Skip to content

Mackintosh Burn Ltd. Vs. Shivakali Kumar - Court Judgment

LegalCrystal Citation
Decided On
Reported inAIR1933Cal668
AppellantMackintosh Burn Ltd.
RespondentShivakali Kumar
Cases ReferredRaybould v. Turner
- .....1932, counsel appeared on the defendant's behalf and refused to claim an indemnity against the trust estate, implying that his client had been guilty of misconduct and was in default to the estate.4. mr. westmacott, who appeared for the creditor, contended that the matter was settled by the authority of bridge v. maddan (1904) 31 cal 1084 and that he was entitled to proceed against the property by way of subrogation, as was done in that case. i was more than doubtful, having regard to the frame of the present suit, of the correctness of this contention. i was however anxious to bring the matter to a head and it appeared to me that a practicable way of so doing was to regard this property as the property of the defendant, until he should establish by way of claim under order 21, rule.....

Ameer Ali, J.

1. The application was first made to me on 29th August 1932. It is, in substance, an appeal from an order of the Master setting a proclamation of sale of two premises-40, Taltala Lane and 102, Corporation Street. The Master provided for the sale only of the defendant's beneficial interest in these properties. The plaintiff contended that he was entitled to have the entire interest in the properties sold in execution of his decree against the defendant. The facts that were presented to me on the application were these: In 1926 the plaintiff-company, at the request; of the defendant, carried out extensive repairs to the properties in question. On 10th February 1930 the defendant made part payment. On 18th June 1928 the plaintiff company filed a suit for the balance against the defendant described as a land owner residing at 102, Corporation Street. The defendant was apparently living in these premises. On 10th February 1930 the plaintiff-company obtained a decree for Rs. 19,020.

2. In August 1931 the plaintiff-company having failed on its attempt to obtain personal execution against the defendant proceeded to attach the two premises in question, the order for attachment being made on 25th August 1931. On 26th January 1932, there was a petition for sale. On 9th March 1932 the order for sale was made by the Master. Subsequently proceedings to settle the proclamation of sale under Order 21, Rule 66 were had before the Master, who settled the proclamation of sale in the form which is now challenged. The application before me was taken out on 4th August 1932. The affidavit in support on behalf of the plaintiff-company mentions in para. 2 that

after the completion of the work, the plaintiff-company came to know that the premises in question were trust property.

3. It does not state when the plaintiff-company became aware of that fact, i.e., whether before or after suit. An affidavit in opposition was put in by the defendant alleging (para. 3) that the plaintiff-company was aware that the premises were trust property 'before the institution of the suit and at all material times,' The defendant challenged the liability to attachment of these properties, setting out in para. (5) the portions of the will by which the trusts were created and the defendant as well as two other persons, Sureshwari Dasee and Arunchandra Basu, were appointed trustees, the beneficiary being the family deity Sree Sree Janardan Jiu. On 29th August 1932, counsel appeared on the defendant's behalf and refused to claim an indemnity against the trust estate, implying that his client had been guilty of misconduct and was in default to the estate.

4. Mr. Westmacott, who appeared for the creditor, contended that the matter was settled by the authority of Bridge v. Maddan (1904) 31 Cal 1084 and that he was entitled to proceed against the property by way of subrogation, as was done in that case. I was more than doubtful, having regard to the frame of the present suit, of the correctness of this contention. I was however anxious to bring the matter to a head and it appeared to me that a practicable way of so doing was to regard this property as the property of the defendant, until he should establish by way of claim under Order 21, Rule 58, that it was trust property. I therefore directed the application to be renewed upon notice to the other trustees, so that this matter might be gone into. I hoped that when all the trustees were before me, should fiduciary ownership be established, the matter of indemnity could then be discussed and arrangements be made on behalf of the estate to pay off this debt.

5. Before the adjourned hearing however I looked into the original papers in the execution proceedings and found that in the original tabular statement, the property was definitely stated by the applicant to be trust property. That being the case, it did not appear to me that I could possibly call upon the defendant and the other two respondents to establish this fact. I was compelled therefore to deal with the application in its original form. Mr. B.C. Ghose appeared for two trustees other than the defendant. He contended that they were not proper parties to the application, that the suit was not a suit against a trustee or trustees properly framed, that the decree was not a decree which was binding on the estate but was merely a personal decree against the defendant, and he asked that his clients should be dismissed from the application with costs. Mr. Basu again appeared for the defendant. He refused to claim an indemnity and stated that his client had got no right to an indemnity.

6. Mr. Westmacott desired to refer me to the will, which contains the clause specifically providing for an indemnity to the trustees. He contended that he was right in suing the trustee who had made the contract, without joining the other trustees. He contended further that, having regard to the decision in Bridge v. Madden (1904) 31 Cal 1084, he was entitled to proceed with the question of subrogation, on notice to the other trustees in execution, or at a subsequent hearing of the suit. The questions of law and of procedure which arise upon these facts may be stated as follows: 1. What are the rights of a creditor of a trustee: (a) against the trustee; (b) against the trust estate? 2. If the creditor has rights against the trust estate, what is the procedure by which these rights may be enforced? 3. Assuming that such rights can be enforced, what is the relief which the creditor can obtain?

7. I will first deal with these questions in the abstract and then apply the result to the facts of the present case. 1. In considering the rights of a creditor, I shall in the first place, make no distinction between a man who has lent money to a trustee for the preservation of the estate that money having been admittedly applied for that purpose, and a contractor who has carried out repairs under a contract with the trustee. Secondly, I propose to disregard any possible distinction between the case of a trustee under English law and the head of a religious trust in India. It has frequently been suggested that the right to proceed against the trust estate in the latter case is more extensive. Having regard to the ruling of the Judicial Committee in Niladri Sahu v. Chaturbhuj Das AIR 1926 PC 112 and the form of the decree approved by the Board (p. 154 of 6 Pat.), I am not so certain. But, in this case, no point has been made of the beneficiary being the family deity and the matter has not been argued upon the basis, that the defendant is other than a trustee in the ordinary sense. In my opinion, the three rules applicable to the first question are:

(1) A decree may be passed against the trustee who has made the contract (or borrowed the money) enforceable against the trustee personally. It may also be enforced against his beneficial interest in the estate. For examples of such an order, see In re Evans, Evans v. Evans (1887) 34 Ch D 597 and the decree already referred to in Niladri Sahu v. Chaturbhuj Das AIR 1926 PC 112.

(2) The second principle is that the creditor has no right to obtain a decree executable against the estate: see In re Morgan, Pillgrem v. Pillgrem (1881) 18 Ch D 93:

The argument in support of the summons has almost gone the length of suggesting that trust property in the hands of a trustee may be seized by his execution creditor. In my judgment nothing is plainer than this, that the property which can be taken under an execution is only that property to which the execution debtor is beneficially entitled, and that no property of which he is only a trustee can be taken.

8. In another place, Fry, J., remarks:

In making these observations I say nothing about the right which the executor undoubtedly has to come against the assets of the testator.

9. With that proposition and its consequence I will deal next: See also Strickland v. Symons (1884) 26 Ch D 245. As to Indian authorities, see In the matter of Shard (1901) 28 Cal 574, Sudhir Chandra Das v. Gobinda Chandra Roy AIR 1918 Cal 688 and Swaminatha Aiyar v. Srinivasa Aiyar (1917) 38 IC 172. With regard however to the last quoted case, the observations at p. 261 must not be read as laying down that a trustee or executor is only entitled to an indemnity in the circumstances there mentioned. If it was intended to lay down any such proposition, I respectfully dissent.

(3) There remains the right of the executor or trustee 'to come against' the assets of the testator or trust estate. That is to say, of the trustees' right of indemnity, and the right of the creditor by subrogation to obtain the benefit of that indemnity. I shall assume, for the purpose of this case, notwithstanding certain expressions in In re Evans, Evans v. Evans (1887) 34 Ch D 597 and in Strickland v. Symons (1884) 26 Ch D 245, and, so far as I am concerned, I think it to be the law, that the creditor is not debarred from a right of subrogation by reason of the fact that he was not at the date of the transaction aware that he was dealing with a trustee. The nature of the creditor's right of subrogation and its limitations were finally stated, so far as English law is concerned, in: In re Johnson, Shearman v. Robinson (1880) 15 Ch D 548. The principles there laid down were applied to India by Sale, J., in Shard's case (1901) 28 Cal 574 and have been explained in detail by Mukerji, J., in Manindra Chandra Nandi v. Sudhirkrishna Banerji : AIR1932Cal182 , where all the more important English authorities are set out. It will be seen from the abovementioned cases that subrogation is a circuitous and uncertain route. The creditor may be impeded by any obstacle which the estate could raise against the trustee or executor. To use another metaphor, the creditor has the right to step into the shoes of the trustee, but these shoes may be too small, or may not be there at all. However, adequate or not, such is the only right which the law allows the creditor vis a vis the estate.

10. The next question is the question of procedure. Assuming that the creditor has a right of subrogation to the trustee's indemnity, how is that right to be enforced? In England three courses appear to be open to the creditor: (1) To take out a summons in an administration suit. This may perhaps be described as the normal procedure: See as an example: Re Kidd, Kidd v. Kidd (1894) 70 LT 648. (2) To take independent proceedings for administration, by action or by originating summons: See example of originating summons: In re Bach Walker v. Bach (1892) WN 108, of action: Re John Shorey, Smith v. Shorey (1898) 79 LT 349. (3) To claim the right in the same suit, i.e., the suit filed by the creditor against the trustee for recovery of the debt: See Raybould v. Turner (1900) 1 Ch 199. In that case, the trustee, being a normal and honest trustee, was himself claiming his right of indemnity. It further appears that the parties necessary to determine the trustees' claim to indemnity were before the Court. Owing to unfamiliarity with English procedure, I am not clear from the report whether 'the parties, interested in defending the estate,' were original parties to the suit or were added on the summons, or whether the matter was investigated merely upon a summons or upon a further hearing.

11. In India, there is no doubt that the first form of procedure is available. The second form of procedure, that is to say, by way of an independent suit, is again, in my opinion open to the parties, and in a proper case I presume that such proceedings could be taken under Ch. 13 of the rules and orders by way of originating summons: See Shard's case (1901) 28 Cal 574, Swaminatha Aiyar v. Srinivasa Aiyar (1917) 38 IC 172 and Ammalu Ammal v. Namagiri Ammal AIR 1918 Mad 300. The difficulty is as to proceedings to enforce the right of subrogation in the same suit. In Bridge v. Madden (1904) 31 Cal 1084 this course was taken, and no doubt the pleadings in Bridge v. Madden (1904) 31 Cal 1084 were framed with a view to avoiding the difficulty created by the decision of Sale, J., in Shard's case (1901) 28 Cal 574 In Bridge v. Madden (1904) 31 Cal 1084 the trustee was sued as a trustee; the beneficiaries were parties, a declaration was claimed in the plaint that the trustee sued was entitled to an indemnity and that the plaintiffs were entitled to be subrogated thereto. On a further hearing of the suit, under the liberty to apply (as I read the case) the matter of subrogation and indemnity was gone into. In Sudhir Chandra Das v. Gobinda Chandra Roy AIR 1918 Cal 688, the Judges on the appellate side clearly considered that this matter could have been gone into in the suit, but ultimately referred the creditors to a claim in the administration action which was then pending. In Ammalu Ammal v. Namagiri Ammal AIR 1918 Mad 300, the matter of procedure was discussed at considerable length, and the two Judges differed. I prefer the view of Kumaraswami Sastri, J, to the effect that, provided the suit bo appropriately framed, the matter of subrogation and indemnity may be determined in the suit by the creditor against the trustee. This, I think, clearly appears from Manindra Chandra Nandi v. Sudhirkrishna Banerji : AIR1932Cal182 , the case to which I have already referred, where the Court on appeal expressly remanded the case for the lower Court to go into this question.

(4) Yet another method of proceeding has been suggested. It is contended on behalf of the creditor that it is open to the creditor to ask the Court to investigate the matter of indemnity and subrogation in execution, that the Court will add such parties as may be necessary and direct an inquiry. In my opinion, this is not correct. It is not a matter within the scope of Section 47, Civil P.C. Code, and I am unable to see that there is any room for an investigation which may involve a trial of serious issues between trustee and cestni qui trust, and the taking of accounts, in execution.

12. There remains the question of the form of relief. I desire to say something about this. Assuming everything in favour of the plaintiff-company, it is by no means clear that it necessarily follows that the plaintiff-company would be entitled to have the properties in question put up for sale. On this point, there has I believe been in this Court a certain amount of misconception. In Stott v. Milne (1884) 25 C h D 710, the right of the trustee was stated to be a charge upon the corpus and income of the estate. The matter is explained fully in the notes to Brett's Equity Cases, 4th Edn, 207. In Peary Mohun Mukerjee v, Narendra Nath (1909) 37 Cal 229, a ruling of the Board, the proposition is laid down as applying to India. The question is what is the nature of that charge and how is it to be enforced? It appears to me that, subject to certain qualifications, that charge can rarely be made effective by way of sale: Drake v, Williamson (1858) 25 Beav 622 and the order made by Lord Romilly in that case, also Bowman v. Hill (1907) 1 Ir 451. In both these cases, which happen to be cases of chapel trusts no sale was allowed, a charge was declared with a right to recover against any income and liberty to apply if the chapel was ever sold by the trustees. In the Trusts Act, 1882, which does not specifically apply to the trust in question, the right of the trustee is described in Section 32. This section provides in para. 1 for a general right of indemnity and in para. 2 that:

Such indemnity shall be a first charge upon the trust property for such expanses and interest thereon, but such charge unless the expenses have been incurred with the sanction of a principal civil Court with original jurisdiction shall be enforced only by prohibiting any disposition of the trust property without previous payment of such expenses and interest.

13. It is more than doubtful therefore whether a Court, in enforcing the right of indemnity against any trustee, will allow actual sale of the trust property in execution: see Narayanan v. Laksh manan (1916) 39 Mad 456, where this view is taken. I do not say that in some cases for instance in the case of family trusts, or where the trustees are substantially the persons beneficially, interested, the Court might not, in certain circumstances allow sale; but I draw attention to the general rule of law. Again I would refer as appropriate to the form of decree in Niladri Sahu v. Chaturbhuj Das AIR 1926 PC 112, whereby a receiver was appointed of the whole estate, to get in the trustees' beneficial interest in the income and apply this in satisfaction of the debt. It remains to apply the principles above discussed to the facts of the present case, (1) In the first it follows that the form in which the master settled the proclamation of sale was perfectly correct. It was only the beneficial interest of the defendants in the estate which could be sold. (2) In the second place, on the application as made I could not possibly have gone into the question of indemnity and subrogation. (3) The last matter for consideration is whether having regard to the frame of suit in this case, it is possible for me to order a further hearing of the suit so as to afford the plaintiff an opportunity of establishing his rights against the estate.

14. In my opinion the suit is not properly framed for this purpose. I do not propose to hold that a creditor cannot sue the trustee with whom he contracted as has been done in this case and not ultimately proceed against the estate by way of subrogation, but that, if this course is taken, relief against the estate must be sought by independent proceedings. In my opinion to enable the plaintiff to obtain this relief in one suit: (a) the plaintiff should sue the trustee as a trustee; (b) under Order 31 and Order 2, Civil P. C, all the trustees should be joined; (c) the parties beneficially interested should be represented; (d) indemnity and subrogation to that right should be claimed.

15. I am the first to agree that the Court should, whenever possible, assist the plaintiff by adding parties and amending pleadings, but in this case and at this stage, I am quite clear that it would be wrong to do so. The result is that the application is dismissed. I have been asked to give costs to the trustees who have been added, but, for reasons which I think are apparent from my judgment, I make no order as to costs. Although I have made no order as to costs, this will not preclude the trustee Sureshwari Dassee, should any administration proceedings be taken, from asking the Court to allow her to be indemnified in respect of such costs out of the estate as between attorney and client.

16. Since giving judgment I have been fortunate enough to obtain the views of the Chief Justice on the matter of practice involved in Raybould v. Turner (1900) 1 Ch 199. What took place in that case is as follows: There was a suit for damages on the ground of tort against a trustee in the King's Bench Division. There was then a completely separate proceeding (the proceeding reported) on the Chancery side upon summons, probably originating summons to which the persons interested in protecting the estate against the claim to indemnity were parties. It is therefore no authority for an argument that the question of indemnity and subrogation can be gone into upon a summons in the suit.

Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //