1965 (3) TMI 50 - HC - Companies Law

Summary

Issues Involved:
1. Preliminary objection regarding the right of appeal after accepting dividends.
2. Merits of the winding-up order based on the financial status of the bank.
3. Applicability of the doctrine of approbation and reprobation.
4. Court's power to order winding up suo motu.
5. Validity of the proposed scheme under section 391 of the Companies Act, 1956.

Detailed Analysis:

1. Preliminary Objection Regarding the Right of Appeal After Accepting Dividends:
The respondent's counsel argued that the appellants lost the right of appeal by accepting dividends post the winding-up order. The appellants countered that the right of appeal is statutory and acceptance of benefits under a decree does not preclude the appeal. The court reviewed the Supreme Court's decision in Bhau Ram v. Baijnath Singh, which elucidates that accepting benefits under an order does not necessarily bar an appeal unless restitution is impossible or inequitable. The court found that the appellants had voluntarily accepted the dividend and had not challenged the winding-up order until years later. Therefore, the acceptance of dividends precluded the appeal, as restitution was impossible due to the sale of most bank assets and their distribution among creditors.

2. Merits of the Winding-Up Order Based on the Financial Status of the Bank:
The appellants argued that the bank had sufficient assets to pay its debts. The court referred to section 38 of the Banking Companies Act, 1949, which mandates winding up if a bank is unable to pay its debts. The Reserve Bank's report indicated that the bank's liabilities exceeded its assets, and the learned judge found the bank unable to pay its debts. The court noted that the appellants did not challenge the Reserve Bank's report or the judge's findings on asset valuation. The court confirmed the judge's conclusion that the bank's liabilities far exceeded its assets, justifying the winding-up order.

3. Applicability of the Doctrine of Approbation and Reprobation:
The court discussed the doctrine, which precludes a person from accepting benefits under an order while challenging it. The Supreme Court's guidelines indicate that this doctrine applies when a person has no choice but to accept the benefit, and restitution is impossible. The court found that the appellants had an option to accept the dividend and chose to do so without challenging the winding-up order at that time. Consequently, the appellants were precluded from prosecuting the appeal due to their voluntary acceptance of the dividend.

4. Court's Power to Order Winding Up Suo Motu:
The appellants contended that the court should not have acted without an application from depositors or the Reserve Bank. The court clarified that section 38(1) of the Banking Companies Act does not preclude the court from taking suo motu action if sufficient materials justify winding up. The court held that the learned judge was within his rights to order the winding up based on the Reserve Bank's report and the bank's financial situation.

5. Validity of the Proposed Scheme Under Section 391 of the Companies Act, 1956:
The appellants argued that the proposed scheme was viable. The court referred to section 45 of the Banking Companies Act, which requires the Reserve Bank's certification for any compromise or arrangement. The Reserve Bank's report indicated that the bank's affairs and the directors' conduct did not permit any workable scheme. The court agreed with the learned judge that the proposed scheme was unworkable and the only option was to order the winding up.

Conclusion:
The court dismissed the appeal, concluding that the appellants were precluded from challenging the winding-up order due to their acceptance of dividends and the impracticality of reversing the winding-up process. The court also found no merit in the appellants' arguments regarding the bank's financial status and the proposed scheme. The order of winding up was upheld, and the appeal was dismissed with costs.