PUNJAB NATIONAL BANK LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) The short question in this appeal is whether the declaration of interim dividend by the directors of a company is a 'liability'. This question arose on a writ petition filed by the appellants, the Punjab National Bank Ltd. (the company) and its three share-holders against the respondent, the Union of India, under Art. 226 of the Constitution. It will be recalled that by the Banking Companies (Acquisition and Transfer of Undertakings) Act 5 of 1970 (the Act) the banking business of the company, known as the Punjab National Bank, was taken over by the Central Government with effect from July 19, 1969. The Central Government paid to the company compensation of Rs. 1020 lakhs.

(2.) What the Act did was this. It took over the "existing banks". It created the "corresponding new banks" of which profits will henceforth go to the Central Government. The banking business was nationalised with a view to serve the people better and to meet the needs of a developing economy, as the preamble said.

(3.) Three days before the acquisition the Board of Directors Of the company had passed a resolution of July 16, 1969 declaring an interim dividend for half year ending June 30, 1969, at the rate of Rs. 1.20 gross per share. This resolution was passed by the Board of Directors pursuant to the authority conferred on them by 84th article of the Articles of Association of the company which provided as follows :