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Suganchand and Co. Vs. Brahmayya and Co. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtChennai High Court
Decided On
Case NumberOriginal Side Appeal Nos. 85, 89 and 99 of 1949
Judge
Reported inAIR1951Mad910a; [1951]21CompCas224(Mad); (1951)2MLJ9
ActsNegotiable Instruments Act, 1881 - Sections 5
AppellantSuganchand and Co.
RespondentBrahmayya and Co.
Appellant AdvocateT.M. Ramaswami Iyer, ;A.R. Kishnaswami, ;Y. Venkatasubramaniam and ;M.L. Nayak, Advs.
Respondent AdvocateS. Swaminathan, Adv.
Cases ReferredIn The Alliance Bank of Simla Ltd. v. The Amritsar Bank
Excerpt:
banking - preferential credit - section 5 of negotiable instruments act, 1881 - cheque or bill entrusted with bank for collection - bank receives cheque and bill and collects amount as agent - fiduciary relationship of principal and agent subsists till money so collected is actually remitted to its principal - where debtor is to collect and remit there is confidence and trust - where debtor is to use and repay amount on demand there is no trust. - - passed on the original side & raise an important & interesting question regarding the rights of a person who has entrusted a bank with collecting his dues & remitting them to him by demand drafts where the bank has gone into liquidation & the drafts are, therefore, left uncashed. hanuman bank had its head-quarters in tanjore, & branches.....panchapakesa ayyar, j.1. these are three connected appeals against the orders of rajago-palan j. passed on the original side & raise an important & interesting question regarding the rights of a person who has entrusted a bank with collecting his dues & remitting them to him by demand drafts where the bank has gone into liquidation & the drafts are, therefore, left uncashed. the question is whether a person in such a case will be entitled to get his full dues as a preferential creditor or must rank only with the other creditors & be content to receive the dividends given in liquidations; in other words, whether the fiduciary relationship of principal & agent or the jural relationship of creditor & debtor will obtain, & in what circumstances each of these relationships will obtain.2. the.....
Judgment:

Panchapakesa Ayyar, J.

1. These are three connected appeals against the orders of Rajago-palan J. passed on the Original Side & raise an important & interesting question regarding the rights of a person who has entrusted a bank with collecting his dues & remitting them to him by demand drafts where the bank has gone into liquidation & the drafts are, therefore, left uncashed. The question is whether a person in such a case will be entitled to get his full dues as a preferential creditor or must rank only with the other creditors & be content to receive the dividends given in liquidations; in other words, whether the fiduciary relationship of principal & agent or the jural relationship of creditor & debtor will obtain, & in what circumstances each of these relationships will obtain.

2. The facts are briefly these O. S. A. No. 85 of 1949 is an appeal against the order in Appln. No. 454 of 1949. There the claimants were Suganchand & Co. They made a claim against the Hanuman Bank in liquidation, praying that they be treated as persons to be paid in full in preference to the ordinary creditors of the bank. Hanuman Bank had its head-quarters in Tanjore, & branches in several places in the Madras State, like Madras, Kumbakonam, Thiruthuraipundi, Madurai, etc. It crashed, & the headquarters suspended payment on 15-7-1947. The Madurai, Kumbako-nam, Thiruthuraipundi & other branches of the Bank suspended payment only on 16-7-1947. Suganchatd & Oo. sold some gooda to Messrs. Swami Foundry, Madurai for Rs. 3235-2-6 in April 1947, & as directed by the vendees, sent the railway receipt with the bill for the above amount through the Madurai branch of the Hanuman Bank Ltd. for collection of the said amount from Swami Foundry, Madurai & for remitting to them the amount so collected through a demand draft. The entire amount of Rs. 3235-2-6 was paid to the Madurai branch of the Hanuman Bank by Messrs. Swami Foundry on 10-7-1947, & the Madurai branch issued a demand draft for the entire amount of Rs. 3235-2-6 on their Madras branch for payment at Madras. This demand draft reached Suganchand & Co. & it was presented to the Hanuman Bank, Madras, on 14-7-1947 through their bankers, the Bharat Bank, for collection. The Hanuman Bank was then about to closeits doors, & the draft was returned unpaid with the endorsement, 'Awaiting funds; present again'. On 15-7-1947, the Hanuman Bank, Madras, closed its doors, & most of its branches followed suit on 16-7-1947. Suganchand & Co. thereupon filed a claim for the payment of the full amount to the Official Liquidator, but were refused. Thereupon they filed Appln. No. 454 of 1949 on the original side for full payment of the amount as preferential creditors, with 9 per cent. interest per annum, alleged to be the usual trade rate, from 10-7-1947 till date of payment. Rajagopalan J. held that as they had asked the Hanuman Bank to collect the amount & remit it by a demand drafb payable at Madras, the position was if they had receivedmoney in cash at Madurai from the Hanuman Bank & had then purchased the draft over counter, as the bank was made their agent for the purchase of the draft, & so, as the law stood, they had got what they had bargained for, namely, a draft of the bank, the payment of which depended on the solvency of the head office at the time of their presentation, as held in In re Oriental Bank Corporation; Ex parte Guillemin, (1884) 28 ch. 634 & that they were entitled only to rank as ordinary creditors & not as preferentialcreditors & dismissed the application with costs. Hence this appeal.

3. O. S. A. No. 89 of 1949 was filed by the Canara Bank Ltd. Mangalore, against a similar order of Rajagopalan J. in Appln. No. 1008 of 1949. The facts there were briefly these. The Canara Bank sent to the Kumbakonam branch of the Hanuman Bank a bill for Rs. 1000 drawn by one Periyasami Mudaliar on Shanmugasundaram Pillai & sons, Kumbakonam. The Canara Bank's request ran as follows:

'We shall thank you to collect the amount in trust for us & remit the proceeds to us by demand draft on Erode.'

The Hanuman Bank, Kumbakonam, collected the amount of the bill, & after taking the commission of Rs. 5 for expenses of realisation, issued a demand draft for Rs. 999-11.0 in favour of the Canara Bank on the Erode office of the Hindu Bank, Karur, Ltd. The Canara Bank presented the draft at the Hindu Bank, Karur, on 15-7-1947, & it was returned unpaid with the endorsement, 'No advice. Present again.' That very day, of course, the Hanuman Bank, Madras, had closed its doors, & other branches followed suit the next day. So, the Canara Bank pub in appln. No. 1008 of 1949 on the original side for being treated as a preferential creditor & being paid in full & not merely ranked as an ordinary creditor for this amount along with the other creditors, in liquidation. Rajagopalan J. rejected this application, for being treated as preferential creditors, with costs, for the same reason as the application of Suganchand& Co. holding that the trust imposed on theHanuman Bank by the Canara Bank for collection & remittance by demand draft was discharged by the issue of the demand draft by the Hanuman bank on the Hindu bank, Karur. Hence this appeal.

4. O. S. A. No. 99 of 1949 is against the order of Rajagopalan J. in Appln. No. 1274 of 1949, by the Indian Mutual Life Association Ltd. The Indian Mutual Life Association had appointed various branches of the Hanuman Bank Ltd. as its agents to collect monies due by its constituents towards the premia on policies taken out by them. The Hanuman Bank had applied to the Indian Mutual Life Association for being appointed collecting agents for such premia. The Indian Mutual Life Association had by its letter dated 11-10-1945 authorised them to act as collecting agents, on a commission of half an anna per hundred rupees, regarding many of the branches. The material portion of the letter ran as follows:

'Regarding transfer of funds our practice is that the collections of each month should be sent to us by a demand draft payable at Madras within the first week of the next month. There is at present no necessity for a current account with your head office. We adopt the above procedure with our bankers too. Kindly, therefore, direct your branches to remit the collections as advised above. Kindly also direct them to send us the triplicate challan promptly the same day as the money is received to enable us to send out our official receipt to the parties.'

A sample of the subsequent dealing by the Hanuman Bank regarding the amounts so collected can be gathered by their letter dated 30-5-1947. The material portion of it runs as follows:

'We beg to enclose herewith a draft, No. 06422, for Rs. 1004-2-0 on our Madras branch the proceeds of which may kindly be credited towards premiums due on policies collected. The receipt of the same may kindly be acknowledged & the official receipt sent to us at your earliest convenience. Please excuse for the delay.'

Then follows the detailed statement of the various collection of premia & deduction of postage & payment towards commission & arrival of the figure. On 30-7-1947, the Hanuman Bank, Kumbakonam, sent a cheque or draft on the Hanuman Bank, Madras, for RS. 1540-9-0. It ran as follows:

'On demand, pay the Indian Mutual Life Association Ltd., or order, a sum of Rs. 1540-9-0 only for the value received.'

On 10-7-1947, the Hanuman Bank, Thiruthurai-pundi, sent a cheque or draft for Rs. 57-7-0 to the Indian Mutual Life Association on the Hanuman Bank, Madras. The form was as below :

'On demand, pay the Indian Mutual Life Association, or order, a sum of Rs. 57-7-0 only for the value received.' The first draft was presented by the Indian Mutual Life Associatipn to the Hanuman Bank, Madras, for payment at first on 10-7-1947, & was returned unpaid with the endorsement, 'Awaiting funds, Present again'.

It was presented again, along with the other drafb on 15-7-1947. The bank returned both the drafts unpaid & closed its doors. Hence the Indian Mutual Life Association applied to the liquidator for payment in full of bhe sums covered by the above two drafts as well as two other sums of Rs. 3000-6-0 & Rs. 1174-3-0 collected by the branches of the Hanuman Bank, but not remitted by demand drafts. The Official Liquidator filed Appln. no. 1008 of 1919 praying for the Court's directions: Rajagopalan J. ordered the two sums of Rs. 3000-6-0 & Rs. 1174-3-0 to be returned in full to the Indian Mutual Life Association, as the amounts had not been remitted by demand draft, or otherwise dealt with as per the instructions of the principal, & so the fiduciary relationship of principal & agent had not ceased; but regarding the two demand drafts he rejected the claim of the Indian Mutual Life Association to be treated as preferential creditor, entitled to be paid in full, & directed it to rank only as an ordinary creditor along with the other creditors in liquidation This appeal is confined, of course, to the order of Rajagopalan J. regarding the two drafts.

5. We have perused the entire records, & heard the arguments of the counsel for the appellants, & Mr. S. Swaminathan for the Official Liquidator. Mr. T. M. Ramaswami Aiyar argued generally on the legal position regarding the drafts for the appellants in all the three appeals, the counsel in the two other appeals supplementing his arguments only regarding the particular facts in those appeals.

6. The law relating to demand drafts dots not present any great difficulty. It is only the application of the law to the particular facts of each of these cases which causes some difficulty. A demand draft is, of course, a bill of exchange drawn by a bank on another bank, or by itself on its own branch, & is a negotiable instrument not offending the Paper Currency Act or the Reserve Bank of India Act. It is very nearly allied to a cheque, the difference between it & a cheque consisting largely in two facts. Firstly, it can be drawn only by a bank on another bank, & not by a private individual as in the case of cheques. Secondly, it cannot so easily be countermanded as a cheque, either by the person purchasing it, as by the drawer of a cheque (sic.) or by the bank to which it is presented. In Barkat Ali v. Imperial Bank of India, A. I. R.1945 Lab. 213, a Bench of the Lahore High Court has summed up this aspect neatly as follows :

'Ordinarily, a bank cannot stop payment of a draft unless there is some doubt as to the identity of the person presenting it as being or properly representing the person in whose favour it is drawn. This appears from Sheldon's Practice and Law of Banking, 1931, page. 155. The position of a bank in respect of its own draft is not quite the same as its position in regard to cheques drawn on it. Since it is taken on commitments of its own in favour of a third person at the instance of the purchaser ..... On the other hand, it does not appear that the purchaser is entitled to ask the issuing bank to stop payment on other grounds such as matters relating to the consideration in respect of which the draft has been issued at his instance, for, this would often put the bank in an impossible position, as when the purchaser of the draft is dissatisfied with some bargain which he has made with the person in whose favour the draft has been issued.'

That is why demand drafts have been held not to be cheques; see Bank of Baroda v. The Punjab National Bank . But, of course, there are many cases, especially where the Bank issues a draft on its own branches, or one branch issues a cheque on another branch of the same bank, where the distinction between the cheques & the drafts becomes narrowed down & even the bank calls a draft a cheque, as in the case of the drafts in Appln. No. 1008 of 1949 issued by the Hanuman Bank branches to the Indian Mutual Life Association on their Madras office.

7. The law regarding the rights of a purchaser of a demand draft is also well settled. A mere purchaser of a demand draft from a bank is only a creditor of the Bank, & there is no fiduciary relationship between the bank which issued the draft & the customer who took it. The ownership of the money paid for the purchase of the draft passes to the Bank, as it is one of the usual & recognised banking transactions, & the purchaser gets what he has bargained for, namely, a draft of the bank, the payment of which depends on the solvency of the head office at the time of the presentation of the draft. See In re Oriental Bank Corporation ; Ex parte Guillemin, (1884) 28 ch. 634 ; In re Travancore National & Quilon Bank : AIR1940Mad101 ; The Official Assignee v. Natesam Pillai A. I. R. 1940 Mad. 441 ; The Alliance Bank of Simla Ltd. v. Amritsar Bank, A. I. R. 1915 Lah. 214; Indian Hume Pipe Co. Ltd. v. Travancore National & Quilon Bank Ltd., I.L.R. (1943) Mad, 187; In re Noakhali Union Bank Ltd., 54 C.W.N. 744 and In re Calcutta Commercial Bank Ltd., 54 C. W. N. 747.

8. But there is one exception to this generalrule; that is the one stated by Achhru Ram J., inIn the matter of New Bank of India Ltd.,Amritsar, A. I. R. 1949 B.373. It was heldin that case, that though ordinarily where, A, bypaying money to a bank & taking a draft drawnon its branch in another place, in favour of himself or any other person prima facie the relationship of a debtor & a creditor is constituted betweenthe bank & A, & A must content himself withreceiving payment like other creditors, on a suspension of payment by the bank, still, if A canshow that, at the time he paid the money intoone branch of the bank & been given & hadaccepted a draft for the amount paid by himdrawn on another branch, the sole object ofmaking the payment, as understood by both theparties to the transaction, was the transmissionof the money from one place to another for theexpress purpose of being paid to himself or somenominee of his, the bank being intended to beused merely as a transmitting agent, the partiesmay, none the less be held to stand to each otherin the relationship of principal & agent, the moneypaid being specifically appropriated for transmission according to the instructions of the principal.Achhru Ram J., observed as follows :

'After giving the matter my most careful thought, I feel no hesitation in taking the view that where a banker remits a certain sum of money, either to his own branch at any other place, or to some other bank doing business at that place, whether by means of book entries made in the case of any other banker, with the express or implied consent of such banker, or according to some other usual method of transmitting money for the express purpose of such sum being paid to a named individual or his nominee, the sum must be deemed to have been specifically appropriated for the purpose of such payment. In case the bank charged with the duty of paying the said sum closes its business before discharging the obligation, the payee will have the right to be paid that sum in full & cannot be obliged to rank with the general body of creditors, his having accepted the draft for the amount drawn on the branch of the bank notwithstanding.

However, the rule I have stated above will apply only to a case where it is proved beyond the possibility of reasonable doubt that the holder of the draft, or the person who secured the draft in his name, had paid the money to a banker only & expressly for the purpose of being transmitted to another place for being paid to a specified person, or for being otherwise spent in a specified manner & that the draft was obtained merely with the object of facilitating realisation of the money at the place of destination by the party to whom it was intended to be transferred. The rule will have no application where the draft was obtained by the party concerned either for gain in the shape of exchange commission or under a contract for giving accommodation to the prior or any other party or otherwise for commercial purposes generally.'

At first sight, this ruling of Achhru Ram J.may appear to be a startling departure from thelaw stated in In re Oriental Bank Corporation;Ex parte Guillemin, (1884) 28 Ch. 634 &The Alliance Bank of Simla Ltd. v. The Amritsar Bank, A. I. R 1915 Lah. 214 & other casesreferred to above. But we are of opinion that ift is confined strictly to cases where a Bankssues a draft on its own branch & there is anexpress or implied agreement between the partiesat the time of the issue of the draft by the bankon its own branch that the sole object of theissue of the draft is to transmit the money fromone place to another for the express purpose ofbeing paid to the person applying for the draft orsome nominee of his, it is supported by otherrulings, provided the bank has not actually partedwith the money held by it as agent, acting oa theinstructions of the principal, thus terminatingthe relationship of principal & agent. The ruling,confined to such strict limits, cannot be said to becontrary to the other rulings, being the directresult of the additional agreement, express orimplied, proved beyond all possibility of doubt,'that the banker was not to use the sum inquestion for his own purpose' as observed byAbdur Rahim J. in Official Assignee of Madras,v. Rajam Aiyar, 33 Mad. 299.

9. In In re Noakhbli Union Bank Ltd., 54 C. W. N. 744, Sinha J. referred to the above ruling of Achhru Ram J. & observed as follows:

'Ordinarily when a draft is issued by a bank the holder is a creditor & his remedy is on the draft. The rights of the holder are defined by the Negotiable Instruments Act. It is difficult to see how the holder of the draft iflanhaveall the rights of a holder of a bill of exchanged the additional right to get the amount of the draft in preference to the general body of creditors. It is open to the payee to negotiate the draft. If the draft is negotiable, it is difficult to see how there can be an agreement that ths money represented by the draft would be paid to a specified person or would be spent in a specified manner. The fact that the draft has not, in fact, been negotiated does not affect the matter. If the draft was issued by the bank & accepted by the payee, his rights are these of a holder of a bill of exchange. There is, in such cases, no specific appropriation of the fun Is in the hands of the drawee for meeting the demands of the holder.

Assuming it is possible for a person who secures a draft from the banker to agree that the money represented by the draft will be paid to a specified person or be spent in a specified manner it would require very strong evidence to prove such an agreement.

Where a claim has been mare before the Official Liquidators based on a draft, the claimant should, in my opinion, be treated as an ordinary creditor & a mere statement in an affidavit filed in Court that the money was paid for being transmitted to another place & for being paid to a specified person would not suffice to hold that the holder was a preferential creditor, & better evidence will have to be produced.'

So, Sinha J. too contemplates the possibility of such an additional agreement entitling the payee of the draft, in cases where he is also the applicant for the draft & where there is an agreement between the bank & him, that the draft is not purely & solely for transmitting the money to him to another place, to preferential payment, though he rightly urges that very strong evidence would be required to prove such an agreement & that a mere affidavit would not do. We are also of the same opinion. On principle, we do not see anything against the validity of such an agreement strictly restricted as stated above, & applied only to cases where the bank has not accounted for the money collected by it on behalf of the principal, & covered by the draft, by paying it out either to the principal or his nominee or by purchasing a draft on any other bank as per the instructions of the principal by paying the amount collected for that purpose. Such a restricted & exceptional case would only amount to something similar to engaging a man to carry coins or currency notes in specie, paying him wages for such transmission, the only difference being that the man engaged will be the bank & that the transmission charges will be much lower, & that an instrument called the draft is used in the place of the coins or the currency notes. Of course, there must be the clearest proof that the Bank was not to use the sum for its own purpose, & that the holder of the draft uses it only for the transmission of the money. Thus, if the draft is negotiated by the person getting it, in favour of another, the ordinary incidence of law will at once operate & make the assignee only a mere; creditor of the bank, the relationship of principal & agent having terminated.

10. It is well settled that where a cheque or a bill is entrusted to a banker for collection, whether or not the entrustment is by a person who has an account with the bank, the bank receives the cheque or the bill & collects the amount asagent of the person who entrusted the bank with the cheque or bill & that the fiduciary relationship of principal & agent subsists till the money so collected is actually remitted by the bank to its principal. See In re Farrow's Bank Ltd., (1923) 1 Ch. 41; In re Brown; Ex parte Plitt, (1889) 60 L. T. 397 and the Official Assignee, Madras v. Rajam Iyer, 33 Mad. 299. Cave J. in In re Brown; Ex parte Plitt, (1889) 60 L. T. 397, observed as follows :

'Where the debtor is to collect & remit there is confidence & trust. Where the debtor is to use & repay on demand, there is no trust.'

The important distinction between the two cases is the existence of the fiduciary relationship between the bank & the customer in the first case which entitles the customer to preferential payment in full on liquidation, & the mere relationship of creditor & debtor in the second case. The second case will, of course, also exist where the relationship of principal & agent has terminated by payment of the money collected to the principal or his nominee or by purchasing a draft on another bank on his instructions. The mere fact that the money BO collected by the bank has been mixed up with money of its own is immaterial so long as there is a fund on which the principal cestui que trust can lay his hands : see In re West of England and South Wales District Bank; EX, parte Dale & Co, (1879) 11 ch. D. 772 & the Official Assignee, Madras v. Rajam Aiyar, 33 Mad. 299. The special business for which the agency has been created must be completed, & the agency must have terminated & the fiduciary relationship come to an end, before the former relationship of principal & agent can be replaced by the mere relationship of creditor & debtor.

11. The mere fact that a person had no prior banking transactions with the bank is not by itself sufficient to exclude the possibility of his having become the customer of the bank & a mere creditor when he pays in a certain amount & purchases a draft; nor does the fact that he gives directions tb the bank to apply in a particular manner moneys standing to his credit in the bank already necessarily make the relationship between the parties fiduciary. See Official Assignee, Madras v. Natesa Pillai A. I. R. 1940 Mad. 441. The crucial test is laid down by Crompton J. in Edwards v. Glyn, (1859) 28 L. J. Q. B 350, as follows :

'The question does not appear to me to be what the rights of the defts. are, but what the rights of the bankrupt are in equity as well as law, & whether a third person has an equitable right which preverts the Official Assignee from interfering. This is a perfectly well known & established principle of Bankruptcy law. & from the decided cases it appears that this principle has been extended to the cases of money advances for a special purpose; & it appears to me that the present falls within the authority of the case before Lord Tenterden Toovey v. Malne, (1819) 106 E. B. 514 ....... This is a new case, but I think we must look to ascertain whether the bankrupts had an equitable right to use the money as against all persons. I think equity would have prevented them from using it had there been time to interfere & so the bankrupts had not the equitable right but only a legal right to the possession of the money, & therefore I am of opinion that the money would not pass to the assignees under the principle of Bankruptcy Law to which I refer.'

So the crucial test is the right of the Hanuman Bank in equity to the money claimed by the appellants in these cases, & whether the bank has only a legal right to the possession of the money, & the appellants have an equitable right which prevents the Official Liquidator from interfering with those monies & annexing them to the general funds of the bank available for all creditors.

12. The test laid down in The Alliance Bank of Simla Ltd. v. The Amritsar Bank, A. I. R. 1915 Lah. 214, In re Noakahh Union Bank Ltd., 54 C. W. N 744 & In re Calcutta Commercial Bank Ltd., 54 C. W. N. 747, namely, where the bank has collected money & issued the draft or drafts in compliance with the instructions of the party or in accordance wish the ordinary course of business, the payee of the draft should be treated as an ordinary creditor, is, in our opinion, not quite accurate, & is subject to the exception created by a special express or implied agreement referred to already by us, though we are not prepared to go so far as Achhru Ram J. did in In the matter of New Bank of India Ltd A. I. R.1949 E. P. 373. The above test, if strictly applied, would lead to inequitable results, as pointed out by Mr. T. M. Ramaswami Iyer for the appellants. Thus, if a principal asks a bank to collect his cheques or bills & remit the proceeds by cheque or send it by a messenger of the bank, it will be inequitable to say, when the cheque is sent & dishonoured for lack of funds, or the bank's messenger is given the money & he runs away with it or loses it on his way to the principal, that the fiduciary relationship of principal & agent ceases & the relationship of creditor & debtor takes its place. Mr. Swaminathan, for the Official Liquidator, conceded that the mere sending of the collections by cheque, as per the instructions of agent, would not do, but urged that the sending of a draft on the bank itself, as per the instructions of the princip&l;, would do, even if the draft is dishonoured, & relied on the difference between a draft & cheque referred to already. We cannot see any difference in principle between a dishonoured draft & a dishonoured cheque issued by a bank on itself, for it cannot be said that the bank has, in such cases, taken on commitments of its own in favour of a third person, at the instance of the purchaser, or accounted for the moneys in its hands to the principal by paying it over to him or his nominee or any other bank.

13. On the facts, we have no doubt whatever that all the three appellants only wanted the demand drafts for the purpose of transmitting the money to themselves. None of them had any banking accounts, current or deposit, with theHanuman Bank & in the case of the Indian Mutual Life Association they had expressly declined to open an account with the Hanuman Bank. In the case of the Indian Mutual Life Association, it is also clear from the correspondence between the parties; & especially the letter of the Hanuman Bank dated 30-5-1947, that the sending of the drafts was understood by the parties to be not a discharge of the bank's obligation as agent for collection, & that the proceeds of the drafts had to be realised by the Indian Mutual Life Association & credited towards the premia collected by the Bank as its agent & a receipt given. The drafts, also called cheques in the Bank's correspondence, issued to the Indian Mutual Life Association & to Suganchand & Co., the appellants in O. S. A. Nos. 99 & 85 of 1949 respectively, were issued by branches of the Hanuman Bank on the Hanuman Bank, Madras. We are satisfied, on the evidence, that there was request by the Indian Mutual Life Association & by Suganchand & Co. to the Hanuman Bank, to send the collections by demand drafts on Madras, & that the sending of the drafts on the Hanuman Bank, Madras, would satisfy the terms of that request, & we rejected the contention on behalf of these appellants that the request could be complied with only by sending the demand drafts on another bank in Madras. We are also of opinion that the non-charging of commission on the amount collected & remitted to Suganchand & Co. is of no significance. But we hold that the Hanuman Bank was entitled to hold the moneys involved in these two appeals only in law, and that the appellants had an equitable right to the moneys, preventing the Official Liquidator from merging them with the general funds of the bank, as the appellants had not got what they had bargained for, namely, the collections made on their behalf, & the bank had not been authorised to use the collections & had not accounted for the collections, as a matter of fact, to the appellants, their principals, by handing them over to the appellants or their nominees, or to another bank for purchasing the demand draft and terminated the fiduciary relationship of principal & agent. The bank had not admittedly handed over the funds either to the nominees of the appellants, or credited them to any accounts of the appellants in the bank & thus terminated the relationship of principal & agent. Of course, if the appellants & their nominees had taken the moneys from the bank & purchased drafts even on the Hanuman Bank, Madras, for the purpose of transmission, & without any express agreement that it was solely for the purpose of transmission & that the bank would be liable to pay the amount of the draft, in any event, at Madras, to the appellants, before being discharged from their liability under the draft, the appellants would only rank as creditors, along with other creditors, & would not be entitled to preferential payment, but that would be because the fiduciary relationship as principal & agent terminated the moment the money was paid over (or was credited to the appellants' funds in the bank as per their instructions) & the new relationship of creditor & debtor took its place. But merely purchasing drafts on their own bank at Madras in the name of the appellants, as per the instructions of the appellants to remit by demand drafts on Madras, & receipt of such drafts by these appellants, did not, in our opinion, terminate the relationship of principal & agent. No. doubt, as Mr. Swaminathan urged, the collections made on behalf of the appellants were mixed up with the other funds of the bank by such purchase of the drafts, but that will not do away with the relationship of principal & agent as already stated, as the funds can be traced from the funds of this bank with the liquidator. It is also significant that the appellants in these cases presented their drafts to the Hanuman Bank, Madras, for payment, & that they were returned unpaid with the obviously disingeneous endorsement 'Awaiting funds. Present again', & the doors of the bank were closed when presentation was made again as requested. Surely equity will compel this bank to honour the draft issued by itself on itself, & will not allow it to escape its responsibility by this kind of tactics. The essence of payment by cheque or draft on oneself is the understanding that it will be honoured, otherwise, it will be like giving a worthless piece of paper as representing a currency note or valuable security.

14. In view of this finding, we allow O. S. A. Nos. 85 & 99 of 1949, set aside the order of Rajagopalan J. dismissing Appln. Nos. 454 & 1274 of 1949, regarding the claim of the appellants for the payment of their dues under the drafts in full in preference to other creditors, & allow the claim of Suganchand & Co. to the payment of Rs. 3235-2-6 in full by the Official Liquidator of the Hanuman Bank with interest at 6% per annum from 10-7-1947 till date of payment, (we consider 9% interest claimed to be excessive, & 6%, the court rate, to be quite sufficient in the circumstances) & costs throughout, & direct payment of Rs. 1540-9-0 & Bs. 57-7-0 covered by the two dishonoured drafts in full to the Indian Mutual Life Association by the Official Liquidator of the Hanuman Bank with interest at 6% per annum (which we consider to be quite reasonable) from 10-7-1947 till the date of payment, & costs throughout.

15. Now we come to O. 8. A. No. 89 of 1949. This appeal stands on a different footing, because of the different facts & has to be rejected in law. In this case, the appellant, the Canara Bank Ltd., had asked the Hanuman Bank, Kumbakonam, to collect a bill for Rs. 1000 sent to it & to remit the proceeds to them by a demand draft on Erode, & the Hanuman Bank, Kumbakonam, had collected the bill & sent a demand draft on the Hindu Bank Ltd., Karur, for Rs. 899-11-0, after deducting the commission of Rs. 5, to the Canara Bank, & thus terminated the relationship of principal & agent, as the draft complied with the directions of the Canara Bank & was issued on another bank, namely, the Hindu Bank, Karur, having nothing to do with the Hanuman Bank, & the collected amount had been fully spent, as per the directions of the principal, in purchasing a draft & sending it. No doubt, the Canara Bank had not specifically named the bank on which the demand draft was to be sent. But the sending of the demand draft on another bank in Karur would meet the requirements of the request by the principal. In The Alliance Bank of Simla Ltd. v. The Amritsar Bank, A. I.L. R. 1915 Lah. 214, the Alliance Bat k of Simla, Delhi branch, sent two bills for collection to the Gwalior branch of the Amritsar Bank & directed the Amritsar Bank, Gwalior to send 'your drafts on realisation,' & the Amritsar Bank realised the money and remitted it, less commission, by two drafts on the Delhi branch of the People's Bank Ltd., and the People's Bank Ltd. & the Amritsar Bank both went into liquidation before the drafts could be cashed. A Bench of the Lahore High Court consisting of Rattigan & Shadi Lal JJ. held that the Alliance Bank could rank, in respect of these dishonoured drafts, only as a creditor, along with the other creditors, & receive payment pari passu along with the other creditors, & could not claim preferential payment in full. The facts here are similar, & we are satisfied that the decision in the Alliance Bank case is sound, though we may not agree with the reasoning therein. We hold in this case that in law & equity, the Canara Bank is entitled in respect of this dishonoured draft only to be treated as a creditor, & to receive payment pari passu along with the other creditors of the Hanuman Bank. The fact that the Canara Bank stated in their letter to the Hanuman Bank, Kumbakonam, 'We shall thank you to collect the amount thereof in trust for us' will make no difference, as in such a case of principal & agent, the trust is always there in the fiduciary relationship imposed by law, whether it is stated expressly or not. It is significant that the Canara Bank was paid in full by the Official Liquidator of the Hanuman Bank two sums of Rs. 106-9-6 & Rs. 105-5-3 collected by the Hanuman Bank where the instructions of the Canara Bank, were 'We shall thank you to collect the amount thereof & remit the proceeds to our Erode office under advice to us.' That was because no draft was purchased by the Hanuman Bank on another bank & the collections utilised. No doubt, no one can justify the dishonouring of the draft issued by the Hanuman Bank to the Canara Bank for Rs. 999-11-0 in favour of the Hindu Bank Karur, or the disingeneous endorsement ''No advice. Present again.' It may be, as the learned counsel for the appellant in this appeal urged, that the appellant may have a remedy against the Hindu Bank, Karur, for dishonouring the draft drawn on it. But we are not concerned with that in thisappeal, but only with the request of the appellantin this appeal to be treated as a person entitledto payment in full as a preferential creditor of the Hanuman Bank Ltd. In this view, this appealdeserves to be & is hereby dismissed with costs.The Official Liquidator will, of course meet thecosts of the Bank in these appeals & also pay thecosts in the two appeals decided against theHanuman Bank from the Bank's assets. Advocate's-fee fixed at Rs. 200 in O. S. A. Nos. 99 & 85of 1949 (each) & at Rs. 100 in O. S. A. No. 89 of 1949,


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