Case: Vastulal Vs. Pareek Commercial Bank

1. The appellant, Vastulalreferred to asin 1921 at Bikaner a banking business in the name and style of the Pareek Commercial Bank. In 1943 a public limited company was registered under the Bikaner Companies Act called the Pareek Commercial Bankand all the assets and liabilities of the Pareek Commercial Bank were transferred to that public limited company. Under the articles of association of the bank general management of the business was, subjected to the control and supervision of the directors, vested in Vastulal who was appointed chairman of the bank.2. In an application under the Indian Companies Act, 1913, submitted in February, 1952, before the High Court of Rajasthan (which at the material time had acquired, on account of political changes, jurisdiction over the territory of the former Indian State of Bikaner) by one of the depositors of the bank, the High Court passed an order for compulsory winding up and appointed an official liquidator to wind up the affairs of the bank. On examining the books of account of the bank, the liquidator found that in the "cash credit accounts" of six stock brokers stood diverse amounts which aggregated to Rs. 66, 821. These amounts has been transferred to the account of those brokers from the "sundries register" of the bank. It was also found that payments had been made in the accounts of those stock brokers in different banks on instructions given by Vastulal on behalf of the bank. In the directors report dated December 31, 1950, under the caption "Loans, advances, cash credits and overdrafts", certain amounts were collectively described as "debts considered good for which the bank held no other security than the debtors personal security", that the amount of Rs. 66, 821 was the balance due from reverse "parties through whom shares were purchased and sold, but not transacted through share account", and that the same was "unverified owing to the lack of information". The explanation given by Vastulal in his public examination under section 45G of the Banking Companies Act, 1949, about the transfer of amounts to the stock brokers was found unsatisfactorily. On enquiry the stock brokers informed the liquidator that the items were credited by them to the account of M/s. B.R.Pareek & Sons Ltd.a private concern of which Vastulal was the managing directorand the amounts were utilised towards discharge of the liability for payment of losses of that concern in its dealings in shares which had been carried on through them. The liquidator submitted three petitions to the company judge of the High Court of Rajasthan at Jodhpur under section 235 of the Indian Companies Act (7 of 1913) and section 45H and other Banking Companies Act (10 of 1949), for directions against Vastulal and other directors of the bank that they be ordered to restore the amounts belonging to the bank which had been transferred to the stock brokers and for orders for assessment of damages. It was averred in the petitions that Vastulal had done speculative business in buying and selling shares and securities in the name of M/s. B.R.Pareek & Sons Ltd., through different stock brokers and had suffered heavy losses and that towards payment of or as advance in connection with his personal and private transactions and in any case not in respect of transactions of the bank had got paid large amounts of money through the Imperial Bank of India at Bombay to the brokers and had debited or allowed to be debited the said amounts in the "sundries register" to the account of the brokers and had thereby gained advantage for himself and on that account was guilty of misfeasance, malfeasance andIt was also averred that the other directors had rendered themselves liable under section 235 of the Indian Companies Act, 1913, in that, being directors of the bank, they either abetted or connived at the conduct of Vastulal in misapplying the funds belonging to the bank towards payment of his personal losses. The claim against those directors has been dismissed by the High Court and nothing more need be said in that behalfThe company judge rejected the plea raised by Vastulal and passed orders in the three petitions that Vastulal do pay to the bank three sums, Rs. 700, Rs. 8, 500 and Rs. 24,with interest on each of those sums at six per cent. per annum simple up to the date of realization. Against those orders three appeals were preferred to the High Court being Appeals Nos.5, 6, and 7 of 1960. Appeal No. 5 of 1960 was held not maintainable and was accordingly dismissed. Appeals Nos. 6 and 7 of 1960 were heard on the merits and were ultimately dismissed by the High Court. Against the orders passed by the High Court these two appeals have been preferred with special leave.

Court's reasoning:
which should normally be in the custody of the bank but were produced by Vastulalwere sought to be relied upon in support of the case that the amounts transferred to Messts. S. ramdas were in respect of the order for the purchase of debentures of the Calcutta Electric Supply Co. Ltd. But even these letters do not support his case. The letter dated January 25, 1950, merely acknowledged the receipt of the order for the purchase of debentures worth Rs. 50, 000 but there is no reference to any sums transferred as advance payment on that account. Admittedly, Rs. 17, 500 had been received by Messrs. S. Ramdas before the date of this letter, and if that amount was to be appropriated for the purchase of debentures, some indication in that behalf may have been found recited in the letter. The second letter which is dated February 14, 1950, relates to the cancellation of the order, but even that letter refers to no transfer of funds for the purchase of debentures, nor does it make any reference to the appropriation of the funds already transferred to the brokers for the alleged specific purpose of purchasing the debentures. The books of account of the bank show that it was not the practice of the bank to make advance payment for purchase of stocks, shares or securities: it was only after the stocks were purchased and the bill was submitted that payments were made. No rational explanation has been given by Vastulal as to why a departure was made in respect of this particular transaction for purchase of debentures. The case of Vastulal that the amounts appropriated by Messts. S. Ramdas towards losses in the account of Messrs. B.R. Pareek & sons Ltd. were directed to be appropriated for purchase of debentures of the Calcutta electric Supply Co. Ltd. is not supported by any documentary evidence in the custody of the bankIt was urged by counsel for Vastulal that the entries in the books of account of Messrs. S. Ramdas were not admissible under section 34 of the Evidence Act. But the question as to the admissibility of the books of account was not raised before the company judge.The question whether evidence which is otherwise admissible in law is duly proved and admitted can only be raised at the time when that evidence is tendered and admitted and not at the stage ofIt was in this case contended for the first time in appeal that the entries in the books of account of Messrs. S. Ramdas were not proved by the person who made thoseentries. The learned company judge was, it appears, of the opinion that the entries were duly proved. No objection was raised before him that the entries in the books of account were not proved. It is a settled rule that when evidence which in law is admissible and relevant is admitted in the court of trial without objection, no plea of improper proof will be permitted to be raised in appeal. The entries having been tendered in evidence without objection, the plea raised by counsel was rightly not entertained by the High Court insuch argument was advanced before the appeal court and for very good reasons. Under section45H of the Banking Companiesin so far as it is material, it is provided that when an application is made to the High Court under section 543 of the Companies Act, 1956 (section 235 of the Indian Companies Act, 1913), against any officer of a banking company for repayment or restoration of any money or property and the applicant makes out a prima facie case against such person, the High Court shall make an order against such person to repay and restore the money or property unless he proves that he is not liable to make the repayment or restoration either wholly or in part. It is clear from the scheme of section 45H that once a prima facie case is made out it is for the person proceeded against to prove that he is not liable to make the repayment or restoration of property. Before the company judge after giving oral evidence it was never represented by Vastulal that he desired to prove that he was not liable to restore the amounts appropriated towards his losses. The High Court, on the materials placed before it, was which the appellant was directed to pay had been misapplied by him to discharge his liability in respect of the transactions of Messrs. B.R.pareek & Sons Ltd. and he was on that account liable to make good the same to the bank0The plea of Vastulal with regard to the sum of Rs. 8, 500 transferred to the account of M/s. Naraindas Aidan, which is theof Appeal No. 435 of 1962, is wholly unsubstantial. The liquidators case was that Vastulal was carrying on the business of selling and purchasing shares and securities through M/s. Naraindas Aidana firm of stock brokersand Vastulal transferred to them Rs. Rs. 3, 500 on December 13, 1949, and Rs. 5, 000 on February 3, 1950. It is admitted that both these sums of money belonged to the bank. These amounts were admittedly credited in the account books of the stock brokers in the account of M/s. B.R.Pareek & sons Ltd. and not on the banks account. Vastulal in the first instance submitted that he could not, without looking into the records of the bank, state the purpose for which the two amounts were paid. He then inspected records of the bank and even thereafter he was unable to render any explanation why the two amounts were transferred to the stock brokers on behalf of the bank. The records of the bank do not throw any light on those transfers. It does not appear that the bank had any dealings with M/s. Naraindas Aidan. Tulsidas, a partner of the firm of M/s. Naraindas Aidan was examined as a witness on behalf of the liquidator. He produced all his books of account and stated that his firm had never carried out any transaction on behalf of the bank and that there was no khata in the name of the bank in the firms books of account. He disputed the plea of Vastulal that the amounts were credited in the books of account of the firm as having been paid on behalf of the bank. He produced office copies of the contract notes and statements of account in relation to the transactions contained in the firms books of account, and asserted that the originals had been sent to Vastulal from time to time. He also showed from the books of account that Vastulal had soured heavy losses in share transactions which were carried on through his firm. Vastulal did not produce the books of account of M/s. B.R.Pareek & Sons Ltd., which were admittedly in his possession, nor the statements of account received from M/s. Naraindas Aidan. There is no reference in the books of account of the bank to the purpose for which the two amounts were transferred to M/s. Naraindas Aidan.8. In these circumstances the only conclusion which could be arrived at was that the amounts which belonged to the bank were misapplied by Vastulal for discharging his personal liabilities and they were not appropriated for any purpose of the bankCounsel for the appellant contended that as the amounts which were transferred to the two brokers were by cheques or bills of exchange drawn on other banks in favour of stock brokers, such bills of exchange or cheques being drawn in according to the general practice prevailing in the business community, evidence to prove that the amounts were not paid by the bank or for the purpose of the bank was inadmissible. This argument proceeds upon a misconception of the question in dispute which falls to be determined in these appeals. The amounts of Rs. 18, 500 and Rs. 8, 500 which were transferred to the stock brokers belonged to the bank. This is admitted. It is also common ground that the amounts were transferred under bank drafts or cheques drawn by Vastulal acting on behalf of the bank. The case of the liquidator was that Vastulal, taking advantage of the authority conferred upon him, misappropriated the funds of the bank and utilised the same for his private purposes and was on that account guilty of misfeasance. We fail to appreciate how any question as to admissibility of evidence contrary to the terms of a bill of exchange or a cheque arises in this case. The respective cases before the court were the case of the liquidator who claimed that the funds belonging to the bank had been utilised wrongfully by Vastulal for discharging his personal liabilities to the share brokers and the case of Vastulal, the appellant, in respect of the amounts transferred to M/s. S. Ramdas was that the amount of Rs. 18, 500 was transferred for the purpose of purchasing on behalf of the bank debentures of the Calcutta Electric Supply Co. Ltd.9. In considering this case the court looked at the conduct of Vastulal, the documentary evidence and held that the story of Vastulal that the amount of Rs. 18, 500 was sent for purchasing debentures was untrue. Proof of the case of the liquidator is not prohibited by anything contained in the Negotiable Instruments Act, 1881, or the Indian Companies Act, 1913. Section 27 of the Negotiable Instruments Act on which reliance was placed by the counsel merely deals with the authority of an agent of bind his principal: it does not prohibit proof of the fact that taking wrongful advantage of his authority the agent has misappropriated funds belonging to the principal or true that in drawing the cheques or bank drafts, Vastulal purported to act on behalf of the bank, but in so doing he gave directions for appropriating the property of the bank to his own purposes. Proof of such a case is not prohibited by the Negotiable Instruments