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T. Krishnajee Bhat Vs. Sadasiva Tawker and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtChennai
Decided On
Reported inAIR1927Mad249
AppellantT. Krishnajee Bhat
RespondentSadasiva Tawker and ors.
Cases ReferredOfficial Assignee of Madras v. Smith
Excerpt:
- - up to the date of plaint, but failed to invest the trust money and committed a breach of trust, that the defendants are heavily involved and are unable to pay the creditors and that they are convening a meeting of the creditors for the purpose of liquidating their debts and that the plaintiff apprehends that some of the creditors may adjudicate the defendants in insolvency and that his moneys may be lost unless the plaintiff's interests are safeguarded. mockett there can be no doubt that, if the evidence of sivasankar bhat is true and i see no reason to disbelieve it, the plaintiff is clearly entitled to a charge, upon moneys realized by the sale of the goods......minor plaintiff by his next friend against defendants 1 to 8, who are alleged to be members of the firm tawker & sons, and the 9th defendant, the official assignee, who, it is alleged, represents the estate of the insolvent firm which became insolvent subsequent to the filing of the plaint, alleging that the firm of tawker & sons were trustees in respect of a sum of rs. 10,000 deposited by the plaintiff's father with the firm in trust for plaintiff, that tawker & sons are now in insolvent circumstances and there was the danger of the money being lost; and, therefore, praying for the removal of the defendants from the trusteeship; for the appointment of a new trustee; and for directing the defendants to pay rs. 10,000 with interest and for directing the official assignee to pay the same.....
Judgment:

Kumaraswami Sastri, J.

1. This is a suit by a minor plaintiff by his next friend against Defendants 1 to 8, who are alleged to be members of the firm Tawker & Sons, and the 9th defendant, the Official Assignee, who, it is alleged, represents the estate of the insolvent firm which became insolvent subsequent to the filing of the plaint, alleging that the firm of Tawker & Sons were trustees in respect of a sum of Rs. 10,000 deposited by the plaintiff's father with the firm in trust for plaintiff, that Tawker & Sons are now in insolvent circumstances and there was the danger of the money being lost; and, therefore, praying for the removal of the defendants from the trusteeship; for the appointment of a new trustee; and for directing the defendants to pay Rs. 10,000 with interest and for directing the Official Assignee to pay the same out of the assets of Defendants 1 to 8 in his hands.

2. The case of the plaintiff is that, in August 1919, the 1st defendant acted as mediator in a claim by the plaintiff's father against the late Nawab of Banganapalle and collected about Rs. 65,000 from the Nawab; that out of that sum a sum of Rs. 10,000 was deposited in trust with the firm of Tawker & Sons, the terms being that the defendants should invest the said sum of Rs. 10,000 at 9 per cent. in their firm or in any other firm as the defendants might deem fit, pay the interest and pay the' amount of the trust to the plaintiff when he attained 21 years; that a letter was passed on the 5th October 1919 containing the terms of the trust already arranged and that on the 22nd October 1919 a receipt for Rs. 10,000 was granted by the defendants; that the defendants were paying interest at 9 per cent. up to the date of plaint, but failed to invest the trust money and committed a breach of trust, that the defendants are heavily involved and are unable to pay the creditors and that they are convening a meeting of the creditors for the purpose of liquidating their debts and that the plaintiff apprehends that some of the creditors may adjudicate the defendants in insolvency and that his moneys may be lost unless the plaintiff's interests are safeguarded.

3. Defendants 1 to 8, who constitute the firm of Tawker & Sons, filed a written statement admitting that they were trustees to the extent of Rs. 10,000, but stating that the terms are not completely set out in the plaint. They say that it was stated that the defendants should invest the moneys in their firm in the name of the plaintiff, that the plaintiff should not trouble the defendants any more about the said sum and that he should not be entitled to the moneys before he attained the age of 21 years and that the defendants have absolute discretion as to how to invest or use the moneys. They say that they have paid a sum of 2,560 towards the interest and that on the date of the plaint a sum of Rs. 535 was overpaid on account of interest, that they did nothing contrary to the terms of the trust and that the suit is premature as the plaintiff has not attained 21 years.

4. The 9th defendant, who is the Official Assignee filed a written statement putting the plaintiff to proof of the allegations in the plaint and the factum and the validity of the alleged trust, denying that the plaintiff is entitled to any preferential claim over the assets of Defendants 1 to 8, who are insolvents and that he is entitled only to rateable, distribution with the other creditors. Except as stated above he adopts the written statement of Defendants 1 to 8. The following issues were settled:

1. What were the terms of the trust?

2. Is the suit premature for the reasons alleged in paragraph 6 of the written statement?

3. Has the plaintiff received Rs. 535 in excess of the interest actually due?

4. Is the plaintiff entitled to remove the defendants from the trusteeship and for an order for the payment of Rs. 10,000?

5. To what relief, if any, are the parties entitled?

5. There can be little doubt that Defendants 1 to 8, who constituted the firm of Tawker & Sons, and who have been adjudicated insolvents, are no longer under the Trust Act fit to be trustees and there is no question as to their liability for being removed from the office of trustees and a fresh trustee being appointed. There is also no dispute before me that Rs, 10,000 was deposited on interest for the minor plaintiff with the firm and that Rs. 10,000 is still due. As regards interest the plaintiff's first witness Sivasankar Bhat, admits that Rs. 535 was received in excess of the interest due on the date of the plaint and credit will have to be given for that sum towards interest from the end of 1923 up to this date. As regards the interest which accrued after 1st January 1924 credit will have to be given for Rs. 535 and the balance only will be paid to the plaintiff.

6. The main question is whether the plaintiff is entitled to any preferential claim as regards the Rs. 10,000. There is no dispute that the firm of Tawker & Sons were trustees in respect of Rs. 10,000 deposited by the plaintiff's father with them in trust for his minor son, the plaintiff, to be paid on the plaintiff attaining majority. All the terms and conditions required for a valid trust have been complied with the moment the money has been handed over and the terms are admittedly that it should be kept with Tawker & Sons and used either by them or invested as they chose and that interest at 9 per cent. should be paid. The main contention, and in fact the only contention, raised by the Official Assigneee is that in the events that have happened, and having regard to the fact that the money was used by Tawker & Sons as part of their business and having regard to the fact that there is no money which can be earmarked or followed as the money representing the trust fund, the plaintiff is entitled to no priority and what he is entitled to is rateable distribution with the other creditors. The question of the plaintiff's priority will depend upon the facts in the present case. As regards the facts I think the evidence is all one way.

7. The plaintiff's first witness Sivasankar Bhat, who is the nephew of the first defendant and who was the chief partner in the defendant's firm, states that he was employed in the firm as showroom Manager at the time when this money was deposited by the plaintiff's father and that at the time the defendants were rather hard up for money, the English jewellery representative, who came to Madras to sell goods and was giving credit to Tawker & Sons wanted cash payments and that this money and other moneys that were put into the Bank were drawn and that showroom jewels were purchased with the moneys so drawn, that the stock was kept rolling - goods were sold and fresh goods were purchased--and that at the time of the insolvency there were goods in the showroom which were subsequently sold by the Official Assignee and converted into cash. The evidence of the Official Assignee's clerk is that at the auction-sale what was realized was only Rs. 22,000 odd though the plaintiff's next friend says that there were goods worth about Rs. 40,000. On behalf of the defendants the only witness examined was Ramachandra Rao, the clerk of the Official Assignee's Office. His evidence does not take us very far. The only thing which is of importance in his evidence is that he produced the stock-book of Tawker and Sons which showed no sales or purchases for the year 1920 or 1919. He admits that there was stock in the shop which was being sold. All that can be said is that Tawker and Sons had not kept proper accounts of the stock which they had and of the stock which they sold.

8. Under the Evidence Act books of account by themselves would not be evidence of any liability one way or other. They had to be proved in the formal way and the fact that there are no entries made in the books would have been important if the books have been proved to have been properly kept, There is no evidence in the books and the Court cannot use them for the purpose of discrediting the evidence on the plaintiff's side. It cannot be suggested that Tawker and Sons who were doing business, did not sell any stock or purchase any stock during the period of 2 years. On the evidence of Sivasankar Bhat, which I see no reason to disbelieve, it is clear that, acting on the permission of the author of the trust when the trust was created Tawker and Sons, instead of keeping the trust funds invested separately or ear marked, used it for the purpose of purchasing show room goods. The goods were being sold, fresh goods were being bought and the plaintiff's money had been used for purchase and when the firm became insolvents the plaintiff was entitled to say that, as the trust money was used for the purchase of goods which went on being converted from time to time, he is in the absence of the preferential rights entitled to follow the goods in the show room and to claim a charge upon those goods or their sale proceeds to the extent of the moneys of the trust which have been utilized by Tawker and Sons who are admittedly trustees for the plaintiff.

9. If any authority is needed for the proposition, I think it is found in the observations of Jessel M. R. in In re. Hallet's Estate, Knatchbull v. Hallet [1879] 13 Ch. D. 696 where he describes various remedies where trust monies have been used by the trustee. The present case falls within the last of the cases stated by the Master of the Rolls, namely, where his moneys have been used for the purchase of goods and where the plaintiff cannot say in specie which particular goods were bought with his money, he has got a charge upon the property purchased if it is found that his moneys were used along with other moneys by the trustee.

10. The contention of Mr. Venkatarama Aiyar, who ably argued the case, is two-fold. In the first place what he says is this. In the present case, as Tawker and Sons were allowed to use the money, there is no trust; the trust is destroyed and all that the plaintiff is entitled to is to treat himself as a creditor of Tawker and Sons. The other argument is that, even if the first argument fails, as the money had been converted into goods and used in the firm, there is no case made for any following of trust money in specie or in particular goods. I think on the authorities cited by Mr. Mockett there can be no doubt that, if the evidence of Sivasankar Bhat is true and I see no reason to disbelieve it, the plaintiff is clearly entitled to a charge, upon moneys realized by the sale of the goods. Rs. 22,000 was realized and it is much more than the amount due to the plaintiff and there is no difficulty. It is not stated that there are any persons who have got any prior claim over that money. As regards the 9th defendant's contention reliance is placed by Mr. Venkatarama Aiyar on Official Assignee of Madras v. Krishnaswami Naidu [1910] 33 Mad. 154. In this case Messrs. Arbuthnot and Co., were appointed trustees and certain monies were invested with them to be used for the purpose of the trust. Sir Arnold White, C. J., held that a cestui que trust was entitled to priority as against the creditors; but his judgment was reversed by Munro and Abdur Rahim, JJ. The decision proceeded, according to the judgment of Munro, J., upon the facts of that particular case, that the trustees were not necessarily Arbuthnot and Co., although they were appointed as trustees. This is what the learned Judge says:

It is thus clear that, although the settlor was desirous that the trustees should, if possible, be the persons who were for the time being the members of the firm of Arbuthnot and Co. it was recognized that it might not always be possible to secure this and that eventually all the trustees might be persons in no way connected with Arbuthnot and Co.

11. Again the learned Judge says:

I think it is clear from the terms of the trustdeed that the settlor regarded the body of trustees and banking firm of Arbuthnot and Co. as two distinct and separate entities. At first no doubt the persons named as trustees were the then members of the firm. But the deed contemplated the possibility that at any moment all the members of the firm might cease to be trustees and appoint persons entirely unconnected with the firm as trustees in their place, an event which has actually happened, and this possibility itself made it necessary to distinguish between the body of trustees and members of the firm.

12. The judgment of Munro, J., proceeded upon this distinction which, he emphasizes but in the present case there can be no such distinction as Ex. A, the letter, and Ex. B, the receipt did not contemplate the possibility of any person being a trustee except the firm of Tawker and Sons. Abdur Rahim, J., thinks that that distinction is not material; but with all respect, it seems to me that, if that distinction does not exist, there is absolutely no ground for reversing the decision of Sir Arnold White, C. J., and holding that the trust ceased to be a trust, because the trustee is given authority which he would not otherwise have of utilizing the trust fund for his own benefit. The provisions of the Trust Act are that, unless there is any provision to the contrary, a trustee cannot use the trust fund for his own purpose. But it is always open to the author of the trust to make a provision to the contrary and remove one of the disabilities of the trustee a disability which prevents him from using the money for his own benefit. If the author of the trust deed agrees that the trustee can use the money for his own benefit there seems to me to be no reason for saying that the trust goes and that it cannot be trust property in any sense of the term because of this liberty given to the trustee. No authority has been cited for so broad a proposition and I am not prepared to hold that the mere fact that Tawker and Sons in this case had power to deal with the property for their own purpose provided they paid interest destroys the character of the trust fund in their hands.

13. No doubt equities might arise in such cases which would prevent the cestui que trust and the author of the trust from following the trust property. But as pointed out above, there is no equity in favour of third parties in this case and the sale proceeds are with the Official Assignee. So far as I can see there is no prior claim of any bona fide creditor or decree-holder as regards the particular sum of Rs. 22,000. Official Assignee of Madras v. Krishnaswami Naidu [1910] 33 Mad. 154 is therefore distinguishable. Reliance was placed on Official Assignee of Madras v. Smith [1909] 32 Mad. 68 but that is a case of a banker and I do not think that that case has any application to the facts of the present case. We have heard the terms of the trust as evidenced by Ex. A the deposit of the money as evidenced by Ex. B and the evidence of Sivasankar Bhat. In the absence of anything to show that the evidence of Sivasankar Bhat is not true, I think this is a case where the plaintiff would be entitled to be paid in full out of the sale proceeds of the showroom stock, which are now in the hands of the Official Assignee and which amounts to more than Rs. 22,000.

14. There will be a decree for Rs. 11,940, (Rs. 10,000 for principal and Rs. 1,940 for interest) with costs and interest at 6 per cent, per annum from this date to the date of payment. The plaintiff will be entitled to be paid this sum out of the sum of Rs. 22,000 with the Official Assignee and which represents the sale proceeds of the show room stock. The Official Assignee will be entitled to take his costs of this suit out of the estate and will pay the costs of the plaintiff out of the said sum of Rs. 22,000 in his hands. I certify for two counsel for the plaintiff.


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