Alexander Thomson Montgomery vs The Registrar of Joint Stock Companies

Chakravartti, C.J.—This is an appeal by a liquidator at a voluntary liquidation against an order of Banerjee, J., dated March 13, 1952, whereby the learned Judge dismissed the Appellant''s application for exemption from the liability to pay interest u/s 244B(7) of the Indian Companies Act on two sums of unclaimed dividends, which he had failed and omitted to deposit in the Reserve Bank of India as required by the section Banerjee, J. has found that in omitting to deposit the amount, the Appellant did not act dishonestly, but that he had not acted reasonably and that, accordingly, he was not entitled to the relief prayed for by him.

The application was made u/s 281(2) of the Indian Companies Act which provides that if a person has reason to apprehend that any claim will or might be made against him in respect of any negligence or default, he may apply to the Court for relief. The nature of the relief which the Court cannot grant is indicated in Sub-section (1) of the section which provides that the Court may relieve such an applicant, either wholly or partly, from his liability on such terms as the Court may think fit. Section 244B(7) provides:

Any liquidator retaining any money which should have been paid by him into the Companies Liquidation Account under this section shall pay interest on the amount retained at the rate of twenty per cent, per annum and shall also be liable to pay any expenses occasioned by reason of his default....

The rest of the section is not material. From the terms of the section it might prima facie appear that what the section is doing is to define a particular kind of statutory default and to provide that on the default occurring, the liability stated in the section will automatically accrue. If such be the true meaning of Section 244B(7), there would obviously be no room for the exercise of any discretion by the Court by way of giving relief from the liability to pay interest. It was, however, conceded before us by Mr. Bhabhra, who appears on behalf of the Registrar of Joint Stock Companies, that Section 281 would apply to a case u/s 244B(7). I shall proceed on that assumption and pass on at once to the facts.

The facts are simple and, indeed, not disputed. The company concerned is the Calcutta Ice Association, Limited, in respect of which an order for a voluntary winding up was made on November 30, 1944. The Appellant was appointed liquidator without any remuneration. He took upon himself the execution of his office and proceeded to realise the assets of the company and in course of time he was able to realise about twenty-three lacs of rupees which he disposed of in accordance with law, save and except the two amounts to which this appeal relates. There were successive repayments of capital, and at the first of them there was an amount of Rs. 16,250 which remained unclaimed. A second sum of Rs. 6,337-8 remained unclaimed at the second repayment of capital. Section 244B(1) required the Appellant to deposit those two sums in the Reserve Bank of India to the credit of the Central Government in an account to be called the Companies Liquidation Account. The Appellant failed to do so and it is out of that failure that the present appeal has arisen.

The only explanation furnished by the Appellant before the learned trial Judge was that he was under the impression that he would have to make a deposit in the Reserve Bank of India, if only he had any surplus left in his hands at the conclusion of the liquidation proceedings. He has had previous experience of liquidation work. It is true that the last occasion on which he had acted as a liquidator was in 1933 and it is also true that Section 244B(7) was not enacted till the year 1940, but the Appellant himself admitted in the course of his evidence that he was aware that the Companies Act had been amended from time to time. Apparently, he did not refer to the provisions of the Act in order to inform himself what his duties under its provisions were. He also admitted that he had not consulted his solicitors on this point or on any other point during the course of the liquidation proceedings. He had trusted his own impression of his duties and had acted in accordance therewith. It was only when he found that he was in a position to wind up the affairs of the company finally that he placed the matter before his solicitors when he was told, to his consternation, that he had incurred a liability to pay a sum of about Rs. 30,000 by reason of his failure to deposit the two amounts of unclaimed dividends in the Reserve Bank of India. Thereafter, he made the present application.

Section 281(1) provides that a person who has been guilty of negligence or default may be relieved, if he has acted honestly and reasonably. As I have already stated, Banerjee, J. has held that the Appellant had not acted dishonestly. Indeed, there could be no question whatever of any dishonesty in the case, inasmuch as the Appellant duly deposited the two sums concerned, along with other moneys belonging to the company under liquidation, in the National Bank of India and did not himself profit by their retention in any manner whatsoever. The omission to make the deposit was obviously caused by his ignorance of what his statutory duties were, but was not motivated by any unworthy consideration whatsoever. The finding of Banerjee, J., that the Appellant had acted in good faith is well supported by the facts of the case and, in fact, it was not disputed before us by Mr. Bhabhra that the learned Judge''s finding on this question was correct.

The next question is whether the learned Judge was also right in holding that the Appellant, while he might have acted honestly, had not acted reasonably. The entire argument addressed to us by Mr. Dutta Roy centred on that question and he called our attention to various facts in order to establish his contention that the Appellant could not be said to have acted in an unreasonable manner. We were reminded that the Appellant, who holds an important office in one of the great commercial concerns of the city, acted entirely without any remuneration. It was also pointed out that no harm had been done to any one by the failure to deposit the two sums in the Reserve Bank of India. We were further informed that, in various types of circumstances, the Courts in England had taken a very liberal view of the failings of liquidators and it was prayed that we ought, to follow that good example.

Having given my best consideration to this matter, I find myself unable to accede to the contention of Mr. Dutta Roy. Conceding all that he submitted to us, I still find myself unable to hold that if a person takes upon himself the execution of the duties of an important office like that of a liquidator and does not inform himself of what his duties are, but acts merely upon his own impression of the law, he acts reasonably. It is quite clear that the Legislature has attached a very great importance to the duty laid on liquidators to deposit unclaimed dividends in the Reserve Bank of India. The exhorbitant rate of interest which has been prescribed by the section is sufficient indication of the seriousness of the view upon which the Legislature apparently proceeded. I am unable to countenance a contention that a liquidator can be left free to act on his own impression and that if he has done so and no actual harm has resulted, he must be held to have acted reasonably. I must, therefore, overrule the extreme contention of Mr. Dutta Roy.

Having said so much, I find it necessary to add immediately that there are degrees of unreasonableness. As I have already stated, the Appellant acted entirely without any remuneration and there has been no complaint that throughout the liquidation proceedings he acted with any motive other than that of serving the contributories and the depositors of the company to the best of his powers. Banerjee, J. has thought fit to make some reference to his omission to keep certain funds of the company uninvested, but with great respect, I regard that consideration as entirely irrelevant. In the course of liquidation proceedings of the present kind, certain sums must necessarily flow into the hands of the liquidator from time to time and it cannot reasonably be expected that he will invest such sums in permanent investments and thereby earn further benefits for the contributories and depositors. In fact, the Appellant did what any practical man would do, namely, he opened an account with a bank and deposited all the moneys into that account where they earned some interest, although at a negligible rate. I, therefore, consider it necessary to exclude from my consideration alt questions as to whether the Appellant had acted rightly in not investing every piece in his hands in some form or other of permanent investments. The entire question before us is whether the Appellant had any reasonable excuse for not depositing the two sums of money in the Reserve Bank of India and any question outside that narrow one is entirely beside the point.

On that narrow question it is necessary to remember that if the Appellant had deposited these sums in the Reserve Bank of India, the contributories or other persons, having claims against the company, would not have been benefited in the least. The Reserve Bank of India is only the custodian of the moneys deposited in the Companies Liquidation Account. It does not pay any interest thereon. It is thus clear that by reason of the failure to make deposits as required by Section 244B, no actual harm has been caused to the contributories of the company. A default has undoubtedly occurred, but the default was caused by ignorance and inadvertence and, I must add, lack of a proper realisation of the responsibilities of the office which the Appellant had accepted. It cannot be described as worse.

The learned trial Judge has not only declined to grant the Appellant any relief at all, but he has also not considered whether the circumstances of the case were such as to require an imposition of the maximum penalty of interest at a rate of twenty per cent per annum. It is undoubtedly true that the law has got to be enforced, but it must be enforced in a practical and businesslike manner. Whatever else Section 244B(7) might have been intended for, it was certainly not intended for enriching the contributories of a company by realisation of interest from defaulting liquidators. While on the one hand the liquidators must be kept to the law, on the other hand the law should not be so administered as to create a belief that if some error or omission is caused by inadvertence or negligence, the Court will not take a reasonable and sensible view of the default, but will rigorously enforce the strict letter of the law. No respectable person will ever come forward to act as a liquidator, if those who administer the law prove to be deaf to the voice of reason. So far as the present case is concerned, I have already stated the facts in detail and while I must hold that some-penalty must be imposed, I must, at the same time, hold that to enforce the maximum penalty laid down by the section would be outrageous. We have given our full consideration to the measure of the penalty which we ought to impose. I have already stated that the Appellant deposited the two sums along with the other sums belonging to the company in the National Bank of India and we were informed that the two sums concerned earned interest of an amount of Rs. 367-0-6 of which the benefit will go to the contributories of the company. In those circumstances, it seems to us that the ends of justice will be met if we direct the Appellant to pay interest on the two sums concerned at the rate of one per cent, per annum against which he will get credit for the sum of Rs. 367-0-6 which his investment of the two sums has earned for the benefit of the contributories.

In the result, this appeal is allowed and the order of Banerjee, J. is modified in part. We allow the Appellant''s application to the extent of directing that he should pay interest on the two sums of Rs. 16,250 and Rs. 6,337-8 concerned at the rate of one per cent, per annum and will get credit for the sum of Rs. 367-0-6, as I have already mentioned. The interest on the first sum of Rs. 16,250 will be calculated from June 28, 1945, and that on the second sum of Rs. 6,337-8 from July 15, 1916, up to, in both cases, July 16, 1951.

There will be no order for costs in this appeal.

S.R. Das Gupta, J.

I agree.