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Ramsay and Co., the Present Secretaries and Treasurers of the Madras Equitable Assurance Society Vs. the Official Assignee of Madras - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtChennai
Decided On
Reported in(1911)21MLJ920
AppellantRamsay and Co., the Present Secretaries and Treasurers of the Madras Equitable Assurance Society
RespondentThe Official Assignee of Madras
Cases ReferredSharp v. Jackson
Excerpt:
.....the declaration are good. 354 .finally the learned judge held that the suit for a declaratory decree was bad because other remedies were open. what those other remedies were, are not, to my mind, clearly indicated and no objection on this score was taken in the written statement, nor was there any specific issue about it. 's bank did, with the sanction of the directors, treat the society's money like their ordinary customers' money and this is what] the learned judge finds. it is a well established rule of equity that if trust money is mixed up with the trustee's private money, then, the trust will have a lien on the aggregate amount and any sum which may be drawn by the trustee for his own money. 31st july might well have regarded themselves as legally bound, and in fact they were so..........than that of convenience. it was not alleged in the written statement that messrs. arbuthnot & co. held the society's money as bankers, nor was there any issue which raised the question. on the other hand, the written statement and the issues treat the society's money as held by messrs. arbuthnot & co. as secretaries and treasurers, and in the annual balance sheet, the society's cash balance is always shown as 'cash with the secretaries and treasurers.' the manner in which the society's funds were entered in the accounts of the banking department does not prove anything in the circumstances of the case. the argument for the respondent on this point was mainly based upon the existence of exh. e., which is a book showing receipts and disbursements on account of the society. this book is in.....
Judgment:

Munro, J.

1. The facts are fully set out in the judgment of Bakewell J. and need not be repeated. The first question which arises for determination is whether, as found by the learned Judge, Messrs. Arbuthnot & Co., were the Society's bankers. I am clearly of opinion on the evidence that they were not, but held monies as the Secretaries & Treasurers of the Society. They also carried on a banking business, and the evidence proves no more than that they dealt with the funds of the Society in the same manner as they dealt with monies received from their banking constituents, probably in the first instance for no other reason than that of convenience. It was not alleged in the written statement that Messrs. Arbuthnot & Co. held the Society's money as bankers, nor was there any issue which raised the question. On the other hand, the written statement and the issues treat the Society's money as held by Messrs. Arbuthnot & Co. as Secretaries and Treasurers, and in the annual balance sheet, the Society's cash balance is always shown as 'cash with the Secretaries and Treasurers.' The manner in which the Society's funds were entered in the accounts of the banking department does not prove anything in the circumstances of the case. The argument for the respondent on this point was mainly based upon the existence of Exh. E., which is a book showing receipts and disbursements on account of the Society. This book is in the same form as the Pass Books issued by Messrs. Arbuthnot & Co., to their banking constituents, but in my opinion it also proves nothing. Convenience will furnish an ample explanation. Messrs. Arbuthnot & Co. requiring an account book, not unnaturally utilised a book which was ready to their hand. No cheque book was ever issued to the Society, though we find printed in Exh. B a notice that constituents can only draw upon their banking accounts on the forms furnished by the bank.

2. The position then simply is this: Messrs Arbuthnot & Co held the funds of the Society as its Secretaries & Treasurers and consequently in a fiduciary capacity, and they committed a breach of trust in using the money in their banking business and in not carrying out the directions given to them in the minute of the 31st July 1906. This being found, there is no dispute that Messrs. Arbuthnot & Co. became debtors to the Society, and it is contended for the respondent that the Society can only rank with the unsecured creditors in respect of the amount represented by the Government Promissory Notes now in question. The answer to this is that it was the duty of Messrs. Arbuthnot & Co. not to mix the money of the Society which they held as its Secretaries & Treasurers with their own money, and that the Society's money is recoverable from the unspent balance in their hands at the time of the insolvency - see In re Hallett's Estate (1879) 13 Ch. D. 696 referred to in Official Assignee of Madras v. Smith I.L.R. (1908) M. 68. It is not contended that the assets of Messrs. Arbuthnot & Co. are not sufficient to meet this and other preferential claims. In these circumstances, the question of fraudulent preference does not arise, and I think the plaintiffs are entitled to the declaration asked for, unless certain other objections taken by the learned Judge to the grant of the declaration are good. The learned Judge held that the plaintiffs were not entitled to sue. But the counsel for the respondent concedes that the plaintiffs who are the Secretaries of the Society are entitled to sue and under Act VI of 1869 the Secretaries are the proper persons to sue. The learned Judge was of opinion that all the necessary parties were not joined in the suit, but no objection on this score was taken in the written statement. No doubt any decree that may be passed in this suit will not bind the Secretary of State as he is not a party, but it is so extremely unlikely that he will raise any difficulty about recognising the title declared by the court, that I do not think his absence is a sufficient reason for refusing a declaration - see Hem Chunder Sanyal v. Samamoyi Debi I.L.R. (1895) C. 354 . Finally the learned Judge held that the suit for a declaratory decree was bad because other remedies were open. What those other remedies were, are not, to my mind, clearly indicated and no objection on this score was taken in the written statement, nor was there any specific issue about it. Counsel for respondent suggests that the plaintiffs might have sued the Secretary of State for the interest due on the Promissory Notes But as held above the Secretary of State is not an absolutely necessary party to this suit and is not likely to require a suit to make him pay the interest to the party found entitled to the notes. I would therefore reverse the decree of the learned Judge, and give the plaintiffs a decree as prayed for with costs throughout.

Abdur Rahim, J.

3. I have also come to the conclusion that the judgment of the learned judge cannot be sustained.

4. Messrs. Arbuthnot & Co. who carried on the business of Bankers were appointed as Secretaries and Treasurers of the Madras Equitable Assurance Society which is a Life Assurance Society governed by a special Act; and in their capacity as such Secretaries & Treasurers received monies belonging to the Society. On the 31st July 1906 it appears that Arbuthnot & Co. had an available cash balance of Rs. 89,272-5-7 belonging to the Society and it was resolved on that date by the Directors that out of this sum Rs. 75,000 should be invested in the purchase of Government papers. In pursuance of that resolution Arbuthnot & Co. bought Government Promissory Notes of the nominal value of Rs 25,000 on behalf of the Society on the 7th of August 1906. No question has been raised as to these Notes. On the 9th October 1906 the firm of Arbuthnot & Co. bought in their own name Government Promissory Notes of the value of Rs. 25,000 from the National Bank. This purchase was first entered in a suspense account but on the nth October, that is two days afterwards, the Society was debited with the cost of these securities. On the 25th October the firm of Arbuthnot & Co. sold Government Promissory Notes of the value of Rs. 10,000 to the Society and the securities were entered to the credit of the Society. On the 22nd October Arbuthnot & Co. presented a petition in insolvency and a vesting order was made. On that date the Government Promissory Notes for Rs. 35,000 and Rs. 10,000 to which suit relates stood in the names of Sir George Arbuthnot. Chairman of the Directors of the Society, and of the two other Directors of the Society.

5. Upon these facts the first question that arose was whether Arbuthnot & Co., who held the Society's funds as Secretaries & Treasurers held them as trustees. There can be no doubt that when Arbuthnot & Co., received the monies of the Society in their capacity as Secretaries & Treasurers of the Society, they received them as trustees.

6. It has been contended on behalf of the Official Assignee and that seems also to be the finding of the learned Judge, that the Society was an ordinary customer of Arbuthnot's bank. There is no evidence to show, and in fact it was never alleged, that the Society at any stage opened an ordinary current or deposit account with Arbuthnot & Co.'s bank. The Society was never given a cheque book and it has never drawn money by means of cheque. But it is argued that as a matter of fact, Arbuthnot & Co.'s bank did, with the sanction of the Directors, treat the Society's money like their ordinary customers' money and this is what] the learned Judge finds. With all respect to him there is really no evidence to justify such a conclusion. All that is relied upon in order to make out that the Society somehow or other became a customer of Arbuthnot & Co.'s bank, although it never had a cheque book nor drew money by means of cheques and did not have a deposit account, is that the Society's account, which. Arbuthnot & Co. as Secretaries and Treasurers had to keep, was copied from the Ledger into a Pass Book. No doubt the book in which these entries are made is one of the ordinary pass books issued by the bank to its customers. To my mind, however, this proves nothing; having regard to the other circumstances it is clear that a pass book was used in this case merely for the sake of convenience, and not because the Society had a banking account with Arbuthnot & Co. which in fact it had not. Reliance is also placed on a vague and general statement elicited in cross-examination from one of the witnesses, Mr. Cronan, to the effect that there was no difference between monies paid to the credit of the Society and those paid to the credit of Arbuthnot & Co. This statement does not mean that the Society was in fact a customer of the bank. On the other hand the rest of Mr. Cronan's evidence is absolutely clear to show that the Society never had any account with Arbuthnot & Co. and this evidence agrees with the admitted facts of the case. In fact it does not appear to have ever been the case of the Official Assignee that the Society was a customer of Arbuthnot & Co.'s bank.

7. It is next contended on behalf of the Official Assignee that the firm of Arbuthnot & Co. at any rate misappropriated the Society's money and therefore the Society must be content to rank with the general creditors of the insolvents. But all that has been proved in this connection is that Arbuthnot & Co. mixed up the money of the Society with their own money. They had an account with the Bank of Madras and it appears that monies belonging to the Society used also to be paid up by Arbuthnot & Co. into the Bank of Madras in the same accounts-No doubt it was the duty of Arbuthnot & Co. as Secretaries and Treasurers of the Society not to mix up the Society's money with their own money and it might be said that such mixing up was a breach of trust on their part as Secretaries & Treasurers; but that in itself does not amount to misappropriation by, them of the Society's money. It is a well established rule of equity that if trust money is mixed up with the trustee's private money, then, the trust will have a lien on the aggregate amount and any sum which may be drawn by the trustee for his own money. However wrong it was-, on the part of Arbuthnot & Co. to blend the Society's money with their own in the first instance, they must be held to have subsequently ear-marked and separated the trust money from their own money when they made purchases of the Government Securities in question on behalf of the Society. It is difficult to see in these circumstances how it can be said that Arbuthnot & Co. appropriated the sums in question to their own use.

8. If there was no appropriation, then no question of 'voluntary' payment to or preference of the Society within the meaning of Section 34 of the Indian Insolvency Act arises. But even if it could be held in the circumstances of this case that Arbuthnot & Co. did, as a matter of fact, misappropriate the Society's money and thereby turned themselves into an ordinary debtor of the Society, I should have no hesitation in holding that what took place on the 9th, nth and 20th October did not amount to a 'voluntary' payment or preference within the meaning of the Bankruptcy law. It has been contended by the learned Counsel for the Official Assignee that Section 24 of the Indian Insolvency Act which forbids all voluntary payments within two months of the Act of Insolvency if the insolvent was in insolvent circumstances at the time, lays down a rule of wider scope than the rule of English law which requites that a payment by an insolvent must be with a view to give fraudulent preference before it can be impeached. But I do not think that there is really any substantial difference between the English law on the point and the law as enacted in Section 24 of the Indian Act, solar as the present question is concerned. (See 10 Bom. H.C.R. 327. Under the English law, if a payment is made with a view to give preference to one creditor over the other creditors, it will be invalid and the English decisions go to show that a payment would be regarded as being made with a view to give preference to a particular creditor if it was made 'voluntarily.' (See Halsbury's 'Laws of England' Vol. II, p. 283). Then, judging by the test of what is or is not a 'voluntary' payment within the meaning of the Bankruptcy law as expounded in the English cases on the subject, there can be no question but that the payment in this case could, in no sense, be called 'voluntary'. The test of a 'voluntary' payment is whether it was spontaneously made by the debtor of his own motion; if so, it will be presumed to have been made with a view to give preference to one creditor over the others. If on the other hand the payment was made under the pressure of a demand from the creditor or because of pressure arising from outside circumstances and influencing the mind of the creditor, such as the existence of a special agreement or a possible danger of prosecution or if the payment was made in the ordinary course of business, such payment would not be deemed to be voluntary (Halsbury's 'Laws of England,' Vol. II pp. 284-5). It is for the Official Assignee to make out affirmatively that a particular payment was 'voluntary'; that is the payment was in fact made in order to, or with a view to give preference to a particular creditor.

9. In this case, if Arbuthnot & Co. had misappropriated the trust money, and thereby committed a breach of trust and subsequently wanted to repair the breach of trust by making the purchases in question which apparently was their intention, the cases Sharp v. Jackson (1899) A.C. 419 and In re Lake (1901) I.Q.B. 710 show that the payment would not be regarded as 'voluntary.' Besides, on the 31st July there was a distinct direction by the directors of the Society for the purchase of Government paper of the value of Rs. 75,000 and there cannot be the least doubt that the Government Promissory notes bought on the 9th October and 20th October were bought for the Society 111 order to carry out that direction in the same way as the Government Paper of the value of R3. 25,000 which was bought on the 7th August. The learned Judge has distinguished the latter purchase from the other two purchases because of the delay of nearly two months intervening between the date of the resolution and the purchases in dispute. This delay, in my opinion, is not sufficient to show that the purchases in question were not made in pursuance of the resolution of 31st July. I do not find any authority for the proposition that when there has been a demand or a special agreement of the nature proved in this case it should be immediately carried out of otherwise any payment though made in pursuance of it must be deemed to be 'voluntary.' The proposition seems to me to be untenable. The cases where a creditor gives time to the debtor to pay, have, in my opinion no application to the facts of this case. Arbuthnot & Co., in view of the resolution of the. 31st July might well have regarded themselves as legally bound, and in fact they were so bound, to make the payment which they did actually make. That would be sufficient to take the case out of the rule relating to voluntary payments see Inre Crawford (1874) 9 Ch. Ap. 752

10. I am therefore of opinion that looking at the case from any point of view, the claim of the plaintiff mast be allowed.

11. As regards the technical objection regarding the form of the suit it is enough for me to say that I agree with my learned brother that there is HO substance in those objections, and such objections should not have been raised at the last stage of the suit.

12. The appeal will, therefore, be allowed and the plaintiff will have a decree as prayed for, with costs of this appeal and before the learned Judge of the court below.


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