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Jessa Ram Fateh Chand Vs. Official Liquidators and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtAllahabad High Court
Decided On
Case NumberLetters Patent Appeal No. 83 of 1951
Judge
Reported inAIR1962All370
ActsTrusts Act, 1882 - Sections 3
AppellantJessa Ram Fateh Chand
RespondentOfficial Liquidators and anr.
Appellant AdvocateGanesh Prasad, ;Ambica Prasad and ;J. Swarup, Advs.
Respondent AdvocateT.N. Sapru and ;R.R. Agrawal, Advs.
DispositionAppeal dismissed
Excerpt:
.....at the bar. 50,000/- with the mills leaving them free to utilise it in any manner they liked and the agreement deed does not specify the conditions under which the money was to be kept or as to its use by the mills. the calcutta case, therefore, cannot be a safe guide to us for the determination of the question that has been raised before us. this leads us to consider whether money deposited as security for good behaviour or for the performance of other obligations can be regarded as impressed with a trust. the mills were free to utilise it in any manner they liked. we arethus satisfied that the essential nature of the deposit in the present case was that of a debt andthe learned single judge was perfectly correctin having come to the conclusion that, being adebt, the appellants could..........tests which they considered to be fair for determining the question whether a particular amount is debt money or trust money. the first test was whether interest was payable and their lordships held that if interest was payable it would normally be a case of a debt. the second test was whether or not the parties intended that the money should be kept as a sacred amount for a specified purpose earmarked for a specified object. in case that was the intention of the parties it would be a case of a trust, otherwise that of a debt. both the tests fully apply to the facts of the present case and we find it difficult to see how the full bench case can be distinguished from the one before us.3. mr. jagdish swarup who has appeared for the appellants has strenuously contended that the mere payment.....
Judgment:

Jagdish Sahai, J.

1. This special appeal is directed against an order passed by Mootham, J., (as he then was) in exercise of company jurisdiction on the 2nd of January J.951. The facts involved in this case are very short. The appellants Messrs. R.B. Seth Jessa Ram Fateh Chand (hereinafter called the appellants) were appointed by an agreement dated the 18th of December, 1948, made between them and the respondent No. 2 the Vijay Lakshmi Sugar Mills Limited (hereinafter referred to as the mills), the sole selling agents of the Mills for one year upon the terms and subject to the conditions therein set out. In accordancewith the terms of the agreement the appellants deposited with the Mills a sum of Rs. 50,000/- as security for the due performance of their obligation under that agreement. In 1949 the Mills went into voluntary liquidation and by an Order of this Court dated 8th November, 1949, the liquidation was directed to continue under the supervision of the Court. The appellants claimed the sum of Rs. 50,000/- deposited by them along with the stipulated interest at 6 per cent per annum from the liquid ators as also a sum of Rs. 24,500/- on account of commission on the sale of sugar, claiming priority over other creditors in respect of these two sums. Later on, however, the claim with respect io the sum of Rs. 24,500/- was abandoned by the appellants and the liquidators were concerned onty with the amount of Rs. 50,000/- along with the interest mentioned above.

The controversy between the parties was in respect of the essential quality of the deposit of Rs, 50,000/-. It was contended on behalf of the appellants that it was in the nature of a trust whereas the position taken by the liquidators was that it was nothing more than, a debt and consequently there could be no question of any priority between the debtors inter se. The liquidators not having agreed to give priority to this amount, the matter was taken before the learned Company Jugde who on 2nd January, 1951, passed an order by which he held that this sum could not be treated to be anything other than a debt and consequently no question of priority arose. Dissatisfied with that order the appellants have filed the present appeal.

2. The only question involved in this special appeal is with regard to the essential nature of the deposit. Learned counsel have not addressed us on any other question, and in our judgment no other question arises. A large number of authorities have been brought to our notice by learned counsel for the parties in respect of their rival contentions. Before we advert to those authorities we think it proper to first deal with the question on first principles. The relevant paragraphs in the agreement are paragraphs 8 and 9 which read as follows :

'8. That the firm has deposited a sum of Rs. 50,000/- with the said Mill as a security tor the due performance of the contract on their part, on which amount the Mill shall pay interest to the said firm at the rae of 6% per annum.

9. That thei Mill shall refund the said security deposit of Rs. 50,000/- with interest thereon at the said rate on termination of the agency. In case the said amount is not refunded with interest thereon the firm shall be entitled to commission at the rates mentioned above as if agency has not terminated. In other words as long as security with interest is not refunded and commission due is not paid this agreement will not be terminated.'

A perusal of the various clauses in the agreement would clearly reveal that in fact no trust was created. The appellants had Undertaken to perform some services to the Mills and in connection wi'h those services large stocks of goods had to pass through their hands, they being the sellingagents. It was agreed between the parties that the appellants should deposit a sum of Rs. 50,000 in cash with the Mills. This would show that at no time the relationship between a trustor and llrustee was created. This sum came to the Mills, as their own money. They had full control and dominion over it. They were not liable to render accounts of this amount to the appellants and were free to spend it in any manner they liked subject to the ultimate liability of refunding that amount to the appellants after the agreement between the parties ceased to bind them. The essential quality of a debt is that the ownership of the debt amount is transferred to the debtor with complete dominion and control over that amount and a full right to spend it in any manner he likes without being liable to render accounts to the creditor. In the case of a trust the trustee is always liable to render account to the trustor and is not free to spend that amount in any manner he likes. On the other hand he has got to spend it and utilise it only for the specific purposes for which the trust was created. In other words, the trustee has no volition with regard to the manner in which the amount is to be spent. The amount is given to him under specified conditions for a specified object and it is not in his power to divert either of the two.

There is another basic difference so far as our law is concerned between a trust and a debt. Whereas for the recovery of a debt the law always prescribes a period of limitation, there is no limitation for the recovery of the trust amount. In the present case there cannot be any manner of doubt that once the sum of Rs. 50,000/- got into the hands of the Mills the Mills had complete right to spend it in any manner they liked and to treat it as their Own money. Consequently it does not appear to us that this amount can on any rational basis be treated to be a trust amount. Our attention has been invited to a Full Bench decision of this Court in Maheshwari Bros. v. Official Liquidators, Indra Sugar Works Ltd., AIR 1942 All 119. The facts of that case were similar to ours and the learned Judges who constituted the Full Bench laid down two tests which they considered to be fair for determining the question whether a particular amount is debt money or trust money. The first test was whether interest was payable and their Lordships held that if interest was payable it would normally be a case of a debt. The second test was whether or not the parties intended that the money should be kept as a sacred amount for a specified purpose earmarked for a specified object. In case that was the intention of the parties it would be a case of a trust, otherwise that of a debt. Both the tests fully apply to the facts of the present case and we find it difficult to see how the Full Bench case can be distinguished from the one before us.

3. Mr. Jagdish Swarup who has appeared for the appellants has strenuously contended that the mere payment of interest cannot be a conclusive consideration. We may straightway say that in all human transactions normally there rarely is a conclusive consideration but thereare paramount considerations and it cannot be denied that the payment of interest, considering human nature and normal course of business, is a paramount consideration for determining whether or not a particular advance is a debt or a trust.

4. We would now like to consider the various cases that were cited before us at the bar. Mr. Jagdish Swarup placed reliance upon the case of Ganesh Export and Import Company v. Mahadeolal 0065/1956 : AIR1956Cal188 . In that case B, a firm deposited a large sum of money with A, a company under an agreement. In Clause 3 of that agreement the deposit wag specifically earmarked as security for the due performance of the agreement. Under the agreement B was liable to pay A the price of goods sold to it or to customers introduced by it. Under Clause 11 of the agreement such prices were to be adjusted within fifteen days of the delivery or dispatch of the goods and by Clause 15 A accepted the liability to refund the deposit with interest on the expiry of two years, or on prior determination of the agreement by one month's notice. The Calcutta High Count held that the money paid by B was to be held by A for a specified purpose and thus was clothed with what might be called a species of trust. The Full Bench case of AIR 1942 All 119 was referred to in the Calcutta case. Lahiri, J., while dealing with that case observed as follows :

'The Allahabad, Bombay and Lahore High Courts have taken the view that the existence of a stipulation for payment of interest is destructive to a trust because it indicates that the depositee would be entitled to use the deposit as his own property and for his own purpose. See In the matter of Annapurna Co. Ltd. : AIR1926All397 , AIR 1942 All 119, In re Manekji Petit ., AIR 1932 Bom 311, National Petroleum Co. Ltd. v. Popat Lal Mulji, AIR 1936 Bom 344, and Ram Chand v. Mohd. Akram Khan, AIR 1937 Lah 444.

The Calcutta and Madras High Courts on the other hand have adopted the view that the provision as to payment of interest is not wholly inconsistent with the existence of a fiduciary relationship. See In re. Alliance Bank of Simla Ltd. : AIR1924Cal818 , In the matter of Bengal Zamindari and Banking Co., Ltd. : AIR1937Cal221 , Kshetra Mohan v. East Bengal Sugar mills Ltd. : AIR1943Cal105 and In the matter of Travancore National and Quilon Bank Ltd AIR 1939 Mad 337.''

5. No reason was given by Lahiri, J. as to why the view taken by the Full Bench of this Court was not acceptable to him. In any case the Calcutta case 0065/1956 : AIR1956Cal188 does not go beyond laying down that the payment of interest cannot be a conclusive test. We have already said above that even though it may not be a conclusive test, considering human affairs normally it is a very substantial or a very fundamental test because payment of interest presupposes a right on the part of the debtor to utilise the money in any manner he likes. Apart from it the facts of the Calcutta case were slightly different from those before us. There underClause 11 of the agreement the prices were to be adjusted within fifteen days of the delivery or dispatch of the, goods and the liability to refund the deposit had been guaranteed and so was interest. In our case the simple position is that the appellants deposited the sum of Rs. 50,000/- with the Mills leaving them free to utilise it in any manner they liked and the agreement deed does not specify the conditions under which the money was to be kept or as to its use by the Mills. The Calcutta case, therefore, cannot be a safe guide to us for the determination of the question that has been raised before us.

6. The next case on which reliance was placed was : AIR1943Cal105 . This decision is based upon an earlier decision of the same High Court in : AIR1924Cal818 . This cas'e also only supports the contention of the learned counsel for the appellants to the extent that the mere payment of interest cannot be conclusive in determining the essential quality of the deposit. Mitter, J., after considering the rival views expressed himself in the following words:-

'The fact therefore that a company has rights over the deposit money and to appropriate it in certain contingencies would not by itself be a material factor, if the money deposited as security can be regarded from other considerations as trust money. This leads us to consider whether money deposited as security for good behaviour or for the performance of other obligations can be regarded as impressed with a trust. It is a principle which has been established by many decisions in England, some of which are noticed in AIR 1939 Mad 337 that where money is placed by a customer even in the hands of a bank with a specific purpose a trust is impressed. He places confidence on the bank that the latter would act to his instructions. That creates the trust makes the bank a trustee for the money so sent, in spite of the fact that the Ordinary and normal relation between, a customer and a bank is that of a creditor and debtor. That principle in our judgment applies with greater force to security deposits in cash made by an employee or by a selling agent of a company. The money would be regarded as trust money in the hands of the employer or the company, unless there are other terms and conditions which would make the relation between them to be that of creditor and debtor. As we have already pointed out, the mere fact that there is a stipulation for payment of interest on the deposit money, or the fact that in certain contingencies the employer or the company, as the case may be, would be entitled to liquidate his or its claim from out of it against the employee or the selling agent would not establish the relationship of creditor and debtor. The money deposited as security would still be regarded as trust money in the hands of the employer or the company.''

7. With the greatest respect to the learned Judge, we are unable to go the length he has. We have already said above that it would always depend upon the facts of each case as to whether or not the deposit was a debt or a trust. In our case there were no stipulationswhich bound the parties with regard to the use to which the sum of Rs. 50,000/- was to be put. The Mills were free to utilise it in any manner they liked. They were not liable to render any accounts of this amount to the appellants. They were only liable after the appellants' agency had been terminated to refund the amount. In our judgment in the present case none of the essentials which go tto constitute a trust are to be found.

8. 'Trust'' has been defined in Section 3 of the Indian Trusts Act in the following words:-

'A 'trust' is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declare and accepted by him, for the benefit of another, or of another and the owner

the person who reposes or declares the confidence is called the 'author of the trust'; the person who accepts the confidence is called the 'trustee': the person for whose benefit the confidence is accepted is called the 'beneficiary' : the subject-matter of the trust is called 'trust property' or 'trust money'; the 'beneficial interest' or 'interest' of the beneficiary is his right against the trustee as owner of the trust property; and the instrument, if any, by which the trust is declared is called the 'instrument of trust';

a breach of any duty imposed on a trustee, as such, by any law for the time being in force is called a 'breach of trust'.'

9. When faced with this definition Mr. Jagdish Swarup had to concede that he could not seriously urge that the deposit in the present case could fully answer to the description of a trust within the meaning of the Indian Trusts Act. He, however, submitted that eventhough it may not be a trust as such there was a fiduciary relationship between the appellants and the Mills and therefore there was a relationship in the nature of trustor and trustee. Beyond the fact that the amount of Rs. 50,000/- was deposited with the Mills in connection with the appointment of the appellants as selling agents it cannot be said that the money itself was earmarked for a particular purpose or it was assigned to an express expenditure. It is difficult to hold that the appellants were the beneficiaries under the trust and it is equally difficult to hold that the Mills were the trustee and the appellants the trustor. There are no terms in the agreement under which the Mills were precluded from the enjoyment of the sum of Rs. 50,000/- deposited with them and if the analogy of a beneficiary could be brought in in the present case, there would be no difficulty in holdingthat the Mills were the beneficiary as also the owner of the amount deposited.

10. The other cases upon which reliance was placed bv Mr. Jagdish Swarup were In AIR1939 Mad 337 and Karnataka Films Ltd. v. Offcial Receiver, AIR 1952 Mad 48.1. At this stage we may state that there has been a conflict of authority between our Court, the Bombay High Court and the Lahore High Court on the one side and the Calcutta and the Madras High Courts on the other and that the latter HighCourts have in similar cases taken the view that a fiduciary relationship is created. However, we have seen no reason; why wa should depart from the view consistently taken by this Court which ultimately culminated in the decision in AIR 1942 All 119 (supra). It is wot necessary to multiply authorities in support of the view that we are taking. We may, however, casually state that in AIR 1932 Bom 311 and AIR 1936 Bom 344 the Bombay High Court has taken a view which falls in line with ours.

11. Our attention was invited to certain passages in Scott on Trust, Vol. 1. It is not necessary to give elaborate quotations from that treatise lout it may be stated that the learned author has consistently taken the view that in a case similar to ours the payment of interest and the complete disposing power over the amount deposited is highly suggestive of the deposit being in the nature of a debt and not of a trust. Our attention was also invited to a decision of the United States Supreme Court in Mckey v. Paradise, (1936) 8,1 Law Ed 75 : 299 US 119-123. There is nothing in that decision which goes contrary to the view that we are talcing and the observaions mads therein in fact fully support our conclusions. Reliance was also placed upon the case In re Broad; Ex parte Neck, (1884) 13 QBD 740 at p. 745. That case is also suggestive of the conclusion that the Payment of interest is a material and relevant consideration in arriving at the conclusion relating to the essential nature of the deposit. The same view was taken in the case Re Gothenburg Commercial Co., (1881) 44 LT 166 at p. .167.

12. Having carefully considered the submission made by the learned counsel for the parties and having anxiously waded through all the authorities that were cited before us we have come to the conclusion that there is no reason why we should deport from the view taken by our Full Bench in AIR 1942 All 119 (supra). We are unable to agree with Mr. Jagdish Swarup that that case rcquires reconsideration. We arethus satisfied that the essential nature of the deposit in the present case was that of a debt andthe learned single Judge was perfectly correctin having come to the conclusion that, being adebt, the appellants could not claim any priorityover other creditors. We se no reason to interfere with the order passed by Mootham, J., on2nd January, 1951, and consequently affirm thatorder and dismiss the appeal with costs.


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