I wrote this review of The Fall of Arbuthnot & Co by Dr Rangaswami Srinivasan (East West Books (Madras) Pvt Limited) in 2006 and have ever since then been searching for it. Conceive of my delight when I found the old Madras Musings issue in which it came.

Arbuthnot Office, Madras
Arbuthnot Office, Madras

On October 22, 1906, the gates of Arbuthnot and Company, First Line Beach, carried the announcement that the company had suspended payment till further notice. It was an ignominous end to an institution that had been one of the most successful in Madras for over a hundred years. Begun by Francis Latour in the 18th Century as Francis Latour & Co., an Arbuthnot, the first of many illustrious members of a family associated with Madras, joined it in 1803. In 1810, on the retirement of Latour, the firm became Arbuthnot, DeMonte and Company and later became Arbuthnot & Co. Its heydays were during the times of R.W. Arbuthnot who retired in 1876, leaving behind a prosperous firm that was involved in accepting money from depositors and using it in its varied interests, such as manufacturing, trading, and owning and managing coffee and indigo estates. It had the reputation of paying a steady and unwavering interest of 5% on deposits, and enjoyed a clientele that comprised several of the Indian nobility, prominent Indian lawyers and other professionals, and a vast number of the middle class in South India. By the time of the crash, 16 different Arbuthnots had run it and the managing partner in 1906 was Sir George Arbuthnot who had joined the firm in 1877. He was a pillar of Madras society, having served as Member of the Legislative Council besides having been Chairman of the Madras Chamber of Commerce several times and also President of the Board of Directors of the Bank of Madras (later the Imperial Bank of India and still later the State Bank of India).

Arbuthnot & Co. had a London branch where it was represented by its partner, Patrick Macfadyen. Macfadyen had served with Arbuthnot’s for many years before moving to London. It was believed that it was Macfadyen who was responsible for the crash, for he held an unenviable record of being an inveterate speculator and his gambles on the stock exchange required larger and larger sums of money being transferred to the London firm from Arbuthnot & Co., Madras, resulting in the final collapse of both. On the morning of October 21st, Macfadyen, having asked his office to suspend payments, walked into the electric train tunnel near Old Street, London, throwing himself before a speeding train. His body was discovered on the 22nd and at the inquest held on the 24th, the jury returned a verdict of “suicide due to temporary insanity”.


In Madras, in the meanwhile, the offices of Arbuthnot & Co. were besieged by investors who were all turned away. Following a petition from the company on October 22nd that it be declared insolvent, the High Court of Madras admitted the petition and gave a date six weeks later for taking it up. In the meantime, a public meeting was held at the instance of the Governor of Madras, Sir Arthur Lawley (one of the victims of Arbuthnot), on November 8th at the Banqueting Hall, Government Estate, at which it was unanimously decided that a public fund would be opened to ameliorate the distress of the small investor. The fund finally totalled Rs. 1,50,000 and largely compensated those who had deposits of Rs. 100 and less with Arbuthnot’s. But that was to be in the future.

On November 15th, the small investors who were greatly affected by the crash, banding together under the name of the Mahajana Sabha, met at a school in Triplicane and resolved to request the court to appoint two official assignees to speed up the assessment. The resolution was also dispatched by cable to the Secretary of State in England and the subject was discussed in the House of Commons on December 11th when a question was tabled by a backbencher.

On November 22nd, Archibald Read, official assignee of the Madras High Court, appointed to look into the affairs of Arbuthnot & Co., convened a public meeting at the Victoria Public Hall to present the full details of the state of the company as reported by Lovelock and Lewes, the noted firm of auditors from Calcutta. Assuring the audience that he would exert himself to the fullest to salvage something out of the crash for the investors, he claimed that Sir George had wanted to be present himself and spell out a plan for financial reconstruction of the firm, but had to be dissuaded from doing so. Apparently, given his status in the city, an arrest of Sir George was not thought of. While newspapers with a strong British bias did not see anything unusual in this, The Hindu expressed its disapproval and hoped that the Madras Government, “who have shown…a somewhat serene indifference… will take steps to see that Sir George Arbuthnot and others responsible…are arraigned before a criminal tribunal.”

On January 10, 1907, the liabilities of the company were finally estimated to be of the order of Rs. 3 crore and its assets Rs. 2.4 crore, of which only a part was recognised as being ‘good’. The bankruptcy proceedings opened before Justice Sir S. Subramania Iyer on March 11, 1907, with C.F. Napier appearing for Sir George. Of the six advocates who appeared on behalf of investor groups, it was V. Krishnaswami Iyer who stood out with his merciless cross-examination. One of the side effects of the crash was the founding of the Indian Bank on March 5, 1907 with Krishnaswami Iyer gathering together other notable citizens of Madras to create a local institution that would be more accountable to the public.

The second part of this article can be read here