§ MR. GREGORY
, 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, "That, in the opinion of this House, the case of such Shareholders is one for the favourable consideration of Her Majesty's Government," said, the subject related to the ruin of a well-established 625 concern, and to the loss of a capital of £2,000,000, which had been subscribed by innocent shareholders; and the question at issue was, to what extent the Government were responsible for that disastrous result. The Bank of Bombay was established in 1840, on principles similar to those of the banks in the other Presidencies which were established at the same date. Those banks were, to a certain extent, Government institutions, the East India Company, who at that time ruled the country, taking shares in them, and in the case of the Bank of Bombay appointing three of the nine directors by which the concern was managed. Under that system, from 1840 until 1860 the Bank in question, with a capital limited to £520,000, carried on a safe, honest, and profitable business which enabled it to pay the not extravagant dividend of 7½ per cent to its shareholders. In 1860 the Government, however, thought proper to make a change in the business of the Bombay Bank. They withdrew the powers of issue from it, but, in exchange, agreed to make the Bank the administrator of the Treasury balances. That proceeding involved the passing of a new Act, and accordingly the Directors contemplated obtaining an Act on the same footing as that of the Bank of Bengal, and it would have been fortunate for the shareholders if the resolution of the Directors had been carried out. Such, however, was not the case, although about this time the Secretary of State for India expressly pointed out in a despatch that the business of the Bank should be restricted to legitimate banking operations, such as those of the Bank of England or the Bank of Bengal. A Bill was drawn and submitted to the Advocate General of the day, who took some exceptions, and referred it back to the Directors for revision. The result of the matter was, that an important provision which had been originally contemplated was struck out of the Bill—namely, a provision confining the security accepted by the Bank to the guaranteed companies in India; and another provision was inserted, allowing the Bank to invest in the securities of any public company in India, whether guaranteed or not. In that state the Bill was forwarded to the Government of India, and unfortunately they expressed an opinion that it should be passed by 626 the Council of Bombay instead of by the Council of the Governor General. If the Bill had been considered by the Government of Bengal, it would have been considered in the presence of the Finance and Legal Members of the Council, and during its discussion they could have had the advantage of having before them the Act of the Bank of Bengal. Under these circumstances, the Bill was referred to the Legislative Council of Bombay, which was composed of six Members who were officials of the Government, three who were partners in mercantile houses, and three who were Native gentlemen, and it should be borne in mind that the deliberations of the Council were close, no report was given, and their power was essentially an arbitrary one. The Bill was afterwards submitted to the Governor General, and after having passed through the Legislative Council of Bombay it was found to differ very materially from the Act of the Bank of Bengal, and also from the original Act of 1840. Under the new Act the capital was increased to £2,000,000; and instead of, as in the old Act, limiting advances to a sum not exceeding three lacs of rupees to any one individual, repayment of which was to be made in three months, it allowed the discount of any-negotiable security, it gave liberty to make advances on the shares of any companies whatever, and it removed the restrictions against the amount which was to be advanced to any one individual on any uncertain security; but it did contain certain provisions which if exercised might have prevented the mischief which subsequently ensued, because it gave power to the Indian Government from time to time to investigate the accounts of the Bank, and to call for reports and balance-sheets. The Bank was launched in September, 1863, under its new constitution, its president being Mr. Birch, a Government Director, who, during his administration of its affairs, lost for the Bank £1,000,000 or £1,500,000, while he received some £37,000 as a premium on shares or securities that had been handed over to him. Then there appeared upon the scene a Native of Bombay, a small cotton broker, a man who, although comparatively unknown, was at once subtle, designing, ostentatious, and speculative—a man of considerable capacity and of great resources in him- 627 self. This man lived in the most ostentatious manner, and squandered other people's money when he got hold of it. Of him it might be said alieni appetens sui profusus. In process of time this man acquired very great influence over the Secretary of the Bank and others; he, in fact, seemed to draw out what he liked; and he also recommended customers. He obtained for himself loans to the amount of £420,000, and for other people to the extent of £669,000, on which there was ultimately a loss to the Bank of £434,447. During this time no inspection appeared to have been exercised on the part of the Government, there were no balance-sheets, and no bye-laws were passed. Any person reading the Act under which the powers he had referred to were conferred on the Government would see that it was the duty of the Government to have enforced the provisions of the Act, and, at all events, to have insisted that proper bye-laws should be made for the purpose of controlling the action of the Directors. By doing so, they would have prevented much of the mischief that ultimately ensued. But that was not all. The Directors were not satisfied with what they had already done with regard to the ruin of the central establishment; they established branches, and one in contravention of the Act in Bombay itself. The Act provided that no branch should be established in Bombay; but the Directors got the sanction of the Government for that purpose, and thus incurred a further loss of something like £190,000. In April, 1865, the Directors further came to this extraordinary resolution—that they would advance not only on the nominal value of shares of public companies but also up to 75 per cent of the fictitious value to which they had been run up. This caused a loss of £134,000. Although these things were unnoticed by the Government of Bombay, yet rumours of what was going on reached the Home Government, and Sir Charles Wood (now Lord Halifax) became frightened at what he had heard of the transactions, and, accordingly, in March, 1865, he wrote to Sir Bartle Frere, to the effect that he could not help being alarmed at the prospect of a crash, and bidding Sir Bartle Frere to look after the Bank. It did appear extraordinary that the Government of Bombay should have waited for such a requi- 628 sition. An inquiry was then directed to be made by the Governor of Bombay, and a Report was drawn up by the Government Directors, but that inquiry was not only inefficient, but was misleading, because they reported that though it was true that large advances had been made upon shares of all sorts, yet these shares had been deposited only as "collateral security." What was meant was, that notes of hand had been given for the advances in addition to the deposit of shares; but, in truth, the shares were the only real instead of being a merely collateral security. Such a Report, when made by Government Directors, put in motion by the Government itself, was certainly calculated to mislead. The Bank went on until January, 1866, when the Governor of Bombay required another examination of the affairs of the Bank. Accordingly the matter was referred to Messrs. Chapman and Norman, and their Report stated that £320,000 had been advanced on loan at the head office, of which £79,000 had been realized; £176,000 remained overdue, and £116,000 was not accounted for; but it concluded with this extraordinary recommendation—that what they called the policy of forbearance should be pursued. There was a run on the Bank in 1865, and Sir Bartle Frere, being informed of what was going on, telegraphed to the Government of India that the Bank must stop payment, unless he was authorized to support it with a loan of something like £1,500,000, and he put the necessity of making the advance upon the ground of political and financial considerations. The recommendation was carried out; and it was by treating it as a political and financial engine that the interests of the shareholders had been sacrificed by the Government. For instance, in April, 1866, a certain gentleman, whose difficulties had become notorious, and who was a debtor to the Bank to the extent of £220,000, made an application for a loan of £50,000. No doubt, from the magnitude of his transactions, it would have been a serious thing if he had stopped payment. A meeting was called for the purpose of seeing whether the Bank could assist him, and the Chairman seemed to have considered it necessary to apprise the Governor of the Presidency of the application, and the Go- 629 vernor sanctioned the transaction upon the very extraordinary ground that it was going on, and that therefore he could not stop it. He now came to another part of the case on which some light was thrown by a Return which had been laid on the Table. When he last brought forward this case, he stated that the Government in 1864 and 1865 had thrown on the market a quantity of land which they no longer required, and which they were anxious to dispose of. There was a strong impression that that land had been bought by parties who had obtained advances from the Bank, and at a very exorbitant price. He was now in a situation to prove this; the Return moved for was "of all lands sold by the Government of Bombay in 1864, stating the price realized by the sales respectively, the valuations previously made, and any advances made by the Bank of Bombay for the purchase." A Return had accordingly been made of all land sold by the Government of Bombay, the price realized, and the valuations made; from which it appeared that the valuation price was £145,650, and the sum realized £400,000; but it did not go on to state the advances made by the Bank of Bombay for the purchase. But by reference to the Report of Sir Charles Jackson upon the matter, he could supplement that Return, and he hoped the Government would make further inquiries into the matter. He believed he was fully justified in the inference he drew that the sums for the purchase of these lands were advanced by the Bank of Bombay. The profit which the Government had made had been appropriated to the revenues of India, and all he asked was that the amount of that profit should be definitely ascertained, and that a sum equivalent to it should be voted to the relief of the unfortunate shareholders, on whose account he had brought forward the Motion. He had but little knowledge of, or connection with, them; but on his taking up the subject on behalf of one friend, he had since had numerous communications from other shareholders for whom he might excite sympathy if he narrated their cases as they had been detailed to him. The Bank which, as he had said, was established in 1840, was, at that time, considered to be one of the safest, surest, and best managed banks in India; it was one in which trust 630 funds and charity funds might be deposited; and the shareholders were, many of them, men who had spent their lives in India, and who had deposited their hard-earned savings with the Bank, on the strength that it was in the hands of the Government. They were amongst those who had administered our laws, maintained our power and consolidated our Empire, and, through no fault of their own, they had lost their investments. On these grounds he appealed to the House, in the terms of his Resolution, that their case might receive the favourable consideration of Her Majesty's Government.
§ MR. EVELYN ASHLEY
seconded the Motion. When he was asked to read over the documents, and make himself master of the subject, he saw, as he perused them and gradually gained knowledge of the complicated facts, that though they might be dry in detail and difficult to master, yet they were matters of vital importance to a largo number of our fellow-subjects who had spent the best part of their lives in India in the public service of the Crown. Those facts, as there presented, could be paralleled only by the loss of a well-found ship in mid-day, through the carelessness, incapacity, or wilful blindness of those in charge of her. Those in charge of the Bank of Bombay were Government officials in every sense of the word, for they were imposed upon it by the conditions of its charter, and the shareholders had no power to select or remove them. When the matter was discussed in Parliament previously in 1872, it was said the shareholders came to that House, because they could not resort to legal tribunals; but was there no such thing as Parliamentary redress, if there was an equitable claim which could not be enforced in a Court of Law? He contended that a sufficient precedent existed for Parliament dealing with the matter in the way proposed, for there was no more injustice in charging the Revenues of India with compensation to sufferers from the laches of the Government of India, than there was in charging the Revenues of this country with the compensation paid in respect of the Alabama Claims. In this case, according to information obtained, justice could be done to the unfortunate shareholders by giving them that margin of profit which the Government had made 631 by the sales of land and by pandering to the spirit of speculation with the funds of which they were trustees and guardians. For 23 years the Bank was prosperous, and was well-conducted; and the Government of Bombay took the initiative in those changes in its charter which were so disastrous. The Government of Bombay, for its own profit, deprived the Bank of the power of issue; and, in return, gave it a new charter, which was the origin of all the subsequent evil. A careful and guarded charter was changed into a most reckless one, only fit for a bubble company, and it was taken advantage of, for over-speculation followed with the connivance of the Government Directors sitting at the Board. The present Secretary of State for India (the Marquess of Salisbury), when Lord Cranbourne, in 1866, accused the Government of Bombay of surreptitiously changing the charter of the Bank; and although the Government of Bombay, which was both a legislative body and an administrative body, knew perfectly well that the bye-laws affecting the Bank had been struck out of the Schedule, they never re-enacted them in a separate form, and they left the Secretary and Directors free to enter, as they did, on a wild course of speculation. It had been said that you could not attach liability to a body of trustees who only stood aside and did not take part in the business, but he challenged the Under Secretary of State for India to show that these Government Directors were not rather in the position of watchmen who deliberately fell asleep or shut their eyes while the spoilers were at work. It was clear that the President and the Directors of the Bank deliberately connived at all the irregularities that were going on, and when it was said that it was the duty of the shareholders to look after their own interests, he would remind the House that the shareholders were not all at Bombay, but were scattered about the three Presidencies, and that some were in England. Moreover, Sir Charles Wood (now Lord Halifax) when Secretary of State for India, in 1865, in his Budget speech, used language which lulled to sleep any suspicions that the shareholders might have entertained. He declared, that notwithstanding all the disquieting rumours that had been abroad, the Bank of Bombay would go on as usual, and 632 that there need be no apprehension in the mind of the public. Was not such a declaration sufficient in itself to lull the shareholders into false security? And that being so, ought they not to obtain a remedy? Yet after this assurance the transactions described that night occurred, which cost the shareholders about £300,000. When matters went wrong, a delay was demanded for political, as well as financial, reasons, and on account of this delay, the shareholders were many thousands of pounds out of pocket. He did not go the length of saying, as some had done, that the Government Directors had deliberately used the money of the shareholders for their own private purposes, but he would say that no one who read the Report of the Commission could fail to see that the Directors had been wilfully guilty of acts which were unworthy of any bank. It ought to be borne in mind that there was not a British subject in India who did not look upon the Bank as one in which the Government was a leading shareholder, and the present claim was set up on the ground that the Government by its own act put the Bank in jeopardy. What the unfortunate shareholders now asked was simply to give some little restitution to those who by the iniquitous neglect of the Government of Bombay had been reduced from comparative affluence to poverty because they rightly believed this Bank to be under Government control.
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 in the Bank of Bombay is one for the favourable consideration of Her Majesty's Government,"—(Mr. Gregory,)
§ —instead thereof.
§ MR. FORSYTH
thought that the hon. Member who brought forward the Motion had made out a strong primâ facie case. It was not the case of an ordinary bank that had failed, but a Bank the losses in which were mainly attributable to the negligence of the Government officials appointed by the Government of Bombay. By the Act originally creating the Bank, it was expressly prohibited from entering into dangerous speculations. In 1863 however, an Act was passed which enabled the Bank of Bombay to indulge in any kind of dangerous speculation. The share- 633 holders trusted in the security of the Bank, seeing that it was in a great measure in the hands of official persons appointed by the Government of Bombay, and all they asked for was that the amount by which the Government of India had profited by the sale of land during the cotton mania in India, and which had been purchased by money borrowed from the Bank, should be refunded to them. It was no answer to the demand made, to state that the money could not be refunded, however just it might be to do so, without taxing the Natives of India. Unhappily it was too true that, "Quicquid delirant reges, plectuntur Achivi." If the Government were responsible, they should not be deterred from acting rightly by the fact that the amount asked for would have to be raised by taxation. The case was altogether an exceptional one, and he trusted it would receive the favourable consideration of Her Majesty's Government.
§ LORD GEORGE HAMILTON
said, that the Resolution proposed by his hon. Friend the Member for East Sussex (Mr. Gregory) was identical with one which had been introduced in the year 1872—namely—That, in the opinion of this House, the case of certain shareholders of the Bank of Bombay should receive the favourable consideration of Her Majesty's Government.It was, of course, obvious that any additional charge which such favourable consideration might involve should be thrown upon the revenues, not of England, but of India. His hon. Friend had given a very fair history of the cause of the Bank's failure; but it was a noticeable fact that the three hon. Gentlemen who had spoken in favour of the Resolution had one and all admitted that the shareholders had no legal claims whatever, and indeed that might have been expected of Gentlemen who were each connected with the legal profession. He thought he might safely lay it down as a rule that when three lawyers in succession advocated a particular case and made no legal claim in support of it, it was because the smallest legal claim could not be made, otherwise they would advocate it elsewhere. In reference to the present case he would go further and say that even a moral claim had not been made out. There were two reasons advanced in favour of the Resolution. First, it was contended that the Govern- 634 ment of India was responsible, because they allowed certain alterations to be introduced into the charter of the Bank, and were, therefore, responsible for the abuse of the powers they placed in the hands of the Directors, and next, that the Bombay Government being shareholders in the Bank, and nominating Directors to look after their interest in it, they were—to use the words of the Petition presented to the Secretary of State—unlimitedly liable. He would reply to both these contentions. He denied that the alterations in the charter had been introduced at the instance of the Bombay Government. The shareholders themselves took the initiative in that direction, and it was only on account of the strong representations they made that the Government agreed to the alteration. At a special meeting held in November, 1861, they resolved that the Directors should be authorized to take such steps for varying, altering, or annulling the provisions of the Act under which the Bank was constituted and for obtaining the incorporation of the Bank as to them might seem expedient. The shareholders by that resolution placed an absolutely discretionary power in the hands of the Directors, and that step it was which led to the alteration of the charter. He quite admitted that it would have been better if such alterations had never been made, and that after they had been, the Government of Bombay did not perhaps exorcise sufficiently their powers of supervision of the management of the Bank; but, admitting that, it seemed to him almost ridiculous to contend that when the Government placed certain powers in the hands of individuals they were responsible to those who requested them to do so for the abuse of those powers. As well might his right hon. Friend the Chancellor of the Exchequer be held responsible for an accident caused by the incautious use of firearms because he had proposed the levying of a duty on the licence to carry arms. But there was this further fallacy in the argument of his hon. and learned Friends, that they had assumed that the alteration of the charter had necessitated the failure of the Bank. The failure was, in fact, caused by a wild and reckless spirit of speculation on the part, not of the Government, but of the commercial Directors of the Bank. The most legitimate banking transaction 635 would become dangerous if the security on which it was based were worthless; and even under the old charter it was possible for the Directors to discount bad bills and transact business on which large losses might occur. Of this he was certain—that if the Directors of the old Bank had been actuated by the same spirit of speculation as were the commercial Directors of the new, the Bank would equally have failed. A great deal had been said as to the losses alleged to have arisen in consequence of the alteration in the Act, which permitted the Directors to advance money upon shares of companies which were not guaranteed by the Government, but out of a total loss of £1,800,000 only a loss of £440,000 was attributable to that alteration. The failure of the Bank was, therefore, attributable not to this alteration in the Bank Act, but to the conduct of the Directors, who made the most improper use of every power which they possessed. It was alleged that the Government had interfered in the management of the Bank. It was true they had done so, but in what manner? Why, they had interfered with the view of inducing the Directors to place their business on a more legitimate footing, and when Sir Charles Wood wrote to the Governor of Bombay directing that this special power of the Directors should be rescinded, that communication on being shown to the Directors of the Bank was denounced by them as a most tyrannical interference with the affairs of the Bank. The truth was, that the Government Directors, who were appointed to look after the Government interest, had neglected their duty and that the Shareholders Directors, who had been appointed to look after the interests of the shareholders, had equally neglected theirs; and the result was that both the Government and the shareholders had lost all the money they had invested in the Bank. It seemed, however, to be a most extraordinary proposition to make that the Government who represented one set of shareholders should be held responsible to another set of shareholders for the losses sustained by the Bank in consequence of this common neglect of duty by the Directors; and it was most surprising that such a proposition should have been brought forward by three legal Gentlemen who must be aware that it was 636 directly contrary to the law, custom, and practice, of this country. He entirely denied the accuracy of the assertion made by the hon. and learned Member opposite (Mr. Evelyn Ashley), that the Directors of the company were Government officials. So far from that being the case, when the Government endeavoured to secure the election of a safe Director, the shareholders put him aside and chose to elect a speculative Director in his place. It had been stated that the Government were the guardians of the funds of the Bank, but that statement also was without foundation. The hon. Gentleman had further alleged that the alterations in the Bank Act had been introduced by the Court of Directors in a surreptitious manner; but the fact was, that they were all made at the suggestion of the Directors of the Bank acting for the shareholders. His hon. Friend the Member for East Sussex (Mr. Gregory) also made two statements with regard to Sir Bartle Frere when Governor of Bombay which were not altogether just. He said that when Sir Bartle Frere asked the Government to support the Bank, during the time when a run was made upon it, he had stated that he wished it to be supported for political as well as commercial reasons, and therefore, said the hon. Gentleman, it was evident that the Bank was being used as a political engine in the hands of the Bombay Government. That was not the fact. The Bank was supported by the Government on the occasion in question, because had it failed at that critical period wide-spread commercial distress would have resulted, and what an outcry would have been raised had the Government refused to lend the Bank its assistance in such an emergency? After all, the House must not forget that all the depositors and the creditors of the Bank had been paid out of money furnished by the Government, and that, therefore, the only question at issue was raised between the Government as shareholders and the other shareholders of the Bank. His hon. Friend wenton to allege that the sum of £250,000 had been advanced by the Bank to Prem Chund Roychund, the great Indian speculator, at the instance of Sir Bartle Frere. But there again his hon. Friend was misinformed. Prem Chund Roychund, who was a native Director of the Bank and a great gambler, was a man 637 of considerable importance, and it having been stated that unless an advance of £250,000 were made to him he would probably fail, a meeting of the Directors of the chief of the Bombay Banks was held on the 26th of April, 1866, at which it was resolved that the necessary sums should be advanced to him by the banks jointly, the Bank of Bombay agreeing to furnish £105,000 of that sum. The whole of the money was to be advanced, in the first place, by the Bank of Bombay, which was to be repaid by the other banks in stated proportions. [Mr. GREGORY said, those banks subsequently repudiated their liability.] That was perfectly true; but the arrangement sanctioned by Sir Bartle Frere was the one he had indicated. Sir Bartle Frere had stated that the opinion of the Directors of the different banks at the meeting to which he had referred was unanimous as to the necessity for supporting Prem Chund Roychund, and that they had intimated to him that no other course was open to them except to render that person assistance. In criticizing the conduct of Sir Bartle Frere in this matter therefore, it must be recollected that almost the whole of the leading banks in Bombay had represented to him the necessity of the advance being made to Prem Chund Roychund, and that under such circumstances it would have been impossible for him to have declined to sanction the loan being made. His hon. Friend had suggested that because the Government of Bombay had been paid by certain persons for land purchased by them, the Government ought to stand in the same position with regard to the Bank as those persons had done who had subsequently failed, owing large sums to the Bank. A more extraordinary proposition than that he had never heard. His hon. Friend went on to justify his proposition on the ground that the Government had made largo profits from the sale of land in Bombay; but the fact was that while the expenses connected with that land amounted to £2,500,000, only £750,000 had been received in respect of its sale, thus leaving a deficit on the transaction of £1,750,000. He hoped he had made clear to the House that this proposal was one to which Her Majesty's Government could not in any way assent. He might point out to the House that if this was a proposal affecting English 638 revenues, he did not think it ever would have been made; and he therefore must ask them to act with regard to Indian revenues as they would act towards English revenues. He was sure there was not a single Member of that House who did not feel the greatest sympathy with the shareholders for the loss of the money they had subscribed. He was afraid, however, that it was one of the inevitable consequences of financial panic that losses fall on those who are least able to bear them, and he was also afraid was it a law of Nature that in any crisis the weak must go to the wall. No doubt, many persons who had spent the greater portion of their lives in the service in India were suddenly deprived of sums which they had hoped would support them to the end of their fives. But how did they lose these sums? They lost them because persons indulged in wild and reckless speculation; and if hon. Members of that House felt sympathy with shareholders who lost their money in consequence of the reckless speculation of those to whom it was entrusted, do not let them adopt the illogical course of accepting a Resolution which unquestionably must tend to increase speculation and reckless investment. If the House, either directly or indirectly, laid down the principle that, because the Government was a shareholder in any concern, therefore all the shareholders were to have a claim against it, what would be the result? The shareholders of any concern such as this would say to the Directors—"Speculate; give the highest dividend you possibly can; we insist upon that, for what matters it if the bank fails? We have got a claim against a number of shareholders—the Government." Of course, if the shareholders had a claim against the Government, it was clear that all creditors and depositors had an equal claim. Nothing was more clear than that. If the House wished, therefore, to put a stop to such practices as were revealed in Sir Charles Jackson's Re-port, it could not do better than reject the proposal which had been submitted to it. His noble Friend the Secretary of State for India, shortly after his accession to office, had the case under his consideration; he gave it his most careful attention, and in the answer which he returned to the memorial he informed the memorialists he had given every 639 consideration to the circumstances, and that he was afraid he could not comply with their request, neither could he assist them in any other way. He (Lord George Hamilton) felt pretty confident that the decision at which his noble Friend had arrived was one which would be supported by the large majority of that House.
§ SIR EARDLEY WILMOT
said, notwithstanding what had fallen from the noble Lord the Under Secretary of State for India, he was still unpersuaded that the Motion was not entitled to the favourable consideration of the Government. There were many precedents which he cited, and which might be advanced in favour of compensation being granted; and, in this case, seeing who the unfortunate shareholders were, and the losses they had sustained after many years spent in service in India, he had a strong conviction that they were entitled to it. He contended that the Government of Bombay were liable to the shareholders; because, although knowing the condition of bankruptcy in which the Bank was placed, they sanctioned large advances to be made by it to the Asiatic and other banks, which had soon afterwards failed, and whose financial position the Government had had ample opportunities of ascertaining. Under all the circumstances of the case, he could not conscientiously oppose the Motion, and should, therefore, give it his decided support.
§ Question put, "That the words proposed to be left out stand part of the Question."
§ The House divided:—Ayes 104; Noes 37: Majority 67.