Kirpa Ram vs Shriyans Prasad and Others

Kapur, J.—This judgment will dispose of two Misc. Applications Nos. 89 of 1951 and 98 of 1951. In the former counsel moves that suit No. 56 of 1951 "Kirpa Ram v. Shiryans Prasad and Ors." pending in the Court of Mr. Y.L. Taneja, Sub-ordinate Judge, Delhi, be transferred to this Court, and in the latter he moves that temporary injunction be issued against the Defendants not to proceed with the scheme which is the subject-matter of the suit pending the decision of the suit. Rule was issued on both these applications by me.

On 2-3-1951 the Deputy Registrar of the Court mentioned to me that Mr. Ram Lal Anand, Advocate, had on behalf of the Defendants got into touch with him and had requested that he wanted to move for the discharge of the ad interim injunction and that I should sit on Saturday and hear the case. As I had to be away from Simla I allowed the Advocate to move me at Ludhiana. After hearing arguments I did not feel inclined to discharge the injunction, but as I was informed that the matter was of great importance, as indeed it was, I fixed the hearing of the case here on the 7th during the vacation, and the case was heard on the 7th and 8th.

Kirpa Ram claiming to be a resident of Qarol Bagh, New Delhi, has brought this suit for perpetual injunction. He is living in Siliguri in Darjeeling District of West Bengal. The suit has been filed on his behalf by his duly constituted attorney Harbhagwan who also happens to be his brother. The Plaintiff is the owner of 20 fully paid up preference shares of Rs. 100 each of the Bharat Bank Limited which is Defendant No. 6. In the plaint it is alleged that Mr. Yodh Raj, Defendant No. 8, General Manager and Chairman of the Punjab National Bank, Defendant 7, had arranged to transfer "the bulk of his shares and those of his group" in the Punjab National Bank to Defendant 9 Seth Ramkrishen Dalmia for a very large sum of money, and in order to keep the transaction secret the transfer forms have not yet been sent for registration to the Defendant Bank. As a result of this, it is so alleged, Defendant 9 Seth Ramkrishen Dalmia, really controlls the Punjab National Bank also through Defendant 8 who is only an ostensible owner of the shares. This is, according to the Plaintiff a well-planned conspiracy between Mr. Yodh Raj Defendant 8 and Seth Ramkrishen Dalmia Defendant 9 and the object is ''to hoodwink'' the share-holders and depositors of Defendant 7 Bank, because if the true nature of the transaction is disclosed it will adversely affect Defendant 7 the Punjab National Bank. It is then alleged that in order to get a better control of the Punjab National Bank and in furtherance of the, conspiracy mentioned above Defendant 9 Seth Ramkrishen Dalmia has.

planned to get transferred to Defendant 7 Bank all such assets of Defendant 6 Bank (Bharat Bank) which are really good and more or less in a liquid'' form, far below their real value, together with the entire banking business of the latter, leaving with the said Defendant 6 Bank (Bharat Bank) only such assets as are bad and doubtful or at any rate difficult to realise.

Seth Ramkrishen Dalmia has also managed to have a convenient Board of Directors in the Bharat Bank consisting of his friends and relations, and through the instrumentality of this Board he is intending "to effectuate the fraudulent scheme above-mentioned and to get the necessary resolutions passed." They have not taken the straight forward course of resorting to Section 153 and 153A, Companies Act. and Section 44A of the Banking Companies Act, but have in order to deprive the dissenting minority of shareholders of their rights illegally fraudulently and oppressively acted in disregard of the interests of the minority shareholders regardless of the fiduciary position which they as Directors of the Bharat Bank hold, If the said fraudulent arrangement, it is alleged, is allowed to be completed there would be a fraud on minority of share holders and not only will the Bharat Bank come to an end but the shareholders of the Bank are "likely to lose almost their entire investments as the asests left over after the proposed fraudulent arrangement'' would consist of advances to tottering concerns like Dalmia Jain and Ors.

In para 7 of the plaint it is stated that Defendants 1 to 4 and the nominees of Defendant 9 control an overwhelming majority of shares in the Bharat Bank and it is therefore not possible to challenge their ''misdeeds" in the domestic forum where no relief to the Plaintiff or the minority shareholders is available.

In para. 8 the Plaintiff alleges that Defendants 1 to 5 who are the Directors of the Bharat Bank have voluntarily but informally handed over the management of the Bharat Bank to the nominees of the Punjab National Bank, the object being to facilitate the effectuating of the fraud which is the arrangement sought to be entered into between the two Defendant Banks

The Plaintiff has prayed for a decree for a permanent injunction against all the Defendants.

This suit was brought under Order 1, Rule 8, CPC and by an application the Plaintiff asked for notices to be given by advertisement in some paper having circulation throughout India. Notices were issued to the Defendants for 11-4-31.

The Plaintiff on 20-2-1951 filed an application in the Subordinate judge''s Court under Order 39, Rule 2, Code of Civil Procedure, asking for a temporary injunction. On the 21st February the Bharat Bank and the Punjab National Bank filed their reply and in support of this reply Mr. Ramnath Goenka. M.P., a Director of the Bharat Bank, made an affidavit in which inter alia he said that the intended scheme of transfer of certain assets and liabilities bad been communicated to the Reserve Bank of India by the Chairman of the Bharat Bank and the Reserve Bank of India had given tacit approval to the same, and that this scheme was the only means by which the interests of shareholders and depositors could be protected. On the same day an order was passed by the Subordinate Judge giving certain directions to the Bharat Bank, one of which was that the Bharat Bank was not to act upon the scheme till a week after the scheme bad been received from the Reserve Bank.

On 24-2-1951 the Bharat Bank made an application under Order 39, Rule 4, CPC praying that the two Defendant Banks be allowed to give immediate effect to the scheme. It is not necessary to deal with the contents of this application at this stage.

On 27-2-1951 I issued a rule on a petition made by the Plaintiff for the transfer of the case to this Court and I also ordered the proceedings in the Subordinate Judge''s Court to be stayed. On 1-8-1951 I was again moved by the Plaintiff for a temporary injunction restraining the Bharat Bank and the Punjab National Bank from acting on the proposed scheme till the matter had been finally decided by this Court. On the same day 1 issued an ad interim injunction, and as I have said before, the Bharat Bank moved me at Ludhiana for an early decision of the case, and considering the importance of the matter as given in their application dated 3-3-1951 I heard the arguments on the 7th and 8th during the vacation.

In his application for transfer to this Court, the Plaintiff Petitioner has again stated the nature of the fraud which is being perpetrated on the share holders and which boils down to this that Seth Ramkrishen Dalmia Defendant 9 has in conspiracy with Mr. Yodh Raj Defendant 8 acquired the control of Defendant 7, the Punjab National Bank, by purchasing a bulk of shares'' of that Bank and not getting them registered and allowing them to remain ostensibly in the name of the vendors, that by purchasing these shares Seth Ramkrishen Dalmia has got control of the affairs of the Punjab National Bank which he is exercising through his benamidar Mr. Yodh Raj Defendant 8, and that the general public has been duped into believing that Seth Ramkrishen Dalmia has nothing to do with the Punjab National Bank. The petition and the affidavit in support of it then go on to say that Defendant 9 Seth Ramkrishen Dalmia.

with the help and active connivance of other Defendants intends to effectuate a fraud on minority of the share-holders of the Bharat Bank with intent to really Wash away their investments in the said Dank by rendering them of little or of no value,

and this he is doing in order to benefit himself and the Panjab National Bank. In Para. 7 it is stated that the intended scheme consists of a proposal to transfer

all goods and liquid assets of Defendant 6 together with the entire business of Defendant 6 on far below their real value to Defendant 7, leaving with the said Defendant 6 Bank Only such assets as are bad and doubtful or at any rate difficult to realize. The said assets, the applicant believes, are invested in the various tottering concerns of Dalmia, Jain, which Defendant 9 also virtually controls.

The allegation is also made that Mr. Yodh Raj Defendant 8 has been given financial help by Defendant 6, the Bharat Bank, by purchasing debentures of one of the concerns of Mr. Yodh Raj Defendant 8 - it was later on disclosed to me by an affidavit that this concern is Hall and Anderson Ltd., of Calcutta. in Para 8 again, it is again emphasised that this arrangement is illegal, fraudulent and oppressive and is being rushed through in utter disregard of the interest of Defendant 6 and particularly of its minority shareholders which would be the Plaintiff and such other persons who think like him. This petition is supported by an affidavit of Harbhagwan, the attorney.

The application for transfer which was moved on 1-3-1951 is supported by an affidavit of Shadi Lal who is a brother of Kirpa Ram. This Shadi Lal was at one time in the service of the Bharat Bank and was Personal Assistant of its Chairman. It is in dispute between the parties whether he resigned of his own accord or was made to resign, but this much is clear that three months before the date of this suit he was in the employment of the Bharat Bank and is now carrying on business as a contractor somewhere in West Bengal. He was present in Court at the time of the hearing on the 7th and 8th. As a matter of fact, on the 8th he was the only person who was present on behalf of the Plaintiff besides his advocate.

At this stage it may perhaps be necessary to give the history of the scheme, which is the subject-matter of dispute between the Plaintiff and the Defendants and what the scheme is, and reference may now be made to an affidavit of Mr. Ramnath Goenka, M.P., a Director of the Bharat Bank, filed in this Court on 3-3-1951 and the many documents which were filed in the Court of the Sub-ordinate Judge, along with the affidavit which was filed there.

(i) As a result of partition of the country in August 1947 the Bharat Bank had to close alt its branches in what is now known as Pakistan which caused considerable diminution in its business. The Award of the All India Industrial Tribunal (Bank Disputes) increased the cost of working of the Bank by Rs. 35,000 a month. There was also depreciation of Govt. securities and all this affected the finances of the Bank. On 4-1-1951 the Chief Accountant of the Bharat Bank submitted a note to the Chairman which inter alia showed that the loss suffered by the Bank in the year 1950 was 10.41 lacs and that the estimated loss by the end of December 1951 would be another 8.36 lacs, in addition to any further loss which may accrue by depreciation of the value of Govt. securities and the other business losses. The note submitted by the Chief Accountant to the Chairman is attached to the affidavit of Mr. Goonka filed in the Subordinate Judge''s Court and has been marked by me as ''A.''

(ii) On getting this report the Chairman discussed this matter with his follow Directors and then had several interviews with the Governor of the Reserve Bank of India between the period 4-1-1951 and 29-1-1951. On the 29th January, he sent a letter to the Governor of the Reserve Bank and submitted for his consideration a proposal that the Bharat Bank should transfer to the Punjab National Bank all its deposits and liabilities, Current, Fixed and Savings, and "to cover these liabilities the Bharat Bank Limited will hand over to the Punjab National Bank all Govt. paper, cash, I.B.P''s, such advances as may be acceptable to the Punjab National Bank and such other assets a may be mutually agreed." After this the payment of the deposits will be the responsibility of the'' Punjab National Bank, and it will open such other branches or continue such branches of the Bharat Bank as it thinks fit, and other branches and pay offices of the Bharat Bank will then be closed. This letter is also in the file of the Subordinate Judge''s Court and was filed with the affidavit of Mr. Goenka, and I have marked it as ''B.''

(iii) On 2-2-1951 the Chairman of the Bharat Bank and the Punjab National Bank had an interview with the Governor of the Reserve Bank of India and they apprised him of the details of the proposed scheme which, the affidavit, put in. before me, states was "blessed" by the Governor of the Reserve Bank of India. On 7-2-1951 the Reserve Bank wrote to the Chairman of the Bharat Bank that he should get in contact with Mr. K.C. Mitra, Deputy Chief Officer, Department of Banking Operations of the Reserve Bank of India and he should keep him posted with all the developments in regard to this arrangement. This letter is marked ''C'' by me.

(iv) On the same day, the Chairman of the Bharat Bank drew up a note for the benefit of his co-directors in which he mentioned the various stops that ho had taken so far. He also mentioned that the total assets of the Bharat Bank were Rs. 12,65,96,000 which consisted of cash, G.I. Notes, investments, Loansand I.B.P''s. Banking properties, stationery, safes, furniture and fittings. He went on to say that if there was liquidation there would be a great deal of loss to the Bank and the entire staff would also be discharged. Besides, the expenses of liquidation would be enormous. But if there was arrangement with the Punjab National Bank stationery, safes, furniture, fittings and Banking properties would be taken over at book value, about seven hundred employees would be taken over by the transferee. Bank, the Bharat Bank would not be required to keep any branches, and the realization work would be done by the Punjab National Bank at a nominal charge. If there was a scheme of amalgamation the value of the assets would have to be considerably scaled down-a scheme which would not be accepted by the shareholders-and continuation of the Bank under the present circumstances would mean heavy recurring losses and therefore he was of the Opinion that the only "feasible proposition was to enter into an arrangement with the Punjab National Bank." He also mentioned in this note, which I have marked ''D'' and which is on the file of the Subordinate Judge''s Court, that he had consulted the Advocate-General of Bombay who had advised that it was a perfectly legal scheme which he was proposing.

(v) The Board of the Bharat Bank gave it unanimous assent to the scheme proposed and on. 16-2-1951 Mr. Yodh Raj, Chairman of the Punjab National Bank, wrote to the Deputy Chief Officer of the Reserve Bank of India, a letter which I have marked ''E'' and is attached to the file of the Subordinate Judge''s Court along with the a affidavit of Mr. Goenka. In this he mentioned the scheme in the following words:

We beg to advise that it has been mutually agreed between our Bank and the Bharat Bank Limited that we assume responsibility of paying their deposits as on 19-1-1951, in consideration whereof they will transfer to us their assets considering of cash, Govt. Securities realizable loans etc. of equivalent value.... As a consequence of this arrangement, the branches of the Bharat Bank Limited will be taken over by us. Most of them will be merged with our existing offices at those stations. At 45 places where they have offices we have none. In order to pay the depositors and realise their loans it will be necessary for us to carry on business at the places in our own name. At seven other places we find that the Combined business of the two Bank cannot be carried on by our existing offices owing to luck of space in our present premises. and therefore, we wish to continue these offices as our own.... We shall thank you to please accord your sanction to open our new offices at these places.... It would be in the interest of the public and both the institutions concerned to effect and complete the transfer with as much speed as possible. We, therefore, request you to grant us the necessary license at an early date.

(vi) The Deputy Chief Officer by letter dated 21-2-1951 and marked ''F'' by me gave permission to the Punjab National Bank to open branches in various places which are mentioned in that letter and which would be necessary if the Punjab National Bank is to take over the deposits of the Bharat Bank. By a letter dated 23-2-1951 marked ''G'' the Chairman of the Bharat Bank wrote to the Reserve Bank of India enclosing the report of their Chief Accountant and the note which the Chairman had sent to his co-directors and also a resolution of the Board of the Bharat Bank in regard to this scheme. This resolution of the Board of the Bharat Bank is marked ''H'' by me. On 23-2-1951 by a letter marked ''I'' by me, the Reserve Bank of India wrote to the Chairman and said:

The Reserve Bank of India is aware of the proposed transfer of deposit liabilities of the Bharat Bank Ltd., to the Punjab National Bank Ltd.

In the affidavit which Mr. Ramnath Goenka has filed before me he has stated that Kirpa Ram is a brother of Shadi Lal who is an ex employee of the Bharat Bank, that the present suit and Anr. suit by Des Raj, an employee of the Bharat Bank, have both been instituted at the instance of the employees of the Bank with the object of running the Bank "out of sheer spite and a spirit of revenge." He has also stated that the employees of the Bank have issued a most scurrilous pamphlet against the Bank, and as a result of that pamphlet and the institution of the present suit the depositors have begun to withdraw their deposits from the Bank and a very large amount of money has already been paid off. In an affidavit filed before me on 8-3-1951 by the Chairman of the Bharat Bank I was informed that since the filing of this suit a sum of Rs. 1,35,00,000 has been withdrawn from the Bank. It was also stated in Mr. Goenka''s affidavit that the suit was in mala fide and that if the scheme was not put into immediate effect withdrawals will continue and the Bank will have to close its doors which will cause a serious and irreparable consequence both to the creditors and the shareholders of the Bank.

The Chief complaint of the Plaintiff. is that Defendant 9, Seth Ramkrishen Dalmia has managed to get control of Defendant 7, the Punjab National Bank, by means of purchasing "a bulk" of its shares From Defendant 8 and his friends and has thus got control of the Punjab National Bank, and that by the transfer of all the good assets of the Bharat Bank to the Punjab National Bank he was benefiting himself and his friends and was causing loss to a minority of the shareholders. In order to determine whether as a matter of fact Defendant 9 has purchased any shares and as a result of that some loss is going to be caused to the Plaintiff in a fraudulent manner I have got affidavits of various parties put in before me.

In two affidavits dated 5-3-1951 both Seth Ramkrishen Dalmia and Mr. Yodh Raj have stated that Seth Dalmia has not acquired the control of the Punjab National Bank and that Mr. Yodh Raj is not an ostensible owner of shares of which the real ownership vests in Seth Ramkrishen Dalmia. The language of these affidavits was not satisfactory and therefore I asked further affidavits to be put in. On 8-3-1951 Kamta Pershad who is a legal adviser of Seth Ramkrishen Dalmia made an affidavit in which he says in para. 3:

That neither Shri R. Dalmia nor any body else on his behalf holds or owns shares of the Punjab National Bank Limited with blank transfer deeds or in any other manner whatsoever.

Mr. Yodh Raj has put in an affidavit dated 8-3-1951 in which he has definitely stated that he had at no time sold any shares of the Punjab National Bank to Seth Ramkrishen Dalmia, that to the best of his knowledge and information the Seth does not hold any shares in the Punjab National Bank and he has no interest directly or indirectly in that Bank, and that Mr. Ramnath Goenka had lodged transfer certificates for the transfer of 250 shares of Rs. 100 each in his name and those were transferred in the form of one thousand shares of Rs. 25 each. These are more or less definite statements against the affidavit of Harbhagwan for the Plaintiff, who has no doubt, in his affidavit, stated that shares of the Punjab National Bank have been acquired by Seth Ramkrishen Dalmia and that Mr. Yodh Raj is only an ostensible owner, but he has not told us the source of his information. It is therefore not proved to my satisfaction that Seth Ramkrishen Dalmia has, as a matter of fact, got control of the Punjab National Bank by getting by purchase a majority of its shares transferred in his name or in the names of his friends and relations or his nominees and has lent a colour to the present arrangement which is continuing, and that Mr. Yodh Raj and the other present Directors of the Punjab National Bank are mere benamidars for Seth Ramkrishen Dalmia.

The next ground for proving fraud is the allegation that the Punjab National Bank is taking over all the assets which are realisable and is leaving for the shareholders nothing but unrealisable assets and is thus depriving all the shareholders including the minority represented by the Plaintiff of their rights, In the note which was sent by the Chairman of the Bharat Bank and which I have marked ''D'' the total assets are about twelve crores which include cash, G.P. Notes, investments etc. Whatever might or might not have been their intention originally, it is quite clear now from the affidavit of Shriyans Prasad, Chairman of the Bharat Bank, dated 8-3-1951 filed in this Court that the Punjab National Bank will take over the responsibility to pay off the depositors and the creditors of the Bharat Bank in full, and the Bharat Bank will transfer to the Punjab National Bank assets of equivalent value which will consist of (1) cash, (2) G.P. Notes and their market value, (3) stationery, safes, furniture, fittings and fixtures at their book values, and (4) loans and I.B.P''s also at their book value, and also it is categorically stated that the assets mentioned in Nos. (3) and (4) will not be transferred at anything less than their book value. In this affidavit it is also stated that the cash, G.P. Notes and stationery, safes, furniture and fittings to be transferred are approximately of the value of six and a half crores, and for the balance of the liabilities of the Bharat Bank, the Punjab National Bank will take over certain loans and I.B.P''s, is leaving the rest of the loans and I.B.P''s and other assets with the Bharat Bank, some of which will be easily realisable and the rest will be realised in due time and will be available for the benefit of the share holders. It is further stated in this affidavit that the Bharat Bank has purchased debentures of Hall and Anderson Limited in order to invest money in(sic) concern yielding good return and that this Company is not a concern of Mr. Yodh Raj. In the plaint the Plaintiff set out to allege that the Defendant Dalmia was transferring the assets of the Bank at a value far below the actual value. This allegation is repeated in Harbhagwan''s affidavit in support of his petition for transfer. But it remains a mere allegation without his giving any details of how much less the value is going to be or how he, apparently an outsider, has come to know of this. In his affidavit dated 7-3-1951, Harbhagwan has stated that the assets of the Bharat Bank are quite enough to meet all liabilities and it is expected that after payment of deposits a large surplus will be left for the shareholders of the Bank. But if the proposed scheme goes through all the good assets will be transferred to the Punjab National Bank and only unrealisable debts will remain for the shareholders. It is indeed difficult for me to understand the position taken up by the Plaintiff. If the assets of the Bharat Bank are quite sufficient to meet the liabilities and the Punjab National Bank is going to take over, as has now been proved, assets equivalent to the liabilities which they take over, I cannot see how the shareholders are going to be put to any loss. The position taken up by the Plaintiff in this respect seems to me to be contradictory. From the affidavits which have been put in in this Court I am satisfied that the Defendants are not acting in any fraudulent manner either to benefit themselves or to cause any loss to the Plaintiff.

Even if the allegation were to be held to be proved that Ramkrishen Dalmia has managed to get control of the Punjab National Bank and is wanting to have deposits transferred to that Bank as also equivalent amount of assets that will not constitute fraud unless it is shown and proved that there is going to be any personal benefit to him. On the other hand, I have the affidavit of Mr. Goenka M.P. that the object of the intended arrangements is to save the depositors of the Bharat Bank from certain liquidation. There is no reason why Goenka''s statement on this point should not be accepted. None has oven been suggested beyond the vague assertion that the Bank is solvent. The rush on the bank and the withdrawals have not even been denied.

The Plaintiff''s affidavit in this Court dated 7-3-1951, again repeats that if all the goods assets are taken by the Punjab National Bank and unrealizable debts remain then the shareholders will lose. If, however, the Punjab National Bank takes assets equal to the liabilities and accepts book value of assets, the Plaintiff should have no grievance.

The depositors'' claims have to be met by the Bharat Bank before the shareholders and if this claim and equivalent amount of assets are taken over the balance must be sufficient for the shareholders on his (the Plaintiffs) own showing.

The Plaintiff Petitioner bases his case on the ground that the proposed scheme is a fraud and in the arguments he also submits that the scheme is ultra vires of the company as it is not allowed by the Memo. of Association or the Articles of Association. He particularly relics on Clause 3(r) of the Memo. of Association, Article 135(19) of the Articles of Association and Section 86H, Companies Act. In Clause 3 of the Memo of Association the objects of the Company are given as follows:

The objects for which the Company is established are:

* * * * *

(o) To sell, improve, manage, develop, exchange, lease, mortgage, dispose of or turn to account or otherwise deal with all or any part of the property and rights of the company.

(r) To acquire and undertake the whole or any part of the business of any person or company carrying on business which this company is authorised to carry on or to amalgamate the Company''s business with that of any such person or company.

Article 135 provides:

Without prejudice to the general powers conferred by the last preceding clause'' and the other powers conferred by these presents but subject however to the provisions of Section 86E, 86F, Companies Act, it is hereby expressly declared that the Directors shall have the fol1owing powers; that is to say, power:

* * * * *

(19) With the consent of the company in general meeting to sell or dispose of the undertaking of the Company or to remit any debt due by a Director.

Section 86H, Companies Act provides:

The directors of a public company or of a subsidiary company of a public company shall not, except with the consent of the company concerned in general meeting:

(a) Sell or dispose of the undertaking of the company;

(b) remit any debt due by a director.

I cannot see how Article 3(r) of the Memo of Association applies to the facts of the present case. As far as I can see the arrangement that the Defendants wish to enter into and the scheme which they wish to push through are not ultra vires of the company. Section 86H puts a restriction on the powers of directors in regard to disposing of the undertaking of a company, but it does not say that such a thing cannot be done. All it says is that it must be done with the consent of the company, i.e., the shareholders. Article 135(19) gives the same powers to the company as are given by Section 86H, Companies Act. In my opinion, the transaction which the Defendants intend to enter into is not one which is ultra vires of the company. Even if it was held that the directors of the company cannot enter into these transactions without the assent of the company a point on which I give no final opinion - it is a matter which can be sanctioned or ratified by the shareholders. In other words it can be approved of by the shareholders or is capable of being approved. In either case the question of ultra vires will not arise.

This has the support of Lord Macnaghten who delivered the judgment of the Privy Council in Dominion Cotton Mills Co., Ltd. v. George E. Amyot, (1912) A.C. 546. There the Dominion Cotton Mills demised to its co-Defendants the Dominion Textile Company of the Mills all properties then in possession of the Cotton Company for a period of twenty-one years and a resolution was passed by the Cotton Company in a general meeting approving of that lease. A suit was brought by two shareholders to set aside the lease of the company and also the resolution of company approving of the same and it was held that it was incumbent upon the Plaintiffs. to show that the majority of the shareholders had either acted ultra vires or so abused their powers as to deprive the minority of their rights. At p. 551 Lord Macnaghten observed follows:

it is difficult to see what legitimate advantage the Plaintiffs could hope to obtain from the only relief they claimed. The lease if not ultra vires'' even though annulled by the Court, was capable of being ratified by the majority, who were of course interested in supporting it.... In order to succeed it is incumbent on the minority either to show that the action of the majority is ultra vires or to prove that the majority have abused their powers and are depriving the minority of their rights.

The words used there are rather important. His Lordship said that if the lease was not ultra vires it was capable of being ratified by a majority who were of course interested in supporting it. The observations of Lord Davey in Burland v. Earle, (1902) A.C. 83, were quoted with approval. In this latter case the principal question in appeal was whether the majority of the shareholders have a right to retain the balance of profit and loss available for dividend. Lord Davey said at pp. 93 and 94:

It is an elementary principle of the law relating to joint stock companies that the Court will not interfere with the internal management of companies acting within their powers, and in fact has no jurisdiction to do so. Again it is clear law that in order to redress a wrong done to the company or to recover moneys or damages alleged to be due to the company the action should prima facie be brought by the company itself. These cardinal principles are laid down in the well known cases of Foss v. Harbottl'', (1843) 2 Hare 461 and Mozley v. Alston (1847) 1 Ph. 790 and in numerous later cases which it is unnecessary to cite. But en exception is made to the second rule, where the persons against whom the relief is sought themselves hold and control time majority of the shares in the company, and will not permit an action to be brought in the name of the company. In that case the Courts allow the shareholders complaining to bring an action in their own names. This, however, is mere matter of procedure in order to give a remedy for a wrong which would otherwise escape redress and it is obvious that in such an action the Plaintiffs cannot have a larger right to relief than the company itself would have if it were Plaintiff, and cannot complain of acts which are valid if done with the approval of the majority of the share holders or are capable of being confirmed by the majority. The cases in which the minority can maintain such an action are, therefore, confined to those in which the acts complained of are of a fraudulent character or beyond the powers of the company. A familiar example is where the majority are endeavouring directly or indirectly to appropriate to themselves money, property, or advantages which belong to the company, or in which the other shareholders are entitled to participate, as was alleged in the case of Menier v. Hooper''s Telegraph Works, (1874) 9 Chapter 350. It should be added that no mere informality or irregularity which can be remedied by the majority will entitle the minority to sue, if the act when done regularly would be within the powers of the company and the intention of the majority of the shareholders is clear. This may be illustrated by the judgment of Mellish L. J. in MacDougall v. Gardiner, (1875) 1 Chapter D. 13 at p.25." In this case also it was held that a minority can maintain an action where the act complained of is fraudulent or beyond the powers of a company and that no mere informality or irregularity which can be remedied by the majority will entitle the minority to sue, if the act done would be within the powers of the company.

In an older case Re Patent File Co. (1870) 6 Chapter A. 83, James L. J., observed at p. 87:

I can find nothing in the memo, of articles to prevent the directors from making the best terms they can with a creditor of the company by selling or pledging part of the property of the company. No doubt, a disposition of the property by the directors might be void in equity if it were contrary to the objects of the company; the directors would then be restrained from doing the act as being an abuse of their fiduciary position. But in the present case there is nothing to prevent the company from making such an agreement as this with a creditor, nor is there anything to prevent the directors from doing so.

Mellish L. J., in the same judgment observed:

It was next urged that this security was void, because it was a pledging the entire property of the company in such a way that, if done by an individual, it would have been an act of bankruptcy. The answer to this is two fold. First, that there is no provision in the Companies Act that every transaction which in the case of an individual would be an act of bankruptcy shall be void as against creditors; and the legislature appears designedly to have omitted any enactment of that kind. Secondly, this is not a mortgage of the whole property of the company, for the shares were not fully paid up.

In Macdougall v. Gardiner (1875) 1 Chapter D. 13, James L. J., said at p. 21:

that is to say, that nothing connected with internal disputes between the shareholders is to be made the subject of a bill by some one shareholder on behalf of himself and Ors., unless there be something illegal oppressive, or fraudulent - unless there is something ultra vires on the part of the company qua company or on the part of the majority of the company, so that they are not fit persons to determine it....

In re Kingsbury Collieries Ltd. and Moore''s Contract (1907) 2 Chapter 259 in the case of a Colliery company which had the power of purchasing or taking upon lease and working of certain coal mines, the selling of coal and other products carrying on generally of the business of colliers, but there was no express powers of sale of real estate, it was held that the company had the power to sell land which it had acquired, a power to sell real estate being impliedly warranted by the Constitution of the company.

Recently the Banking Companies Act, Act X [10] of 1949 has been enacted. Section 6 of this Act provides:

(1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:

(1) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the properly and rights of the company.

Clause 3(q) of the Memo. of Association seems to be almost identical with this provision. In my opinion, therefore, it is not ultra vires of the company to enter into the transaction which is proposed.

These cases therefore show that if an act is not ultra vires of the company and it is capable of being ratified or being approved of by the company it is not open to a minority of shareholders to object to any transaction unless it is a fraud or, as Lord Macnaghten put it, the majority have abused their powers and are depriving the minority of their rights.

In the present case it is quite clear from the affidavits that the Plaintiff is in a minority, As a matter of fact, so far nobody has come forward to support the Plaintiff and his plaint as well as the affidavits filed in this Court show that he is in a minority and uptil now of only one. He has not shown, as I have said above, that the transaction which is intended to be gone through is fraudulent or the majority are abusing their powers to the detriment of the Plaintiff I. therefore, am of the opinion that there is no substance in this part of the Plaintiff''s case.

It was then submitted by the Advocate for the Defendants. that this is really a part of the internal management and therefore a Court has no jurisdiction to interfere in this matter. Reliance is placed on Burland v. Earle (1902) A. C. 83, In that case a suit had been brought by some shareholders to compel the directors to distribute the amount which they wished to put in the Reserve Fund in the form of dividends. At p. 83 Lord Davey said that the Court would not interfere with the internal management of companies acting within their powers and would in fact have no jurisdiction to do so.

In Macdougall v. Gardiner (1875) 1 chapter D. p. 13 at p. 23 James, L. J., observed.

The whole question comes back to a question of internal management; that is to say, whether the meeting ought or ought not to be held In a particular way, whether the directors ought or ought not to have sanction certain proceedings which they are about to sanction, whether one director ought or ought not to be removed, and whether another director ought or ought not to have been appointed.

Without finally giving my opinion on this point I cannot see how the entering into the intended scheme is a matter of mere internal arrangement and therefore is screened from the control of this Court.

It was next submitted by the Defendants that in his plaint the Plaintiff has not shown by distinct averment the illegality of the act and reliance was placed on Mills v. Northern Railway of Buenos Ayres. (1869) 5 Chapter A. 621. I do not think that at this stage of the case this argument should be allowed to prevail.

It may now be appropriate to mention an argument which the Plaintiff raised before me that no final decision could be given unless the scheme in its final form was placed before me. The answer to this is twofold. First that the Plaintiff himself in his plaint has tried to give the main features of the scheme and his whole case is based on the existence of that scheme and he has asked for injunction on that basis.

No doubt his allegation that that is the scheme is not correct. The affidavits of Mr. Ram Nath Goenka M.P. and of the Chairman of the Bharat Bank and the various documents that I have referred to show what the two Defendant banks intend to do. And what I understand the intended scheme to be I have mentioned at another place.

Second if the Plaintiff does not know what the scheme is he can have no cause of complaint and he cannot get an injunction unless he shows how he is going to be affected and on this ground alone he must fail.

Then it was submitted by the Defendant that the Plaintiff is not a bona fide litigant. As I have said before, the Plaintiff is carrying on his business in Siliguri in the District of Darjeeling in Bengal. He is the owner of only twenty fully paid up preference shares which are valued at two thousand rupees and the litigation is being conducted by his attorney Harbhagwan. But a great deal of interest is being taken by another brother of his, Shadi Lal, who was at one time an employee of the Bharat Bank. He has come all the way to Simla from West Bengal where he is carrying on his contract business to look after the litigation. The Plaintiff through Harbhagwan has also started winding-up proceedings against Bharat Bank: he may succeed or not but a liquidation application will certainly injure the Bank and shake its credit. He seems to have no particular concern with or interest in the present litigation as all he has done is to give a power of attorney and his brothers are doing the rest. And this gives support to the submission of the Defendants that the litigation is being carried on in the interests of the Employees'' Association. Even if this last allegation were not correct, I do not see why an only and single shareholder carrying on business in west Bengal should have come all the way to Simla to have his rights litigated. In Robson v. Dodds, (1869) 8 Eq. 301, it was said by Malins, V.C. at p. 306:

The doors of this Court are open and ought at all times to be open, for bona fide litigants.... This Court cannot allow litigation to be fought out to wreak out feelings of personal vengeance and anger. The fact that an ex-employee of the Company has come all the way from West Bengal to fight this litigation is in the name of his brother is in my opinion sufficient to disentitle the Plaintiff, from getting an ad interim injunction.

A point which was troubling my mind was the rights of the depositor who have not like the shareholders invested their extra money for the purpose of making profit but have deposited their money with the Bank which the depositors are entitled to get in accordance with the rules of the Bank at any time that they like. If the relationship between the banker and the customer is of a fiduciary kind, can one Bank pass on the deposits to another Bank? The relationship between a banker and a customer is not of a fiduciary character, nor does it bear any analogy to the relation between principal and agent. The legal relation between the two in their ordinary dealings money is simply that of debtor and creditor. See Grant''s Law of Banking, Edn. 7, pp. 2 and 4. Once the money of a depositor is in the Bank the banker can do whatever he likes with it because the money is his. His obligation is to pay in accordance with the rules of the different fornis of deposits. If he can do that, it is no concern of the depositor as to what he does with his money. In Grant on Banking at p.2 the matter has been put in the following words:

So money paid into a bank ceases altogether to be money of the person paying it in. It is the money of the banker who is bound to return an equivalent by paying a sum equal to that deposited with him when he is asked for it. To all intents it is the money of the banker to do with as he may please;....

The liability of the banker is his implied promise to repay at the branch where the money was deposited. A banker can also borrow. See Bank of Australasia v. Breillat (1847) 6 Moo. P.C. 152 and Grant on Banking p. 593, where it is said:

A power to borrow is of course essential to the conduct of a banker''s business." If the Bharat Bank can borrow money it can surely borrow it on the security of its assets. It can equally well give that security to the Punjab National Bank on the condition that the Punjab National Bank will pay the depositors of the Bharat Bank. Of course it is open to such a depositor to refuse to go to the Punjab National Bank and to insist on the Bharat Bank paying him, but that is a matter of detail and is not a concern of the Plaintiff.

Relying on the various cases which have been cited before me I am of the following opinion:

(1) The intended scheme which has been mentioned in the note of the Chairman of the Bharat Bank and has been further clarified in the affidavit which has been filed before me that the Punjab National Bank will undertake to pay the deposits of the Bharat Bank and against this the Bharat Bank will hand over to the Punjab National Bank assets which are mentioned in the affidavit of Shriyans Prasad, Defendant 1, which was filed before me on the 8th March is not ultra vires of the company and is not illegal. (2) Even if the power to do this is not vested in the Directors it is an act which is capable of being ratified and approved and, therefore, no objection can be taken to this. (3) Under the Banking Companies Act and under Clause (3)(q) of the Memo. of Association, the Company can dispose of or turn to account or other wise deal with all or any part of the property and rights of the Company. (4) The Plaintiff according to his own showing, is a representative of a minority. According to the Articles of Association, Article 135(19), the Company at any rate can enter into the arrangement proposed. There the majority required seems to be a simple majority only, and on his own showing the Plaintiff is in a minority. It is therefore not open to him to challenge the proposed arrangement. (5) A minority can succeed in a suit only if it shows that the act proposed is ultra vires or is one which is being carried through by the majority for its own benefit or the act is fraudulent. It has not been shown that the act is fraudulent. Even if the allegations of the Plaintiff are correct that Seth Ramkrishen Dalmia has now got control of the Punjab National Bank it is not shown how he or those who think like him are going to benefit by this transaction. (6) The Plaintiff set out to prove that the Punjab National Bank was taking the assets of the Bharat Bank at an undervalue. That he has not proved even by the affidavits of Harbhagwan, who is a brother of his and there is no other proof before me. On the other hand, it has been proved by affidavits that the Punjab National Bank is taking over the assets of the Company at its book value. (7) The litigation which the Plaintiff is carrying on is not a bona fide one and therefore, he is not entitled to move this Court in its equitable jurisdiction. (8) The Bharat Bank is not a trustee for its depositors. The relationship is one of debtor and creditor, and it will not harm the depositors if the scheme goes through. On the other hand in this case it may benefit them. (9) According to the affidavit of Mr. Ramnath Goenka, M.P., the Bharat Bank is suffering loss every year even on it ordinary working and after the filing of the suit by Plaintiff there is a rush on the Bank and if a scheme of this kind is not allowed to be proceeded with the Bank will have to close its doors which will be calamitous for the depositors as well as for the shareholders and everybody else. (10) Under the present circumstances this is the best solution of the difficulties in which the Bank find itself. (11) The continuance of the temporary injunction will do more injury to both parties and particularly the Bank and the balance of convenience is in favour of discharge.

I am, therefore, of the opinion that the intended scheme should be allowed to go through and the injunction which I have issued should be discharged, but I would impose the following conditions: (1) The scheme which is finally prepared by the Punjab National Bank and the Bharat Bank must contain the provisions which have been stated above and which are contained in the affidavits which I have referred to. This scheme shall be sent to the Reserve Bank for such action as they may like to take u/s 36(1), Banking Companies Act. I have been told that the whole of the intended scheme has been put before the Reserve Bank. The Reserve Bank can u/s 36(1)(a) prohibit such a transaction going through. The affidavits and the documents which have filed before me or in the Subordinate Judge''s Court show that the Reserve Bank does not prohibit this transaction. On the other hand, it has ''blessed'' it. So it was put in the affidavits. If and when the prohibition of the Reserve Bank is received, naturally these schemes will automatically cease to be operative. (2) The scheme must be placed before the shareholder at the earliest possible opportunity after giving notice us required by law and if the shareholders of the Bharat Bank or of the Punjab National Bank do not approve of the scheme, the scheme shall be abandoned and the status quo ante restored. (3) I direct that in case the scheme is not approved by the share holders of either of the two Banks the Punjab National Bank shall return all the assets which it gets under the scheme minus the amounts paid by it to the depositors of the Bharat Bank. Mr. Ram Lal Anand has stated at the bar that he has the authority of the Punjab National Bank to agree to this condition. (4) The depositors of the Bharat Bank shall be invited by the Punjab National Bank to take their deposits and if they so like they will be entitled to receive the deposits in accordance with the rules of the Bharat Bank. No depositor shall be coerced into agreeing to anything which he does not like to do. Should a depositor for a fixed term like to get back his money he will be entitled to get it minus the interest which he must forego or pay as the case may be. (5) If the shareholders of the two Banks at meetings properly called want to vary the scheme in any manner they will be entitled to do so. The discharge of the injunction will be subject to these conditions. The opposite party will have their cost of these proceedings in this Court.

As to the application for transfer of the case to this Court, both parties agree that this is one of those cases which should be so transferred with which I agree. I, therefore, order that this case (Suit No. 57 of 1951) pending in the Court of Mr. Y.L. Taneja, Subordinate Judge 1st Class, Delhi, be transferred for trial to this Court. The record is all here and it need not, therefore go back. It shall be put up for hearing in due course before such Judge as is appointed by my Lord the Chief Justice.