TRAVANCORE NATIONAL BANK SUBSIDIARY COMPANY LIMITED (IN LIQUIDATION) BY ITS OFFICIAL LIQUIDATOR, MR R NARASIMHACHARIAR Vs. TRAVANCORE NATIONAL AND QUILON BANK LIMITED (IN LIQUIDATION) BY ITS OFFICIAL LIQUIDATORS, CGILL AND JSGOODWIN

JUDGEMENT

(1.) The appellant and the respondent are limited liability companies and both of them are now in liquidation under orders for compulsory winding up. For the sake of brevity I will refer to the appellant as "the company" and the respondent as the bank . The company was formed by the bank for the purpose of organising chit- funds, which was considered to be a profitable business. The bank held all the shares in the company, except two, and it is common ground that it controlled the company through one of its officers. The chit-funds which the company organised were for periods of 25 months with four classes of subscribers. The subscriber who was successful at the monthly auction could not withdraw the amount subscribed that month unless he furnished security to the company for its repayment. If he furnished security, of course, he was allowed to withdraw the money and dispose of it as he pleased. If security was not furnished, the company either retained the amount or paid it into the bank. In the latter event the subscriber was required to open a savings bank account with the bank and the money was paid into it. One of the conditions of the keeping of this account was that the amount deposited in it should not be available for withdrawal for purposes other than payment ofthe instalments for which the subscriber was liable in respect of the chit-fund until the subscriber had paid all his instalments. When he opened the account the subscriber was required to sign a letter addressed to the bank and couched in the following terms: I beg to inform you that I am holding...No...in your Chit Fund No...which was prized at the auction conducted on the...for the instalment. I have acknowledged receipt of the bid amount for which I have given a separate receipt and I confirm my agreement that as security for the due payment of all the future subscriptions towards my above ticket...in Chit No...you will hold as much amount as would cover up the future liability of this in chitty savings bank account with you. I also confirm my agreement with you that you will appropriate towards future instalments as they fall due the necessary amount from my deposit in your chitty savings bank account.

(2.) This letter is not very appropriately worded as the chit-fund did not nominally belong to the bank, but there can be no doubt as to its effect. The bank was to hold what was deposited in the account as security for the due payment of what the subscriber owed to the company. The company and the bank carried on business in the same premises in Madras and the arrangement was completed by an officer of the bank acting on behalf of the company and the bank.

(3.) The Court is informed that the bank kept a considerable number of these accounts. The company and the bank having gone into liquidation, the question arose whether the company was entitled to have the amounts standing in these various savings bank accounts treated as moneys over which the liquidator of the company had a preferential claim. In order to have the question settled he took out a summons under Section 183 of the Indian Companies Act. The matter was heard by Venkataramana Rao, J., who held that the liquidator of the company was not entitled to any preferential payment from the liquidators of the bank, but that he was entitled to rank as an ordinary creditor in respect of these various amounts. The appeal is from this decision.