TaxTMI 
TaxTMI 
1965 (8) TMI 51
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....onsideration in this appeal, which are of general and considerable importance, and not free from difficulty, it is necessary and we shall refer to the facts leading up to the present appeal. The Hanuman Bank Ltd. (in liquidation) was incorporated as a public limited company under the Indian Companies Act, 1913. The subscribed J and paid up capital is stated to be Rs. 5,75,000 and Rs. 4,31,000 respectively. It is needless to refer to the circumstances leading to the creditor's petition for winding up, which was presented on July 26, 1947. A provisional liquidator was appointed on August 19, 1947, and the final order, directing the bank to be wound up, was passed on November 5, 1947. By an order dated January 12, 1948, the present respondents, Messrs. Brahmayya and Company, were appointed the official liquidators. The lather of the present appellants, one Dewan Bahadur Swaminatha Iyer, a retired Chief Engineer of the Madras Government, was a director of the bank, and, according to the liquidators, intimately connected with the management of the bank, till its crash. While, under article 52 of the articles of association of the bank, the general supervision and control of the busin....
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.... bank by reason of improper loans and advances was estimated at about Rs. 11,12,947. In all, under three counts, the loss to the bank was totalled at Rs. 14,08,647. The liquidators initiated proceedings under section 235 of the Indian Companies Act, 1913, by way of misfeasance summons in Application No. 2826 of 1960 against the directors and officers of the bank, charging the respondents therein with acts of misfeasance, misapplication of funds, breach of trust, etc. The enquiry in the application was protracted, and when arguments on the application were coming to an end, and no orders had been passed, Swaminatha Iyer above referred died on August 16, 1959,. On his death, following the decision of this court in Peerdan Juharmal Bank Ltd., In re [1958] 28 Comp. Cas. 546 , i t was held that the application under section 235 of the Companies Act could not be continued against the legal representatives of Swaminatha Iyer in those very proceedings. In Peerdan Juharmal Bank Ltd.'s case (supra) the question directly arose for consideration, whether proceedings initiated under section 235 of the Indian Companies Act against a director of a bank ordered to be wound up could be continued....
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....inary and go to the root of the matter. Apart from challenging the factual basis on which the claim is made, and questioning the liability of Swaminatha Iyer himself in law, the appellants, who are the legal representatives of Swaminatha Iyerj contend, inter alia, that, in a case of the present kind, the cause of action does not survive the death of the director against his estate. It is further contended that the claim preferred in 1963, assuming that it is otherwise tenable, is hopelessly barred by limitation. There is also a plea that the dismissal of Application No. 2826 of 1950 would bar the present proceedings. The propriety of challenging the release deed executed by Swaminatha Iyer, which would properly come under section 53 of the Transfer of Property Act, by an application under section 45B of the Banking Companies Act, was also questioned. So far as the validity of the deed of release executed by Swaminatha Iyer is concerned, it is agreed before us by the counsel for the official liquidators and the counsel for the appellants, that this question may be left over for consideration, if and when the bank in liquidation makes out its claim against the estate of Swaminatha....
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....nies Act. The learned judge negatived the contention of the appellants that the claim against them as legal representatives of Swaminatha Iyer was barred by limitation, holding that the cause of action against the legal representatives arose only after the death. It was held that clause (i) of section 45-O of the Banking Companies Act would save it and that the claim was within time. Now, in this appeal before us, though the memorandum of grounds raised a number of contentions, the arguments were confined to two principal contentions, namely, (i) the extinction of the cause of action with the death of Swaminatha Iyer, and (ii) the bar of limitation, the entire claim being out of time. When the appeal was opened, Mr. S. Swaminathan, learned counsel appearing for the respondent-official liquidators, raised a preliminary objection to the maintainability of the appeal. In the memorandum of the grounds of appeal, as preferred, the provision of law under which the appeal was preferred was indicated as clause 15 of the Letters Patent. However, when the appeal was taken up, after due notice to the respondents, an application in C. M. P. No. 8004 of 1965 was taken out by the appellant....
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.... "any order or decision" and that "decision " meant only a pronouncement or determination on a controversy. In our view, there is nothing to limit the scope for appeal under section 45N of the Banking Companies Act to a decree or final order, as contended by the learned counsel for the liquidators. The fact that Part III-A is headed as "Special provisions for speedy disposal of winding up proceedings" cannot control the plain language of the section and take away a valuable right of appeal, which the words convey. The object, it is seen, is achieved in many ways, without encroaching on the provisions as to appeal. The headings in an Act of Parliament may be resorted to only to resolve any ambiguity in the words, but the effect of the plain words of a section, if there is nothing incongruous in their application according to their ordinary meaning with the rest of the provisions of the Act, cannot be curtailed by reference only to the heading. To a certain extent, the right of appeal is curtailed by the requirement as to value in the section itself. Then the jurisdiction under section 45B is exclusive and all embracive, and the exclusive jurisdiction to entertain and decide any c....
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....isions also, appealable; and the preceding word "any" has also to be given its due force in the context. The right of appeal conferred is a substantial and valuable right and the court should be slow to limit and cut down the prima facie operation of the words if it could be avoided. The only limitation that could be placed on the words in the context is that the order or decision should not be merely procedural in character, and that is the limitation that has been placed on these words as they occurred in section 202 of the Indian Companies Act, 1913 (section 453 of Act 1 of 1956). Section 202 of Act VII of 1913 ran thus: "Re-hearings of, and appeals from, any order or decision made or given in the matter of the winding up of a company by the court may be had in the same manner and subject to the same conditions in and subject to which appeals may be had from any order or decision of the same court in cases within its ordinary jurisdiction. " One argument on this provision for appeal had been that any order or decision to be appealable must, in view of the later provisions in the section, satisfy the requirements of clause 15 of the Letters Patent. But this limitation....
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....s nature and it provides for appeals against any order or decision made or given in the matter of the winding up of a company. Therefore, the first fact which strikes one is that the legislature attached particular importance to the winding up of a company and made orders, made in the course of the winding up, subject to appeal Another important fact that must be borne in mind in construing section 202 is that it is not only any order in the matter of the winding up which is made appealable, but every decision in the matter of the winding up, and the importance of its being made appealable can be realised from the fact that under section 199 the Act provides that all orders made by a court may be enforced in the same manner in which decrees of such court made in any suit pending therein may be enforced. Therefore, the legislature; knew the distinction between an order and a decision, and whereas section 199 talks of how an order should be enforced, section 202 does not limit the right of appeal merely against an order, but also confers that right of appeal against a decision. In our opinion, the right conferred is not only a substantial right but a very valuable right and the court....
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.... Indian Companies Act, and not proceedings under the Banking Companies Act; and all that was laid down in that decision was that the right of appeal conferred by section 45N was limited to orders in original civil proceedings contemplated by the Banking Companies Act, and did not extend to orders passed in civil proceedings u nder the Indian Companies Act. Mr. V.K. Thiruvenkatachari, learned counsel for the appellants, contended that the order appealed against in the present case would also be a judgment under clause 15 of the Letters Patent. The definition of a judgment under the Letters Patent, as enunciated in Tuljaratn Ro w v. Alagappa Chettiar [1912] ILR 35 Mad. 1 (FB) was relied upon, and it was submitted that the definition of judgment in Tuljaram's case (supra) has been adhered to by this court ever since. There has been a conflict between the various High Courts as to the meaning of "judgment" under clause 15 of the Letters Patent, and this conflict is noticed by the Supreme Court in Asr umat i Debt v. Kumar Rupendra Deb Rajkot [1953] SCR 1159, Shankarlal Aggarwala v. Shankarlal Poddar [1965] 35 Comp. Cas. 1 (SC) and State of Uttar Pradesh v. Dr. Vijay Anand [1962] 45 I....
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....or proceeding, I think the adjudication is a judgment within the meaning of the clause. An adjudication on an application which is nothing more than a step towards obtaining a final adjudication in the suit is not, in my opinion, a judgment within the meaning of the Letters Patent." The learned Chief Justice, while discussing the observations of Sir Richard Couch C.J. in Justices of the Oriental Gas Company's case (supra), was not prepared to say that, in order that a decision could be a judgment, it must be one which affects the merits by determining some right or liability; but, according to the learned Chief Justice, whatever its form it must terminate the suit or proceeding. However, in Tuljaram's case (supra) Krishnaswami Aiyar J. observed: "But I do not think we shall be justified in confining the term 'judgment' to final disposal of suits, appeals or original petitions or proceedings in execution. Preliminary or interlocutory judgments which ascertain rights and direct further enquiries which determine liabilities though further directions are given for ascertaining the measure of those liabilities must be deemed to fall within clause 15. " Now, White C.J. in the sa....
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....f. This two-fold requirement of a judgment under the Letters Patent is re-stated again in another Full Bench case of this court in Southern Roadways v. Veeraswatni Nadar [1964] 1 MLJ 25 (FB), whe re it is observed at page 29 that the decision in Asrumati Debt v. Kumar Rupcndra Deb Raikot [1953] SCR 1159 substantially proceeds on the basis that an order by the court which relates to a suit, but which has the effect of keeping that suit alive cannot be regarded as a final judgment. Again in Cork Industries v . Govindarajulu Mudaliar [1964] 2 MLJ 265 this court has held that though an order would be a "judgment" against which an appeal is maintainable under clause 15 of the Letters Patent, the same cannot follow in regard to an order granting leave. In this state of the law, as the present appeal could, in our opinion, be sustained under section 45N of the Banking Companies Act, it is needless to examine the tenability of the appeal under the Letters Patent or the further question whether an appeal outside section 45N is open in civil proceedings under the Banking Companies Act, The present appeal fulfils the requirements of section 45N of the Banking Companies Act, both as to valuati....
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..... Strong reliance is placed on the scope of the maxim actio personalis mor itur cum persona stated by Bowen L.J. in Phillips v. Homfray [1883] 24 Ch. D. 439, 444 thus: "The only cases in which, apart from questions of breach of contract, express or implied, a remedy for a wrongful act can be pursued against the estate of a deceased person who has done the act, appear to us to be those in which property or the proceeds or value of property, belonging to another, have been appropriated by the deceased person and added to his own estate or moneys. " Elaborating the arguments, learned counsel covered a wide field, referring to the development of the law relating to liability in torts, the distinction between actions on contract and actions on tort, between implied contract and what is commonly referred to as quasi contract, and actions based on the obligations in the nature of trusts, provided for under Chapter IX of the Indian Trusts Act, referring particularly to section 88 of Indian Trusts Act. The arguments principally centered round establishing that the liability sought to be fastened on the representatives of the deceased in this case was, in fact, a liability in tort, and....
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....t, implied, if not express, or, at any rate, as breach of trust, or under quasi contract, and that in such cases the estate of the wrongdoer would be liable. Learned counsel argues that the maxim actio personates moritur cum persona is limited to personal wrongs arising. out of tort, and does not relate to the liability arising out of breach of trust, express, implied or constructive. It is submitted that the relationship between the director and the bank, apart from being contractual, was also fiduciary, and that any actionable negligence in respect of fiduciary obligations would be outside tort. Learned counsel points out that the liability in this case was sought to be made out not on negligence simpliciter of Swaminatha Iyer. As set out already, in the report filed by the liquidators in support of the application, averments are found that the managing committee, of which Swaminatha Iyer was a member, had toll control of the business of the bank carried on by the managing director, and that Swaminatha Iyer had a preponderating voice in the management ( of the bank. Certain documents have been exhibited in the case by the liquidators in support of their contention that Swaminatha....
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.... commenced against the wrongdoer himself in his lifetime. InRustomji D orabji v. Nurse [1921] ILR 44 Mad. 357 (FB) where it became necessary to refer to a Full Bench the question, whether in a suit for malicious prosecution, if the' defendant died more than a year after the prosecution in question, and before judgment, the right to sue survived within the meaning of Order XXII, Rule 1, of the Civil Procedure Code, so as to prevent abatement of the suit, on the order of reference, Wallis C.J. adverting to the maxim actio personalis moritur cum persona, observed thus : "That rule, which is of post-classical origin and is referred to in Pollock on Torts as barbarous, is far from embodying the principles of justice, equity and good conscience in so far as it deprives an injured party of redress if the alleged wrong-doer happens to die, as in the present case, before a decree has been obtained against him. It has not been applied to contracts, and has been limited by statute as regards torts affecting property." The Full Bench held that the Legal Representatives' Suits Act made no provision for the continuation of suits already begun by the wronged against the Wrong-doer in the ev....
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....ival of the right to sue for all kinds of tort, section 268 of the Indian Succesaion Act excluded causes of action for ( i) defamation; (ii ) assault under the Indian Penal Code; ( iii) other personal injuries not causing the death of the party and (iv) cases where the relief sought could not be enjoyed or granting it would be nugatory (say, restitution of conjugal rights). As the Succession Act did not apply to Hindus, Mohamadans or Buddhists, a similar provision was enacted in the Probate and Administration Act, 1881, by section 89, which runs as follows: "All demands whatsoever, and all rights to prosecute or defend any suit or other proceeding, existing in favour of or against a person at the time of his decease, survive to and against his executors or administrators, except causes of action for defamation, assault as defined in the Indian Penal Code or other personal injuries not causing the death of the party, and except also cases, where after the death of the party the relief sought could not be enjoyed, or granting it would be nugatory." Then we have section 306 of the Indian Succession Act (XXXIX of 1925) more or less in the same terms as the provisions of the Succe....
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....the applicability of section 306 to heirs. We have referred above to the statutory modifications of the rule in India, which, as is apparent, leaves much to be desired. The general rule at common law in England was that the maxim had no application to any breach of contract except breach of promise to marry. Several exceptions to the applicability of the maxim were introduced in England by statutes in the case of claims to property arising out of tort. The Administration of Estates Act, 1925, section 26(2) and (5), replacing 4 Edw. 3, c. 7, and the Civil Procedure Act, 1883, section 2, made considerable inroads on this rule by permitting actions to survive for the benefit of the estate if based on wrong to the deceased's real estate, and to survive against the estate if based on wrongs committed by the deceased to the property of other persons, subject in each case to a special period of limitation. There was the Fatal Accidents Act, 1846, commonly known as Lord Campbell's Act, which gave right of action by executors or administrators for the benefit of the relatives specified in the Act, corresponding to the Indian Fatal Accidents Act (XIII of 1955). Subject to these exceptions....
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....his. If one has the habit of looking on a wrong as something very like a crime, it is a natural inference that nobody ought to be liable for it except the man who committed it. True, the argument is not so strong where it is the plaintiff in trespass who dies. Why should not his successors sue the defendant if he is still alive ? The answer apparently is that the rule that an appeal perished, whether it was, the appellor or appellee who died, seems to have infected the law as to transmissibility of the action of trespass, and the infection passed from trespass to actions in tort generally,". The learned author, referring to the maxim actio personalis moritiur cum persona itself, observes at page 118: "The maxim is derived from neither Roman law nor the Canon law. Bracton was unjustly accused by a later generation of its parentage. Others have hinted that Coke invented it, but that is not so, though it is just the sort of thing that was a savoury bakemeat in his mouth. It cannot be traced in the Year Books earlier than 1479. It gradually came into use and it was discussed judicially in Pinchon's case (supra) and in Hambly v. Trott [1776] 1 Cowp. 371, and in later cases which w....
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....ise to an equitable (as opposed to a legal) claim in the parties injured, and on the ether hand it is remediable by proceedings in the Chancery Division, and not by an action for damages at law." In Winfield on Tort, at page 7, it is stated thus: " The duty in tort is towards persons generally: The emphasis here is to be laid upon ' generally.' If the duty is towards a specific person or specific persons, it cannot arise from tort. There the duty is always general. Thus, I am under a duty not to commit assault, or battery, or any other tort against any one who can sue me in any court which can entertain the action. My duty not to commit a tort is not limited to John or to Mary or to any other named person or persons. This element of generality is an important factor in the definition and it is sufficiently workable in the majority of cases, but it must be admitted that in some instances it is hard to say who exactly are ' persons generally.'" In Salmond on Jurisprudence, eleventh edition, the sources of obligations in English law are divided into four classes: (1)Contractual- Obligationes ex contrac tu. (2)Delictal-Obl igationes ex delicto. (3)Quasi-contractual-Ob....
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.... 14 dealing with rights directly created by law, the learned author states, at page 307; "The right of contract arises directly from a juristic act. Other rights are granted by the law, whether the person bound by the duty consents or not. The American Restatement contrasts three broad branches-contract, tort and restitution. In contract the underlying postulate is that a person shall obtain what was freely promised ; in tort that a person has a right not to be harmed by an unlawful act; in restitution that a person has a right to have restored to him a benefit gained at his expense by another, if the retention of that benefit would be unjust. Since both in tort and restiturtion the rights do not arise from consent but are granted by the law, there will naturally be some overlapping of the boundaries in actual systems." It may be stated that, till the nineteenth century English law possessed no classification of personal actions, being content with the enumeration provided by the forms of action. In Phillips v. Homfray [1883] LR 24 Ch. D. 439 the tort was waived, and action was laid for recovery of the proceeds of the wrong to avoid the application to the case of the maxim ac....
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....ivasan [1962] 3 SCR 391; [1963] 1 An. WR (SC) 14; [1962] 2 SCJ 676; [1963] 1 MLJ (SC) 14; AIR 1962 SC 232 At p age 19 of the report, after referring to the true legal position under section 52 of the Code of Civil Procedure, and Order 22, rule 4, sub-rule (2), of the Code of Civil Procedure, which provides that the defence which the legal representatives can make has to be appropriate to their character as legal representatives, it is observed: "That emphatically brings out the character of the contest between the legal representatives and the appellant. The appellant in substance is proceeding with its claim originally made against the deceased Raja Bahadur and it is that claim which respondents Nos. 2 to 12 can defend in the manner appropriate to their character as legal representatives." Their Lordships referred, with approval, to the statement in Salmond's Jurisprudence on this aspect of the matter, that: "Inheritance is in some sort a legal and fictitious continuation of the personality of the dead man, for the representative is in some sort identified by the law with him whom he represents. The rights which the dead man can no longer own or exercise in propria person....
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....ectors and the company. It is sufficient for our purpose to hold that the management of the business was vested in the managing committee and the managing committee had control over the funds of the bank. The cause of action relied upon is not mere negligence, but a breach of duty, specifically undertaken by accepting the office as director and a member of the managing committee. Reference was made by learned counsel for the appellants to Letang v. Cooper [1964] 2 All. ER 929, pointing out that the tort of negligence is firmly established. Certain observations in the decision were referred to, but we find that they are of little help to the appellants in the present case. The question there was as to the applicability of the provisions of the Law Reform (Limitation of Actions, etc.) Act, 1954, which ran thus: "Provided that, in the case of actions for damages for negligence, nuisance or breach of duty (whether the duty exists by virtue of a contract or of a provision made by or under a statute or independently of any contract or any such provision) where the damages claimed by the plaintiff for the negligence, nuisance or breach of duty consist of or include damages in respect o....
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....s absent, the duty to exercise skill is only contractual, as with accountants, architects and surveyors, auctioneers, bankers, company directors, insurance brokers ..." It was pointed out that the recent case of the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] 2 All. ER 575; [1964] 34 Comp. Cas. 96 (HL) established that there was no distinction between cases in which there is a prospect of physical injury and cases in which there is a prospect of financial loss. Learned counsel pointed out that even when financial loss is caused, and there is no physical injury, the liability could be in tort. Our attention was drawn to the Cumulative Supplement {1964), to the third edition of Halsbury's Laws of' England, where, with reference to the passage in Halsbury's Laws of England above cited, the Supplement states as follows (for paragraph 17 of volume 28): "There is no distinction between cases in which there is a prospect of physical injury and cases in which there is a prospect of financial loss. A person exercising a profession or calling is liable for failing to exercise due care and skill despite the absence of contractual relationship, if the perso....
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.... of a company. It provides that, where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, avails himself of his character, and gains for himself any pecuniary advantage or, where any person so bound enters into dealings under circumstances in which his own interests are, or may be, adverse to those of such other person, and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained. While, under section 88, a person in a fiduciary position, who had gained an advantage to himself, would be compelled to disgorge the gain, so as to benefit the person whose interest he was fiduciarily bound to protect section 95 of the Indian Trusts Act equates his position to that of a trustee in respect of his liabilities and disabilities. Section 95 runs thus: "95. The person holding property in accordance with any of the preceding sections (from section 80 onwards of Chapter IX, of certain obligations in the nature of trusts) of this Chapter must, so far as may be, perform the same duties, and is subject, so far as may ....
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....m are only exercisable in this fiduciary capacity." No doubt, as pointed out by Palmer, the fiduciary relationship of a director exists with the company; a director is in no sense a trustee for individual shareholders. Passages to similar effect are found in Buckley on the Companies Acts, thirteenth edition. At page 864 it stated: "The directors of a company fill a double character. They are ( i) agents of the company, and (ii) trustees for the shareholders of the powers committed to them." Expanding the latter, at page 865, instances of the powers are given, as, for instance, of the power of approving transfers of shares; of the power of allotment of shares; of the power of employing the funds of the company; of the power of making calls; or receiving payment of calls in advance; of the power of forefeiting shares, etc., and it is pointed out that as trustees they may be rendered liable for their misuse of their powers. It comes to this that the directors are trustees with reference to their powers of employing the funds of the company, and for misuse of this power they could be rendered liable as trustees. For the purpose of the present discussion it is unnecessary to....
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....dervalue)." The distinction as to cases in which there is no survival of causes of action is found at page 182 of the book, where it is stated: "In regard to actions for deceit and other wrongs, the principle actio personalis moritur cum persona may be mentioned. Under this principle, with regard to actions for wrongs, independent of contract, done either to or by a deceased person in his lifetime, his legal personal representative could neither sue nor be sued. This is still so in some cases, e.g., defamation. Even at common law this principle is subject to the modification that where loss results to the estate of the plaintiff or direct profit to that of the defendant, the action survives to the extent of the loss or profit." In Williams on Executors and Administrators, fourteenth edition, volume 2, referring to the liability of the executor or administrator in respect of the acts of the deceased, the legal position is thus enunciated at page 1009: "The law which governs this subject is based partly upon the characteristics which surrounded the ancient forms of action. Some forms of action, such as debt, trespass and trover, did not at common law survive against perso....
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....iability that is sought to be agitated in the present proceedings, the learned author points out, is not in tort, but on a different footing. Of course, as pointed out by the learned author, at page 1017, the procedure by summons may not survive the death. In Flitcroft's case (supra), the directors of a limited company for several years presented to the general meetings of shareholders reports and balance-sheets in which various debts known by the directors to be bad were entered as assets, so that an apparent profit was shown though in fact there was none. The shareholders, relying on these documents, passed resolutions declaring dividends, which the directors accordingly paid. An order having been made to wind up the company, the liquidator applied under section 165 of the Companies Act, 1862, for an order on the directors to replace tile amount of dividends thus paid out of capital. Referring to the position of directors. Bacon V.C. observed: "One must have regard to the position of directors of a joint stock company. It is said they are not trustees. Answering that objection in general, I should say they are trustees and nothing else. They have interests of their, own, bu....
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....ors of a company advanced some Honeys of the company upon an unauthorised security, and two sums so lent were lost. One of the directors, against whom a judgment had been obtained by the company for the amount lost, commenced the action claiming contribution from his co-directors and the administrator of one of his co-directors, who had died since the issue of the writ. On behalf of the deceased director the claim for contribution was sought to be met with the plea that inasmuch as the director was dead, his estate could not be made. liable. Pearson J. overruled the objection observing: "It was undoubtedly a bold contention, and if it succeeded, the result would be that any defaulting trustee would have only to die, and his estate would cease to be liable for his misfeasance. Not only is there no authority for such a proposition, but it seems to me that it would be most pernicious to allow it." This decision is sought to be distinguished for the appellants as a case of claim for contribution by one of the directors, who had been called upon to pay the amount by the company. But the court had to go into the question of the primary liability of the deceased director to the comp....
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....ch is a dear decision of this court on this very point. The liability of a director, in the case supposed being treated as a breach of trust, I apprehend that the Statute of Limitation would not apply, even after a director had ceased to be a director." At page 170 of the report, there is a further observation, in considering what interest should be awarded, that: "The trustee is treated as if he had the funds still in his hands." In In re Faure Electric Accumulator Company [1889] LR 40 Ch. D. 141, it is observed that of the directors of a limited company apply the money of the company for purposes so outside its powers that the company could not sanction such application, they may be made personally liable as for a breach of trust but if they apply the money of the company, or exercise any of its powers, in a manner which is not ultra vires, then a strong and clear case of mis fe asance must be made out to render them liable for a loss theseby occasioned to the company. Kay J., discussing the real position of the directors of a joint stock trading company, on a summons under section 165 of the Companies Act, on the liquidation of the company, while no imputation whatever ....
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....the scope and limitation of the maxim. It related to the estate of a father who, under the law of Peru, was entitled to administer the estate of his infant child, and to receive for his own benefit the income during the child's minority. It was alleged in the case that the father, during the infancy of his daughter, improperly sold a part of her property for much less than it proved to be worth. After his death the daughter claimed compensation out of his estate for the loss occasioned by the disadvantageous sale. It was held that the father stood in such a fiduciary position towards the daughter that the rule actio personalis moritur cum persona did not apply to the demand, and that, as the sale tad been made without justification, the father's estate must account for the amount which would have been received from the property had it been retained in specie. It should be noted that it was not a case of any unjust enrichment and the estate of the wrongdoer had not benefited by the sale. Dealing with the applicability of the maxim actio personalis, etc., Cotton L.J. observed at page 553 : "It is true that no action for a tort can be revived or commenced against the representative....
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....r control; and ever since joint stock companies were invented directors have been held liable to make good moneys which they have misapplied upon the same footing a if they were trustees, and it has always been held that they are not entitled to the benefit of the old Statute of Limitations because they have committed reaches of trust and are in respect of such moneys to be treated as trustees." Kay L.J. observed at page 638: "Now, case after case has decided that directors of trading companies are not for all purposes trustees or in the position of trustees, or quasi-trustees, or to be treated as trustees in every sense; but if they deal with the funds of a company, although those funds are not absolutely vested in them but funds which are under their control, and deal with those funds in a manner which is beyond their powers, then as to that dealing they are treated as having committed a breach of trust. I do not believe that there has ever been any deviation from the language of the late Sir George Jessel in the case of In re Forest of Dean Coal Mining Company [1878] LR 10 Ch. D. 450. Sir George Jessel said this: 'Directors are called trustees. They are no doubt trustee....
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.... assets, because it was, at the most, a mere personal default productive of no benefit to his estate. Two well- known cases were cited in support of this contention-Overend, Gurney & Company v. Gurney [1869] LR 4 Ch. D. App. 701 and Peek v. Gurney [1873] 6 HL Cas. 377, 393. But neither of those cases are on all fours with the present case. In the first case Lord Hatherley, in his judgment, says that he would have decided differently if the charge had been one of a breach of trust in the disposal of money actually entrusted to the care of the defendants. In the second case Lord Chelmsford, in his judgment, expressly stated that the case before him was not one of bread of trust, but of inducing people to subscribe by deceit and misrepresentation. The present case is one distinctly of breach of trust; and the English law is clear on that point. It is laid down by Sir W. Grant in Montfort v. Cadogan [1810] 17 Ves. 489, where he says: 'A question was raised by Cadogan's executors, whether, as this was a mere personal default productive of no benefit to his estate, his assets are liable to make compensation/ But in Scurjield v . Howes [1790] 3 Bro. C.C. 90, the trusteed estate had der....
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....red to pay in misfeasance proceedings a sum of money, he can be arrested in execution proceedings, though he was a pauper and was quite unable to raise the money to discharge the decree. This court held that the director of a company occupied a fiduciary position with regard to the members of the company, and relied upon the above cases of New Fleming Spg. & Wvg. Co. Ltd.'s case (supra ) and Ramaswami v. Streeramulu Chetty [1896] ILR 19 Mad. 149. Our attention has not been drawn to a single case where a claim against a director, based on a breach of trust, has been held not to survive against his estate in the hands of his legal representatives. In Phillips v. Homfray [1883] LR 24 Ch. D. 439, 454, the cause of action was in tort, and there was no pre-existing fiduciary relationship. It was not a case of a breach of trust, and Bowen L.J., taking up for consideration the true limit and meaning of the rule that personal action dies upon a defendant's death, and whether there was, or could be, in the circumstances raised by the case, a profit received by his assets, which the plaintiffs could follow, observed at page 454: "The only cases in which, apart from questions of breach o....
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....en suffered by the bank due to tortious acts, independent of contract, committed by the deceased director. Jai Lai J., dealing with this contention, observed: "In the first instance, I do not agree that the suit is for compensation merely for a tort committed by Hargopal. It is a suit for breach of a fiduciary obligation towards the bank by Hargopal and thus arises out of the breach of a quasi-contract. Hargopal was one of the local directors of the bank and according to the rules governing the conduct of the local directors he was not competent to sanction this loan and he defied those rules' fraudulently. Such rules must be deemed to be a contract between the bank and Hargopal. Secondly, it may be that, as was contended by respondent's counsel, according to the English law, a suit for compensation for a mere tort does not survive against the legal representatives of the person who committed the tort, but the law in India appears to be different in this respect. " Reference was made to the decision in Phillips v. Homfray [1883] LR 24 Ch. D. 439 and the observation of Baggallay J. in that case and of Cotton L.J. in Concha v. Murrieta [1889] LR 40 Ch. D. 543, which we have ref....
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....ench of this court, cited above, as to the limitations in the applicability of section 306 of the Indian Succession Act, we would rest our decision that the cause of action survives in a case like the present against the legal representatives on other grounds. The foundation of the liability is not on mere tort, but on the breach of fiduciary relationship, the failure to perform duties undertaken by a person j in the position of a trustee. The liability in such cases is as on a breach of trust or, as observed by Cotton LJ in Concha v . Murieta [1889] LR 40 Ch. D. 543 on breach of a, quasi-contract. Not being laid on tort, in the light of the foregoing discussion, the maxim actio personalis moritur cum persona does not apply to the present claim by the liquidators, and there is survival of the claim against the appellants. Of course, we do not say that the maxim has no application at all to cases outside torts. Contracts of purely personal nature, such as contracts for personal service, will get discharged by the death of either party. Claims for restitution of conjugal rights, custody and the like, will also get extinguished. But it will be seen that the extinction is by reason ....
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....d till the crash of the bank. Under the third count, improper advances, fictitious advances of loans, by the managing director to cover up fraudulent abstraction of funds, etc., the liability starts, the earliest, from 8th March, 1945. There can be no doubt that prior to the Banking Companies Act, as the summary procedure under section 235 was not available against representatives, action against representatives would be governed by the law relating to the limitation of suits in such cases. It is only by virtue of the provisions of the Banking Companies (Amendment) Act (52 of 1953), which came into force on 30th December, 1953, giving exclusive jurisdiction to the High Court, that proceedings against representatives have been initiated under the provisions of sections 45A and 45B of the Act. The Banking Companies (Amendment) Act (52 of 1953) was preceded by an ordinance containing similar provisions, the ordinance coming into force on 24th October, 1953. The principal contention on behalf of the appellants is that, as on 24th October, 1953, all the claims against the representatives in respect of the cause of action would be barred by limitation. It is contended that the appr....
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....ons of this section, in so far as they relate to banking companies being wound up, shall also apply to a banking company in respect of which a petition for the winding up has been presented before the commencement of the Banking Companies (Amendment) Act, 1953." Part III-A, now current, in which section 45-0 is found, was brought in as an amendment of the Banking Companies Act, 1949, Act 52 of 1953 substituting the present Part III for the former Part III. Amended Act 52 of 1953 came into force on 30th December, 1953. The amending Act was preceded by an ordinance . Ordinance No. 4 of 1953, dated 24th October 1953, containing similar provisions. It is the interpretation of section 4S-O as found in the ordinance dated 24th October, 1953, and subsequently replaced in the Act, that we are now called upon to consider. A reference to the prior provisions of law relating to the banking companies is, in our view, necessary. The Indian Companies Act of 1913, as originally enacted, applied to all kinds of companies, including banking companies. Summary proceedings for misfeasance, breach of trust, etc., against delinquent directors and officers of the company were provided for under se....
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....by section 2 that the provisions of the Act shall be in addition to, and not, save as otherwise expressly provided by the Act, in derogation of the Companies Act and any other law for the time being in force. This has replaced Part X-A of the Companies Act. In the Banking Companies Act, as originally enacted. Part III-A, providing for certain special provisions for speedy disposal of winding up petitions, was not present. By Ordinance 23 of 1949, Part III-A, consisting of sections 45A to 45H, was first inserted in the Act on 19th September, 1949. This was later replaced by the Banking Companies (Amendment) Act of 1950, which came into force on 18th March, 1950. The Amending Ordinance of 1949 and the Amendment Act of 1950 introduced into the Act a special provision in regard to limitation, providing an extended period in certain cases. Section 45F of Part III-A runs thus: "Notwithstanding anything to the contrary contained in the Indian Limitation Act, 1908 (9 of 1908), or any other law for the time being in force, in computing the period of limitation prescribed for any suit or application by a banking company, the period of one year immediately preceding the date of the order f....
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.... which a petition for the winding up has been presented before the commencement of the Banking Companies (Amendment) Act, 1953. The language is quite clear that the section applies to winding up proceedings in respect of a banking company, which were pending at the time the Act of 1953 came into force, having commenced on a winding up petition presented before the commencement of the Act. To take up first sub-clause (1) of section 45-O, it will be seen that, while the earlier Act 20 of 1950 provided for the exclusion of a period of one year, immediately before the date of the order for winding up, in the computation of the period of limitation, the effect of sub-clause (1) is to arrest the running of limitation after the presentation of the petition for winding up of the banking company. One of the principal contentions of Mr. V.K. Thiravenkatachari in regard to the effect of section 45-Ois that sub-clauses (1) and (2) are mutually exclusive. It is the contention of the learned counsel that sub-clause (2) provides for a special period of limitation as regards claims against directors, and that sub-clause (1) would apply only to claims against others by the banking company. Now, ....
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....of companies, who had been in a special position of privilege and responsibility in relation to the banking company, are placed in a special category, and limitation of claims against them are dealt with under this sub-clause. Sub-clause (2) deals with three classes of claims, namely, (i) recovery of arrears of calls from any director of a banking company which is being wound up; (ii) enforcememt by the banking company against any of its directors of claims based on, ft contract, express or implied; and (iii) all other claims by the banking company against its directors. With regard to claims falling under the first and second classes, all periods of limitation are ruled out. With regard to all other claims which could be made against a director, they would fall under the residuary class, and in respect of these a longer period of limitation than generally available under the ordinary law is provided, the period of limitation being twelve years from the accrual of such claim. By the amendment in 1959 a further enlarged period of limitation is provided so that even if the twelve-year period had expired, the liquidator could take action within five years from the date of the first ap....
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....future. One can visualize, and it is not unlikely, the twelve-year period expiring just before the presentation of the winding up petition. In respect of such a claim sub-clause (1) would be of no avail, and only the amended provision of sub-clause (2) would enable the liquidator to take the necessary action in that case within five years of his appointment, the latter being a more favourable mode of computation. In such cases, as sub-clause (1) cannot come into play, there is no incongruity or repugnancy. When sub-clause (1) comes into effect, then the latter amended part of sub-clause (2), providing a period of five years from the date of the first appointment of the liquidator, will have no application, it being totally unnecessary and not called for to maintain the claim. If the cause of action was subsisting on the date of the presentation of the petition for winding up, time would cease to run, be it the twelve-year period of limitation available as a bar to a director or any other period of limitation that may be available to the opposite party, if he happens to be a non-director. To accede to the contention of the learned counsel for the appellants may bring in rather anoma....
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....trol of the company and its funds, with opportunity to conceal their misdeeds and acts of misfeasance, are not entitled to claim a liberal interpretation in their favour of the provisions of the statute relating to limitation. We see no reason to depart from the true intent and purport of the section, as apparent from its plain language, and to exclude the operation of sub-clause (1) to the law of limitation prescribed in sub-clause (2). In our view, even against directors and their representatives, apart from the special provision of sub-clause (2), sub-clause (1) also would apply. The application of sub-clause (2) does not necessarily call for the exclusion of sub clause (1). In this view, any claim against a director, which was subsisting on the date of the presentation of the winding up petition would be alive, and action could be laid thereon at any time during the winding up proceedings. Even in respect of claims against directors, there will be cessation of the running of time under section 45-O(1) from the date of the presentation of the petition for winding up. But this view, by itself, will not help the liquidators in this case, in view of the further contention on ....
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.... to the prejudice of the subject. But it is undoubted that Parliament has jurisdiction by statute or amendment of statute to affect the subject even in respect of past transactions to its prejudice. It may, and often, does so, by words leaving no possibility of doubt. It can, in certain cases, be a matter of pure construction, and may be self-evident' from the language of the statute. The real question for consideration in all cases is whether Parliament has, on a proper construction of the statute, expressed or sufficiently implied its intention of giving a retrospective force to its Act. Undoubtedly, it is an accepted principle of our law that in the case of alteration of a substantive law, as opposed to a mere procedural law, the intention adversely to affect the subject in the sense of depriving him of some accrued right or interest is not to be inferred unless the intention is either express or plainly to be inferred. In Ramanathan v . K andappa AIR 1951 Mad. 314, Rajamannar C.J., while considering the Limitation (Amending) Act (16 of 1942), observed : "We agree with Mr. N. Sivaramakrishna Aiyar, the learned advocate for the appellant, that the law of limitation applicab....
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....ubstantial rights by enacting laws which are expressly retrospective or by using language which has that necessary result. And this language may give an enactment more retrospectivity than what the commencement clause gives to any of its provisions. When this happens the provisions thus made retrospective, expressly or by necessary intendment, operate from a date earlier than the date of commencement and affect rights which, but for such operation, would have continued undisturbed." If the clear language of sub-clause (3) of section 45-O, without mutilating its application, could be limited to claims which were alive on the date of the Act, the court should do so. But when the retrospectivity cannot be limited unless by introducing into the words of the section limitation on its application, we are bound to give the words their plain meaning and effect. We have earlier set out the law before the Act was passed. The dominant purpose in construing the statute being to ascertain the intent of the legislature as expressed in the statute, and statutes not coming out in vacuo, but of the necessity and need of the occasion, the cause and necessity of the Act may properly be referred to....
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....ound in sub-clause (2) of section 45-0 was later removed by the amendment of 1959. Right through, it will be seen that the legislative effort had been to extend the period of limitation in favour of the bank, and there is nothing to be surprised at in this, as ultimately it is the innocent depositors of the bank that suffer in its crash. The 1936 amendment itself was to enlarge the period of limitation for applications under section 235, by providing that a liquidator may within three years from the date of his first appointment take action against directors, promoters, etc., in respect of misapplication, retainer, misfeasance or breach of trust. The result of the amendment was to enable the liquidator to take action under the section, even though the right of suit may be, barred under the Limitation Act. Sub-clause (3) of that section, which applied the Limitation Act to applications under the section, was deleted. Then, as now, a similar situation arose as to the time-limit for an application under section 235 of the Companies Act, and the question, whether the amendment of the Companies Act in 1936 would enable the official liquidators of a bank to claim compensation for a....
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....thing can be that the 1936 amendment of section 235 of the Indian Companies Act, 1913, was intended to affect the position of delinquent directors, and to affect it adversely ". Of course, the view as to retrospectivity taken in that case is to a certain extent, founded also on the discretion in the court under section 235 of the Indian Companies Act, to take up the view in any particular case that it would be unjust in that particular case to hold a director or other officers liable for some act of misfeasance which took place long ago. The principle of the above case has been accepted by Clark J. in Official Liquidator, S.S.R.S . Nidhi v. Krishnaswami Iyengar [1947] 17 Comp. Cas. 77 The question as to the retrospectivity of section 45-O was mooted in Brahmayya & Co. v. Mo hammed sa [1959] 29 Comp. Cas. 291 but the appeals were disposed of on another short ground, without discussing the retrospective operation of section 45-O(3). It may be stated, that the trial judge held that section 45-O (1) would apply only to cases where the claim was subsisting both on the date when the amendment Act of 1953 came into force and also on the date of the presentation of the petition fo....
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....D of the Act for adjudging the debtor concerned as a debtor of the bank in liquidation; but, where on the date of initiation of the liquidation proceedings, the debt has not been extinguished, then by virtue of section 45-O the debt will continue to subsist... In other words, the obvious intention of section 45-0 of the Act is that the period of limitation, as it were, remains suspended throughout the liquidation proceedings. " The point to be noticed is that in that case, the debt was alive, when the Ordinance 4 of 1953 came into force on October 24,1953. In Suburban Bank Ltd. v. Nistaran Chakrabart i [1954] 24 Comp. Cas. 273; AIR 1955 Cal. 172, 175 Bachawat J., then of the Calcutta High Court, had to consider the applicability of section 45-O(1) with reference to a pending suit by a bank which had gone into liquidation. The learned judge, observing that the legislature considered that a strict application of the existing law of limitation to claims by banking companies in liquidation was unjust and unreasonable, and setting out the history of the legislation, leading to section 45-0 by the Act 52 of 1953, states: "The object of the legislature being the extension of the ....
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....ghts which had already become barred before the date on which it came into operation, the learned Chief Justice states: "On this point it is significant to note that sub-section (3) of section 45-O makes the provisions of the section applicable only to a banking company in respect of which a petition for winding up has been presented before the commencement of the Banking Companies (Amendment) Act of 1953;but does not make the provisions of the section applicable to debts due to : the banking company which had become barred by lapse of time before the date of such commencement. Then again sub-section (1) of section 45-O provides that the period commencing from the date of the presentation of the petition for the winding up of the banking company shall be excluded and does not say that this period shall always be deemed to have been excluded. The use of the future tense in sub-section (1) indicates that the legislature did not intend its provisions to operate on decrees which had before the date of its commencement become unenforceable by lapse of time. There is, therefore, neither any express words nor any necessary implication in section 45-O to indicate that its provisions wer....
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....im in respect of it, if it had arisen earlier, was still within time." But in the Mysore High Court, Narayana Pai J. in In re Varthakavardhini Bank Ltd. [1964] 34 Comp. Cas. 225, 230-231 has held that the necessary intendment of the Banking Companies Act is that even if a claim is barred by the expiry of a period of limitation prescribed for its enforcement by any other law, that bar is removed by section 45-0(2). The learned judge holds that the net result of the provisions of section 45-0 is that claims which are governed by section 45-O(1) and in respect of which the provisions thereof can operate must he claims which are alive on the date of the presentation of the winding up petition. With reference to section 45-O(2), claims against the directors by a banking company, it was held that they were governed by section 45-O(2) only, and not sub-section (1), and that even dead claims were revived. In that case there were two hand-loans, one of the year 1936 and another of the year 1937, in respect of which the widow of the director was sought to be made liable. The winding up petition of the banking company was filed in November, 1944. The objection as to limitation of the claim....
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....e language of -section 45-O(2), it appears to me that the contention of Mr. Bopanna is unavailable. If the two conditions regarding the claim are satisfied, viz, that the claim is made by a banking company in winding up and that the said claim is made against its director, it is governed exclusively by the provisions of sub-section (2) of section 45-O, and, consequently, there is no limitation of time for its enforcement notwithstanding anything to the contrary contained in any other law. It may be noted that the said sub-section prescribes a period of limitation only in respect of claims falling under the third category and expressly declares that there shall be no period of limitation in respect of the first two categories of claims. So far as these claims are concerned, the position is not one of amending or extending or otherwise prescribing conditions for the application of a period of limitation prescribed by any other law but one of totally repealing the provision of every other law which may prescribe the period of limitation for their enforcement. If such is the effect, the necessary intendment of the statute, is that even if the claim is barred by the expiry of a period o....
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....rt from section 45-A making the provisions of Part III-A override all laws for the time being in force inconsistent with the provisions of Part III-A, section 45-O(1) and section 45-O(2), each start with a non-obstante clause, emphasising the overriding effect of the sub-clauses. The provisions of the Indian Limitation Act to the contrary are specifically excluded. We fail to see what other retrospectivity Parliament intended by providing sub-clause (3). In Maxwell on the Interpretation of Statutes, eleventh edition, it is stated at page 277: "The defence of lapse of time against a just demand is not to be extended to cases which are not clearly within the enactment while provisions which give exceptions to the operation of such enactments are to be construed liberally." In regard to the applicability, which is conceded, of sub-clauses (1) and (2) to banking companies in liquidation, and in respect of claims which were subsisting and alive on the date of the Act, there is no need for a special provision. A rule of limitation, being a law of procedure, is, as a rule, retrospective in its operation to this extent, that it governs all proceedings from the moment of its enactm....
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....ases the new law ought to be construed so as to interfere as tittle as possible with vested rights.' We wish to emphasise that it is not as if all efforts should be made so as-not to give a statute a retrospective operation whatever its language is. The rule does not require of the courts an 'obdurate persistence' in refusing to give a statute retrospective operation." As, in our view, not merely intendment, but by the plain and express language, sub-sections (1) and (2) have been made retrospective and applicable to banking companies already being wound up, we are unable to limit or curtail the operation of the statute to exclude from section 45-0(1) claims which were subsisting on the date of the presentation of the winding up petition, but later got barred before the Banking Companies (Amendment) Act of 1953 came into force. We, therefore, respectfully differ from the decisions of the Calcutta, Assam, Allahabad and Punjab High Courts above referred to. We hold that section 45-0(1) would apply to all claims by the banking company in liquidation in these proceedings, which were subsisting and alive on July 26, 1947, the date when the petition for the winding up of the compan....
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....a, directors are not considered "express trustees" as the company's property is not vested in them within the meaning of section 10(a). The residuary article 120 would be applicable in the case of a breach of trust by a director." In Subbiah Thevar v. Samiappa Mudaliar ILR 1938 Mad. 586; AIR 1938 Mad. 353, 356 (FB), it is stated at page 595 : "Article 36 applies to torts not specially provided for, and if it stood alone there would be little to indicate that it was not intended to apply to breaches of trust of the nature of those we have now in mind. But there i s article 98, and when the two articles are considered together there are strong indications that the legislature did not intend article 36 to apply to trustees. In the first place, in article 36 the word 'compensation' is used, which is the appropriate word to apply in connection with a suit to remedy ail injury to a person or a person's property. Article 98 speaks of suits,'to make good' the loss, which are more appropriate than the word -compensation when the loss is not a personal one." In India Sugar and Refineries Ltd. v . Ramalingam Estate [1953] 23 Comp. Cas. 107, where the director and the sole managing ag....
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....ction 45F is only to provide for the exclusion of a period of one year in the computation of the limitation, the claim must be subsisting; when the provision was first introduced into the Banking Companies Act, namely, on September 19, 1949, when Ordinance 23 of 1949 came into force. Section 45F will, therefore, apply only to claims within six years prior to September 19, 1949. The order for winding up in this case was made on November 5, 1947. The liquidators will be entitled to exclude, for computing the period of limitation, a period of one year immediately prior to November 5, 1947. If giving the benefit of the exclusion of one year under Ordinance 23 of 1949 and Act 20 of 1950, a claim was alive on October 24, 1953, that is, the date of the Ordinance 4 of 1953, which later became Act 52 of 1953, then all such claims would attract the operation of section 45-0(1) of the Act. As observed by Balakrishna Ayyar J. in In the Matter of Agricultural and Industrial Bank Ltd. [1956] 26 Comp. Cas. 381,383: "On the day that Act 52 of 1953 became law, the claim which the official liquidator has preferred was alive, and it is not to be readily su pposed that when it passed Act 52 of 1953....
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.... it would be legitimate to infer that legislature deliberately did not provide for any limitation under section 33C(2). It may have been thought that the employees who are entitled to take the benefit of section 33C(2) may not always be conscious of their rights and it would not be right to put the restriction of limitation in respect of clam which they may have to make under the said provision.................It seems to us that where the legislature has made no provision for limitation, it would not be open to the courts to introduce any such limitation on grounds of fairness or justice. The words of section 33C(2) are plain and unambiguous and it would be the duty of the Labour Court to give effect to the said provision without any considerations of limitation. " This decision, in our opinion, with respect, fully supports the view we have taken as to the proper interpretation of section 45-O of the Banking Companies Act. The legislative intent is not only clear, but emphatically express, that the provisions as to limitation set out in section 45-O would alone apply to claims by the banking companies, which are being wound np, even in cases where the winding up proceedings wer....