K MADHAVA NAYAK Vs. POPULAR BANK LTD
LAWS(KER)-1968-10-27
HIGH COURT OF KERALA
Decided on October 29,1968

K.MADHAVA NAYAK Appellant
VERSUS
POPULAR BANK LTD. Respondents

JUDGEMENT

- (1.) These appeals were heard along with, and in continuation of Appeals Nos. 137, 139, 140 of 1963, etc., in which we have just delivered judgment. They arise from. Application No. 2 of 1959 filed by the Official Liquidator of the Popular Bank Ltd., under S.543 of the Companies Act. The parties to this application are, with one difference, the same as the parties to Application No. 1 of 1959 against which A. S. Nos. 137, 139, 140 of 1963, etc., were directed, the only difference being, that the 9th respondent in Application No. 1 of 1959, is not a party hereto. The result is, that Respondents 10 and 11 in Application No. 1 of 1959 are respondents 9 and 10 in Application No. 2 of 1959. Save where expressly indicated reference would hereinafter be made to the ranks of the parties as before the Trial Judge.
(2.) Application No. 2 of 1959 sought to make the Respondents liable for misfeasance and breach of trust, in relation to the Company, and for misapplication and retainer of the money and property of the Company, and as being accountable for such money and property. The misfeasance, mis application, retainer, breach of trust and accountability were claimed under six principal heads. First it was complained that Respondents 1 to 8, the Directors of the Company did not exercise adequate control in the matter of advances of the Company's funds, and in consequence, Respondents 9 and 10 advanced large amounts to various parties without taking adequate securities for the advances and from whom it was not possible to recover the whole or a substantial portion of the advances. Not only were steps not taken to recover the amounts covered by the advances. but the Board of Directors ratified the advances on 10-11-1955. A list of such advances made, together with the amounts likely to prove unrealisable was furnished in Schedule I. The unrealisable amounts aggregate to Rs. 4,76,746/- Secondly, it was alleged that several amounts were withdrawn by Respondents 9 and 10 from other banks, and were wrongfully retained and misappropriated. Respondents 1 to 8, who had knowledge of the said withdrawals did not take any steps to recover the amounts withdrawn. The withdrawals thus made were covered up by false entries, made by Respondents 9 and 10 with the knowledge of the Respondents 1 to 8, of advances to different customers of the Company. These fictitious advances were also ratified on 10-11-1955. The list of the withdrawals from other banks was furnished in Schedule.2 aggregating to Rs. 1,60,500/-. A list of the false and fictitious entries of advances made to cover up the misappropriations was shown in Schedule.3. The amount covered by such entries comes to Rs. 1,99,000/-, thirdly it was contended that Respondents 1 to 8, prepared and published false balance sheets for the years 1954 and 1956 showing profits when the Bank had actually incurred heavy loss. The amounts paid as dividends for the said two years was shown in Schedule.4. Rs. 12,311-8-10 was claimed under this head. Fourthly, it was alleged that there were manipulations and falsification of Accounts in the Bills Negotiated Account of the Company. Several bills have been entered as negotiated, which were actually not so negotiated. A list of bills in the Bills Negotiated Account in respect of which no bills have been actually negotiated, was shown in Schedule.5. The amount covered thereby totals to Rs. 98,700/-. Fifthly, Respondents 3 and 5 sanctioned and caused to be paid to the 9th Respondent, a sum of Rs. 7,500/- in February 1956, on a Demand Promissory Note without any security, knowing that the 9tn Respondent had no means to repay the loan. A sum of Rs. 10,000/- deposited by Sri N. Narayanaswamy was also misappropriated. Sixthly it was alleged that there were manipulations in the Profit and Loss Account of the Company. The defences raised will be referred to in the course of the judgment. On these heads of claim, the learned Trial Judge formulated fifteen points for determination and recorded his findings which may be summarized thus; (1) That the Directors did not exercise adequate control in the matter of advances, and in consequence, Respondents 9 and 10, advanced large amounts to various parties without adequate security. The Directors did not take effective steps to recover those advances; (2) that the amounts mentioned in Schedule.2, were withdrawn and misappropriated; that the Directors did not take appropriate steps to recover the said amounts from Respondents 9 and 10; and that the misappropriations were covered up by making false entries of fictitious advances, as indicated in Schedule.3, with the knowledge and consent of the Directors; (3) that the Liquidator had not established any manipulations in the Profit and Loss Account; (4) that the fixed Deposit Amount of Rs. 10,000 of Sri Narayanaswamy was misappropriated, but probably this may not be the direct result of misfeasance of the Directors as it could be discovered only if the Directors looked into the Account Books item by item; and that Respondents 3 and 5 had sanctioned a loan of Rs. 7500/- to the 9th Respondent without security; (5) that there were manipulations in the Bills Negotiated Accounts, as a result of which Bank must have lost at least Rs. 61,800/- as shown in Schedule V; (6) that as far as the balance sheet for 1954 was concerned, Respondents 1 to 8 might not have known that it was false; but regarding the balance sheet for 1955, the same was false and incorrect, to the knowledge of Respondents 1 to 8, and they had not established that the dividends covered thereby were not disbursed; (7) that the loss sustained by the Bank can be fixed at Rs. 6,50,000/, being the amount claimed in Application No. 1 of 1959; (8) that the Respondents are guilty of misfeasance and breach of trust in relation to the Bank and are liable to contribute the following sums by way of compensation in respect of the misapplication, misfeasance and breach of trust, namely, Respondents 9 and 10, jointly and severally liable for the entire sum of Rupees 6,50,000/-; the 3rd Respondent liable for Rs. 2,00,000/-; Respondents 1, 4, 5 and 7 liable for Rs. 75,000/- each; and Respondents 2, 6 and 8 liable for Rs. 50,000/- each. The Respondents were made liable for the costs of the Liquidator in the same proportion. It was made clear by the learned Trial Judge that the Liquidator will not in any event be entitled to realise more than the amount of Rupees 6,50,000/. and one set of costs by executing either of the decrees or both the decrees in Applications 1 and 2 of 1959 from Respondents 1 to 8 in the proportion directed. A copy of the judgment in Application No. 1 of 1959 was directed to be appended to the judgment in Application No. 2 of 1959.
(3.) Against this order of the learned Judge A. S. No. 370 of 1903. has been preferred by the 7th Respondent; A. S. No. 381 of 1903 by the 2nd Respondents A. S. No. 382 of 1963 by the 3rd Respondent; A. S. No. 395 of 1963 by the 8th Respondent; A. S. No. 396 of 1963 by the 1st Respondent; A. S. No. 399 of 1963 by the 4th Respondent; A. S. No. 400 of 1963 by the 5th Respondent; and A. S. No. 412 of 1963 by the 6th Respondent. Respondents 9 and 10 have not filed any appeal. Nor has the Official Liquidator filed either any appeal, or memorandum of cross objections.;


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