1953 (4) TMI 29 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the scheme of arrangement sanctioned by the Company Court.
2. Applicability and interpretation of Section 38, Banking Companies Act, in the context of winding up a banking company.
3. The discretion of the Court under Section 162, Indian Companies Act, in relation to Section 38, Banking Companies Act.
4. The role and responsibility of the Reserve Bank of India in certifying the inability of a banking company to pay its debts.
5. The appropriateness of appointing an Official Liquidator versus a private agency for winding up the company.

Detailed Analysis:

1. Validity of the Scheme of Arrangement:
The appeals arose from orders related to the Calcutta National Bank Ltd., specifically an order dismissing an application for a scheme and an order for the winding up of the company. The scheme proposed by Dwarkadas Agarwalla aimed to realize the assets of the company, pay off creditors and depositors, and distribute any surplus among shareholders. The scheme was sanctioned by the Company Court with modifications by Mr. Justice Banerjee but was not sent back for reconsideration by the creditors, depositors, and shareholders. Moreover, no certificate of the Reserve Bank was obtained for the modified scheme. The scheme envisaged winding up the company via a private agency, the Bank of Jaipur, rather than an official liquidator. Subsequently, the scheme faced objections and legal challenges, leading to its rejection by Mr. Justice S. R. Das Gupta, who deemed it a nullity and directed a winding up.

2. Applicability and Interpretation of Section 38, Banking Companies Act:
Section 38(1) of the Banking Companies Act mandates the Court to order the winding up of a banking company if it is unable to pay its debts. The Court interpreted this section to mean that if a banking company is unable to pay its debts, the Court must order its winding up, overriding the general discretion under Section 162, Indian Companies Act. The Court held that the conditions precedent to the applicability of Section 38(1) were present in this case, thus requiring a winding up order.

3. Discretion of the Court under Section 162, Indian Companies Act:
The Court examined the interplay between Section 162, Indian Companies Act, which provides discretion to the Court to order or not to order a winding up, and Section 38(1), Banking Companies Act, which mandates a winding up order for a banking company unable to pay its debts. The Court concluded that Section 38(1) supersedes the discretionary provision of Section 162 in the specific context of banking companies unable to pay their debts.

4. Role of the Reserve Bank of India:
The Reserve Bank of India initially supported the scheme under Section 45(a), Banking Companies Act, certifying that it was not detrimental to the interests of the depositors. However, the modified scheme was not resubmitted for the Reserve Bank's certification. The Court emphasized that the Reserve Bank's certification is crucial for the validity of any scheme involving a banking company.

5. Appointment of Official Liquidator vs. Private Agency:
The Court considered whether the winding up should be carried out by an Official Liquidator or a private agency, specifically the Bank of Jaipur. The Court found that the scheme proposed by Dwarkadas Agarwalla, which involved the Bank of Jaipur as the winding-up agent, was not in the best interests of the depositors and creditors. The Court preferred the appointment of an Official Liquidator, concluding that it would benefit the creditors and employees more substantially.

Conclusion:
The appeals were dismissed, upholding the winding up order and rejecting the scheme proposed by Dwarkadas Agarwalla. The Court affirmed that the winding up should be carried out by an Official Liquidator rather than a private agency, ensuring better protection of the interests of the creditors and depositors. The judgment emphasized the mandatory nature of Section 38(1), Banking Companies Act, in the context of a banking company unable to pay its debts, thus overriding the discretionary provision of Section 162, Indian Companies Act.