Kush Dan Khan Kabuli vs Official Assignee on 8 April, 1935

Madras High Court
Kush Dan Khan Kabuli vs Official Assignee on 8 April, 1935
Equivalent citations: AIR 1936 Mad 21
Author: Mockett


Mockett, J.

1. This is an appeal from an order passed by the Official Assignee. The official Assignee ruled that a sum of Rs. 900, admittedly the appellant’s money, which at the date of the insolvency was in the hands of the insolvent, could be regarded as an unsecured claim only. The appellant’s case is that this money was the subject of a trust and under Section 52, Presidency Towns Insolvency Act, was not divisible among the creditors. Several authorities have been cited before me. These naturally have been of assistance, but in this case there is not in my view any question of principle involved which has not been clearly dealt with by this High Court and the Privy Council. All I have to do is to ascertain the facts and to apply to them the principle of law applicable. In this case it is most important to consider what exactly happened in the proceedings previous to this appeal. The Official Assignee was appointed interim receiver on 8th January 1934 and the insolvent firm were adjudicated on 13th March. The money involved, namely Rs. 900, was entrusted to the insolvent in currency notes on 22nd November 1933 and it should be noted that this was the only transaction (I use that word for lack of a better) which the appellant had with the insolvent. The order of the Official Assignee in this case is dated 9th February 1935 and no evidence was called on either Bide. I am quite satisfied why that was so. It was because before the Official Assignee there was no contest with regard to the facts and this case was adjudicated by the Official Assignee on the basis that the facts so far, as they appear from the documents, were true. Before me, & clerk of the Official Assignee was called to explain the books of the insolvent. On 26th January the appellant put in his claim and the endorsement on the back of it is as follows:

Letter dated 22nd November 1933 showing that the insolvent company have received Rs. 900 in Anamath. The letter will be produced at the time when the Official Assignee admits the claim of the claimant.

2. The appellant understands only Hindustani and not Tamil or English. The letter mentioned above is Ex. A. It is a receipt given by the insolvent to the appellant and it recites “the amount received from self in cash with instructions to keep in suspense (anamath)- Rs. 900.” It is written in Tamil. On 6th February 1935 Mr. S. Ramachandran, the appellant’s advocate, wrote a letter to the Official Assignee setting out the facts on which he relied. I would set out the letter in full:

My client Kushdan Khan Kabuli, No. 50 Abdul Hafiz Sahib Street, Choolai, Madras, is a petty hawker having no definite place of residence at Madras. As he used to be in the Masjid near the business premises of the above insolvent and being afraid of the chance of losing the collections he made, he entrusted a sum of Rs. 900, with the insolvent firm on 22nd November 1933 for safe custody. My client had confidence in the honesty of the insolvent’s firm, and the said amount of Rs. 900 was entrusted to him on trust and for safe custody. As evidencing the receipt of the sum of Rs. 900 from my client the insolvent firm gave him a letter stating that the amount of Rs. 900 paid by my client is held in suspense. My client states that there was no relation of creditor and debtor between my client and the insolvent firm at any time, and there was no prior or subsequent dealings between my client and the firm either in selling and purchasing goods or in lending and borrowing moneys, so as to raise any presumption of relationship of debtor and creditor between my client and the insolvent firm. The entries in the insolvents accounts-ledger No. 26, p. 53, fully support the claim of my client, Srimukha Karthiga 7 : (Received Rs. 900 to be kept in suspense). In the daybook of the firm the entry is to the same effect. The insolvent seems to have mixed up the trust money along with his own money and my client is entitled to follow it and claim the full amount. In re Hallett’s case (1880) 13 Ch D 696. The amount was given by my client to the firm in a fiduciary capacity and there was no stipulation for payment of interest on the amount. Under the law the person whose money is held in suspense is entitled to withdraw it at any moment he likes, and the firm is a trustee for the claim amount in respect of Rs. 900 entrusted to them for safe custody. It is therefore necessary that you will pay Rs. 900 in full to my client out of the estate of Cawder Hussain Sahib & Co.

3. It will be seen that the appellant is a kabuli petty hawker without any residence in Madras and as he used to sleep in a mosque, he feared he might; lose his collections, that is, the sum of Rs. 900, and so entrusted them with the insolvent firm for safe custody because he said he had confidence in the insolvent firm. The amount was entrusted to them for safe custody and evidencing the receipt, the insolvent gave him a letter stating that the amount is held in suspense. There was no question of interest being paid and there was no question of any dealings. The Official Assignee by his Advocate, Mr. K.S. Rajagopala Iyengar, at first argued that the result was the insolvent was entitled to use that money in his own business and the argument proceeded on that basis. I took the view and still take the view that this money was handed over for safe custody and that the insolvent firm were in a fiduciary capacity to the appellant; and Mr. Rajagopala Iyengar stated as follows:

I admit that if A leaves money with B on terms that B is to keep the money apart for A, then it would be in a fiduciary capacity.

4. This is what Channel, J., laid down in Henry v. Hammond (1913) 2 KB 515 which was followed by Coutts-Trotter, C.J., Krishnan and Odgers, JJ. in Kadiresan Chettiar v. Ramanathan Chetti 1927 Mad 478. Coutts-Trotter, C.J., speaking of the fiduciary relationship between the principal and the agent at p. 481:

The test is whether the agent is entrusted with funds of his principal for the purpose of their being employed in a particular manner, which it is his duty to keep distinct and separate from his own moneys. If he then makes use of them for any other purposes than those to which he has instructions to apply them, his liability is that of a trustee.

5. I attach great importance to the appellant’s claim that this money was handed over for safe custody. It seems to be a perfectly reasonable story. Here is a kabuli in Madras without any place of abode; he goes to a co-religionist in order that his money might be kept safe. I think that if money is to be kept in safe custody, it should unquestionably be kept separate and I entirely repel the suggestion that, under the circumstances, the receiver of the money is entitled to regard it as money within his disposition so that he might invest it in his business. The absence of any question of interest being paid strengthens my view that the appellant’s story is not only reasonable but true. Reference has been made to the classic case of Sinclair v. Brougham (1914) AC 398 where In re Hallett’s case (1880) 13 Ch D 696, another great authority is fully discussed. As I have already said I do not think that in 1935 the law on the subject leaves very much room for discussion. It has been fully considered lately by the Judicial Committee in Official Assignee, Madras v. Krishnaji Bhat 1933 56 Mad 570. In that case a sum of Rs. 10,000 was left in the hands of jewellers for investment in their business at a fixed rate of interest, namely 9 per cent. the amount to be paid over to the minor on his attaining majority and the interest in the meanwhile to be paid to the creditor’s father. At p. 576 it is stated:

The Rs. 10,000 was received by the insolvent firm for investment in their business and there is no suggestion that it was not so invested in fact.

6. They held that there was no substance in the contention that though if the fund had been improperly employed in the business of the trustees, the beneficiary would be entitled to a charge from the whole of the assets, no such right could be accorded to him if the employment of the funds was in pursuance of the terms of the trust. In this case, I find as a fact that funds were not entrusted for the purpose of investments in the firm but were entrusted for safe custody to be returned to the appellant when he asked for them back and that when moneys are entrusted for safe custody the necessary implication is that they should be kept separate from the moneys of the person to whom they are entrusted. A clerk from the Official Assignee’s office explained the book in this case which shows that Rs. 900 was received on the 22nd November. Between that date, 22nd November 1933 and 6th January 1934, cash purchases of Rs. 778-0-6 were made for goods. For example, on the 22nd November 1933, Rs. 4-8-0 was spent for purchase from one M. Rangaswamy of one piece of bleached mull bearing No. M. D. 73. He says that none of these goods can be identified as having passed to the Official Assignee and asks me to infer therefore that the goods that remained in the hands of the Official Assignee must have been purchased from out of other moneys. There are in fact goods to the value of Rs. 10,000 in the hands of the Official Assignee, and in the absence of clear evidence to the contrary, I see no reason why it should not be held that those goods may be reasonably supposed as having had their origin from the money of the appellant. I am also asked to infer that when on 24th November Rs. 100 was borrowed and paid out, the whole of Rs. 900 was therefore spent before then. Here again I do not see why I should presume any such thing or indeed anything at all in favour of the insolvent whom the Official Assignee now represents.

7. Towards the end of this case, the Official Assignee attempted to take up another attitude, namely that it has never been proved that this money was in trust. I do not think he can now be heard to reject the statement of facts on which this finding has been made. If he had contested it at any time, he should have insisted on evidence being recorded. I may say that in these claims before the Official Assignee, where there is a contest, evidence should be recorded on both sides. I do not think that on the facts there was ever any contest. The order of the Official Assignee itself has only to be read to see that it is only on the basis of the truth of the appellant’s story that the order is made. A number of cases relating to the receipt of money by bankers have been quoted and the Official Assignee rejected the suggestion that the insolvents were bankers and expressly held that they received the money as respectable and wealthy merchants whom the kabuli could trust to give him back his money when required. The Official Assignee relied on the decision in Official Assignee of Madras v. Smith (1909) 32 Mad 68 which was a case of a deposit with bankers and on that analogy he says that this money could go into the general account of the insolvent. He, as I have already observed, expressly differentiates the position of the insolvent and the banker. I think the decision in Official Assignee of Madras v. Rajam Aiyar (1910) 36 Mad 499, which draws the difference between moneys received by the bankers and between moneys received by persons not as bankers, is in favour of the appellant in this case. Much reliance has been placed by the Official Assignee on the use of the words “in suspense” and on the manner in which the insolvent used the money. I think the true test is how the money was deposited, not how the depositee thought fit to use it and I am not going to place an adverse and technical interpretation on the use of the words “in suspense,” contained in a Tamil document handed to a man who cannot speak or read Tamil. There is ample authority for the proposition that for the purpose of Section 52, Presidency Towns insolvency Act, a trustee therein means anyone in a fiduciary capacity. I am asked to hold that a person receiving money to be looked after is not in a fiduciary capacity. This seems not only contrary to the plain meaning of the words but also contrary to the admission made and which is set out by Mr. Rajagopala Iyengar. My view is that this money was handed over for a specific purpose by a man who placed reliance on the depositee by reason of his difficult circumstances in a strange part of India, and that it was a duty of the depositee to do nothing more than to keep the money apart and return it to the depositor when requested, and that, being in that fiduciary capacity, he committed breach of trust in using the money for his own business and that those moneys had been sufficiently traced into the business of the insolvent firm now represented by goods of which there is a surplus of Rs. 10,000. As a result of these conclusions, I think the order of the Official Assignee is wrong and this appeal should be allowed with costs on the original side scale.

Leave a Comment

Your email address will not be published. Required fields are marked *

* Copy This Password *

* Type Or Paste Password Here *

Cookies help us deliver our services. By using our services, you agree to our use of cookies. More Information