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Ramsay and Co. Vs. the Official Assignee of Madras - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtChennai
Decided On
Judge
Reported in(1912)ILR35Mad712
AppellantRamsay and Co.
RespondentThe Official Assignee of Madras
Cases ReferredSharp v. Jackson
Excerpt:
.....declaration are good, the learned judge held that the plaintiffs were not entitled to sue. 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 abatement, nor was there any specific issue about it. a 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 hen on the aggregate amount and any sum which may be drawn by the trustee for his own use will be deemed to have been..........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 band the written statement and the issues treat the society's money as held by messrs, arbuthnot & co. as secretaries find 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 exhibit e, which is a book showing receipts and disbursements on account of the society. this book is in the.....
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. Messrs, Arbuthnot & Co, wore the Secretaries and 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 band the written statement and the issues treat the society's money as held by Messrs, Arbuthnot & Co. as secretaries find 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 Exhibit E, which is a book showing receipts and disbursements on account of the society. This book is in the same form as the pass book 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, requiting 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 Exhibit E, 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 and 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 and 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., 690 referred to in The Official Assignee of Madras v. Smith I.L.R. (1901) Mad. 68. It is not contended that the assets of Messrs. Arbubhnot & 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 connotes that the plaintiff a who are the secretaries of the society are entitled to sue and under Act VI of i869 the secretaries are the proper persons be 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 sufficient reason for refusing a declaration--see Hem Ckunder Sanyal v. Sarnamoyi Debi I.L.R. (1895) Calc. 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 abatement, nor was there any specific issue about it. Counsel for the respondent suggests' that the plaintiff 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 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. Arbutbnot & Co. who carried on the business bankers, were appointed 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 and Treasurers receiver monies belonging to the society. On the 31st July 1906, it appears that Arbuthnot & Co. had an available cash balance of Rs. 89,273-5-7 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 paper. In pursuance of that resolution Arbuthnot & bought Government promissory notes of the nominal value Rs. 25,000 on behalf of the society on the 7th of August 1906, No question has been raised as to those notes. On the 9th October .1906 the firm of Arbuthnot & Co. bought in their own names 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 11th October, that is, two days afterwards, the society was debited with the cost of these securities. On the 20th October the firm of Arbutbnot & 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 Arbubhnot & Co. presented a petition in insolvency and a vesting order was made. On that data the Government promissory notes for Rs. 25,000 and Rs. 10,000, to which this 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 and 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 and Treasurers of that 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 Aibuthnot & Co.'s Bank. The society was never given a cheque book and it never drew money by means of cheques. But it is argued that, as a matter of fact Arbuthnot & Co. a 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. AH 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 any offer client 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 from 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 Arbuthnol. & 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 moneys belonging to the Society used also to be paid by Arbuthnot & Co. into the Bank of Madras in the same account. 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 that such mixing up was a breach of trust on their part as Secretaries and 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 Hen on the aggregate amount and any sum which may be drawn by the trustee for his own use will be deemed to have been taken out of 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 Governraeas securities in question on behalf of the society. It is difficult to see in those 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 24 of the Indian Insolvency Act arises. But, even if it could be held in the circumstances of this case, that Arbuth-not & 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, 11th 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 requires 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, so far as the present question is concerned [In re Dhanjibhai Kharsetji, Ralnagar (1873) 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 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. 11, p. 383]. Then jurlging 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 ease 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 ease, 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 of Sharp v. Jackson (1899) A.C. 419 and In Re: Lake (1901) 1 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 in order to carry out that direction in the same way as the Government paper of the value of Rs. 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 or otherwise any payment though made in pursuance of it must be deemed to be 'voluntary.' The proposition seems to me 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 be voluntary payments. [See In re Crawford (1874) 9 Ch, App., 752

10. I am therefore of opinion that looking at the case from any point of view, the claim of the plaintiffs must 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 no 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 plaintiffs 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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