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The Imperial Bank of India Vs. S. Krishnamurthi Alias Adikesavalu Naidu and ors. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtChennai
Decided On
Reported inAIR1933Mad628; (1933)65MLJ471
AppellantThe Imperial Bank of India
RespondentS. Krishnamurthi Alias Adikesavalu Naidu and ors.
Cases Referred and Foxton v. Manchester and Liverpool District Banking Co.
Excerpt:
- .....younger son, the sum of rs. 3,121-10-3 which had been deposited by him in the appellant bank in fixed deposit, dated the 24th july, 1913. in this will the testator appointed chellammal, his sister and r. lakshmiah naidu, his brother-in-law, and the plaintiff's maternal uncle the guardians of the plaintiff. it was further provided that these two guardians were to receive the accrued interest earned by the sum of money in fixed deposit already referred to once a year for the maintenance and education of the plaintiff till he attained majority when he would be entitled to receive the whole amount on fixed deposit from the bank. the plaintiff's father died on the 20th january, 1914 and the two guardians applied to this high court for the grant to them of letters of administration with the.....
Judgment:

Horace Owen Compton Beasley, Kt., C.J.

1. This is an appeal by the Imperial Bank of India, the 2nd defendant in the suit. The facts out of which the suit and this appeal arise are as follows. The plaintiff is the son of one Sanjeevi Rangiah Naidu, who, on the 14th December, 1913, made a will bequeathing to the plaintiff, his younger son, the sum of Rs. 3,121-10-3 which had been deposited by him in the appellant Bank in fixed deposit, dated the 24th July, 1913. In this will the testator appointed Chellammal, his sister and R. Lakshmiah Naidu, his brother-in-law, and the plaintiff's maternal uncle the guardians of the plaintiff. It was further provided that these two guardians were to receive the accrued interest earned by the sum of money in fixed deposit already referred to once a year for the maintenance and education of the plaintiff till he attained majority when he would be entitled to receive the whole amount on fixed deposit from the Bank. The plaintiff's father died on the 20th January, 1914 and the two guardians applied to this High Court for the grant to them of letters of administration with the will annexed. The grant was ordered on the 10th February, 1916, on the necessary security being furnished. One of the sureties of whom there were three was the husband of the 1st defendant in the suit. The plaintiff was supported by Chellammal during her lifetime but she died in 1924 and thereafter the other guardian Lakshmiah Naidu would have nothing to do with the plaintiff or his support. The plaintiff attained majority in April, 1928 and discovered in 1929 that the sum of money in fixed deposit at the Imperial Bank had been withdrawn by Lakshmiah Naidu on the 18th March, 1916, together with one year's interest from the date of the deposit by the testator of this money and that Lakshmiah Naidu had drawn it out on the pretext of investing it on more advantageous terms as to interest in house property or some other form of investment. In other words, the plaintiff discovered that the whole of the amount bequeathed to him by his father had gone. Lakshmiah Naidu died in September, 1929; and on the 1st February, 1930, the security bond having been assigned over to the plaintiff by the Registrar of the High Court, he filed this suit against the widow of one of the sureties and in consequence of her written statement he made the appellants also defendants. Before stating some further facts, it is necessary to refer to the will. In addition to the provisions already referred to there is the direction that the money in fixed deposit is to be transferred and renewed in the name of the minor son (the plaintiff). The testator's intention therefore was that the money which he had invested on fixed deposit and which at the time of his making the will was still in fixed deposit should be transferred to the name of the plaintiff and the fixed deposit renewed. As a matter of fact on maturity according to the rules of the Bank the money was transferred to current account so that on the 24th July, 1914, this money ceased to be in fixed deposit and was placed in current account. It is now necessary to state some very important facts. On the 17th January, 1914, three days before the testator's death, Lakshmiah Naidu and Chellammal, the two guardians appointed under the will, wrote through a vakil to the Secretary of the appellant Bank calling the Bank's attention to the amount in fixed deposit standing in the name of the testator and stating that the testator had executed a will directing that the amount standing in fixed deposit should be renewed and should be paid to the minor on his attaining majority and that in the meanwhile the interest alone was to be drawn by the executors. It was also stated that the testator's eldest son was attempting to draw out this money without any authority and the Bank was warned that the money was not to be transferred or otherwise dealt with till the guardians produced probate of the will. On the 15th December, 1915, the guardians again wrote to the Bank saying that they had petitioned the High Court for probate and stating 'the late Rangiah Naidu says in his will 'they (the guardians of his minor son) the donees of this amount are entitled to receive the accrued interest from the Madras Bank once a year for the maintenance and education, etc., of the minor son till he attains majority when my minor son is entitled to receive the full amount of the fixed deposit in the Bank of Madras'. We the guardians of the minor want to withdraw the amount from your Bank now alone after getting the probate so as to purchase a house or to deposit the amount where we can get higher rate of interest for the benefit of the minor. We shall be highly obliged to you if you will kindly let us know at an early date whether there is any objection for our withdrawing the amount after producing the necessary probate from the High Court of Judicature at Madras.' To this letter the Bank replied by letter of the same date:

We want probate of will required before we can advise you on the subject of your letter.

2. On the 18th March, 1916, the two guardians again wrote to the Bank enclosing for the Bank's perusal the letters of administration with the will annexed which they had obtained and asking for permission to withdraw the money from the fixed deposit together with the accrued interest for the use and benefit of the plaintiff who is correctly described as a minor. Then follows some correspondence with regard to a claim made by the guardians to interest after the date of the maturity of the deposit. This claim the Bank refused to recognise as interest ceased to be paid after maturity, the amount being then transferred to the current account. As I have already stated, the Bank at the request of Lakshmiah Naidu paid over to him the money then in the current account of the testator on the 18th March, 1916; and it is clear that they did so because he requested them to do so, so that he might invest the amount in the purchase of house property. This is clear from the Bank's letter of the 28th April, 1916, which says:

You received payment as you stated you wished to invest the amount in house property.

3. The letter of the 15th December, 1915, written by the two guardians states that the money was required 'to purchase a house or to deposit the amount where we can get higher rate of interest for the benefit of the minor'. These are all the facts to which it is necessary to refer.

4. It is not clear from the plaint whether the claim against the appellant Bank is for damages for negligence or whether it is founded on an alleged breach of duty by them. This is probably due to the fact that the appellants were made party defendants after the 1st defendant's written statement had been filed and no amendment of the plaint was made. The appellants plead that they are under no liability because they are protected by Section 273 of the Indian Succession Act which gives a full indemnity to all debtors paying their debts and all persons delivering up property to the person to whom probate or letters of administration have been granted. The learned trial Judge, Stone, J., however negatived that plea holding that, as the Bank had knowledge of the fiduciary capacity of the administrators and of the trust in favour of the plaintiff created by the will and that the administrators were dealing with the trust money in a manner inconsistent with that trust, they were not entitled to the indemnity given by Section 273 of the Indian Succession Act. The question is, does the indemnity given by that section cover the acts of the appellants? It is clear that the appellants knew of the trust created by the will. They had the letters of administration with the will annexed before them and must have been aware of what was set out in the remarks column of the schedule, namely, 'The guardians have right to receive only the interest accrued on the sum once in a year for the support of the minor until the minority expires'. Quite apart from the fact that they knew that the testator's intention was that the money should be transferred to the minor and renewed in fixed deposit in his name, they knew also that the administrators were only to draw the interest on that money. There is no evidence at all that the appellants would not have renewed the fixed deposit in the minor's name and it was for them to show that they would not have done so. On the contrary, from the correspondence the reasonable inference to draw is that they would have done so but for the request of the administrators for the withdrawal of the money. For what purpose was the money to be withdrawn? For the purpose of purchasing house property or for investment returning a higher rate of interest. Before us a contention was raised on behalf of the appellants that under Section 40 of the Indian Trusts Act trustees have a discretion to call in any trust property invested in any security and to invest it in any other security mentioned in Section 20 and from time to time vary any such investments for others of the same nature; and it is argued that the investment put forward by the administrators in their letter to the Bank was one authorised by Section 20. This argument proceeds upon the footing that the money was to be invested in a first mortgage of immovable property. That is an erroneous assumption because the letter states that the money was to be invested in the purchase of a house. That is not an investment authorised by Section 20 of the Indian Trusts Act. There is nothing in the letter to the Bank to show that any investment was contemplated in any security authorised by Section 20 of the Act. On the contrary, there is a specific direction as regards the investment of the money in the testator's will and in my view the administrators were not entitled to invest the money otherwise than as directed by the testator without the sanction of the Court. It seems to me that the appellants with full notice of the fact that the administrators were intending to commit a breach of trust paid out the money to them. What is the position of the appellants? In Hart's Law of Banking (3rd Edition) at page 159 it is stated as a general proposition 'that a banker must not knowingly be a party to the application of trust moneys to any purposes inconsistent with the trusts affecting them' and later on under 'Notice of trust' it is stated:

banker who receives into his possession moneys of which his customer has, to his knowledge, become the owner in a fiduciary character, contracts the duty not to part with them, even at the mandate of his customer, for purposes which he knows are inconsistent with the customer's fiduciary character and duty.

5. If indeed, the banker has knowledge of the misapplication of trust money received by his customer and paid to him, he is just as much liable for the amount as if he had himself been nominated a trustee of the money and it had come into his hands as such,' and the cases of In re Wall, Jackson v. Bristol and West of England Bank, Limited (1885) 1 T.L.R. 522 and Foxton v. Manchester and Liverpool District Banking Co. (1881) 44 L.T. 406 seem to me to be ample authority for the propositions already stated. For these reasons, therefore, in my view, the appellants are not protected by Section 273 of the Indian Succession Act and were properly held liable by the learned trial Judge whose judgment must be upheld. This appeal must, therefore, be dismissed with costs.

6. O.S.A. No. 97 of 1931. - With regard to the plaintiff's appeal (O.S.A. No. 97 of 1931) it is contended that the learned trial Judge should have awarded interest against the 1st defendant at the rate of 6 per cent, from 1924 until judgment and further that he should have awarded interest at 4 per cent, against the respondent Bank. With regard to the former contention, I can see no ground whatever for awarding against the 1st defendant any higher rate of interest than that which the Bank would have paid had the money been invested according to the provisions of the will on fixed deposit. This I understand at the material times was 4 per cent. That is the interest to which the plaintiff was entitled and it seems to me that he cannot claim a higher rate of interest than the fund would have earned had there been no breach of trust. But with regard to the respondent Bank's position, I am unable to see any grounds whatever for distinguishing their case from that of the 1st defendant. What are the damages which have been incurred by the plaintiff as a direct consequence of the Bank's action in assisting in the administrators' breach of trust? He has lost the whole of his capital and he has lost the interest for a number of years on that capital. No claim is made for any interest prior to 1924, because up to that date he was being maintained. If the administrators had not been guilty of a breach of trust, the money in fixed deposit would have been earning till the plaintiff attained his majority interest at 4 per cent. That interest the plaintiff has lost and the loss in my opinion was directly due to the action of the administrators and of the Bank. Therefore, in my opinion, this appeal succeeds as regards the appellant's contention that the Bank must be ordered to pay interest at 4 per cent, from 1924 and fails as regards the claim for the award of a higher rate of interest than 4 per cent, against the 1st defendant. The 2nd respondent will pay the appellant's costs of this appeal; and the appellant will pay the costs of this appeal of the 1st respondent.

7. The 1st respondent in O.S.A. No. 84 of 1931 will pay the Court-fee of the Original Side Suit and of the O.S.A. No. 97 of 1931 to Government and add them to his costs recoverable from the Imperial Bank in both appeals.

Bardswell, J.

8. I agree.


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