Harihar Prasad v. Bansi Missir

Wort, J.:— The question raised in this case is whether the decree-holder, which may be called the Central Bank Limited of Gaya, a society registered under the Co-operative Societies Act, Act II of 1912, is entitled to issue execution against the objectors, who are the respondents before us. The respondent objectors were members of a Co-operative Society known as the Gajadharpur Society which was also incorporated under the same Act. The Gajadharpur Society had become a member of the Central Bank Limited which it was entitled to do under the Act. Certain members of the Gajadharpur Society had from time to time borrowed money from the Central Bank through their Society, the Gajadharpur Society, and ultimately the Gajadharpur Society became indebted to the Central Bank of Gaya in the sum of about Rs. 3,000. The Central Bank applied to the Registrar for an award under the Act and obtained one, which under the Act has the effect of a Civil Court decree. Having discovered that the loan which had become the subject-matter of the award had been advanced through the Gajadharpur Society to two or three only of the thirteen members of that Society, the Central Bank applied to the Munsif for execution under the Civil Procedure Code against these members.

An objection was taken by the members which objection was overruled. There was an appeal to the learned District Judge of Gaya and he was of the opinion that as the village Society was a body corporate-having become such under section 18 of the Act, execution could not be levied against a member of that body corporate but only against the Society itself and its assets. It is against that decision that there was an appeal to a Divisional Bench of this Court and the matter has now been referred to this Bench, the main reason for the reference being that in this province it has been the custom to execute decrees not against the society itself but against the individual members. There is no doubt in my mind that the view which was taken by the learned District Judge was right.

The learned Government Pleader concedes that the effect of incorporating a number of persons into a body corporate is to make that body corporate a separate legal entity or persona, and that, in the words of Mr. Justice Cave in the case In re Sheffield and South Yorkshire Permanent Building Society “a corporation is a legal persona just as much as an individual; and, if a man trusts a corporation, he trusts that legal persona, and must look to its assets for payment: he can only call upon individual members to contribute in case the Act or Charter has so provided”. But he contends that the provisions of this Act are such as to take it out of the ordinary rule of law. Amongst the provisions to which he more particularly refers is that which relates to the liability of the members in this particular society. Under section 4, sub-section (2), the liability of a society of which the object is the creation of funds to be lent to its members, and of which the majority of the members are agriculturists, and of which no member is a registered society, shall be unlimited. I should have stated at the commencement of this judgment that this society of which the objectors are members was a society of unlimited liability.

Before coming to the special provisions of the Act, it is perhaps advisable to ascertain what results from the juridical conception of a body corporate. In the first place, it is not disputed by the learned. Government Pleader, who appears on behalf of the Central Bank, that the conception of a body corporate under the Indian Law is no different from, that under the English law; and indeed, apart from the conception of a corporation which was got from the English law and is recognised by a number of statutes in India, a body corporate being a legal persona was unknown to Indian law.

I have already referred to the judgment of Mr. Justice Cave on this point in the case of In re Sheffield and South Yorkshire Permanent Building Society. Another case in England which establishes this proposition, if indeed there was any doubt regarding it, was the case of A. Salomon v. Salomon & Co., Ltd.(2)

In order to ascertain the effect of the concession on the part of the Government Pleader and also to facilitate the analysis of the argument, it is well to state the exact position of a body corporate in the eyes of the law.

At Common Law the Crown could create a body corporate under its prerogative but the Crown had no power to create a corporation and at the same time to render its members liable for its debts—[Elve v. Boyton(3), the judgment of Lord Justice Lindley]. It necessitated a statute to effect this. An instance of that in England is 6 Geo. IV, Ch. 91, which enabled the Crown by Letters Patent to create corporations and to regulate the liability of members. That and some earlier Acts were repealed by an Act of 7 Wm. IV and 1 Vict., Ch. 73. These Acts not only provided for the liability of all members of a body corporate but allowed under certain circumstances a judgment-creditor to execute against an individual member. These Acts are mentioned purely for the purpose of showing that apart from statute neither was there any liability upon any individual members of the corporation nor was there any method by which judgments could be satisfied by execution against them.

An important piece of legislation on this point is the Act of 7 and 8 Vict., Ch. 110, section 25, which indicates the view not only of lawyers and the courts but the Legislature in the matter. After providing for the existence of bodies corporate under the Act, it provides that

“such Company shall continue incorporated until it is dissolved ………………………………but not so as in any way to restrict the liability of any of the share-holders under any judgment………………………… which shall be obtained against such company or any members thereof in any action……………………but every member of the company shall continue to be liable as if the said company had not been incorporated.”

It is not disputed, as I have already said, that the law of India and the law of England is the same in this respect. The provision as to the liability to execution against a member was omitted not only in the later Companies Acts in, England but in the Companies Act of India of 1882 and the present Companies Act of 1913, being Act VII of 1913, and it is conceded that apart from the special provisions the creditor has no method of enforcing his rights against the individual member apart from dissolution. Under the present statute law it is conceded that no execution can levy against individual members, and this state of affairs has been brought about not by any provision in any statute relating to corporations, but by the mere omission of any provision to the effect that a judgment-creditor or decree-holder may execute against a member of a body corporate. At this point it must be stated that the principles relating to bodies corporate are the same both as regards Companies under what are known as the Companies Acts and incorporated, societies under the Co-operative Societies Act. Speaking of this matter and dealing specifically with the point which is before us for determination, Lord Lindley in the 6th edition of his book on Companies at page 1229 makes this statement:

“The society, (speaking, of an Industrial Provident Society spoken of as the Co-operative Societies in England—see Halsbury's Laws of England, Vol. 17, p. 3) being incorporated, must sue and be sued by its corporate name; and its members are individually liable for its debts and engagements only so far as the statute allows. As in the case of Companies registered under the Companies Act, 1862, so in the case of societies registered under the Act now in question, the members are not liable to have executions issued against them in respect of judgments obtained against the society. The members can only be reached individually by the process of winding up.”

Lord Lindley was referring to societies registered under the English Act of 1893 which differs in no material respect from the Act which we have to construe and contains section 21 similar to section 18 in this Act which provides that on registration a society is rendered a body corporate. Indeed it must be obvious that the principles which apply to one body corporate must be those which apply to another, unless it is by statute provided otherwise. The objects for which a body corporate comes into existence or the rules or regulations under which the relations of the members inter se are governed can have no possible effect upon the legal conception which arises by the use of the expression ‘body corporate’.

Now with these observations I propose to examine the Act and consider the arguments of the learned Government Pleader thereon.

Section 4 is the first important section upon which reliance is placed. This, as I have already stated, was a society the liability of which is unlimited and it was stated in the course of the argument that before registering the society, not only were the rules submitted to the Registrar to be examined under the provisions of section 9, but the stability and credit of the individual members applying for registration was looked into and the result being satisfactory the registration was completed. Whether this is a legitimate argument or not need not be discussed, but in so far as it is advanced in support of the proposition that the method of enforcing a judgment against a society of unlimited liability differs from the method which the law allows in the case of a society of limited liability, it seems to me to be clear that it can have no effect on that question.

It is not denied in this case that neither under the Companies Act (which admits of the registration of Companies with unlimited liability as well as limited liability) nor under this Act is there any statutory provision which in any way entitles the creditor to treat a member of a society with unlimited liability differently from the method of treating a member of a society with limited liability, and indeed it must be clear that whether the liability of a society is limited or unlimited can only affect the members when they come to contribute to the liabilities of the society in the winding up. Not until there is a winding up can the creditor come face to face with the individual member. Lord Lindley at page 363 of his work on Companies, in dealing with Companies with unlimited liability, states:

“If the Company is not registered with limited liability, the members are liable to the full amount of the Company's debts and engagements, whatever that may be. The liability, however, is a liability, to contribute with others and such liability can only be enforced upon the winding up and no execution can proceed against a member.”

At this stage the learned Government Pleader based an argument on what he deemed to be the policy of the Legislature. He said that the obvious intent of the Legislature was to avoid litigation in the case of Co-operative Societies, but that object would be defeated if in the case of the liability incurred by a society the creditor were bound to go through all the procedure laid down in sections 36 to 42. This argument seems to be rhetorical and the short answer is that the Act has provided a method and that method must be adopted by any creditor excepting the Crown in which case an exception appears to have been made in section 44.

It is stated that from rule 13 the method by which the creditor may attempt to enforce his right is to be inferred. Rule 13 provides that the members are liable jointly and severally for the debts of the society. This rule, as in the case of the other rules, is one that regulates the relations between members inter se, and by applying for registration on the basis of these rules, and under this one in particular, the member agreed to make himself liable for all the debts of the society. Being a society of unlimited liability the liability of the member would be good for all the debts of the society whether there were this rule or not, unless indeed it can be said that the rule if properly construed means that one member may be liable for the whole of the debts of a society and cannot demand that the debts be proportioned amongst all the members. But it is impossible to say that this rule entitles a creditor to sue for execution against an individual member. It is true that the rules become part of the Act; but if indeed the rule either enlarges or modifies the Act (which it cannot be held to have been done in this case) it would be ultra vires. And indeed Section 9 provides that.

“If the Registrar is satisfied that a society has complied with the provisions of this Act and the rules and that its proposed by-laws are not contrary to the Act or to the rules” (meaning the rules framed for all societies under section 43).

Section 18 which is the next section referred to is the section which renders the society a body corporate on registration.

We then come to that part of the Act which deals with inspection and dissolution of a society. Section 35 provides for an inquiry by the Registrar; section 36 provides for an inspection either by the Registrar or some person authorised by him on the application of a creditor of a registered society. The sub-clause to section 36 is significant. It provides—

“Provided that the applicant satisfies the Registrar that the debt is a sum then due, and that he has demanded payment thereof and has not received satisfaction within a reasonable time.”

Section 39 gives the power to the Registrar to cancel the registration of a society after an inspection or an application has been made by three-fourths of the members of a registered society for cancellation. Sections 36 and 39 provide a procedure which is analogous to that under the Companies Act by which the creditor may apply to the court for the dissolution of the Company on the around that the Company does not pay its debts. The learned Government Pleader here states that to enforce a debt in this method is to put the creditor in the unfortunate position of having to rely upon the Registrar in exercising his discretion under section 39. The short answer to that is that it must be assumed, that the Registrar will act judicially. Secondly, if there was no such discretion and if the Registrar was bound to make an order canceling the registration of the society after an inspection under section 36, he would be bound to cancel the registration although after the inspection the society either agreed to or in fact paid the creditor, which would be absurd. Section 42 provides for the appointment of a liquidator. Sub-clause (2) of sub-section (2) provides that the liquidator is to determine the contribution to be made by the members and past members of the society respectively to the assets of the society and by clause (c) he is to investigate all claims against the society subject to the provisions of this Act to decide Questions of priority arising between claimants. It is difficult to see the reason for winding up under section 42, at the instance of a creditor under section 36, if indeed the creditor is entitled in law to proceed direct against any member of the society he likes to recover he debts of the society.

The next section we come to is section 44 which seems to me to be a complete answer to the whole argument which has been addressed to us. Section 44 allows the Government in cases where there are sums due to it from a registered society or from an officer or member or past member to recover such sums, first, from the property of the society, secondly, in the case of a society of which the liability of the member is limited, from the members subject to the limit of their liability, and thirdly, in the case of other societies from the members. It is admitted that this is an exception in favour of the Government. If indeed it is an exception in favour of the Crown then the rule to which it is an exception must be contrary to the exception, the rule being that a creditor cannot recover from the member of the society.

Some argument was advanced that under the rules it is indicated that such an execution can be levied and that the section itself does not preclude execution against a member by a creditor other than Government. No rule has been brought to our notice which would assist this argument and indeed when once it is recognised, as it must be, that section 44 is an exception in favour of the Government, the argument seems to be answered.

Finally it is common sense and a rule of common law that a judgment against one person (and a Cooperative society is a legal persona) cannot be executed against another—(see Lindley, p. 390). And it was pointed out in the case during the argument that this judgment, if it is to be executed, is to be executed under the Civil Procedure Code. Order XXI, rule 30, provides

“Every decree…………………rnay be executed by the detention in the civil prison of the judgment-debtor or by the attachment and sale of his property.”

The judgment-debtor in this case is the society and there is no method under the Civil Procedure Code by which the judgment can be executed against any other person. Under the rules of the Supreme Court in England provision is made under Order XLII, rule 23, for execution where a

“party is entitled to execution against any of the share-holders of the Joint Stock Company in a judgment recorded against such Company.”

This rule under the Judicature Act was in substitution for the method of proceeding by way of a writ of scire facias under which a judgment-creditor could pursue his remedy against a member of the Company where the Act incorporating the Company allowed him to do so, such as in the cases under 7 and 8 Vict., Ch. 110, section 25. There is no similar provision in the Civil Procedure Code in India and indeed there is no statute which allows a decree-holder against, a registered society or other body corporate to pursue his remedy in execution against a member.

For these reasons, as I have already stated, I am of the opinion that the decision of Mr. Allanson, the learned District Judge, was right and should be affirmed.

In the case of Kndratulla Sarkar v. Upendra Kumar Chowdhury (although, this point did not come to be decided and, therefore, the opinion is obiter dictum) the learned Judges of the Calcutta High. Court appear to be of the same opinion.

The appeal is dismissed with costs.

Courtney Terrell, C.J:— I agree.

Kulwant Sahay, J.:— I agree.

Fazl Ali, J.:— I agree.

Dhavle, J.:— I agree.

Appeal dismissed.