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Rajah Mulrazzu Lakshmi Venkiah Amma Rao Bahadur Vs. the Official Assignee of Madras - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported in(1915)28MLJ403
AppellantRajah Mulrazzu Lakshmi Venkiah Amma Rao Bahadur
RespondentThe Official Assignee of Madras
Cases ReferredHertsled v. Oatway
Excerpt:
.....entitled to preferential payment on the finding that the insolvent was a trustee and (2) that the official assignee has not denied the presence of gold and ornaments at the time of the failure of the insolvent's firm among the assets of the firm. i think that the terms of the contract between the parties as reduced to writing in exhibit a-1 and a-2 clearly support the learned judge's finding. i have considered to the best of my ability the arguments advanced on both sides in this case and also the decisions quoted. 356. i have also considered the six well known arbuthnat & co. justice bakewell (which i take to be) that the petitioner has failed to show that the gold or the price of gold was invested in or formed part of any of the assets taken possession of by the receiver or by the..........entitled to preferential payment on the finding that the insolvent was a trustee and (2) that the official assignee has not denied the presence of gold and ornaments at the time of the failure of the insolvent's firm among the assets of the firm. (see 6th ground).4. i might at once say that i accept the findings of fact arrived at by the learned judge though each side attacked that portion of the finding which was against it. mr. smith for the official assignee contended that the oral evidence established that the sovereigns and the gold given by the petitioner were not themselves intended to be wrought into the jewels but that the price of those sovereigns and gold was to be treated as if the price was given in current cash on the insolvent's promise'to give certain jewels of the same.....
Judgment:

Sadasiva Iyer, J.

1. This is an appeal by the creditor whose notice of motion was dismissed by Mr. Justice Bakewell in the exercise of Insolvency jurisdiction. The creditor (appellant) contended, that he was entitled not merely to get a rateable distribution along with the other creditors but that he was entitled to get the full amount due to him by the insolvent in preference to the other creditors of the insolvent (from and out of the insolvents estate) inasmuch as he gave 45 sovereigns and 26 1/2 pagodas weight of gold for the specific purpose of making a gold oddiyanam and 4 mettus by working the specific gold in the said sovereigns and the said gold bar and as the relation between the insolvent and himself was one of bailment and not that of creditor and debtor in an ordinary loan transaction.

2. The learned Judge found (a) that the insolvent did become bailee of the specific gold given to him as metal and that there was not the relation of ordinary creditor and debtor created (by the giving of the sovereigns and gold to the insolvent) between the petitioner and the insolvent; (6) that it was impossible 'to have this specific gold,' now that 'it does not even appear that at the date of the insolvency, the insolvent was possessed of any sovereigns or bar of gold with which the applicant's property might have been mixed' and that the sovereigns and the gold have ' disappeared and cannot be followed.' On these findings the learned Judge held that the petitioner even taking him to be a cestui que trust and taking the insolvent as a trustee, has no greater right over the general property of the trustee than the other creditors have. In arriving at this conclusion the learned Judge states that he followed the principle laid down in In re Hallet's Estate (1879) 13 Ch. D. 696.

3. The contentions before us in appeal are (1) that the appellant was entitled to preferential payment on the finding that the insolvent was a trustee and (2) that the Official Assignee has not denied the presence of gold and ornaments at the time of the failure of the insolvent's firm among the assets of the firm. (See 6th ground).

4. I might at once say that I accept the findings of fact arrived at by the learned Judge though each side attacked that portion of the finding which was against it. Mr. Smith for the Official Assignee contended that the oral evidence established that the sovereigns and the gold given by the petitioner were not themselves intended to be wrought into the jewels but that the price of those sovereigns and gold was to be treated as if the price was given in current cash on the insolvent's promise'to give certain jewels of the same value to the petitioner. I think that the terms of the contract between the parties as reduced to writing in Exhibit A-1 and A-2 clearly support the learned Judge's finding. On the other side, the insolvent contended that the gold in the sovereigns and in the bar given by him could be traced to some jewels which were taken possession of by the receiver and afterwards by the Official Assignee. There was no such proot adduced before the learned Judge and it is impossible to find that in the assets taken possession of by the receiver or by the Official Assignee, either the gold or the value of the gold due to the insolvent could be at all traced.

5. Accepting then the facts as found, what is the law on the point? I have considered to the best of my ability the arguments advanced on both sides in this case and also the decisions quoted. Those cases include In re Hallett's Estate (1879) 13 Ch. D. 696, Harris v. Truman and Ors. (1882) 9 Q.B.D. 264, Expate Kelly and Co. (1879 11 Oh. D. 306, and the very recent case Sinclair v. Brougham (1914) A. O. 38, in the House of Lords, where the whole question has been elaborately considered and the case In re Oatway (1903) 2 Oh. 356. I have also considered the six well known Arbuthnat & Co., cases reported in The Official Assignee of Madras v. Smith I.L.R. (1908) M. 68, The Official Assignee of Madras v. Ramachandra Aiyar I.L.R. (1909) M. 134, The Official Assignee of Madras v. Lupprian 20 M.L.J. 428, The Official Assignee of Madras v. Krishnaswami I.L.R. (1909) M. 154, The Official Assignee of Madras v. Rajam Aiyar I.L.R. (1909) M. 299, and the last case on appeal in The Official Assignee of Madras v. Rajam Aiyar I.L.R. (1910) M. 499.

6. Taking the pronouncement of the Lord Chancellor in the recent House of Lords case as enunciating the binding law on this point, I think it establishes (1) that where the moneys of A get into the hands of B (who afterwards becomes an insolvent or if B is a society or company whose affairs are in liquidation) and where the relation of creditor and debtor by contract or quasi contract cannot be established between A and B, A can recover his moneys preferentially on the principle of 'tracing ' in two cases (a) where A's money can be earmarked in the hands of B (as where the money of A was contained in a bag and the bag with the contained money in specie could be identified), (b) where any particular asset was purchased by B with that money if that particular asset is capable of being earmarked as purchased with that money. (2) That case further establishes that where the money of A was mixed by B with his own money in B's Bank and appropriated by B and there is or can legally be no contract or quasi contract by B establishing the ordinary relationship of creditor and debtor, there is what is called loosely a ' charge ' in A's favour on the balance of all the moneys found in the Bank to the credit of B (at the time of B's insolvency or liquidation) to the extent of the money which is due to A and that the charge entitles A to be preferentially paid out of those moneys preferentially to ordinary creditors.

7. The whole law upon this point seems to have been developed from the observations of Vice Chancellor Wood in Frith v. Carttand (1865) 2 Hem. & M. 417, and had its origin in the principle that a cestui que trust if he can trace the trust property to a fund standing in the name of the trustee or to an asset in the hands of the trustee should be preferentially paid out of that fund or out of that asset. In the 1914 case in the House of Lords, the doctrine of ' tracing ' was extended in favour of persons who did not stand in the relation of cestui que trust ' (even in the limited sense of bailors or principals) provided that they cannot be treated as creditors under even a quasi contract or implied contract.

8. The majority of the Judges in Re Hallett's case held that the rule in Clayton's case as to the appropriation of cheques drawn upon a Bank to the moneys deposited therein in order of dates was not applicable where the dispute is between the Official Assignee of a trustee (B) and the cestui que trust (A) whether the balance in the trustee's Bank is or contains the trust money belonging to A. Thesiger L.J. dissented' from the view of the majority which held that the rule was not applicable and that the balance should be traced to the trust money though cheques had been drawn for the full amount of that money in priority to cheques affecting subsequent deposits by the trustee of his own moneys. The House of Lords' case has left this second question undecided.

9. The necessity of tracing what I might roughly call the misappropriation funds into the assets in the hands of B (of so tracing it at least, in an indirect manner and by reasonable presumptions) has not been questioned in this latest case. The Lord Chancellor seems even to lay down in one portion of his judgment that it lies upon A to establish by evidence that the assets in the hands of B do or must contain funds belonging to him (see page 418, 1914 A. C). See also the argument in the. same case at page 406, proposition 3 in which the learned Counsel says ' the burden of proving the identity is on the person who alleges it '). The burden of proof may be discharged by a sort of eliminating process, that is, A might establish that the remaining securities, investments and assets in the possession or name of B must be the result of the use of A's funds. In that same case, their Lordships held on the facts that the funds in the hands of B (a statutorily constituted society) which received the moneys from the depositors on ultra vires transactions must have contained the said moneys of the depositors and the increase of those moneys and hence their Lordships had no difficulty in applying the doctrine of tracing in that case, especially as the claims of ordinary outside creditors had been fully discharged.

10. In the case in 9 Q.B.D. 264 and in Re Oatway also, the necessity of A's establishing that his property whether it was money or chattels or the proceeds of his chattels was or must form a part of the whole of the assets or funds in the hands or name of B was not denied. In the former case, though the assets (in the shape of barley and malt) were not purchased with A's moneys which had been misappropriated by B (A's agent employed expressly to purchase barley and malt for A, B did make those purchases for A in, order to fulfil his obligation as agent to A to so purchase barley and malt for A and in those circumstances, A was held entitled to ratify the appropriation by his agent (though that appropriation was made to conceal his breach of trust), and to treat his (A's) moneys as traced to the barley and malt purchased with the other moneys of B. If, in this case, I could have found my way to decide that the assets taken possession of by the receiver or by the Official Assignee did include or must have included the gold or the value of the gold contained in the sovereigns and the bar given by the petitioner to the insolvent, or though that the petitioner's particular gold was misappropriated by the insolvent, he made Oddiyanams or Mettus with other gold (as in the case in 9 Q.B.D. 264) in order to fulfil his obligations to the petitioner I would be inclined to apply the doctrine of 'tracing' and the doctrine of quasi charge even to the full limits indicated by Lord Dunedin in his judgment in the recent House of Lords' case; but I do not see my way to differ from the findings of Mr. Justice Bakewell (which I take to be) that the petitioner has failed to show that the gold or the price of gold was invested in or formed part of any of the assets taken possession of by the receiver or by the Official Assignee and I must therefore confirm the order of the learned Judge which held that the petitioner must be treated as a man who had lost the gold entrusted by him to the insolvent just as if the insolvent had converted it into cash and squandered it in unknown ways before his insolvency. On the footing then that none of the assets found with the insolvent is proved directly or even by remote fact from which a reasonable inference could be drawn to have contained any portion of the petitioner's gold or to have been acquired with the use of the proceeds of that gold I must and do confirm the order of the learned Judge. But as it is a hard case for the appellant and as the legal question involved is an intricate one, which even the most learned English Judges have found it so difficult even to formulate for decision in all its subtle ramifications, I shall, while directing the appellant to bear his own costs in this appeal, not direct him to pay the respondent's costs which will, of course, come out of the insolvent's estate.

Napier, J.

11. This is an appeal from an order of Mr. Justice Bakewell in Insolvency Petition No. 188 of 1912 rejecting an application for the return by the Official Assignee of certain sovereigns and bar of gold given by the applicant to the insolvent, for the purpose of making ornaments or for payment of their value. The learned Judge finds on the evidence, and we agree with him in that conclusion, that the sovereigns and the bar of gold were given as alleged for the specific purpose, that the insolvent instead of obeying the directions credited the applicant with the sovereigns as cash and used the gold for other work. There is no evidence to show what became of the sovereigns, nor is there any evidence that the jewel into which the bar gold had gone was in the possession of the insolvent at the time that a receiver was appointed to take charge of his property which was done sometime prior to the insolvency. The amount of the gold was 26 1/2 pagodas which is nearly 3 oz. On these facts the learned Judge has held that the applicant's property has disappeared and cannot be followed : and applying the law as laid down in In re Hallett's Estate (1879) 13 Oh. D. 696, dismissed the application.

12. It was contended before us that the appellant could recover as a preferential creditor on the principle that if the estate has been benefited by the transaction, the value of the specific moveable can be recovered. It is sufficient to say that there is no authority for this broad proposition.

13. It was next argued that the insolvent being a bailee of the specific gold, the applicant was entitled to follow it into any property possessed by the insolvent. Reliance is placed on the Official Assignee v. T. Raj am Ayyar ILR (1910) M. 499. That, however, is no authority for the proposition, that being a case where money stamped with the position of trust money was mixed with the insolvent's own money. During the course of the argument, I invited the attention of the learned Counsel for the appellant to the recent decision of the House of Lords in Sinclair v. Brougham (1911) A. C 398, the well known Birkbeck Bank case and he endeavoured to find support for the proposition in various passages in the Judgment of the learned Lords. What he sought in effect to do was to apply the principle under which trust moneys which were mixed can be followed to specific moveables held by the insolvent. This case is no authority for that position. Their Lordships certainly re-affirm the proposition laid down in In re Mallet's Estate 3 that 'where trust money has been mixed by an insolvent with his own moneys the law will presume that any money drawn from that mixed account by the insolvent was his own money and that the balance remaining unexpended was the trust money.' But with regard to specific moveables held by the insolvent as bailee, their Lordships state the law as already established vide 1914 A.C. 398.--'If money in a bag is stolen and can be identified in the form in which it was stolen, it can be recovered in specie. Even if it had been expended, by the person who has wrongfully taken it in purchasing some particular asset, that asset if capable of being earmarked as purchased with the money can be claimed by the true owner of the money.' If it was possible to establish that these sovereigns and bar gold had been converted into any particular jewel the appellant might claim that jewel. But admittedly this cannot be shown. There is nothing in Hertsled v. Oatway (1903) 2 Ch. 356 inconsistent with this doctrine, which is clearly established in In re Hallett's Estate (1879) 13 Ch. D. 696. The basis of the right to follow is stated to be that the claim is one in rem. 'The claim to follow the property with which in equity at all events they have really parted.' It is obvious that if the claim is in rem the rest must be ascertained. I am, therefore clearly of opinion that the judgment of the learned Judge was right and must be affirmed. I agree with the order as to costs made by my learned colleague,


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