HANUMAN BANK LIMITED Vs. STATE

JUDGEMENT

(1.) THESE appeals and the cross -objections arise out of an application [Application No. 2826 of 1950] filed under section 235 of the Companies Act, 1913, by the official liquidators of the Hanuman Bank Ltd., Tanjore. No less than 30 persons were impleaded as respondents to the petition, and the official liquidators sought to make them liable for various sums on account of misfeasance. Respondents Nos. 1 to 10 in the petition were the directors. Respondents Nos. 11 to 29 were, according to them, officers of the bank. The 30th respondent was the auditor. In all the appeals, unless otherwise stated, the parties will be referred to with reference to their position as respondents in the application before the company judge

(2.) THE bank was started on November 29, 1933, and it grew from small beginnings to almost gigantic proportions. There were reckless advances without proper security, which eventually led to a crash of the bank, in July, 1947. It was ordered to be wound up on November 5, 1947

(3.) THE third was payment of dividend out of capital. The learned judge [Subramanyam J.], who inquired into the application, has held that the charges were substantially established and he made most of the respondents liable for the various sums indicated in his judgment. O.S.A. No. 62 to 1960 has been filed by the 11th respondent, V. Ganesan, questioning the liability fastened on him. O.S.A. No. 17 of 1961 has similarly been filed by S. Vancheesan and R. Appaswamy Iyer, the 12th and 13th respondents. O.S.A. No. 35 of 1961 is a similar appeal by V. Swaminathan, the 29th respondentThe official liquidators have filed O.S.A. No. 8 of 1961 against respondents Nos. 5, 7, 8 and 9. It may be mentioned at this stage that the learned judge exonerated the 9th respondent from liability completely and made respondents Nos. 7 and 8 liable only partially and not to the full extent desired by the official liquidators in their application. The learned judge took the dividing the as March 7, 1947. On that day, the detailed report of the auditor for the year 1946 was considered by the directors, and since that report revealed gross irregularities, the learned judge felt that, at least thereafter, the directors should be made directly responsible for the irregular advances made after that date and also for the declaration of dividend, when really there were no profits at all to justify a declaration of dividend. But, he thought that, prior to March 7, 1947, the materials were not sufficient to put the directors on notice of the irregularities and the irregular advances and, therefore, on the principles settled in the decided cases, those directors could not be made liable for the irregularities before March 7, 1947. It was on that view he exonerated the 9th respondent, A.N. Srinivasa Iyer, who had resigned on December 28, 1946. Respondents Nos. 5, 7 and 8, however, continued as directors, and, as regards them, the learned judge fastened a joint and several liability of Rs. 32, 000 under two heads: firstly, a sum of Rs. 22, 000 for dividends paid out of capital, and, secondly, a sum of Rs. 10, 000 being a sixth of the sum of Rs. 60, 000 which was roughly the total of the irrecoverable advances made after March 7, 1947. In respect of the remaining five -sixths, the learned judge granted relief under section 281 of the Act. By O.S.A. No. 8 of 1961, the official liquidators seek to make respondents Nos. 5, 7, 2 and 9 liable even for the period prior to March 7, 1947, and to fasten a greater liability than that determined by the learned judge on respondents Nos. 5, 7 and 8 for the period after March 7, 1947. As a matter of detail, it may be mentioned that the 7th respondent, S. Swaminathan Sastrigal, died after this appeal was filed. But it will be seen later that it does not materially affect matters. The cross -objections in O.S.A. No. 8 of 1961 have been filed by the 8th respondent, K.V. Ganapathisubramania IyerIt will be convenient to take up O.S.A. No. 62 of 1960 and Nos. 17 and 35 of 1961, particularly since we can get a picture of the way in which the embezzlements took place and advances were made recklessly. We may state at once that the learned judge has, if we may say so with respect, written a very lucid judgment clearly and elaborately setting out the details, and, further, since these matters are really not challenged before us, the arguments before us being mere questions of law, it will be sufficient if we refer to the instances concerning the parties before us. Thus, the first item, in respect of which liability has been fastened by the learned judge on respondents Nos. 11, 12 and 13, is item 5 of the B -1 Schedule. This is discussed at pages 17 to 19 of the judgment. [There are two sets of pages in it, one in the judgment itself, pages 1 to 195, and another in the bigger pleadings volume given to us, in which the judgment is apart. According to the second pagination, the pages will be 89 to 283. But we will give reference only to the pagination of the judgment itself, that is, from pages 1 to 195]. One K.P. Abdul Khader of Pattukottai had sold paddy to the Grain Purchasing Officer, Tanjore, and had received an order from the Grain Purchasing office for payment of Rs. 13, 796.