VELJI LAKHAMSEY AND CO Vs. B R BANAJI

JUDGEMENT

(1.) In this summons the claimants dispute the order made by the liquidator refusing to admit the claim of the claimants as preferential creditors and the claim arises in the following manner. The firm of Velji Lakhamsey had prior to April, 1949, a current account with the bank in liquidation and on 29th April, 1949, there was a credit of Rs. 14,000 odd in that account. As Velji Lakhamsey wanted to pay a certain amount to Podar Trading Co. Ltd., they added a further amount of Rs. 7,000 odd making a total of Rs. 22,776-3-4. On 29th April, 1949, the claimants sent a cheque in the sum of Rs. 22,600 with a letter asking the bank to issue a draft payable to Podar Trading Company in the sum of Rs. 22,600. The bank in liquidation on 29th April, 1949, issued a pay slip in favour of Podar Trading Company or order. Podar Trading Company presented this through their bankers, the Chartered Bank of India, Australia and China for payment, but the bank in liquidation failed to pay this amount. In these circumstances the claimants argue that in fact they are now in the shoes of Podar Trading Company and that the bank held these moneys on behalf of Podar Trading Company as bailees or trustees, that this amount in the hands of the bank in liquidation was impressed with a trust in favour of Podar Trading Company and therefore Podar Trading Company are entitled through the claimants to follow these moneys as moneys had and received on their behalf by the Exchange Bank, the bank in liquidation. The facts of the case are not in dispute. The question is whether this was a normal purchase of a demand draft by the claimants through their bankers or whether the bank in liquidation received these moneys for a specific purpose and in the capacity of an agent for applying these moneys for a specific purpose.

(2.) Now, it must be stated that on the facts of this case, the claimants had a current account and it is not as if these moneys were expressly deposited by the claimants for the specific purpose of paying Podar Trading Company. In fact the current account showed a credit of Rs. 14,000 odd; they added Rs. 7,000 odd and purchased a demand draft or a pay-slip payable to Podar Trading Company or order. In these circumstances the question is whether this transaction was an ordinary transaction between the bank and its customer, namely, the purchase of a demand draft which is incidental to the normal business of the bank, or whether these moneys were received from the claimants for the specific purpose of being earmarked as payable to Podar Trading Company.

(3.) In support of his contention Mr. Khambatta has relied upon two decisions of the Madras High Court. The first is the case of Official Assignee of Madras v. Ramchandra Iyer ([1910] I.L.R. 33 Mad. 134). In that case who owed certain money to M.C. sent a cheque to bank A for the amount asking A to place the amount to the credit of M.C. who at that time had no account with the bank A. The bank informed M.C. that the amount was placed to her credit M.C. on 5th October asked the bank to send her the amount and the bank sent her the amount and the bank sent her a form of receipt to be signed by her which was signed and returned. In the meanwhile the bank had suspended payment. The bank had applied to the court for relief of the insolvent debtors and the bank's estate was vested in the official Assignee. M.C. moved for the payment of the amount. It was held that the relationship of debtor and creditor did not exist between A and M.C. and that the former held the moneys as agent of the latter when payment was suspended. Mr. Justice Munro held that as the receipt and demand for payment reached the bank before payment was suspended, the result was the same as if M.C. attended in person and demanded payment, and on the bank's failure to remit the moneys which it was the bank's duty to do the bank held the moneys in a fiduciary capacity. Mr. Justice Abdur Rahim held that as the bank received the moneys for a particular purpose and as there was no account between the bank and M.C. the bank had no right to appropriate the moneys and did not purport to do so. Now in this case it is necessary to note that O who owed certain moneys to M.C. the claimant in that case, sent a certain cheque to the bank for being realised and placed at the disposal of M.C. These moneys were realised and the bank communicated with M.C. informing her that those moneys were lying at her disposal. Clearly in those circumstances the bank at that point of time held the moneys which were specifically deposited with the bank for the express purpose of paying M.C. for the benefit of M.C. and in those particular circumstances to my mind it is more than clear such moneys in the hands of the bank were impressed with a trust in favour of M.C. The next authority referred to is another decision of the Madras High Court in the case of official Assignee of Madras v. Rajan Ayyar (1913) I.L.R. 36 Mad. 499 F.B). In that case again the facts must be clearly born in mind and what happened was that A paid moneys into a bank with express instructions to pay over the same to B who had no account with the bank and the bank wrote to B stating that they had received the moneys and held the same in suspense account pending instructions from B. It was held on appeal that the bank held the amount as agents of A for remittance to B and not as bankers either of A or B. Mr. Justice Abdur Rahim in that case observed that the relationship between the bank and B was not that of debtor and creditor and that the bank held the moneys in a fiduciary capacity as bailee of agent and a banker holding moneys of a person "in suspense" does not treat it like an ordinary customer's money. Looking at the facts and the observations in these two cases, it is clear that in such cases the bank was not dealing as debtor and creditor between two parties. There was a clear agency namely that the bank should receive certain amount as agents of A and pay over the specific amount to B. Now in this transaction the bank is not entitled to use these moneys for any purpose of the bank at all, but acts only as a transmitting agency to transmit the moneys received from A to B and in those circumstances the bank is a bailee on behalf of B when these moneys are either received or collected.