B. v. Abraham VS State Bank Of Travancore — 1969 DIGILAW 80 (KER)

ORDER T.S. Krishnamoorthy Iyer, J. 1. These revision petitions arise out of suits filed by the State Bank of Travancore. The facts giving rise to the suits are stated below. The Kottayam Orient Bank Ltd., was amalgamated with the State Bank of Travancore under S.45 of the Banking Regulation Act, 1949, hereinafter referred to as the Act. The scheme of amalgamation which is evidenced by Ext. P1 came into force on 17-6-1961. Ext. D1 is the Memorandum and Articles of Association of the Kottayam Orient Bank Limited. The defendant in each of the suits is a shareholder of the Kottayam Orient Bank Ltd. The plaintiff Bank claims to have obtained, under S.45(9) of the Act and Clause.2 and 7 of Ext. P1, the right to the calls in arrears and the uncalled amount in respect of the share held by the members of the Kottayam Orient Bank Ltd., and to realise the same on three months' notice from a date to be fixed with interest at 6% per annum from the expiry of the above said three months. It is alleged by the plaintiff that in pursuance to the sanction of the Reserve Bank of India, notices were issued to the members of the Kottayam Orient Bank Ltd., including the defendants in the several suits to pay the uncalled share amount at the rate of Rs. 2.50 per share within three months from 15-5-1964 the date of the issue of the notices. In view of the default on the part of the defendants to pay the amounts, the plaintiff issued to the several defendants forfeiture notices on 30-10-1964 and 5-7-1965 extending the period for payment of call money. In view of the failure of the defendants to pay the amounts, the Board of Directors of the plaintiff - Bank at their meeting held on 23rd June 1966 forfeited the shares in the names of the defendants and issued notices to them on 23-6-1966. The suits were filed against the several defendants for the recovery of the unpaid call money at the rate of Rs. 2-50 per share with interest at the rate of 6% per annum from 15-8-1964. 2. The defendants in the several suits raised broadly three contentions. (1) The suits are not triable as small cause suits. The suits were filed against the several defendants for the recovery of the unpaid call money at the rate of Rs. 2-50 per share with interest at the rate of 6% per annum from 15-8-1964. 2. The defendants in the several suits raised broadly three contentions. (1) The suits are not triable as small cause suits. (2) The claim of the plaintiff is barred by limitation, and (3) In view of the special resolution passed by the members of the Kottayam Orient Bank Ltd. under S.99 of the Companies Act, 1956, the suits are not maintainable. These contentions are overruled and the suits have been decreed by the judgments and decrees challenged in the several revision petitions. 3. Part 1. All the suits were tried as Small Cause Suits. I cannot accept the plea of the learned counsel for the revision petitioners that these suits are excepted from the cognizance of the Small Cause Court because of item 1 in Schedule.1 read with S.12 of the Kerala Small Cause Courts Act 1957. It is also not possible to uphold the plea of the revision petitioners based on S.429 (2) of the Companies Act, 1956. S.429 of the Companies Act, 1956 reads. "429. Nature of liability to contributory - (1) The liability of a contributory shall create a debt accruing due from him at the time when his liability commenced, but payable at the times specified in calls made on him for enforcing the liability. (2) No claim founded on the liability of a contributory shall be cognizable by any court of small causes sitting out side the presidency towns." Section 428 of the Companies Act defines 'contributory' as meaning every person liable to contribute to the assets of a company in the event of its being wound up S.429(2) of the Companies Act, can therefore apply only to suits by Liquidator. I therefore overrule the plea that the suits are not liable to be tried as Small Cause Suits. 4. Point 2. The question covered by this point is whether the suits are barred by limitation. Art.112 of the Indian Limitation Act, 1908 which specifically dealt with a suit for a call by a company registered under any statute or Act provided for a period of three years from the date when the call is payable. There is no corresponding article in the Limitation Act. Art.112 of the Indian Limitation Act, 1908 which specifically dealt with a suit for a call by a company registered under any statute or Act provided for a period of three years from the date when the call is payable. There is no corresponding article in the Limitation Act. 1963 The only relevant provisions in the Limitation Act, 1963 are Art.55 and 113. The notices demanding the call money were issued to the defendants by the plaintiff on 15-5-1964 the three months time expired on 15-8-1964. The suits have been instituted within three years from that date. I therefore hold that the suits are not barred by limitation. 5. Point 3. This point covers the main contention of the defendants dealing with the sustainability of the plaintiff's claim in view of the resolution passed by the shareholders of the Kottayam Orient Bank Limited in the extra ordinary general meeting hold on 19-3-1969. The resolution is to the effect that portion of the issued share capital which has not been already called up shall not be capable of being called up except in the event and for the purpose of the company being wound up. The said resolution was passed under S.99 of the Companies Act, 1956. The said provision reads: "99. Reserve liability of limited company - A limited company may, by special resolution, determine that any portion of its share capital which has not been already called up shall not be capable of being called up, except in the event and for the purposes of the company being called up except in that event and for those purposes." The above provision corresponds to S.60 of the English Companies Act 1948. The said provision reads: "60. The said provision reads: "60. Reserve liability of limited Company - A limited company may by special resolution determine that any portion of its share capital which has not been already called up shall not be capable of being called up except in the event and for the purpose of the company being wound up, and thereupon that portion of its share capital shall not be capable of being called up except in the event and for the purposes aforesaid." The plea on behalf of the revision petitioners was that because of the special resolution of 19-3-1959 the plaintiff has no right to claim the call monies except in the event of and for the purposes of the company being wound up. The passing of the special resolution by the members of the Kottayam Orient Bank Ltd., as alleged by the defendants is not disputed by the plaintiff. 6. In dealing with the question it will be necessary to take note of Clause.7(i) of Ext. P1 which reads thus: "The transferee bank shall, as soon as may be after the prescribed date, call upon every person who on the prescribed date was registered as the holder of a share in the transferor bank (or who would have been entitled to be so registered) to pay within three months from such date as may be specified, the uncalled amount remaining unpaid by him in respect of any such share and the calls in arrears, if any, and the transferee bank shall take all available steps having regard to the circumstances of each case to demand and enforce the payment of the amounts due under this paragraph together with interest at six percent per annum for the period of the default. 7. The prescribed date in the above clause is 17th June, 1961, the date specified by the Central Government as the prescribed date in S. C. 1313 of 6thJune, 1961 in pursuance of sub-s.(7) of S.45 of the Banking Regulation Act, 1949. The Reserve Bank of India specified 15-5-1964 as the date for making the call by the plaintiff. 8. The submission of the learned counsel for the petitioners that the words uncalled amount remaining unpaid by him in respect of any such share' in Clause.7 (i) of Ext. P1 will not include any reserve liability created under S.99 of the Companies Act, 1956, cannot be accepted. 8. The submission of the learned counsel for the petitioners that the words uncalled amount remaining unpaid by him in respect of any such share' in Clause.7 (i) of Ext. P1 will not include any reserve liability created under S.99 of the Companies Act, 1956, cannot be accepted. S.45 of the Act is in Part III thereof dealing with suspension of business and winding up of banking companies. There is no dispute between the parties that the amalgamation of the Kottayam Orient Bank Limited with the State Bank of Travancore is in accordance with the said provision. S.45(4) of the Act enables the Reserve Bank if it is satisfied for the reasons given thereunder to prepare a" scheme for the amalgamation of the banking company with any other banking institution. According to S.45(5) of the Act the scheme thus framed may contain provisions among other things for the transfer to the transferee bank of the business, properties, assets and liabilities of the banking company on such terms and conditions as may be specified in the scheme and for the allotment to the members of the banking company for shares therein before its amalgamation in the transferee bank. S.45(6) of the Act enjoins that a copy of the scheme prepared by the Reserve Bank shall be sent in draft to the banking company for suggestions and objections, if any, within such period as the Reserve Bank may specify for this purpose and the reserve bank may make such modifications, if any, in the draft scheme as it may consider, necessary in the light of the suggestions and objections received from the banking company and also from the transferee bank, and any other banking company concerned in the amalgamation and from any members, depositors or other creditors of each of those companies and the transferee bank. S.45, sub-ss.(8) and (9) which make the scheme binding on the Banking Company are given below: "(8) On and from the date of the coming into operation of the scheme or any provision thereof, the scheme or such provision shall be binding on the banking company or as the case may be, on the transferee bank and any other banking company concerned in the amalgamation and also on all the members, depositors and other creditors and employees of each of those companies and of the transferee banks, and on any other person having any right or liability in relation to any of those companies or the transferee bank. (9) On and from such date as may be specified by the Central Government in this behalf, the properties and assets of the banking company shall, by virtue of and to the extent provided in the scheme, stand transferred to, and vest in, and the liabilities of the banking company shall, by virtue of and to the extent provided in the scheme, stand transferred to, and become the liabilities of, the transferee bank." It is therefore clear that Ext. P1 is binding on the member of the Kottayam Orient Bank Ltd., including the defendants in the several suits. In regard to the interpretation of the words' "uncalled amount remaining unpaid by him in respect of any such share" in Clause.7 of Ext. P1 one has to keep in view the object of S.45 of the Act. It is no doubt true that there was no proceeding to wind up the Kottayam Orient Bank Ltd., under the provisions of the Companies Act, 1956, or under S.38 of the Act. S.5(A) of the Act provides that the other provisions of the Act shall have effect notwithstanding any provision to the contrary in the memorandum of articles or agreement or resolution of a Banking Company. The effect of the special resolution is to preserve intact for the general creditors the uncalled amount if the company goes into liquidation. The object of a special resolution passed under S.99 of the Companies Act, 1956 is to borrow the words of Lindley .M. R. in Mayfair Property Company In re Bartlett v. Mayfair Property Company (1898 (2) Chancery Division 28 at 36). "....... The object of a special resolution passed under S.99 of the Companies Act, 1956 is to borrow the words of Lindley .M. R. in Mayfair Property Company In re Bartlett v. Mayfair Property Company (1898 (2) Chancery Division 28 at 36). "....... first to preserve for the general creditors of the company the funds which the members were liable to pay, but which the directors could not call up; and, secondly, to enable the members to limit the amount of their liability on a winding up to pay the creditors more than the amount preserve for them". The uncalled amount is a capital of the company. If the company is not being wound up there is no power in the Directors to make a call. That is the only effect of the special resolution and nothing else. It is to safeguard the interests of the depositors and creditors of a banking company that S.45 of the Act has been introduced and if one would remember that the scheme of amalgamation is only a mode by which the compulsory winding up of a Banking companies Act is averted for the benefit of the creditors there will be no difficulty in holding that Clause.7 (i) of Ext. P1 would take in the amounts covered by the special resolution of 19-3-1959 and override the special resolution relied on by the defendants. 1 am therefore of the view that the suits are maintainable. 9. Before closing it is necessary to point out that the plaintiff has alleged in the plaint that the shares of the several defendants in the Kottayam Orient Bank Ltd. have been forfeited because of the resolution passed in the meeting of the Board of Directors of the plaintiff bank held on 23rd of June, 1966. Art.29 of Ext. D1 provides for forfeiture of shares and there is no provision in Ext. P1 authorising the transferee bank to exercise the powers of forfeiture vested in the transferor bank. A contention was therefore raised for the revision petitioners that Ext. P1 can if at all authorise the transferee bank only to recover the call money or the arrears of call only from the members of the transferor bank and in view of the forfeiture of the shares claimed the plaintiff has no right to get decrees in the several suits. P1 can if at all authorise the transferee bank only to recover the call money or the arrears of call only from the members of the transferor bank and in view of the forfeiture of the shares claimed the plaintiff has no right to get decrees in the several suits. In the face of this contention two questions will arise namely whether the forfeiture of the shares of the defendants is legal and valid and if so whether the suits are maintainable based on Ext. P1. It appears that this contention was not considered by the Trial Court and it has become necessary to remand the suits for that purpose. I make it clear that all the other contentions of the defendants have been found against them and those findings have become final between the parties. 10. I therefore set aside the judgments and decrees of the courts below and remand the suits to the respective courts for disposal after considering the specific questions pointed out in this judgment. The revision petitions are allowed in the manner indicated above. No costs.