BARODA S AND W MILLS COMPANY LIMITED Vs. BARODA S AND W RAJRATNA SHETH ZAVERCHAND LAXMICHAND CO OP CREDIT SOCIETY LIMITED BARODA

JUDGEMENT

(1.) This summons is taken out by the official Liquidator of the Baroda Spinning and Weaving Mills Ltd. (In Liquidation) for deciding the following question: Whether the amount standing as credit balance in the account of credit Society (The Baroda Spinning and Weaving Mills-Rajratna Sheth Jhaverchand Laxmichand- Co-operative Credit Society Ltd.) is trust money. not forming part of the assets of the Company and that the Society ranks outside winding-up. OR Whether the amount is part of the assets of the Company and distributable as such in course of winding-up ?

(2.) On a petition filed by Western India Dye-stuff Corporation being Company Petition No. 6 of 1967 presented on 8th March 1967 the Baroda Spinning and Weaving Mills Ltd. (hereinafter referred to as the Company) was ordered to be wound-up by an order dated 17th April 1968 and the Official Liquidator was appointed as the Liquidator of the Company. The Liquidator proceeded to take into his custody all the property effect and actionable claims to which the company was entitled. The Liquidator also took into his custody the books of accounts and other documents of the company. After the statement of affairs was filed the Liquidator in course of examination of the books of accounts of the Company came across an entry showing a credit balance to the extent of Rs. 86 166.86 p. in the account of the Baroda Spinning and Weaving Mills (Rajratna Sheth Jhaverchand Laxmichand) Co-operative Credit Society Ltd. hereinafter referred to as the Society. In response to the advertisement inviting the creditors of the Company to prove their debts or claims and to establish any title they may have to priority under sec. 530 of the Companies Act the society approached the Liquidator with a request that the amount standing to its credit h1 the books of accounts of the Company was held in trust by the company and must be paid to the society before any amount is paid to any one in his capacity as creditor of the company. It appears that before approached the Liquidator the society moved the Court in Company Application No. 43 of 1973 for a direction that the Liquidator should be directed to pay the aforementioned amount from the assets of the company before making payment to any one as creditor of thee company. The Court directed that the Society should first approach the Liquidator with its request. Accordingly the society approached the Liquidator with an affidavit claiming the amount to be paid in priority to ally one else or set is apart for paying in full before making payment to any creditor in distributor of the assets of the company. It is at that stage that the Liquidator felt handicapped in deciding the claim of the Society and moved this Court with the present application for decision of the question hereinabove set out.

(3.) In order to appreciate the contention raised in this application it is necessary to set out the relevant facts which would show the circum- stances in which the Company came in possession on the amount now claimed by the Society. The Company was incorporated prior to 1943. Some of the employees of the Company formed a Co-operative Credit Society which came to be incorporated on 7th June 1943 under what is styled as Baroda Co-operative Societies Nibandh 1926 and this becomes evident from the certificate of registration issued by the Co-operative Officer on 12th June 1943 which is Annexure A to the affidavit of E. L. Javde Vice-President of the Society. The object for which the Society was formed as set out in bye-law 3 of the bye-laws of the Society is to encourage thrift and saving and to extend credit on easy terms to the members and to find ways and means to assist the children of the members in prosecuting their studies and to be helpful in the welfare of the members of the Society. Membership of the Society was open only to the employees of the Company or to the employees of the Co-operative Credit Society or the canteen of the Company. Bye-law 15 provided that every member will have to make a compulsory saving as set out therein. Provision was made in bye-laws 44 to 53 for extending credit and loans to the members repayable by easy instalments at moderate rate of interest. These bye-laws were approved by the Registrar and registered by him. Any member desirous of taking a loan had to make an application in the prescribed Form and the prescribed Form which is annexed to the affidavit shows that the member taking the loan agreed to repay in the member set out in the Form it being that the member who is the employee of the Company would permit deduction of the monthly instalments as also amount of compulsory saving and the interest payable by him on the loan taken by him from the salary or wages which he is to receive from the Company month to month. The tripartite arrangement worked out between the Company the Society and the members of the Society appears to be that on an application being made by the member the Society would advance a loan and the member in turn would agree to repay the loan by equal monthly instalments by the Company deducting the amount of instalments from the wages payable to him month to month and the Company paying over the money to the Society. There appears to be such a tripartite arrangement which has been in vogue since the incorporation of the Society. The Society accordingly claimed that the amount so deducted by the Company from the wages of its employees who were members of the Society on the requisition for deduction being made by the Society the Company was only a collecting agent and the amount so collected by the Company by making the necessary deductions was impressed with a trust and therefore the amount did not form part of the assets of the Company and the Liquidator cannot take charge of the same and that as the Liquidator has taken charge of the amount of the Company he should be directed to hand over the amount to the Society. It appears from the record that the amount thus collected by the Company till 30th June 1966 was remitted and paid over to the Society and the amount that remained to be paid over consisted of the deductions made between July 1966 to October 1966. The Company closed down its business somewhere on 9th October 1966. The Society accordingly claimed that the Company being a collecting agent under a tripartite agreement any amount that came into its hands by way of deduction from the wages of its employees was impressed with the trust because the Company collected it for and on behalf of the Society and it is obligatory for the Company to pay over the amount to the Society. Alternatively it was contended on behalf of the Society that as the collections were made by making deductions froM the specific wages already earned by the employees for transmission to the Society the Company had neither the legal nor the beneficial interest in the money and was merely holding it in trust for the Society till such time the amount is handed over to the Society and therefore it must be paid over to the Society before the Liquidator proceeds to distribute the assets of the Company among the- persons having interest in the Company.