, in rising to call the attention of the House to the Report of the Commissioners appointed to inquire into the failure of the Bank of Bombay, and the position of the Shareholders in such Bank with reference to the Government of that Presidency, and to move— 205That, in the opinion of this House, the case of such Shareholders is one for the favourable consideration of Her Majesty's Government,said, that in the years 1840–3 the Government determined to establish Banks in the three Presidencies; but he should confine his observations to the Bank of Bombay, which was established in 1840 by an Act of the Legislature of India, with a capital of £520,000. In that Bank, as in the other, two Presidency Banks, the Government became shareholders, and they had the power of appointing—and they exercised the power of appointing—three Directors out of the nine which composed the Board of Direction of each of the Banks. The provisions of the Act establishing the Bank of Bombay were similar to the provisions of the Acts establishing the Banks of Bengal and Madras, and the business was strictly regulated and carried on in accordance with those provisions. The operations of the Banks, therefore, were safe and profitable, and each of the three Banks became a favourite means of investment for funds of all character in India. Indeed, their shares became a special means of investing trust funds and funds for charitable purposes, money belonging to natives, Civil servants, or retired officers in India, who were desirous of making provision for their wives and families and others dependent upon them. So much, indeed, were they recognized as a safe and secure investment, that there was scarcely a settlement known in India that did not give power of investment in these Banks. Such was the state of things up to 1860, when the Government took away the power they possessed of issuing notes; but, in return, and in order to compensate them for that deprivation, Government transferred to them the management of the Government Treasury and the payment of the Government balances. It being, however, considered necessary that a new Act should be passed, in order to place these Banks upon an altogether new basis, steps were taken to bring the matter before the Legislature of India, and new charters were accordingly passed for each of them. The Act for the Bank of Bombay was passed in 1861, and was framed by the solicitor of the Bank, under order of the Directors. And here he must remark that it might be objected that six of the Directors being appointed 206 by the shareholders, the latter were not in a position to complain of the acts of their representatives, who not only neglected their duty, but abused the confidence that was placed in them. He admitted that; and he also admitted that the shareholders had grossly neglected their duty. But he submitted that that did not displace the moral responsibility of the Government, which had been guilty of acts both of omission and commission. And he would proceed to show what were the acts of omission and of commission of the Government of India in relation to this subject, the powers they possessed, and in what respect they neglected to exercise those powers. With respect to the Government itself it was well to bear in mind, during the consideration of this question, that the Government in India was despotic. It acted by itself and for itself, without external influences, or any representation of the people subject to it; but as a condition of being a despotic Government, it must necessarily be a paternal Government. It must exercise control over the affairs of those subject to it; a close supervision over those dependent upon it, and attention to the duties and responsibilities which were inherent in a despotic Government. After the Act was framed by the solicitor of the Bank, the draft was submitted to Government, and the Law Officer of the Government directed that it should be submitted to another official, who was practising as a barrister at Bombay. Now, the old Act contained a clause which limited the power of the Bank to advance money on certain specified classes of shares only, and then only to the extent of three-fourths of their value, and a clause with similar restrictions came before the Directors as part of the new Act; but very unwisely and very improperly they struck out the restriction. On the 19th of March, 1862, the Act was forwarded to the Government of India; and they unfortunately intimated that it should not go through the Legislative Council of India, but that it should be passed by the Government of Bombay itself. The previous Act had been passed by the Government of India, and if the present Act had also gone through their hands, he (Mr. Gregory) believed more attention would have been paid to it, and the subsequent evils would not have 207 arisen. Well, the Act was referred back to the Legislative Council of Bombay, and here it might be necessary to state what was the sort of tribunal to which it was referred. The Legislative Council of Bombay consisted of twelve Members, six of them being officials, three of them partners of mercantile houses, and three of them native gentlemen. They were named by the Government, and they were, to all intents and purposes, the Privy Council of the Government, and, in fact, the Government in itself. On 12th May, 1862, the Government of Bombay forwarded a copy of the Act to the Secretary of State for India, and the Secretary of State then recommended that the business should be restricted to legitimate operations, such as those in the Bank of England or the Bank of Bengal as heretofore constituted. If the Government of Bombay had listened to this recommendation he (Mr. Gregory) would not now have been addressing the House. Unfortunately, the Government of Bombay did not listen to it; but they sent the despatch to Mr. Bickersteth, who was Government Solicitor, and Mr. Bickersteth gave the very cautious opinion upon it that, so far as he was aware, the powers intended to be conferred by the Act were more extensive than the powers of the Bank of Bengal, but did not exceed those of the Bank of England, but that his knowledge on this subject was very limited. The Government of Bombay had its attention therefore directed to this point, both by the Secretary of State for India and by their own legal officer. Under these circumstances, the Act came before the Legislative Council, and was placed in the hands of Mr. Robertson, who, if he was not mistaken, was the Secretary of the Government. The Directors nominated Mr. Michael Scott, who was one of their body and also a Member of the Council, to look after their interest during the progress of the Act. Mr. Robertson, it appeared, in bringing forward this measure, never called the attention of the Council or the public in any way to the point to which he had just referred. In fact, while he entered into very minute detail in describing the general character and nature of the provisions of the Act, he never touched upon a point which was so material to the interests of the Bank. The Act passed the Council, and was sent in due 208 form to the Governor General, and approved of by him. It was also sent home to Sir Charles Wood, and on the 4th December, 1863, he wrote to the Governor General that the Act had been amended, and might come into operation. It was, therefore, sanctioned by the three branches of the Legislature—the Government of Bombay, the Governor General, and the Secretary of State. It made material alterations in the constitution of the Bank as compared with the original Act of 1840, for it gave power to the directors to make advances to any amount to any individual on promissory notes, and on the security of shares in public companies, whether guaranteed or not. It also gave them power to increase the capital without the consent of the Government. The Act as first drawn contained by-laws, which restricted the operation of those powers; but these were struck out by the Legislative Council, a proceeding in itself reasonable, for otherwise they could not have been modified without a fresh Act. A power of making by-laws was substituted; but that power was never enforced, the Government never taking the trouble to see that it was exercised. Another very proper provision, giving them the right of calling for accounts and inspecting documents, was also allowed to remain a dead letter. Thus, the Government permitted the passing of an Act which gave power of speculative transactions to any amount; and striking out the schedule of by-laws they never required by-laws to be made, or called for accounts. The President of the Bank was Mr. Birch, a Government Director, who was an official high in the Government of Bombay. The second officer was Mr. Blair, the Secretary of the Bank; and the next was Mr. Ryland, the Deputy Secretary. No time seemed to have been lost in acting on the liberty which the new Act allowed, and in entering on a system of reckless and desperate banking. It was now necessary that he should introduce to the notice of the House the name of Premchund Roychund, who played an important part in the subsequent history of the Bank. Premchund was the son of Roychund Deepchund, a man of humble origin in Bombay. Premchund was a small cotton broker in the beginning of his career, and subsequently became a shareholder and promoter in 209 nearly every company which was started in Bombay. In 1863–4 the capital of the Bank was increased, under the powers of the new Act, to £2,000,000 sterling. During that time the American War was going on, and India became the great source of the cotton supply. Money became plentiful, and reckless speculation prevailed. Two schemes—the Back Bay Reclamation Company and the Financial Association of India—were most fatal to the shareholders of the Bombay Bank. Lacs of rupees were advanced without consulting the Directors, on no other security than a promissory note, and the principles of ordinary banking were utterly neglected. He regretted to say that Mr. Birch received allotments of shares, by which he realized something like £37,000; and Mr. Robertson, another Director, also realized large sums by similar means. Premchund, too, became a large debtor to the Bank. He appeared to have obtained loans for himself amounting to £420,000, and for other people amounting to £669,000; and by this means a loss ultimately fell upon the Bank of £434,547. He also obtained money for speculative purposes of £295,893, whereby a loss arose of £130,240; in fact, as the Commissioners stated in their Report, Premchund had the Bank entirely under his control. He now came to a transaction that was very serious, to say the least of it. It appeared that the Directors of the Bank were not satisfied with the loss that they had sustained, and they determined to establish a branch in Bombay itself. They did, in fact, establish such branch; but it was illegal to do so, according to the charter, and should at once have been checked by the Government. Instead of that being done, however, the consent of the Government was specially given to the establishment of the Bombay branch, and the establishment of this branch resulted in a heavy loss to the Bank. In 1865 Mr. Birch resigned, and on the 12th of April, 1865, the Directors of the Bank came to this most extraordinary resolution—that they would advance money, not only upon shares they held or were to hold as securities, but upon the premiums which the shares commanded in the market, and they agreed to advance from £50 to £175 upon the premiums that the shares commanded—that was, that if the shares 210 were at a premium of £200 the Bank would advance £175 of that premium. Such transactions were contrary to every system of banking which had existed in the world, and it was needless to say that they resulted in a loss to the Bank of not less than £134,716. On the 29th of April Mr. Blair resigned; and at this period the Bank had lost £1,531,340 by operations of which the Commissioners gave a summary in their Report. A new phase of the history of the Bank commenced in 1865, when the attention of the Government at home was directed to the transactions going on, although the Government of Bombay seemed to have been utterly blind to them, unless it had countenanced them throughout. On the 3rd of March, 1865, Sir Charles Wood wrote to Sir Bartle Frere, expressing alarm at the possible consequences of the speculations, mentioning disagreeable rumours, praying that the affairs might be looked into, and urging how desirable it was that the Government should stand clear if anything went wrong. That was a most proper letter to write, and it was only unfortunate that the Bombay Bank ignored it; for if they had acted upon Sir Charles Wood's recommendations, the losses which had been sustained would not have been experienced. Upon receipt of the letter Sir Bartle Frere communicated with Messrs. Chapman and Lushington, directing them to look into the affairs of the Bank, which they did. There was a meeting of the Directors, at which it was resolved that no customer of the Bank should be allowed a credit of more than £30,000 without the special sanction of three Directors. That was all very well if it had been acted upon two years before; but the loss had been already sustained, and, moreover, the transactions were continued, notwithstanding the resolutions, the secretary being Mr. Robertson, who had been a party to Mr. Blair's proceedings. At last, a creditor at the Bank named Cama, failed, and he owed the Bank £177,168, but without security. Then ensued a panic and a run on the Bank, which had less cash in hand than safety required. In that emergency they applied to the Governor of Bombay, and on the 5th of June, 1865, he sent a telegram to Lord Lawrence, to ask whether the Government would advance 150 lacs of rupees. That telegram 211 and what else took place showed that the Bank was not looked upon in the light only of a financial concern, but as a political agency also, for the run on the Bank ceased when it was found that it was to be supported by the Government, and the necessity for rendering pecuniary assistance never arose. The Governor General, however, had his attention called to the transactions, and he wrote to the Governor of Bombay desiring the Bombay Government to look after the Bank, which he understood was making advances on shares, contrary to the charter of the Bank, and on the 18th May Sir Charles Wood also wrote, warning them that their transactions were contrary to all banking systems. The note of the Secretary of State was referred to the Government Directors, and, as disclosed by the Commissioners, the following was the method of the Directors in dealing with it:—Their Report stated that £417,000 had been advanced upon the securities of certain shares which were mentioned; but that advances of this kind had been for some time discontinued—a statement which was manifestly incorrect. The inference which he drew from all the circumstances was, that not only was there neglect on the part of the Government of Bombay, but that they deceived the Governor General and the Secretary of State, and further that they deceived themselves and were willing to be deceived. Later than this, securities which they held so largely, rose in the market, and they might have realized without that enormous loss which subsequently accrued; but the Bank, unfortunately with the assent of the Government, adopted a policy of forbearance, and the interests of the shareholders seemed to have been sacrificed by the Government of Bombay for political considerations. No advantage was taken of the rise in the value of shares, and therefore the ultimate loss was sustained. On the 8th September Sir Charles Wood acknowledged the receipt of a despatch of the 8th July, and he said that the statement of the proceedings of the Bank was sufficient to show how unjustifiable they were, and he directed that in future there should be no advance upon shares which were not guaranteed. The Bombay Government took no legal action upon that recommendation; they 212 referred it to the Directors, by whom it was practically ignored. The Government of India not being satisfied, required an examination into the affairs of the Bank, and that was also referred to the Government Directors. On the 31st March they reported that there was £321,000 outstanding on loans at the head office; that £79,000 had been realized; that £126,000 was due; and that there was £116,000 not accounted for. It might have been thought that, at this period, considering the state of his account, the recommendations that had been received from the Secretary of State and the Governor General, and the remonstrances that had been directed to the Government from time to time, that at all events there would have been a suspension of any dealing with Premchund for the future. That, however, was not the case. In April, 1866, application was made by him for a loan of £250,000, and he offered as security some title deeds to landed property, and some other property, on which he put a nominal value. One of the Government Directors called upon Sir Bartle Frere, and spoke to him on the subject. According to the Report of the Commissioners, Sir Bartle Frere expressly sanctioned this advance, on the ground that the transaction was at the time being carried out, and was not complete. Now, that would have been a very sufficient ground for stopping it. He should have said—"I refuse this application at once, knowing the state of the accounts, and the affairs of the Bank." But he approved of the transaction because he believed that it was going on, which was a most extraordinary reason. If it had been concluded, he might have said that it could not be helped; but he (Mr. Gregory) was at a loss to conceive why he took the course he did under the circumstances. It turned out, when looked into, that, of course, the securities were worthless, as might have been expected. That, however, was not the only proof of the reckless way in which the business of the Bank was conducted. Another proof was found in the fact, that they permitted themselves by sheer carelessness to lose upwards of £96,000 in connection with the Asiatic Bank. In 1866, His Excellency the Governor General of India caused a communication to be addressed to the Government of 213 Bombay, asking that inquiries might be made as to the conduct of the Bank; but the Bombay Government took upon itself to consider that the inquiries were of such a character that a bank carrying on business ought not to be called upon to answer them. Again, the Governor General asked for information, specifying the points upon which he desired to be informed, and after much delay the Directors reported a loss by advances on shares alone amounting to £116,000, and a further loss by advances on promissory notes to one firm amounting to no less than £801,000. In 1869 the Directors reported a total loss on their trading of £1,500,000; but a subsequent fuller investigation disclosed a loss of £1,889,933, involving ruin and desolation on all hands. The conduct of the Directors of the Bank was without doubt culpable, but no less culpable was the conduct of the Government, which by neglecting to make inquiries, enabled the Directors to circulate reports giving an altogether false colour to their transactions. Having thus pointed to errors of omission and commission in the conduct of the Directors as well as of the Government, he therefore asked a favourable consideration for the Resolution he was about to propose. He knew he might be told that recommending the case of the shareholders to the favourable consideration of the Government implied an advance of money to recoup them for their losses, and that that would fall heavily upon an already severely taxed people. That was true; but it must be borne in mind that the loss was due to the neglect of the Government of the Presidency to investigate the affairs of the Bank when their attention was called to the manner in which its business was being carried on—that in 1864 and 1865 they threw into the market a great quantity of land for which high prices were paid, and for the purchase of which large advances were made by the Bank of Bombay; and that the people of Bombay were amenable for the acts of the Government, and must be prepared to make good any losses occasioned by those acts. He asked for the favourable consideration of the Government on behalf of those who had been induced to place their money in the Bombay Bank as a Government investment, on behalf of trustees of public charities, and on behalf 214 of Civil servants of the Crown, and others who had wasted their health in the public service, and had made provisions for their families by placing their money in an institution which they thought safe and secure, because it was under the control of the Government of the Presidency. In conclusion, the hon. Gentleman moved the Resolution of which he had given Notice.
§ COLONEL BARTTELOT
, in rising to second the Motion, expressed his belief that the case of the shareholders in the Bombay Bank not only deserved, but would receive, the sympathy and the consideration of the House. He had refrained from bringing their case before the House last year only because he could not at that time foresee any practical result. The transactions connected with the Bank were as bad as any of which he had ever heard, and all the facts tended conclusively, to his mind at least, to show that the Government at Bombay were responsible for the action of the Directors whom they placed in charge of the affairs of the Bank. He was exceedingly glad that his hon. Friend the Member for East Sussex (Mr. Gregory) had taken up the matter, because with his knowledge of law and legal ability he was enabled clearly to state the case from end to end, and show how far the Government of Bombay was connected with all those transactions of the Bank that had occasioned such serious injury and losses to all who had anything to do with it. This Bank was started in 1840, and for a period of 23 years, when it was under a wise and prudent charter, it was well and honestly conducted. It did all that the shareholders could desire, and paid good and regular dividends. The Bank was so generally esteemed that moneys of all kinds and from all quarters were deposited in it. That state of things went on until the 13th of January, 1868, when it came to a frightful collapse. The Government of that day thought that was so serious a matter that they sent out a Commission under Sir Charles Jackson to inquire into the affairs of the Bank. Two Reports emanated from that Commission, but one of them only was made public. Where, he (Colonel Barttelot) asked, was the other Report made by the Commissioners? Was it because it was condemnatory and damnatory of the Government of Bombay that 215 Her Majesty's Government were afraid to produce it? The inference naturally was, that by the keeping back of that Report there was something in it which the Government did not like to see made public. In 1861 the notes allowed to be issued by the Presidency Banks were stopped. But in lieu of those issues, there were placed in their hands the Government balances. A new charter was thereupon obliged to be made. This new charter was one very much of the same kind as that before in force in regard to the Banks of Madras and Bengal. The charter of the Bombay Bank, however, differed materially from the other two, and although the attention of the Government of Bombay was called to the nature of the charter to be granted to the Bank by the Secretary of State for India and the Law Officers of Bombay, nevertheless the 37th clause of the Act of 1863 was passed, which gave power to the Bank to lend money without security upon any scheme that might be propounded, whether such scheme was guaranteed by the Government or not. From that moment speculations took place in all directions in connection with the Bank; various companies were established; shares were bought up, and numerous projects were set on foot. All this state of things ended in a frightful collapse of the Bank. But, in the meantime, the Government of Bombay were warned, in emphatic language, that things were going to the bad in regard to the Bank. They were warned by the Governor General of India, and by responsible parties in Bombay itself. Still the Government of Bombay did not make any effort to stop the reckless proceedings that were taking place. Out of the proceeds of these transactions, it was stated in a Report that two of the Directors of the Bank had made large sums of money—namely, £37,000 and £26,000 respectively. He wished to know whether the statement was true that those Directors did realize such large profits out of the Bank to the detriment of the shareholders? He now came to the case of Premchund Roychund. That man obtained advances from the Bank, and he became at last, by his influence over the Directors, master of the Bank. At a time when he was indebted to a large amount to the Bank, and when he was insolvent, he asked for a loan 216 of £250,000. Sir Bartle Frere, instead of refusing this application, allowed the Bank to continue its course. That money was consequently lent upon the most worthless securities, and this man, Roychund, failed for a large amount. The charter granted to the Bank strictly prohibited the establishment of another Bank in Bombay, but a branch Bank was established at Kalbidavi, by which £190,000 was very soon lost—and lost without the hope of redemption. The whole of the Government Directors united together to prop up this Bank, and not to allow the public to know what was going on inside. After some speculations, the shares of certain companies did show a rise, and the Directors, if they had availed themselves of that opportunity, might by careful management have got the Bank out of its difficulties. Those shares, however, were left precisely as they were, and no effort was made by the Directors to retrieve the unfortunate position in which the Bank was placed. Sir Bartle Frere, seeing a run upon the Bank, telegraphed to the Governor General of India that unless £1,500,000 was sent to its assistance the Bank must stop. The Governor General wrote to say he would be answerable. The Bank went on, but without any proper supervision. Some loans were again made, the same irregularities and the same culpable negligence being manifested. In the end, in five years the capital of what had been the safest and soundest bank in India was raised from £500,000 to £2,100,000, and when it failed, on the 13th of January, 1868, it was found that a loss of £1,998,833 had fallen upon the shareholders. He maintained that that was a state of things which demanded very serious consideration. Something was surely due to the shareholders, and he hoped that his hon. Friend would get up in his place and state that, whether the Government were prepared or not to do anything for their pecuniary benefit, they would say that in their opinion gross and culpable neglect attached to the officials in Bombay and to the Directors of the Bank. In relation to this subject, it should be recollected that the Government of Bombay had sold a powder magazine for £400,000, and certain esplanade lands for £541,000; that would be a sum of £941,000. The Government had also had, but had not 217 taken them up, 400 Back Bay shares, which had realized over £1,000,000; and they had a right to ask on behalf of those long-suffering people—the widows, orphans, and others, many of whom were retired officers and Government servants—who had trusted the men in high position, and who ought to have been men of honesty and integrity, that their cases should receive that earnest and attentive consideration which the Resolution asked from that House.
To leave out from the word "That" to the end of the Question, in order to add the words "in the opinion of this House, the case of the Shareholders of the Bank of Bombay is one for the favourable consideration of Her Majesty's Government,"—(Mr. Gregory,)
§ Question proposed, "That the words proposed to be left out stand part of the Question."
MR. GRANT DUFF
Sir, I am sure I regret as much as does the hon. and gallant Gentleman opposite (Colonel Barttelot) the misfortunes of the shareholders in the Old Bank of Bombay; and if this Motion had been brought forward several years ago, I should most probably have accepted it, substituting, perhaps, the word "anxious" for the word "favourable." To accept the Motion now after the affairs of the Bank have received the fullest, the most careful, the most painful consideration from the Government without its seeing any way to meet the wishes of the shareholders, would, I fear, be to excite false hopes and so to inflict a new evil upon persons who have had evils enough already. For this Motion, if it means anything, means that Her Majesty's Government ought to direct the Government of India to take a sum of money out of the pockets of the people of India and put it into the pockets of the persons who lost money by the failure of the Old Bank of Bombay or their representatives. But what defence could there be for such a proceeding? Is not the proposal that we should adopt it an admirable illustration of the saying that A never sees B in distress without wishing C to relieve him? If this were a Resolution to the effect that the Bombay Government of six or seven years ago was very injudicious as regards the Bank, and that it is the bounden duty of the Home Government 218 of India to take care that, as long as any connection remains between the Government of India or any subordinate Government and the Presidency Banks, greater care should be used to protect the interests of Government in those Banks, then I should not have a word to say against it. But that is not, I apprehend, what is meant. This is simply—I will not say a demand, for the hon. Gentleman's Resolution is in terms as mild as his tone is courteous—but I will say the expression of a wish for money, and that money we cannot honestly give. Why is this Motion made here in the House of Commons at all? It is made here, because in this, which is a mere question of private right, it is notorious that no Court of Justice would decide in favour of the shareholders. Aware, accordingly, that they have no legal claim, they fall back on what they call a moral claim; a moral claim to get money from the people of India, £110,000 of whose money—far more than was lost by any single shareholder—was lost by the failure of this ill-starred Bank. The hon. Gentleman says that the Government of Bombay was responsible. Yes; but to whom was it responsible? The Government of Bombay was responsible, not to its fellow shareholders, but to the Government of India and to the Secretary of State in Council for looking after its own shares in the Bank and its deposits with the Bank. Let us see how the facts stand. The Court of Directors always set its face as a flint against giving any guarantee to the Presidency Banks. In the year 1806, the Government of Bengal recommended it to establish a Bank at Calcutta, the solvency of which was to be guaranteed by the Government. The Court, which had already rejected a similar proposal from Madras, again carefully re-considered the whole question and eventually refused to agree to the recommendation. The grounds of the Directors' refusal were—first, a determination not to guarantee any Bank; and, secondly, a dislike to being partners in any Bank. On the latter point they did not stand very firm, giving the Government of Bengal a latitude to subscribe £100,000 to the capital of the proposed Bank, if it could not be founded without that help; but on the former they stood perfectly firm. They would hear nothing of any guarantee. Nor did the Court depart from this wise policy in sanction- 219 ing the establishment of the Old Bank of Bombay. It is quite true that the money subscribed for the shares was paid in the first instance to the sub-Treasurer of the Bombay Government; but it is not less true that the Act of Incorporation provided that the amount so subscribed should be delivered to the Directors of the Bank; that the receipts granted by the sub-Treasurer of the Government of Bombay should be cancelled, and that a certificate signed by three Directors of the Bank of Bombay should be delivered to each proprietor. If the Government meant to hold itself out as in any sense adopting or guaranteeing the Old Bank of Bombay, what in the world was the object of this ceremony? Why were the receipts of the sub-Treasurer cancelled? Why were the receipts of three Directors of the new institution carefully substituted for them? Continuing its policy of recognition and allowance, the Government became a shareholder in the Bank, and the Government being a shareholder, became, of course, just as liable as any other shareholder in a chartered bank to all the depositors and creditors of the Bank. There is no kind of dispute about that; and no creditor or depositor has lost a penny by the Bank's failure, though the Government, like other shareholders, has lost nearly the whole value of its shares. But it is one thing to be liable to depositors and creditors, quite another thing to be liable to fellow shareholders; and unless it can be proved that in some mysterious way the Government became liable to its fellow shareholders the present Motion has no basis. On what ground, then, can it be maintained that it was liable to its fellow shareholders? Is it because the Government had three Directors on the Board? That only proves, what no one denies, that Government was a very influential shareholder, and meant to take, though unfortunately it did not, very good care of its own interests. The function of those three Directors was to watch over and protect the interest of the Government. In the latter years of the Bank's existence most of them proved to be very inefficient, selected as they were, and must in the nature of things have been, from men who had no experience in banking; but they were put there to look after the heavy stake of the Government, quâ shareholder, not the interest of its fellow shareholders, 220 who were represented by six Directors of their own, able at any time to outvote the Government Directors, and who, as commercial men, were likely to know more of commercial matters, as, in fact, they did. But it is attempted to fix responsibility on the Government, because the Act of Incorporation of 1840 entirely precluded the Bank from being engaged in any business of an unsafe or speculative character. In the first place, the fact is otherwise. The Act of 1840 left it open, for example, to discount any amount of bad bills. If the Bank had had the misfortune to fall, in the earlier years of its existence, into the hands into which it fell in the latter years of its existence, its ruin might have been ante-dated by nearly a quarter of a century. In the second place, even if the fact had been as alleged, it would not have supported the inference. The Government, even if it had made it impossible for the Bank to discount bad bills—an impracticable feat—would only have done so in its own interest, or rather in the interest of those for whom it was acting—the great public of taxpayers, not the little public of shareholders. Such being the state of things under the Act of 1840, was there anything in Act 10, of 1863—once so popular with the Bank shareholders, but so much attacked after that event—or was there anything in the circumstances connected with its passing that altered the relations of the Government to its fellow shareholders? I think not. And here let me pause to note a most strange fact, that the very people who wished for the legislation of 1863, accepted the new charter, and took all the advantages under it, including dividends at the rate of 12½ and 16 per cent, are actually coming whining to Parliament and complaining of the result of their own actions. There may be some ground for saying that the Bombay Government, or even the then Secretary of State, should have so far distrusted the wisdom of the mercantile community of Bombay, as to have forbidden the slightest relaxation in the terms of the old charter. But is it for the people who accepted the new charter to complain? Who was it initiated the changes in the Act regulating the Old Bank of Bombay? It was the Board of Directors, not the Government? Who prepared the draft Act? The solicitors to the Directors of the Bank, not the Government solicitors. 221 Who was it who struck out of the original draft the words, the absence of which afterwards led to so much mischief? Were they Members of the Government? Were they appointed by the Government? They were not Members of the Government. They were two commercial Directors, Messrs. Scott and Foggo. They were appointed to be a Committee for the preparation of the Act by the Directors, not by the Government. Who was it ratified the striking out of these important words? Was it the Government? No; it was a special general meeting of the shareholders called on 28th November, 1861, not by the Government, but by the Directors. It was not till after the affair had gone a very long way, indeed, that the Government had anything whatever to do with it; and when the Government did appear on the scene it erred, not like the shareholders who were making haste to be rich by commission, but by omission. Observe, I am not defending the Bombay Government which, although it took the best banking advice within its reach—which is not saying much—failed to secure the interests of the people of India, which were represented by £120,000 embarked in the Old Bank of Bombay; but its fellow shareholders are not the persons to cast stones at it. They were far, far more culpable; and if it is said that some of them were living at a distance and could not exercise effectual control, might not the same thing have been said of hundreds and hundreds of persons who lost their, money in the numerous great concerns which went crashing down herein England in 1866? The people at a distance were concluded by the acts of the people on the spot, who were largely engaged in the wild speculations of the time, and the House must not forget that many of the Bombay Bank shareholders were concerned in the very speculations that ruined them as shareholders; but even as to those who had neither part nor lot in the wilder speculations, is it not true that persons who put their money into banks, if they are in their senses, make their arrangements accordingly? They expect high interest, but they do not expect security equal to that of the funds or of other steady-going investments. Much is made in all discussions of this kind of the losses of the widow and the orphan; but those are not the true 222 friends of the widow and the orphan who encourage them to get 16 per cent for their money. There is another point to which, I think, the hon. Member has hardly paid sufficient attention. Supposing, even, that a moral claim were made out for some persons, who would the persons be? Would they be the persons who happened to be the shareholders at the moment the Bank went wrong, or would they be the persons who hold shares of the Old Bank of Bombay at this moment? I think the hon. Member would find that even if he succeeded in forcing the Government to commit the great wrong of robbing the people of India to pay the Bombay Bank shareholders, the persons benefited would consist largely of persons who had bought the shares for a mere song on the chance of something being done by the Government. To sum up, it seems to me that the Bombay Government was overtrustful and injudicious, as well as most unfortunate; but that with regard to its fellow shareholders, its conduct was damnum absque injuria. How was it that the commercial Directors, who were twice as numerous as the Government Directors, never found out the kind of man they had for a secretary? Each of the parties concerned—the Government of Bombay and the shareholders—had great powers, which powers, if properly exercised, might have saved the Bank, and each party neglected its respective duties; but the people of India did no wrong, while they lost a great deal; and the least reasonable course that could be proposed would be to compensate one of the guilty parties, not out of the pockets of the other—for nobody proposes to confiscate by Act of Parliament the property of the persons more or less connected with the Bombay Government who had to do with the misfortunes of the Old Bank of Bombay—but out of the pockets of perfectly innocent persons, who had neither directly nor indirectly anything whatever to do with the whole transaction. I repeat, I am not defending the Government of Bombay. I am defending nobody and nothing but the pockets of the people of India. The Government of Bombay was in 1866 in the hands of a man who well knew how to defend himself—a man of the highest merit, although in this one instance unsuccessful. My hon. Friend must remember that he is looking at these af- 223 fairs after they have been examined and thrashed out by a Commission which sat for about a year. The Bombay Government, which had many other things to attend to, was looking at them while a great number of persons were interested in deliberately hoodwinking it, and while many more were as much blinded by sanguine hopes as were people in England at the very same time, and up to the great Overend-Gurney crash.
§ MR. EASTWICK
said, he wished to saw a few words in support of the Motion, notwithstanding the speech which they had just heard. The Under Secretary of State for India had endeavoured to repudiate the responsibility of the Government Directors by saying that they were at the Board simply to look after the interest of the large sum of money which the Government had invested in the Bank; that the Government Directors were there as any other Directors might have been; and that the shareholders had no reason to look to them for protection more than to any other of the Directors. It was, however, impossible for the representatives of the Government to be connected with a Bank, and to stand upon the same footing with other Directors elected by the shareholders, for shareholders would be hoodwinked by seeing the Government taking a share in the concern, and would trust to that fancied security, notwithstanding all the cautions common sense might suggest to their minds. Hence it was that the authorities of the East India Company manifested such extreme repugnance to allowing the Government to be mixed up with banking concerns. In treating of the conduct of the Government Directors, and also the Government of Bombay itself, he hardly knew how in words adequately to describe the way they had conducted the affairs of the Bank. Had there been mere mismanagement on the part of the Government Directors, he should not have asked for the losses resulting therefrom to be made good; but there had been more than mismanagement on the part of the Directors of the Bank—there had been that which some persons might be disposed to term swindling for their own benefit, and an utter neglect of the interests of the shareholders. The hon. Gentleman the Under Secretary of State for India had asked why 224 the people of India should be called upon to pay for this scandalous and flagitious conduct? But he (Mr. Eastwick) said it was in the interests of the people of India themselves that he asked that part of the money lost by the shareholders should be made good, because the confidence of the Indian community had been rudely shaken in all banking establishments with which the Government was connected, and if the matter were entirely passed over in silence by the Government of India, the people of India would never again have faith in any banking establishment whatever. He asked, in the first place, for money to prosecute the delinquent Directors; and, secondly, for money to make good all trust funds invested in the Bank. He gave a cordial support to the Motion.
§ MR. DICKINSON
said, he could not support the Motion, for while admitting that the fact of the Government of India having become shareholders of the Bank of Bombay had given that establishment an importance which it would not otherwise have possessed, and had induced private persons to invest their money in it, he thought that there was no ground for asking the people of India to pay the losses that had been incurred through the misconduct of the Directors and their officers. If the Indian Government were to be held pecuniarily responsible because the Directors whom they appointed failed in their duty, the Home Government might be held responsible too for having appointed those who, as Members of the Indian Government, had misconducted themselves. And if the Indian Government were to be held responsible because shareholders believed that they had Government security for their capital, persons subscribing to Indian Government Loans would claim to hold the British Government responsible if India were lost, because they believed that they had such ultimate security to fall back upon. He did not see how anyone supporting the Resolution could stop short of those conclusions. The Legislative Council of Bombay had given a dangerous power to the Bank; but it was a novel proposition to him that the people of a country were to pay because those to whom the Legislature had given certain powers exercised those powers improperly. Even if the Bank Directors were culpable, that was no reason why the shareholders should call 225 upon the general community to bear their losses, more especially when the Government were represented by three only out of a Board of nine Directors. If the Bank had become insolvent the creditors, under the unlimited-liability principle, might have come upon the Government as the richest shareholder in the concern to pay; but the Government in that case would have been entitled to come upon the other shareholders to make good their proportion of the contribution. But in this case the Bank had simply lost its capital, and there was no reason why one class of shareholders should come upon another to replace the lost capital. The conclusion of the Commissioners, which had not been read, was that the losses were due to these causes—First, the Act of 1863 removed restrictions that were contained in the former Act; second, the abuse of power by weak and unprincipled Secretaries, acting under the influence of native Directors; third, the President and Directors of the first and second periods were negligent of their duty; fourth, the exceptional nature of the times required more than ordinary vigilance and care; fifth, the President and Directors of the first, second, third, and fourth periods were not cognizant of banking business, and were incapable of managing such an institution in difficult times; sixth, the absence of sound legal advice—these were the grounds of the losses which it was asked that the people of India should make up; and he protested against the adoption of so dangerous a precedent, for which none of those causes afforded any legitimate ground.
§ MR. DENISON
said, he was unable to support the Motion, but did not regret that the discussion had been held. He thought the House would be of opinion that a more scandalous revelation of the conduct of a great institution like the Bombay Bank had never been placed before Parliament; and, if he cared to do so, he might exhaust the English language in finding terms strong enough to reprobate the conduct of those who were responsible for all this malfeasance. But it became a very different matter when the House was asked to interpose between the shareholders of a trading concern like the Bank of Bombay, and to pledge the credit of the Government of India for the wrong-doing of those 226 who were primarily responsible. He could take no such view as that, and he thought the passing of the Resolution would be most mischievous; and that it would, in fact, be offering a premium for any future amount of misconduct on the part of those who managed these banks, if in times of prosperity the shareholders in a concern like the Bombay Bank were to take advantage of everything which prosperity brought them, and then when the day of adversity came they were to come down on the State, in order to be guaranteed against any losses which might have arisen from their mercantile speculations. He did not know by what reason it could be urged that the directors of a bank who, by their own misconduct and wrongdoing had reaped failure, should then turn round and say that the taxpayers of the country ought to make up their deficiencies; and he was sure that such a doctrine as that would not be entertained by that House. It would be altogether a wrong conclusion to say that, because the Government were shareholders in the Bank, they were to be held responsible for any losses that might arise, for the Government of Bombay was completely hoodwinked by those who ought to have kept them informed of the position of the Bank, and the Governor of Bombay was misled by inaccurate reports. The Government of Bombay, however, committed one great error which had not been explained, and that was that for 10 months it withheld the information asked for by the Government of India. He quoted the Report of the Commissioners on the point; but he did not make the same deduction from it as did the supporters of the Resolution. They had now to look at the dry legal bearings of the question; and such a Resolution as that proposed would not only be mischievous in itself, but it would be an interference with the action of the law, and possibly prejudice the position of Parliament as the ultimate Court of Appeal. He hoped, therefore, the House would pause, and not pass the Resolution. Although he had as much sympathy as any Member of that House for the interests of those who were unable to look after their own affairs, he believed this was a question not of sentiment, but of dry legal justice. The House could not, if it had regard to that 227 consideration, pass the Resolution, and he hoped his hon. Friend would, not press it to a division, because by withdrawing it he would do more good to those whose cause he advocated.
§ MR. CANDLISH
said, it was not alleged that the Government of India were legally liable for the losses of the shareholders of the Bank of Bombay. If there had been a legal claim the question would not have been raised in that House, but before another tribunal. The question was, whether the Motion was not founded in reason, and was there not ground for the fair consideration of the claims of those who had suffered from the failure of the Bank? Everyone must condemn the action of the Government of Bombay, through whose wrong course of conduct a vast number of innocent persons had been brought to poverty. Would it, then, be wrong to make the people of India pay for the misconduct of their Government?
§ Notice taken, that 40 Members were not present; House counted, and 40 Members being found present,
§ MR. CANDLISH
resumed, and said that he should have been glad if the Government had seen their way to accept the proposed Resolution; or if they had promised to make further inquiry with a view of mitigating the sufferings of those who had experienced such heavy losses; and especially so, when they considered, as no doubt was the case, that the persons suffering believed they had the virtual guarantee of the Government for the security of their deposits. He should like the House to say to those innocent and unfortunate people who had suffered so grievously, that the persons through whose culpability the suffering arose should be compelled to make good the loss.
THE SOLICITOR GENERAL
said, he thought the reasons of the hon. Member for Sunderland ought to lead the House to a conclusion opposite to that at which the hon. Member had himself arrived. The hon. Member said some of the shareholders in the Bank believed that they had the security of the Government for their capital; but he (the Solicitor General) could not comprehend how people who were receiving interest at the rate of 16 per cent per annum upon their investment could possibly arrive at the conclusion that in addition 228 to this they had Government security also. It was clear that they could not have a Government guarantee in addition to so high a rate of interest. He agreed, however, with the hon. Member, that the innocent ought not to be punished for the guilty; but he had not heard a word to show that it was the shareholders who were innocent and the taxpayers who were guilty. The accusation of the hon. Member for East Sussex (Mr. Gregory) against the Government of India was that, without the knowledge of the shareholders, the Government caused an Act of the Legislature to be passed which was not in accordance with the instructions sent out by Sir Charles Wood; and that the Act gave ampler powers to the Bank of Bombay, than were formerly entrusted to it, and ampler powers than it was either necessary or proper for the Bank to possess. On both of these points he differed from the hon. Member. Those powers were sought and obtained by the Directors on the instructions and with the express authority of the shareholders, as expressed at a General Meeting held on November 28, 1861, and they were, therefore, alone responsible if the powers obtained were too wide. He could not, on the other hand, conceive on what tenable ground it was sought to place the responsibility upon the Government of India, and he was of opinion that but for the fact that it turned out by accident there had been a difference of opinion between Sir Charles Wood and the Government of Bombay, the House would never have heard of this question. He could not, moreover, concur with the hon. Member for East Sussex that the powers given to the Directors were too great for any bank to possess. It was no sufficient ground of complaint against them to say that they were larger than those conferred by the old charter, or larger than those possessed by the Banks in the other Presidencies, unless it could also be shown that they were improper powers. Why, the Bank of England existed under a charter which conferred powers only limited by the discretion of the Directors, but would anyone say that the Government of this country was in any way bound to indemnify the stockholders against any want of prudence on the part of the Directors? The next complaint was, that as the Government of Bombay, which had a large 229 stake in the concern, had appointed, out of a Board of nine, three Directors who had neglected their duties, they were therefore liable to make good any loss which had followed upon such neglect. It was to him, however, an entirely new legal principle that the shareholders who elected Directors were to be held responsible to the other shareholders for the lâches of the persons they elected. The three Government Directors neglected their duty, some of the shareholders' Directors also neglected their duty, and the remainder did something worse. Now, supposing the principle he had just mentioned were a just one, the loss should fall not upon the Government, but upon those shareholders whose nominees on the Board had been guilty of something beyond simple negligence, for it had been decided over and over again in England, that directors who had taken no part in the commission of breaches of trust were not liable, but that the liability rested simply upon those who had been engaged in the commission of wrongful acts. An observation had been made on the question of providing a sum of money to cover the expense of prosecuting some of the Directors, but the Report of the Commissioners only mentioned two of the Directors as having been guilty of moral misconduct, and as far as even they were concerned he failed to see how a criminal prosecution would lie. It was also said that there were certain cestuis que trust, who were specially deserving of sympathy. But either the trustees of these persons were authorized to invest in Bank shares by the terms of their trust-deeds, and the persons taking the advantage of the investment must also take the risk; or if the trustees were not so authorized by the trust-deeds, they were personally responsible for any loss which might accrue. On what principle, moreover, was it sought to tax the innocent people of India for these losses? They were said to be responsible for the government of India. But if anybody was responsible, was it not the people of England? They elected representatives in Parliament, who in substance nominated Ministers, who again appointed the Government of India; and the Government of India again nominated certain gentlemen to be Directors of a concern in which the Government had a pecuniary interest. These gentlemen 230 neglected their duties; and the logical consequence, if followed out, would be that the people of England should be responsible. If any hon. Member thought that a legal, rational, or moral ground existed for such a claim, he ought to vote for the Motion; but he (the Solicitor General) doubted whether anyone would get up in this House and make that claim.
said, that the hon. and learned Gentleman who had just sat down had argued the question on legal grounds alone; he (Mr. Henley), however, would remind the hon. and learned Gentleman that the hon. Member for East Sussex (Mr. Gregory) had not put it upon such grounds at all, but had pointed out that if there had been legal grounds to go upon, an appeal would not have been made to that House. He (Mr. Henley) quite agreed that if persons embarked in such concerns, and took profits on ordinary grounds, they must bear the losses; but the question there was, whether, in that particular case, there had been matters so exceptional—so completely exceptional—as to take it out of the ordinary rule? He thought there was, for the following reasons:—In the case of the first Bank charter, which gave powers of issue to the Bank, would anyone suppose that the Government Directors were not at the Board to watch over the issue, and its relation to the currency? They must remember that the public in India looked on Government with a very different eye from the people of England, and attributed a very different degree of responsibility to any matter in which Government had a finger. The hon. and learned Gentleman had illustrated his argument by the Bank of England, stating that it had the same power as the Bank of Bombay. But there would be rather a call out against the negligence of the Government here supposing the Bank of England to-morrow were to omit to publish their monthly return of the specie, and the Government took no heed of it. The hon. and learned Gentleman had further argued that the shareholders were to look to their Directors, and the Government were to look to theirs. But when putting forward that argument he had omitted a very important point—he had omitted the audit which the Government had power to call for, and which they did not call for. 231 Was that not lâches? But was that all? Twice the Bank had got into difficulties, and what did Government do? To prevent great inconvenience, panic, and loss to the whole community, and to the taxpayers of India, they advanced money, and pulled the Bank through. Was that done once? No; it was done twice. And what was the result? If the Government had not done that, the Bank might have been wound up; and the loss to the shareholders would not have been one-half what it had been since. That the hon. and learned Gentleman entirely omitted. There, he thought, the Government had failed. His hon. and gallant Friend below him (Colonel Barttelot) had said that the Government of Bombay had not done their duty, and that they almost threw dust into the eyes of the Government of India, by keeping up the supposition that the concern was a going concern, when, in point of fact, if they had looked into it, they must have seen it was in a dangerous state. Considering how the people of India looked to the Government—that they were led by the lâches of the Government into false belief of the solvency of the Bank—he could not but think that the Government was highly to blame, and believing that, he also believed that the Motion of his hon. Friend the Member for East Sussex was a fair Motion, for it had been said—he did not know how truthfully—that the Government took advantage of the state of things, and, to use a common phrase, made hay while the sun shone, and sold a great quantity of Government property at very enhanced prices. Much had been said about the people of India and of England, and it had been asked, why should they be taxed to make good the deficiency? Unfortunately, the saying was too true—Quidquid delirant reges, plectuntur Achivi.At the present moment the Government had landed them in a mess with America which they would have to pay for. Therefore, if the Government of Bombay had committed lâches, the people of India must suffer for the carelessness of the Government. He could not but think that the Government here had not looked after their own agents, and that they had not taken advantage of the power the law gave them to insist on an audit, and for those reasons he 232 should support the Motion of his hon. Friend.
§ MR. M. CHAMBERS
said, he had listened with some grief to the speech of his hon. and learned Friend the Solicitor General, who had argued this important, national, and honourable case upon strictly legal, but not upon either equitable, humane, or Christian principles. He did not wish to go into minute details, but to lay down an honest and honourable principle which was this—that whenever the Government appointed agents, and gave Government guarantees to persons who had invested their money, when the money was lost they ought to come forward and say—"You have trusted in us, you have been deceived, and many of you almost ruined; we shall take care that you shall be indemnified." The history of the case was this—the Bank of Bombay, as he conjectured, was originally a private speculation; but after a certain time it became a partnership between the Government and the private speculators. The Government took a certain number of shares and obtained the privilege of nominating three Directors to look after the interests of the shareholders, in common with the other Directors. What was the result? The poor people who were inclined to put their money in the Bombay Bank said to themselves—"We are sure to have our interests guarded now, because, substantially, it is a Government Bank." It was true, according to the nice, comfortable statement of the Solicitor General, that these people had the privilege of choosing their own six or seven Directors; but the result was, that the public and the shareholders trusted to the solidity of the Bank, and believed that they had got Government security for their money, whether invested in shares or lodged on deposit; and the result was, that the shares in the Bombay Bank must have risen, and did rise, to a high premium, as soon as it was known that the Government had joined the Bank and appointed three Directors. The instant the Government joined the Bombay Bank, it became in the estimation of the public a solid, substantial Bank; and the answer of the Solicitor General that these poor investors bought shares under the idea that they would receive 16 per cent, and all such nonsense, had nothing to do with the question. The fact, however, was that many 233 sufferers were not original shareholders, but had purchased their shares at an advanced price, relying on Government security. He had often heard in the House of Commons, especially from the Chancellor of the Exchequer for the time being, such an expression as this—"What a dreadful hardship has been inflicted, but where is the money to come from to mitigate that hardship?" A great grievance had been inflicted by the impropriety—though not intentional—of the Government, and his answer to the question who ought to pay in this case was more to the point, and more honest—namely, that the money should come from those who inflicted the evil. [Laughter.] They certainly ought to pay, and he thanked the Prime Minister for smiling assent to that honest proposition. That smile fairly trumped out the appeal addressed to the House by his hon. and learned Friend the Solicitor General. It had been suggested that India or the district of Bombay ought to pay. If India was to blame, let India pay. But if ruin had been inflicted on these wretched investors by the default of agents of the English Government, they were honourable enough and rich enough to say—"We will pay." The agents appointed by the Government neglected their duty of auditing the accounts of the Bank, and of seeing that it was properly conducted; and for the consequence of that neglect Her Majesty's Government were responsible, and he would say the same thing if the present Government were Tories. He did not like to talk shop—namely, to refer to principles recognized in the Courts in which he practised; but to show that Her Majesty's Government were responsible for the default of the three Directors whom they appointed, he must state the Common Law maxim—that he who did a thing by his agent did it by himself. His hon. and learned and technical Friend, who was an Equity Barrister, said the Government were not at all responsible; but if he went into a Common Law Court he would find that a very different opinion would be entertained of the case. He (Mr. M. Chambers) might be regarded as an impetuous, and sometimes as a romantic man; but he hoped the House would forgive him, if he said that he could come to no other conclusion than this—that our national faith would not be elevated if 234 some kind of compensation were not made to these unfortunate shareholders, who relied on that faith when they invested their money. This was something more than a common-place Motion; it involved a question of national honour, and should be treated accordingly.
§ SIR STAFFORD NORTHCOTE
said, he could assure the House that there was no intention of treating this case lightly, and that there was no want of sympathy with those unfortunate persons whose case had been brought forward; indeed, in his opinion, those cases required the most serious and tender consideration. The matter was one for very grave consideration not only because a considerable number of persons were affected, but also because it undoubtedly involved to a certain extent the question of national honour, upon which they ought to speak freely and without reserve, and because also there were questions of policy which it was not, perhaps, possible to go fully into then, but which he hoped upon a future occasion would receive the attention they deserved. The hon. Gentleman the Under Secretary of State for India had laid the question before the House in a manner that entirely precluded the necessity of anyone else following him at length, and what he said was said with great judgment, fairness, and ability; but he (Sir Stafford Northcote) felt bound to address the House, because some part of these transactions took place whilst he was at the India Office, and the Commission to which reference had been so frequently made, was issued by the Government of India upon his recommendation, and he wished to explain the views that led to the issue of that Commission. They should look at this matter dispassionately, laying aside for a moment those natural feelings of compassion which they did not wish to stifle, and they should endeavour to see how far the Government of this country or that of India could be held responsible for what had taken place. He did not think that what they had heard about the connection between the Government and the Presidency Banks had given altogether a fair impression upon the subject, for the impression given was that the Government had taken upon themselves a much greater amount of responsibility for the management of those Banks than was really the case. He had no hesitation 235 in saying that the connection between the Government and the Presidency Banks was a mistake; and he earnestly hoped that the time might not be very distant when the matter would be taken into serious consideration, and when something would be done to remedy it. The matter, however, was one of no inconsiderable difficulty, and its consideration would take some time. But what was the connection? The Government did not only not guarantee the solvency of those Banks, but they had in former times distinctly declined to do so, although the Government certainly did enter into certain terms and conditions with them. It kept its accounts with them, and it gave them certain advantages in reference to the issue of notes; and, moreover, Government advanced a certain amount of capital in the form of shares, and claimed the right of appointing a certain number of Directors to sit at the Board. The Government Directors, however, only constituted about a third of the Directors of the Bank of Bombay. Still, in so acting, the Government did take an important and very prominent position in connection with those Banks, and did to a certain extent incur responsibility in the eyes of the public. Still, he must say that the Government could not be held responsible to its co-shareholders for any mismanagement or fraud in the conduct of those Banks, unless such fraud were distinctly traceable to the action of the Government Directors; but not simply on the ground that the Government Directors, if they had been more active, intelligent, or competent men, might have prevented it. No doubt, it might have been an inducement to take shares in a bank of that description, that it was known that the Government were interested in the conduct of its affairs, and had certain representatives upon the Directorate; and that if those representatives did their duty and were efficient men it would be extremely improbable that any misfortune would arise. He contended, however, that what the Government had done did not amount to a guarantee, or even a moral guarantee against loss. Look at the number of the Government Directors, and the mode in which they were associated with their co-Directors, and it would be seen that this could not be so. If the Government had intended to secure the Bank from going wrong, 236 would they have been content with having a mere minority among the Directors, or would they not rather have secured a complete control? The source of the mischief that had occurred was trusting men who ought not to have been trusted, and advancing money upon improper securities; and the duty of seeing that those who applied to the Bank for advances were men of substance devolved upon the commercial Directors, who were acquainted with the commercial affairs of the country and the character of those who applied. The Government Directors were not competent to do this. They held important posts in the service of the Government, the duties of which occupied much of their time; and even if they could have devoted all their time to the Bank, they would have lacked competence for this part of the duty of a director from want of commercial experience. Not only were they not competent to judge of a man's commercial character, but their incapacity was well known; and the shareholders had no right under the circumstances to trust to the supervision of men whose time was occupied by their official business, and who could go down to the Bank for only a day or two now and then to see what was going on. They, in fact, had neither the time nor the capability of controlling the management of the Bank. The Commissioners had reported, in extenuation of the want of vigilance on the part of the Government, that the returns sent by the Bank to the Government were of "a delusive character." And from the evidence given by one of the commercial Directors it appeared that he was alarmed a few days after he became a Director, upon the discovery that the Bank was involved in loans to men who had speculated largely; but Mr. Tracy told him "they had better not discuss the subject then, as the Government Directors were only too apt to take alarm." That showed how inclined the commercial Directors were to keep things back; but at the same time, he was far from acquitting the Government Directors from blame in not having pressed to the utmost for the fullest information. People ought to have known that the Government did not undertake the duty of protecting them. The Government held out no such expectation, and the mode in which they exercised their power showed that they did not attempt 237 to do this, and could not do it. He, therefore, entirely agreed with nearly all that had been said as to the want of due diligence and of the reasonable or even moderate care on the part of those whose duty it was to have watched the affairs of the Bank; and he was not disposed to defend anybody, though, probably, circumstances might be urged in excuse of the conduct of particular individuals. After the wide-spread ruin which the downfall of the Bank had caused, there was a natural tendency to see more clearly the faults which had been committed by those persons; but at the same time, their chief fault seemed to have been want of judgment, and a desire to prevent great calamities which might, as they thought, be averted by supporting the Bank. He was bound to say, further, that in his opinion the conduct of the Bombay Government was very injudicious at that time, and if this were a Motion of Censure upon them, he could not ask the House to free them from their share of blame. But a Motion to commend the shareholders to the favourable consideration of the Government really meant an addition to the taxes of India, and for such a Motion there was no foundation. What were the faults that were charged against the Government of Bombay? One of them was of a rather remarkable character. It was said that a great fault was committed by the Legislative Council of Bombay, in permitting a new Act to pass without inserting the safeguards which had been inserted in a previous Act; but the Government could not be held responsible for all that was done under that Act. To maintain that view would be to lay down a very serious principle, and one that it would be difficult to follow out to its consequences. Stress had been laid on the fact that under the old Bank Act, the Directors were allowed to make advances on shares in undertakings guaranteed by the Government, but that in passing the new Act through the Legislature, the words "guaranteed by the Government" were struck out. No doubt, if those words had been kept in, the advances could not have been made; but it was not because those words were struck out that there was a necessity for the advances to be made; and the doctrine that the Legislature, or those whom they represented, were to be responsible for all that might be done in consequence 238 of the want of proper precautions, was a doctrine which could not be maintained. He would take, by way of illustration, the relationship between the Government and the savings banks. The House had heard something said about the breaking of the Bank of England, and the right hon. Member for Oxfordshire (Mr. Henley) said he thought the people would make a great stir if the Bank of England did not publish their weekly accounts. They had heard sometimes of savings banks, and they knew that the humbler classes invested in the savings banks, under the impression that because the Government had something to do with them they were quite safe; and they had heard of poor people having lost their all, and then complained because the banks in which they had invested were Government savings banks. And what had been the answer? They had been told that they were wrong. The case of the unfortunate shareholders in the Bombay Bank, however, was not so strong as the case he had put. The depositors in the Bank of Bombay did not lose a sixpence, the Government being responsible to them; but in the savings banks at home it was the depositors who suffered. As to the shareholders in the Bombay Bank, they did not offer to share with the Government any of the advantages they gained from the Bank when things went well, and how, then, could they expect the Government to bear the loss when things turned out ill? There was no charge that the Directors had improperly appropriated money for their own purposes, but that they had made reckless advances upon unsound speculations. They did so, doubtless, in the hope that these speculations were good ones, and there was no reason to suppose that they had not the interests of the Bank at heart. They hoped to do a good, dashing, speculative business, which would bring in large profits. Under such circumstances, it was unreasonable to say that the Government, who never shared the profits, ought to bear the losses. While, therefore, sympathizing with many of those unfortunate shareholders, he was forced to the conclusion that no case was made out for their relief which it was possible to recognize, and it would be equally impossible to make any distinction between different classes of shareholders, such as cestuis que trust. The hon. Mem- 239 ber for Penrhyn (Mr. Eastwick) asked the House to undertake the cost of a prosecution, but the Motion did not raise the question of prosecution. He, (Sir Stafford Northcote) moreover, failed to see that it was a case for a criminal prosecution, and he was afraid it would be a delusion to think that the House could do anything in that way. He therefore thought that the only thing that could be done was to express sympathy for the sufferers. With regard to the allusion that had been made of the keeping back of the Report, he had asked the Commissioners to report on several points, and these being matters of opinion, not of fact, it was found more convenient that they should furnish separate Reports. He had been favoured with a sight of them, for they arrived after he left office, and he could assure his hon. and gallant Friend (Colonel Barttelot), that they contained nothing respecting this case which could have led to their being kept back for a purpose. They touched, indeed, on the matter in illustration of the views of the Commissioners on the future and general policy, but not on the question of compassionate treatment of the shareholders. In conclusion, he must say, that as the discussion would be equally useful to those for whom his hon. Friend had brought the matter forward without a division, which could lead to no practical good, he hoped, therefore, the House would be spared the pain of dividing on the Motion.
§ MR. BOUVERIE
said, he wished to allude to an observation of the Under Secretary of State for India, which apparently propounded a doctrine utterly inconsistent with sound sense, and which he protested against. His hon. Friend said that the House could not entertain this question with justice or propriety, because it would probably involve a heavy payment by the taxpayers of India for the misfeasance of the Directors of the Bombay Bank. It appeared to him (Mr. Bouverie) that such an argument came to this—that whatever might be the misconduct of the Government of Bombay or their agents, involving pecuniary responsibility, they ought not to be saddled with that responsibility, because the taxpayers of India might be obliged to suffer for it.
MR. GRANT DUFF
I never said anything of the kind. I said that such a course might possibly tend to such a result.
§ MR. BOUVERIE
did not mean to quote the precise words of his hon. Friend, but only to show that he argued against the question being entertained on grounds which led unavoidably to such a conclusion. Now that, he (Mr. Bouverie) submitted, was a doctrine which could not be maintained for one moment. The question was a very simple one. Having looked into the matter last year, it appeared to him that the Government of Bombay had incurred a grave responsibility by the misfeasance of their three Directors of the Bombay Bank. Those gentlemen, indeed, did not form a majority of the Board; but they held high and responsible situations in the Government, and as such they ought to have resisted the gambling propensities of their fellow-Directors on the Board, instead of co-operating with them in their monstrous speculations—their gambling—he would almost say swindling transactions. Why did they not inform the Government, and call their attention to what was going on? The main question, however, was, what was the opinion of those eminent officers of State who had the fullest means of acquaintance with the facts of the case, and with the responsibility of the Bombay Government? Now, Lord Lawrence, the Governor General of India, at the time, said in his Minute of the 12th July, 1867, that the circumstances which led to the ruin of the Bombay Bank were the result of the neglect and absence of the most reasonable precautions of the Bombay Government—that if ordinary care had been taken and a proper supervision established, the Bank would have surmounted all its difficulties. Mr. Massey, the then financial Minister of India, writing at the same time, said that in the summer of 1865 the Bombay Bank was hard pressed—her shares had fallen below par—but no sooner was it announced that the Bank was supported by the unlimited credit of the Government, than the depositors brought back the moneys they had withdrawn, and the shares rose to 60 premium. He said that it was in consequence of the action of the Governor General replying to Sir Bartle Frere's application for assistance to prevent the Bank from instant ruin, that the people of Bombay were induced to repose confidence in the Bank, though at that time it had actually lost half its capital. Mr. Massey added, that he did 241 not think the Government could take any other course at that time, because the Government of Bombay had by their conduct made themselves partners and Directors of the Bank—that the difficulties of the Bank were caused mainly by the unpardonable negligence of the Government Directors, and, consequently, the Government itself must be responsible for the action of its agents or nominees. Whenever the Government took part in such proceedings it assumed the duty of honourably conducting them; and when they were dishonestly conducted, the Government were necessarily responsible. Such responsibility, in fact, formed the unanswerable argument against Government connection with banks, and it was on that account that the Government of India objected to the provincial Governments being connected with banking companies. A Government which accepted responsibility was responsible pecuniarily as well as otherwise, even though the taxpayers would unfortunately be the sufferers, and the remark of the hon. Member for Penrhyn (Mr. Eastwick), that this was analogous to the Alabama case was unanswerable. If the Government incurred responsibility, the taxpayers must meet it; and there had never been a stronger case of gross misconduct, imposing on the Government a responsibility which ought to be exacted by this House to the uttermost farthing. He would go further, and say that it was the bounden duty of the Government of India—if they wished to vindicate their own character, and, at any rate, by their subsequent proceedings to set themselves straight with the Indian and the English public—to have prosecuted the men who, as Government officials, had been parties to those swindling transactions. Was it not true that those gentlemen who were placed on the direction of the Bank by the Government of Bombay, to protect the interests of the public and the Government of Bombay, and to see that the affairs of the Bank were conducted in a proper and legitimate way and according to the ordinary rules of business, had put large sums of money into their own pockets, at the expense of the shareholders and the public, by neglecting their duty? A more discreditable series of transactions than was disclosed in those Papers never appeared in any Blue Book, and it was a shame to the Indian 242 Government that they seemed never to have taken a single step to prosecute those officials, but had left that to be done by the unfortunate shareholders who had been ruined by their gross misconduct. Therefore, he did not think that the Government of Bombay could be acquitted in the easy, airy manner adopted by the hon. Gentleman the Under Secretary of State; for, to judge from the opinion of their conduct expressed by Mr. Prinsep, one of the Indian Council, and a man of great Indian experience and knowledge of business, they were not only parties to those transactions, but had endeavoured to screen those concerned in them as much as they could. Indeed, it would appear that the public, and those who represented the public, had never been able to get at the bottom of those black and flagitious proceedings.
§ MR. WATKIN WILLIAMS
said, he must enter his protest against the Resolution which the House was now asked to affirm. There was a great fallacy in the arguments adduced in support of the Motion, because the position of the depositors and creditors of the Bank had been confused with that of the shareholders. As a lawyer, having some experience of mercantile transactions, he thought that even if all the allegations made to the House that night concerning the Bank were true—and he denied that there was any foundation for the majority of those allegations—still a case was not made out for passing that Resolution. Assuming that the Government of India were partners in those transactions, partners had no right to come there and complain of one another, when they had more than an equal share in appointing the persons who managed the business; and if the shareholders had been defrauded, it was the fault of the Directors whom the shareholders themselves had appointed; and the shareholders were responsible for the acts of their agents. No doubt, a certain kind of sympathy must be felt with those who had been subjected to misfortune; but, beyond that, he protested against sympathizing with shareholders who invested their money in dangerous ventures, and then turned round and asked for assistance, saying they had been cheated. He would say that nothing was safe but the Three per Cents. If people would make investments, in the hope of getting a 243 return of 5, 10, 15, or 20 per cent, they must look out for themselves; and he protested against paying taxes for those who chose to speculate without a proper knowledge of what they were doing. If the question went to a division, he should vote with the Government.
said, that speeches had been made that night from which it might have been supposed that that was a case in which the Government of Bombay had borne no liability, and that it was sought by them to throw their own share of liability on the shoulders of the shareholders. That inference might have been drawn especially from the speech of the hon. and learned Member for Devonport (Mr. M. Chambers), who, by the way, had contrived throughout to treat an extremely serious and mournful subject with a degree of hilarity that he had never witnessed on any similar occasion. However, they were all agreed as to the general inexpediency of that connection of Government with banks, and that one of the great objections to such a connection was its tendency to mislead the shareholders. Yet that tendency was not sufficient to exempt the shareholders from their responsibility, and to throw it on the shoulders of the people for whom the Government were bound to act. The responsibility of the Government in respect to the Post Office Savings Banks was distinct and clear; but in regard to many other savings banks, where there were many circumstances which might have had a tendency to mislead, the House had on various occasions when the question was raised there, steadily refused to acknowledge its liability. Moreover, if the present were a Motion to make provision out of the taxes paid by the people of England for the losses sustained by these shareholders, he suspected that very few hon. Gentlemen would be found voting for it; and ought they to deal more severely with the people of India than they would with their own constituents? In fact, if there was any liability resting on the Government at all in that case, considering how completely the Indian Government was a derivation from the will of the people of this country, it was difficult to determine whether that liability attached to the people of this country or to the people of India. Again, it was too much to assume that shareholders were entitled to all the delights of dividend 244 mounting up to 16 per cent, and then on the strength of vague presumptions to claim the benefits of a Government guarantee. It was said the Government Directors were wrong, and so they were; but the wrong they did consisted in their passive conduct, and they were, moreover, the minority; while the Directors appointed by the shareholders were the active wrong-doers, and also the majority. Was the responsibility, then, to be carried over to the passive minority? The right hon. Gentleman behind him (Mr. Bouverie) had imported into the discussion a new and important element; he had said that the House ought to be influenced by the opinions of the distinguished Civil servants of India, who were upon the spot, and who were conversant with the whole bearings of the subject; and, in particular, he had referred to some remarks of Mr. Massey in relation to the question. [Mr. BOUVERIE explained that he had not made the extract himself.] He was perfectly certain of that, and he would advise his right hon. Friend not to employ the person who had made it for him again. What his right hon. Friend referred to was this—So much I presume must be conceded, although there is no legal liability upon the Government, beyond that which attaches to the other shareholders; but does not this moral obligation rest there? An officer of high rank, the representative of the Government, deliberately asserted the claims of the shareholders to an indemnity at the hands of the Government.But his right hon. Friend had not noticed the concluding words of the sentence, which were—"But I am far from admitting that such a claim can be sustained." The extract should have concluded thus—But I do say that it is unseemly and impolitic of the Government to place itself in such a position that a question of this kind can be raised.In that view he entirely concurred, and he must, therefore, oppose the hon. Member's (Mr. Gregory's) Motion.
§ MR. CRAWFORD
said, he must protest against the terms in which his right hon. Friend behind him (Mr. Bouverie) had spoken of the connivance of the Government with what he had termed "such misconduct and acts of rascality." He felt bound to say that persons might search in vain in the concluding words summing up the Report to find anything which justified the application of such 245 terms to the commercial Directors as a body. One or two names were mentioned, but there was nothing to justify the application of such wholesale terms. He denied that the language used by his right hon. Friend behind him could be justified, and he thought that, as far as the commercial Direction was concerned, it was wholly uncalled for. He had listened with extreme pain to this debate, because he had lived long on terms of intimacy with many of the unfortunate sufferers, and whatever opinions he might entertain, he must say that it would not be consistent with his feelings to pursue the question any further. He fully admitted the hardships that had fallen upon the unfortunate shareholders, but expressed his concurrence in the views of duty taken by the Government.
§ MR. W. M. TORRENS
said, he admitted in the fullest sense that it was the duty of the House to look narrowly to the circumstances of the case, simply with the view that justice should be done; and he also agreed in the danger of laying down a rule that might lead to evil consequences. This, however, was an exceptional case, and without deviating from their usual line of duty, they could do an act of justice. The First Minister had asserted in unqualified terms that, on no occasion had Parliament interposed by its advice in such matters, or that the Government had ever attempted to alleviate the burden of individual losses out of the Public Treasury. The right hon. Gentleman had challenged the production of any precedent; and he had specially noted the frequent refusals of claims made on behalf of local savings banks, whose funds had proved insufficient to pay the whole of their depositors. But the right hon. Gentleman's memory was not infallible; and he (Mr. Torrens) held in his hand a volume of the transactions of that House which would be found to contain a case in point, which the First Minister appeared to have forgotten. After the panic of 1847 many savings banks failed, particularly in Ireland, and in 1850 a Committee was appointed to inquire whether they had any claims upon the Treasury. In the majority of cases the Committee properly decided in the negative; but in one instance they unanimously came to the Resolution that, while they did not admit the legal 246 right of shareholders in a bank having claims on the Government, they recommended to the favourable consideration of the Government the case of the depositors in one of the banks that had failed, with a view to mitigate, but not remove, the calamity that had befallen them. And the reason why the Committee made that recommendation was because Mr. Tidd Pratt had advised the bank to keep open, after it had found that it was insolvent. That was precisely the case of the Bombay Bank. The House had no business to be humane at the expense of the taxpayers; but it was its duty to be just when Government officers had been guilty of neglect, and had suppressed the truth. If the Bank had been stopped in time the loss would have been less, and the responsibility for that additional loss rested with the Government; and, moreover, the loss incurred by the shareholders up to the time when the unsafe condition of the Bank was discovered, was easily to be discriminated from its state when the final crash came. There was not the slightest doubt for belief in the fact that the Madras, Bombay, and Calcutta Banks were the creation of Government by charter, and they were not private banks; and the Treasury of India having profited by the successful advances and speculations that were carried on by those Banks, they should be held liable for the losses that had occurred. The terms of the charter were altered without giving fair notice to those who were chiefly interested; and the Government, by allowing the Bank to continue open after its insolvency was discovered, made it evident that it was an assenting party throughout of what was done—one change being the repeal of the clause of the charter which provided safeguards when bills were discounted over £7,000 in amount for any firm or individual; and it was not the shareholders, but the Direction and the Government who were to blame for the terrible run that had accompanied the stoppage of this Bank.
§ MR. T. E. SMITH
said, that when he visited Bombay, he was informed by the commercial community there that the Bank had been grossly mismanaged, not by the Government Directors, but by the shareholders' Directors. It bad been attempted to confuse the question by representing the position of the depositors and shareholders to be the same. 247 That, however, was not so. If the depositors had lost their money, no doubt the Government would have been to a certain extent, if not wholly so, morally responsible; but not so with regard to the shareholders. He should vote against the Motion, which he trusted the House would have no difficulty in rejecting.
§ MR. BOUVERIE
said, he wished to say a word in explanation of the extract which had been referred to as the opinion of Mr. Massey. He certainly should not have brought it under the notice of this House if he had been aware of the context as subsequently read to the House by the right hon. Gentleman at the head of the Government. He ought to have been old enough and wise enough not to depart from his usual practice of making and verifying his own extracts. As it was, he had given it as it was handed to him after his arrival in the House, and he was very sorry that he had done so.
§ Question put.
§ The House divided:—Ayes 116; Noes 78: Majority 38.
§ Main Question proposed, "That Mr. Speaker do now leave the Chair."