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TMI Blog1935 (5) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1st of April of that year issued the annual report. He ascribed the difficulties of the bank to depression in trade, commerce, and industry, and fall in prices. He blamed the policy of the Government of India and complained that until the Government of India carried on "a national and rational policy, the prospects before the country were very gloomy". Government however was not entirely to blame. At the date of these remarks the Chairman himself had taken from the coffers of the bank for himself and for the companies he controlled a sum of money exceeding the paid up capital of the bank and, in addition, a large proportion of the deposits paid into the bank by the public. In the month of September 1931 the bank closed its doors. At that date the bank had been used to finance with very few exceptions all the Directors of the bank. Lala Harkishan Lal himself on his own account owed some 32 lacs and his companies owed 46 lacs; the other Directors owed the bank a large sum of money. Industry and commerce otherwise had not been materially assisted. It is clear from the records of the proceedings, which have from time to trine taken place in this Court, that a proportion of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bank Directors, relating the circumstances in which I had signed it, and that it was neither binding on me nor was it of any use to the bank." This was a clear admission by Lala Harkishan Lal that he had fabricated this agreement deliberately for the purpose of deceiving the Court, the creditors, and the shareholders. He alleged that Dr. Jai Chand, the vice-chairman, was privy to this. Dr. Jai Chand has filed certain letters passing between him and Lala Harkishan Lal shortly after the agreement was signed. I have read these letters: Dr. Jai Chand must at least have and a very grave suspicion that Lala Harkishan Lal had no intention to carry out his agreement. He did not inform the meetings of the shareholders and creditors or the Court. With regard to scheme No. 2 although Dr. Jai Chand and the other Directors, who were then and now acting, knew all about the alleged defalcations and frauds of Lala Harkishan Lal, and had also received legal advice that civil and criminal action should be taken against him, they made him Honorary General Manager of the bank during the period scheme No. 2 was effective. The petition of two creditors dated October 1933 was never decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Annexure B of scheme No. 2, the agreement of Lala Harki-shan Lal to pay his debt by instalments but they have brought suits against Lala Harkishan Lal in respect of some of his debts during the 15 months scheme No. 2 has been in operation. It is also true that Clause 15 of the scheme, i.e., that "new business of the bank in all directions will be continued with greater vigour" has not been carried out. The bank is now no longer functioning as a bank at all. Such new deposits as the bank has obtained have apparently been deposited by one or two of Lala Harkishan Lal's companies. The public has endeavoured, as hereinafter appears, to realise their own deposits and have not assisted the bank by new deposits. Very small amounts have been earned by hundi and collecting business. The cost of establishment far exceeds the profits of any business done. The bank has, however, deliberately departed from the scheme in the matter of adjustments of deposits as against the debts due to the bank. It is not now disputed by the bank that the bank has arranged with various agents to buy its own deposits at eight annas in the rupee and these deposits have been allowed to be used by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much easier and less expensive way of collecting debts. A liquidator under the orders of this Court is much more likely to collect the balance of the debts which are now due to the company than the Directors. The conduct of the present Board during the last 18 months does not give me confidence that they will adequately carry out further liquidation. The conduct of the officers of the company requires very careful investigation in order that, if in the liquidation the allegations against the officers are established, suitable steps may be taken against them both civilly and criminally. There are conflicting decisions in this Court as regards the period of limitation applying to acts of misfeasance. This point will have to be settled, but even if a period of six years is allowed, action must be taken at once if the old Directors are not to escope civil liability. It has been urged by Counsel for the Bank that the opinion of the creditors and shareholders in meeting, which has been consistently in favour of the present Directors carrying on the liquidation, should be followed. I am aware of the various English decisions on this point. I do not, however, think that these decisions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en paid up. On the 31st of December, 1930, the amount of deposits of all kinds with the bank stood at 3 crores of rupees in round figures. During the succeeding half year, however, there was a rush on the bank and large sums of money were withdrawn by the depositors. The bank successfully met the situation for nine months; it repaid no less than one crore of rupees in this period. But it could not command sufficient cash any longer; and on the 29th of September 1931 it suspended payment. On the 26th of October, 1931, within a month of the date of suspension, the company presented in this Court a petition under Section 153 of the Indian Companies Act, containing "a scheme of arrangement for the resuscitation of the bank". It was stated in the petition that business had to be suspended "owing to the stringency of the money market, fall in the price of Government securities, and an unprecedented demand for liquid cash", that since the date of suspension a "large number of depositors and shareholders had expressed a strong desire that the Company should be resuscitated, that the assets of the company were more than sufficient to pay off all its creditors in full within a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the scheme. The scheme, with the modification mentioned above, was considered at meetings of the shareholders and creditors which were very largely attended, and was unanimously adopted. The creditors, in order to safeguard their own interests, further resolved that three representatives of the creditors be taken oh the Board of Directors of the bank having the same powers, privileges and responsibilities as the Directors elected by the shareholders. This was agreed to by the shareholders and incorporated in the scheme (No. 1), which was sanctioned by a Bench of this Court on the 22nd of December, 1931. Some of the Directors, including the Chairman, who owed large sums of money to the bank, were unable to pay 20 per cent. of their loans as provided in the scheme and, therefore, they resigned their seats on the Board. The vacancies were filled by election of persons who did not owe any money to the bank. The board also included three representatives of the creditors. Under the directions of the board, as reconstituted, the scheme worked well for a time. During the first four months no less than 52 lacs of rupees was actually paid, or made available, to the creditors in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, that during this period no substantial recoveries had been made from the debtor companies. In the course of the proceedings on Pandit Roop Narain Raina's petition, Lala Harkishan Lal was examined as a witness and in his statement he repudiated annexure (B) of the amended Scheme (No. 11) and declared, that he was not bound by it. The Board of Directors, however, stated that they were unable to accept this repudiation and passed a resolution removing him from this office of Honorary General Manager. They stated that they proposed to take steps against Lala Harkishan Lal to enforce the terms of annexure (B). They represented that in view of the attitude taken up by him they were unable to pay the instalment of 10 per cent. which was payable in January 1934 under the amended scheme (No. 11) and suggested that the creditors and shareholders should be made aware of the situation that had arisen, and asked to accept a modified scheme for deferred payment of the amount due to the creditors. The two creditors who had presented the petition for the winding up agreed that the proposed scheme be submitted to the creditors and shareholders. Under orders of the Court, meetings were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding up order being made. It cannot be said that because the scheme has failed in this important particular it has failed in its entirety, and that the only course open to the Court is to order compulsory liquidation. Section 153 of the Indian Companies Act makes provision not merely for schemes for the "resuscitation" or "re-organisation" of companies, but it also provides for "schemes of arrangement," which in the words of Vaughan Williams, J. (used in reference to the corresponding section of the English Act) provide "an alternative mode of liquidation, which the law allows the statutory majority of creditors to substitute for winding-up, whether voluntary or under the Court:" London Chartered Bank of Australia [1893] LR 3 Ch. 540 at p. 556. See also Motilal Kanji v. Natvarlal [1932] 2 Comp. Cas. 64 (Bom.) at p. 66 where it was observed that Section 153 provides an "alternative mode of liquidation which by operation of law relieves the company and its contributories from liability further than that which is contemplated or imposed by the Scheme No. III" Mr. Jagan Nath contends that this "alternative mode of liquidation" as provided in the last scheme (No. III) has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... III was presented to the Court by the present Directors they also suggested similar adjustments. The Court again rejected the suggestion and it was deleted from the scheme, with the concurrence of all parties concerned, including counsel for the company. In spite of this, however, it appears that the Directors have been allowing such adjustments on a fairly large scale, and for several months past a regular traffic in the deposits of the bank has been going on. It is now admitted that deposits of over five lacs of rupees have been purchased at about -/7/6 in the rupee, and sold at a profit of an anna or so to certain debtors, with the result that while the selling creditors have received less than half of the amounts of their deposits, the purchasing debtors have got a complete discharge on payment of only 50 per cent- of their dues. One Lala Tara Chand, who was examined as a witness by us, appears to have been doing regular business of purchase and sale of the bank's deposits for about a year. For some months, he acted in partnership with Sardar Bahadur Makhan Singh, Honorary Magistrate, Lahore Cantonment, who is the brother of one of the present Directors of the company. Lal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders under Section 153. The essential feature of this part of the scheme was "payment in full to all the creditors within a reasonable time". Admittedly the creditors, whose deposits have been allowed to be "adjusted" in the manner described above have received only seven to eight annas in the rupee. That this has been done not in one or two cases and for special reasons, but on a large scale, and a regular traffic in deposits has been going on indicates clearly that the directors find themselves unable to carry out the scheme as sanctioned. It appears from the "statements" filed by the Bank that while some of the old directors and officers who owed small sums of money have repaid their loans, the bigger director-debtors have paid very little. The amount due from the ex-directors and officers of this company and from joint stock companies controlled by them was in round figures Rs. 1,14,00,000 in 1931; it stands at Rs. 1,16,00,000 now. These figures do not include the loan to the Punjab Cotton Press, Limited, which at one time was controlled by some of the directors of the company, and this amount is now stated to be about Rs. 15,00,000. It is obvious that some more effectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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