SRIVASTAVA, J. - (1.) THESE are three special appeals arising out of the same case and can, therefore, be conveniently disposed of together. They arise Out of an application made by the official Liquidator of the Jwala Bank Ltd., (in liquidation) under section 235 of the Companies Act of 1913. The application was filed against seven persons, three of them being the present appellants. The seven persons were Sri Jwala Prasad, Sri G.G. Buty, Sri W.C.G. Dunne, Sri W.B. Dawson, Sri Rama Shanker, Father Francis Xavier and Messrs. S.N. Gupta and Co. Sri W.C.G. Dunne died during the pendency of the petition and the case abated against him. Sri W.B. Dawson was not traceable and the Liquidator, therefore, intimated to the Court that he was withdrawing the case against Sri W.B. Dawson and did not want to proceed against Mm. The application proceeded against the remaining five persons. Father Francis Xayier having been exonerated from liability decrees were passed against the remaining four persons. Sri Jwala Prasad was held liable for Rs.56,212/ - plus Rs.2,000/ - as costs. Sri Rama Shanker was held liable for Rs.5,000/ - and for Rs.500/ - as costs. Sri S.N. Gupta of Messrs. S.N. Gupta and Co., was also held liable for the same amount. Sri G.G. Buty was held liable for Rs.3,750/ - without costs. Special Appeal No. 304 of 1957 has been filed by Sri Jwala Prasad. Special Appeal No.4 of 1958 has been filed by Sri G.G. Buty and Special Appeal no.71 of 1958 has been filed by Sri S.N. Gupta. At the time of hearing we were told that Sri Rama Shankar has submitted to the order passed against him and has not appealed.
(2.) SIX of the persons against whom the application had been filed were the directors of the Bank in liquidation while Sri S.N. Gupta of Messrs. S.N. Gupta and Co., was the duly appointed auditor of the Bank. The Jwala Bank was originally started as a private concern of which Sri Jwala Prasad, appellant in appeal No.304 of 1957, was the sole proprietor. In. April, 1938, the Jwala Bank Ltd., was incorporated as a public limited liability company with an authorised capital of Rs.25,00,000/ - divided in 25,000/ - ordinary shares of Rs.100/ - each. It had its registered office at Agra. The issued capital till the 30th of June, 1949, was Rs.13,32,700/ -. Sri Jwala Prasad held 4,375 fully paid up shares of the company in his own name and the names of his wife and children the management of the company was vested in a Board of Directors of which Sri Jwala Prasad was the Chairman. The company had 29 branches in different parts of India, one of its principal offices being located at Bombay. On the 10th April, 1947, the Central Government purporting to act under an ordinance which was in force on that date directed the Reserve Bank of India to cause an inspection to be made of the company. As a result of the report of the inspection the Central Government passed an order dated the 6th of April, 1948, prohibiting the Bank from, receiving fresh deposit at any of its offices, branches or agencies with effect from 12 -4 -1948. At that time the liabilities of the Bank amounted to Rs.1,09,00,000/ -. Under a scheme that was formulated by the Bank a sum of Rs.98,70,000/ - was later paid to the creditors and depositors and in this way some of the liabilities were Satisfied. Others, however, remained outstanding. On the 1st of August, 1949, a creditor Sri Sitla Prasad Singh filed an application under section 163 of the Companies Act of 1913 praying for the winding up of the company. The application was allowed on the 17th of February, 1950, and on the same date the official Hquidator was appointed a liquidator of the company. As a result of the appeal which was filed against the order directing the winding up the functioning of the official Liquidator remained stayed first from the 24th of February, 1950. to the 20th of March, 1950, and again from the 28th of August, 1950 to the 24th of October, 1950.
(3.) THE appeal was, however, dismissed on the 24th of October 1950, and the stay order was discharged. The liquidator then took charge of the affairs of the company. He got the affairs of the company investigated by a firm of chartered accountants known as Messrs. G.P. Jaiswal and Co. As a result of the report of the investigators and a scrutiny of the account books of the company and the balance sheets of the years 1945 -46 and 1946 -47 the Official Liquidator discovered: - (1) That Sri Jwala Prasad had unauthorisedly drawn a large amount of Rs.45,942/ - as daily allowance during the period 1 -11 -1947 to 31 -4 -1950. (2) That in fact no profits had accrued to the Rank in 1946 yet a large amount had been distributed as dividend between the share -holders. The amount had really been distributed out of the capital in direct contravention of the terms of the articles and the memorandum of association of the company. (3) That a large amount had been allowed to be assessed as income tax on the profits of the company for the year 1945 -46 though in fact no profits had accrued to the company in that year. (4) That in respect of the year 1946 -47 also though no profits had actually accrued a large amount had been shown as profits. Though no income -tax had been asssessed on the profits deductions of income -tax at source had not been allowed to be refunded. (4) It was alleged that the Chairman and the Directors who had been impleaded as opposite parties in the application were directly responsible for the manipulation of the accounts and the resulting loss to the company. The method employed in the manipulation of accounts was alleged to be that the cost price of the shares held by the company in various other companies had been inflated and the inflated amount had been shown as profits in the accounts as well as the balance sheets. It was urged that the balance sheet prepared was inaccurate and misleading. So far as Sri S. N. Gupta whose firm had audited the accounts of the two years was concerned, it was alleged that he had performed his duties perfunctorily and had made no attempt to check and verify the figures incorporated in the balance sheets. The liquidator, therefore, sought to make the seven opposite parties impleaded in the application liable for a total amount of Rs.4,50,331/ 15/ - which was made up of the following four items: - (a) Dividend for 1946 ... ... Rs. 78,254/10/ -. (b) Income tax and Excess Profits Tax assessed for 1946 ... Rs.2,29,127/1/ -. (c) Deductions of Income tax at source for 1947 disallowed ... Rs.99,008/ -. (d) Daily allowance wrongly Charged ... ... ... Rs.45,942/ -. (4a) The prayer made in the application was: - "It is, therefore, respectfully prayed that this Honble Court will be pleased to examine into the conduct of the directors opposite parties Nos.1 to 6 and that of the Opposite party No.7, Messrs. S.N. Gupta and Co., Auditors of the Bank, and compel them either jointly or severally to restore the money with interest at such rates as this Honble Court may think just to the assets of the Jwala Bank Ltd., by way of compensation in respect Of misapplication retainer and misfeasance or breach of trust as this Honble Court may think just and proper with costs of these proceedings". ;