Holding

The Regulation brings all transactions effected through the former BNU branches within its scope, allowing the Custodian to sue for recovery of such debts even without the original negotiable instruments, and the branches are deemed distinct entities for this purpose.

Summary

The Banco Nacional Ultramarino (BNU) operated branches in Goa, Daman and Diu until the territories were liberated from Portuguese rule in 1961. On the eve of liberation BNU transferred assets to its Lisbon head office, leaving local depositors and borrowers in distress. The President of India promulgated the Goa, Daman and Diu (Banks Reconstruction) Regulation, 1962, appointing a Custodian to take charge of the former BNU branches and to realise all debts owed to them, including those arising from loans granted by the head office. The Custodian sued several borrowers, including Agencia Commercial International, for repayment of loan balances recorded in the branch books, despite the original promissory notes being absent. The appellants argued that the loans were granted by the head office and therefore fell outside the Regulation’s scope, and that the Custodian could not sue without producing the negotiable instruments. The Supreme Court held that the Regulation expressly brought all transactions effected through the branches within its ambit, that the branches, for banking purposes, are treated as distinct entities capable of being sued, and that the Custodian could rely on the branch accounts in lieu of the missing instruments. The appeals were dismissed, with the direction that the trial courts re‑examine the appellants’ set‑off claims.

Issues considered

The scope of the Goa, Daman and Diu (Banks Reconstruction) Regulation, 1962 with respect to loans granted by the head office of BNU but executed through its Goa branches.
Whether the Custodian, appointed under the Regulation, could sue borrowers without producing the original promissory notes and bills of exchange.
Whether a bank’s branches can be treated as separate legal entities for the purpose of debt recovery under emergency legislation.
Whether the appellants were entitled to set‑off their credits against the claimed loan amounts.

Legislation cited

Banking Companies Act, 1949
Code of Civil Procedure, 1908s. Rule 16 of Order VII
Goa, Daman and Diu (Administration) Act, 1962s. s.5
Goa, Daman and Diu (Banks Reconstruction) Regulation, 1962s. s.1, s. s.3, s. s.5, s. s.7, s. s.8
Negotiable Instruments Act, 1881s. s.53, s. s.70

Subjects

banking lawbranch vs head officeemergency legislationdebt recoverycustodianGoa integrationnegotiable instrumentsset‑offregulation interpretationPortuguese law

Judgment

l
A 16

. AGENCIA COMMERCIAL INTERNATIONAL •
LTD. & OTHERS
v.
B
CUSTODIAN OF THE BRANCHES OF BANCO
NACIONAL ULTRAMARINO

July 3~, 1982
•,
c (R.S. PATHAK, 0. CHINNAPPA REDDY, AND

. .
BAHARUL ISLAM, iJ.)
.
Banking law and practice-Uberation of Goa and other areas from Portu-
guese rule and Integration with 1nd1a-Head Office of the bank removed all docu-
ments 10· Lisbon on tM eve of liberation-President promulgattd regu/at/0111
D
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 of r1covery of
t/#bts.

Tho Banco Nacional Ultramarino (B.N.U.) with its head office at Lisbon
E 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
F 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
G 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.

H 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 A
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.

In appeal to this Court, it was contended on behalf of the appellants that 8
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
c
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 D
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 E
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 F
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
G
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: H
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.
- 18 SUPREME COURT REPORTS [1983] I s.c:&., ' '

A . 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
B 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]
•
c The discharge of.the debts under the'Regulaiion amounted to their comp-
lete 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 Portu-
gueSe Jaw stands superseded by reason of the express provisions of regulat~n
D 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
E 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
F Appellants in CA: 2476/69.
•
S.D. Tamba, Girish Chandra and Miss A. Subhashlni, for the
Respondents.

G 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
H 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 A
-.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 B
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.-· c
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.

D
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 re-
placed 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) , E •
in Goa, Daman and Diu were to continue to be in force therein
until am~nded or repeaied by a competent legislature or other com-
petent authority.

The· closure of the Branches of. the ·Banco Nacional -. F
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<;ewise to provide for.the repayment of moneys and ·
the return of valuables deposited witli the Branclres. As the Banco
Nacional Ultramarino had closed those Branches no one could
G
operate on them: To. relie~~ the common confusion and distress,
the President of India promulgated, under Article 240 of the Cons-
. '
titutioil, ,the Goa, Daman and Diu (Banks Reconstruction) Regula-
tion, 1962 (hereinafter referred to as "the Regulation';). Section 3
declared that in view of the closure of the branches· and the transfer_ H
of a substantial portion of their ·assets out of India on or about· the
"appointed day" and the difficulties experien~ed by depositors, the
' '
20 SUPREME COURT REPORTS [1983) J S.C.R.

A ' Branches would, as from that day, be· reconstructed in the interests
of the general public· in accordance With' the provisions of the
Reguiation.. An examination of the provisions which follow
shows that the Branches were integrated into a fully constituted
Bank independent of the Banco Naciol)al UJtramarino, the purppse
being to dispose of the business pending on December 20, 1961, with
B no fresh business being undertaken, and its functions being confined
to the discharge of existi9g 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 ·•
c 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 oL the Banco Nacional Ultra·,
marino.

D /
•
On March 30, 1%3. 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 Nactonal Ultramarino at Panaji had, pursuant to a request of
the Agencia, opened a current account in its favour upto the limit
E
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 li~it was
·raised subsequently, and the excess was also guaranteed by a pro-
F • '
missory 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 U!tramarino,
G the account being closed on December 20, 1961 and the balance
thereof becoining payable. It was stated further that the pro-
missory notes were not in the possession of the plaintiff and could'
·be presumed tq have been removed to ,Portugal. The plaintiff
prayed for a joint and several decree against the defendants for
H Rs. 71,435.40 with accrued in!erest, pen111· interest, commission,
fip~ and court expenses, ·
AobNCJA COMMERCIAL~. BRANCHES OF BANCO (Pathak, J.) .21
The suit was resisted by the defendants, principally on the A
ground that the Banco Nacional Ultramarino Wa'I! 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•super-
intendance of the' Head Office and credit was graiited directly by . 8
the Head Office, and that the credit in question was incorporated in
promissory notes lying with the Banco Nacional Ultramarino· which
• bad 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 incor-
'C.
porated 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
D
the Custodian against other defendants in respect of similar transac-
tions, and a substantially similar . defence was set up in all of them.
The suits were institut~d in the Court of the Givil Judge, Senior Divi-
sion 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
E
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 be dec-
reed them against the originl!_l debtor as well as the guarantor and
surety. The Jone. suit decided by Shri Ataido Lobo, the Comarca F
Judge, Ilbas at Panaji was ·decreed ·against the principal debtor but
dismissed against the guarantors.
'
Ten appeals were filed before the Addi. Jud.icial Commissioner.
The Additional Judicial Commissioner dismissed the appeals against
the judgment of Sliri Ataide Lobo. Allowing the appeals against the ·
G
"- judgments of Sbri E.S. Silva, he decreed the suits and granted the .
reliefs claimed ~y the Custodian. The appeals against tbe judgment
of Sbri Justino Coelho were dismissed except that the appeal liled
!>Y Amalia Gomes Figueiredo, one of the guarantors, was allowed H
and the suit dismissed as against her.
22 SUPREME COURT REPORTS (J§83Ji S.C.I<.

A 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 N acional 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
D 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,
E 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.

F 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
G
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
ff are held maintainable, the Additional Jud.icial Commissioner erred
in not proceeding further to determine whether· the appellants were
Ao~i<CIA COMM~RC!Al \'. BRA.~tl1ts OF BANCO (Pathak, J.) 23
. A
., . e_ntitled 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 197~~ adopts the submissions of
Shri Tarkunde. ·B

Shri F .S. Nariman, appearing for the. appellants .in Civil
• Appeals Nos. 24.64 to 2468 ~f 1969, also disputes the maintainability
of the suits. H~ has strenuously urged that no dichotomy. can be
envisaged between the Head· of the Banco· Nacional U!tramarino
and its Branches in Goa, and it is only the Banco NaCional Ultra- .
c
marino at its Head Office at Lisbon which can sue for recovery
ofthe 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
Head Office and in respect of them, he says, the Regulation cannot D
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 Bal)CO
Nacional · U!tramarino in respect or' the debts .. .The indemnity
offered by the Custodian,, he urges, is of no value in law. Another
reason why ibe. suits cannot be .decreed, says Shri Nariman, is E
because the p'romissory notes have not been produced.

, There has been considerable dispute on the poini whether the ' .
transactions wer.e entered into by the Branches of the Banco
Nacional Ultramarino or could be attributed- to the Head Office at .
F
Lisbon. It seems to us clear.ftom.tbe material on the record that
the appellants entered .into the lccan agreements with the Banco
Nacional Ultramarino, and the ijead Office of the Bank at Lisbon
authorised the relevant Branch at Goa to give effect to the agree-
ment. The evidence is clear that the agreements were signed on
behalf of the bank by the Manager of the relevant bran~h and the G
'loan acco~nts were opened by t~e branches in their books, that
payments were made by tLe Branches t'o 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 hypothe-
cated their goods in favour of the branches; in shot! while the Head li
Office authorised the Branch io execute the agreements the transac-
lions were regarded for all purposes as transactions pertaining to
24 I s\JPl\EME COURT REPoRfS i1983j i s.cJ1.

A
~ . .
the.respective Branches, to be actually controlled and· worked out by
them. The suits, it may be noted, were filed on tlie 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
B 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 cor· •
porate body, tbat a person must deal directly. But it is also now.
generally agreed that in the case of.a Bank which operates through
c 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 :(')
•
"In banking trans~ctions the following rules are now
0 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. Loviti
(1912) A.G. 212 at 219, Bank of Travancore v. Dhrlt
Ram (69 I.A. 1, 8 and 9) and New York Life Insurance
E Company .v. Public Trustee (1924) 2 Ch. IOI, I 10 at •
page 117; (2) a cumtomer must make a demand for
payment at the branch where his current account is '
kept before he bas a cause of action against the bank·:
Joachimson v. Swiss Bank Corporation (1921) 3 K.B.
F 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
G. (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 p~y,
and for these reasons the. English Courts bold 'that the
H
(3l [t95SJ 2 s.c.R. 402 at 422. •
AoeNCIA tOMMERciAL v. JiRANCHiis OF BANCO. (Pathak, ).) 2S

situs of the debts is at the ·place where the current
A
account is kept and where the demand must be
made.''

It was explilined further that if the bank . wrongly refused to pay
when a demand was made at the proper place and time, then it B
could be sued at its head office as well as at its bran.ch office, but the
reason was that "the action is then, 11ot on . the debt, but on the
breach of the contract to pay at the place specified in the agree-
· ment", 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.( 1) That is the position. in Tegard to banking law and c
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 D
by · somewhat comparable methods •. In England, du.ring 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 bi re W. Hage/berg Aktien-Gesel/schaft(2 ) and it was
observed that although the branches and agency of a business could E I
• not be regarded as distinct from the principal business of the owner,
non9theless, if a statute was enacted to create that effect, effect ha'1
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 witii the Enemy) 'Regul~tion,
1940 under which a winding up order could be made in respect of F
the business of any el)emy bank carried on at .its London offices.
In Re The Banca •Commrecial ltaliana(') 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 cre~te for the purpose of'winding-up a n~w entity, na!llely;
the business ordered to be wound ,up, and this entity is. considered G
as one which can possess assets and. 'have liabilities of its own."
Corresponding legislation in India during the Chinese invasion · and

(!) [1924] 2 Ch. IOI, H
· (2) [1916] Cba'ncery Division S03.
(3) [1943] I All Ena. L.R. 480.
I
SUPkEMll COURT R~i>ods [198'.II i s.c.tl.

A 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
B 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 legisla-
tion should be determined by ·close reference to the express. ·terms

•
of the legislation. .
c
, 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
D ~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··
E 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
F
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
G "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 pro-
ceeds clearly on the basis that the Branches must be regarded as
H 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
the Head Office of the Banco Nacional Ultramarino, with which -A
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 clo sed' 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 :-

c
I • '
"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 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 D
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 practica-
ble, be in consonance with the provisions relating to
E
• 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 provi-
sion 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 G
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
H
(!) [1584] 3 Co. ~ep, 7a.
(2) [1957] S.C.R. 930,
28 stiPkEME COURT REPOkl s [l 983) i s.C.R.
A
Vraj/d Manila/ & Co: & . Ors. v. State of Madhya Pradesh
& Ors.(') It was observed in Kanai Lal Sur v. Paramnidhi
Sadhukhan :( 2)

"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
c 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,

D 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 posses-
E sion 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
F 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."·
H
(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 A
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 atten-
tion has been invited to a passage in Byles on Bills of Exchange(')
which declares that "in any action or proceeding upon a bill, the B
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.. 8 U>f the Negotiable Instru-
' ments Act, 1881 were also referred to. It is true that those provisions c
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
D
• law which continued ,in force ·in Goa. Even ·in respect of the
Portuguese Jaw, that is .to say, provisions in the Portuguese Commer-
cial 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
E
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
F
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
G
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-
H
(1) 22nd E<!n. p, 389 Pam. 7Q.
.-----
30 SUPREME COURT REPORTS [ 1983] 1 s.c.R.
A
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.( 1J 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
B
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 :
c ."Such payment would operate as a good discharge
· . even under the English 1 rules : see Fouad· Bis hara 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,
D 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 March-
ands De Mosco~ Barclays Bank('), Arab Bank Ltd. v. Brae;
lays Bank(').
E 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·
F 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
G . 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.
H (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 A
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 B
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 c
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 direc-
tion 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 E
the appellants in those suits. We make no orders as to costs of
these appeals.

·.P.B.R. Appeals dismissed.
•

, r.
""'
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