The Travancore Bank Ltd. v. P. C. Abraham — 1954 DIGILAW 9 (KER)

JUDGMENT : K.S. Govinda Pillai, J. The company which was known by the name of the Travancore Trade Agencies Ltd., had its place of business in Trivandrum. On the application of one of the creditors that company was ordered to be wound up. Then three creditors filed C.M.Ps. 6057 dated 18.12.1950, 6151 dated 21.12.1950 and 856 dated 20.2.1951 for treating them as preferential creditors. One branch of business conducted by the Trade Agencies Ltd., related to the supply of Hudson Cars. These cars were being directly imported by the Rayala Corporation, and the Trade Agencies were canvassing orders for those cars as the agents of Rayala Corporation. It was stated by the three petitioners that they had entrusted the Travancore Agencies Ltd., with the necessary amount for the purchase of Hudson Cars, that the Trade Agencies did not send the money to the Rayala Corporation, that neither the Corporation nor the company supplied cars to these petitioners, that the company therefore committed breach of trust in respect of these amounts, that subsequently small portions of those were returned, that in this affair the Trade Agencies Ltd., were only trustees for the three petitioners and that therefore the amount due to them should be paid out of the assets of the Trade Agencies Ltd., hereafter described as the company. Two other creditors of the company were the Travancore Bank Ltd., and the Indian Bank Ltd. These two banks had already instituted suits against the company for the amounts due to them. They opposed the preferential claim put forward by the three petitioners. 2. The court below held that the three petitioners were entitled to get preferential payment of the debts due to them from the company. Against this order the Travancore Bank Ltd. has filed appeal; suit Nos. 627 to 629 of 1951 and the Indian Bank Ltd. has filed A.S. 722 of 1951. The respondents in A.S. 627, 628 and 629 are respectively the petitioners in C.M.P. Nos. 6151, 856 and 6067 of 1951. The Indian Bank Ltd. has filed a consolidated appeal A.S. 722 of 1951 and the three petitioners mentioned above are the respondents in that case. These four cases were heard together as the question raised in all the appeals was the same. 3. 6151, 856 and 6067 of 1951. The Indian Bank Ltd. has filed a consolidated appeal A.S. 722 of 1951 and the three petitioners mentioned above are the respondents in that case. These four cases were heard together as the question raised in all the appeals was the same. 3. Before considering the legal relationship between the company and the three petitioners, it would be proper to mention the circumstances under which they advanced the amounts. These three petitioners stand on the same footing. The letters which passed between the company and the petitioner in C.M.P. 6151 had been exhibited in the case as Exts. A to C. It was stated that similar letters had also passed between the company and the other two petitioners. Ext. A is the earliest of these letters. It is dated 2nd January 1948. It is from the company to the petitioner in C.M.P. 6151. It was mentioned there that the company’s principals Messrs. Rayala Corporation, Madras had informed them that regular consignment of Hudson Cars could be expected from the beginning of February 1948, that the said corporation had booked orders for 15 cars to be delivered by about April of that year, that the full payment for each car along with the name of the party was to be sent to the company’s principals who would advise each party when the car was ready for delivery, that the petitioner was therefore to send in the further sum of Rs. 9,000 so that the total advance would be Rs. 12,000/- that the petitioner’s number in their register would be 12, that five cars had already been supplied to the customers and that the amount should be sent before the 10th of that month. This letter would clearly indicate that the company was acting on behalf of foreign principals and those principals were the Rayala Corporation, Madras. In Ext. B letter of 29th April 1948, the company informed the petitioner that the company’s principals had informed them that they expected to give them Hudson 1948 Model Cars by the first week of April 1948, that the cars would be received in Madras before the 20th of April 1948 and that the company should be informed whether the petitioner wanted to take delivery of the car at Madras or at Kottayam. Ext. Ext. C dated 20th May 1948 is another letter to the petitioner from the company intimating that delivery of 1948 Model Cars was expected by the middle of June 1948, that the petitioner’s brother had requested the Managing Director to give a definite date regarding either delivery of the car or the refund of the money (advance) viz. Rs. 12,000, that in case the car could not be delivered by the 20th of June 1948, arrangements would be made for the immediate return of the money, that the company was sorry for the inconvenience that had been caused owing to unavoidable circumstances and financial difficulties and that arrangements were being made for the delivery of the car within the period mentioned. 4. These letters establish the following facts. The Rayala Corporation, Madras were the direct importers of Hudson Cars. That Corporation had arranged with the company to solicit orders for these cars. The company was the agent and the Rayala Corporation, the principal, so far as the sale of Hudson cars was concerned. The petitioners had handed over advance to the company for the supply of the cars. The company had not however secured these three persons the delivery of the cars as promised. 5. The petitioners would say that by this arrangement the company was acting as their trustees and that they had therefore a preferential claim over the assets of the company. If the trust amounts had been invested in trustee’s business and if the trustee became insolvent then the assets of the trustee would be subject to charge of trust to the extent of the amount used by the trustee out of trust funds. Vide the decision in Official Assignee of Madras v. Krishnaji, reported at page 148 of A.I.R. 1933 P.C. But the question is whether the company is really trustee for the petitioners. The petitioners were aware that the company was only acting as agent of the Rayala Corporation which alone had control over the cars and so the petitioners were to look to the principals for their amount or for the supply of the cars. But this question does not arise here because of the statements recorded on the back of the petition CMP 6151 of 1950 on behalf of the contesting banks. But this question does not arise here because of the statements recorded on the back of the petition CMP 6151 of 1950 on behalf of the contesting banks. The Advocate for the Indian Bank on 10.1.1951 stated thus: “I take notice on behalf of the Indian Bank Ltd., and I object to the claim on the following grounds (i) The petition is not maintainable in law or in fact. (ii) The petitioner is only a simple creditor of the company and not entitled to preferential payment. (iii) The claim on the basis of trust is not sustainable”. The Advocate for the Travancore Bank stated in writing thus:- “I take notice on behalf of the Travancore Bank Ltd., and this petition for preferential claim is objected to on the following grounds. (i) The petition is not maintainable in law and is not to be allowed, (ii) The money alleged to be paid is to be construed only an advance made and not a trust money, (iii) The petitioner is only a simple creditor. The petition may be rejected”. These Advocates also stated in writing that no evidence was necessary for the disposal of these petitions. So we proceed on the assumption that money was due to the petitioners from the company and that the appellants were quite willing to treat the petitioners as simple creditors. 6. The term “trust” is defined in the Indian Trusts Act, S. 3 as: “An obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner”. 7. In the Commentaries of the Indian Trusts Act by OM Prakash Aggarwala (1950 Edn.) at page 58 it is stated thus: “This definition of “trust” which has been taken from the New York Civil Code, has been modified to avoid the risk of confounding trusts with bailments; and in order to obviate the possible introduction of conception resembling the English legal estate and equitable ownership. The interest of the beneficiary has been defined to be his right against the trustee as owner of the property. The beneficiary has, under the Act, no estate or interest in the subject matter of the trust”. 8. The interest of the beneficiary has been defined to be his right against the trustee as owner of the property. The beneficiary has, under the Act, no estate or interest in the subject matter of the trust”. 8. A Full Bench of the Madras High Court had in Narasimhaswami v. Venkatalingam and others, reported at page 636 of A.I.R. 1927 Madras (F.B.) has held that a trust was in effect the gift the property or an interest in property to a person or institution by or through the intervention of a trustee. In every trust the beneficiary is clothed with title to the property - not indeed a legal title because that resides in the trustee - but an equitable one; there must be a fiduciary relationship between the trustee and the beneficiary, and if there no such relationship there is no trust also. 9. The points of distinction between a trust and contract are, as mentioned at page 64 of Aggarwala’s Commentaries of Indian Trusts Act:- (i) The beneficiary of a trust has the beneficial interest in the trust property; the beneficiary of a contract has merely a personal claim against the promisor, or, if the contract is specifically enforceable, certain rights. (ii) There is a fiduciary relationship between trustee and beneficiary, whereas there is no such relationship between the promisor or promisee and the beneficiary of a contract. 10. Further at page 66, of the same Commentaries, the distinction between Trust and Agency is summed up as follows: “Cases of trust, are easily distinguishable from those of agency. Where there is a trust, the property at law in the land or goods or money subject to the trust is in the trustee. The trustee is personally liable on all contracts although he may have a right to proceed against the trust funds or against the cestui que trust. An agent has not the property at law in the goods entrusted to him. If an agent enters into a contract as agent he is not personally liable; the contract is with his principal”. 11. Bearing this distinction in mind, it is evident that the company was not acting as trustee of the petitioners who wanted the purchase of Hudson cars from the Corporation through the agency of the company. If an agent enters into a contract as agent he is not personally liable; the contract is with his principal”. 11. Bearing this distinction in mind, it is evident that the company was not acting as trustee of the petitioners who wanted the purchase of Hudson cars from the Corporation through the agency of the company. If the company has misappropriated the funds entrusted to it then the petitioners’ right would be a suit for return of the money or a suit to claim damages. The petitioners could then therefore rank only as ordinary creditors and they could not claim any preferential treatment so far as the money due to them. The view therefore taken by the court below that the company was a trustee for the petitioners cannot be accepted. The petitioners can rank only as other ordinary creditors of the company. They cannot get any priority under S. 61 of the Provincial Insolvency Act, the provisions of which are allowed to be applied in the case of a company which is wound up. Some decisions were referred to by the learned Advocate for the respondents and on going through the same it was found that they would not apply to the facts of the present case and so it was not necessary to refer to them in detail. 12. The result is that the order of the lower court is reversed and the petitions of the respondents for preferential treatment are dismissed with costs in both the courts. Allowed.