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S.A.N.M. Ramakrishna Chetti Vs. Chinna Thangavelu Chetti and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtChennai High Court
Decided On
Reported in(1956)2MLJ101
AppellantS.A.N.M. Ramakrishna Chetti
RespondentChinna Thangavelu Chetti and ors.
Cases ReferredHarris v. Truman
Excerpt:
.....who advanced that money to follow the money and get it back, in the same way as if it had been trust money, the obligation of the person receiving which is well defined. this is an old and well established doctrine in equity: 9. in the circumstances, the right of the plaintiff to this money on the failure of the purpose continuing, the first defendant is in the position of a trustee and the property in the amount could not be held to have passed to the first defendant and which could be considered as money belonging to him and liable to be proceeded against by his creditors in execution of the decrees against him. whether the right of the plaintiff is based on equity or on principles of trust, the fact remains that on the failure of the purpose the first defendant has not acquired..........passage in lewin on trusts, 15th edition, at page 730, where it is stated that:if a trustee pays trust money into a bank to the account of himself, not in any way earmarked with the trust, and also keeps private money of his own to the same account, the court will disentangle the account, and separate the trust from the private money, and award the former specifically to the cestui que trust. the same rule will apply equally in the case of a person occupying a fiduciary position, although not an express trustee, as a factor, or agent and has even been applied to the case of a person borrowing money for a specific purpose (e.g., for the purchase by him of property to be afterwards mortgaged to the lender) and not applying it for the purpose for which it was advanced.4. reference to the.....
Judgment:

Krishnaswami Nayudu, J.

1. The plaintiff is the appellant. The first defendant and his brother one Appadurai sold certain lands to the fourth defendant on 29th November, 1935. There was an agreement between them to reconvey the properties under certain circumstances. But when reconveyance was demanded in pursuance of the agreement, the fourth defendant refused to comply with the demand and O.S. No. 7 of 1946 was thereafter instituted by the first defendant and his brother for specific performance of the agreement to reconvey. The suit was decreed and the first defendant and his brother had to deposit a sum of Rs. 2,750 into Court before reconveyance could be executed in their favour. The case of the plaintiff is that the first defendant approached him as he had not the funds to enable him to make the deposit and wanted accommodation and the sum of Rs. 2,750 was advanced by the plaintiff to the first defendant and his brother under the terms of the agreement entered into between them, Exhibit A-1, dated 25th February, 1947. The agreement recites that the first defendant, and his brother had already borrowed Rs. 500 on a pronote, dated 7th December, 1945 and another sum of Rs. 900 on a further pronote, dated 19th January, 1947 and there was therefore due by them to the plaintiff a sum of Rs. 1,400 borrowed for the expenses of the suit, O.S. No. 7 of 1946. In addition the agreement provides that:

As the said suit has been decreed in our favour and as we have to pay into that Court, according to the terms of that decree, the sum of Rs. 2,750 we have this day borrowed that sum from you. For the total principal amount of Rs. 1,400 in respect of the two promissory notes mentioned above and the interest thereon and for the sum of Rs. 2,750 cash received by us on this date - in all, for the sum of Rs. 4,150 for the interest thereon at the rate of Re. 0-8-0 for Rs. 100 per month and for the principal amount we shall, as soon as a registered sale deed in respect of the entire properties relating to the above sum is executed in my name as per the terms of the decree, execute a deed of possessory mortgage in respect of the same properties and hand it over to you after getting it registered....In the event of the defendants in the above suit going on appeal and in the event per chance of our being unsuccessful in the said appeal, we shall take a refund from the Court of the entire amount borrowed by us from you and paid into Court and pay it to you in adjustment and the balance we shall discharge through other properties belonging to us.

The sum of Rs. 2,750 borrowed from the plaintiff in the said circumstances was deposited into Court to the credit of O.S. No. 7 of 1946. As anticipated, the fourth defendant succeeded in the appeal which he filed and the decree for specific performance was therefore set aside. After the disposal of the appeal, the fourth defendant, who was the defendant in O.S. No. 7 of 1946 attached the said sum of Rs. 2,750 for realisation of his costs. There was also an attachment by the third defendant, who had a decree against the first defendant in O.S. No. 471 of 1945 and a further attachment by the fifth defendant who had a small cause decree against the first defendant in S.C. Section No. 20 of 1943. The plaintiff filed a claim petition in E.A. No. 48 of 1949 in E.P. No. 152 of 1948 claiming that the amount deposited in that suit was his and to release it from the attachment of the fourth defendant. The claim petition was dismissed. Another claim petition was filed E.A. No. 1118 of 1948 in O.S. No. 471 of 1945. That claim petition was not pressed and hence dismissed. The present action was therefore instituted by the plaintiff for a declaration that the amount deposited into Court in O.S. No. 7 of 1946 belonged to the plaintiff alone, that defendants 3 to 5 are not entitled to attach it and for other reliefs.

2. The question for determination in this appeal is as to whether the plaintiff has any rights in respect of the amount of Rs. 2,750 lent by him under Exhibit A-1 and paid by the first defendant into Court to the credit of O.S. No. 7 of 1946. The Courts below took the view that the amount so paid is a loan to the first defendant and in the circumstances it is not open to the plaintiff to contend that he has any rights in respect of the amount and that the only remedy of the plaintiff is to recover the loan since it is a simple loan advanced.

3. It is now urged in second appeal that the amount is impressed with the character of a trust and that the plaintiff has got an equitable right in respect of the amount, as the same was paid for a particular purpose and so liable to be refunded on failure of the purpose for which it was intended. In support of this contention, reliance is placed on the following passage in Lewin on Trusts, 15th edition, at page 730, where it is stated that:

If a trustee pays trust money into a bank to the account of himself, not in any way earmarked with the trust, and also keeps private money of his own to the same account, the Court will disentangle the account, and separate the trust from the private money, and award the former specifically to the cestui que trust. The same rule will apply equally in the case of a person occupying a fiduciary position, although not an express trustee, as a factor, or agent and has even been applied to the case of a person borrowing money for a specific purpose (e.g., for the purchase by him of property to be afterwards mortgaged to the lender) and not applying it for the purpose for which it was advanced.

4. Reference to the case in Gibert v. Gonard 52 L.T. 54., Harris v. Truman (1881) L.R. 7 Q.B.D. 340 and Harris v. Truman (1882), are made in support of this proposition.

5. In Gibert v. Gonard 52 L.T. 54, the money was advanced by the plaintiff to the defendant for the purpose of purchasing a certain business and on an undertaking of the defendant so to apply it. The defendant did not apply it to that purpose, but spent some of it in paying debts of his own. He then became bankrupt. The plaintiff was able to trace the remainder of the money advanced by him. It was held that a duty had been imposed on the defendant of applying the money in a particular way and a fiduciary relation created, so that, the money not having been applied in the specified way, the plaintiff could recover so much as remained of it in full, notwithstanding the bankruptcy of the defendant. In the course of the judgment, North, J., after stating the facts, made the following observations:

It is very well known law that, if a person makes a payment to another for a certain purpose and that person takes the money, knowing that it is for that purpose, he must apply t to the purpose for which it was given. He may decline to take it if he likes, but if he chooses to accept the money tendered for a particular purpose, it is his duty, and there is a legal obligation on him, to apply it for that purpose. Again, if a man gives an undertaking or makes a representation, it is his duty to give effect to that representation and to carry out that undertaking. These are legal duties which the undertaking casts upon him....That being so, it appears to me that, although the money was lent by way of loan, and was to be repaid, it was a sum not intended to go back in specie in any way to the person who lent it; yet still it was a sum advanced in respect of which there was a duty cast upon and undertaken by the person who received the money, and he, as a matter of law, was bound to carry out that duty and give effect to the undertaking and representation which his receipt of the money under those circumstances had imposed on him. That seems to be ample to create such a fiduciary relation as is necessary (if that is the correct way of defining what is necessary) to enable the person who advanced that money to follow the money and get it back, in the same way as if it had been trust money, the obligation of the person receiving which is well defined.

It was held in that case that the money paid in those circumstances could be traced and followed notwithstanding the bankruptcy of the person who borrowed it.

6. In Harris v. Truman (1881) L.R. 7 Q.B.D. 340, moneys advanced by the defendants to provide for the purchase of barley were held impressed with a trust and even if the barley and malt left on the premises of the person to whom the moneys were advanced were not bought in accordance with the authority given to him, and the legal property in the same was not vested in the defendants, he nevertheless was a trustee for the defendants to the extent of the sums advanced by them, of such barley and malt, the same being either the product of trust moneys, or in substitution for the barley, In payment for which he ought to have applied such trust moneys.

7. In the present case, not only the money was advanced for a specific purpose - the purpose being for payment into Court to provide for the balance of the purchase money to enable the first defendant to obtain a reconveyance, - but it was paid on the specific undertaking that a possessory mortgage would be executed over the property so obtained. The money therefore was earmarked for a particular purpose of purchase of property which was agreed to be mortgagedand it was therefore incumbent upon the first defendant to carry out that undertaking and the money in the circumstances could not become his, but money intended for a particular purpose. It cannot be said here that he did not utilise it for the purpose for which it was intended. He paid it into Court for facilitating the purchase of the property. But in view of the appellate Court having found against him as regards his right to obtain specific performance, the first defendant was disabled from carrying out the purpose for which the money was paid. Then the question remains as to whether it would be open to treat it as money belonging to the first defendant. Prima facie, it cannot be, as it was impressed with a trust and was to be utilised for a particular purpose, and because the property could not be purchased, though it may be due to circumstances beyond the control of the first defendant, the right of the plaintiff to this money could not be considered to be taken away. The present is a stronger case, since in the event of the fourth defendant being successful in the appeal, the first defendant and his brother undertook to take a refund from the Court of the entire amount and pay it to the plaintiff in adjustment of the amount borrowed. This further condition brings prominently the idea of the creation of a trust in respect of this money. There is no question of the first defendant being entitled to a beneficial interest in the amount, the plaintiff's right to the money continuing so long as the purpose for which it was intended is not carried out.

8. The case in Harris v. Truman (1882) L.R. 9 Q.B.D. 264 , went up to the Court of Appeal. The Judgment of the Court of Appeal is reported in Harris v. Truman (1881) L.R. 7 Q.B.D. 340. Lord Coleridge, C.J., in the course of his judgment observed at page 268:

The judgment of the Court below is founded mainly on two grounds. The first ground is of this nature: when large amounts of money are entrusted to a man to buy goods and to carry on a business he becomes a trustee for the person to whom the money belongs, and the proceeds of the money are affected with a trust. This is an old and well established doctrine in equity: it applies where the relation of principal and agent in the ordinary sense of the words does not exist. According to this doctrine, where a confidence is created between two persons, and where the one receives the money on the faith that he will do a certain thing, and leads the other who has given the money to understand that the thing has been done, as between these two persons it is considered in equity to have been done. Therefore the person receiving the money is bound to hold what he gets for the benefit of the person giving the money. I think that this ground is quite right.

9. In the circumstances, the right of the plaintiff to this money on the failure of the purpose continuing, the first defendant is in the position of a trustee and the property in the amount could not be held to have passed to the first defendant and which could be considered as money belonging to him and liable to be proceeded against by his creditors in execution of the decrees against him. Whether the right of the plaintiff is based on equity or on principles of trust, the fact remains that on the failure of the purpose the first defendant has not acquired any beneficial interest in the money which could be proceeded against.

10. Mr. Natesan referred me to the fact that the amount has been deposited in Court and contended that when once it is deposited into Court, it must be considered to be assets held by Court within the meaning of Section 73, Civil Procedure Code and as such could be proceeded against. Section 73 provides that

Where assets are held by a Court and more persons than one have, before the receipt of such, assets, made application to the Court for the execution of decrees for the payment of money passed against the same judgment-debtor and have not obtained satisfaction thereof the assets, after deducting the costs of the realisation, shall be rateably distributed among all such persons.

It is only if the assets belong to the judgment-debtor or realised in execution by sale of his properties, or are moneys deposited by him for the purpose of satisfying the decrees, they could be considered to be assets held by the Court for the purpose of Section 73. In the present case, there is no question of any of the parties to O.S. No. 7 of 1946 having any right in the money. The fact that the money is paid into Court to the credit of the suit would not be sufficient to constitute it as assets held by the Court for rateable distribution, under Section 73, and where a question arises as to whether the money belongs to the defendant, it is for the Court to find out as to whether the defendant or the judgment-debtor or the plaintiff has any beneficial interest in the money so paid. The cases under Section 73 relied on by Mr. Natesan are not therefore relevant for the purpose of deciding the issue in the present case. The short point therefore in this case is as to the character of the funds in Court and whether the plaintiff has any equitable right and whether the first defendant is not a simple trustee for the amount and not the beneficial owner. Having found that the first defendant is not the beneficial owner of the money, there is no question of defendants 3, 4 and 5 being entitled to proceed against the same in attachment.

11. The result is, the appeal is allowed and the suit is decreed with costs throughout. No leave.


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