OFFICIAL LIQUIDATOR, TRAVANCORE NATIONAL BANK SUBSIDIARY CO LTD Vs. OFFICIAL LIQUIDATORS, TRAVANCORE NATIONAL AND QUILON BANK LTD

JUDGEMENT

(1.) This is an application by the Official Liquidator of the Travancore National Bank Subsidiary Co., Ltd., hereinafter called the Company, for an order that the Official Liquidators of the Travancore National and Quilon Bank, hereinafter called the Bank, should be directed to admit the claim of the Company in respect of the amounts standing to the credit of the Chitty Savings Bank Accounts utilized for the purpose of paying the dues of its prized subscribers who are its debtors to the extent of. the debt due by the respective subscribers to that Company as a preferential claim. The Subsidiary Company was formed mainly by the Travancore National Bank Ltd., as a private Limited Company having as its subscribers The Travancore National Bank, Ltd., which holds 4998 shares out of 5000 shares, the other two shares being held by one K. Ommen and K.M. Cheriyan, each holding one share. The object of the Company was among other things to conduct chits. The basis of the claim is that the amounts standing in the names of persons who have subscribed for the chits in the company in the Chitty Savings Bank Accounts of the Bank are trust moneys held in trust by the Bank for the Company and therefore the Company is entitled to rank as a preferential creditor of the Bank in respect of the same to the extent of the amounts due to the Company. To appreciate the contention it is necessary to state a few facts. The Company ran a series of chits according to certain rules which are found in a printed pamphlet marked as Ex. A in the case. The chits- were divided into four classes, A, B, C and D each running for 25 months and the holder of a ticket in each class being boundi to subscribe the instalments regularly for the twenty-five consecutive months. The chit amounts of each class of tickets will be separately put up for auction every month, excepting the 25 and the first instalment, will be auctioned, but on the day of the first instalment falling due, the second instalment will be auctioned in advance and similarly each subsequent instalment of the chit will be auctioned on the date of the instalments previous to it. At each auction the bid will begin at a fixed minimum discount and the subscriber who bids for the largest amount will be declared to be the successful bidder. The total amount of discounts of each class of tickets less expenses of management were divided pro rata for those particular classes of tickets both prized and non-prized. The share of discount divided thus due to a subscriber will be given credit to him when he pays the subscription for the instalment to which the auction relates. The net amount of each successful bid which is called the prize amount will be given to the respective successful bidder on his furnishing security to the satisfaction of the Company for payment of the future subscriptions. If he gives security, he is paid the prize amount one week after the date of the next instalment; but if he fails to give security, it is open to the Company to retain the amount and adjust it from time to time towards the subscription due to the Company from such bidder. If after adjustment any amount is due from the subscriber, the subscriber is liable to pay the amount with 12 per cent, interest per annum to the Company. But instead of retaining the said amount there was also a provision in and by which the amount payable for the future subscriptions is deposited in the Bank in such a manner that the instalments of subscription as and when they fall due may be paid to the Company. The rule which, regulates it is Rule 18(b) which runs thus: Arrangements have been made with the Travancore National and Quilon Bank, Ltd., and its branches providing facilities to every chit subscriber of the company to open Chit Savings Bank Account with them from which Chit instalments will be adjusted as and when they fall due.

(2.) For the information of the intending subscribers certain rules were framed by the Bank which have been printed as part of the printed pamphlet, Ex. A, containing the rules issued by the Company in the matter of the chits. As a consideration of those rules will become important in defining the actual legal position of the company with reference to the amounts deposited by the subscribers in the said Savings Bank Accounts I reproduce herein the said rules: 1. Chit Savings Bank Account may be opened by any Chit Fund subscriber with an initial deposit of Rs. 5. A minimum balance of Rs. 5 shall always be maintained in every account. 2. Interest will be allowed at the rate of 31/2 pec cent, per annum on the daily balance of Rs. 5 on multiples thereof.

(3.) Accounts are balanced half-yearly, viz., 30 June and 31 December when the interest earned will be credited to the accounts.