1. The conclusions arrived at by the learned City Civil Judge in this case appear to me to be entirely correct. What the High Court Bailiff did was to seize under a distress warrant, issued under Section 386 of the Criminal Procedure Code, a sum of money which was held by the Mylapore Hindu Permanent Fund on behalf of and in trust for Sivapatha Mudaliyar who was legally entitled to the same under Section 69 of the Transfer of Property Act. The main contention of appellant's vakil before us has been that this was not a case of trust but of an ordinary debt, and that a debt cannot be made the subject of distress under Section 386 of the Criminal Procedure Code as held in a recent case. The Secretary of State for India v. Sengammal Appeal Suit No. 154 of 1907 to the decision of which I was a party. That there is a trust in favour of the mortgagor in respect of all surplus sale proceeds is, I think, clear in spite of the somewhat curious change of language in the last paragraph but two of Section 69 of the Transfer of Property Act. This is the English Law (vide, Halsbury's Laws of England, volume 21, Section 460) which was applied in India prior to the Transfer of Property Act (vide, Rajah Kishendatt Ram v. Rajah Muntaz Ali Khan (1879) 6 I.A. 145 I cannot accept the contention that Section 69, Transfer of Property Act, was intended or operates to effect any change in that respect merely because the words 'shall be held in trust to be applied' are not carried into the residue left after discharging the sale expenses and the mortgage claim. No authority is quoted in support of such an interpretation. The section specifically says that the residue shall be paid to the mortgagor: and I think the duty of payment thus cast on the mortgagee who brings the property to sale, is tantamount to a trust.
2. The only other contention on appellant's behalf, which has not been disposed of in the judgment of the Lower Court, is that the fine imposed on Sivapatha Mudali is not to be regarded, as a Crown debt because there is a direction in the judgment imposing it under Section 545 of the Criminal Procedure Code to the effect that on realization it should be paid over to the present second defendant. It is argued that the determining test is whether the debt, when recovered, falls into the coffers of the State and for this proposition, the appellant's vakil relies on The Secretary of State for India v. The Bombay Landing and Shipping Go. (1868) 6 Bom. H.C.R. 23 and Judah v. Secretary of State for India I.L.R. (1886) Calc. 445 The underlying principle of the priority of crown debts appears to be that expressed in the maxim detur digniori and in the present case, it would seem that this fine or recovery should be treated as going, primarily at any rate, into the coffers of the State. Neither of the cases quoted, affords any support to the idea that the fact of its being earmarked for a specific purpose (in this case the compensation of one subject for a wrong inflicted by another) makes any difference. The decision in an English case--In re Arthur Heavens Smith (1876) 2 Ex. D., 47--is good authority for the contrary view. It was held that the amount of a recognizance given to the Crown by an appellant for respondent's costs should be treated as a Crown debt in spite of the fact that it was the invariable practice in such cases to hand over the amount on realization to respondent. The argument that this debt ceased to be a Crown debt because the Crown was not really and substantially interested was put forward and negatived.
3. All the other arguments advanced on appellant's behalf have been fully dealt with in the very careful and exhaustive judgment of the City Civil Judge.
4. I would dismiss the appeal with costs.
Seshagiri Ayyar, J.
5. I entirely agree.
6. The plaintiff obtained a money decree against one Sivapatha Mudaliyar and another in the Presidency Court of Small Causes on the 24th July 1914. The defendant Sivapatha Mudaliyar was convicted by the High Court of criminal breach of trust and was sentenced to rigorous imprisonment for one year and ordered to pay a fine of Rs. 500. The order says that the said fine 'if recovered, be paid to the Mylapore Permanent Benefit Fund, Madras, as compensation.' The plaintiff in pursuance of the Small Cause Court decree obtained by him attached on the 13th October 1914 certain immoveable properties belonging to Sivapatha Mudaliyar which were subjected to two mortgages. Pending the said attachment the first mortgagee sold the property in pursuance of the power of sale reserved to him in the deed of mortgage. This was on the 19th December 1914. After satisfying the mortgages, the first mortgagee had in his possession a sum of Rs. 965-6-11 as surplus sale-proceeds of the property. On the bailiff of the High Court claiming the said amount under a warrant; issued under Section 886 of the Code of Criminal Procedure, the first mortgagee paid the surplus sale-proceeds to the said bailiff. The amount was lodged in the High Court. The plaintiff preferred a claim petition on the ground that he was entitled, as the attaching creditor, to be paid the amount due to him before the Crown claims any portion of the sale-proceeds. '1 he claim was rejected. This suit has been brought to contest the order on the claim petition. The first defendant is the Secretary of State. The second defendant is represented by the liquidators of the fund to which the compensation was ordered to be paid at the Sessions.
7. The main contentions of the plaintiff are that under Section 386 of the Code of Criminal Procedure the Crown is not entitled to attach the sale-proceeds in the hands of the first mortgagee and that as the fine imposed upon Sivapatha Mudaliyar was not intended to be realized by the Crown for its own benefit, the amount of the fine is not a Crown debt which is entitled to priority over the decree-debt of the plaintiff. The defence was that the surplus sale-proceeds in the hands of the first mortgagee must be regarded as moveable property and as such liable to distress under Section 886 of the Code of Criminal Procedure; and that the Crown is entitled to priority over the claim of the plaintiff. The learned City Civil Judge in a well-written judgment came to the conclusion that the sale-proceeds were attachable under the Criminal Procedure Code and that the Crown had priority over the plaintiff. The plaintiff has appealed. Since the filing of the appeal, a judgment of my learned brothers Ayling and Srinivasa Ayyangar, JJ., has been pronounced holding that, under Section 386 of the Code of Criminal Procedure, the Crown cannot attach an intangible claim like a debt. The learned Judges held rightly, if I may say so with respect, that this language was inapplicable for the purpose of attaching incorporeal moveable properties. As a result of this judgment, the question which we have to consider is slightly different from what the learned City Civil Judge discussed in his judgment. If the surplus sale-proceeds retained by the first mortgagee, is a debt payable by him to the mortgagor, then under the ruling already referred to, it cannot be attached. If, on the other hand, it is money held in trust on behalf of the mortgagor, it can be distrained. The language of Section 69 of the Transfer of Property Act which deals with the rights and liabilities of a mortgagee and the right of selling property under the deed of mortgage, is not very clear. After dealing with the way in which the sale has to be conducted, the section says:
The money which is received by the mortgagee shall, in the absence of a contract to the contrary, be held by him in trust to be applied by him, first in payment of all costs, charges and expenses properly incurred by him as incident to the sale or any attempted sale; and secondly, in discharge of the mortgage money and costs or other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property.
8. It is open to argument, on the language I have quoted, that the trust relates only to the first two duties imposed upon the mortgagee and that the payment of the residue is not a trust binding on him. But the whole paragraph reads as one sentence and immediately after the second provision, comes a semicolon in the same way as a semi-colon is inserted after the first provision, and it seems to me that the use of the expression 'residue,' is an indication that the balance bears the character of trust. If I may make a suggestion to the legislature, the third clause might run thus: 'and, thirdly, the residue of the trust money, if any, shall be paid, etc.' The law both in India and in England has attached to the sale-proceeds in the hands of the mortgagee the character of trust money. In Rajah Kishendatt Ram v. Rajah Muntaz Ali Khan (1879) 6 I.A. 145 their Lordships of the Judicial Committee held that a mortgagee clothed with the power of sale, held the surplus sale-proceeds in trust for the mortgagor; see observations at page 160. In Haji Abdul Rahman v. Haji Noor Mahomed I.L.R. (1892) Bom. 141 the same view was taken. In Halsbury's Laws of England, volume 21, paragraph 460, the law is thus summarised:
The effect of a sale under a power of sale is to destroy the equity of redemption in the land, and to constitute the mortgagee exercising the power of sale, a trustee of the surplus proceeds (if any) after satisfying his own charge, first, for the subsequent incumbrancers, and ultimately, for the mortgagor.
9. It is clear from this statement of law, that with respect to the amount remaining due to the mortgagor, the mortgagee is a trustee. The language of the Transfer of Property Act has been borrowed word for word from the Conveyancing and Law of Property Act, 1881 (44 & 45 Vict., cap. 41), Section 21(3), of the Act.
10. If on the language of the Conveyancing Act, it is held that the mortgagee is a trustee for the mortgagor as well, the same construction is applicable to Section 69 of the Transfer of Property Act.
11. In Hall v. Hall (1873) 8 Ch. App. 430 it was held that where the power, of sale, whether express or statutory, provides that the surplus proceeds shall be held in trust for the mortgagor, the mortgagee becomes an express trustee of the surplus proceeds in his hands: see also Banner v. Berridge (1881) 18 Ch. D. 254. Therefore, if my reading of Section 69 of the Transfer of Property Act is correct, namely, that the first mortgagee under its provisions is clothed with the statutory responsibilities of a trustee, with reference to monies payable to the mortgagor, then he holds the surplus sale-proceeds as express trustee for the mortgagor.
12. Mr. Jagannatha Ayyar who appeared for the plaintiff (appellant) argued that although at its inception, the surplus sale-proceeds had the character of trust impressed on it, as the mortgagee retained for over a month the money in his hands and mixed it with other monies belonging to him, the character of trust money was lost. It was held that where a trustee mixes money vesting in him in trust with monies belonging to him in his private capacity, the trust will not suffer. Jessel, M.R. says thus in Re Hallett's Estate: Knatchbull v. Hallett (1880) 13 Ch. D. 696:
Supposing that trust money was 1,000 sovereigns, and the trustee put them into a bag, and by mistake, or accident, or otherwise, dropped a sovereign of his own into the bag, could anybody suppose that a Judge in equity would find any difficulty in saying that the cestui que trust has a right to take 1,000 sovereigns out of that bag? I do not like to call it a charge of 1,000 sovereigns on the 1,001 sovereigns, but that is the effect of it. I have no doubt of it. It would make no difference if, instead of one sovereign, it was another 1,000 sovereigns; but if instead of putting it into his bag, or after putting it into his bag, he carries the bag to his bankers, what then?
13. In In re Oatway Hertslet v. Oatway (1903) 2 Ch. 356 this dictum was acted upon. In Perry on Trusts, volume 2 (sixth edition, Section 828), it is stated that if the identity of the trust fund is lost, the cestui que trust will be in no better position than any other creditor. I find no express English decision on this question. However, in the present case, there is the finding of the learned City Civil Judge to this effect: 'There is no reason also why money should be exempted when there is no dispute as to its identity,' the implication being that the surplus proceeds were identifiable. The fact that this money was paid by the first mortgagee to the bailiff and deposited by him into Court shows that the sale proceeds retained their identity and were traceable. I am therefore of opinion that this money retained its character of trust money at the time when the claim of the plaintiff was presented. The next question is whether this trust money can be the subject of distress. Mr. Jagannatha Ayyar on the strength of Banbamdeo Prasad v. Tara Chand I.L.R. (1914) Calc. 654 contended that notwithstanding the, conversion of the immoveable property into money, the sale-proceeds still retained the character of immoveable property. It is enough to say, with reference to this contention, that what their Lordships of the Judicial Committee were considering in the case quoted, was the period of limitation applicable to a suit by a puisne incumbrancer. They held that he had twelve years under Article 132 of the Limitation Act notwithstanding that his charge is only against the money and not against the immoveable property. I do not think this decision is any authority for the proposition that the surplus sale-proceeds remained immoveable property even after the sale of the property. On the other hand, it is now well established, both with reference to the Indian Contract Act and the Limitation Act that the term 'moveable property' includes money as well: see Venkatachalam v. Narayanan I.L.R. (1916) Mad. 376 and Madhusudan Sen v. Rakbal Chandra Das Basak I.L.R. (1916) Calc. 248 This position receives support from Section [60 of the Code of Civil Procedure which includes money among properties which can be attached. It was next suggested by the learned vakil for the appellant that there can be no distraint or sale of money and that consequently money should not be regarded as moveable property. I do not understand the provision in Section 386 of the Code of Criminal Procedure as compelling the distrainer to bring the moveable property to sale. There may be cases in which the object can be gained by distress alone. There may also be cases in which the object can be obtained only by distress as well as by sale. Moreover, there is nothing incongruous in rupees or sovereigns which may be attached being brought to sale. They are of marketable value and can be the subject of sale. But apart from it, if there is tangible property which is capable of being physically seized, I fail to see how Section 386 can be evaded by stating that as the distressed property is not ordinarily liable to be sold, there cannot be distraint. In Halsbury's Laws of England, volume 11, paragraph 246, it is stated that money under certain conditions can be the subject of distress: see also Foa on Landlord and Tenant, page 501. One other argument was advanced by Mr. Jagannatha Ayyar and that was that as the fine was not intended to go into the Government exchequer, it was not a Crown debt. There is a fallacy in this argument. The fine is realized not by the person to whom the compensation is made payable but by the Crown. It is the Crown that pays the compensation after realizing it from the accused. In this view, it is unnecessary to consider whether some of the observations in The Secretary of State for India v. The Bombay Landing and Shipping Co. (1868) 5 Bom. H.C.R. 23 are not too widely expressed. In Judah v. Secretary of State for India I.L.R. (1886) Calc. 445 it was held that a judgment debt due for opium sales was a Crown debt.
14. The decision of Lord Coleridge, C.J. and Pollock, B., in In re Heavens Smith (1876) L.R. 2 Ex. D., 47 is a very strong authority in favour of the respondent. A recognizance was executed in that case to the Crown for the costs of the respondent. It was argued that as the person intended to be benefited was the respondent, although the party realizing the money in the first instance may be the Crown, the debt was not a Crown debt. This contention was summarily rejected. This decision exactly covers the present case.
15. The learned City Civil Judge has quoted authorities for the position that a Crown debt takes precedence over ordinary contract debts. To the authorities cited by him Bell v. The Municipal Commissioners for the City of Madras I.L.R. (1902) Mad. 457 may be added where Justice Bhashyam Ayyangar has considered this question at some length.
16. For all these reasons, I am of opinion that the decision of the City Civil Judge is right and the appeal should be dismissed with costs.