi Lal Shaw who also claimed to be a creditor and for reasons recorded in the minutes, namely, the probability that preferential payments had been made and the fact, appearing from the letter of the Company's attorneys dated October 7, 1947, that the books of the Company had not been till then made over to the auditor, appointed the Official Receiver as Provisional Liquidator to forthwith take possession of the Company's assets and books. The learned Judge directed that notice of appointment of the Provisional Liquidator should be given by Tuesday then next (i.e., October 14, 1947) to the Company intimating also that the Company might, if it so desired, apply for vacating that order on Friday then next (i.e., October 17, 1947) on two days' notice to the petitioning creditors. The Company moved Clough J. on October 17, 1947, for vacating the order for appointment of the Provisional Liquidator, but His Lordship did not then accede to that application, but adjourned the application till the hearing of the winding-up application. The learned Judge directed both the winding-up application and the application for sanction of the scheme to come up for hearing on December 8, 1947 and gave certain consequential directions which need not be detailed here. His Lordship also directed the Provisional Liquidator to allow the Company inspection of certain specified books. The result has been that the Provisional Liquidator took possssion of the head office and may be, of some of the branches and the business of the Company is completely closed at any rate from October 11, 1947. 7. Thereafter, the meetings of the creditors and shareholders were held at the registered office of the Company on November 22, 1947 and Mr. B. Das, who presided over those meetings, made his report on November 28, 1947, which has been filed on record on November 29, 1947. 8. 7. Thereafter, the meetings of the creditors and shareholders were held at the registered office of the Company on November 22, 1947 and Mr. B. Das, who presided over those meetings, made his report on November 28, 1947, which has been filed on record on November 29, 1947. 8. It appears from the chairman's report that the meeting of creditors was attended in person by 204 creditors of the total value of Rs. 8,86,244-11-0 and by valid proxy by 1,094 creditors of the total value of Rs. 9,41,243-11-10. The meeting was, therefore, attended either personally or by proxy by 1,298 creditors whose claims amount in the aggregate to Rs. 18,27,488-6-10. The chairman briefly explained the purpose of the meeting that had been convened pursuant to directions of the Court and read out the proposed scheme. At the request of the creditors a Bengali translation of the proposed scheme was read out to the meeting by Mr. Ranjit Kumar Ghosh. The chairman also explained that the creditors were free to accept, reject or modify the proposed scheme. The report of Mr. D.N. Guha Bay, who had been appointed to investigate into the affairs of the Company, was read out by the chairman to the meeting. A discussion on the proposed scheme and the report followed, in course of which Mr. D.N. Guha Ray answered many questions put by various creditors. There was a good deal of discussion which at times was attended with considerable heat. Mr. Sailendra Nath Mukherji (who is shown in the attendance list to be a creditor for Rs. 5-1) representing himself and as a proxy-holder of creditors of the total value of about Rs. 70,000 proposed certain modifications and Mr. Binay Krishna Datta, a creditor of the value of Rs. 10,314-10-3 seconded the amendments. The net result of the amendments, so far as they concerned the creditors, was that the creditors would get 70 per cent, instead of 80 per cent. as proposed in Clause 6 and take, in shares, 30 per cent instead of 20 per cent, as proposed in Clause 7 of the scheme. The proposed amendment also increased the percentage of writing off of share capital from 30 per cent, as proposed in Clause 10 to 50 per cent. as proposed in Clause 6 and take, in shares, 30 per cent instead of 20 per cent, as proposed in Clause 7 of the scheme. The proposed amendment also increased the percentage of writing off of share capital from 30 per cent, as proposed in Clause 10 to 50 per cent. After prolonged discussions and no other amendment having been moved the chairman put the scheme with the amendments to vote and the meeting unanimously adopted the scheme, as amended nobody raising his hand in disapproval of the scheme or the amendments and the chairman, accordingly, declared the amended scheme to be unanimously carried and dissolved the meeting. The chairman records that thereafter eight or ten creditors came up to the chairman's table and told him that they wanted to record their opposition, although voting was over. Those men put down some names on a sheet of paper and handed it to the chairman and asked for a receipt for the same. The chairman declined to sign any receipt but told those people that the sheet will be placed before the Court along with his report. They, however, changed their mind and took back the sheet from the chairman. On November 26, 1947, Messrs. B.K. Bose, Attorneys, purporting to act for 68 creditors forwarded to the chairman a copy of a letter they had addressed to the Company's attorneys. That letter is filed with the report. 9. The shareholders' meeting was held on the same day after the creditors' meeting was over and was attended either personally or by proxy by 38 shareholders holding in all 9,858 shares. The shareholders thus represented at the meeting unanimously accepted the scheme as amended. One shareholder, Mr. S.K. Mallik, while accepting the scheme suggested and this suggestion was accepted by two other shareholders, that if any of the employees or directors including the managing director was found to have wrongfully dealt with public money the shareholders should take appropriate steps against him. A further suggestion was made that if the scheme and the report were accepted by the Court, another auditor should be appointed to go into the accounts of the Company. 10. The two applications, namely, one for the sanction of the amended scheme approved by the creditors and shareholders and the other for winding-up of the Company came up before me for final hearing. 10. The two applications, namely, one for the sanction of the amended scheme approved by the creditors and shareholders and the other for winding-up of the Company came up before me for final hearing. An affidavit of compliance with Court's directions as to advertisement and service of notice has been filed in each application. The Company's application for sanction has been supported before me by creditors of the total value of about Rs. 3,81,535 and opposed by creditors of the total value of about Rs. 3,54,235 and. was heard at length. I considered it right to call Mr. D.N. Guha Ray to explain some of the points raised on his report and otherwise to assist the Court in ascertaining the true position of the Company. I gave opportunity to all parties appearing on the application to put questions to Mr. Guha Ray and they did so. 11. Certain charges of non-compliance with Court's directions has been made in the affidavit in opposition of Jaharlal Datta. To start with, it is said that the report of Mr. D.N. Guha Ray was not made available for inspection at the head office a fortnight before the creditors' meeting was held. This is supported by B. Pal Chaudhuri, Ram Kumar Agarwala and Sankarlal Agarwala. Mr. Guha Ray sent his report to the Company's solicitors on November 8, 1947, which was just a fortnight before the date of the meeting. The Company's solicitors, on that very date, wrote to the Provisional Liquidator, who was in possession of the head office, to afford immediate facilities for making the report available for inspection to all concerned. On November 14, 1947, the Company's solicitors wrote again to the Provisional Liquidator pointing out that no reply had been received from him. to the earlier letter and again requesting him to give immediately facility for making the report available for inspection and in the meantime, to direct anybody calling at the head office to obtain inspection at the solicitors' office. In fact Jaharlal Datta obtained a copy from the Company's solicitors. Seeing that the other complaining creditors are appearing through the same attorneys no substantial hardship appears to have been suffered by them. But I must observe that the Company's solicitors should have enclosed the report or at any rate a copy thereof in their first letter to the Provisional Liquidator. Seeing that the other complaining creditors are appearing through the same attorneys no substantial hardship appears to have been suffered by them. But I must observe that the Company's solicitors should have enclosed the report or at any rate a copy thereof in their first letter to the Provisional Liquidator. A request for giving facility for making the report available for inspection without sending the report or a copy thereof is naturally open to adverse comment and it cannot be denied that the directions of the Court were not, strictly speaking, complied with. The object in directing the report to be made available for inspection by creditors was that they should not be taken by surprise by having a mass of figures thrown at them at the meeting but should have time to consider them before going to the meeting. It is desirable that directions of this kind should be scrupulously carried out by a Company which desires the sanction of the Court to impose an arrangement on its creditors. 12. It is next said that many creditors did not get notice of the meeting. This is supported by Bhupesh Chandra Pal, Pramatha Mukherji and by Hari Sadhan Banerji, the manager of the Calcutta branch of the Bank of Behar, Ltd. The last mentioned gentleman, however, attended the meeting. Comment is also made that the postal certificates do not appear to have been produced before the chairman or scrutinised by him as his report is silent on the point. In the affidavit of compliance filed by the Company it has been stated that notices were in fact to every individual creditor and the certificates of posting contained in 46 books have been filed. Further the public advertisements were duly made in the newspapers. In the circumstances, I do not think any point can be made against the Company on the ground of absence of service of notices on the individual creditors. 13. It is then urged that the meeting was not properly held or conducted. It is said that the meeting did not start at 2 p.m. as the chairman did not turn up until 2-30 p.m. and in the meantime many creditors had left the meeting in disgust. 13. It is then urged that the meeting was not properly held or conducted. It is said that the meeting did not start at 2 p.m. as the chairman did not turn up until 2-30 p.m. and in the meantime many creditors had left the meeting in disgust. No name of any creditor who had so left has been given and I do not think it very likely that a creditor who had taken all the trouble of attending the meeting to ventilate his opposition would quietly go away when other creditors stayed on. Then it is said that there was such noise and disturbance that nobody could follow what was going on, that many outsiders were present, that the creditors had no opportunity of considering the scheme, that the books of the Company were not available at the meeting so that the report of Mr. Guha Ray could not be verified, that bona fide creditors were prevented from taking part in the meeting or putting questions by the directions and a large number of employees of the Company who acted in a high-handed manner and that all on a sudden the chairman closed the meeting without taking the votes of the opposing creditors. These allegations are supported by Hari Sadhan Banerji who says that the management with the help of their henchmen and many outsiders, masquerading as creditors, created a pandemonium and had their own way. Learned Counsel for one of the opposing creditors commented that if the creditors unanimously accepted the amended scheme, why should eight or ten of them immediately thereafter signify their opposition to the chairman. The chairman of the meeting is an able member of (sic) well known, I am happy to say, for his integrity and (sic) of fairness and I am certainly not prepared to distrust his port on vague allegation such as have been made in the affidavits in opposition. That there was some heat in the discussion at the meeting is referred to by the chairman in his report. Many questions were put to Mr. Guha Ray and answered by him. The chairman loudly asked the creditors who objected to the scheme or the amendments to raise their hands. No one did so and the chairman declared the amended scheme as carried unanimously. Many questions were put to Mr. Guha Ray and answered by him. The chairman loudly asked the creditors who objected to the scheme or the amendments to raise their hands. No one did so and the chairman declared the amended scheme as carried unanimously. The strength of the minority was obviously negligible and it may well be that they did not press their objections by voting against it because they felt, at that time, that it would be futile to do so in view of the huge majority of creditors apparently in support of the amended scheme. The eight or ten creditors who approached the chairman after the meeting was closed may have, on second thought, decided that it would be prudent to keep something on record to mark their dissent or they may have been late comers. As I accept the. correctness of the chairman's report I cannot throw out the amended scheme without any consideration on its merits. I desire, however, to make a few remarks as to the preparation of the list of creditors attending the meeting either personally or by proxy. In the chairman's report are annexed sheets of papers on which the creditors personally present had signed their names. In many cases the amounts of their debts were not mentioned. In the typed sheets purporting to be a copy of the manuscript sheets the amounts of the claims of the creditors have been set out. It is not clear who filled in those amounts. Seeing, however, that the amended scheme was adopted unanimously the amounts of the respective claims do not matter in this cases, but it should be remembered that, in a case where a division takes place, the amounts of claims are of very great importance. In annexure B1, is set out a typed list of invalid proxies and the invalid proxy forms are filed with the report. Annexure B2 is a typed list of valid proxies but the 1,094 proxy sheets have not been filed with the report. Possibly this was due to their bulk. But in the typed list (B2) it is not shown which creditor appointed whom as his proxy. It is very necessary for the chairman to specify the names of the proxy-holders and the creditors whom they represent. Possibly this was due to their bulk. But in the typed list (B2) it is not shown which creditor appointed whom as his proxy. It is very necessary for the chairman to specify the names of the proxy-holders and the creditors whom they represent. The names of the proxy-holders, if disclosed, may show whether they are bona fide proxy-holders or whether they are employees of the Company sent out for securing proxies. Further the names of the proxy-holders may enable the Court to determine whether they can properly be proxy-holders. Again, seeing that the amended scheme was passed unanimously, the nondisclosure of the names of the proxy-holders do not make any difference, but I am adverting to these matters so that in future more attention is paid to them. 14. In my judgment in the case of In re Pioneer Commercial Bank, Ltd. Unreported delivered on March 31, 1947, I adverted to principles laid down by Lindley L.J. in the two well-known cases therein referred to for the guidance of the Court in the matter of sanctioning schemes. Mr. R. Chaudhuri, appearing for the Company, drew my attention to the fact that the observations of Lindley L.J. were made at a time when, under the English Companies Act then in force, a scheme was a part of the winding-up proceedings and submitted that the law has been further liberalised in that it now permits schemes even without winding-up and therefore, the principles laid down by the, eminent Lord Justice should also be further liberalised and the Court should give greater sanctity to the opinion of the requisite statutory majority of creditors. I do not think that the circumstance referred to by Mr. Chaudhuri, namely, that Section 153 is in Part IV and not in Part V (winding-up) has done away with the ultimate responsibility of the Court. The sanction of a scheme by the Court makes it binding on the Company and all its members and creditors whether they attended the meetings or not and whether they voted for it or against. The responsibility of the Court is still greater when the creditors or shareholders who attended the meeting in person or by proxy and approved the scheme by the requisite statutory majority are only a fractional part of the general body of creditors, or shareholders as the case may be. The responsibility of the Court is still greater when the creditors or shareholders who attended the meeting in person or by proxy and approved the scheme by the requisite statutory majority are only a fractional part of the general body of creditors, or shareholders as the case may be. Before, therefore, the Court may take upon itself the responsibility of thrusting the scheme on all concerned it must look at the surrounding circumstances which led to the proposal of the scheme, see whether the directions of the Court and the requirement of the statute were properly carried out and the meetings were properly convened and conducted and whether the matter was considered from the proper point of view on relevant facts fairly disclosed and put before the meeting and what is more, be satisfied that the scheme is a fair scheme and that there is no reasonable objection to it. The Court, I apprehend, will reject the scheme if it is brought to its notice and it is satisfied that there has been any material oversight or miscarriage. I think the Court will be justified in rejecting the scheme if it is satisfied that material facts were intentionally withheld from or otherwise not placed before the meeting or that the object of the scheme is to prevent an enquiry into transactions which require investigation or that there has been flagrant failure or disregard in complying with the provisions of the Company Jaw in managing the affairs of the Company. Keeping the above principles in view I now proceed to examine the facts before me. The Company, as I have said, was incorporated in 1930 under the name of Kasiani Loans and Trading Company, Ltd. Its objects were set forth in its memorandum filed with the Registrar, which has been produced, before me under a subpoena. 15. The present management of the Company takes credit for having so improved the position of the Company as to enable it to declare dividends at 4 per cent free of income tax during the years 1942 to 1945. In the first place, it is common knowledge, that those four years constituted a boom period brought about by the Great War when financing institutions like banks made large profits. In the first place, it is common knowledge, that those four years constituted a boom period brought about by the Great War when financing institutions like banks made large profits. In the next place, the management should have, during those heydays, built up a more substantial reserve fund instead of indulging in spectacular show of success by declaring dividends in violation of the mandatory provisions of Section 277(k) of the Companies Act. That section enjoins that every banking company shall, out of the declared profits of each year and before any dividend is declared, transfer a sum equivalent to not less than twenty per cent, of such profits to the reserve fund until the amount of the said fund is equal to the paid-up capital. Dividend is to be declared on profits. If the amount to be added to the reserve fund is to represent 20 per cent, of the profits then only the balance of 80 per cent of the profits remains available for dividend. It follows, therefore, that dividend cannot legally be more than four times the amount to be transferred to reserve. In 1942, Rs. 350-8-10 minus Rs. 195-4-7 equal to Rs. 154-4-3 was added to the reserve fund, whereas Rs. 2,073, i.e. 4 per cent, of the current paid-up capital of Rs. 51,834, which is more than four times Rs. 154-4-3 was spent in dividend in violation of the section I have mentioned. It is true that in subsequent years this kind of, flagrant breach did not take place, but the figures of 1942 cannot but put a stigma on the management. 16. It is said that the Company did not file statutory returns, but this charge is denied and there is no concrete evidence before me. So I pass on. 17. According to Mr. D.N. Guha Ray's report the total liabilities including share liabilities are Rs. 31,78,435-13-5| and the total of net assets available for general creditors and shareholders are Rs. 22,26,407-6-2. On this computation, the deficit is Rs. 9,52,028-7-3. It is curious that, according to the trial balance-sheet annexed to the petition, the excess of assets over liabilities was Rs. 4,16,000. In the petition the unsecured book-debts due to the Company are shown at Rs. 8,02,000, whereas according to Mr. D.N. Guha Ray they are Rs. 18,58,554, the resulting discrepancy being for over Rs. 10 lakhs. 9,52,028-7-3. It is curious that, according to the trial balance-sheet annexed to the petition, the excess of assets over liabilities was Rs. 4,16,000. In the petition the unsecured book-debts due to the Company are shown at Rs. 8,02,000, whereas according to Mr. D.N. Guha Ray they are Rs. 18,58,554, the resulting discrepancy being for over Rs. 10 lakhs. These discrepancies leave a bad impression on my mind and I cannot but feel the force of the comment made by Learned Counsel for the opposing creditors that the Court was deliberately misled by false figures into granting leave to convene meetings of creditors and shareholders. Mr. E. Chaudhuri explained that the figures in the petition were only "approximate", but in the affidavit in reply it is strenuously maintained that those figures are correct. Further, the very wide discrepancies amounting to about Rs. 10 lakhs can hardly be explained away by the plea of the figures being only "approximate". As regards the discrepancies in the figures of unsecured debts Mr. Chaudhuri says and Mr. D.N. Guha Ray also admits that the latter was very conservative and strict in classifying book-debts and refused to consider anything as secured unless they were strictly speaking so secured by proper document. This may explain away part of the difference but not the whole of it amounting to over Rs. 10 lakhs on this head. It is regrettable that Mr. D.N. Guha Ray simply ignored those figures, as he says in his evidence and did not, in his report, draw the attention of the creditors and shareholders to the discrepancies. It is said that Jaharlal Datta, one of the opposing creditors, had taken a copy of the petition and could have drawn the attention of the creditors to the discrepancies. This only shows that creditors, left to themselves, do not appreciate the importance of many things unless it is brought to their notice. It is then said that the petition was not before the creditors at the meeting and they had the correct figures in Mr. D.N. Guha Ray's report and were, therefore, not misled. They were misled in that the Company's conduct in putting up wrong figures before the Court was not brought to their notice. It is then said that the petition was not before the creditors at the meeting and they had the correct figures in Mr. D.N. Guha Ray's report and were, therefore, not misled. They were misled in that the Company's conduct in putting up wrong figures before the Court was not brought to their notice. The object of having the affairs of the Company investigated by an independent auditor was to bring all material facts relating to the management as well as the present financial position of the Company to the notice of the creditors, so as to enable them to make up their minds whether they should at all enter into any arrangement with such a Company. It cannot be denied that, by reason of the absence of any comment in the report, this aspect of the matter was not brought to the notice of the creditors. 18. The opposing creditors filed an affidavit affirmed by Mr. P.K. Mitra, an incorporated accountant, annexing a report containing certain comments. This affidavit, strictly speaking, was not filed within the time prescribed by our rules. But seeing that the report of Mr. P.K. Mitra was referred to in Jaharlal Datta's main affidavit in opposition, which was filed in time, I permitted this affidavit to go in. It appears, however, that Mr. P.K. Mitra had inspection of the Company's books at the head office for only about three hours on only one day. The result of his inspection must, in the nature of things, be only perfunctory and no reliance can in the circumstances be placed on his comments, particularly when the Company had no opportunity to explain the matters commented upon by him and I do not rely on the report of Mr. P.K. Mitra, although it is supported by his affidavit. But the opposing creditors, undoubtedly taking their cue from this report, have taken up two items and have referred me to the original books of the Company produced by the Provisional Liquidators. Mr. R. Chaudhuri, in his reply has given the Company's explanation to the comments made by Learned Counsel for the opposing creditors. It is, therefore, necessary for me to refer to those two matters. 19. The first matter relates to the "Building Account." The Company had a building, No. 4A and 4/1A, Pollock Street, which it had purchased in 1946 at and for Rs. 3,63,389. It is, therefore, necessary for me to refer to those two matters. 19. The first matter relates to the "Building Account." The Company had a building, No. 4A and 4/1A, Pollock Street, which it had purchased in 1946 at and for Rs. 3,63,389. This amount was debited to the "Building Account". On January 1, 1947, this account was carried over to the new books. On April 1, 1947, a sum of Rs. 34,764 was debited to this account, bringing the total debits up to Rs. 3,98,153. Then, on September 13, 1947, there is a credit entry of Rs. 3,98,153 squaring up the account. It does not appear from these ledger entries as to where this money came from or why it was credited to the Building account and where the money had gone. Mr. Chaudhuri, however, pointed out that the building was sold on March 31, 1947, to the Metropolitan Insurance Company, Ltd., for Rs. 4,17,166-10-0, out of which Rs. 5,001 was paid as earnest money at the date of the agreement for sale and the balance of Rs. 4,12,165-10-6 was paid by a cheque on the Imperial Bank of India on March 31, 1947. That cheque was paid to the Bank of Behar, Ltd. On April 1, 1947, a sum of Rs. 34,764 was paid to the broker as brokerage and was debited to the Building Account. The Building Account was squared up by crediting the same with Rs. 3,98,153 and the sum of Rs. 19,013-10-6 representing profit made on the Building Account was credited in the Profit and Loss account. The entries in the Miscellaneous Detail Book at p. 82, the Clean Cash Book at p. 74 and the Profit and Loss Subsidiary Cash Book at p. 207 fully support Mr. Chaudhuri's explanation. It is, therefore, clear that the sale-proceeds of the building are accounted for in the books. The comment, however, remains that the system of book-keeping adopted by this Company is extremely slipshod and loose, as admitted by Mr. D.N. Guha Ray and the keeping of large sums in suspense account or unadjusted for such a long period cannot but be regarded as inefficient management giving rise to suspicion. 20. The next item commented on is the account of Eastern Agency. The books of 1947 contain an account headed Eastern Agency. D.N. Guha Ray and the keeping of large sums in suspense account or unadjusted for such a long period cannot but be regarded as inefficient management giving rise to suspicion. 20. The next item commented on is the account of Eastern Agency. The books of 1947 contain an account headed Eastern Agency. The address of the firm or the name of the proprietor or parties are not given at the account head. The absence of these particulars in the books of 1947 may, however, be explained by the fact that the accounts have been brought forward from 1946. This account was opened on January 3, 1946, as the account opening form No. 3525/B shows. The proprietor of the firm is stated to be one Kangali Charan Datta whose address is given as 74E, Ashutosh Mukherji Road. It is said by Learned Counsel for the opposing creditors that this Kangali Charan Datta is a brother of B.C. Datta, who is a director of the Company and the premises No. 74E, Ashutosh Mukherji Road, is stated to be the residence of B.C. Datta. A person bearing the surname of Datta need not necessarily be a brother of another holding the same surname. Mr. Chaudhuri states that the Company repudiates and denies the relationship. I am free to confess that the identity of the surname gives rise to a certain amount of suspicion, but there is, indeed, no evidence before me to establish the alleged relationship or the common residence of the two Dattas and I cannot act on mere suspicion. But, having regard to the nature of this account, which I shall presently indicate, I am strongly of opinion that this account and the circumstances relating thereto have to be very closely investigated into. 21. I have examined the entries in the account of Eastern Agency in the books of the Company produced before me. The account opening form has a column: "How to be repaid." The entry against that is: "Gradually by collection of bills." There is no mention of any security whatever. All the entries, except four or five, relate to share transactions, namely, prices of shares purchased are debited and prices of shares sold are credited. There are only four or five items of cash paid in or cash paid out. From June 24, 1947, the account shows a continuous debit balance rising up to Rs. 10,78,630-3-5. All the entries, except four or five, relate to share transactions, namely, prices of shares purchased are debited and prices of shares sold are credited. There are only four or five items of cash paid in or cash paid out. From June 24, 1947, the account shows a continuous debit balance rising up to Rs. 10,78,630-3-5. On September 9, 1947, i.e., seven days before the present petition was filed in Court, a sum of Rs. 96,000 was paid out of this account bringing the total debit up to Rs. 11,74,630-3-5. It is quite obvious from this account that somebody was speculating very largely in shares and this Company was not only carrying a huge debit balance on this account when it was experiencing difficulties but actually allowed a cash overdraft of Rs. 96,000 when it had practically closed its doors. Mr. D.N. Guha Ray says that an account of this nature recording share speculations is not an unusual type of account in banks but has to admit that this account carrying such a heavy debit balance was certainly surprising for this Company which is a bank with small and limited resources. This account struck Mr. Guha Ray and he called for explanation. On explanation being furnished he found that this account was secured by shares to the extent of about Rs. 2,31,749 and by hypothecation of goods valued at Rs. 39,000. The total security is thus valued by Mr. D.N. Guha Ray at Rs. 2,70,000. The shares which are said to be security for this overdraft account, are said to have been pledged with Messrs Sohanlal Pachisia whose claim, according to their statement, is Rs. 1,71,000. Therefore, the available balance of security for this overdraft account is only about Rs. 1 lakh. Several bundles of contracts, mainly issued by Messrs. Sohanlal Pachisia, were produced showing the purchase and sale of shares and it is said that the outstanding shares are on account of the Eastern Agency account. There is nothing to connect the Eastern Agency account with these outstanding shares except the entry on the brown paper-folders containing the contracts and in a few cases entry "Eastern Agency Account" in red ink on a few contracts. I have been referred to the security register of this Company. There is nothing to connect the Eastern Agency account with these outstanding shares except the entry on the brown paper-folders containing the contracts and in a few cases entry "Eastern Agency Account" in red ink on a few contracts. I have been referred to the security register of this Company. That register has an account of Eartern Agency which contains entries, apparently made at one and the same time, showing nineteen lots of shares in different companies. No dates are given, no distinctive numbers are set out, the names of the registered holders are not mentioned and what has happened to those shares is not recorded. Indeed all the columns of that register in this account are left blank. It is said that there is some hypothecation letter signed by Eastern Agency, but there is no explanation why nothing is mentioned in the Security Register. Mr. D.N. Guha Ray simply says that the Security Register has not been properly maintained. The position, therefore, is in short, that the Eastern Agency account is an account of share speculation carrying a heavy debit balance since June 24, 1947, that an overdraft of Rs. 96,000 was allowed on this account as late as September 9, 1947, bringing up the debit balance to Rs. 11,74,630-3-5, that this account is secured, if at all, only to extent of Rs. 2,70,000 of which about Rs. 1,71,000 will go to meet the demands of Messrs. Sohanlal Pachisia, leaving a balance security of Rs. 1 lakh and that its Security Register is not properly maintained and gives no support to the alleged security, that, out of the total book-debts of the Company (leaving out those which are fully secured) which are valued by Mr. D.N. Guha Ray at Rs. 18,58,554-11-2, the sum of Rs. 11,74,630-3-5 are due by this Eastern Agency, the proprietorship of which is not fully known. Quite apart from any suspicion as to the alleged relationship or common residence mentioned above, this account, in all conscience, cries for very close investigation which will be prevented if this scheme is sanctioned. It is, indeed, a matter of very great regret that no reference to these astounding features of this account, which struck Mr. Quite apart from any suspicion as to the alleged relationship or common residence mentioned above, this account, in all conscience, cries for very close investigation which will be prevented if this scheme is sanctioned. It is, indeed, a matter of very great regret that no reference to these astounding features of this account, which struck Mr. Guha Ray, was made in his report and the creditors and shareholders proceeded to consider the desirability of entering into a scheme of arrangement with this Company entirely oblivious or unaware or uninstructed of this apparently glaring and callous mismanagement of its affairs. If there had been nothing else in this case, this account of Eastern Agency alone would have induced me to hold that the approval of the creditors and shareholders to the proposed scheme was not fairly and properly obtained. I am naturally solicitous about the welfare and advancement of our banking institutions which are in their infancy but I cannot shut my eyes to glaring mismanagement of public funds such as this account of Eastern Agency seems, on its face, to suggest. To assist in stifling investigation which I feel is called for in this case will be to put a premium on what may eventually turn out to be blatant dishonesty. Leniency in such a case will not, in my judgment, ensure in the long run for the benefit or welfare of our banking concerns. 22. If the huge overdraft due by the Eastern Agency is not realised which eventually I think is likely, the amended scheme cannot possibly be implemented. Further, even if I assume that all the assets will be realised, there can be no question that considerable time will elapse before they will come in. Under the scheme the following sums will be required to implement Clause 4: Rs. 49,000 for creditors up to Rs. 50, Rs. 28,275 for Staff Provident Fund and Rs. 400 for Staff Security making up Rs. 77,675 I am leaving out the bill collections. Further, under Clause 6(a) the sum of Rs. 2,71,000 will be required within six months after sanction. Thus to carry out this scheme it will be necessary for the Company to realise Rs. 3,48,675 within six months. There is only Rs. 1,01,181-1-5 as cash and bank balance as on September 16, 1947. 77,675 I am leaving out the bill collections. Further, under Clause 6(a) the sum of Rs. 2,71,000 will be required within six months after sanction. Thus to carry out this scheme it will be necessary for the Company to realise Rs. 3,48,675 within six months. There is only Rs. 1,01,181-1-5 as cash and bank balance as on September 16, 1947. How much of it is left is not known except that the Provisional Liquidator, according to the statement 1 submitted by him pursuant to my directions, has up to January 19, 1948, received Rs. 12,147-1-2 including the cash of Rs. 3,323 lying in the head office after deducting bad, coins and mutilated and forged notes and Burmanates. Out of this total amount, three items, Rs. 2,300, Rs. 1,800 and Rs. 400 are in insured covers not yet opened. The Provisional Liquidator has also submitted the original inventories of the books of account and other papers received by him, of a few pieces of ornaments, some share scrips, some government securities and of some goods in a godown. These inventories were prepared on the 15th and 16th January, 1948. Mr. D.N. Guha Ray has also submitted a list showing the Government securities and shares shown to him during his investigation. His list which was submitted to me on the 19th January tallies with the inventories submitted by the Provisional Liquidator. These Government securities, shares and goods may, of course, be sold and converted into liquid cash. I doubt whether the total sale-proceeds will come up to Rs. 3,48,675. Further, if the scheme is sanctioned, the Company will go on. The total establishment expenses of the head office and the fourteen branches was Rs. 3,33,000 per annum, i.e., Rs. 1,66,500 for six months. This will wipe out a considerable part of the assets as and when realised. I do not think it will be possible for the Company to carry out the provisions of Clause 4 and Clause 6(a) within six months. Mr. Guha Ray agrees that if all the branches are kept going the scheme is bound to fail. It is said that some of the branches which were not remunerative will be closed down. Clause 15 of the scheme only gives liberty to the directors to close down such of the branches as they may think proper. There is nothing obligatory. Guha Ray agrees that if all the branches are kept going the scheme is bound to fail. It is said that some of the branches which were not remunerative will be closed down. Clause 15 of the scheme only gives liberty to the directors to close down such of the branches as they may think proper. There is nothing obligatory. Of course it is open to the Court to impose the closing down of branches as a condition of according sanction to the scheme, but taking an overall picture of the matter I am not satisfied that the proposed scheme is a feasible and practical scheme. I do not at all share the optimism of Mr. D.N. Guha Ray that the bulk of the book-debts and assets can be collected within six months. The opposing creditors have handed up two tables compiled from the figures shown in Mr. D.N. Guha Ray's report to show that the scheme is not feasible. I agree with Mr. Chaudhuri that the scheme of those tables is not tenable and correct and is rather misleading. On the other hand, Mr. R. Chaudhuri made an attempt to show that the assets had been valued by Mr. D.N. Guha Ray in a very conservative and cautious way and that, out of Rs. 11,74,000 due by the Eastern Agency after deducting the value of securities, at the present market-rate and then, making an allowance of 25 per cent, for possible risk of non-collection, a sum of Rs. 6,48,000 will still be realised and even if half of it is left ' out, Rs. 3,24,000 will certainly be realised. Even on this basis there will be a deficit of Rs. 11,000. Then Mr. Chaudhuri gets from Mr. D.N. Guha Ray that some amount will be received from the secured creditors after they sell the securities and satisfy their claims in full and the net deficit of Rs. 11,000 may be wiped out. It is an attractive; paper calculation evidencing considerable ingenuity in jugglery with figures, but it leaves me cold. This calculation does not take into account the establishment and other expenses which will have to be met if the Company is allowed to go on. It proceeds upon the assumption of an amount of honesty and efficiency on the part of the management which their past conduct does not appear to justify. This calculation does not take into account the establishment and other expenses which will have to be met if the Company is allowed to go on. It proceeds upon the assumption of an amount of honesty and efficiency on the part of the management which their past conduct does not appear to justify. It is said that the management will be taken over by a New Board on which the creditors will preponderate. But in my experience, sitting in this Court as a Judge, I have constantly found that somehow or other the old management procures their return to the board and to power. 23. An interesting point was raised by Mr. Sankar Mitra that the proposed scheme is bound to fail because the Pakistan creditors will not be bound by the scheme and they will get decrees for the full amount of their claim and attach and realise the Pakistan assets. The question, however, is of academic interest, in this case, for this Company has only one branch in Bogra in Eastern Pakistan and the Pakistan assets are only about Rs. 26,000 and odd while the Pakistan creditors' claim is much more than that amount. Further, in the view I have taken in this case, it is not necessary for me to go into the interesting and intricate question of law raised by Mr. Mitra. 24. My conclusions may be summarised as follows: (a) that the Company has paid dividends in 1942 in violation of Section 277(k); (b) that Rs. 1,42,000 due on subscribed capital has not been called up or realised although the Company was experiencing financial difficulties; (c) that the Company obtained leave of the Court to convene meetings of creditors and shareholders by putting up inaccurate figures showing excess of assets over liabilities and thereby misleading the Court; (d) that the directions of the Court to make the report of Mr. D.N. Guha Ray available for inspection at the head office at least a fortnight before the meetings has not been, strictly speaking, complied with; (e) that the management of this Company and in particular, the account of Eastern Agency and the circumstances relating thereto. D.N. Guha Ray available for inspection at the head office at least a fortnight before the meetings has not been, strictly speaking, complied with; (e) that the management of this Company and in particular, the account of Eastern Agency and the circumstances relating thereto. call for thorough and close investigation by the Court; (f) that the proposed scheme is not a practical and feasible scheme; and (g) that the approval of the creditors and shareholders to the amended scheme, whereby they agreed to accept less than what had been originally proposed by the Company, has been procured by intentionally withholding or otherwise failing to place before them material facts, particularly relating to Eastern Agency Account. 25. In view of the aforesaid findings I am bound to refuse my sanction to the proposed scheme, which is not guaranteed by any financier. I, therefore, dismiss the Company's application u/s 153 for sanction of the proposed scheme with one set of costs to the opposing creditors. That the Company is unable to pay its debts is obvious and is not denied. The petitioning creditors, debt is not in dispute. The advertisements have been duly published. I, therefore, make the winding-up order. The petitioning creditors will get the costs out of the assets. The other creditors will get one set of costs. The Company's application for vacating the order for appointment of Provisional Liquidator is dismissed with one set of costs. Notice of further proceedings to be given to the petitioning creditors. I appoint Mr. A.B. Gupta, Chartered Accountant and failing him Mr. N.C. Chakrabarti, Incorporated Accountant, as the Official Liquidator on usual remuneration and security to the satisfaction of the Registrar to be furnished within one month. Premium to be paid out of the assets. Liberty to the Official Liquidator to act in the meantime on counsel's endorsement before security is furnished. The Provisional Liquidator to retain his costs and charges, etc., out of the assets in his hands and to make over the books and cash and assets to the Official Liquidator on counsel's endorsement. Official Liquidator to convene meetings of creditors for appointing a Committee of inspection as soon as possible.