THE POPULAR BANK Vs. S. KUMARASWAMI REDDIAR

JUDGEMENT

(1.) THIS petition brought by the liquidator of the Popular Bank Ltd .,really consists of 18 different applications under section 531 of the Companies Act.They have been brought together as one petition by leave of court(no objection being taken by the parties)because they involve common questions of fact and law.

(2.) THE Popular Bank Ltd.( hereinafter referred to as the bank)was incorporated in May 1944.It suspended business on 16th August 1956 and,on a petition presented by a creditor on 27th August 1956,this court ordered its winding -up on 19th December 1956.The liquidator alleges that,on several dates between the 7th July and 16th August 1956,at a time when the bank was unable to pay its debts as they became due from its own money,payments were made to the respondent creditors(named in the petition as counter petitioners,but I find it more convenient to refer to them as respondents)with the view of giving them preference over the other creditors of the bank.In most of the cases there was not enough money in the bank to make the payments,and the device adopted was to transfer amounts from the accounts of creditors to the accounts of debtors,obviously by some arrangement between the creditor and his chosen debtor so that the debtor instead of the bank became accountable to the creditor in respect of the amount so transferred.No doubt a trusted debtor would be chosen so that the result was that the creditor got his money in full instead of the mere dividend he would get in liquidation.There was a discharge by the debtor to the extent of the amount transferred;and,but for the transfer,the bank could have recovered the amount from the debtor in full and need have paid the creditor only a dividend.Whatever the form,there was,in effect,a payment by the bank to the creditor of the money due to him,a loan by the creditor to his chosen debtor(or some other adjustment ),and a payment by the debtor to the bank of the money due from him.In fact in some cases the payment by the bank to the creditor,and by the debtor to the bank,were shown in the books as cash transactions,but they were in truth mere book adjustments,the bank not having enough money to make the payment to the creditor except by such adjustment.( In Natukottai Bank Ltd .,in re.( 1957)27.Comp.Case 404,Balakrishna Ayyar J .,viewed a similar transaction as a payment to the creditor by assignment of the money due from the debtor,and the order he made was one setting aside the entire transaction as he viewed it,in other words,a reversal of the entries.The debtor was required to pay the amount due from him,and the creditor was held entitled to rank as a creditor on the basis of the accounts as they stood before the transaction.With respect,I think what has been stated above is a more direct way of looking at the matter.A payment is none the less a payment because it is made not in cash but by credit to the account of some other person as directed by the payee;we need therefore view the transaction only as a cash payment to the creditor and a cash payment by the debtor;and I do not think we need interfere with the private arrangement between the debtor and the creditor whatever it be.)

(3.) THERE were originally 23 respondents and the petition was brought under section 542 of the Companies Act as well.Certain officers of the bank were therefore included in the party array and so were some of the debtors by transfer to whom the alleged fraudulent preferences were effected,apparently against the possibility of an order for a reversal of the entries and for recovery on that basis.The petition has however been amended by dropping the relief under section 542,by striking off respondents 3,4,5,6,11,12,15,16,20 and 22(earlier the petition had been withdrawn as against 16th respondent)from the party array,and by including a prayer,which did not originally find place in the petition,for recovery from the respondents fraudulently preferred the sums paid to them together with interest.