1. The applicant, as a co trustee of the insolvent, asks that an account shall be taken of the amount due to the trust and for a first charge on the assets in the hands of the Official Assignee to the extent of the sum found due. In January, 1916, there wag a partition between the applicant and his brother on the one side and the insolvent on the other. At the time of the partition it was agreed that the parties should set aside two sums of Rs. 10,000 for each of two charities. The applicant's branch was to contribute 5/8, and the insolvent's share being the remaining 3/8. The applicant accordingly drew two hundis in favour of the insolvent on a firm styled O.R.M.O.M.S.P. The money realized on these hundis was left on deposit with that firm, an account being opened in the name of each of the charities, and was to carry interest at the nadappu rate. There it remained until February, 1920, when the two accounts were transferred to the insolvent's own business. In 1925 he was adjudicated.
2. There can be no doubt but that, in 1916, two trust funds were constituted. The agreement of that year is silent as to the manner in which the insolvent was to deal with the money, but it is now common ground that he was to pay interest on it at the nadappu rate and conduct the charities out of the income so realized. On this it is argued that the case is merely one of creditor and debtor and that the act of the insolvent in mixing the trust funds with his own money was not wrongful, for he was authorized, to invest them in his own business. A similar argument was negatived by Kumaraswami Sastriar, J., in Krishnajee Bhat v. Sadasiva Tawker : AIR1927Mad249 . For the reasons given by that learned Judge, I negative the argument here also.
3. A more serious contention is based on the decision in In re Hallett & Co; Ex parte Blane (1894) 2 Q.B. 237 : 63 L.J.Q.B. 573 : 1 Manson 25 : 42 W.R. 305 : 70 L.T. 361 : 9 R. 278. On the evidence I am satisfied that what happened in February, 1820, was this--that there was merely a book adjustment between the firm of O.R.M.O.M.S.P. to which the insolvent owed money and the insolvent. Nothing really passed, but certain credit and debit entries were made in their respective accounts. No doubt, the result was that a debt of some Rs. 18,000 which the insolvent owed to the other firm was wiped out, but I do not think that a book adjustment of this kind can be treated as a passing of trust money into the hands of the trustee. In the words of Lord Esher:
All that can be shown is a settlement of account and a settlement of account cannot be followed.
4. Following the decision above cited, I must uphold the contention of the Official Assignee.
5. A further contention of the Official Assignee is that the fund in his hands is one on which the applicant can 'in any event' have no claim. The legal principle is clear: 'that, if a man mixes trust funds with his own, the whole will be treated as the trust property except so far as he may be able to distinguish what is his own. Firth v. Cartlame (3).'
6. The Official Assignee has in his hands two funds. One consists of a sum of Rs. 5,000 which was not derived from the business in which the trust moneys were invested, The other consists of a sum of about Rs. 40,000 which represents a rebate of income-tax. The tax was paid in 1919, at a time when the trust funds were still in deposit with O.R.M.O.M.S.P. That being so, it seems to me clear that the money in question cannot be treated as trust property or as anything but the trustee's own property.
7. The application is dismissed with taxed costs.