Bombay High Court
The Mapusa Urban Co-Operative Bank Ltd. vs Shri Dattatraya A.P Mahambre & Others on 15 January, 1999
Equivalent citations: 1999(4)BOMCR510, (1999)1BOMLR798, 1999(2)MHLJ502
Author: R.M.S. Khandeparkar
Bench: R.M.S. Khandeparkar
ORDER R.M.S. Khandeparkar, J.
1. This appeal arises from the Judgment and order dated 24th October, 1994, passed in Insolvency Petition No. 1/90, by the District Judge at Panaji. By the impugned order the District Judge had allowed the application filed by the respondent No. 1 herein for his declaration as insolvent and has further ordered that from the amounts realised of the assets of the respondent No. 1 and which are now invested in F.D.R., the outstanding amounts of respondents Nos. 2,4, and 5, shall be paid first and from the balance outstanding amount, the appellant should be cleared and if any balance is left, the outstanding amounts of the remaining respondents shall be cleared on pro-rata basis.
2. The grievance of the appellant is that the impugned order has been passed by misconstruing the provisions contained in section 34 of the Maharashtra Co-operative Societies Act, 1960, as applied to the State of Goa and hereinafter called the "said Act". It is the contention of the appellant that upon proper construction of the said section 34 of the said Act, the dues to the appellant ought to rank higher than that of the respondents.
3. The facts which are not in dispute are that the appellant is a Society registered under the said Act and is engaged in the business of banking. The first respondent has been declared as insolvent and all the other respondents herein alongwith the appellant are creditors of the first respondent. The respondents Nos. 2 to 5 are Nationalized Banks, whereas the other respondents are private creditors. The first respondent is a member of the appellant Society.
4. The nature of the controversy in the matter is pertaining to the scope of the expression. "Government", in section 34 of the said Act. The point for determination which arises in the present appeal is, therefore, whether the Nationalized Banks like respondents Nos. 2 to 5 would be "Government", within the meaning of the said expression in section 34 of the said Act, so as to enjoy priorities by virtue of the said provision over other creditors in case of distribution of assets of a debtor.
5. Section 34 of the said Act reads thus :
"Section 34. Insolvency of members.---Notwithstanding anything contained in the Presidency-Towns Insolvency Act, 1909, the Provincial Insolvency Act, 1920, or any corresponding law for the time being in force, the dues of a Society from a member, in insolvency proceedings against him, shall rank in order of priority next to the dues payable by him to Government or to a local authority."
6. On a plain reading of the said section 34 it is clear in cases where a member owes money to a Society, the dues to the Society shall stand immediately next to the dues payable to the Government or to a local authority, in the matter of priority. In other words, the dues payable to Government or to a local authority will always rank first in the order of priority and the dues to the Society will be next in the queue and thereafter will get the priority over the dues payable to any other creditor by virtue of the provisions contained in section 34 of the said Act. As far as this aspect is concerned, there is no dispute between the parties. The dispute however, relates to the issue as to whether the Nationalized Banks can be termed as the "Government", within the meaning of the said expression in the said section 34 of the said Act, so as to claim priority over the dues payable to the Societies like the appellant Society.
7. The District Court, placing reliance upon two decisions, one of the Punjab and Haryana High Court and one of the Apex Court, has held, by the impugned order, that the Nationalized Banks like the respondents Nos. 2 to 5 are covered by the term "Government", in section 34 of the said Act and, therefore, they will have priority in recovering their dues over the appellant, under section 34 of the said Act. The decisions relied upon by the District Court in that regard are in the matter of Vijay Kumar Bhambari v. Ram Nath Bajaj, , and Prathama Bank, Head Office, Moradabad, through its Chairman v. Vijay Kumar Goel & another, .
8. In the matter of Vijay Kumat Bhambari v. Ram Nath Bajaj (supra), the learned Single Judge of Punjab and Haryana High Court was dealing with a matter wherein the question raised was whether a retired employee of a Nationalized Bank would be a specified landlord as defined by the East Punjab Urban Rent Restriction (Amendment) Act, 1985. All the observations therein are in relation to the status of a retired employee of a Nationalized Bank vis-a-vis the definition of the term ":specified landlord", under the relevant Rent Act. Section 2(hh) of the said Rent Act defined "specified landlord" to mean "a person who is entitled to receive rent in respect of a building on his own account and who is holding or has held an appointment in a public service or post in connection with the affairs of the Union or a State. There is no doubt that the learned Single Judge has referred to various judgments of the Apex Court while dealing with the matter and thereafter has held that the complete title, interest, possession, power and control vested in the Central Government who would administer the finance through the Board of Directors constituted by the Government and the profits of the Bank vested in the Central Government. The learned Single Judge has also further observed that from a bare reading of the relevant Act and its scheme it was apparent that though the Bank is a corporate body created by a statute, in fact, it is the Governmental functions which are being performed by it and the provisions have been designed to discharge the sovereign and legal functions of the State through the instrumentality or agency of the statutory corporate body, i.e. Banks and therefore, it would be delusional to hold that the Bank is not discharging the functions connected with the affairs of the State, the basic design of the Act being to administer for administrative reasons the Governmental affairs through the corporate body created by the statute and therefore, the High Court of Punjab and Haryana held that there was no reason to hold that being an employee of a Nationalized bank of which all rights and title vested in the Central Government does not amount to holding a post in connection with the affairs of the State and therefore, the concerned retired employee was held to be squarely covered by the definition of "specified landlord" under the said Rent Act.
9. In Prathama Bank, Head Office, Moradabad, through its Chairman v. Vijay Kumar Goel & another (supra), the question raised before that Apex Court was whether a Regional Rural Bank established by Notification under section 3 of the Regional Rural Banks Act, 1976, is a "State", for the purpose of Part III of the Constitution of India. In the said case, the employee of the appellant Bank before the Apex Court had sought to challenge the validity of the disciplinary proceedings initiated against him and the order of dismissal from services passed thereunder. The point sought to be pressed on behalf of the appellant Bank was that the Bank cannot be deemed to be a "State" for the purpose of Part HI of the Constitution of India, and hence, the decree for reinstatement of respondent was illegal. The Apex Court after considering the various provisions of the Regional Rural Banks Act, 1976, held that the provisions of the Act do not leave any room for doubt that the Regional Rural Banks are under deep and pervasive control of the Central Government and have been established as its instrumentality and are, therefore, "State" within the meaning of Article 12 of the Constitution of India.
10. Both the decisions referred to above no doubt clearly hold that the Nationalized Banks and the Banks constituted under the Regional Rural Banks Act, 1976, are the "State" within the meaning of the said expression under Article 12 of the Constitution of India. In other words, the Banks are held to be the instrumentality or the agency of the State.
11. The question therefore, which arises is whether the observations of the Apex Court that the Nationalized Banks are the agencies or instrumentalisties of the State would be sufficient to hold that such Banks are, by themselves, "Government", within the meaning of the said expression used in section 34 of the said Act. While considering this point, one cannot ignore the difference between the terms. "Government" and "State". In fact, there is a vital and clear difference between the said two terms as has been held by the Apex Court in the matter of Pashupati Nath Sukul v. Nem Chandra Jain & others, , and relied upon by the learned Single Judge of the Kerala High Court in the matter of V. Padmanabhan Nair v. Kerala State Electricity Board, . The term, "Government" describes the exercise of certain powers and performance of certain duties by public authorities or officers, together with certain private persons or corporations exercising public functions. Indeed, the Apex Court in Pashupati Nath Sukul's case clearly held thus.
"A State implies the existence of a community or group of people occupying a geographical area or territory in which they permanently reside possessing internal sovereignty and independence of foreign control and a political organisation or agency through which the collective will of the people is expressed and enforced. The last of the elements of a State referred to above is generally called as a Government.
From the legal point of view, Government may be described as the exercise of certain powers and the performance of certain duties by public authorities or officers, together with certain private persons or corporations exercising public functions. The structure of the machinery of Government and the regulation of the powers and duties which belong to different parts of this structure are defined by the law which also prescribes to some extent the mode in which these powers are to be exercised or these duties are to be performed (See Halsbury's Laws of England, Fourth Edition, Vol. 8 Para 804). Government generally connotes three estates, namely, the Legislature, the Executive and the Judiciary while it is true that in a narrow sense it is used to connote the Executive only."
12. It is therefore clear the expressions, "Government" and "State" do not mean one and the same thing. While "State" includes a territory alongwith its occupants, "Government" implies exercise of certain functions by political organizations or certain public authorities. Being so and considering that it is well-settled that a decision is an authority only for what it actually decides and not for what may remotely or even logically follow from it and that the ratio of a decision is to be understood in the context of the facts of the particular case, the decision pertaining to the scope of the term, "State" in Article 12 of the Constitution of India, cannot be of help to decide the scope of the term. "Government" under section 34 of the said Act. Viewed from this angle, the impugned judgment which is solely based on the decision in the matter of Vijay Kumar Bhambari's case and Prathama Bank's case in relation to the term, "State", cannot be considered as an answer to the point which is sought to be raised by the appellant in this appeal.
13. Though various judgments and decisions were cited across the Bar in the course of lengthy arguments which have been heard from the lawyers appearing on both sides, suffice to refer to only two judgments of the Apex Court as all other judgments are on the point that whenever any Corporation is an agency or instrumentality of the Government , it would squarely fall within the term, "State" under Article 12 of the Constitution of India and as has already been seen above, such a decision can be of no help to decide the issue sought to be raised in the present Appeal. The two decisions which are relevant are, one in State of Punjab and others v. Raja Ram & others, and the other in the matter of C. V. Raman v. Management of Bank of India and another, .
14. In the matter of C.V. Raman v. Management of Bank of India and another the Apex Court has held that though general superintendence and direction of the affairs and business of the State Bank have been entrusted to the Central Board, the State Bank of India Act, 1955 clearly contemplates that in the discharge of its functions the State Bank shall be guided by such directions in the matter of policy involving public interest as the Central Government may, in consultation with the Governor of the Reserve Bank and the Chairman of the State Bank, give to it and that if any question arises whether the direction relates to a matter of policy involving public interest, the decision of the Central Government thereon shall be final. The Apex Court has further held that the various provisions of the State Bank of India Act, 1955, indicate that the Central Government has a deep and pervasive control over the State Bank of India. Referring to the various provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the Apex Court therein has held that the general superintendence, direction and management of the affairs and the business of a corresponding new bank are to vest in a Board of Directors and it is the Central Government which in consultation with the Reserve Bank has been given power to constitute and appoint the first Board of Directors consisting of not more than seven persons. The Apex Court therein was dealing with a matter under the Tamil Nadu Shops and Establishments Act, 1947, wherein the dispute was whether the State Bank of India and Nationalized Banks were the establishments under the Central Government within the meaning of the expression, "establishment under the Central and State Governments" in section 4(1) of the Tamil Nadu Shops and Establishments Act, 1947. In fact, the question was, "What does the word 'under', in Clause (c) of subsection (1) of section 4 mean in the context in which it appears?". The said clause reads as under :-
"4(1)(c) : Establishments under the Central and State Governments, local authorities, the Reserve Bank of India, a railway administration operating any railway as defined in Cl. (20) of Article 366 of the Constitution and Cantonment Authorities."
In terms of sub-section (1) of section 4, all the persons and establishments enumerated under Clauses (a) to (f) thereunder where exempted from the application of the said Shops and Establishments Act. The contention of the Banks was that they being under the Central Government are exempted from the applicability of the said Shops and Establishments Act. While upholding the said contention, the Apex Court has held that:
"Suffice it to say at this place that to uphold the submission of learned Counsel for the employees the word 'under' will have to be substituted by the word 'of' in the relevant sub-section. It is obvious that the word 'under' cannot be taken to have the same meaning as the word 'of' which may bring in the notion of ownership. Had that been the intention of the Legislature we find no cogent reason as to why the word 'of' was not used in place of the word 'under' in the relevant sub-section. Indeed the concept of 'under' can be relevant only when there are two entities one of which may be under the other. A department of the Government strictly speaking is a part of the Government and can only loosely be termed as under the Government. Consequently the mere fact that the State Bank of India and the Nationalised Banks are different entities as corporate bodies for certain purposes cannot by itself be a circumstance from which it may be deduced that they cannot be establishments under the Central Government."
15. From the above observations, it is clear that the term 'under' signifies mere entity, which is different from the other which supervises or controls the first. In others words, the two entities cannot be termed as one and the same thing. In the said decision, the Banks are held to be under the Central Government. The Apex Court has further clarified therein that the very fact that the banks are considered to be under the Central Government shows that the Banks are different entities from the Government itself.
16. In State of Punjab v. Raja Ram & others (supra) the Apex Court has held that a corporation or Company cannot be said to be a Government Department because a Government Department has to be an organization which is not only completely controlled and financed by the Government, but has also no identity of its own. The Apex Court has further held that even the conclusion that the Corporation is an agency or instrumentality of the Central Government does not lead to the further inference that the Corporation is a Government Department. It is pertinent to note that the said decision has been delivered after taking note of an earlier decision of the Apex Court in the matter of R.D. Shetty v. International Airport Authority of India, . The Apex Court therein has clearly held thus:
"A Government Department has to be an organization which is not only completely controlled and financed by the Government, but has also no identity of its own. The money earned by such a Department goes to the Exchequer of the Government and the losses incurred by the Government are losses of the Government. The Corporation on the other hand, is an autonomous body capable of acquiring, holding and disposing of property and having the power to contract. It may also sue or be sued by its own name and the Government does not figure in any litigation to which it is a party. It is true that its original share capital is provided by Central Government (section 5 of the F.C. Act) and that 11 out of 12 members of its Board of Directors are appointed by that Government (section 7 of the F.C. Act) but then these factors may at the most lead to the conclusion ( About which we express no final opinion) that the Corporation is an agency or instrumentality of the Central Government.
Even the conclusion, however, that the Corporation is an agency or instrumentality of the Central Government does not lead to the further inference that the Corporation is a Government Department."
It is thus clear that a Corporation or company which has a different entity of its own cannot be considered as a Government Department, or the Government itself.
17. From the above referred two decisions one in the matter of C. V. Raman v. Management of Bank of India & another and the other in State of Punjab & others v. Raja ram & others case, it is clear that the Nationalized Banks though are subject to deep and pervasive control by the Central Government and can be considered as the Corporation, acting under the Government the Nationalized Banks by themselves cannot be considered as the Government within the meaning of the said expression in section 34 of the said Act. Indeed, section 34 speaks about the priority of dues payable 'to' the Government and not to the Corporations or Companies over which the Government has full control. The section speaks about the priority only in relation to the money payable 'to' the Government itself and not to its instrumentalisties or agencies acting under the Government. Being so, the interpretation sought to be given by the District Court to section 34 of the said Act cannot be accepted.
18. In this view of the matter, section 34 of the said Act has to be construed to mean that in case of Nationalized Banks, the same cannot enjoy the same priority in respect of dues payable to them as is otherwise enjoyed by the Government. In case of dues by a member of a Co-operative Bank, such dues, therefore, will have priority over the dues payable by such person to the Nationalized Banks in terms of section 34 of the said Act. In this view of the matter, therefore, the impugned judgement and order cannot be sustained and is liable to be set aside. In the matter of distribution of assets, the appellant will have priority over the dues payable to the respondents Nos. 1, 3 and 4. The impugned judgment and order is to that extent, liable to be modified.
19. In the result, the appeal succeeds. The directions in the impugned judgment and orders as regards the distribution of assets of the respondent No. 1 is modified, to the extent that the dues payable to the appellant shall have priority over the dues payable to the respondents Nos. 1, 3 and 4. Order accordingly. There shall be no order as to costs.
20. Appeal succeeds.