The matter now before me concerns the position of creditors Nos. 1, 7, 8, 15, 22, 35, 40, 41, 42, 47, 48, 51, 58, 73, 75 and also Nos. 9 and 26. The amounts of their claims have been admitted by the learned Official Liquidator. It is unnecessary for me to mention the exact sum for which each of these creditors has been admitted by him. The position taken up on behalf of these creditors and urged before me arises from the following circumstances. All of them were employees of the bank. As a condition for obtaining employment, either the employees themselves or some person on their behalf paid to the bank a sum of money by way of what was called security deposit in respect of the employment of the employees. That was a sum which was paid to the bank as a gesture of honesty and by way of security for their faithful and honest service whilst in the employment of the bank. There can be no doubt that the moneys paid by or on behalf of these employee-creditors were paid for the purpose and under the circumstances I have mentioned. When the bank advertised for employees as they did in the issue of the “Hindu” dated the 7th of January 1935, the advertisement stated that cash security of Rs. 1,000 in respect of each employee will be required. All the moneys paid by way of security deposit in respect of the employees' faithful service was placed upon fixed deposit and receipts were issued by the bank to the payers of the sums in respect of each employee. On one of such receipts, if not more, it is expressly stated that the money, the subject of the fixed deposit, was by way of security deposit in respect of the employee. These fixed deposit receipts provided for various lengths or periods of time during which the moneys were to remain on deposit before they could be withdrawn by the depositors and also varying rates of interest. I am satisfied that the placing of these moneys on fixed deposit was the machinery by which the payments were acknowledged by the bank and the method by which the bank was intimating to the depositors that their moneys were safeguarded. Although in the majority of deposit receipts no reference is made to the object of payment, namely, by way of security deposit, looking at each transaction and the necessary matters connected, as a whole it is quite clear to me, whether the deposit was made before, at the time of, or after, the actual employment, that the deposit formed part and parcel of the engagement transaction. The moneys should have been held by the bank in trust since expressly they were paid as security for good behaviour, recourse being had by the bank only when they were justified in looking to the employee to recoup them in respect of losses sustained by reason of some default or act by the employee. Interest was payable upon these moneys and in one case at least was paid. It is contended on behalf of the Official Liquidator that since there was an agreement by which interest was payable the moneys paid as security deposits cannot be the subject of a trust and reliance was placed in support of that proposition upon the decision in Arbuthnot & Co. v. Sabapathy Mudaliar(1) the head-note of which is as follows:
“………the amount paid in by the employee of the insolvent company and held in fixed deposit by the latter in their own name was not money held in trust.”
The head-note does not quite fully set out the effect of the judgment which was that if interest was payable it was not the subject of a trust. A somewhat similar decision is found in G.K Malvankar…Plaintiff v. Credit Bank Of India Ltd.…Defendant . this decision, the matter has been before the Privy Council in the Official Assignee of Madras v. Krishnaji Bhat(2). In the two earlier cases it was apparent that the monies paid by way of security deposit was used in the ordinary business of the depositees to the knowledge perhaps of the depositors. Dealing with this point their Lordships of the Privy Council in the last case I have mentioned at page 576 say as follows:
“Much argument was expended in the lower appellate Court and before the Board on the doctrine of following trust funds, and it seemed to be suggested that though, if the fund in the present case had been improperly employed in the business of the trustees, the beneficiary would be entitled to a charge upon the whole of the assets (see S. 66 of the Indian Trusts Act, 1882), no such right could be accorded to him if the employment of the funds in this way was in pursuance of the terms of the trust.”
On moneys paid by a depositor, as was paid here, as security, interest being payable, it was not part of the bargain that these monies were, as I have said, expressly to be used in the business of the bank. So far as the question of agreement to pay interest is concerned, in In re Fazalbhai Mills Ltd.(3) Kania, J. at page 552 says:
“It was next pointed out on behalf of the liquidator that the payment of interest and the fact that in the interval the fund was intended to be used by the company indicate that there was no fiduciary relationship but that the company stood in the position of a debtor only. In support of that contention reliance was placed on the decision In re Maneckji Petit Manufacturing Company(4). The question in that case was about the deposit made by the selling agents of a mill as security for the due discharge of the terms of the agency agreement. The company bound itself to pay interest on the amount deposited, and agreed to invest the amount in government securities and keep the securities ear-marked to the satisfaction of the agents.”
Later on the learned Judge comments upon the earlier Bombay case and refers to Gee v. Liddel(5), and says in effect that the question of agreement to pay interest on monies deposited, those monies being trust monies, cannot destroy the character as such of those moneys which still remained trust monies. I respectfully agree with this conclusion. In my view, these monies paid by the depositors when they reached the hands of the bank were trust moneys and so remained so long as the moneys were in the hands of the bank.
The next question which arises is, whether there are monies which can be traced to the bank's assets, which can be said to be these trust moneys. When a trustee spends money it is presumed that he spends his own money first before he exercises himself in respect of the monies of which he is a trustee. I am told that the assets of this company, so far as they were represented by cash at the date of the petition for winding up, amounted to Rs. 3 or 4 only, but the total assets represented either by moveable properties of various descriptions or of monies due to the company amount to a not inconsiderable sum. The creditors in question allege that they are entitled to follow these monies by reason of the provisions of S. 229 of the Companies Act, which enacts that the rules and provisions of the Presidency Towns Insolvency Act shall apply to companies' winding up. S. 52(1) of the Presidency Towns Insolvency Act provides that the property of the insolvent divisible amongst his creditors shall not comprise “(a) property held by the insolvent on trust for any other person.” That means property at the date, so far as the company is concerned, of its winding up, held by the company on trust. It does not mean that monies which have been entirely dissipated are to be deemed to be held on trust, but if the assets of the company can be traced showing the existence of trust property, then the creditors are entitled to rely upon the provisions of S. 52(1)(a) of the Presidency Towns Insolvency Act. The question of tracing trust monies has been considered in Veerappa Chetty v. Official Assignee, Madras the relevant head-note being No. 3—Trust monies invested in trustees' business firm within the meaning of S. 63 of the Trusts Act—and Beasley C.J, in the course of his judgment at page 690 says:
“The right of the beneficiary to follow trust money does not depend upon the act of the trustee being a wrongful one, and that trust money invested in a business can be traced within the meaning of S. 63 Trusts Act, to the eventual assets of the business.”
In Taylor v. Plumer Lord Ellenborough at page 726 says:
“It makes no difference in reason or law into what other form, different from the original, the change may have been made………for the product of or substitute for the original thing still follows the nature of the thing itself, as long as it can be ascertained to be such.
In The Official Assignee of Madras v. Krishnaji Bhat their Lordships of the Privy Council at page 578 referring to the facts of the case then before them say:
“In the present case once it was admitted that the Rs. 10,000 was a trust in the hands of T.R Tawker & Sons to be invested in their business and was so invested, it must be taken to have remained a part of the assets of that business and to have been there at the date of their insolvency, the beneficiaries being entitled at all times to a charge upon such assets in the hands of the firm.”
In my view the payments made by the depositors in respect of the employees' employment to the bank were trust monies and that trust money can be followed so as to reach the assets of the bank from whatever source they might come being clearly laid down, the tracing of assets in that way is the proper principle of law to apply in regard to these matters. The result is that the claims made by the creditors I have enumerated will be allowed.
There is one other point with which I desire to deal. It is this. Two of the creditors Nos. 1 and 35 having deposited monies with the bank by way of fixed deposit, a few days later wrote letters to the bank purporting to grant to the bank a lien on the amount of deposit in respect of the employment of employees. Although the language used is lien, and the method of carrying out the transactions was slightly different in regard to others, looking at the transaction as a whole, I am satisfied that there should be no difference between these two depositors and the other depositors to whom I have referred. The result is that these two claims will be allowed, that is to say, there will be a declaration that the assets of the company coming into the hands of the official liquidator will be ear-marked first of all to the discharge of the claims by the depositors upto the amount of the deposit with interest upto the date of the liquidation at the rates prescribed in the respective fixed deposit receipts. If the assets of the company are insufficient to discharge these debts in full, then the divisible assets will be divided pro rata amongst these creditors.
The creditors concerned are entitled to costs. There will be one set in respect of creditors: 1 and 42-7-8, 47, 48 and 75—and 35, 40, 41 and 51 and one set for 22 and half a set for 58 and 73.
So far as creditor No. 78 is concerned, he was originally a depositor and in the claim put forward on his behalf to the official liquidator claim is made not by way of return of deposit but in respect of three promissory notes which had been given to the depositors in discharge of the deposit indebtedness. No claim having been made against the official liquidator for the return of the monies as deposits, that particular creditor will not have the benefit of the decision which I have given just now.
The official liquidator will deal with the debts due to creditors Nos. 9 and 26 in the same way as he is directed to deal with the creditors whose claims I have just considered. The costs to be allowed are fixed at Rs. 25 each set.
Order accordingly.
N.R.R