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TMI Blog1960 (2) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid amount with interest till May 31, 1952. In the plaint it was alleged that the interest was calculated at six per cent, per annum with monthly rests. The defendant, on December 31,1949, acknowledged and confirmed his liability. The plaintiff by a registered notice in May, 1952, demanded the amount of balance from the defendant. In paragraph 6 of the plaint it is alleged that the plaintiff bank was functioning under a scheme sanctioned by the hon'ble High Court and had to meet the demand under the said scheme. In the written statement the defendant took up the plea that nothing was due to the plaintiff from the defendant. The defendant had to his credit a sum of Rs. 3,746-3-9 in his account in the Calcutta branch of the said bank and it was urged by the defendant that the plaintiff failed to credit his account with the aforesaid sum. He further alleged that he holds fixed deposit of Rs. 920-7-3 in savings bank account, a cash certificate of Rs. 100 and a provident fund deposit of Rs. 350 in the name of minor son, Gobinda, with the plaintiff bank, which he had asked the plaintiff to adjust, but the plaintiff failed to credit the aforesaid amounts to his overdraft account. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functioned regularly till June 23, 1950, and, thereafter, the scheme of arrangement between the creditors and the bank was proposed. An application was filed before this court under section 153 of the Indian Companies Act, 1913. The scheme was sanctioned on April 19,1951, and according to the court below the defendant could only get credit in respect of the amounts due to him from the bank till June 23, 1950, and for any amount in respect of which he could claim to be a creditor after June 23, 1950, he was not entitled to get a set-off, as granting of such a set-off will amount to the payment in full of some of the creditors in preference over the other creditors. The other contentions raised by the defendant with respect to the interest and the proof of the account were repelled by the court below and a decree to the extent of Rs. 18,044-15-4 was granted with full costs. Future interest at rupees four per cent, per annum was granted on the decretal amount including the cost of the suit from the date of the decree till realisation. The points urged by the defendant before the court below have been reiterated before us. I shall first take up the question of the set-off claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en to the bank now to refuse to recognise the said payment. There was no bar on August 12, 1950, to the bank making an adjustment in the defendant's overdraft account of a sum of Rs. 12,000. The argument of the bank before the court below and before this court is that on August 12, 1950, there was an order of this court under section 37 of the Indian Banking Companies Act under which the bank was prohibited from making payment to any creditor and if the bank had accepted the assignment and credited defendant's account to the extent of Rs. 12,000 it would have virtually amounted to payment to Sri Thakuria, who was on that date a creditor of the bank. Such a payment would have been in violation of the order of this court and the bank was thus right in not crediting the defendant's overdraft account with the sum of Rs. 12,000. It is further contended that subsequently an application was made under section 153 of the Companies Act to this court by which a meeting was asked to be called of the creditors and shareholders to approve of a scheme of arrangement of payment to the creditors. The scheme was subsequently sanctioned by this court on April 19, 1951, and thus the rights of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transfer." This section clearly lays down that no particular form of writing is required for an assignment and that the assignment becomes effective as soon as the document is signed. The effect of the proviso only is that till the debtor has notice of such an assignment, any dealing between him and the assignor will be valid as against the transfer. If, therefore, the two letters sent by Sri Thakuria to the bank constitute an instrument in writing, the assignment became effective from June 19, 1950. Till the copy of these letters had been sent to the bank on August 12, 1950, if the bank had made any payment to the assignor, such payment could not have been defeated by the assignment. But after the bank had been intimated that the right to collect the amount had been transferred to the defendant, the bank could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rium to the bank followed by a scheme. But when the defendant is sought to be deprived of his right to claim set-off on the basis of the scheme, it was necessary that the scheme as sanctioned by this court should have been placed before the court below so that it could interpret the document properly. The orders of this court and the scheme have, however, with the consent of the parties, been placed before us and although we very much deprecate the manner in which the case was fought in the court below and the approach of the court below, we have accepted the documents as a part of the record. The court below observed that "the bank functioned its regular transactions till June 23, 1950 ; so this scheme was sanctioned by the High Court on April 19, 1951. So the defendant is entitled to set off his amounts for which he is a creditor to the bank against his dues to the bank in all the accounts with the bank till the date of June 23, 1950." It is difficult to appreciate what the court below means by saying that the bank stopped functioning regularly from June 23, 1950. Iqbal Jahan, P.W. I, who was an agent of the bank at Jorhat branch during the period from 1941 till June 23, 1950 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, that it was heard on that date. There is, however, nothing in the order-sheet to indicate that the operation of the order passed on June 26, 1950, was to continue even after August 24, 1950, till the final disposal of the application. In the order of June 26, 1950, it was expressly mentioned that the actions and proceedings were stayed till August 24, 1950. On August 31, 1950, the interim order was rescinded and the application was dismissed. The contention raised on behalf of the defendant is that there was nothing in the order of June 26, 1950, which debarred the bank from giving credit to the amount of Rs. 12,000 in the overdraft account of the defendant. The order of this court only stayed the commencement or continuance of all actions and proceedings against the company, but there was no bar to the bank making book adjustments and to receive payments from their debtors. It is contended that if the defendant had gone on August 12, 1950, with a cash amount of Rs. 12,000, there was no bar to the bank accepting that amount in liquidation of defendant's debt under the orders of this court. As against this the contention of the counsel for the plaintiff is that, no doubt, exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the creditor of the bank would be void. Any creditor of the bank had a right to transfer his rights to a third party and if the transfer was otherwise a valid transfer, it would be effective irrespective of the fact whether it was, or was not, recognised by the bank. The defendant became under the valid assignment the creditor of the bank to the extent of Rs. 12,000 and from the date of the notice of assignment to the bank, the assignee could enforce his rights against the bank to the extent of Rs. 12,000. The liability of the bank to the assignor stood discharged and substituted by its liability to the assignee. The liability of the bank remained and it cannot be said that the assignment was illegal or ineffective because of condition 3 imposed by this court under its order dated June 26, 1950. If the defendant became a creditor of the bank under the assignment, the relationship of creditor and debtor came into existence between the defendant and the plaintiff in respect of this amount of Rs. 12,000. In this view of the matter the defendant could claim a set-off in respect of this amount at least between 24th and 31st August, 1950, the period during which the stay order by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltimately sanctioned on April 19, 1951. The actual scheme approved by the High Court on April 19, 1951, is not before us. But the scheme which was approved in the meeting of the creditors and shareholders is before us and the relevant clauses of the scheme which may have to be referred to are as follows: Clause 10 provides that all other deposits with the bank except those mentioned in clauses 8 and 9 shall be payable in the following manner commencing one year after the date of the sanction of the scheme : ( a ) 10% in the first year of the payment. ( b ) 10% in the second year of the payment. ( c ) 15% in the third year of the payment. ( d ) 20% in the fourth year of the payment. ( e ) 20% in the fifth year of the payment. Clause 11 lays down that "interest on fixed deposits accrued and unpaid up to June 30, 1950, shall be paid within one year from the date of sanction of the scheme. Thereafter, no deposit will carry interest." Clause 13 provides that "all the assets of the bank on the date of sanction of the scheme shall be kept in a separate fund named as 'closed fund' for the purpose of meeting the liabilities to the creditors as specified above. All realisat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit in a suit under Order VIII, rule 6, of the Civil Procedure Code. On August 31, 1950, if therefore, under the assignment the defendant was a creditor of the bank to the tune of Rs. 12,000 he could claim a set-off under Order VIII, rule 6, of the Civil Procedure Code as against the dues of the bank. In the case of Mehr Chand v. Amritsar Bank [1915] 28 I.C. 975, 977 the bank which was being wound up under the orders of the District Judge, brought a suit through its official liquidators for the recovery of a sum of Rs. 1,087 due from the defendant. The defendant claimed a set-off under Order VIII, rule 6, of the Civil Procedure Code in respect of a sum due to him from the bank. The defendant had prior to the winding up in fixed deposit with the company a sum of money which more than covered the amount of his debt to the company. But at the date of the winding up this deposit had not matured. Before the suit the deposit, however, matured and in the ordinary course thus the amount would have been payable to the defendant by the bank. The lower appellate court had held that the defendant was not entitled to claim a set-off in respect of his fixed deposit amount. On secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the overdraft account of Sri Nath. Sri Nath stated that he had deposited a sum of Rs. 5,000 in fixed deposit. The total amount due by the bank to him upon his deposit was Rs. 5,117 and this amount was given as a security for his overdraft account. He claimed a set-off as against his overdraft account. If credit was given to him in respect of this amount, nothing would be found due to the company and it was urged by Sri Nath that in these circumstances the liquidator was not entitled to any payment order under section 186 of the Companies Act. It was contended by the liquidator in this case that Sri Nath being a contributory, he was not entitled to claim a set-off except in accordance with the proviso to section 186(2) which is in the following terms : "Provided that, in the case of any company, whether limited or unlimited, when all the creditors are paid in full, any money due on any account whatever to a contributory from the company may be allowed to him by way of set-off against any subsequent call." It was contended by the contributory that section 186(1) of the Indian Companies Act which gave power to the court to grant a payment order in favour of the liquidator ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to act under the section, leaving the liquidator to sue in the name of the company, and it will readily take that course in any case in which it is made apparent that the respondent under this procedure, if continued, would be deprived of some defence or answer open to him in a suit for the same moneys." This passage also indicates that the right of a debtor to claim set-off of any moneys due to him from the bank in a suit brought by the bank under the provisions of the Civil Procedure Code was never affected by the provisions of the Indian Companies Act. There is nothing in section 153 of the Indian Companies Act which indicates that by merely making an application under that section the right of a debtor to claim set-off is wiped off. Mr. Ghose, who appears for the respondent, contended that the fixed deposit receipt is not negotiable and any endorsement on the receipt to the effect that the amount should be paid to the defendant will not constitute an assignment. Reliance is placed in support of this proposition on the case of Manoel Joao Dias v. Hongkong and Shanghai Banking Corporation [1890] I.L.R. 14 Bom. 498 . In this case the plaintiff had deposited a certain sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self in writing of the deposit. The next case referred to is Risen Gopal Bogree v. L. J. Bavin AIR 1926 Cal. 447, 448 . This case to my mind supports the contention of the appellant. Some article was sold by the Eastern Machinery and Engineering Company Limited to Messrs. Kilburn and Company, and the Engineering Company had to get Rs. 1,800 from Messrs. Kilburn and Company as the price of the article. The company was alleged to have assigned the claim of Rs. 1,800 to one Kisen Gopal Bogree who claimed the amount from the liquidator. The liquidator contended that even if an assignment was made it was a fraudulent preference on the part of the company and, therefore, invalid and secondly, there was no valid assignment. There was an endorsement at the back of the bill against Messrs. Kilburn and Company in the following terms: "Messrs. Kilburn and Co., kindly remit to Babu Kissen Gopal Bogree, who will collect on our behalf. For and on behalf of the Eastern Machinery and Engineering Co. Ltd. Metcalf and Co., Securities." It was held that the endorsement did not constitute a proper assignment. It was observed as follows: "An assignment of a chose in action must be made by writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation of an action. There was no bar to the recognition by the bank of the assignment. It is not stated that the notice of the meeting was given to the defendant. The bank's own case is that the assignor's account was never debited by the sum of Rs. 12,000 and he was shown all along as the creditor of the bank in respect of this sum. The question, therefore, of giving any notice to the defendant of the meeting as a creditor of the bank in respect of Rs. 12,000 could not have arisen. Defendant, therefore, could not be bound by the scheme ; nor could he be confined to the realisation of his amount under the scheme. The defendant in support of his contention that he was not bound by the scheme as by an assignment dated June 19,1950, he was substituted in place of Sri Thakuria as a creditor and he was entitled to a notice of the meeting which was not given to him, relies upon the case of Chhunnu Lal v. The Bank of Upper India Ltd., Delhi [1917] 40 I.C. 904 . The facts of this case were that one Chhunnu Lal had a deposit of Rs. 4,000 in the Bank of Upper India payable on October 10, 1914. On September 3, 1914, he borrowed a sum of Rs. 2,000 on the security of the above deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act, which enacts that if a majority in number, representing three-fourths in value of the creditors, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors and also on the company. Now, it seems to us that the arrangement could affect only those persons who were creditors at the time when the sanction was accorded by the court, or at the time when the application under section 153 was presented to the court (if we apply the analogy of section 168 relating to the date of the commencement of the winding-up by the court). At the latter date the plaintiff's debt had come to an end, and he was a creditor to the extent of only Rs. 2,000, and the arrangement must be confined in its operation to his position as a creditor to that extent. We cannot accept the view that the operation of the scheme dates back to the time when the bank suspended payment." On August 12, 1950, when the assignment was notified to the bank the debt of the defendant to the extent of Rs. 12,000 in the present case, stood discharged. The assignor ceased to be the creditor and there was nothing in the scheme which gives a right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendant of his claim against the plaintiffs. This case supports the contention of the defendant in two ways, firstly that the defendant as the creditor of the bank was entitled to a notice of the meeting before the scheme could be binding on him and secondly, that the defendant as the assignee of a fixed deposit which had matured, was a creditor of a distinct class from the other creditors of the bank. He was thus entitled to sit in a different meeting. In the case of Re T. H. Downing and Co. Ltd. [1940] 1 All. E.R. 333 it was held by the Court of Appeal that a scheme of arrangement and reconstruction must be construed as not altering existing rights unless the language of the scheme and the new articles of association giving effect to it are such as to compel that interpretation. There is nothing in the scheme which in any manner affects the right of the defendant to claim a set-off. Reference may be made to the case of Anukul Chandra Sen Gupta v. Serajganj Loan Office Co. Ltd. [1939] 9 Comp. Cas. 247 . In this case the suit had been brought by Serajganj Loan Office Company which was working under a scheme for recovery of certain money due on a mortgage bond ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g was held ; and the notice of the meeting had already been given to the assignor. The other judge, Roxburg, J., observed as follows [1939] 9 Comp. Cas. 247 .252: "There is no analogy here in the circumstances of bankruptcy and winding up such as are provided for in section 46 of the Provincial Insolvency Act, 1920 and section 47 of the Presidency Towns Insolvency Act, 1909, and are referred to in Krishna Chandra v. Pabna Dhanabhandar Co. Ltd. AIR 1935 Cal. 225. Relief is given under those provisions to a creditor only who has had mutual dealings with an insolvent or company in liquidation. In the present case it is not mutual dealings which have given rise to the claim for set-off, the claim is a deliberate creation of the debtor-creditor for the purpose of avoiding the scheme. It is not necessary for us to decide what would have been the position, had this been a genuine case of mutual dealings. It is evident that the class of debtor-creditors of this genuine character are in a very different position from the ordinary creditors, and it may well be that they cannot be bound by decisions of a meeting of ordinary creditors." Reference may be made to the case of Sudhanya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of cheques sent by him on August 12, 1950, to the bank for being credited to his overdraft account. On June 21, 1950, a cheque was issued for Rs. 130 signed by Sri M.D. Baheti for payment to self or bearer to the plaintiff bank. This cheque was sent to the bank by the defendant with a request that the amount of the cheque be credited in his overdraft account on August 12, 1950. The cheque was returned to the defendant on September 21, 1954. It has been filed and marked as exhibit F. The plaintiff bank has filed an extract from the ledger account of Sri Murlidhar Baheti dated March 6, 1954. This account shows a credit balance of Rs. 130-5-9 in favour of Sri Murlidhar Baheti on that date. On the same date, that is August 12, 1950, the defendant sent another cheque for Rs. 1,070 issued by one Ramchand Sitaram in favour of the defendant on the plaintiff bank. This cheque was also returned under the letter of September 21, 1954, to the defendant and has been filed and is marked exhibit C. The cheque was issued on June 26, 1950. The extract from the ledger account of Ram Chand Sitaram dated March 6, 1954, has been filed which shows a credit balance of Rs. 1,077-1-10 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendant's overdraft account and that the cheques were returned to the defendant on September 21, 1954, after the suit had been filed. It is also clear that the drawers of these cheques had sufficient amounts in their accounts on August 12,1950, and the payment could not be refused on the ground that the drawers had not sufficient funds on the date to enable the bank to make payment against those cheques. It is also clear from the materials on the record that the bank neither made the credit entries of these items in the overdraft account of the defendant nor debited the accounts of the respective drawers. The defendant contends that on August 12, 1950, when he sent these cheques, it amounted to payment of his dues and the bank was bound to credit the amount of these cheques in the overdraft account of the defendant. If the contention of the defendant is accepted that on August 12, 1950, the sending of these cheques amounted to payment of his dues, the question of the scheme being a bar to the defendant's contention will not arise. The scheme was sanctioned on April 19, 1951. The order of August 31, 1950, passed by this court directed that the meeting be convened on October ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with that point in dealing with the question of the payment of Rs. 12,000 by the defendant and it is sufficient to point out at this stage that the bank at any rate after the 24th August, 1950, was not prohibited by any order of this court from making payments. The order granting interim moratorium stood discharged after the 24th August, 1950. The order passed by this court on an application under section 153 of the Indian Companies Act on August 31, 1950, only stays any action against the bank, but did not lay down any condition for the discharge of the bank's liability. Moreover, the order of June 26, 1950, only granted stay of commencement or continuance of all actions and proceedings against the bank on condition that it made no payments to its creditors beyond 25 per cent, of their dues. If the bank had made any payments in contravention of the conditions laid down in the order, the stay order would have been discharged, but it could not be said that the payment itself would have been void in law and would not have been recognised by any court of law. There was no question of any fraudulent preference of creditors at this stage. As I have already pointed out, another approa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of the banker to a larger amount than he would have been if such cheque had been paid. (2) In determining what is a reasonable time, regard shall be had to the nature of the instrument, the usage of trade and of bankers, and the facts of the particular case. (3) The holder of the cheque as to which such drawer or person is so discharged shall be a creditor, in lieu of such drawer or person, of such banker to the extent of such discharge and entitled to recover the amount from him." This section makes it clear that if the cheque is not presented for payment within a reasonable time the liability of the drawer stands discharged and the holder of the cheque under sub-section (3) of the said section becomes a creditor in lieu of such drawer or person of the banker to the extent of the discharge. A reading of these sections makes it clear that the cheque is a negotiable instrument and the payee in this case was the holder in due course. When he presented the cheques on August 12, 1950, it was beyond reasonable time, the cheques having been issued in June a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has a good title notwithstanding any defect of title in the party (whether indorser or deliveror) from whom he took it." Reference may be made to the case of M'Lean v. Clydesdale Banking Co. [1883] 9 App. Cas. 95. One W. B. Cotton was a customer of the Clydesdale Bank, Glasgow, whose account was kept in the Argyle Street branch and in the morning of Saturday, the 14th January, 1882, he paid into the credit of his account a sum of money made up of bank notes and cheques. A cheque which he sent towards his account was drawn by one John M'Lean upon his account with the Bank of Scotland in favour of Cotton who endorsed it. The Clydesdale Bank, on receiving the cheque, placed this amount to the credit of Cotton's account thereby extinguishing the sum overdrawn in his account to that extent. On Monday M'Lean stopped payment of the cheque at the Bank of Scotland and the payment was, therefore, refused. M'Lean denied his liability to pay the amount of the cheque to Cotton. On these facts the Clydesdale Bank, Glasgow, brought a suit against M'Lean for recovery of the amount. The defence taken by M'Lean was that there was no liability to pay to the bank. The matter went up to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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