R. RAGHAVAN Vs. SAMARIAS HOUSING FINANCE LIMITED

JUDGEMENT

(1.) Samarias Finance (for short "the firm"), as a partnership concern, came into existence on 26.12.1968 consisting of two partners, A G Abraham and Jacob George, brothers. The capital of the firm is Rs. 12,245 out of which Rs. 9,487 has been contributed by A G Abraham and the rest of the amount, namely, Rs. 2,758 has been contributed by the other brother, Jacob George. The accounting year of the firm was from 1st April of every year to 31st March of the following year. The firm had been accepting deposits of various types from the public and had been trading on creditors' funds. The transactions of the firm swelled like surging waves in a short span of time in having on its roll 5,000 and odd depositors and the collection from such depositors is about Rs. 5.60 crores. The firm acquired certain valuable immovable properties, namely, three grounds in Luz Avenue, Madras ; 110 grounds in Trivellore and 72 grounds in Trivandrum. It also acquired shares for Rs. 35 lakhs and odd in Samarias Trading Company (for short "Trading Company') representing nearly 90% of the total shares.

(2.) The firm incurred heavy loss between the years 1980-81 and 1985-86 and the loss which was to the tune of Rs. 23.5 lakhs in 1980-81 rose to the extent of about Rs. 73 lakhs and odd by the end of the accounting year 1985-86 and the partners were required to bring in Rs. 3.95 crores while the firm continued to incur loss year-after-year with the prospect of earning any profit in the near future becoming rather bleak. While it is being so, the Banking Laws Amendment Act, 1983 introduced Chapter III-C in the Reserve Bank of India Act (for short "the Act") and the amended Act came into force on 15.2.1984. Under section 45-S of the Act as amended, restriction was imposed on acceptance of deposits by firms and other incorporated bodies. A partnership firm cannot have more than 25 depositors per partner and not more than 250 depositors in all excluding in either case, depositors who are relatives of any of the partners. It was further provided therein that where at the commencement of the amending Act, the number of depositors held by any person were in excess of the limit prescribed by that section, such person should, before the expiry of the period of two years, repay such of the depositors as are necessary for bringing the number of depositors within the specified limit. The -firm, instead of bringing the number of depositors within the limit, continued to accept deposits in violation of the aforesaid section.

(3.) The partners of the firm floated "Samarias Housing Finance Limited" (for short 'Housing Company') which was incorporated as a private limited company under the Companies Act on 5.10.1984. There are five directors in the new concern, "Housing Company'. A G Abraham became the managing director while his brother Jacob George assumed the role of a director and the other three directors were R P A Narayanan, George Joseph, Alex Jacob, out of whom K P A Narayanan and George Jacob are none else than the General Manager and Auditor respectively of the firm. Thus, four of the directors of the housing company happened to be either directly or indirectly interested in the firm.