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TMI Blog1938 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... uct, the Bank might recoup themselves from out of the sum only such loss and nothing more and that on the termination of his services the amount should be returned to him. He contends that the Bank was trustee to him in respect of the said sum and that the said sum was trust money in the hands of the Bank entrusted for a specific purpose. One Venkatarangam, also an employee of the Bank, has made a similar application stating that he was employed in the Mount Road branch of the Travancore National and Quilon Bank Ltd., and that he has furnished security for Rs. 500. The Official Liquidators also have made an application asking for directions in regard to payment of the amount of security furnished by the employees for the due performance of their duties. The question raised in these applications is one of considerable importance and before dealing with it, it is very necessary to state the facts and circumstances under which the said deposits were made. The Travancore National and Quilon Bank was the result of an amalgamation effected between the Travancore National Bank Ltd., and the Quilon Bank, Ltd. on the 19th September 1937. Thereafter the amalgamated Bank was styled as the Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the deposit would bear interest and it further says that the staff security deposit was subject to the rules and regulations of the Bank for the time being in force. But no rules and regulations were framed by the Bank as the Bank went into liquidation in last June. I have countersigned the receipt issued as Superintendent, Staff Department. 4. " ****** There is a separate account kept for staff security deposits, although the deposits were not invested in specific securities. 7. I also state that after issue by the Travancore National and Quilon Bank Ltd. of the new deposit receipts they were handed over to the Bank by the Staff duly discharged and a letter was written to the employees in terms of Ex. 'B' herewith filed and it may be read as part of this affidavit". The form of the receipt issued by the Travancore National and Quilon Bank Ltd., which is marked as Ex. A to the said affidavit runs thus; This receipt is not transferable "Travancore National & Quilon Bank Ltd. (Incorporated in Travancore 1912) Staff Security Deposit Receipt. Central Office. Madras. Rs. Received from Rupees bearing interest at per cent. per annum and subject to the rules and Regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheques sent to him. In a case in Edwards v. Glyn a sum of GBP 3,000 was furnished by a certain person for the purpose of saving the bank from a run but the purpose could not be effected and the money was there fore returned. The question arose in bankruptcy whether the sum of GBP 3,000 formed part of the general assets of the Bank, Held it would not. Eaele, J. observed thus: "I also think that this was a specific advance for a specific purpose on the understanding between the bankrupts and their sureties through whom it was procured for them, that the money, if not used for that purpose, should be returned. The money was required to meet a run upon the bankrupt's bank on a particular day and the giving of the guarantee by the sureties, the promise to them by the bankrupts that they would use the money only if it would enable them to meet the run, and the ultimate advance by the defendants of the money, on the strength of the guarantee, form, in my opinion, one transaction..........The case is entirely within the principle, of Toovey v. Milne, where GBP 120 had been advanced to the bankrupt, before bankruptcy, for the purpose of settling with his creditors : and he, no settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aff security deposit receipt'. The amount was given to the bank for a specific purpose, i.e., it should be held by them in trust for the employee until the termination of his service as a security for his good behaviour so that, in case he is found guilty of any act or omission in the discharge of his duties and loss should result therefrom, the bank might recoup such loss and pay the balance. It was therefore received by the Bank on a specific understanding to be applied by the Bank for a Specific purpose. This case therefore will certainly come within the principle stated by me, namely, that when money is handed to another person who accepts it for a purpose declared, there will be a trust in respect thereof. The word 'security deposit' connotes that the money does not belong to the banker as in the case of an ordinary deposit but is money belonging to the depositor. vide the observations of Richardson, J. In re Alliance Bank of Simla, Ltd. The employee is thus the beneficiary and the Bank is the trustee. The fact that in a certain contingency the Bank might have recourse to the deposit does not confer any beneficial interest therein in the Bank nor make the Bank a beneficiary as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may not make a profit out of the trust he may be allowed to do so by a provision in the instrument of trust. Section 51 of the Trusts Act enacts the same rule and the use of the word 'may' is significant. It connotes that the rule can be obrogated by the author of the trust permitting the trustee to make a profit for himself. The true principle as enunciated by Lord Herschell and as laid down in section 51 of the Indian Trusts Act was not kept in view in the cases which refused to recognise the trust on the ground that the trustee was allowed to make use of the trust moneys. I may usefully refer in this connection to the case of Gee v. Liddell which was followed in Re Alliance Bank of Simla Ltd. and Re Fazalbhai Mills, Ltd., as an illustration of both the positions which I have outlined above, namely, (1) where a trust is complete, provision for payment of interest by the trustee would not make the trustee a debtor: and (2) from the fact of payment of interest alone the relationship of trustee and cestui que trust should not be negatived. The following observations of Sir John Romilly in the said case are instructive. "I have therefore only to consider whether, in this case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re deposits with a banker and do not form part of the assets of the Bank. But the provisions of that section cannot apply to the present case because so far as this matter is concerned the Bank is governed by the provisions of the Travancore Regulations where there is no provision corresponding to section 282-B(1). My learned brother Gentle J. in a similar case, namely, in In the matter of the Hindustan Commercial Bank in a well-considered judgment, if I may say so with respect, took the correct view, namely, that the moneys paid by way of security deposit in respect of the employees' faithful service were trust moneys but the learned Judge felt himself compelled to decide otherwise in a later case (Application No. 1883 of 1937 in O.P. No. 23 of 1937) in view of the decision of a division Bench (Beasley, C. J. and Cornish, J.) in O.S.A. No. 56 of 1931 decided on 8th April 1932. Gentle, J. in the course of the judgment remarked thus: "In my view, the facts in that decision of a Bench of this court are indistinguishable from the facts before me." Then he referred to the following observations of the learned Chief Justice: "It seems to us to be that the appellant agreed with the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Malvanker v. Credit Bank of India, Ltd. and a decision of the Allahabad High Court reported in In the matter of Annapurna Co. Ltd. and incidently referred to with approval the case in Nagappa Chettiar v. Official Assignee, Madras. This is what the learned Judge says: "It may be noticed that in the present case the initial deposit after the transfer of the applicant from the cashier's post to that of a purchasing clerk remained in the hands of the company not as security but only as an advance made by him to the Company purely for earning interest." On this finding of fact both the learned Judge's decision and that of the division Bench are perfectly justified and are not authorities on the question which I am now called upon to decide in this case. The observations of the learned judges in regard to the present question must only be treated as obiter though they are entitled to great weight. The learned Jude (Madhavan Nair, J.) after that finding goes on to observe thus: "Even if the amount is to be treated as a security according to the Bombay decision it is clear the applicant's position is only that of an ordinary creditor of the company." The Bombay case referred to by the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee no difference between him and an ordinary depositor except that the deposit was not for a fixed period but for the time he remained in the employment of the Bank ". Scott, C.J. delivered a very short judgment and he summed up his conclusion thus: "If the money has, with the consent of the giver of the security, been received by the Bank and mixed with its funds in consideration of an agreement to pay interest on it, the Bank is only a debtor and not a trustee ". It will be seen from the observations of Macleod J. that he accepted the argument of Mr. Jinnah as sound, viz., that if the employee had given the money to the Bank to be held by them during the period of his employment as security for his honesty and fidelity, it would be trust money but he took a different view because of the arrangement that the Bank should pay interest, and this was in effect according to the learned Judge that the Bank should treat it in the same way as money deposited by a customer. Of course the fallacy, if I may say so with respect, lies in not noticing the principle that the character of a completed trust is not destroyed by the trustee being permitted to use the trust fund and pay interest the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the receipt which is before me shows that the company merely acknowledged the receipt of Rs. 60,000 from the applicants and did not deposit it in any account in the name of the applicants." The view of the learned Judge therefore is that if the deposit were treated differently from an ordinary deposit paid in current account or fixed deposit, he would have decided the other way. But of course the learned Judge winds up by saying that "even if this distinction of fact is not of importance I am unable to follow the view expressed by the Madras High Court and I am bound to follow the Bench decision of this Court which is binding upon me as a single judge." Therefore the learned Judge felt himself compelled to decide in the way he did. It will be seen from the decision of Beasley C.J. in O.S.A. No. 66 of 1931 that the learned Chief Justice lays stress on the fact that the company was allowed to use the money paying interest at 5 per cent. It is unnecessary for me again to say that this view is not sound, but the learned Judge sitting with Madhavan Nair J. has not taken the same view in a later case reported in Veerappa Chetty v. Official Assignee, Madras. In that case the learned Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." After dealing with the authorities bearing on this contention the learned Judge expressed himself thus: "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." In appeal this decision was confirmed by Reilly and Cornish, JJ. Their decision is reported in Official Assignee, Madras v. Krishnaji Bhat. In the course of that judgment, Reilly, J., remarked thus at page 382: "The last contention of Mr. Krishnaswami Ayyar is that the subject matter of this trust was only a debt due from Tawker and Sons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of tracing did not apply. This contention was directly negatived by the appellate Court." In effect therefore the learned Judge did not adhere to the view which he indicated in O.S.A. No. 56 of 1931, viz., that the use of the trust money by the trustee is incompatible with the notion of a trust. In a recent decision reported in Official Assignee, Madras v. Muthayee Achi Madhavan Nair, J., sitting with Pandrang Row, J., also took a view different from what he did in the application from which the O.S.A. arose. In that case the plaintiff was married to the 1st defendant. Defendants 2 and 3 were the Official Assignees of Rangoon and Madras representing the firm of T. Ar, A. Rna., which was adjudicated insolvent. The said firm belonged to the 1st defendant's family and was carried on by the 1st defendant's father Ramanathan Chettiar. The plaintiff sued to recover a large sum of Rs. 79,000 and odd on the ground that it was a sum held in trust by the firm. One of the questions was whether the money was help in trust or whether the relationship of the firm to her was that of a mere debtor, and creditor. The facts accepted by the learned Judge were as follows: "The moneys in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made by them in the case out of which O.S.A. No. 56 of 1931 arose. Further as I have pointed out the facts of the case on which the decision rested as stated by Madhavan Nair J. were different. It is no doubt true that the decision of the Privy Council in 5 6 Mad. 570 proceeds on the footing that a trust was admitted but the learned Judges who dealt with the case in the High Court inferred a trust, apart from the admission. The said case is an authority for the position that a trustee can be allowed to use trust moneys and make a profit for himself paying interest to the beneficiaries, if authorised by the author of the trust. It is also an authority for the position that the character of a trust fund is not destroyed by allowing the trustee to utilise such moneys in his own business. In the circumstances I do not feel that the judgment in O.S.A. No. 56 of 1931 is a binding authority on me and the observations therein on the question before me are only obiter. Before my learned brother Gentle J. the judgment of Madhavan Nair J. Was not referred to nor was my learned brother referred to the decisions embodying their later view. Therefore on principle I am of the opinion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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