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Re Bank of Credit and Commerce International SA (in liquidation) (No 15); Morris and others
Bank of India
C!"R# !$ A%%&A' CII' *IISI!N
+,--5. &/CA Ci 02; +,--5. , BC'C 2,3
4&ARIN6*A#&S7 13 1 ,- ,1 8AN"AR9 ,, 8"N& ,--5
,, 8"N& ,--5
CA#C4/!R*S7
$raudulent tradin: 6 Intent to defraud creditors 6 noart= to carr=in: on ?usiness orate lia?ilit= for em>lo=ee@s ?lind e=e
dishonest= 6 *efendant@s em>lo=ee turnin: ?lind e=e to >ossi?ilit= of fraud 6 #est of lo=ee@s knolo=er 6 Insolenc= Act 130 s ,12
4&A*N!#&7
In 131 S the :eneral mana:er of the 'ondon ?ranch of the a>>ellant ?ank B!I >roached M
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fraudulent transactions in that S ro>osin: the transactions had actual knoer At first instance the Gud:e held that none of the B!I
em>lo=ees includin: S had the releant knoossi?ilit= of fraud did
hae the releant kno>ellate court should not li:htl= oerturn a findin: of >rimar=
fact or an inference of fact from a >rimar= fact made ?= the first instance court :ien that thetrial Gud:e had the immense adanta:e of seein: and hearin: the >arties and
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Bank of Credit and Commerce International SA (in liq) Re (No 1E) Morris State Bank of India
+,--2. &/4C 1303 (Ch) +,--E. , BC'C ,20
Bank of Credit and Commerce International Re Banque Ara?e Morris +,--1. 1 BC'C ,02
Bio:en Medea >lc +1F. R%C 1
C (a minor) (ado>tion7 >arental a:reement7 contact) Re +12. , $'R ,0-
* (an infant) (ado>tion7 >arent@s consent) Re +1FF. 1 All &R 1E5 +1FF. AC 0-, +1FF. , /'R
F 4'
*u?ai Aluminium Co 'td Salaam +,--,. "4' E3 +,--2. 1 BC'C 2, +,--2. 1 All &R F
+,--2. , AC 200 +,--,. 2 /'R 112 4'
$armier (%roducts) 'td Re Moore add +1F. 1 BC'C 53 CA
$lo=d 8ohn $airhurst J Co +,--E. &/CA Ci 0-E +,--E. All &R (*) 21, (Ma=)
'alc Ro:ers +10. 2 &'R 32
Maidstone Buildin:s %roisions 'td Re +1F1. 2 All &R 202 +1F1. 1 /'R 1-35
Manifest Shi>>in: Co 'td "ni6%olaris Shi>>in: Co 'td +,--1. "4' 1 +,--1. 1 All &R FE2+,--2. 1 AC E0 +,--1. , /'R 1F-
McNicholas Customs J &cise +,---. S#C 552
Meridian lo?al $unds Mana:ement Asia 'td Securities Commission +15. , BC'C 110
+15. 2 All &R 13 +15. , AC 5-- +15. 2 /'R E12 %C
Morris Bank of America National #rust and Sain:s Association +,--1. 1 BC'C FF1 CA
National 8ustice Cia Naiera SA %rudential Assurance Co 'td (#he Ikarian Reefer) +15. 1
'lo=d@s Re> E55
%atrick and '=on Re +122. Ch F30
%i:lo
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A>>eal and cross6a>>eal
#he Bank of India a>>ealed a:ainst the Gud:ment and order made ?= %atten 8 on ,0 March
,--E (+,--E. &/4C 5,3 (Ch) +,--E. , BC'C ,F) :iin: Gud:ment in faour of Christo>her
Morris 8ohn %arr= Richards Ste>hen 8ohn Akers Ian /i:ht Michael Macke= Michael %illin:
and Ral>h %reece the liquidators of Bank of Credit and Commerce International SA and Bankof Credit and Commerce International (!erseas) 'td (BCCI) in the sum of S3,2-,E1 atin: in a fraudulent scheme deised ?= BCCI to ena?le it to mani>ulate its
?alance sheet for the =ears 131 to 13E so as to >resent a false account of its assets and
liquidit= #he liquidators cross6a>>ealed a:ainst the Gud:e@s findin: that t
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(,) #he court on the a>>lication of the liquidator ma= declare that an= >ersons ro>er@
$actual ?ack:round
+2. BCCI id :rosed in
8ul= 11 erated from
BCCI SA@s offices in 'ondon until 130 ?ut all its actiities an=
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knolo=ees includin:
Mr Samant had the releant knoeal
+10. #hree main >oints are raised ?= Mr Moss KC >ears >eal $irst it is contended that in li:ht of the eidence ?efore him and in li:ht of
his assessment of that eidence the Gud:e could not >ro>erl= hae concluded that Mr Samant
held Mr Samant@s dishonest= could not
and should not ?e attri?uted to B!I #hirdl= it is contended that there
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BC'C ,F at +1-F.)7
@+1-F. I hae found Mr Samant to ?e an unrelia?le and I am afraid untruthful re>ared to reco:nise the eistence of some dou?t as to roement of BCCI@s earnin:s to adances ratio as a >lausi?le e>lanation for the
arran:ements durin: the course of the first transaction M= oro?a?ilities he must hae entertained some cause for concern a?out it een at that time if onl=
?ecause head office itself >=@
+,. After considerin: the first transaction a little further the Gud:e then turned to the second and
su?sequent transactions and said (+,--E. , BC'C ,F at +1-3.)7
@+1-3. 4oted him to >roduce the 131 accounts and as I hae
alread= found I am satisfied so as to ?e sure that Mr Samant looked at that material and did
see and did realise that an im>roement in the earnin:s to adances ratio could not ?e achieed
?= the remoal of loans oer the =ear end 4e also realised that onl= a transfer of non6
>erformin: de?t ur>ose of the
transaction licated and certainl= more sus>icious than he ma= at
first hae su>>osed #hese sus>icions must hae ?een increased ?= his knoose to ?e achieed@
+2-. #he tassa:es for the >ur>ose of the >oints raised on the a>>eal
and the cross6a>>eal are in >aras +11,. and +1,-. of the Gud:ment Accordin:l=
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s>eak to them I acce>t that It is therefore more likel= that the= sim>l= alloreferrin: to rel= on Mr Samant@s Gud:ment in the matter Althou:h the
transactions (ece>t the first) >roed at ?oard leel this
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+21. Althou:h the first >oint ar:ued on ?ehalf of B!I
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+2F. $ourthl= @+d.es>ite the hi:hl= unusual nature of osed Mr Samant re>ared almost immediatel= to recommend acce>tance ?= B!I@ ose or status of the eistin: loans or the reason
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in relation to the first transaction and the= all a>>l= at least
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reall= ?e descri?ed as tion7
>arental a:reement7 contact) +12. , $'R ,0- at ,F2 that %atten 8 ed for oer a
month in the eidence and the >ersonalities of the ersonalit= certainl= cannot ?e Gud:ed as t of
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+0,. /hile the foundation for this ar:ument is >lainl= ri:ht resent case $irst the Gud:e ara +10. of his Gud:ment
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conclusion is o>en to attack ?ecause of the difficulties ened ,- =ears a:o and the defensie feelin:s lained ?= the fact that
Mr Samant ma= not hae ?een arom>ted Mr Shukla@s request that does not mean that Mr Samant a>>reciated that
the request ara:ra>h of
his Gud:ment the Gud:e referred to Mr Samant@s eidence that @he did not discuss the matter
directl= art from this there is eidence to su::est that if BCCI@s 131 ?alance sheet had
?een sent to the B!I ?oard ?= Mr Samant it had ?een sent @quite some time a:o@ to quote from
a tele from Mr Samant of 2 Au:ust 13, Accordin:l= Mr Samant and indeed Mr Shukla could
hae for:otten a?out it Kuite a>art from this all that ma= hae ?een sent the first time
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concluded that ?ecause the Gud:e erson had :uilt= knol= on that account hae had :uilt= knoreious transaction
+F,. In connection ut for
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+F0. $urthermore Mr Samant@s role
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Me
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s ,12 and its a>>lication to the facts found ?= the Gud:e In oses of s ,12 to a cor>orate ?od= orate
knoredecessors in the authorities Such discussion as there is has mainl= ?een in the
liti:ation concernin: the colla>se of BCCI7 see Re Bank of Credit and Commerce International
Banque Ara?e Morris +,--1. 1 BC'C ,02 at ,06,F2 and Morris Bank of America National
#rust and Sain:s Association +,--1. 1 BC'C FF1 at F3,6F32
%osition of B!I
+30. B!I acce>ted the >ossi?ilit= that s ,12 could a>>l= to a cor>orate counter>art= such as
B!I ?ut contended that it le of
an indiidual director of the fraudulent com>an= It
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conclusion ?oth as a matter of la< and on the facts #he lia?ilit= of B!I for >artici>atin: in
BCCI@s fraud ro>er
construction of the le:islatie lan:ua:e read of course in its contet; (c) :eneral >rinci>les of
cor>orate lia?ilit= for ciil lo=ees;
and (d) >lain :ood sense
+-. #he liquidators relied on the essential facts found ?= the Gud:e a?out the circumstances in
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he erson
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Council decision cited ?= %atten 8 in >aras +115.6+11F. of his Gud:ment
+5. #he articles of association of the com>an= its contractual relations and the art of the >rocess ofstatutor= inter>retation and for the >ur>oses of the rule in question it ma= ?e necessar= to
fashion s>ecial rules for the attri?ution of knoan= As 'ord 4offmann said in
the Meridian case +15. , BC'C 110 at 1,161,, +15. , AC 5-- at 5-F7
@#he com>an=@s >rimar= rules of attri?ution to:ether rinci>les of a:enc=
icarious lia?ilit= and so forth are usuall= sufficient to ena?le one to determine its ri:ht and
o?li:ations In ece>tional cases hole a rule ma= ?e stated in lan:ua:e
>rimaril= a>>lica?le to a natural >erson and require some act or state of mind on the >art of the
>erson @himself@ as o>>osed to his serants or a:ents #his is :enerall= true of rules of the
criminal la>lied to a com>an= !ne >ossi?ilit= is that the
court ma= come to the conclusion that the rule >l= to com>anies at all; for
eam>le a la< ret the la< as meanin: that it could a>>l= to a
com>an= onl= on the ?asis of its >rimar= rules of attri?ution ie if the act :iin: rise to lia?ilit=
ecificall= authorised ?= a resolution of the ?oard or an unanimous a:reement of the
shareholders But there rimar= rules of attri?ution ractice defeat that intention In such a case the court must fashion a s>ecial rule of attri?ution
for that >articular rule #his is alretation7 :ien that it >l= to a com>an= ho< >l= /hose act (or knoose intended to count as the act etc of the com>an= !ne finds the ans>l=in: the usual canons of inter>retation takin: into account the lan:ua:e of
the rule (if it is a statute) and its content and >olic=@
+0. /e a:ree aras +113. and +11. of his Gud:ment) that follo>roach the determination of the >erson >ossessin: the releant knour>oses
of ascertainin: lia?ilit= under s ,12 is not sim>l= a matter of identif=in: the >erson an= in question #he scheme of dele:ation of authorit= mi:ht as in this case >roide onl=
an incom>lete >icture of oses of determinin:
an= should ?e treated as >ossessin: the requisite knorimar= rules of attri?ution ?ased on factors such as the sco>e of the a:ent@s authorit=
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ma= require to ?e modified either restrictiel= or li?erall= in order to accommodate the statutor=
>ur>ose of the le:islation oses the lia?ilit=@
Sco>e of ciil and criminal lia?ilit= for fraudulent tradin:
+F. Before dealin: olic= of s ,12 a= com>ensation and criminal sanctions ma= ?e im>osed on an= >erson
es of lia?ilit= etend ?e=ond the com>an=
arties redecessor >roisions of s ,12 anies Act 1, and s 22, of
the Com>anies Act 1E3 #hose sections com?ined ?oth com>ensator= and >enal >roisions
#he= enal le:islation and as such erson char:ed the ?enefit of the dou?t7 Re Maidstone Buildin:s %roisions 'td +1F1.
2 All &R 202 +1F1. 1 /'R 1-35
+. #he >osition is different under the 130 Act Section ,12 is not a >enal >roision It onl=
coers ciil lia?ilit= to >a= com>ensation in cases an= an= for contri?ution to ?e made to the assets of that com>an= for the ?enefit of its
creditors
+1--. It is acce>ted that @outsider@ com>anies can ?e made lia?le under s ,12 >roided that it is
esta?lished the=
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(includin: shado< directors) @!utsiders@ lies in relation to a >erson an= the court
on the a>>lication of the liquidator ma= declare that that >erson is to ?e lia?le to make such
contri?ution (if an=) to the com>an=@s assets as the court thinks >ro>er
(,) #his su?section a>>lies in relation to a >erson if6(a) the com>an= has :one into insolent
liquidation (?) at some time ?efore the commencement of the of the com>an= the
>erson kne< or ou:ht to hae concluded that there ros>ect that the
com>an= erson an= at that time; ?ut the court shall not make a declaration under this section in an= case
ara:ra>h (?) a?oe ril 130@
+1-5. As for criminal sanctions for fraudulent tradin: the releant >roisions roisions and amended #he criminal >roisions in s 22, of the 1E3 Act onl=
a>>lied as did the ciil >roisions to cases an= an= is carried on an= or
creditors of an= other >erson or for an= fraudulent >ur>ose eer= >erson >lies an= has ?een or is in the course of ?ein: @
+1-F. #he se>aration of the >roisions relatin: to ciil and criminal lia?ilit= is releant in
identif=in: the >ur>ose of the >roisions Se>aration has made it easier to isolate and focus on
the >olic= of im>osin: ciil lia?ilit= #hat affects the a>>lication of the >roisions to the facts of
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>articular cases /e turn to consider the >olic= of s ,12
#he >olic= ar:uments
+1-3. #he Gud:e e>ressl= considered the >ur>ose of %arliament in im>osin: ciil lia?ilit= in
order to determine ersons >otentiall= lia?le for inolement in the transactions:iin: rise to the fraud and in erl= ?e
treated as cor>orate knour>ose an= to recoer com>ensation for the ?enefit of
those an= such as B!I could shelter ?ehind an ar:ument
that the onl= releant knoe lia?ilit=
?= the ?oard dele:atin: decisions to senior mana:ers and acce>tin: their recommendations
+1-. B!I dis>uted that that lete anal=sis of the >olic= of s ,12 It
contended that the >olic= a>>earin: from the earlier authorities
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com>an= is ca>a?le of ?ein: made lia?le under s ,12 noan= een thou:h such attri?ution ma= e>ose it to the risk of lia?ilit= under s ,12
+115. B!I criticised the Gud:e for not a>>l=in: to this case the >rinci>le that the knorinci>al lo=er and in circumstances in le in McNicholas Customs J &cise +,---.
S#C 552 a site mana:er lo=er for A# It olic= and content of the le:islation oerrode an= >rinci>le that kno
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order to make the section effectie
+1,-. /e also a:ree oint #he a>>lication of s ,12 requires a s>ecial rule
of attri?ution in order to make its self6eident >olic= effectie #he >olic= is to make those arties to fraudulent tradin: lia?le to com>ensate the creditors of the fraudulent
com>an= In order to make it effectie in a case such as this it is necessar= to attri?ute theknotitude of the B!I ?oard; or of makin: mem?ers of the ?oard
>ersonall= lia?le for the fraud art #he= are not lia?le nor (sae for Mr Shukla and Mr a:hul)
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his knoan= or to its directin: mind and ro>osition that there can ?e no attri?ution of knoonsi?ilit= for
the actions of Mr Samant ?= resistin: the attri?ution of his kno
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+1,. /e er a>>roach to the question of attri?ution in this case turns on the construction and >ur>ose
of s ,12 Secondl= the seerin: of criminal and ciil lia?ilit= for fraudulent tradin: means that
there is no question of an= conclusion in >rinci>le or on >articular facts as to ciil lia?ilit=
affectin: the ?asis on ro>riate in the case of a com>an= to limitattri?ution for its >ur>oses to the ?oard or those s>ecificall= authorised ?= a resolution of the
?oard #o limit it in such a
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+12E. In >ara ,1 it ersons
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%articulars
(a) #he makin: of adances and the acce>tance of de>osits osits lo=ment;
(c) In ne:otiatin: and im>lementin: those adances and de>osits Mr Samant also acted
>ursuant to authorities :ien7
(i) ?= the Chairman and Mana:in: *irector of B!I on or a?out 11 Noem?er 131; and
(ii) ?= the ?oard of B!I on Au:ust 13, ,0 !cto?er 132 and Au:ust 13E
(,) Mr Samant ects found ?=
%atten 8 in his Gud:ment herein dated 1 March ,--E@
+123. #he critical alle:ations are that the releant transactions lemented@ ?= Mr Samant @in the course of his
em>lo=ment@ that he Mr Samant >ears at least in that form in the eistin: >leadin:
+12. It is common :round that BCCI@s a>>lication for >ermission to amend is made after thee>ir= of the releant limitation >eriod7 see the decision of this court in Re $armier (%roducts)
'td Moore add +1F. 1 BC'C 53 It is also common :round that the effect of the
amendment
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eidence in fact adduced at the trial addressed these additional factual issues issues ut foroints out 6 and oint of
su?stance not Gust a de?atin: >oint 6 if all these matters had >reiousl= ?een adequatel=
>leaded BCCI lication for
>ermission to amend must ?e refused
+151. In the circumstances there is no need for us to consider ho< eal are dismissed
*IS%!SI#I!N7
A>>eal and cross6a>>eal dismissed