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TMI Blog1967 (1) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... Consequent on the winding up of the Mills, the appellant made an application in September, 1950, by which it prayed for refund of security deposit along with interest. It was also prayed that the Mills held the deposit as trustee and in consequence the appellant was entitled to priority with respect to the amount of Rs. 50,000. In addition, there was a claim of Rs. 24,500 with respect to commission. That claim was given up and we are now not concerned with it. The liquidators admitted that there had been an agreement as alleged by the appellant and that a sum of Rs. 50,000 had been deposited with the Mills. But their case was that this amount was an ordinary debt with respect to which the appellant could not claim any preference and that the appellant's contention that the amount deposited was a kind of trust with the Mills was not correct. The only question that had to be decided therefore was whether the amount of Rs. 50,000 deposited as security for due performance of the contract of sole selling agency was in the nature of a trust which was entitled to preference or was an ordinary debt. The learned company judge held on a construction of the agreement that the amount was an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the agency, but clause (9) further provided that, in case the money was not refunded after one year, the appellant would be entitled to commission as if the agreement had not terminated. As the agreement itself puts it, it will remain alive even after the period of one year so long as the security with interest was not refunded and the commission due was not paid. The last words of clause (9) of the agreement put the security deposit and the commission due on the same footing. It is because of this provision that the learned company judge held that as the security deposit and the commission due were put on the same footing and the commission could only be a debt, the security deposit, in the circumstances of this agreement, could not be treated on a higher footing. It seems to us that the view taken by the learned company judge, so far as this agreement is concerned (which was upheld by the Division Bench), is correct. We may now refer to the apparent conflict between the Calcutta and Madras High Courts on the one side and the Allahabad and Bombay High Courts on the other on this question. The representative cases on the one side are : (i) In re Alliatice Bank of Simla: P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th other creditors." There can, in our opinion, be no disagreement with the principle so enunciated, and the conclusion whether the deposit is in the nature of a trust or a loan will depend upon the facts and circumstances of each case, particularly on the terms of the agreement if there is one in writing. The difficulty however arises in the application of the principle to particular cases. But the Calcutta and Madras High Courts seem to lean to the view that, where there is a security deposit, it will generally be in the nature of a trust. This brings us to the cases on the other side. The Bombay High Court in Manekji Petit's case [1933] 3 Comp. Cas. 50 ; AIR 1932 311 was also considering the case of a deposit by an agent. It considered the terms of the agreement which provided for Rs. 6 per cent, interest. Ordinarily the company was entitled to use the deposit as it thought fit, but there was a provision in the agreement that in the event of the company raising a loan secured by debentures of the company or by mortgaging the company's property, the moneys deposited by the agent were to be forthwith invested in Government securities and to be earmarked in some manner satisfacto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... something in the nature of a trust was impressed on the security deposit. In such a case the fact whether segregation was provided for or not would be one circumstance to be taken into consideration. Where segregation is provided for, the court would lean towards the deposit being in the nature of a trust. But where segregation is not provided for and the deposit is permitted to be mixed up with the funds of the person with whom the deposit is made, the court may come to the conclusion that and thing in the nature of trust was not intended, for, generally speaking, in view of section 51 of the Indian Trusts Act, 1882 (2 of 1882), a trustee cannot use or deal with the trust property for his own profit or for any other purpose unconnected with the trust. It is true that where there is a clear trust and the trust deed, if any, provides that the trustee may use the trust property as he likes, the fact that the trustee can mix the trust property with his own may not make any difference. But where there is no clear indication that a security deposit was impressed with trust, absence of segregation would be a circumstance against there being a trust. Another circumstance which may have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the employer and it was held that, without segregating any money as due to the association, there could be no trust. This case shows the significance of segregation in arriving at the inference whether there was a trust. A consideration of these English and American cases also in our opinion shows that (the first question in each case where the court is dealing with a security deposit is to ask whether on the agreement in writing, if any, and on the facts and circumstances of the case and conduct of the parties it can be said that the security deposit was impressed with some kind of a trust. If that can be said then the question whether interest was provided for and whether the trustee could mix the deposit money with his own money would not be of importance and would not take away the character of the deposit being impressed with a trust. The mere fact that money was deposited as security is not sufficient to come to the conclusion that it must be treated as trust money. The court will have to look to all the terms of the agreement if in writing and to the facts and circumstances of the case and to the conduct of the parties before coming to the conclusion whether a security ..... X X X X Extracts X X X X X X X X Extracts X X X X
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