TMI Blog1951 (3) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... . As I had to be away from Simla I allowed the Advocate to move me at Ludhiana. After hearing arguments I did not feel inclined to discharge the injunction, but as I was informed that the matter was of great importance, as indeed it was, I fixed the hearing of the case here on the 7th during the vacation, and the case was heard on the 7th and 8th. Kirpa Ram claiming to be a resident of Qarol Bagh, New Delhi, has brought this suit for perpetual injunction. He is living in Siliguri in Darjeeling District of West Bengal. The suit has been filed on his behalf by his duly constituted attorney Harbhagwan who also happens to be his brother. The plaintiff is the owner of 20 fully paid up preference shares of Rs. 100 each of the Bharat Bank Limited which is defendant No. 6. In the plaint it is alleged that Mr. Yodh Raj, defendant No. 8, General Manager and Chairman of the Punjab National Bank, defendant 7, had arranged to transfer "the bulk of his shares and those of his group" in the Punjab National Bank to defendant 9, Seth Ramkrishen Dalmia, for a very large sum of money, and in order to keep the transaction secret the transfer forms have not yet been sent for registration to the defen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank and it is therefore not possible to challenge their "misdeeds" in the domestic forum where no relief to the plaintiff or the minority shareholders is available. In para 8 the plaintiff alleges that defendants Nos. 1 to 5 who are the directors of the Bharat Bank have voluntarily but informally handed over the management of the Bharat Bank to the nominees of the Punjab National Bank, the object being to facilitate the effectuating of the fraud which is the arrangement sought to be entered into between the two defendant banks. The plaintiff has prayed for a decree for a permanent injunction against all the defendants. This suit was brought under Order I, Rule 8, Civil Procedure Code and by an application the plaintiff asked for notices to be given by advertisement in some paper having circulation throughout India. Notices were issued to the defendants for 11th April, 1951. The plaintiff on 20th February, 1951, filed an application in the subordinate Judge's Court under Order XXXIX, Rule 2, Civil Procedure Code asking for a temporary injunction. On the 21st February the Bharat Bank and the Punjab National Bank filed their reply and in support of this reply Mr. Ramnath Goen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n duped into believing that Seth Ramkrishen Dalmia has nothing to do with the Punjab National Bank. The petition and the affidavit in support of it then go on to say that defendant 9 Seth Ramkrishen Dalmia "with the help and active connivance of other defendants intends to effectuate a fraud on the minority of the shareholders of the Bharat Bank with intent to really wash away their investments in the said bank by rendering them of little or of no value," and this he is doing in order to benefit himself and the Punjab National Bank. In paragraph 7 it is stated that the intended scheme consists of a proposal to transfer "all goods and liquid assets of defendant 6 together with the entire business of defendant 6 on far below their real value to defendant 7, leaving with the said defendant 6 bank only such assets as are bad and doubtful or at any rate difficult to realize. The said assets, the applicant believes, are invested in the various tottering concerns of Dalmia, Jain, which defendant 9 also virtually controls." The allegation is also made that Mr. Yodh Raj, defendant 8, has been given financial help by defendant 6, the Bharat Bank, by purchasing debentures of one of the conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition to any further loss which may accrue by depreciation of the value of Government securities and the other business losses- The note submitted by the Chief Accountant to the Chairman is attached to the affidavit of Mr. Goenka filed in the Subordinate Judge's Court and has been marked by me as 'A'. ( ii )On getting this report the Chairman discussed this matter with his fellow directors and then had several interviews with the Governor of the Reserve Bank of India between the period 4th January, 1951, and 29th January, 1951. On 29th January, he sent a letter to the Governor of the Reserve Bank and submitted for his consideration a proposal that the Bharat Bank should transfer to the Punjab National Bank all its deposits and liabilities, current, fixed and savings, and "to cover these liabilities the Bharat Bank Limited will hand over to the Punjab National Bank all Government paper, cash, I.B.P's such advances as may be acceptable to the Punjab National Bank and such other assets as may be mutually agreed." After this the payment of the deposits will be the responsibility of the Punjab National Bank, and it will open such other branches or continue such branches of the Bharat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vocate-General of Bombay who had advised that it was a perfectly legal scheme which he was proposing. ( v )The Board of the Bharat Bank gave its unanimous assent to the scheme proposed and on 16th February, 1951, Mr. Yodh Raj, Chairman of the Punjab National Bank, wrote to the Deputy Chief Officer of the Reserve Bank of India, a letter which I have marked 'E' and is attached to the file of the Subordinate Judge's Court along with the affidavit of Mr. Goenka. In this he mentioned the scheme in the following words: "We beg to advise that it has been mutually agreed between our bank and the Bharat Bank Limited that we assume responsibility of paying their deposits as on 19th January, 1951, in consideration whereof they will transfer to us their assets consisting of cash, Government Securities, realisable loans, etc., of equivalent value. . . As a consequence of this arrangement, the branches of the Bharat Bank Limited will be taken over by us. Most of them will be merged with our existing offices at those stations. At 45 places where they have offices we have none. In order to pay the depositors and realise their loans it will be necessary for us to carry on business at these pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the bank. It was also stated in Mr. Goenka's affidavit that the suit was mala fide and that if the scheme was not put into immediate effect withdrawals will continue and the bank will have to close its doors which will cause a serious and irreparable consequence both to the creditors and the shareholders of the bank. The chief complaint of the plaintiff is that defendant 9, Seth Ramkrishen Dalmia, has managed to get control of defendant 7, the Punjab National Bank, by means of purchasing "a bulk" of its shares from defendant 8 and his friends and has thus got control of the Pun. jab National Bank, and that by the transfer of all the good assets of the Bharat Bank to the Punjab National Bank he was benefiting himself and his friends and was causing loss to a minority of the shareholders. In order to determine whether as a matter of fact defendant 9 has purchased any shares and as a result of that some loss is going to be caused to the plaintiff in a fraudulent manner, I have got affidavits of various parties put in before me. In two affidavits dated 5th March, 1951, both Seth Ramkrishen Dalmia and Mr. Yodh Raj have stated that Seth Dalmia has not acquired the control of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G.P. Notes, investments, etc. Whatever might or might not have been their intention originally, it is quite clear now from the affidavit of Shriyans Prasad, Chairman of the Bharat Bank, dated 8th March, 1951, filed in this Court that the Punjab National Bank will take over the responsibility to pay off the depositors and the creditors of the Bharat Bank in full, and the Bharat Bank will transfer to the Punjab National Bank assets of equivalent value which will consist of (1) cash, (2) G.P. Notes at their market value, (3) stationery, safes, furniture, fittings and fixtures at their book values, and (4) loans and I.B.P's also at their bank value, and also it is categorically stated that the assets mentioned in Nos. (3) and (4) will not be transferred at anything less than their book value. In this affidavit it is also stated that the cash, G.P. Notes and stationery, safes, furniture and fittings to be transferred are approximately of the value of six and a half crores, and for the balance of the liabilities of the Bharat Bank, the Punjab National Bank will take over certain loans and I.B.P.'s, leaving the rest of the loans and I.B.P.'s and other assets with the Bharat Bank, some of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on this point should not be accepted. None has even been suggested beyond the vague assertion that the bank is solvent. The rush on the bank and the withdrawals have not even been denied. The plaintiff's affidavit in this Court dated 7th March, 1951, again repeats that if all the good assets are taken by the Punjab National Bank and unrealizable debts remain then the shareholders will lose. If, however, the Punjab National Bank takes assets equal to the liabilities and accepts book value of assets, the plaintiffs should have no grievance. The depositors' claims have to be met by the Bharat Bank before the shareholders' and if this claim and equivalent amount of assets are taken over the balance must be sufficient for the shareholders on his (the plaintiff's) own showing. The plaintiff petitioner bases his case on the ground that the proposed scheme is a fraud and in the arguments he also submits that the scheme is ultra vires of the company as it is not allowed by the memorandum of association or the articles of association. He particularly relies on Clause 3(r) of the memorandum of association, Article 135(19) of the articles of association and section 86H of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or ratified by the shareholders. In other words it can be approved of by the shareholders or is capable of being approved. In either case the question of ultra vires will not arise. This has the support of Lord Macnaghten who delivered the judgment of the Privy Council in Dominion Cotton Mills Co., Ltd. v. George E. Amyot. There the Dominion Cotton Mills demised to its co-defendants the Dominion Textile Company all properties then in possession of the Cotton Company for a period of twenty one years and a resolution was passed by the Cotton Company in a general meeting approving of that lease. A suit was brought by two shareholders to set aside the lease of the company and also the resolution of the company approving of the same and it was held that it was incumbent upon the plaintiffs to show that the majority of the shareholders had either acted ultra vires or so abused their powers as to deprive the minority of their rights. At page 551 Lord Macnaghten observed as follows : "It is difficult to see what legitimate advantage the plaintiffs could hope to obtain from the only relief they claimed. The lease if not ultra vires, even though annulled by the Court, was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... majority are endeavouring directly or indirectly to appropriate to themselves money, property, or advantages which belong to the company, or in which the other shareholders are entitled to participate, as was alleged in the case of Menier v. Hooper's Telegraph Works. It should be added that no mere informality or irregularity which can be remedied by the majority will entitle the minority to sue, if the act when done regularly would be within the powers of the company and the intention of the majority of the shareholders is clear. This may be illustrated by the judgment of Mellish, L.J., in MacDougall v. Gardiner." In this case also it was held that a minority can maintain an action where the act complained of is fraudulent or beyond the powers of a company and that no mere informality or irregularity which can be remedied by the majority will entitle the minority to sue, if the act done would be within the powers of the company. In an older case In re Patent File Co., James, L.J., observed at Page 87 : "I can find nothing in the memorandum or articles to prevent the directors from making the best terms they can with a creditor of the company by selling or pledging pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company." Clause 3(q) of the memorandum of association seems to be almost identical with this provision. In my opinion, therefore, it is not ultra vires of the company to enter into the transaction which is proposed. These cases therefore show that if an act is not ultra vires of the company and it is capable of being ratified or being approved of by the company it is not open to a minority of shareholders to object to any transaction unless it is a fraud or, as Lord Macnaghten put it, the majority have abused their powers and are depriving the minority of their rights. In the present case it is quite clear from the affidavits that the plaintiff is in a minority. As a matter of fact, so far nobody has come forward to support the plaintiff and his plaint as well as the affidavits filed in this Court show that he is in a minority and up till now of only one. He has not shown, as I have said above, that the transaction which is intended to be gone through is fraudulent or the majority are abusing their powers to the detriment of the plaintiff. I, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Second if the plaintiff does not know what the scheme is he can have no cause of complaint and he cannot get an injuction unless he shows how he is going to be affected and on this ground alone he must fail. Then it was submitted by the defendants that the plaintiff is not a bona fide litigant. As I have said before, the plaintiff is carrying on his business in Siliguri in the District of Darjeeling in Bengal. He is the owner of only twenty fully paid up preference shares which are valued at two thousand rupees and the litigation is being conducted by his attorney Harbhagwan. But a great deal of interest is being taken by another brother of his, Shadi Lal, who was at one time an employee of the Bharat Bank. He has come all the way to Simla from West Bengal where he is carrying on his contract-business to look after the litigation. The plaintiff throuh Harbhagwan has also started winding-up proceedings against Bharat Bank : he may succeed or not but a liquidation application will certainly injure the bank and shake its credit. He seems to have no particular concern with or interest in the present litigation as all he has done is to give a power of attorney and his brothers ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... implied promise to repay at the branch where the money was deposited. A banker can also borrow. See Bank of Australasia v. Breillat and Grant on Banking page 593, where it is said : "A power to borrow is of course essential to the conduct of a banker's business." If the Bharat Bank can borrow money it can surely borrow it on the security of its assets. It can equally well give that security to the Punjab National Bank on the condition that the Punjab National Bank will pay the depositors of the Bharat Bank. Of course it is open to such a depositor to refuse to go to the Punjab National Bank and to insist on the Bharat Bank paying him, but that, is a matter of detail and is not a concern of the plaintiff. Relaying on the various cases which have been cited before me I am of the following opinion : (1) The intended scheme which has been mentioned in the note of the Chairman of the Bharat Bank and has been further clarified in the affidavit which has been filed before me that the Punjab National Bank will undertake to pay the deposits of the Bharat Bank and against this the Bharat Bank will hand over to the Punjab National Bank assets which are mentioned in the affidavit of Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his kind is not allowed to be proceeded with the bank will have to close its doors which will be calamitous for the depositors as well as for the shareholders and everybody else. (10) Under the present circumstances this is the best solution of the difficulties in which the bank finds itself. (11) The continuance of the temporary injuction will do more injury to both parties and particularly the bank and the balance of convenience is in favour of discharge. I am, therefore, of the opinion that the intended scheme should be allowed to go through and the injuction which I have issued should be discharged, but I would impose the following conditions : (1) The scheme which is finally prepared by the Punjab National Bank and the Bharat Bank must contain the provisions which have been stated above and which are contained in the affidavits which I have referred to. This scheme shall be sent to the Reserve Bank for such action as they may like to take under section 36(1) of the Banking Companies Act. I have been told that the whole of the intended scheme has been put before the Reserve Bank. The Reserve Bank can under section 36(1)( a ) prohibit such a transaction going through. The affi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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