Judgment :- BALAKRISHNA AYYAR J. The Agricultural and Industrial Bank Ltd., Kundapur, is now under liquidation. When it was functioning it had a branch at Gadag. On 4th July, 1951, the Bagalkot branch of the Union Bank of Bijapur and Sholapur Ltd., sent a bill for Rs. 3, 000 to the Gadag branch of the Agricultural and Industrial Bank Ltd. for collection. This branch collected the money due on the bill on 22nd July, 1951, and, on the very same day posted a draft to the Union Bank of Bijapur and Sholapur Ltd. Owing to an error in writing the address the cover was returned to the Agricultural and Industrial and Industrial Bank Ltd., sent another draft drawn on the Bombay branch of the Canara Bank Ltd., in favour of the Union Bank of Bijapur and Sholapur Ltd. That draft returned with the endorsement that full cover had not been received. On 9th August, 1951, the Union Bank of Bijapur and Sholapur Ltd., wrote to the Agricultural and Industrial Bank Ltd., mentioning these facts. Their letter ended as follows "Please make arrangement at Bombay and arrange to send us fresh cheque for the like amount with overdue interest up to date duly added." Subsequently, the Agricultural and Industrial Bank Ltd., went into liquidation This is an application by the Union Bank of Bijapur and Sholapur Ltd., for a direction to the Official Liquidators to pay the sum of Rs. 3, 000 and interest thereon in preference to all other debts owning by the Agricultural and Industrial Bank Ltd The liquidators oppose the claim on the ground that the relationship between the Union Bank of Bijapur and Sholapur Ltd. and the Agricultural and Industrial Bank Ltd., was only that of an ordinary creditors and debtor and that therefore the Union Bank of Bijapur and Sholapur Ltd., is not entitled to priorityThe first question that I have to decide is whether when the Union Bank of Bijapur and Sholapur Ltd., sent the bill for collection to Gadag, it wanted the money to be collected and remitted to it or whether it only wanted the money to be collected and credited in the accounts of the Agricultural and Industrial Bank Ltd. The question arises by reason of the fact that when sending the bill on 4th July, 1951, the Union Bank of Bijapur and Sholapur Ltd., used a printed form from which the unnecessary words were not struck out. That part of the letter which is not material reads "We enclose the undermentioned instruments which please realise and remit/credit the proceeds thereof to ...... under advice to us. Kindly acknowledge receipt." And then there is an unsigned writing in ink "please intimate by post." Now, it is seen that on earlier occasions the Bagalkot branch of the Union Bank if Bijapur and Sholapur Ltd. had sent its bills for collection to the Gadag branch of the Agricultural and Industrial Bank. The evidence relating to four such bills has been shown to me and in all these cases the instructions were to collect and remit by draft on Bombay. It might therefore be legitimate to infer that in this case too it was intended that a similar procedure should be followed. Moreover the circumstances that the Agricultural and Industrial Bank Ltd., sent a draft shows that it too understood that it was required to collect the bill and remit the proceeds to the Union Bank of Bijapur and Sholapur Ltd. It does not also appear that the Union Bank of Bijapur and Sholapur Ltd., had a current account with the Agricultural and Industrial Bank. I shall therefore proceed on the basis that in respect of this bill for Rs. 3, 000, the Agricultural and Industrial Bank, Ltd., was an agent of the Union Bank of Bijapur and Sholapur Ltd., for collection and remittance. I shall therefore proceed on the basis that in respect of this bill for Rs. 3, 000, the Agricultural and Industrial Bank, Ltd., was an agent of the Union Bank of Bijapur and Sholapur Ltd., for collection and remittance. The question then is, is the Union Bank of Bijapur and Sholapur Ltd. entitled to be paid in preference to the other creditors ?Of the cases cited before me the earliest in time is that of Re Brown exparte Plitt (60 L.T. 397). The facts there were as follows : One Plitt received a cheque on a London Bank. As he had no banking account of his own, he handed the cheque to Brown, who carried on business as a banker and money changer, for collection. Brown collected the money on the cheque and thereafter paid part of the money to Plitt. Subsequently he was adjudicated bankrupt. The question was whether Plitt was entitled to rank as a preferred creditor. CAVE J. held "I am of opinion that the relationship between the parties in this instance was not the ordinary one of banker and customer. When that exists a banker can use a customer's money, and nothing then is created but a debt from the banker to his customer. Here the case is a different one ... I come to the conclusion that Plitt is to have this money, and I make a declaration to that effect." * The next case is reported in Alliance Bank of Simla Ltd. v. Amritsar Bank (1915 1915 AIR(Lah) 214). The facts in that case appear in paragraph 1 of that judgment The Alliance Bank of Simla, Delhi branch, sent two bills for collection the Gwalior branch of the Amritsar Bank and directed the latter to send 'your drafts on realisation' after deducting the usual charges. It appears that the Amritsar Bank realised the money, made a slight deduction for exchange, and remitted the balance by two drafts on the Delhi branch of the People's Bank, Ltd. But before the drafts could be cashed, both the People's Bank and the Amritsar Bank went into liquidation." The Court held "As stated supra, the appellant Bank distinctly asked the Amritsar Bank to send drafts on Delhi and this direction was fully carried out. We consider that as soon as the drafts in accordance with the instructions were despatched, the special business, for which the agency had been created, was completed. The agency then ipso facto terminated (vide Section 201, Indian Contract Act) and the fiduciary relationship came to an end. Henceforward the appellant bank was simply a creditor of the Amritsar Bank and if the drafts were dishonoured, the remedy was for the recovery of the debts due on those drafts. It seems to us clear that if a suit had been filed, it would have been one for money due by a debtor to a creditor and the ordinary rule of limitation applicable to such cases would have governed the action." * In In re Noakhali Union Bank Ltd. (1950 54 C.W.N. 744), the earlier case in Lahore was followed. SINHA J. observed "In cases where the Bank has collected money and issued a draft or drafts in compliance with the instructions of the party or in accordance with the ordinary course of business the payee of the draft should be treated as ordinary creditor ..... In cases where the Bank acted a agent for collecting money and issued draft contrary to the instructions of the principal or did not issue any draft or pay order at all, the money collected should be treated as trust money and should be paid in full before payment is made to creditors." * The decision on page 747 of the same volume is also to the same effect. (In re Calcutta Commercial Bank Ltd. (1950 54 C.W.N. 747)) "Where a person employs a Bank to collect money and instructs to remit the same to him either by a draft or by a cheque, the Bank becomes an agent of that person for the collection of money and when the Bank actually collects the money, it becomes a trustee and is accountable as such to that person. But the moment the Bank carried out the instructions of the principal and the draft is despatched, the relationship of trustee and cestui que trust ceases and it becomes that of a debtor and a creditor The last of the rulings read before me is a decision of a Bench of this court and it is reported in Suganchand and Co. v. Brahmayya and Co. Three cases are dealt with in that judgment. v. Brahmayya and Co. Three cases are dealt with in that judgment. In the first, O.S.A. No. 85 of 1949, what happened was this : Suganchand and Co., sent a bill to the Madurai Branch of the Hanuman Bank Ltd., for collection. The entire amount of Rs. 3, 235-2-6 was collected by the Madurai branch and thereafter the Madurai branch issued a demand draft for the entire amount on their Madras branch for payment to Suganchand and Co. But the Hanuman Bank Ltd., suspended payment before the draft could be cashed. RAJAGOPALAN J. held that Suganchand and Co., was entitled only to rank as an ordinary creditor. On appeal, however, it was held that Suganchand and Co., was entitled to be paid in priorityThe facts of the second case, O.S.A. No. 89 of 1949, were as follows : The Canara Bank sent to the Kumbakonam branch of the Hanuman Bank a bill for collection. The instructions of the Canara Bank Ltd., ran as follows "We shall thank you to collect the amount in trust for us and remit the proceeds to us by demand draft on Erode." The Hanuman Bank collected the bill and issued a demand draft on Erode office of the Hindu Bank, Karur Ltd. Before this draft could be cashed the Hanuman Bank went into liquidation. The Bench held the Canara Bank was not entitled to rank as a preferential creditor The third case was O.S.A. No. 99 of 1949, in which the facts were these : The mofussil branches of the Hanuman Bank had collected various amounts on behalf of the Indian Mutual Life Association Ltd., and in respect of those collections they had sent drafts on their Madras office. Before the drafts could be cashed the Hanuman Bank closed its doors. It was held that the Indian Mutual Life Association Ltd., was entitled to rank as a preferred creditor. PANCHAPAKESA AIYAR J. who delivered the judgment of the Court observed "The law regarding the rights of a purchaser of a demand draft is also well settled. A mere purchaser of a demand draft from a bank is only a creditor of the bank, and there is no fiduciary relationship between the bank which issued the draft and the customer who took it. ..... A mere purchaser of a demand draft from a bank is only a creditor of the bank, and there is no fiduciary relationship between the bank which issued the draft and the customer who took it. ..... It is well settled that where a cheque or a bill is entrusted to a banker for collection, whether or not the entrustment is by a person who has an account with the bank, the bank receives the cheque or the bill and collects the amount as agent of the person who entrusted the bank with the cheque or bill, and that the fiduciary relationship of principal and agent subsists till the money so collected is actually remitted by the bank to its principal .... We cannot see any different in principle between a dishonoured draft and a dishonoured cheque issued by a bank on itself, for it cannot be said that the bank has, in such cases, taken on commitments of its own in favour of a third person, at the instance of the purchaser, or accounted for the moneys in its hands to the principal by paying it over to him or his nominee or any other bank ..... We are satisfied, on the evidence, that there were requests by the Indian Mutual Life Association and by Suganchand and Co., to the Hanuman Bank, to send the collections by demand drafts on Madras, and that the sending of the drafts on the Hanuman Bank, Madras, would satisfy the terms of that request, and we reject the contention on behalf of these appellants that the request could be complied with only by sending the demand drafts on another bank in Madras .... But we hold that the Hanuman Bank was entitled to hold the moneys involved in these two appeals only in law, and that the appellants had an equitable right to the moneys, preventing the Official Liquidator from merging them with the general funds of the bank, as the appellants had not got what they had bargained for, namely, the collections made on their behalf, and the bank had not been authorised to use the collection and had not equitable right to the moneys, preventing the Official Liquidator from merging them with the general funds of the bank, as the appellants had not got what they had bargained for, namely, the collections made on their behalf, and the bank had not been authorised to use the collections and had not accounted for the collections, as a matter of fact, to the appellants, their principals, by handing them over to the appellants or their nominees, or to another bank for purchasing the demand draft and terminated the fiduciary relationship of principal and agent. The bank had not admittedly handed over the funds either to the nominees of the appellants, or credited them to any accounts of the appellants in the bank and thus terminated the relationship of principal and agent .... But merely purchasing drafts on their own bank at Madras in the name of the appellants, as per the instructions of the appellants to remit the demand drafts on Madras, and receipt of such drafts by these appellants, did not, in our opinion, terminate the relationship of principal and agent ..."In this view the appeals, O.S.A. Nos. 85 and 99 of 1949, were allowed. O.S.A. No. 89 of 1949 was dismissed on the ground that the Hanuman Bank had in accordance with the directions of the principal fully spent the money it had collected in purchasing a draft and sending it. The judgment proceeds "No doubt, the Canara Bank had not specifically named the bank on which the demand draft was to be sent. O.S.A. No. 89 of 1949 was dismissed on the ground that the Hanuman Bank had in accordance with the directions of the principal fully spent the money it had collected in purchasing a draft and sending it. The judgment proceeds "No doubt, the Canara Bank had not specifically named the bank on which the demand draft was to be sent. But the sending of the demand draft on another bank in Karur would meet the requirements of the request by the principal." * The learned Judges then referred to the case in Alliance Bank of Simla Ltd. v. Amritsar Bank 1915 AIR(Lah) 214) and remarked : "the facts here are similar, and we are satisfied that the decision in the Alliance Bank case is sound, though we may not agree with the reasoning therein." It is not possible to reconcile all the different observations that have been made in some of these cases. Nor am I very clear in my mind as to how far - if at all - the case in Suganchand and Co. v. Brahmayya and Co. should be regarded as departing from the earlier cases. The position, as I understand it, is this. An agent, whether a banker or not, to whom a cheque or bill is sent for collection, occupies a fiduciary position in relation to his principal, and in the event of the bankruptcy of the agent the principal would rank as a preferred creditor in relation to the proceeds of the cheque or bill. But, that would be so only so long as the relationship of agent and principal with respect to the proceeds of the cheque or bill subsists. If that relationship has come to an end by reason of the termination of the business of the agency, then the principal would have to be content to take his place as an ordinary creditor. Thus far it is plain sailing. It is in the application of the rules to particular instances that difficulties arise. If the agent were a bank and the instructions were to collect and credit to the principal's account, then the moment the bill or cheque is realised, the role of the bank as an agent for collection would terminate and thereafter the relationship would be only that of a debtor and a simple creditor. Similarly, if the instructions are to collect and keep or retain. Similarly, if the instructions are to collect and keep or retain. But when the instructions of the principal are to collect and remit a different set of problems would arise. Ordinarily where the instructions are to remit, an agent would have discharged his duty if he adopts a recognised mode for the transmission of the money, and, when he has thus discharged his duty his agency would terminate. If he sends a money order that would be an end of the matter. So too if he sends the money by insured post. Regard being had to the methods employed by persons engaged in trade and commerce the position, I take, would be also the same, if the agent - whether a bank or not - pays the money into another reputed bank and obtains a draft on it payable to the principal. Now, in every one of these three modes the agent, after collecting the money would have handed it over to an appropriate transmitting agency. But, where the agent gives his own cheque or draft the position would not be the same. If the cheque were given after the agent had put sufficient funds with the bank on which the cheque is drawn for the payment of the cheque, or after he had made equally effective arrangements for that purpose then too I take it, he would have discharged his duty and there would be a termination of his agency. But, when he issues a cheque without having done so he would be only making a pretence of remitting the money without having really done so and the business of the agency would remain incomplete and unterminated. Likewise where the agent being a bank, one branch of the bank instructs another branch to pay the principal. Whether the instructions take the form of a cheque or a draft or a letter would make no difference. In that case the proceeds of the bill or cheque which the bank was required to collect and remit would still remain in the hands of the bank till it is actually paid over to the principal. As branches of bank have no separate corporate existence the instructions of one branch to another to pay the principal would not take the money out of the hands of the agent. As branches of bank have no separate corporate existence the instructions of one branch to another to pay the principal would not take the money out of the hands of the agent. It will be like an individual transferring his money from one pocket to anotherIn the present case there is no clear evidence to show that the Agricultural and Industrial Bank Ltd. had placed the Canara Bank Ltd., in funds. On the other hand, the circumstance that the cheque was returned with the endorsement "full cover not received" shows that the Agricultural and Industrial Bank had not lodged sufficient funds with the Canara Bank Ltd. There was therefore no actual remittance of the proceeds of the bill. There was only a pretence of remittance or at best an attempt to do so. As the Agricultural and Industrial Bank Ltd. had not remitted the money as it was required to do it seems to me that the Union Bank of Bijapur and Sholapur Ltd. is entitled to rank as a preferred creditor The Joint Official Liquidators will pay the amount of the bill together with interest thereon at six per cent. per annum from the date of the petition. The applicants will be entitled to their costs. The Official Liquidators will be entitled to take their costs out of the funds in their hands. Advocate's fee Rs. 200 on both sides Order accordingly.