TMI Blog1967 (1) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... debt; the security deposit is put on a par with that. That is a further indication that the relationship in the present case was that of a debtor and creditor. In the circumstances, we are of opinion that the High Court was right in its view as to the nature of the security deposit in the present case. Appeal dismissed. - 891 OF 1964 - - - Dated:- 19-1-1967 - K.N. WANCHOO, R.S. BACHAWAT AND J.M. SHELAT, JJ. N.C. Chatterjee, B.C. Misra, B.R.G.K. Achar and M.V. Goswami for the Appellant. Chaman Lal Pandhi and S.L. Pandhi for the Respondent. JUDGMENT Wanchoo, J. This is an appeal by special leave against the judgment and decree of the Allahabad High Court. The appellant is a registered partnership carrying on business at Kanpur. It entered into an agreement in December, 1948, with the Vijai Lakshmi Sugar Mills Limited, Doiwala District, Dehra Dun (hereinafter referred to as "the Mills"), and/was appointed sole selling agent of the Mills. According to the terms of the agreement, the appellant deposited a sum of Rs. 50,000 as security for due performance of the contract, and this amount was to carry interest at the rate of Rs. 6 per cent, per annum to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm has deposited a sum of Rs. 50,000 with the said Mill as a security for the due performance of the contract on their part, on which amount the Mill shall pay interest to the said firm at the rate of 6 per cent, per annum. (9) That the Mill shall refund the said security deposit of Rs. 50,000 with interest thereon at the rates on termination of the agency. In case the said amount is not refunded with interest thereon, the firm shall be entitled to commission at the rates mentioned above as if the agency has not terminated. In other words as long as security with interest is not refunded and commission due is not paid, this agreement will not be terminated." It may be mentioned that the agreement was for a period of one year which, as already indicated, had not expired before the winding-up order was passed on November 8, 1949. It will be seen from the terms of the agreement already set out that there was no stipulation that the amount of Rs. 50,000 deposited as security would be kept as a separate fund by the Mills and it would not use it for its own purposes. On the other hand, it is clear that interest had to be paid and there was nothing in the agreement to prevent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct (VII of 1913) which was made in 1936 and by which section 282B was added to the Companies Act along with clause ( e ) in section 130(1) of the same Act. Even so, these two cases make it clear that the proper approach to the question is to ask, whether, on the interpretation of the document, if there is one, or from proved or admitted facts and circumstances, a trust is established or not. If a trust is established, a provision for payment of interest by the trustee does not destroy the character of the trust nor does the fact that the money is not segregated. The matter was again considered by the Calcutta High Court in Kshetra Mohan Dass v. D.C. Basu [1943] 13 Comp. Cas. 54; ILR [1943] 1 Cal. 313 in connection with a deposit made by a sole selling agent and the principle for deciding whether the deposit was in the nature of a trust or a loan was put thus : "If the security deposit of an employee or an agent of a company in the hands of such company can be regarded as impressed with trust or held in a fiduciary capacity by such company then such employee or agent is entitled to get back the whole of the security deposit even after such company goes into liquidation In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a floating charge which had failed for want of registration inclined the court to hold that the deposit was not in the nature of a trust. It will thus be seen that the view of the learned company judge that the conflict between the Calcutta and Madras High Courts on the one side and the Allahabad and Bombay High Courts on the other is more apparent than real is borne out by the fact that in each case the court considered the agreement to decide whether on the terms thereof and the facts and circumstances of the case the deposit was impressed with a trust, though it must be admitted that the conclusion reached was not the same. We are of opinion that the question whether the security deposit in a particular case can be said to be impressed with a trust will have to be decided on the basis of the terms of the agreement and the facts and circumstances of each case, without any leaning one way or the other on the fact that the money was given as a security deposit. If the terms of the agreement, if it is in writing, clearly indicate that the deposit was in the nature of a trust, the court will come to that conclusion in spite of the fact that interest is provided for in the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 had been left as trust by a will, but the executor who was the son of the testator said that his father had intended to bequeath 3,000 and the question was whether the further 1000 was also a trust. On the facts and circumstances of that case, it was held that as the amount bequeathed (namely, 2000) was certainly a trust, the addition of 1000 to it by the executor would be of the same kind and would be equally impressed with trust. That case also shows that where a trust can be inferred clearly, a provision for payment of interest would be immaterial. In re Hallett's Estate: Knatchbull v. Hallett [1880] 13 Ch. D. 696 it was held that if a person held money in a fiduciary character but mixed it up with his own account, the person for whom the money was held could follow it and had a charge on a balance in the bankers' hands. This case again shows that the main question that courts have to decide in such cases is whether, on the facts and circumstances, a fiduciary relationship is established. If it is established, then the fact that the money was mixed with the trustee's money may not make any difference. In re Hallett Co. [1894] 2 QB 237 segregation wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay case, besides absence of segregation and presence of interest, there was a further fact that in certain circumstances segregation had been provided for. The court was entitled to take that fact into consideration and hold that the deposit was not impressed with trust till segregation took place. In the Allahabad case a floating charge was created which failed for want of registration, and that circumstance was also used to show that the relationship between the parties was that of a debtor and creditor and not that of a trustee and beneficiary. Let us now apply these principles to the facts of the present case. The facts show that there was no segregation in this case and the mills could mix the security deposit with its own money and use it for its own purpose. Further, because the mills could use the money for its own purpose, it had to pay interest. In addition to these two circumstances, which would incline one to the view that the relationship was that of a debtor and creditor, there is the further fact that clause (9) of the agreement provides that even though the period fixed in the agreement comes to an end, the agreement would continue if the security deposit is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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