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Krishnadas Govardhandas Madivale Vs. Ratanbai Gokuldas Laxmandas - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case NumberLetters Patent Appeal No. 53 of 1938
Judge
Reported inAIR1941Bom41; (1940)42BOMLR1044
AppellantKrishnadas Govardhandas Madivale
RespondentRatanbai Gokuldas Laxmandas
DispositionAppeal dismissed
Excerpt:
trustee-deed of trust-deposit of trust fund with trustee on date of trust deed- trustee allowed to invest fund as he liked in authorised securities or with merchants-payment of interest by trustee-trust and deposit whether parts of same transaction-whether contract engrafted on trust-right of beneficiary to priority on insolvency of trustee-provincial insolvency act (v of 1920), section 28(5).; k held a sum of rs. 11,000 under an oral will of his brother, which he was instructed to pay to his widow r. r created a trust of rs. 10,000 out of this amount, of which she was the main beneficiary and of which k was appointed one of the trustees. the trust deed provided that the amount of rs. 10,000 had been handed by k to r and that it was given back to k by r to be kept as a deposit and was to..........11,000 which his brother had instructed him to pay to ratanbai. ratanbai's case is that under the trust deed made by her on october 20, 1925, a sum of rs. 10,000 out of this amount was to be managed by several trustees of whom krishnadas was one, that on that date there were three transactions under which krishnadas formally handed over the amount of rs. 11,000 to her for which she passed a receipt, and then she formally handed back rs. 10,000 out of that amount to krishnadas to be kept by him as a deposit, and she created the trust deed in respect of the same.2. the trust deed is a long document but its material provisions are these: the amount of rs. 10,000 had been handed by krishnadas to her for which a receipt was passed. it was given back to krishnadas to be kept as a deposit on.....
Judgment:

Divatia, J.

1. This is an appeal under the Letters Patent against the decision of Mr. Justice Wassoodew in Second Appeal No. 157 of 1937. The dispute arose in the insolvency proceedings of one Krishnadas Govardhan-das Madiwale. He was adjudicated insolvent in 1933 and a receiver was appointed of his property. Krishnadas was adopted in another family and his natural brother Gokuldas died in 1915 leaving a widow named Ratanbai. Ratanbai applied in the insolvency proceedings praying that she should be given a first charge over the property of the insolvent in respect of an amount of Rs. 10,000 which, according to her, was in possession of the insolvent as trust property on her behalf. The receiver opposed that application on the ground that the applicant Ratanbai was only an ordinary creditor and not a beneficiary under any trust, and that she was not, therefore, entitled to priority over other creditors. The trust on which Ratanbai relied and of which she herself was the main beneficiary was created by her in 1925. It is admitted by Krishnadas that, under an oral will of his brother, he held a sum of Rs. 11,000 which his brother had instructed him to pay to Ratanbai. Ratanbai's case is that under the trust deed made by her on October 20, 1925, a sum of Rs. 10,000 out of this amount was to be managed by several trustees of whom Krishnadas was one, that on that date there were three transactions under which Krishnadas formally handed over the amount of Rs. 11,000 to her for which she passed a receipt, and then she formally handed back Rs. 10,000 out of that amount to Krishnadas to be kept by him as a deposit, and she created the trust deed in respect of the same.

2. The trust deed is a long document but its material provisions are these: The amount of Rs. 10,000 had been handed by Krishnadas to her for which a receipt was passed. It was given back to Krishnadas to be kept as a deposit on taking a receipt from him, and it was to bear interest at eight annas per cent, per month. Certain beneficiaries are mentioned in the trust deed, the principal one being Ratanbai herself for the amount of Rs. 8,000 from the income of which she was to be maintained during her lifetime. With regard to the balance of Rs. 2,000, she was to be given it in two instalments if she' wanted to go on pilgrimage, and after her death the corpus was to be distributed to certain temples. It was further provided that the majority of the trustees, of whom Krishnadas was one, was empowered to invest the trust moneys either in authorised securities or with several reputed merchants.

3. It may be stated here that the trust deed was written on October 14,. but its actual execution was on October 20. On the latter date Krishnadas stated in the receipt of the amount passed by him to Ratanbai that he had received the amount of Rs. 10,000 by way of deposit for which he was to pay interest at eight annas per cent, per month, and he further stated that according to her husband's directions Ratanbai was to make a trust deed in respect of the said amount, that he was to be one of the trustees, that as stated in the trust deed the amount was to be dealt with according to the opinion of the majority of the trustees and that he was bound to pay the amount on demand by them.

4. The case for Ratanbai was that even though the amount of Rs. 10,000 remained as a deposit with Krishnadas, he did not cease to be a trustee with respect to this fund, and that, therefore, under Section 28 (5) of the Provincial Insolvency Act she was entitled to first preference for this amount: over all the other creditors of Krishnadas.

5. The trial Court held in favour of the applicant Ratanbai that the money was in the hands of the insolvent as trust money as alleged by her, and that, therefore, she was entitled to the priority claimed by her.

6. On appeal by the receiver, the learned District Judge was of the opinion that the deposit and the alleged trust were different transactions, and that the amount of Rs. 10,000 had been deposited by Ratanbai with Krishnadas before the creation of the trust. The learned Judge further held, relying upon the decision in Nagappa v. Offl. Assignee [1931] A. I. R. Mad. 251, that the agreement that Krishnadas was to pay interest on the amount deposited and that he was to invest it where he liked, engrafted a contract upon the trust, and so far as the investment was concerned, he was only a debtor of the body of trustees for the amount. The learned Judge distinguished the decision of their Lordships of the Privy Council in Official Assignee v. Bhat : , relied upon by the respondent, on the ground that there the trust was admitted while here it was disputed and was alleged to be a transaction of deposit. He, there-fore, set aside the order of the trial Court and directed that Ratanbai was not entitled to priority but should rank with the other creditors for rateable distribution of the assets of the insolvent.

7. On second appeal, Mr. Justice Wassoodew reversed that decree mainly on the ground that the learned Judge was wrong in holding that the deposit and the trust were two different transactions. In his opinion the deposit did not precede the trust as a separate transaction. As these two documents were executed on the same day and there was a distinct reference in the receipt to the trust deed and as some of the provisions of the trust deed were also inserted in the receipt itself, the learned Judge was of the opinion that they were contemporaneous and parts of one and the same transaction. He further held that the decision in Nagappa v. Offl. Assignee, on which the respondent before him relied, was overruled by the decision of the Privy Council in Official Assignee v. Bhat. The question according to him was whether the fact that the trustee had agreed to pay interest on the fund, assuming that the agreement and the trust deed were executed simultaneously, would affect the liability of the trustee to account for it as trust property. In his opinion, the point was concluded by the decision of the Privy Council and it cannot be said that a contract was engrafted on the trust. On these grounds he reversed the decree of the learned District Judge and allowed Ratanbai's appeal.

8. This appeal has been filed against the decision of Mr. Justice Wassoodew. Two points have been urged before us by Mr. Desai for the appellant who is now the insolvent himself as the receiver has ceased to act after a composition with the creditors. The first point is that no trust was in existence in respect of this amount at the time when it was deposited with him. He relies upon the contents of the receipt, exhibit 1250, passed by the appellant, in which it is stated that a trust deed was to be passed in which he was to be one of the trustees, and also upon a recital in the trust deed to the effect that Krishnadas was to pay Ratanbai Rs. 10,000 out of his estate for making the trust deed. He also relies on the deposition of Ratanbai in the trial Court, but there is no admission by Ratanbai therein that the deposit took place before the trust and that it was an independent transaction. We think Mr. Justice Wassoodew was right in concluding on the evidence, especially from the contents of the receipt in which some of the provisions of the trust deed are recited, that the deposit and the trust were parts of one and the same transaction and that even though the receipt might have been passed in order of time before the execution of the trust deed, the intention of the parties was to enter into one transaction on that date. As I have observed before, the trust deed was written on the 14th though it was executed on the 20th when the receipt was also passed. In our opinion, therefore, the trust and the deposit formed one transaction, and it cannot be said that Krishnadas was not a trustee when the amount was deposited with him. On that finding itself, the appellant, in our opinion, would not be entitled to succeed in this appeal, because on the authority of Official Assignee v. Bhat, if it is either admitted or found on evidence that a trust had been created, the appellant must be deemed to be holding the amount as a trustee, even though it was agreed that he was entitled to invest the trust fund in any security that he liked and pay interest to the beneficiary.

9. Mr. Desai, however, very strongly relies upon the decision in Nagappa v. Offl. Assignee. That decision is to the effect that when trust money is handed over to any person, whether he be trustee or not, to use in his business subject to the payment of interest, a relationship of creditor and debtor is set up, and that the circumstance that he could use the money as his own and that he had to pay interest had the effect of engrafting a contract upon the trust whereby title to the money was transferred and the trust could no longer look to that sum of money as its res or subject-matter but to a promise to pay an equal sum. It may be stated here that it was admitted by the parties in that case that a trust had been created from the beginning. The question was whether the provision that the amount was to be invested by the trustee himself in any way he liked and pay interest amounted to an agreement of contract which had the effect of changing the relationship between the parties from that of trustee and beneficiary to that of debtor and creditor. The learned Judges in their judgment discussed a previous judgment of the Madras High Court, which was referred to during the course of the arguments, in Krishnajee v. Sadasiva [1927] A. I. R. Mad. 249, wherein Mr. Justice Kumaraswami Sastri observed as follows (p. 252):-

If the author of the trust deed agrees that the trustee can use the money for his own benefit there seems to me to be no reason for saying that the trust goea and that it cannot be trust property in any sense of the term because of this liberty given to the trustee.

The learned Judges distinguished that case on the ground that the question was not so much as to whether the trust goes in such a case, but that when the trustee was authorised to use and accordingly uses the trust money in his own business for interest, the object-matter of the trust is no longer the money but the personal obligation of the trustee which alone fetched the interest, and that the trust will subsist subject to that modification. This case of Krisknajee v. Sadasiva ultimately went in appeal to their Lordships of the Privy Council whose decision is reported in L.R. 60 IndAp 203 mentioned above. The facts shortly were that a sum. of Rs. 10,000 was left by the father of a minor in the hands of a firm for investment in their business at a fixed rate of interest in the name of the minor, to whom the amount was to be paid on his attaining twenty-one years. Subsequently the members of that firm were adjudicated insolvents, and thereafter the minor, who had become major at that time, asked for priority with respect to the amount of Rs. 10,000 lying with the firm. It may be noted that the contention of the appellant in the lower Courts was that assuming that a trust was created, the relationship of trustee and beneficiary had been superseded by the relationship of debtor and creditor when the amount was invested on interest with the firm. That argument had been repelled by the Madras High Court in appeal and that decision is reported in Offl. Assignee, Madras v. Krishnajee [1930] A. I. R. Mad. 693. The learned Judges here held that even though there was an agreement between the minor's father and the members of the firm that interest was to be paid on the money invested in the firm, the agreement did not affect the fiduciary relation created between the parties, and they, therefore, held that as the firm continued to be a trustee for the amount, the respondent was entitled to priority over the other creditors of the firm. On appeal to the Privy Council, their Lordships held that the assets of the firm vested in the Official Assignee subject to a charge for Rs. 10,000 in favour of the respondent, and that the right of the beneficiary to follow the trust fund did not depend upon whether the fund had been properly or improperly disposed of. It was sought to be contended before their Lordships on behalf of the Official Assignee, who was the appellant, that the transaction under which the money was given to the firm did not constitute a trust at all but was only a deposit. Their Lordships stated, however, that they were unable to accept that contention. No issue on that question was raised at the trial and it was clear that the trust was admitted in both the lower Courts. They held that on the basis that there was a trust and that there was an agreement that the firm had to pay interest on the amount kept with it, the person on whose behalf the money was deposited was entitled to priority on the ground that the fund still retained its characteristic of a trust fund in spite of the alleged deposit in the firm,

10. Mr. Desai has sought to distinguish this case from the present case on the ground that there the trust was assumed or admitted and here there is no such admission and that it is to be found whether a trust existed at the time of the deposit. But the question before their Lordships was not simply whether the fund invested was a trust fund, but what would be the result if the amount was to be regarded as a trust fund, and their Lordships' decision was that on the footing that it was a trust fund, it continued as such and that it could foe followed in the assets of the insolvent firm. Mr. Justice Wassoodew was of the opinion that the decision in Nagappa v. Offl. Assignee had been, in effect, overruled by this decision of their Lordships, and indeed the Madras High Court itself took the view in Veerappa Chetty v. Offl. Assignee : AIR1935Mad686 that that decision had been overruled by the Privy Council in Official Assignee v. Bhat, Mr. Desai, however, contends that that is not so and the question which arose for decision in Nagappa v. Offl. Assignee had not been agitated in the argument before their Lordships of the Privy Council, and they did not say that a contract could not be engrafted upon a trust. But we think that the decision of their Lordships is entirely inconsistent with the decision in Nagappa's case. It had been contended in appeal before the High Court that the relationship of debtor and creditor had been substituted in place of trustee and beneficiary. Their Lordships held that the trusteeship continued even after the deposit and they did not say that the agreement to pay interest on the amount deposited had the effect of engrafting a contract upon it. In our opinion, therefore, the view taken in Nagappa's case is no longer good law after the decision in Official Assignee v. Bhat that even if a trustee be allowed to invest a trust fund as he liked and pay interest on it, he does not cease to be a trustee with respect to that fund.

11. Mr. Desai has relied upon two decisions of the 'Privy Council, viz., in Murugappa Chetti v. Official Assignee, Madras: Official Assignee, Madras v. Murugappa Chetti 1 and Sooniram Ramniranjandass v. Alagu Nachiyar Koil,2 but in our opinion they have no bearing on the facts of the present case. In the first of them the decision on the facts of the case was that the monies were entrusted to a firm for investment and that it had no authority to employ any part in their own business; it was further held that there could be no ratification of a trust fund being treated as a mere deposit. In the second decision it was held on the particular facts of the case that there was no intention on the part of the firm, which had become insolvent, to hold the property as trustee for a temple. We do not think, therefore, any of those two decisions supports the appellant's case.

12. Mr. Desai has lastly relied upon the decision in Malvcnkar v. Credit Bank 3, where a person had paid a certain amount to a bank as security for the faithful discharge of his duties. The amount was invested with the company and bore interest at six per cent. When the company went into liquidation, the claimant urged that he was entitled to recover the amount in full in preference to the creditors of the bank as he had paid it to the bank as an employee and not as a creditor. It was held that the claimant ranked merely as an ordinary creditor and that the bank was only a debtor and not a trustee. This decision was based on the ground that the amount given to the bank had not been ear-marked for any specific purpose, and that, therefore, the bank did not constitute itself as a trustee in respect of that amount. On the facts of the present case it is clear that this amount of Rs. 10,000 had been ear-marked in the trust deed and that Krishnadas was specifically made one of the trustees thereof. He further says in the receipt that he would pay the principal amount on demand by the trustees. It is clear, therefore, that on his own admission he held the ear-marked amount for the respondent.

13. We, therefore, agree with Mr. Justice Wassoodew in holding that the capacity of the appellant with regard to the amount of Rs. 10,000 was that of a trustee and had not been changed into that of a creditor, with the result that Ratanbai was entitled as a beneficiary to claim priority for this amount.

14. For these reasons the decision of Mr. Justice Wassoodew is confirmed and the appeal is dismissed with costs.


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