AGENCIA COMMERCIAL INTERNATIONAL LTD. & OTHERS v. CUSTODIAN OF THE BRANCHES OF BANCO NACIONAL ULTRAMARINO (2)

Citation: [1983] 1 S.C.R. 16

Court: Supreme Court of India

Bench: R.S. PATHAK, O. CHINNAPPA REDDY, BAHARUL ISLAM

Case summary

Judgment text

l . AGENCIA COMMERCIAL INTERNATIONAL • LTD. & OTHERS v. CUSTODIAN OF THE BRANCHES OF BANCO NACIONAL ULTRAMARINO July 3~, 1982 • , (R. S. PATHAK, 0. CHINNAPPA REDDY, AND BAHARUL ISLAM, iJ. ) . . . Banking law and practice-Uberation ofGoa and other areas from Portuguese rule and Integration with 1nd1a-Head Office of the bank removed all documents 10· Lisbon on tM eve of liberation-President promulgattd regu/at/0111 constituting an independent bank-Custodian empowered to realise all debts-Agree- ' ments entered into and loans granted by head of/i!! t in Lisbon-Custodian-I/could, recover debt&-Pos~tion in banking law and practice discussed-Promissory notes and bl/ls of uchange If 114Cl8sary to be produced at the lime ofr1covery of t/#bts. Tho Banco Nacional Ultramarino (B. N. U. ) with its head office at Lisbon in Portu8al carried on banking . business in Goa, Daman and Diu. On the eve· of the liberation of these territories from Portuguese ruJC and their integration with India the B. N.

U. removed a substan~ial portion of valuable assets held there to its head office at Lisbon. To relieve the distress caused to the people by reason of the closure of the B. N. U. the President promulgated regulations by which the branches at these places were. intCgrated into a fully constituted bank independent of the B. N. U. and a Custodian was appointed to take charge of the bank. The Custodian was empowered to realise all debts due to the branches including any debts from the head office of the B. N. U. The Custodian filed a suit against the appellants stating that the loan accounts of the appellants... showed a debit balance in favour of the branch. It was also stated that the promissory notes were not in bis possession but that they could be presumed to have been removed to Portugal. While suits similar il,1 nature filed in some courts had been dismissed, suits filed in other courts were decreed against the original debtor as well as the guarantor and surety.

The Additional Judicial Commissioner on appeal decreed the suits against 1ho appellants and $ranted the reliefs claimed by the Cu$todian, holdins that the AGENCJA COMMERCIAL V. BRANC! lES OF BANCO 17 Custodian was entitled to maintaio the suits· and sue for the realisation of debtS arising out of the transactions entered into through the branches. He further held that the execution of the negotiable instruments having been admitted in the written stateriient and these documents having been removed by the B. N. U. to Lisbon there was nothing to preclude thC CustOdian from claiming relief without producing th«:JSC negotiable instruments. 8 In appeal to this Court, it was contended on behalf of the appellants that Since the Joans had been granted by the head office of the B. N. U. and not its branches·, the Custodiari was not entitled to sue for recovery of Joans granted by the head office. - Dismissing the appeals. HELD : ,.

The transactions under consideration feJI within the scope of the regulations and the Custodian was fully entitled to sue for the rcc~vcry of the debts covered by the loan agreements. [28 CJ It is settled law. that a Dody ,corporate and its branches are not distinct and'separate entities from each other, that the branches constitute mere compo· ; nents through which the corporate entity expresses ,itself an"d that all transactions entered into ostensibly with the -bfanches are in legal reality transactions with the' corporate body and that it is with the corPorate body _that a person must deal directJy. In the case of a bank which operates through its branches, however, the branches are regarded for many purposes as separate and distinct entities from the head office and from each other.

If the bank wrongly refuses to pay when a demand is made at the proper place and time, then it can be sued at·its' head office as well as at its branch office the reason being that the action is then not on the debt, but on the breach of the \contract to pay at the place specified' in the agreement. The regulations had been made apparentIY in the light of this · hanking law and practice. [24 B-C; 25 BJ . -- The Delhi Cloth and General Mliis Co. Ltd. v. Harnam Singh an/o'rhers, [1955] 2 SCR 402 at 422, referred to: I The regulations were intended to achieve what emergency legislation was designed to secure. Jn all such emergency Jaws there is a departure from the general rule that the branches and agencies of a business are-nO more than components through which the entire enterprise is Carried on and that they cannot be considered as distinct and separate fr_om the hfad. office ..

[26 A-BJ It is abundantly plain from the object and purpose or the regulations and · the provisions which seek to realise them that all_·transactions effected by or through the branches of the B. N. (J. were· intended to be brought within the com- pass of the Regulations. f,! 6 J;>] New York, Life Insurance Co. v. Pubhc Trustee, [1924] 2 Cb. 101; In re: W. Hage/berg Aktien-Gesellschaft, . 1916 Chancery Division 503 and Re The Banca Commercfol lta/iona, [1943] 1 All England Laiv Repof! ~ 480, referred t9. . In (he instarit case a1though the Joan agre~ments might have been entered into with the B. N. U. 'he brancheS were authorised by' the head office to give effect to. those agreements and Rccordingly the branch concerned embarked upon the exCcution of the agreements and the working out of the transactions.

The entire business involved iii those transacti'ons and dealings was effected by the branch concerned ~nd it was only when occasion strictly so required that the branch made reference tc> the. head office for authority to amend or enlarge the Scope of the operation. The transaction and the business nonetheless remained throughout those of . the branch and this is fully affirmed by the existence and operation of the loan accounts in the book!! of the. branch by the pledge or hyp°bthecation of goods in almost all cases in fav_our. of the branch and by the overall nature and character of the transaction as an ordinary banking transaction falling within the normal bUsiness Of a branch. [26 E-F] • The discharge of. the debts under the'Regulaiion amounted to their complete discharge and it was Dot open to anyone else to sue. for their recovery. No indemnity was required to be furnished by the Custodian on the ground that the relevant documents could not be produced.

Havirg regard to the circumstances ' of this case it was within the cotnpetence· of the court to base its decree on the books of aCcount of the branches in Goa and on othCr evidence. The PortugueSe Jaw stands superseded by reason of the express provisions of regulat~n 8 (1). [31 A] ' The Delhi Cloth and General M//ls Co. Ltd. v. Harnam Singh and Others, [1955] 2 SCR 402, 425, distinguished. ' \ CIVIL APPELLATE JURISDICTION·;. Civil Appeals. Nos. 2475 to 2477 and 2579of1969. From the judgmeQ,t and order·dated the 15th April, 1969 of the Judicial Commissioner's Court al Goa, Daman and Diu in Civil •Appeal Nos. 3217, 3334/64 and 3466 of 1965 and 3467 of 1965. V. M. Tarkunde, Bernardo Doss Reis and; Naunit Lal for the Appellants in CA: 2476/69. • S. D. Tamba, Girish Chandra and Miss A. Subhashlni, for the Respondents. The Judgment of the Court was delivered by PATHAK, J.

These appeals by certificate granted by the Additional Judicial Commissioner of Goa, Daman and Diu arise out of suits for the recovery of loans made to the appellants at various branches of the Banco Nacional Ultramarino in Goa during Portu- ! luese rul~, AGBNylA COMMERCIAL v. BRANCHES OF BANCO U'athak, J. ) 19 The territories of Goa, Daman and Diu constituted the Estado -. de India of the sovereign S. tate of Portugal. · The Banco' Nacional Ultramarino (the National Overseas Bank) with its Head Office at Lisbon in Portu-gal, carried ;n banking business in Goa at different . Branches, some of them being situate at ·vasco Da Gama, MArgao and Panjim. It was also a currency issuing Bank and dis-charged the functions of a Government Treasury. It issued Portuguese currency notes in Goa, and· in its banking capacity it received deposits and granted . Joans. . , •· ·On Del:ember 20, 1961 the territories of Goa, Daman and Diu were liberated from Portuguese rule and integrated ·with India.

-· On· the eve of the transfer of power the Banco Nacional Ultramarino closed its Branches at Goa and removed a substantial portion ofthe valuable assets held there to its Head Office at Lisbon and. to other places overseas. To provide for the administration of the liberated territories the President of India· 'promulgated the Goa, Daman and Diu (Administration) Ordinance, 1962, which on March 27, 1962 was replaced by Goa, Daman and Diu (Administration) Act, 1962 enacted by Parliament. By virtue of-sub-s.. (! ) of s. 5 of the Act alJ Jaws in· • force immediately before "the appointed day" (December 20, 1961) , in Goa, Daman and Diu were to continue to be in force therein until am~nded or repeaied by acompetent legislature or other competent authority. The· closure of the Branches of. the ·Banco Nacional -. Ultramarino at Goa. gave rise to co11siderable confusion.

It was necessary to take measures for the exchange of over nine crore rupees worth of Portuguese currency notes for Ittdian currency, and lil Y Amalia Gomes Figueiredo, one of the guarantors, was allowed and the suit dismissed as against her. The Additional. Judicial Commissioner held that the Regulation effected a reconstruction of the Branches in Goa, Daman and Diu of the Banco Nacional Ultramarino, that,.. the rights and ·obligat\ons . of the Branches referred to in the. Regulation must. be understood · to mean the rights acquired and the obligations undertaken by the Banco Nacional Ultramarino through those Branches and therefore 8 the Custodian was entitled to maintain the suits and sue for the realisation of debts arising out of transactions entered in. to through those Branches.

The Additional Judicial Commissioner also held that as the oxecution of the negotiable instruments had been admitted in the written statements and it was commonly agreed that they were not within the reach of the· Custodian, having been remo- ·C ved by the officers of the Banco Nacional Ultramarino to Lisbon -0r ·elsewhere on December 20, 1961, there was nothing to preclude the Custodian claiming relief without producing those negotiable instruments. He also repelled the contention that the bills of ' ex. change and the promissory notes could on endorsement by the . Banco Nacional Ultramarino in favour of others result in the defendants having to make payment a second time. He recorded an oral undertaking furnished by the Custodian that in the event of a decree in such suits the Custodian would render compensation to the defendant to the extent that the Custodian had made realisation pursuant to the decrees under appeal.

'Having regard to Article 53 of the UpifOrm Law on Bills of Exchang~ and Promissory Notes, • the Additionai Judicial Commissioner held that the holder had Jost his right of recovery against all except the acceptor /in ~esp~ct ·of whom, observed the Judicial Commissioner, the suits were within time in view of Article 70 of the Uniform Law. Shri V. M. ·Tarkunde appearing for the appellants in Civil ·~ ' Appeal No. 2476 of. 1969 contends that the loans were granted by the Head Office of the Banco Nacional Ultramarino, and not by the Branches at Goa, and that as the properties and assets, rights and claims of the Branches alone vested in the Custodian under the Regulation, the Custodian was not entitled to sue for recovery of the Joans granted by the Head Office. Shri tarkunde relies on the distinction made by the• Regulation between the Head Office and the Branches of the Bank and says that they have been regarded as . separate entities.

Shri Tarkunde further says that even if the suits are held maintainable, the Additional Jud. icial Commissioner erred ff in not proceeding further to determine whether· the appellants were Ao~i ods [198'. II i s. c. tl. the Iodo-Pakistan Wars was incorporated in the Defence of India Rules framed from time to time. In all these ca,es the~e is a departl! re from the general rule that the branches and agencies of a business are no more than the components through which the ,entire enterprise is carried on, and that they cannot be considered as distinct or separate from the Head Office. The departure was necessitated by an emergent or a normal situation, and incorporated and regulated by specific legislation enacted for the purpose of coping with the probl~ms arising out of such a situation. It is only right then that the true scope of what is intended by the legislation should be determined by ·close reference to the express. ·terms of the legislation. .

, It is abundantly plain from the object and purpose of the Regulation a!! d the provisions which seek to realise 'them. that all '- • transactions effected by or through the Branches of the Banco Nacional U! tramarino were intended to be brought within the com- • pass of the Regulation. As observed earlier, although· the loan ~greements may have been entered into with the Banco Nacional Ultramarino, the Branche$ were authorised by the Head Office to give effect to those agreements; and accordingly the ' Branch con· cerned embarked upon the execution of the agreements and the working out of the transactions. The entire business . involved in ' those transactions aq. d dealings was effected by the Branen. con·· cerned, and it was only when occasion strictly so required that the Branch made reference to the Head Office for authority to amend or enlarge~ the scope of the operation.

The trasaction and the business nonetheless remained throughout those of the Branch, and this is fully affirmed by the existence and operation of the loan accounts in the books of the Branch, by the pledge or hypothecation of goods in. almost all cases in favour of the Branch and by the overall nature and character of the transaction as an ordinary banking transaction falling yvithin the normal business of a Branch. It will be noticed that s. 5 of the Regulation expressly speaks of "properties and assets, all rights, powers, claims,·demands, interests, authorities and privileges and-all obligations and liabilities" of the ' ·Branches 'and of "all contracts, deeds, bonds, agreemenis ... " to which the Branches are a party or which are ib their favour. It proceeds clearly on the basis that the Branches must be regarded as entering into and carrying out transactions identifiable as theirs. These are transactions distinct from those exclusively carried on by AGBNCIA t;oMMERclAL v.

BRANCHES OF BANCO (Pathak, J. ) 27 -A the Head Office of the Banco Nacional Ultramarino, with which transactions in their essence the Branches had nothing to do. It will also be noticed that by sub-s. (2) of s. 7 the Regulation envisages financial transactions between the Branches and-the Head Office. The entire purpose of the Regulation is to reconstruct by 0 operadon of. statute the closed' Branches of ·the Banco . Nacional · Ultramarino and to constitute them foto a ·. Bank and to work out existing transactions and square up all pending business with a 'view to ultimately winding-up the a'ffairs of the Branches. S: 14 of the · Regulation provides :- "The Central Government shall, on the expiry. ·of - I•' twelve years;and may, at 'any time before such expiry, direct that the books of account and affairs of the branches of the Banco Nacional Ultramarino' in Goa, Daman and > Diu shall be inspected by' the Reserve Ban. k 0t by such .

other agency as the Central ·Government may determine and that -a report on t. he basis of such inspection shall be made and the Central Government may, after considering the said report, direct the winding-up of the affairs of the said branches on such terms ,and conditions to be specified by that Government which shall, as. far as practicable, be in consonance with the provisions relating to winding-up of a banking company under the Banking • Companies Act, 1949". To ·accept the contentii>o,s advanced by the appellants would be to negative the very object and purpose~ of the Regulation and • to nullify its provisions. Such a construction of the Regulation is ·not open to-the Court, for it could never be ·supposed that in enacting the Regulation the President intended an exercise in futility. , It is well settled that ! he ccnstruction put by' a,court on the provision of a statute should accord with the object and purp;se of the .

statute, and iri that behalf the rule in Heydon's case(') relied on by this Court in R. M. D. Chamarbaugwalla v. The Union. of Jndia(2) is attracted. · What was the law before the statute was passed, what was the. mischief or defect for which the law had n~t provided, what -remedy bad 'the. legislation appointed and what was the reason of the remedy ? -That substan. tially was also the test _laid down in (! ) [1584] 3 Co. ~ep, 7a. (2) [1957] S. C. R. 930, 28 stiPkEME COURT REPOkl s [l 983) i s. C. R. Vraj/d Manila/ & Co: & . Ors. v. State of Madhya Pradesh & Ors. (') It was observed in Kanai Lal Sur v. Paramnidhi 2 Sadhukhan :( ) "When the material words are capable of two cons- 8 tructions, one of which is likely to defeat or impair the policy of the Act whilst the other construction is likely to assist the achievement of the said policy, then· the courts "- would prefer to adopt the latter construction. " We are of opinion that the transactions under consid.

eration in these appeals fall within the scope of the Regulation and the Custodian is fully entitled to sue for ·the recovery of the debts covered by the loan agreements. The contention ·of the appellants to the contrary is rejected, We now turn to the remaining points raised in these appeals. It has been urged that the statutes cannot be decreed because the Promissory Notes and the Bills of Exchange have not been produced by the Custodian before the trial court. Now, it is not disputed that the documents have been removed from Goa to Portugal or to other places overseas and are no longer in the possession of the Branches. The debts were sought to be proved on the basis of the accounts maintained in the books of account of the rel. evant Branches. This was permissible by virtue of sub-s. (I) of s. 8 of the Regulation which provides : 1 "8. (1) If for the prosecution of any suit, appeal or other legal proceeding by the Custodian in any court it is necessary to produce any document .

or olher particulars and the said document or particulars are proved to the satisfaction of the Court to have been removed to Portugal or to any·of the ferritories under Portuguese control, it shall be lawful for the Cpurt, in . disposing of the suit, appeal or G. other legal proceeding to base its decree or decision on the books of account of the branches of the Banco Nacional Ul(ramarino in Goa, Daman and Diu and on the evidence which can be otherwise produced. "· (I) [1970] I S. C. R. 400, 410, (2) [1958] S. C. R. 360, 367. , AGENCIA COMMERCIAL v. BRANCHES OF BANCO (Pathak; J. ) 29 ' Having regard to the circumstances, it is . within the competence of the court to base its decree on the' books of account of the Branches in Goa and on other evidence which can be produced. It was not necessary for the Custodian, indeed it was not possible, to produce the Promissory Notes and Bills of Exchange.

Our attention has been invited to a passage in Byles on Bills of Exchange(') which declares that "in any action or proceeding upon a bill, the court or a judge may order that the loss of the instrument shall not be set up. provided an indemnity be given. to the satisfaction of the c~urt or judge against the claims of any other person upon the' instrument in question". The provisions of Rule 16 of Order VII ' of the Code of Civil Procedure and s.. 8U>f the Negotiable Instru- ' ments Act, 1881 were also referred to. It is true that those provisions require the plaintiff to furnish an indemnity before a suit can be decreed if the negotiable instrument on which the suit is founded is proved to have been Jost or cannot be produced. It seems to us that resort to those . provisions cannot be justified ioasm uch as the cases fall to be determined under the Regulation and the Portuguese • law which continued ,in force ·in Goa. Even ·in respect of the Portuguese Jaw, that is .

to say, provisions in the Portuguese Commercial Code and. the Portuguese Uniform Law, to which our attention has been specifically drawn, we are of opinion that it·stands super-' scded by reason of the express provisions contained in sub·s. (I) of s. 8 of the Regulation. No indemnity can be reasonably required of the Custodian when it has been proved to the satisfaction of the court that the document has been removed to Portugal or 'to any ' of 'the territories under Portuguese control. The sub-section plainly makes no provision for indemnifying the debtors against any further claims made against them. Such a measure was not considered . . ~ . necessary,' be~ause the Regulation vested the entire right in the Custodian to rec0ver the debt and no further right was left in any - . one else.. The debts were regarded as properties and assets of the Branches, and all rights in respect of them stood transferred to and vested in the Custodian by virtue of sub·s. (I) of s. 5.

Having regard to· the provisions of the Regulation and the object with which it . was enacted it is not possible to conceive that it would be open to the Head Office of tne Banco Nacional Ultramarino to sue the debtors for recovery of those debts. Shri Nariman contends that an express provision was oeces- (1) 22nd E<! n. p, 389 Pam. 7Q. . ----- [1983] 1 s. c. R. sary in the Regulation to effect a complete discharge of the debtors from 'further liability as was the case in s. 11 (2) of the Pakistan Ordinance considered in The Delhi Cloth and General Mills Co. Ltd. 1 • v. Harnam Singh and Others. ( J We think it . is not necessary that there should be such a specific provision. It is sufficient if the same conclusion can be drawn from a proper construction of the general provisions of the Regulation and the object with which it has been enaded. We may point out. ,that although reference was made by this Court in The Delhi Cloth und. General Mills Co. Ltd. v. Harnam Singh and Ot.

hers (supra) to s. 11 (2) of the Pakistan Ordinance, it was also obse. rved on page 425 that alternatively : . "Such payment would operate as a good discharge · . even under the English 1 rules : see Fouad· Bishara Jabbour v. State. of Israel(') where a number of English authorities are ci! ed, including a dec_ision of the Privy Council in Odwin v. Forbes. (') That was also the result of the decisions in the following English cases, which . are similar- to this, though the ba~is of the decisions was the situs of the debt and the multiple residence of corporations : Fouad Bishri;a· \. . Jabbour v. State of Israel (supra), Re. Bangue Des Marchands De Mosco~ Barclays Bank('), Arab Bank Ltd. v. Brae; lays Bank('). The Learned Additional Judicial Commissioner has reached the same conclusion, but. in doing so he has relied on certain provisions of the Portuguese Uniform Law. We have not.

found it possible to examine the validity of his reasons because a complete statement of the Portuguese Uniform Law is not before us, and therefore we can find no justification for disturbing the basis on. which he bas· come to his finding. / The learned Additional Judicial Commissioner has also advehed to an undertaking offered by the Custodian to' indemnify the debtors against any action by anyone else for recovery of the debts, but on the view that we have taken we need not examine the . validitY or sufficiency of that undertaking. (I) [1955) 2 S. C. R. 402, 425. 121 [1954] 1 A. E. R. 145 @154. (3) {1817) Buck. 57. (4) (1954) 2 A. E. R. 746. (51HJ954J'AC. 495, 5'9. AOENCIA COMMERCIAL v. BRANCHES OF ~ANCO (Pathak, J. ) 31 We are satisfied that the discharge of the debts under . the Regulation am. aunts to their complete discharge arid it is not open to anyone else to sue for·their recovery. No· indem.

nity is required to lie furnished by the Custodian on the ground that ·the relevant · I documents caqnot be produced. I It is faintly urged that the suits filed by the Custodian were premature. This point was not raised before the courts below and we cannot allow it t<i be raised at this stage• . There is One point, however, ~hic,h, in our, opinion, requires consideration by the trial court. In son;te of the suits it )las been pleaded by the appellants that they were entitled to ,a set-off· by reason of certain credits in their favour. The learned Additional Judicial Commissioner has held that the trial court. was justified in declining to enter into. those claims. We think that in thjs regard the courts below have erred.. It was necessary to do - complete justice between the parties having regard to the peculiar circumstances of these cases, and we are of opinion that so far as these claims are concerned the trial court should ·now examine them on their merits.

In the result, the appeals are dismissed subject to the direction that the trial couri will take up . the suits again solely for the purpose of examining the validity of the claims to set-off made by the appellants in those suits. We make no orders as to costs of these appeals. ·. P. B. R. Appeals dismissed. • r. , ""' -- - ' -