1. The appellant's claim was allowed in the liquidation of the respondent Bank as an ordinary creditor and he took out a summons claiming that he was entitled to be treated as a creditor who should be paid in priority to the other creditors because the amount of Rs. 30,199/- in respect of which his claim was allowed was held by the Bank in trust for him. The facts are that on 18th April 1949 the appellant delivered to the Madras Branch of the respondent Bank four bills of exchange for collection at Aden. On 25th April 1949 three of these bills were collected and the fourth bill was collected on 26th April 1949, and the aggregate amount of these four bills is the amount of Rs. 30,199/-. The respondent Bank received intimation that these bills were collected on 2nd May 1949 and on that very day a petition was presented for the winding up of the respondent Bank and a winding up order was made. On these facts the learned Judge held that the appellant was not entitled to be treated as a creditor who was entitled to be paid in priority to the other ordinary creditors, and Mr. Parpia before us in this appeal has contested the soundness of the decision arrived at by the learned Judge.
2. Now, the only fact on which Mr. Parpia relies, and indeed the only fact on which he can rely, is that the bills were handed over to the respondent Bank for collection. In other words, the Bank was the agent of the appellant for collection of these moneys. No instructions whatever were given by the appellant with regard to these bills. The appellant did not instruct the Bank with regard to what was to be done when the bills were realised and the proceeds came to the Bank. But, says Mr. Parpia, the law clearly establishes that if a Bank is an agent for collection for a customer, that agency brings about a liduciary relationship and that agency is not terminated till not only the amount is realised but the amount is credited to the account of the customer. It may be stated that the appellant is a customer of the Bank and has a credit account with the. Bank. As we shall presently point out from the authonties the position is this. The Bank may receive a cheque or a bill either as a holder for value or as an agent for collection, and Mr. Parpia, is right that when the Bank receives a bill or a cheque as an agent for collection, the Bank is acting as the agent of the customer and there being a fiduciary relationship a trust is constituted. But the question is up to what point of time that relationship of principal and agent continues between the Bank and its customer. It is clear, as we shall presently point out, that such relation' ship may end at any point of time and a relationship of debtor and creditor may come into existence; then the customer quae the proceeds of the bill or the cheque is a creditor and not a cestui quo trust and the Bank is a debtor and not a trustee.
3. Therefore, what we have to decide in this case is whether on the facts thus stated the relationship of principal and agent continued right up to 2nd May 1949. If it did, then undoubtedly the appellant is entitled to say that in respect of the proceeds of the four bills the Bank was its trustee. The undisputed and most important fact in this appeal is that the four bills were collected on 25th and 26th April 1949 before the Bank went into liquidation, and in our opinion when the bills were collected, inasmuch as the appellant had given no instructions to the Bank as to what should be done with those proceeds, the Bank became entitled to use these proceeds for its ordinary business. These proceeds became the ordinary assets of the Bank and these proceeds were not impressed with any trust. The position would have been different if the appellant had given instructions to the Bank to the effect that after the bills were collected the Bank should either keep these moneys for him or should pay them to someone else or do something definite or specific with regard to these proceeds. But in the absence of any instructions the function of the Bank as an agent for collection came to an end when the bills were collected, and the sale proceeds not being impressed with any trust the Bank became entitled to use those sale proceeds for its ordinary business. If that be the true position, then it is clear that on these facts the Bank became the debtor of the appellant as soon as these bills were realised.
4. Now, let us see whether this positions in law is in any way challenged by any authority on which Mr. Parpia has relied. First there is a judgment of the Division Bench of this Court in Velji Lakhamsey & Co. v. Banaji. 57 Bom LR 993. the principle of law is enunciated :
'The relationship between a banker and its customer is that of a debtor and creditor and any amount due by the banker to the customer in that relationship cannot be claimed by the customer from the bank as a preferential creditor if the bank is wound up. But a customer may give certain specific directions to the bank and constitute the bank its agent. If the bank acts as an agent and not as a debtor, then the agency brings about a fiduciary relationship between the customer and the bank and that fiduciary relationship lasts until the agency is terminated. Therefore, if the customer were to give directions to the bank that a certain amount must be paid to a certain person, then till that amount is paid pursuant to directions of the customer, the agency would continue and the bank would hold the amount not as a debtor of the customer but in the capacity of a trustee and the amount would be impressed with a trust. The matter may be looked at from a different point of view. If a certain amount of a customer is lying with the bank, the safe test which may be applied in order to determine whether that amount is impressed with any trust is to find out whether the bank is entitled to use that amount in the ordinary course of its business, whether it belongs to its general funds, or whether it is specially appropriated for a particular purpose and cannot be utilised by the bank for its normal ordinary business.'
Applying that test to the facts of this case it is clear that the amount realised by the collection of the four bills was not impressed with any trust and that the Bank was entitled to use that amount in the ordinary course of its business and that it belonged to its general funds.
5. It is said that there is a judgment of this Court which deals directly with the case of collection of bills or cheques by the Bank and 'that decision is more in point than the judgment to which we have just referred, and that is the judgment of Mr. Justice Tendulkar reported in Bank of India v. Official Liquidator, : AIR1950Bom375 (B). The learned Judge at page 588 (of Bom LR): (at p. 376 of AIR) says :
'Where a bank collects a cheque, it may do so as a holder for value or as a mere agent of the holder for the purpose of collection. In the latter case, it is well established that the proceeds of the cheque are held by the bank as a trustee for the holder of the cheque.'
The learned Judge has relied on the case of Farrow's Bank Ltd., In re (1923) 1 Ch 41 . As we shall presently point out, with respect to the learned Judge, that proposition in the form in which it is enunciated is not borne out by that decision. It is not true to say that the Bank in every case where it collects bills as an agent for its customer holds the proceeds as a trustee. It is a trustee so long as the bill is not realised or not collected. But as soon as the bill is collected it then depends upon the facts of each case whether with regard-to the proceeds the Bank is a trustee or a debtor. Turning to the case of Farrow's Bank, the learned Judge had to consider two questions. One was whether the Bank became the agent for collection of the cheque in question, and on the facts the learned Judge decided that question in favour of the customer. As Mr. Parpia rightly points out, as far as our case is concerned that is an admitted position. Then the learned Judge discusses the second question which is whether the money in respect of that cheque was received by the bank in time for it to become their property as on a debtor and creditor account as distinct from the previous relationship of agent and principal which existed for the reasons the learned judge has mentioned, and the learned Judge holds that the money was received by the bank after it had suspended payment, and at page 51 the learned Judge points out:
'That being so it seems to me that after ceasing to act as a going concern they had no longer any authority from Voyce (i.e. the customer) to take what was in fact his money received after the stoppage and convert it into money forming part of their assets, in respect of which they would be entitled to assume the position of debtors instead of agents. On that short ground I am of opinion that these moneys never were in fact collected by Farrow's Bank at a time when they were entitled to claim them as part of their assets.'
Therefore, the test applied by the learned Judge with regard to the proceeds of the cheque received by the Bank was whether the cheque or the bill was collected at a time when the Bank was entitled to claim those pro-reeds as part of its assets, and in this case the learned Judge held that the Bank was not entitled so to claim because the Bank had stopped its business, it was not functioning as a Bank and it could not say that it was entitled to use the moneys of its customer as part of its general funds. Therefore, it is not correct to say, again with very great respect, as Mr. Justice Tendolker say that the mere fact that a Bank acts as an agent for collection necessarily leads to the inference that the Bank becomes the trustee of the sale proceeds of the bills or cheques. As soon as this stage of collection is reached and the proceeds are realised, the question must always be asked Are those sale proceeds impressed with a trust or is the Bank entitled to use those sale proceeds as part of its general funds? And the answer to that question must depend not on any abstract proposition of law, but on the facts of each case, and on the facts of the case before us it is clear that on the bills being realised, there being no instructions from the-appellant and the Bank still functioning as a bank, it was entitled to use those sale proceeds as part of its general funds.
6. Therefore, in our opinion, the learned Judge was right in the conclusion he came to. The result is that the appeal fails and is dismissed with costs.
7. Liberty to the respondent's attorneys to withdraw the sum of Rs. 500/- deposited in Court and to appropriate it in part satisfaction of the order for costs herein.
8. Appeal dismissed.