MANU/KE/0081/1969

IN THE HIGH COURT OF KERALA

Civil Revision Petition Nos. 1099, 1100, 1101, 1102, 1103, 1104, 1166, 1181, 1193,
1222, 1225, 1275 and 1291 of 1968

Decided On: 31.03.1969

Appellants: B.V. Abraham and Ors.

Vs.
Respondent: State Bank of Travancore

Hon'ble Judges:
T.S. Krishnamoorthy Iyer, J.

Counsels:
For Appellant/Petitioner/Plaintiff: M.P. Thomas, Adv. in C.R.P. Nos. 1099, 1100,
1101, 1102, 1103, 1104 and 1166 of 1968, P.P. John, Adv. in C.R.P. No. 1181, S.A.
Nagendran and P.A. Mohammed, Advs. C.R.P. Nos. 1193 and 1222 of 1968,
Varghese Kalliath and K.J. Kurien, Advs. in C.R.P. No. 1225 of 1968, George
Vadakkal, Varghese Kalliath and Jose Vithayathil, Advs. in C.R.P. No. 1275 of 1968
and N. Raghavan Kurup and M.S. Narayana Pillai, Advs. C.R.P. No. 1291 of 1968

For Respondents/Defendant: C.M. Kuruvilla, C. George and K.C. John, Advs.

Subject: Company

Subject: Banking

Catch Words

Mentioned IN

Acts/Rules/Orders:

Banking Regulation Act, 1949 - Section 45, 45(4), 45(8) and 45(9);
Companies Act, 1956 - Sections 99, 428, 429 and 429(2); Limitation Act, 1963 -
Schedule - Articles 55 and 113

Cases Referred:
In Re: Mayfair Property Company, Bartlett v. Mayafiar Property Company, [1898] 2
Ch. D. 28

Disposition:
Petitions allowed
Case Note:

Banking – amalgamation – Section 45 of Banking Regulation Act, 1949

and Sections 428 and 429 of Companies Act, 1956 – two banks amalgamated
under Section 45 of Act – defendant shareholder in amalgamated bank –
plaintiff-bank claimed to have obtained right to call in arrears to realize amount
on 3 months notice – defendants made default in payment – board of directors of
plaintiff-bank forfeited shares of defendants –contention raised that transferee
bank only entitled to recover call money from members of transferor bank and
not authorised to forfeit shares – contention not considered by Trial Court –
matter reverted back to Trial Court.

JUDGMENT

Krishnamoorthy Iyer, J.

1. These revision petitions arise out of suits filed by the State Bank of Travancore.

2. The facts giving rise to the suits are stated below.

3. The Kottayam Orient Bank Ltd. was amalgamated with the State Bank of
Travancore under Section 45 of the Banking Regulation Act, 1949, hereinafter

referred to as "the Act." The scheme of amalgamation which is evidenced

by exhibit P-l came into force on June 17, 1961. Exhibit D-1 is the memorandum and
articles of association of the Kottayam Orient Bank Ltd. The defendant in each of the
suits is a shareholder of the Kottayam Orient Bank Ltd. The plaintiff-bank claims to
have obtained, under Section 45(9) of the Act and clauses 2 and 7 of exhibit P-l, the
right to the calls in arrears and the uncalled amount in respect of the shares held by
the members of the Kottayam Orient Bank Ltd., and to realise the same on three
months' notice from a date to be fixed with interest at 6% per annum from the expiry
of the above-said three months. It is alleged by the plaintiff that in pursuance of the
sanction of the Reserve Bank of India, notices were issued to the members of the
Kottayam Orient Bank Ltd., including the defendants in the several suits to pay the
uncalled share amount at the rate of Rs. 2.50 per share within three months from May
15, 1964, the date of the issue of the notices. In view of the default on the part of the
defendants to pay the amounts, the plaintiff issued to the several defendants forfeiture
notices on October 30, 1964, and July 5, 1965, extending the period for payment of
call money. In view of the failure of the defendants to pay the amounts, the board of
directors of the plaintiff-bank at their meeting held on 23rd June, 1966, forfeited the
shares in the names of the defendants and issued notices to them on June 23, 1966.
The suits were filed against the several defendants for the recovery of the unpaid call
money at the rate of Rs. 2.50 per share with interest at the rate of 6% per annum from
August 15, 1964.
4. The defendants in the several suits raised broadly three contentions : (1) The suits
are not triable as small cause suits, (2) the claim of the plaintiff is barred by
limitation ; and (3) in view of the special resolution passed by the members of the
Kottayam Orient Bank Ltd., under Section 99 of the Companies Act, 1956, the suits
are not maintainable. These contentions were overruled and the suits have been
decreed by the judgments and decrees challenged in the several revision petitions.

5. Point 1.--All the suits were tried as small cause suits. I cannot accept the plea of the
learned counsel for the revision petitioners that these suits are excepted from the
cognizance of the small cause court because of item 1 in Schedule 1 read with Section
12 of the Kerala Small Cause Courts Act, 1957. It is also not possible to uphold the
plea of the revision petitioners based on Section 429(2) of the Companies Act, 1956.
Section 429 of the Companies Act, 1956, reads :

" 429. Nature of liability of contributory.--(1) The liability of a contributory shall

create a debt accruing due from him at the time when his liability commenced, but
payable at the times specified in calls made on him for enforcing the liability.

(2) No claim founded on the liability of a contributory shall be cognizable by any

court of small causes sitting outside the presidency towns. ".

Section 428 of the Companies Act defines " contributory " as meaning every person
liable to contribute to the assets of a company in the event of its being wound up.
Section 429(2) of the Companies Act can, therefore, apply only to suits by liquidator.
I therefore overrule the plea that the suits are not liable to be tried as small cause suits.

6. Point 2.--The question covered by this point is whether the suits are barred by
limitation. Article 112 of the Indian Limitation Act, 1908, which specifically dealt
with a suit for calls by a company registered under any statute or Act provided for a
period of three years from the date when the call is payable. There is no
corresponding article in the Limitation Act, 1963. The only relevant provisions in the
Limitation Act, 1963, are Articles 55 and 113. The notices demanding the call money
were issued to the defendants by the plaintiff on May 15, 1964, and three months time
expired on August 15, 1964. The suits have been instituted within three years from
that date. I therefore hold that the suits are not barred by limitation.

7. Point 3.--This point covers the main contention of the defendants dealing with the
sustainability of the plaintiff's claim in view of the resolution passed by the
shareholders of the Kottayam Orient Bank Ltd. in the extraordinary general meeting
held on March 19, 1959. The resolution is to the effect that the portion of the issued
share capital which has not been already called up shall not be capable of being called
up except in the event and for the purposes of the company being wound up. The said
resolution was passed under Section 99 of the Companies Act, 1956. The said
provision reads :

" 99. Reserve liability of limited company.--A limited company may, by special
resolution, determine that any portion of its share capital which has not been already
called up shall not be capable of being called up, except in the event and for the
purposes of the company being wound up, and thereupon that portion of its share
capital shall not be capable of being called up except in that event and for those
purposes. "

8. The above provision corresponds to Section 60 of the English Companies Act, 194-
8. The said provision reads :

" 60. Reserve liability of limited company.--A limited company may by special
resolution determine that any portion of its share capital which has not been already
called up shall not be capable of being called up except in the event and for the
purposes of the company being wound up, and thereupon that portion of its share
capital shall not be capable of being called up except in the event and for the purposes
aforesaid."

The plea on behalf of the revision petitioners was that because of the special
resolution of March 19, 1959, the plaintiff has no right to claim the call moneys
except in the event of, and for the purposes of, the company being wound up. The
passing of the special resolution by the members of the Kottayam Orient Bank Ltd., as
alleged by the defendants, is not disputed by the plaintiff.

10. In dealing with the question it will be necessary to take note of Clause 7(i) of
exhibit P-l, which reads thus :

" The transferee bank shall, as soon as may be after the prescribed date, call upon
every person who on the prescribed date was registered as the holder of a share in the
transferor bank (or who would have been entitled to be so registered) to pay within
three months from such date as may be specified the uncalled amount remaining
unpaid by him in respect of any such share and the calls in arrears, if any, and the
transferee bank shall take all available steps having regard to the circumstances of
each case to demand and enforce the payment of the amounts due under this
paragraph together with interest at six per cent. per annum for the period of the
default, "

The prescribed date in the above clause is 17th June, 1961, the date specified by the
Central Government as the prescribed date in S.O. 1313 of 6th June, 1961, in
pursuance of Sub-section (7) of Section 45 of the Banking Regulation Act, 1949. The
Reserve Bank of India specified May 15, 1964, as the date for making the call by the
plaintiff.

11. The submission of the learned counsel for the petitioners that the words " uncalled
amount remaining unpaid by him in respect of any such share" in Clause 7(i) of
exhibit P-l will not include any reserve liability created under Section 99 of the
Companies Act, 1956, cannot be accepted. Section 45 of the Act is in Part III thereof
dealing with suspension of business and winding up of banking companies. There is

no dispute between the parties that the amalgamation of the Kottayam

Orient Bank Ltd. with the State Bank of Travancore is in accordance with the said
provision. Section 45(4) of the Act enables the Reserve Bank if it is satisfied for the

reasons given thereunder to prepare a scheme for the amalgamation of the

banking company with any other institution. According to Section 45(5) of the Act the
scheme thus framed may contain provisions among other things for the transfer to the
transferee bank of the business, properties, assets and liabilities of the banking
company on such terms and conditions as may be specified in the scheme and for the
allotment to the members of the banking company for shares held by them therein

before its amalgamation in the transferee bank. Section 45(6) of the Act
enjoins that a copy of the scheme prepared by the Reserve Bank shall be sent in draft
to the banking company for suggestions and objections, if any, within such period as
the Reserve Bank may specify for this purpose and the Reserve Bank may make such
modifications, if any, in the draft scheme as it may consider necessary in the light of
the suggestions and objections received from the banking company and also from the

transferee bank, and any other banking company concerned in the amalgamation

and from any members, depositors or other creditors of each of those companies
and the transferee bank. Section 45, Sub-sections (8) and (9), which make the scheme
binding on the banking company, are given below :

" (8) On and from the date of the coming into operation of the scheme or any
provision thereof, the scheme or such provision shall be binding on the banking
company or, as the case may be, on the transferee bank and any other banking

company concerned in the amalgamation and also on all the members,

depositors and other creditors and employees of each of those companies and of the
transferee bank, and on any other person having any right or liability in relation to any
of those companies or the transferee bank.

(9) On and from such date as may be specified by the Central Government in this
behalf, the properties and assets of the banking company shall, by virtue of and to the
extent provided in the scheme, stand transferred to, and vest in, and the liabilities of
the banking company shall, by virtue of and to the extent provided in the scheme,
stand transferred to, and become the liabilities of, the transferee bank."

12. It is therefore clear that exhibit P-1 is binding on the members of the Kottayam
Orient Bank Ltd., including the defendants in the several suits. In regard to the
interpretation of the words "uncalled amount remaining unpaid by him in respect of
any such share " in Clause 7 of exhibit P-l, one has to keep in view the object of
Section 45 of the Act. It is no doubt true that there was no proceeding to wind up the
Kottayam Orient Bank Ltd., under the provisions of the Companies Act, 1956, or
under Section 38 of the Act. Section 5A of the Act provides that the other provisions
of the Act shall have effect notwithstanding any provision to the contrary in the
memorandum or articles or agreement or resolution of a banking company, The effect
of the special resolution is to preserve intact for the general creditors the uncalled
amount if the company goes into liquidation. The object of a special resolution passed
under Section 99 of the Companies Act, 1956, is to borrow the words of Lindley M.R.
in Mayfair Property Company In re : Bartlett v. Mayfair Property Company, [1898] 2
Ch. D. 28, 36:

"......first, to preserve for the general creditors of the company the funds which the
members were liable to pay, but which the directors could not call up ; and, secondly,
to enable the members to limit the amount of their liability on a winding-up to pay the
creditors more than the amount preserved for them."

The uncalled amount is a capital of the company. If the company is not being wound
up there is no power in the directors to make a call. That is the only effect of the
special resolution and nothing else. It is to safeguard the interests of the depositors
and creditors of a banking company that Section 45 of the Act has been introduced

and if one would remember that the scheme of amalgamation is only a

mode by which the compulsory winding up of a banking company is averted for the
benefit of the creditors there will be no difficulty in holding that Clause 7(i) of exhibit
P-l would take in the amounts covered by the special resolution of March 19, 1959,
and override the special resolution relied on by the defendants. I am therefore of the
view that the suits are maintainable.

13. Before closing it is necessary to point out that the plaintiff has alleged in the plaint
that the shares of the several defendants in the Kottayam Orient Bank Ltd. have been
forfeited because of the resolution passed in the meeting of the board of directors of
the plaintiff bank held on 23rd of June, 1966. Article 29 of exhibit D-l provides for
forfeiture of shares and there is no provision in exhibit P-l authorising the transferee
bank to exercise the powers of forfeiture vested in the transferor bank. A contention
was therefore raised for the revision petitioners that exhibit P-l can if at all authorise
the transferee-bank only to recover the call money or the arrears of call only from the
members of the transferor bank and in view of the forfeiture of the shares claimed the
plaintiff has no right to get decrees in the several suits. In the face of this contention
two questions will arise, namely, whether the forfeiture of the shares of the defendants
is legal and valid and if so whether the suits are maintainable based on exhibit P-l. It
appears that this contention was not considered by the trial court and it has become
necessary to remand the suits for that purpose. I make it clear that all the other
contentions of the defendants have been found against them and those findings have
become final between the parties.

14. I, therefore, set aside the judgments and decrees of the courts below and remand
the suits to the respective courts for disposal afresh after considering the specific
questions pointed out in this judgment. The revision petitions are allowed in the
manner indicated above. No costs.