Sailendra Nath Sinha vs Official Receiver Being Official Liquidator of The Bank of Commerce, Ltd.

Chakravartti, C.J.—The short point involved in this appeal is a point of first impression. It has arisen in the following way.

The Appellant, Dr. Sailendra Nath Sinha, was one of the directors of the Bank of Commerce Ltd., now in liquidation. After the winding up order had been made, the Official Liquidator commenced a proceeding against the Appellant and several of the other directors of the Bank u/s 235 of the then Companies Act which corresponds to Section 543 of the present statute. While that proceeding was pending, the Official Liquidator made an application u/s 45H(2) of the Act, praying for an attachment of a large number of properties standing in the name of the Appellant himself as well as in the name of his wife, mother-in-law, daughters and an infant son. The application was based mainly on the Appellant''s own evidence given in the misfeasance proceedings as to the sources of his income and its amount and the case made by the Official Liquidator was that the income of the Appellant could not explain his wealth and that the properties, of which he was seeking attachment, were all properties acquired from the funds of the bank. The valuation of the properties was given as Rs. 11,65,000. The reason for making the application was stated to be an apprehension that in the event of a decree being passed against the Appellant in the misfeasance proceedings, he was likely to dispose of all those properties in order to defeat and delay the realisation of the decretal amount from him. The material prayers in the petition were as follows:

(1) That the properties belonging to Dr. S.N. Sinha or his benamdars, particulars whereof are set out in the schedule hereto and marked with the letter "A", be forthwith attached.

(2) An interim order in terms of prayer (a) above.

The application was made ex-parte and it appears from the order, as drawn up, that only the application and the affidavit affirmed in its support by one Hem Chandra Sen Gupta, an Assistant of the Official Liquidator, were read and only the Advocate appearing for the Official Liquidator was heard. Although the application included a prayer for an interim order, the learned Judge did not in fact make any interim order in the sense that he kept the application pending, making only an order for the time being and deferred finalisation of the order till the disposal of the application. Instead, he made an order in terms of prayer (1) of the petition, but while doing so, he directed the Official Liquidator to serve a copy of the minutes of his order on the parties affected thereby and gave liberty to those parties to apply for having the order vacated on proper notice to the Official Liquidator. The part of the order by which those further directions were given has been thus expressed in the order, as drawn up:

And it is further ordered that the said applicant do serve a copy of the minutes of this order, duly signed by an officer of this Court, on the parties affected by this order and that such parties be at liberty to have this order vacated on proper notice to the said applicant.

In the minutes the main order appears in the following terms:

Order for attachment in terms of prayer (i) of the petition.

As drawn up, the main and operative part of the order directs the issue of a warrant of attachment to the Sheriff for the attachment of the properties set out in the schedule to the order and since some of the properties are situated within the local limits of the jurisdiction of the District Judges of Hooghly and 24-Parganas, it directs further that the warrant of attachment be sent to those Courts as well for execution thereof by attachment of the properties situated within their respective jurisdictions. Subject to the liberty reserved for the parties affected by the order to come up later and apply for having it vacated, the order was thus an order made in an absolute form.

The present appeal is directed against that order and the only Appellant before us is Dr. S.N. Sinha. His alleged benamdars, in whose names several of the properties stand, have not preferred any appeal.

On behalf of the Appellant, Mr. Deb has attacked the learned Judge''s order on a single ground. He has contended that the learned Judge had no jurisdiction to pass an order in an absolute form, straightway in the first instance, as he did, and that even without the issue of any notice to the Appellant. According to Mr. Deb, the utmost the learned Judge could do in the first instance was to pass a conditional order, as provided for in Sub-rule (3) of Order 38, Rule 5 of the Code and, in any event, whether or not the Code applied, he was bound to direct the issue of a notice to the Appellant before he made any order to his prejudice. The principal complaint and in fact the only complaint of Mr. Deb was that his client had not been heard and he submitted that he had a right to a notice under the CPC or, if the Code did not apply, under the general principles of natural justice.

I may take up first Mr. Deb''s argument in so far as he based it on the provisions of the Code. Before I do so, however, it is necessary to set out the terms of Section 45H(2) of the Banking Companies Act. That provision, as it now stands, reads as ; follows:

Where an application is made to the High Court u/s 543 of the Indian Companies Act, 1956 and the High Court has reason to believe that a property belongs to any promoter, director, manager, liquidator or officer of the banking company, whether the property stands in the name of such person or any other person as an ostensible owner, then the High Court may, at any time, whether before or after making an order under Sub-section (1), direct the attachment of such property, or such portion thereof, as it thinks fit and the property so attached shall remain subject to attachment unless the ostensible owner can prove to the satisfaction of the High Court that he is the real owner and the provisions of the Code of Civil Procedure, 1908, relating to attachment of property shall, as far as may be, apply to such attachment.

The first contention of Mr. Deb is that Section 45H(2) of the Banking Companies Act imports the provisions of the CPC by its own terms and if it does so, there is no escape from the position that, in the first instance, the Court can only make a conditional order and that the Court must direct a notice to be served on the Defendant. He bases his argument on the last few words of the section which say that the provisions of the Code relating to attachment shall apply to attachment made under the section, as far as may be.

In my view, Mr. Deb''s contention is not right. Section 45H occurs in Part III-A of the Banking Companies Act which is headed, "Special provisions for speedy disposal of winding up "proceedings." The first section in Part III-A is Section 45A and the substance of what it provides is that even if there be in it anything inconsistent with either the Indian Companies Act or the CPC or the Code of Criminal Procedure or any other law for the time being in force, the provisions of the Part shall, nevertheless, apply and that other laws shall apply only so far as they are not varied by or are not inconsistent with the provisions of Part IIIA of the Act or the rules made thereunder. It will thus appear that starting with the object of providing for a speedy disposal of winding-up proceedings, Part III A of the Act directs the application of the special procedure prescribed by itself in supersession of the ordinary procedure and leaves room for the application of other existing laws only in regard to matters not covered by the special procedure it prescribes. The provisions which follow next make it clear that much of the procedure provided for by the ordinary laws is drastically abridged and the object of such abridgement appears to be an acceleration of the pace of the proceedings and expedition in their final disposal. That the CPC with all its elaborate ramification is not intended to apply is made perfectly clear by the words "as far as may be" which appear in Section 45H(2) itself. It follows that in order to see whether the provisions of Order 38, Rule 5 of the Code on which Mr. Deb based his argument is among the provisions that may be applied, the terms of the section itself have to be examined and it has to be ascertained whether room has been left by them for the application of Rule 5 of the Order 38 or whether the rule has been excluded.

I am clearly of opinion that Rule 5 of Order 38 is not among the provisions of the Code which may be applied to attachments made u/s 45H(2). The Code only applies "as far as may be," but Rule 5 of Order 38 appears to me to be a rule which cannot possibly be applied. Where the rule applies, the Court can make an. order of attachment, only if it is satisfied that the Defendant is about to dispose of the whole or a part of his property or is about to remove his property from the jurisdiction of the Court and that he is doing so with intent to obstruct or delay the execution of any decree that may be passed against him. Section 45H(2), on the other hand, does not require the Court to be satisfied as to those matters at all in order to acquire jurisdiction to make an order for attachment. It makes reasonable belief of the Court that some property belongs to a promoter, director or other person connected with the banking companies concerned, whether standing in his own name or in the name of some other person, sufficient for an order for its attachment. The basis on which the order for attachment u/s 45H(2) can be made is thus altogether different from the basis which is essential under Order 38, Rule 5 of the Code. In the next place, where Rule 5 of Order 38 applies, the notice which the Court must give is a notice, offering the Defendant a choice between two alternatives, that of furnishing security to produce or place at the disposal of the Court the property concerned or its value when required and that of appearing and showing cause why he should not be required to furnish security. It is only when the Defendant fails to furnish security or fails to show satisfactory cause why security should not be furnished by him that the Court can make a final order of attachment. In Section 45H(2) of the Banking Companies Act. on the other hand, there is no place for security at all. It contains a single direction and that direction is that provided the condition precedent prescribed by the section is satisfied, the property concerned shall be attached and shall remain subject to attachment. An order for attachment, provided the Court decides to make it on forming the necessary belief mentioned in the section, cannot be avoided by furnishing security. It is thus impossible to see how in a proceeding u/s 45H(5) of the Banking Companies Act, a notice, as contemplated by Rule 5 Order 38 of the Code, could at all be given. Such a notice would have to require the Defendant either to furnish security or to appear and show cause why security should not be furnished. In a proceeding u/s 45H(2) of the Banking Companies Act, a notice in those terms would require the Defendant to do something which it is not open to him to do, that is to say, furnish security or to show an irrelevant cause, that is to say, cause why security should not be furnished by him. The notice contemplated by Order 38, Rule 5 of the Code thus appears to me to be wholly inappropriate in the case of a proceeding u/s 45H(2) of the Act and so far as at least the notice is concerned, the rule cannot, in my view, be applied.

Limiting myself to the Code for the time being, if the notice contemplated by Rule 5 of Order 38 cannot properly be given, it seems to follow that no conditional order of attachment as contemplated by Sub-rule (3) of Rule 5, can also be made. The conditional order which Sub-rule (3) has in view is an order made, pending the furnishing of security by the Defendant or pending his appearance and showing cause as to why security should not be furnished by him. If, under the Banking Companies Act, the Defendant cannot be permitted to do the former and if, as I have tried to show, to require him to do the latter would be meaningless, it is not easy to see how or to what purpose a conditional order of attachment could be made. Indeed, the language used in Section 45H(2) of the Banking Companies Act is positive in character. It clearly contemplates that given there has been an application u/s 543 of the Indian Companies Act, given that a particular person is a promoter or director or manager or liquidator or other officer of the banking company concerned and given that the Court has found reason to believe that a particular property belongs to such person, whether it stands in his own name or in the name of some other person, the only order that is intended to be made and can be made is an order that the property be attached. It is true that where the property attached stands in the name of a person other than the person against whom misfeasance proceedings have been launched, the section gives him a right to come up later and have the attachment vacated on proving that he is the real owner of the. property concerned. That provision does not make the order conditional as the term is commonly understood, but assuming that it is conditional so far as ostensible owners are concerned, it appears to be so far at least as the express provisions of the section go, intended to be absolute and final in the case of the Defendant in the misfeasance proceedings.

What strikes one prominently is the distinction made by Section 45H(2) between the person against whom misfeasance proceedings have been launched and persons other than he, is whose names some property, attached as his property, may be standing. The latter are given a right to intervene after the attachment order has been made and get the properties released from attachment, if they can prove their ownership. The Defendant in the misfeasance proceedings is given no such right of intervention. The reason may have been that where the property attached is a property standing in his own name, the Defendant cannot have any cause to show as to why the attachment should not subsist and, therefore, to give him also a right of intervention would be pointless. Mr. Deb, however, submitted that it would not always be pointless to give the Defendant such a right because there could conceivably be a case where a property stood in his name, but was held by him on behalf of a third party, either as a trustee or otherwise. In such a case it was contended, the Defendant would require either a notice before the order for attachment was made or a right of intervention at a subsequent stage in order that he might protect the interests of third parties which were in his hands. I do not know if the Legislature overlooked the possibility to which Mr. Deb referred, but it may well have been that it did not and thought that if the Defendant was holding some property as a trustee or in some other representative capacity on behalf of a third party, he ought to have so held it as to make the character in which he was holding it clear on the surface and that if he had not done so, he had only himself to blame, if he was finding himself and others in difficulty. This might not be a very satisfactory way of dealing with the contingency mentioned by Mr. Deb, but, as I shall show later, it can be fully met if the Court adopts the form of order which the learned Judge adopted in the present case.

Some argument was advanced to us as to how much of the Code was imported by Section 45H(2) of the Banking Companies Act. Since the present case is concerned only with necessity or otherwise of issuing the initial notice contemplated by Order 38, Rule 5 and of making a conditional order, as also contemplated by that rule, it is not necessary to embark upon an extensive enquiry as to what other provisions of the Code are or are not applicable. One possible view is that what the last words of the section mean is that while the order for attachment shall be made in accordance with its provisions, the actual attachment shall be effected in accordance with the provisions of the Code and that the subsequent provisions of Order 38. so far as may be applicable shall apply; for instance, Rule 7 shall apply and the attachment shall be made in the manner provided for the attachment of property in execution of a decree. Rule 9 shall apply to the extent that if the misfeasance summons is dismissed, the attachment shall be withdrawn. Rule 10 shall apply and pre-existing rights shall not be affected. Rule 11 shall apply and in case an order or decree for payment of moneys is made against the Defendant in the misfeasance proceedings, it shall not be necessary to apply for a reattachment of the property for the execution of such order or decree. As to whether Rule 8 shall apply, there appears to me to be some difficulty, because it contemplates a claim preferred to the attached property after the order for attachment has been made. That identical matter has been dealt with by Section 45H(2) itself and the right to prefer a claim has been given only to the person, other that the Defendant in the misfeasance proceedings in whose name an attached property may stand and who may thus be its ostensible owner. The making of that particular provision may imply that the operation of the general provision contained in Rule 8 is excluded, but whether or not that is so, it is not necessary to decide in the present case.

I do not think any further examination of the provisions of the Code is necessary for the purpose of repelling the first branch of Mr. Deb''s argument that the provisions of the Code have been imported by Section 45H(2) by its own terms and, therefore, his client had a right to a notice under those provisions and the learned Judge had only a right to make a conditional order in the first instance. The contention of Mr. Deb, as based on the Code must,-in my opinion, fail.

The second branch of Mr. Deb''s contention is that his client was entitled to a notice in any event, because it is one of the fundamental principles of judicial procedure that no order shall be made to the prejudice of any person without giving him an opportunity to be heard. That rule is a rule of natural justice and I concede that no Court can be right in departing from it unless it is required or authorised to do so by the provisions of a statute. Section 45H(2) does not in terms provide for any notice to be given, but Mr. Deb''s contention is that it does not also forbid notice and he says that if a statute has not expressly said that an order, affecting the rights of a party, may be made without giving him any notice of the proceeding, the requirement of giving such notice, when an order of that character is proposed to-be made, is implied. In answer to that contention, it was stated to us on behalf of the Respondent that in actual fact the Appellant was present throughout before the learned Judge during his consideration of the present application, but I do not think that that circumstance is material. If the Appellant had a right to a notice either under the Code or under the unwritten rule of natural justice, the mere fact that he happened to be present when the order against him was made will not either validate the order or provide sufficient excuse for not serving a notice on him. But as far as I can appreciate the true intent of Section 45H(2), it appears to me to contemplate that no notice need be given to the Defendant in a misfeasance proceeding before an order for attachment of his property is made. It is only too obvious that" the Act views persons connected with a banking company which has been driven to liquidation with great severity and I am not sure that it was not actually intended that since nothing worse was going to be done than freezing the properties of the Defendant during the pendency of the misfeasance proceedings, it would do no violence to natural justice if the Defendants properties were frozen without a prior notice to him. At the same time, it is not right to overlook the fact that there is no express direction in the section that no notice shall be given. Unfortunately, the rules framed under the Act have made no provision in this regard and the Court has been placed in the somewhat difficult position of having to reconcile between what appears to be the real, though not expressly mentioned, intent of the Legislature and the right under the rules of natural justice of every individual to an opportunity of being heard before an order is made to his prejudice. On that question of an apparent conflict between a cryptic statute and common justice, it is to be noticed that even the CPC contemplates that where a conditional order is made, that order shall be made ex-parte upon reading only the affidavit filed by the Appellant or other information supplied by him and on being satisfied from merely those materials that the preliminary condition, authorising the issue of a conditional order exists. The severity of an ex-parte order of serious consequence to the Defendant made in those circumstances is alleviated and almost completely removed in the Code by the provision made for the Defendant appearing subsequently and showing cause against the attachment. It is, therefore, nothing extraordinary or peculiarly draconic that Section 45H(2) should authorise the Court to make an order for attachment, at least in the first instance, without notice to the party concerned. If he is subsequently given opportunity of appearing and contesting the attachment, he is placed in no worse position than his counterpart under the Code and I think, in the somewhat unsatisfactory state of the statutory provisions, the Court can best reconcile the dubious mandate of the section and the requirement of natural justice by adopting the form of order which the learned Judge adopted in the present case. He made an order for attachment in the absolute form, as Section 45H(2) authorised him to do. At the same time, while giving liberty to have the order vacated, he did not limit the privilege to the party mentioned in the section, that is to say, the ostensible owner, but extended it to all parties affected by the order, which obviously would include the Appellant as well. To that extent, he has written a new and further provision into the section which goes beyond its express words, but by doing so he has only brought up to the surface a provision which, according to Mr. Deb himself, is implied in the section. The contention that even if the Code, did not apply, the Appellant was entitled to a notice under rules of natural justice and an opportunity to be heard before an order for attachment of his property was made, is, to my mind, amply met by the terms which the learned Judge incorporated in his order. The only opportunity which a person in the Appellant''s position really requires is an opportunity for contesting an attachment of his properties and it seems to be immaterial whether such an opportunity is given to him before the order for attachment is made or after. Indeed, even under the Code of Civil Procedure, where a conditional order is made, the opportunity for showing cause against the attachment is a subsequent opportunity.

It has, however, been contended by Mr. Deb that even the liberty given by the learned Judge to the Appellant to try to have the order vacated is not a sufficient substitute for a notice, because the learned Judge did not direct a copy of the petition to be served upon him and, therefore, he would not be in the possession of the grounds. I do not consider that contention to be of any force. What the learned Judge directed was that a copy of the minutes was to be served on the parties affected and the Appellant was one of them. He would, therefore, get a copy of the minutes. The very first sentence in the minutes of the principal order is that an order for attachment was being made "in terms of prayer "(1) of the petition." That sentence would be sufficient to inform the Appellant that there was a petition in the case and that the grounds of the prayers made by the Respondent, to which the learned Judge had given effect, were contained in that petition. Even when an application is made in this Court by way of a Notice of Motion, what is stated at the bottom of the notice as "grounds" is merely that the grounds are contained in a petition or affidavit. The party served with the Notice of Motion has thereafter to obtain a copy of the grounds, if he desires to have them, under Rule 9 of Chapter XX of the Rules of the Original Side and he can insist that upon payment of the usual charges, a copy of the grounds shall be supplied to him. I therefore do not see that there could be any difficulty in the way of the Appellant obtaining a copy of the grounds, if he really desired to avail himself of the liberty given to him by the learned Judge and to try to prove that the order for attachment ought not to have been made and that the properties should be released.

In my view, neither the provisions of the Code, nor the rules of natural justice were violated by the order appealed against.

The appeal is, accordingly, dismissed with costs. *. 20. Certified for two counsel.

Lahiri, J.

I agree