John Beaumont, Kt., C.J.
1. This is an appeal by the Official Assignee from a judgment of Mr. Justice Wadia. The point raised is a very short one, but not altogether free from difficulty.
2. The insolvents were a firm called the White Kerosene & Mineral Oil Co., and before the insolvency they were minded to employ the present respondent Moulvi Abdul Hayee as a sub-agent on the terms of an agreement which was prepared in draft, under which the sub-agent was to pay Rs. 1,000 as deposit to be retained by the insolvent firm who were to pay interest on it. The respondent paid the thousand rupees before the agreement was executed, and in fact the agreement never was executed. The deposit of Rs. 1,000 was paid on June 25, 1930, and on April 24, 1931, the White Kerosene & Mineral Oil Company were adjudicated insolvents. In the meantime the respondent had started a suit in a Court at Karachi for the purpose of recovering his deposit, and on May 6, 1931, i.e., after the date of the insolvency, he recovered a judgment for Rs. 1,000, the amount of the deposit, with interest and costs. The question which arises in the insolvency is, whether the respondent is entitled to recover the thousand rupees as moneys held by the insolvents at the time of the insolvency on trust for him, or whether he has merely a right to prove in the insolvency for the amount of his debt.
3. The Official Assignee held that the respondent was only entitled to prove for the amount. The learned Insolvency Judge reversed that decision, as he was of opinion that the respondent was entitled to recover the moneys specifically, and from that decision this appeal is brought.
4. It is, I think, quite clear that if an agreement in the terms of the draft had been executed and the deposit paid under it, the moneys would have formed part of the general assets of the insolvents, and the respondent's only remedy would have been to prove for his debt in the insolvency. But inasmuch as the deposit was paid before the agreement was executed, I think the moneys were paid to the insolvents for a specific purpose, that is to say, the insolvents held the moneys in trust, if the agreement was not executed, to return them to the respondent; and if the agreement was executed, to hold them on the terms which might be arranged under the agreement. As the agreement was not executed, I think the insolvents became bound to return the moneys specifically to the respondent. So far I agree with the learned Judge, but then a question arises which does not seem to have been discussed before the learned Judge. That question relates to the effect of the judgment recovered by the respondent after the insolvency. It is argued on the one hand by Mr. Setalvad for the respondent that under Section 52 of the Presidency-towns Insolvency Act property held by an insolvent in trust for any other person is not divisible amongst his creditors, and that it is only property divisible amongst his creditors as defined in Section 52 which vests in the Official Assignee under Section 17. It follows that these one thousand rupees never in fact vested in the Official Assignee, and that the recovery of a judgment for this amount could not have any effect upon the vesting of the property, and therefore the Official Assignee must return this specific amount to the respondent. On the other hand the Advocate General points out that these one thousand rupees were never in fact kept distinct from the other property of the insolvents, and therefore the respondent can only enforce his right against the Rs. 1,000 on the principle of following trust moneys. That principle is governed in India by Section 66 of the Indian Trusts Act, which provides that where the trustee wrongfully mingles trust property with his own, the beneficiary is entitled to a charge on the whole property of the trustee for the amount due to him. It is argued, therefore, that at the time of the insolvency the property of the insolvents vested in the Official Assignee but subject to a charge for. these one thousand rupees in favour of the respondent, and I think that view is right. Then it is said that the respondent having a charge for a thousand rupees on the assets of the insolvents, which charge, it is admitted, never vested in the Official Assignee, the effect of the respondent recovering a judgment for the amount of the debt was either to extinguish the charge, or at any rate to make it unenforceable under the provisions of Order II, Rule 2, of the Civil Procedure Code. At the time when the respondent started his suit in Karachi he had two rights, first, to recover the Rs. 1,000 as moneys held in trust for him, and, secondly, to recover the money in debt. Having taken a personal judgment for the amount without taking steps to preserve his remedies based on the moneys being held in trust, it appears to me that the effect of Order II, Rule 2, is that the respondent has lost his right to enforce the charge based on the doctrine of trust.' If that is so, I do not see any ground under which we can order the Official Assignee to repay the one thousand rupees in specie to the respondent.
5. That being so, I think we must allow the appeal. Appellant's costs to come out of the assets of the insolvents. Respondent to bear his own costs, this being in the nature of a test case.
6. I agree. I need not refer to the facts which are set out in the judgment of the learned Chief Justice. The answer to the short question in this appeal depends upon the position of the parties on April 24, 1931, and May 6, 1931. Now it is clear on the facts, which are not disputed, that on April 24, 1931, when the White Kerosene & Mineral Oil Company were adjudicated insolvents, a sum of Rs. 1,000 was held by the firm in a fiduciary capacity, as the sum was given to the former for a specific purpose, and, as the agreement under which it was given was not completed, the former was bound to return the same to the appellant. But the sum was not set apart by the company and was used by them, The only remedy, therefore, of the appellant against the company would be to sue them to recover the amount and obtain a charge in respect of it on the company's property under Section 66 of the Indian Trusts Act. It is clear, therefore, that on the insolvency of the company the whole property of the company vested in the Official Assignee, but as to this sum subject to a charge in favour of the appellant under Section 66 of the Indian Trusts Act. But on May 6, 1931, the appellant obtained a decree for the amount against the company. In the suit, however, the respondent did not apply for leave to reserve his other remedy by way of a charge on the property of the company in accordance with the provisions of Order II, Rule 2, Civil Procedure Code. It would not then be open to him to enforce the remedy in any subsequent proceeding, and that being the case, it is difficult to see how he can now enforce the charge against the Official Assignee and how it can be contended that the Official Assignee held the amount on trust. If this aspect of the case had been put before the learned Judge, I am sure he would have taken the view which we are taking now.
7. I agree, therefore, that the appeal must be allowed.