30 July 1982
Supreme Court


Bench: PATHAK,R.S.
Case number: Appeal Civil 2475 of 1969








CITATION:  1982 AIR 1268            1983 SCR  (1)  16  1982 SCC  (2) 482        1982 SCALE  (1)575

ACT:      Banking law  and practice - Liberation of Goa and other areas from Portuguese rule and integration with India - Head office of  the bank  removed all  documents to Lisbon on the eve  of   liberation  -  President  promulgated  regulations constituting an  independent bank  - Custodian  empowered to realise all  debts  -  Agreements  entered  into  and  loans granted by  head office  in Lisbon  - Custodian  - If  could recover  debts  -  Position  in  banking  law  and  practice discussed -  Promissory  notes  and  bills  of  exchange  if necessary to be produced at the time of recovery of debts.

HEADNOTE:      The Banco  Nacional Ultramarino  (B.N.U.) with its head office at  Lisbon in Portugal carried on banking business in Goa, Daman  and Diu.  On the  eve of the liberation of these territories from  Portuguese rule and their integration with India the  B.N.U. removed  a substantial portion of valuable assets held there to its head office at Lisbon.      To relieve the distress closure 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 integrated 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 his  possession but that  they  could  be  presumed  to  have  been  removed  to Portugal. While suits similar in nature filed in some courts had been dismissed, suits filed in other courts were decreed against the  original debtor  as well  as tho  guarantor and surety.      The Additional  Judicial Commissioner on appeal decreed the suits  against tho  appellants and  granted the  reliefs claimed by the Custodian, holding that the 17 Custodian was entitled to maintain the suits and sue for the



realisation of debts arising out of the transactions entered into  through   the  branches.  He  further  hold  that  the execution of the negotiable instruments having been admitted in the  written statement  and these  documents having  been removed by  the  B.N.U.  to  Lisbon  there  was  nothing  to preclude  the   Custodian  from   claiming  relief   without producing those negotiable instruments.      In appeal  to this Court, it was contended on behalf of the appellants  that since the loans had been granted by the head  office  of  the  B.N.U.  and  not  its  branches,  the Custodian was  not entitled  to sue  for recovery  of  loans granted by the head office.      Dismissing the appeals, ^      HELD: The  transactions under consideration fell within the scope  of the  regulations and  the Custodian  was fully entitled to sue for the recovery of the debts covered by the loan agreements. [28 C]      It is  settled  law  that  a  body  corporate  and  its branches are  not distinct  and separate  entities from each other, that  the branches constitute mere components through which the  corporate entity  expresses itself  and that  all transactions entered  into ostensibly  with the branches are in legal  reality transactions  with the  corporate body and that it  is with  the corporate body that a person must deal directly. 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 apparently in  the light  of this  banking law and practice. [24 B-C; 25 B]      The Delhi  Cloth and  General Mills  Co. Ltd. v. Harnam Singh and others, [1955] 2 SCR 402 at 422, referred to.      The regulations were intended to achieve what emergency legislation was  designed to  secure. In  all such emergency laws 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 from the head office. [26 A-B]      It is  abundantly plain  from the object and purpose of the regulations  and the  provisions which  seek to  realise them that  all  transactions  effected  by  or  through  the branches of  the B.N.U.  were intended  to be brought within the compass of the Regulations. [26 D]      New York Life Insurance Co. v. Public Trustee, [1924] 2 Ch. 101;  In re:  W. Hagelberg  Aktien -  Gesellschaft, 1916 Chancery Division  503 and Re The Banca Commercial Italiana, [1943] 1 All England Law Reports 480, referred to. 18      In the  instant case although the loan agreements might have been  entered into  with the  B.N.U, the  branches were authorised by  the head  office  to  give  effect  to  those agreements and  accordingly the  branch  concerned  embarked upon the  execution of the agreements and the working out of the transactions.  The entire  business  involved  in  those transactions  and   dealings  was  effected  by  the  branch concerned 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  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 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  within  the  normal business of a branch. [26 E-F]      The  discharge   of  the  debts  under  the  Regulation amounted to  their complete discharge and it was not 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. Having regard to  the  circumstances  of  this  case  it  was  within  the competence of  The Court  to base its decree on the books of account of  the branches  in Goa  and on other evidence. The Portuguese law  stands superseded  by reason  of the express provisions of regulation 8 (1). [31 A]      The Delhi  Cloth and  General Mills  Co. Ltd. v. Harnam Singh and others, [1955] 2 SCR 402, 425, distinguished.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeals Nos. 2475 to 2477 and 2579 of 1969      From the  judgment and order dated the 15th April, 1969 of the  Judicial Commissioner’s  Court at 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. Subhashini, 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 Portuguese rule, 19      The territories,  of Goa, Daman and Diu constituted the Estado de  India of  the sovereign  State of  Portugal.  The Banco Nacional Ultramarino (the National overseas Bank) with its Head  office at  Lisbon in  Portugal, carried on 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  discharged the  functions  of  a Government Treasury.  It issued Portuguese currency notes in Goa, and  in its  banking capacity  it received deposits and granted loans.      On December  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 of  the 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.  (1) of  s.  5  of  the  Act  all  laws  in  force immediately before  "the appointed  day" (December 20, 1961) in Goa,  Daman and  Diu were  to continue  to  be  in  force



therein until amended or repealed by a competent legislature or other competent authority.      The clo  sure of  the Branches  of the  Banco  Nacional Ultramarino at  Goa gave  rise to considerable confusion. It was necessary to take measures for the exchange of over nine crore rupees  worth of  Portuguese currency notes for Indian currency, and  likewise to  provide  for  the  repayment  of moneys and  the  return  of  valuables  deposited  with  the Branches. As the Banco Nacional Ultramarino had closed those Branches no one could operate on them. To relieve the common confusion and  distress, the President of India promulgated, under Article  240 of  the Constitution,  the Goa, Daman and Diu (Banks  Reconstruction)  Regulation,  1962  (hereinafter referred to as "the Regulation"). Section 3 declared that in view of  the closure  of the  branches and the transfer of a substantial portion of their assets out of India on or about the "appointed  day" and  the  difficulties  experienced  by depositors, the 20 Branches would,  as from  that day,  be reconstructed in the interests of  the general  public  in  accordance  with  the provisions  of   the  Regulation.   An  examination  of  the provisions  which   follow  shows  that  the  Branches  were integrated into  a fully constituted Bank independent of the Banco Nacional  Ultramarino, the purpose being to dispose of the business  pending on  December 20,  1961, with  no fresh business being  undertaken, and its functions being confined to the discharge of existing liabilities and the recovery of existing debts  and other assets with a view to the ultimate winding up  of the  Bank. A  Custodian was  appointed by the Central  Government   to  take   charge  of  the  Bank.  The properties  and  assets  as  well  as  the  obligations  and liabilities of  the Bank  stood transferred to and vested in him, and  he was  empowered to  realise any  debts or  other amounts due  to the  said Branches  including any  debts  or other amounts due from the Head office of the Banco Nacional Ultramarino.      On March  30, 1963,  the Custodian  filed a suit in the Court of  the Civil  Judge  at  Ilhas,  Panaji  against  the Agencia Commercial International, its managing partner, Jose Antonio Gouveia  and his  wife  Geraldina  Pereira  Gouveia, alleging that  the branch  of the Banco Nacional Ultramarino at Panaji  had, pursuant to a request of the Agencia, opened a current  account in  its favour  upto the limit of Escudos 300.000$00 for  three months  renewable at  4% interest,  3% fine, 1-1/4%  quarterly commission, penal interest at 6% and court  expenses,   the  loan  account  being  secured  by  a promissory note with its maturity date in blank, executed by the Agencia  and guaranteed  by the managing partner and his wife. The  limit was raised subsequently, and the excess was also guaranteed  by a promissory note with its maturity date in blank  and signed by the defendants. The plaintiff stated that the  loan account  showed a  debit balance  of  Escudos 428.612$37, equivalent  to Rs.  71,435.40, in  favour of the Panjim branch of the Banco Nacional Ultramarino, the account being closed  on December  20, 1961  and the balance thereof becoming payable.  It was stated further that the promissory notes were  not in the possession of the plaintiff and could be presumed  to have been removed to Portugal. The plaintiff prayed for a joint and several decree against the defendants for Rs.  71,435.40 with  accrued interest,  Penal  interest, commission, fine and court expenses. 21      The suit was resisted by the defendants, principally on the ground  that the Banco Nacional Ultramarino was a public



limited company  with its  head office  at Lisbon,  that the Branch at  Panjim  did  not  possess  a  separate  juridical personality from  the Company  and  could  not  be  said  to possess assets  or liabilities of its own, that transactions by  the   Panjim  Branch   were  made   under   the   direct superintendance of  the Head  office and  credit was granted directly by  B the  Head office,  and  that  the  credit  in question was incorporated in promissory notes lying with the Banco Nacional  Ultramarino which  had already  informed its debtors that  it would  take action on the bills directly or by transferring  them to  a third party. It was also pleaded that the  debtors could  be  compelled  to  pay  the  credit incorporated in  a promissory  note only  when the  creditor returned the  promissory note  for payment,  so that  future duplication of  payment would  be  avoided.  The  defendants asserted that Escudos 25,794$45, equivalent to Rs. 4,234.09, had been  entered to  their credit  in the  Bank account and that they  were entitled to a set-off. The plaintiff filed a replication to  the written statement of the defendants, and the defendants  followed with  a rejoinder. Civil suits were also filed  by the  Custodian against  other  defendants  in respect of similar transactions, and a substantially similar defence was set up in all of them. The suits were instituted in the  Court of the Civil Judge, Senior Division at Margao. Some of  the suits  filed at  Margao were tried by Shri E.S. Silva, Comarca  Judge,  while  the  other  by  Shri  Justino Coelho, Comarca  Judge. The  preliminary objections  to  the maintainability of  the suits  found favour with Shri Silva, and he  dismissed the  suits  before  him  altogether.  Sheo Coelho,  however,  found  it  necessary  to  try  the  suits instituted in his court on their merits, and he decreed them against the  original debtor  as well  as the  guarantor and surety. The  lone suit  decided by  Shri  Ataide  Lobo,  the Comarca Judge,  Ilhas at  Panaji  was  decreed  against  the principal debtor but dismissed against the guarantors.      Ten  appeals  were  filed  before  the  Addl.  Judicial Commissioner. The Additional Judicial Commissioner dismissed the appeals  against -  the judgment  of Shri  Ataide  Lobo. Allowing the  appeals against  the judgments  of  Shri  E.S. Silva, he  decreed the suits and granted the reliefs claimed by the  Custodian. The  appeals against the judgment of Shri Justino Coelho  were dismissed  except that the appeal tiled by Amalia  Gomes Figueiredo,  one  of  the  guarantors,  was allowed and the suit dismissed as against her. 22      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  obligations 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  the Custodian was entitled to maintain the suits and sue for the realisation of  debts arising  out of  transactions  entered into  through   those  Branches.   The  Additional  Judicial Commissioner  also   held  that  as  the  execution  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 removed by the officers  of the Banco Nacional Ultramarino to Lisbon or 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 exchange  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 Uniform Law on Bills of Exchange and Promissory  Notes, the  Additional Judicial Commissioner held that  the holder had lost his right of recovery against all except  the acceptor  in respect  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 loans 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 Judicial Commissioner  erred in  not proceeding  further  to determine whether the appellants were 23 entitled to  credit for  the adjustments  claimed by them in the loan accounts.      Shri Naunit  Lal, appearing for the appellants in Civil Appeals Nos.  2475,  2477  and  2579  of  1979,  adopts  the submissions of Shri Tarkunde.      Shri F.S.  Nariman, appearing  for  the  appellants  in Civil Appeals  Nos. 2464  to 2468 of 1969, also disputes the maintainability of  the suits. He has strenuously urged that no dichotomy  can be envisaged between the Head of the Banco Nacional Ultramarino and its Branches in Goa, and it is only the Banco  Nacional Ultramarino at its Head office at Lisbon which can  sue for  recovery of  the debts. Alternatively he contends that  even if  the Head office and the Branches can be regarded in law as separate entities some, if not all, of the loans  had been extended directly by the Mead office and in respect  of them,  he  says,  the  Regulation  cannot  be applied. He also urges that even if all the transactions are held covered  by the Regulation, the suits cannot be decreed as there  is  no  statutory  discharge  of  the  appellants’ liability to  the Banco  Nacional Ultramarino  in respect of the debts. The indemnity offered by the Custodian, he urges, is of  no value  in law. Another reason why the suits cannot be decreed,  says Shri  Nariman, is  because the  promissory notes have not been produced.      There  has  been  considerable  dispute  on  the  point whether the  transactions were  entered into by the Branches of the  Banco Nacional Ultramarino or could be attributed to the Head  office at  Lisbon. It  seems to  us clear from the material on  the record that the appellants entered into the loan agreements with the Banco Nacional Ultramarino, and the Head office  of the  Bank at  Lisbon authorised the relevant Branch at  Goa to give effect to the agreement. The evidence is clear  that the  agreements were  signed on behalf of the bank by  the Manager  of the  relevant branch  and the  loan accounts were  opened by  the branches  in their books, that payments were  made by  the Branches to the appellants, that deposits by  way of repayment were made by the appellants in these  accounts   maintained  by   the  Branches,   and  the



appellants pledged  or hypothecated their goods in favour of the branches;  in short while the Head office authorised the Branch to  execute  the  agreements  the  transactions  were regarded for all purposes as transactions pertaining to 24 the respective  Branches,  to  be  actually  controlled  and worked out  by them.  The suits, it may be noted, were filed on the  basis of  the balance recorded in the accounts books of the relative Branch.      Now it  is indisputable as a general proposition that a body  corporate  and  its  branches  are  not  distinct  and separate  entities   from  each  other,  that  the  branches constitute  mere  components  through  which  the  corporate entity expresses  itself and  that all  transactions entered into ostensibly  with the  branches  are  in  legal  reality transactions with  the corporate  body, and  it is  with the corporate body,  that a person must deal directly. But it is also now  generally agreed  that in the case of a Bank which operates through its Branches, the Branches are regarded for many purposes  as separate  and distinct  entities from  the Head office  and from each other. This Court observed in The Delhi Cloth  and General  Mills Co. Ltd. v. Harnam Singh and others :(1)           "In banking  transactions the  following rules are           now settled:  (1) the  obligation of a bank to pay           the cheques  of a  customer rests primarily on the           branch at  which he keeps his account and the bank           can rightly  refuse to  cash a cheque at any other           branch: Rex  v Lovitt (1912) A.G. 212 at 219, Bank           of Travancore  v. Dhrit  Ram (69  I.A. 1, 8 and 9)           and New  York Life  Insurance  Company  v.  Public           Trustee (1924)  2 Ch.  101, 110 at page 117; (2) a           cumtomer must  make a  demand for  payment at  the           branch where his current account is kept before he           has a cause of action against the bank: Joachimson           v. Swiss Bank Corporation (1921) 3 K.B. 119 quoted           with approval  by Lord  Reid in  Arab Bank Ltd. v.           Barclayas Bank  (1954 A.C.  495, 531)  The rule is           the same  whether the account is a current account           or whether  it is  a case of deposit. The last two           cases  refer  to  a  current  account;  the  Privy           Council case  Bank  of  Travancore  v.  Dhrit  Ram           (supra) was  a case  of deposit. Either way, there           must be  a demand  by the  customer at  the branch           where the  current account  is kept,  or where the           deposit is  made and  kept, before  the bank  need           pay, and for these reasons the English Courts hold           that the      (3) [1955] 2 S.C.R, 402 at 422. 25           situs of  the debts  is at  the  place  where  the           current account  is kept and where the demand must           be made." It was explained further that if the bank wrongly refused to pay when  a demand  was made  at the  proper place and time, then it  could be  sued at its head office as well as at its branch office,  but the reason was 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",  and reference  was made to Warrington, L.J. at page 116 and Atkin, L.J. at page 121 of  New York  Life Insurance  Co. v.  Public Trustee.(l) That is  the position in regard to banking law and practice, and it  is apparently  in that light that the Regulation has been framed.      The Regulation  was intended  to achieve what emergency



legislation was  designed to  secure in a somewhat different context by  somewhat comparable  methods. In England, during the First  World War  the Trading  with the  Enemy Amendment Act, 1916  provided for  the  winding  up  of  the  business carried on  in England by companies incorporated in Germany. That Act  was considered  by the  court In  re W.  Hagelberg Aktien-Gesellschaft(2) and it was observed that although the branches and  agency of  a business could not be regarded as distinct  from   the  principal   business  of.  the  owner, nonetheless, if a statute was enacted to create that effect, effect had  to be  given to  the statute  for  the  purposes incorporated therein. During the Second World War the courts in England were called upon to consider the Defence (Trading with the  Enemy) Regulation,  1940 under  which a winding up order could  be made in respect of the business of any enemy bank carried  on at  its London  offices. In  Re  The  Banca Commercial Italiana(3) the court observed that having regard to the  language of  the statute  and previous  cases on the point "a  winding-up order made under the regulation must be held to  create for  the purpose of winding-up a new entity, namely, the business ordered to be wound up, and this entity is considered  as one  which can  possess  assets  and  have liabilities of  its own." Corresponding legislation in India during the Chinese invasion and      (1) [1924] 2 Ch. 101.      (2) [1916] Chancery Division 503.      (3) [1943] 1 All Eng. L.R. 480. 26 the Indo-Pakistan  Wars was  incorporated in  the Defence of India Rules  framed from  time to  time. In  all these cases there is a departure 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 problems  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 and the provisions which seek to realise them that all transactions effected by or through the Branches of the Banco  Nacional Ultramarino  were intended to be brought within the  compass of  the Regulation. As observed earlier, although the loan agreements may have been entered into with the Banco Nacional Ultramarino, the Branches were authorised by the  Head office  to give effect to those agreements, and accordingly the Branch concerned embarked upon the execution of the  agreements and  the working out of the transactions. The entire  business  involved  in  those  transactions  and dealings was  effected by  the Brancn  concerned, 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 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 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 within the normal business of a Branch.      It  will  be  noticed  that  s.  S  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, agreements..." to which  the Branches  are a  party or  which are  in 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 27 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 operation  of statute  the closed Branches  of the  Banco Nacional  Ultramarino and  to constitute them  into  a  Bank  and  to  work  out  existing transactions and  square up all pending business with a view to ultimately  winding-up the affairs of the Branches. S. 14 of the Regulation provides:-           "The Central  Government shall,  on the  expiry of      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 Bank or      by such  other agency  as the  Central  Government  may      determine and  that a  report  on  the  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 contentions  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  the  construction  put  by  a  court  on  the provision of  a statute  should accord  with the  object and purpose of  the statute,  and in  that behalf  the  rule  in Heydon’s  case(1)   relied  on   by  this  Court  in  R.M.D. Chamarbaugwalla v.  The Union of India(2) is attracted. What was the  law before  the statute  was passed,  what was  the mischief or  defect for which the law had not provided, what remedy had the legislation appointed and what was the reason of the  remedy ?  That substantially  was also the test laid down in      (1) [1584] 3 Co. Rep. 7a.      (2) [1957] S.C.R. 930. 28 Vrajlal Manilal  & Co.  & Ors.  v. State of Madhya Pradesh & ors.(1) It  was observed  in Kanai  Lal  Sur  v.  Paramnidhi Sadhukhan:(2)           "When the  material words are capable of two cons-      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 consideration 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 relevant Branches.  This was permissible by virtue of sub-s. (1) of 8. 8 of the Regulation which provides:-           "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  other      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 territories under      Portuguese control,  it shall  be lawful for the Court,      in  disposing  of  the  suit,  appeal  or  other  legal      proceeding to  base its decree or decision on the books      of account  of  the  branches  of  the  Banco  Nacional      Ultramarino in  Goa, Daman  and Diu and on the evidence      which can be otherwise produced."      (1) [1970] 1 S.C.R. 400, 410.      (2) [1958] S.C.R. 360. 367. 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 (1)  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 court 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. 81 of the Negotiable Instruments  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 lost or cannot be produced. It seems to us that resort to  those provisions  cannot be justified inasmuch 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 law, 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  superseded by reason of the express provisions  contained in  sub-s. (1)  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, because the Regulation vested the entire right in the Custodian to recover the debt and no further right was left in anyone 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  the  Banco  Nacional Ultramarino to sue the debtors for recovery of those debts.      Shri Nariman  contends that  an express  provision  was neces-      (1) 22nd Edn. p. 389 para. 70. 30 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.  v. Harnam  Singh and  others.(1) We think it  is not  necessary that  there  should  be  such  a specific provision.  rt 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  enacted. We  may point out that although reference was made  by this Court in The Delhi Cloth and General Mills Co. Ltd.  v. Harnam Singh and others (supra) to s. 11 (2) of the Pakistan  Ordinance, it  was also  observed on  page 425 that alternatively:           "Such payment  would operate  as a  good discharge      even under the English rules: see Fouad Bishara Jabbour      v.  State  of  Israel(2)  where  a  number  of  English      authorities are  cited, including  a  decision  of  the      Privy Council  in Odwin v. Forbes.(3) That was also the      result of the decisions in the following English cases,      which are  similar to  this, though  the basis  of  the      decisions was  the situs  of the  debt and the multiple      residence of  corporations: Fouad  Bishara  Jabbour  v.      State of  Israel (supra),  Re. Bangue Des March ands De      Moscou Barclays  Bank(4), Arab  Bank Lrd.  v.  Braclays      Bank(5). 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 has come to his finding.      The learned  Additional Judicial  Commissioner has also adverted 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,      (1) [1955] 2 S.C.R. 402, 425.      (2) [1954] 1 A.E.R. 145 @ 154.      (3) [1817] Buck. 57.      (4) [1954] 2 A.E.R. 746.      (5) [1954] AC. 495, 529. 31      We are  satisfied that the discharge of the debts under the Regulation amounts to their complete discharge and it is not open  to anyone  else to  sue  for  their  recovery.  No indemnity is  required to  be furnished  by the Custodian on the ground that the relevant documents cannot be produced.      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 to be raised at this stage.      There is  one point,  however, which,  in our  opinion, requires consideration  by the  trial court.  In some of the



suits it  has 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 this 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 court 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. 32