The amount of unclaimed dividends taken to interest account was illegal and against the provisions of the Articles of Association of the Bank.
The Directors number only had an opportunity of meeting the allegations companytained in the petition, but they also had knowledge of the material brought on record afterwards.
4.26 lakhs.
He had been fully cross examined on the companytents of the reports.
They gave the following reasons for companying to the companyclusion that the Balance Sheets and the Profit and Loss Accounts for the years from 31 3 1946 onwards are false and incorrect The staff and the Directors know that the Bank had number received the share amount for the majority of the shares allotted which was made up of the fictitious credits given against these share applications, and which did number represent the actual physical cash on hand on that day.
He was also thoroughly cross examined on behalf of the Directors.
As a result of reorganisation of States, the winding up proceedings were transferred to the High Court of Mysore, and, the Official Liquidator at the Mysore High Court was appointed as the Liquidator of the Bank.
Shri V. R. Kotbagi.
1,23,500.
The Reserve Bank, therefore, suspended its decision about issue of a licence to the Bank to carry on banking business until the Bank had removed these shortcomings.
58,500.
We may here indicate the nature of the evidence, discussed at length by the learned Company Judge, on which findings relating to mismanagement by the Board of Directors were based.
They have misled the share holders and the depositors by presenting false Balance Sheets and Profit and Loss Accounts, at least from 1946 onwards.
The balance can be traced provided the accounts are reconciled.
On 5 3 1953, a second report A 2 , under Section 22 of the Act, was given by the Reserve Bank, in which it was observed, inter alia, that the Bank had number rectified the defects pointed out in the previous inspection report, that the Board, of Directors did number show sufficient interest in the working of the Bank, and that there was numberproper supervision and companytrol over the activities of the Managing Director.
It had itself held, that, even according to the admission of the Managing Director, he was liable to the extent of Rs.
This total liability was determined after deducting Rs.
The Auditors, when they companynted the cash on 24th March, 1954, companyld have known that the actual cash on hand verified by them was far short of the cash balance shown by the Day Book of that day bad they tallied the cash companynted by them with the Day Book.
knowing them to be false.
The reports of the Reserve Bank of India were also mentioned in the application.
Appeals by a certificate from the judgment and order dated January 7, 1966 of the Mysore High Court at Bangalore in Company Appeals Nos.
On 8 3 1956, a depositor of the Bank applied to the Bombay High Court for the winding up of the Banking Company.
On 7 3 195 1, after the companying into force of the Banking Companies Act 1949, on 16 3 1949, the Reserve Bank of India had given its short inspection report A 1 on the affairs of the Bank under Section 22 of the Act.
In earlier paragraphs of the petition, details of reports of Shri K. Y. Wagle, dated 16 2 1955, and of B. D. Joshi, given on 10 5 1957, and the explanations given by the Directors, were mentioned.
K. V. Saudi.
1, 1 1, 5 00 and that, as this was a fair measure of the extent of the loss caused by the Managing Director, the amount still payable by him was Rs.
We may number glance at the background of investigations and reports made which led up to the misfeasance proceedings, before we companysider the issue raised and decision given on these by the learned Company Judge and then by the Division Bench.
The Official Liquidator had alleged, in the application for misfeasance proceedings, dated 27 8 1960.
196 and 197 and respondents Nos.
The result of the orders ,of the Division Bench was that the amount to be repaid to the Bank by the Managing Director and the four Directors totalled up to Rs.
9 and 10 of 1967.
2 in C.As.
The Official Liquidator companyld number possibly have done anything more in his application than to rely on reports available to him and to prove the companyrectness of their companytents by producing, as witnesses, those individuals who had companyducted the investigations and made the reports.
After suspension of payments by the Bank on 26th November, 1954, the Bank had applied, on 1 12 1954, to the High Court of Bombay, under Section 37 of the Act, praying for the grant of a moratorium and for opportunity to tic given to reconstruct the Banking Company as a going companycern.
the Accountant Shri R. S. Deshpande and the three Cashiers.
Shri A. L. Bhatia P.W. 1 , Banking Officer of the Reserve Bank of India, had duly proved facts disclosed in the reports, dated 7 3 1951 Al , dated 5 3 1953 A2 , dated 13 9 1954 A3 , and dated 13 1 1955 A4 , which were made after carrying out inspections of the records disclosing the manner in which the business of the Bank was companyducted.
On 20 12 1954, the Directors of the Bank, with the companycur rence of the Special Officer, had appointed Shri K. Y. Wagle as Officer to examine the records of the Company with a view to explore the possibilities of its reconstruction.
195 197, 234 and 300 of 1967.
Advocate PW.
This report showed that even necessary formalities with regard to opening of deposit accounts were number companyplied with, over drafts were allowed in savings Bank accounts, unsecured advances were disproportionately large, rates offered on some fixed deposits were abnormally high, the Bank was companystantly borrowing from other Banks by pledging its investments, 16 of the advances were irregular, records to indicate the companyrect value of goods pledged or hypothaticated were number maintained, effective steps against those who obtained proved irregular advances were number taken, sufficient information was number available about the means and standing of the borrowers, neither periodical returns, particularly of advances by the Branches, were made, number were the Branches inspected periodically, the usual practice of Balancing the ledger at frequent intervals was number observed, and account books and records of the Bank were number duly maintained.
Paragraph 17 of the application gave a list of amounts shown to have been withdrawn by the Directors and their friends within a week before the closing of its business by the Bank.
Shri B. D. Joshi, Chartered Accountant PW.
amount involved in the fraud was assessed roughly at Rs.
234 respondent No.
It suspended business on 27 11 1954 as a result of gross mismanagement which enabled large sums of money to be misappropriated and false and fictitious entries to be made in its account books.
K. Daphtary, S. K. Mehta, K. R. Nagaraja and Qamuruddin, for appellant in C.A. No.
This report, dated 16 2 1955 A 21 said On going through the books of accounts, it is observed that the misappropriation penetrates into the books from 1948 and still earlier and the amounts misappropriated are through entries from a Cash, b Bank accounts with other Bankers, c Branch accounts.
195 197 and Respondent No.
The Reserve Bank of India, therefore, proposes to give it a numberice in writing in terms of the first proviso to subsection 2 of Section 22 of the Act that a licence to carry on banking business in India cannot be granted to it.
V. K. Nadgouda, S. N. Ajrekar took full advantage of the weakness of the Directors, the negligence of the Auditors, and fraudulently misappropriated the monies individually and companylectively.
B. Datar, for respondent No.
The learned Company Judge had separately companysidered the cases of Porwal, who joined as Director in 1951 after the first Inspection Report by the Reserve Bank had already been given, and of R. N. Kalghatgi, who became a Director only in July 1953, on the death of his elder brother G. N. Kalghatgi.
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
It was number only alleged but shown that the Directors were debarred by Article 147 of the Articles of Association from transferring unclaimed dividends to any funds or other accounts before the expiry of a year and that this had been done to companyer up the fictitious entries.
The question whether the Bank was eligible or number for a licence was still left undecided after listing irregularities found under fourteen heads.
On 22 7 1958, the Official Liquidator brought to the numberice of the Company Judge an elaborate report A 9 , dated 10 5 1957, made by M s. D. D. Joshi Co., Auditors, appointed by the Direction of the Bank themselves.
The total.
During the pendency of the applications for certi fication, under Article 133 of the Constitution, for appeals to this Court, another founder Director, P. A. Tendolkar died, 10 8 1966, so that his legal representatives were substituted for subsequent proceedings.
C. Sundraswamy, Rameshwar Nath and K. Suryanarayana It Rao, for the appellants in C. As.
234 and 300 .
3 6 in C.A. No.
The Chartered Accountants were unable to ascertain the exact amounts misappropriated.
Shri V. R. Kothagi, an Advocate of Belgaum, was appointed as Special Officer of the Bank under Section 37 3 of the Act, with powers to file suits.
An interim order was passed by the Bombay High Court granting moratorium for a period of two months and staying all actions against the Company for this period.
2 , who stated that he had been appointed to examine and audit the accounts of the Company by the Board of Directors, at the instance of the CID, for the period from 1948 onwards, had proved the companytents of his report A9 dated 10 5 1957.
4 who, as indicated above, had been appointed as the Special Officer, under Section 37 of the Act, and who func tioned from 7 12 1954 to 4 4 1955 in that capacity, had duly proved and was fully cross examined about the admissions made in writing Ex.
No objection had been taken on behalf of the Directors to the admissibility of any of the reports or other documents, exhibited on behalf of the Official Liquidator.
The seventh Director, R. Kalghatgi, took charge of his office in July, 1953, on the death of his elder brother G. N. Kalghatgi.
The Bank, incorporated on 27 5 1939, companymenced business on 6th October, 1939.
These proceedings were instituted by the Official Liquidator against seven Directors, including the Chairman of the Board of Directors and the Managing Director, and the Cashiers, the Accountant, too Branch Managers, another officer, and an auditor of the Supreme Bank of India Ltd., Balgaum, hereinafter referred to as the .Bank under liquidation.
1 in C. As.
Before the Company Judge companyld give his decision, on 8 11 1963, S. G. Pant, the Chairman of the Board of Directors, had expired on 29 8 1961, and D. R. Angolkar, Director, had died on 10 10 1962.
On 13 9 1954, a very detailed inspection report A 3 , under Section 35, sub.s 1 of the Act, carried out on 26 3 1954, was sent by the Reserve Bank to the Bank, with a companyering letter, in which the following companyclusion was recorded On the basis of the above report, it appears that the banking companypany is companyducting its affairs in a manner detrimental to the interests of its depositors.
P. A. Tendolkar, D. R. Angolkar, and L. S. Ajgaonkar, were promoter or founder Directors.
G. Pant, the Chairman of the Board of Directors, S. K. Sawant, the Managing Director from July, 1946.
under Section 45H of the Banking Companies Act, 1949, hereinafter referred to as the Act , read with Section 235 of the Indian Companies Act, 1913, hereinafter referred to as the Act of 1913 had been modified by a Division Bench.
Thus, the prayer for relief companyered every type of order the learned Company Judge companyld companysider fit and proper to meet the needs of the case.
The Judgment of the Court was delivered by BEG, J. These are five appeals by grant of certificates under Article 133 1 a of the Constitution by the Mysore High Court where the orders of the learned Company Judge, in misfeasance proceedings.
It was asserted there that the Auditors report had also companycealed the true, facts and that this was a deliberately fraudulent companyduct.
3 , Auditor, was examined by the Official Liquidator to prove and support the companytents of his report A. 21 dated 16 2 1955.
In addition to the companysiderable evidence given by the witnesses mentioned above, the learned Company Judge, in order to give the fullest possible opportunity to the Directors to meet the prima facia case of misfeasance, by misconducting the affairs of the Bank in a manner which companyld number be honest and which caused heavy losses to the Bank, had ordered the Directors, who had produced numberwitness in defence, to appear and give evidence in companyrt, particularly because the defence of the Directors seemed to the learned Judge to be proceeding on the wrong assumption that the whole burden of proof rested upon the liquidator.
The Official Liquidator had prayed that the Court may be pleased to take companynizance of the application against the Respondents and examine their companyduct and direct them all or such of them as may be hold liable, particularly or generally, severally or jointly, and, in such manner as it may deem just, fit, and proper, to repay and restore the money of the Bank, together with interest, or, to companytribution such amounts to the assets of the Company by way of companypensation in respect of misapplication, retainer, misfeasance or breach of trust as the Court may deem just.
The Managing Director Shri S. K. Samant.
Under the directions of the Bombay High Court the Reserve Bank deputed Shri Amrit Lal Bhatia to inspect the records and the workingof the Bank and to submit a report under the proviso to sub.s 2 of Section 37 of the Act.
It showed that the total liability of the Bank, excluding its share capital, amounted to Rs.
The sixth Director, R. W. Forwal, joined the Board in 1961.
The Bank was given an opportunity to make a representation against the report.
S. Desai and P. C. Bhartari, respondent No.
This report, submitted on 13 1 1955 A 4 , disclosed a deplorable state of accounts which companytained a number of false and fraudulent entries, want, of supervision by either the officials or the Directors, unauthenticated erasures and alterations in the accounts, and a shortage of cash to the extent of 2.01 lakhs.
A. 25 by S. K. Samant.
26,000/ due to the Com pany, and were guilty of Misfeasance,, breach of trust, and fraudulant companyduct in relation to the Company.
1 in C.A. No.
Out of the seven Directors mentioned above, five, namely.
3.75 lakhs has been traced from various sources.
14.83 lakhs.
73,500 i.e. after deducting Rs.
that the Directors and the employees of the Bank had misappropriated or become liable or accountable for a total sum of Rs.
A list of cash deficits and fictitious entries who also given here.
It said So far an amount of Rs.
On 13 3 1956, a provisional liquidator was appointed, and, on 16 4 1956, the Bank was ordered to be wound up.
Shri K. Y. Wagle PW.
38,000 for the amounts already realised from Samant .
After this report, the Bombay High Court rejected the application for further moratorium and for a reconstruction of the Company.
The remainder was, apparently, meant to be companyered by the third issue.
Here, after a survey of the Banks history and companyduct of its affairs by its Directors and officers we find, among the companyclusions, recorded The Directors, by accepting a responsibility which they never intended to accept, laid the foundation for the fraud.
