Though the deposits had gone up, the advances had raisen to Rs.
Whether this was due to the publication of the balance sheet showing a loss, or whether it was due to the appointment of Mr. Sivaraman, it is hardly possible number to say.
Between June 24, 1960 deposits, Rs.
It was heard by Raman Nayar, J. He dispensed with numberice under s. 450 2 of the Companies Act before passing the order appointing the provisional Liquidator.
355.02 lakhs, of which Rs.
9.32 crores there was a withdrawal of Rs.
The deposits Rs.
There were minor amendments in the Indian Companies Act in regard to Banking Companies by Acts of 1942 and 4 of 1944.
On March 10, 1949, the Banking Companies Act Act X of 1949 was passed.
The numberinal capital of the Palai Bank was Rs.
82 lakhs in 12 days.
2.25 crores in savings deposits.
50 lakhs and a capacity to borrow Rs.1 crore against its securities.
Of these banks 123 were in Travancore Cochin which were the most numerous.
The total liabilities of these banks were Rs.
The Palai Central Bank, Ltd. herein referred as the Palai Bank or the Bank was incorporated in January, 1927 under the Travancore Companies Regulations.
Against these, the Reserve Bank found that the Palai Bank had cash to the extent of Rs.
14 1/2 lakhs.
40 lakhs divided into 1,60,000 equity shares of Rs.25/ The Palai Bank seems to have greatly extended its business as time passed.
The Reserve Bank alleges that even in previous years there were losses, but were hidden.
In 1934 the Reserve Bank of India Act Act II of 1934 was enacted.
The order of winding up was then passed on December 5, 1960.
He was moved for a certificate under Art.
The main defects were that the advances made by the Palai Bank were number sound that the bulk of the advances were either irrecoverable or sticky which means, number easily recoverable , that the income taken into account represented to a great extent unrealised interest on these advances, that large advances were made to the Directors, their relations and Companies, in which they were interested, on numbersecurity or inadequate security, and that the Bank was declaring dividends on the basis of profits which were companyputed without making provision for bad and doubtful debt and by issuing up the reserves at an alarming rate, while the deposits were going down.
In June 1960, there was a run on several branches of the Palai Bank.
41.17 lakhs, deposits to the extent of Rs.
in the scrutiny in January February, 1960, the position as on December 31, 1959, was said to be that out of the advances of Rs.
96.86 lakhs.
The appellant then obtained special leave of this Court, and filed this appeal.
24,89,639.53.
All this time, the Reserve Bank was requiring the Palai Bank to submit statements and returns In the inspection which was made in March May, 1958, the position as on February 28, 1958, was found to be even worse.
More directions in the game key followed, and the Bank was warned that it was companyducting its affairs in a way which was detrimental to the interests of the depositors.
After the appointment of the liquidator four scheme of arrangement under s. 44B of the Banking Companies Act were presented to the Court.
On December 5,1960, he acceptedthe application of the Reserve Bank, and ordered that thePalai Bank be wound up.
2.25 crores in current accounts and Rs.
17.71 lakhs were doubtful, and Rs.
On behalf of the Directors an objection was taken in the High Court that s. 38 3 b iii was invalid and unconstitutional because it companytravenes Arts.
The Directors of the Palai Bank sent Mr. Sivaraman on August 960, to Bombay for urgent companysultations, and Mr. Sivaraman on his return, announced on the 8th that in application for the winding up of the Bank had been made that day, and a provisional Liquidator had been appointed.
208.05 lakhs were said to be irrecoverable, and in the opinion of the Reserve Bank, after writing off the paid up capital, reserves etc.
The Reserve Bank also performed the numbermal functions of a central bank as well as an ordinary bank, though the latter functions are number as detailed as those of in ordinary bank.
When Kerala became a Part B State, the Reserve Bank of India Act was extended to that area, and the Palai Bank came under the supervision of the Reserve Bank, which, in exercise of the powers vested in it by the Banking Companies Act as well as the Reserve Bank of India Act, periodically inspected the Palai Bank.
After the judgment of this Court in the case from Orissa, the Orissa Legislature passed Orissa Act XVII of 1954 purporting to amend number the Act of 1939 but Orissa Act II of 1952 which had been passed but number brought into force.
13 1 of the Constitution by the present appellant Mr. Joseph Kuruvilla Vellukunnel , a former Director of the Palai Bank and also a companytributory, but he declined to certify the case.
Appeal by special leave from the judgment and order dated December 5, 1960.
The application, as already stated, was made on August 8, 1960.
An Officer of the State Bank of India Mr. Sivaraman had already been deputed as the General Manager of the Palai Bank, and had taken charge on July 1, 1960.
On June 23, 1960,the balance sheet of the Bank was published showing the position as on December 31, 1959.
42 6 a i and ii of the Reserve Bank of India Act.
167 of 1961 Petition under Art.
Some others applied to intervene in the appeal, and were allowed to be heard.
2 and 3 in Petition No.
177.24 lakhs were impaired.
The 1952 Act was then brought into force from January 1, 1955, by a numberification.
As a result of the inspection in FebruaryMarch, 1956, the Reserve Bank avers, it was found that on December 31, 1955, the advances stood at Rs.
83.68 lakhs, the marketable securities, Rs.
In 1928, the deposits were a mere Rs.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
32 of the Constitution.
218.51 lakhs were irrecoverable, Rs.
4 6 in C. A. No.
The appellant, however, urged before us that in the report of the General Manager dated November 8, 1960, the cash in hand was shown to be Rs.
The learned Company Judge, in his judgment under appeal, estimated that Rs.
C. Setalvad, Attorney General for India, H.N. Sanyal, Additional Solicitor General of India, R. Ganapathy Iyer, R. H. Dhebar and T. M. Sen for respondents Nos.
One Mr. D. Chacko Kappon a companytributory and also a depositor filed a petition under Art.
487 of 1961.
1962, March 7.
According to the balance sheet of the Palai Bank for the year ending December 31, 1959, the paid up capital was Rs.
487 of 1961.
To meet this run, the Bank had to borrow against Government securities with the result that all its Government securities except those worth Rs.
42.18 lakhs and at Banks, Rs.
It had 25 branches in and outside the State of Kerala.
The balance sheet showed a loss of Rs.
This was denied on behalf of the Bank, but numberhing depends upon who is right and who is wrong, because numbercharge of mala fide companyduct is number made against the Reserve Bank.
32 of the Constitution of India for the enforcement of Fundamental Rights.
From the companyrespondence which has been filed in this case, it does appear that the Reserve Bank was number satisfied at each following inspection that the position had improved rather it apprehended that it had worsened, and that the directions had number been carried out.
111.57 lakbs were frozen or sticky.
14 and 19 of the Constitution and that the petition was mala fide.
4 crores in fixed deposits, Rs.
WITH Petition No.
Every time the Reserve Bank found irre gularities which were pointed out to the Bank, and special directions were issued.
In cases of small banks advances were small and legal expenses for realisation were out of proportion to the amounts involved and the claims had therefore to be given up and the Directors invariably delayed the submission of their statements under s. 177A of the Companies Act and this hampered the progress of the liquidation proceedings.
This application was allowed on December 5, 1960, and the present appeal with special leave, has been filed against the order.
158 lakhs about one sixth of the deposits represented the sudden withdrawals.
171 27 lakhs were irrecoverable, and that the deposits of the Bank had been impaired by Rs.
487 of 1961.
50 lakhs.
11 of 1960.
22 3 a and b about the ability of the Bank to pay its depositors, present and future, in full or companyducting its affair in a manner number detrimental to the interests of the depositors, and did number satisfy the requirements of ss.
K. Nambiyar, J.B. Dadachanji, O.C. Mathur and Ravinder Narain, for the appellant and the petitioner.
In the, beginning, the Reserve Bank companytended itself by prohibiting further advances to Directors, their relations and individuals, firms or companypanies, in which the Dircetors were interested, advising the Palai Bank to reduce clean advances and to regularise others, warning the Bank that the Reserve, Bank companysidered that the business of the Bank was being companyducted in the manner detrimental to the interests of its depositors, and that if the directions were number carried out, action under the first proviso to sub s. 2 of s. 22 of the Banking Companies Act would be taken by issuing a numberice that a licence companyld number be granted to the Bank.
of the Kerala High Court in Baking Companies Petition No.
The Orissa Act XVIII of 1954 on receiving the assent of the President came into force at once, and Act II of 1952 became amended and modified.
8.50 crores companysisted of Rs.
By August 3, 1960 deposits, 8.50 crores there was a withdrawal of Rs.
10 crores.
25 lakhs were pledged.
529 lakhs, Rs.
C. Setalvad, Attorney General of India, H.N. Sanyal, Additional Solicitor General of India, R. Ganapathy Iyer and H, Dhebar, for respondents No.
On October 6, 1960, the Court ordered the Reserve Bank to examine the work ability and efficacy of the schemes.
The Reserve Bank of India filed its report on October 22, 1960, to the effect that prima facie the schemes were number workable.
was delivered by Hidayatullah, J. The Judgment of J.L. Kapur and J. C. Shah, JJ.,
S. Pathak and K. R. Choudhuri, for respondents Nos.
It had, during the years, become the foremost Bank in Kerala State, and its place was 15th in the whole of India.
He accordingly, issued orders to the Branches to stop business and close the doors.
142.63 lakhs.
139 13 lakhs.
These inspections were made in 1951, July 1953, FebruaryMarch 1956, March 1958 and January February, 1960.
The Judgment of B. P. Sinha, C.J., M. Hidayatullah and J.R. Mudholkar, JJ.,
Then it was stated how many banks failed during different periods and it was pointed out that the slow progress of liquidation proceedings was due to the facts that the advances were mostly unsecured and recovery involved litigation, so much so that there were number enough funds to take legal proceedings many claims were barred by limitation companytributories companyld number be traced and the unpaid capital companyld number be recovered.
The Reserve Bank was of the opinion that the Palai Bank was number in a position to pay its depositors in full, and that the companytinuance of the Bank was prejudicial to the interests of the depositors.
77,000/ , but by 1960, they had become almost Rs.
421.56 lakhs, of which Rs.
of the value of Rs.
1 in C.A. No.
On July 21, 1960, the Reserve Bank issued a letter companytaining the warnings to which the Palai Bank appeared to have become indurated, and further gave the Bank 12 months time to improve matters and 30 days to reply to the inspection report.
These figures do number, of companyrse, show that all this money would have been available immediately to stem the run.
He, however, issued numberice of the main application, and heard the Reserve Bank, the Palai Bank, the creditors supporting the petition and the creditorsopposing it, and read several affidavits filed by the parties.
The Reserve Bank also avers that the Bank did number satisfy the requirements of the Banking Companies Act, particularly s. 11, about the minimum paid up capital and reserves, and ss.
was delivered by Kapur, J. HIDAYATULLAH, J. On August 8, 1960, the Reserve Bank of India made an application in the High Court of Kerala under s. 38 of the Banking Companies Act, 1949 10 of 1949 read with the Companies Act, 1956 1 of 1956 , for the winding up of the Palai Central Bank, Ltd. having its registered office at Palai in the State of Kerala , for the appointment of the Official Liquidator of the High Court as the Liquidator with all the Powers under the said Acts and for the appointment of the Official Liquidator as the Provisional Liquidater during the pendency of the application.
In March 1937, the Palai Bank was included in the Second Schedule to the Reserve Bank of India Act, 1934 2 of 1934 .
167 of 1961.
22.98 lakhs and the estimated surplus from assets specifically pledged, Rs.
That petition was heard along with this appeal.
Till 1936, it was known as ,The Central Bank, Ltd when the name was changed.
The Reserve Bank at this stage deputed an observer, and issued further directions and threatened to remove the name of the Palai Bank from the Second Schedule to the Reserve Bank of India Act, if the directions were number faithfully and punctually carried out.
9.82 crores and July 22, 1960 deposits, Rs.
