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Issues Involved:
1. Whether the money deducted from workers' wages and retained by the Mills Company (in liquidation) can be considered trust money for which the Credit Society can make a preferential claim. 2. Whether the Credit Society can make a preferential claim over the money when the assets of the Mills Company were mortgaged to the secured creditors, and the Liquidator is entitled only to the equity of redemption. Issue-wise Detailed Analysis: 1. Trust Money Characterization: Under a tripartite agreement, the Mills Company deducted specified amounts from workers' wages to be transmitted to the Credit Society. Upon the Mills Company's liquidation, the question arose whether these funds were trust money or part of the company's assets. The applicant, Nutan Mills Employees Co-Operative Credit Society Limited, argued that the deducted amounts were trust money, making them entitled to a preferential claim. The applicant supported this claim with affidavits and evidence showing the amounts deducted and not remitted. The Court examined the nature of the funds and referenced several legal precedents, including the Central Bank of India v. Recovery Mamlatdar and Baroda Spg. & Wvg. Mills Co. Ltd. (In Liquidation) v. Baroda Spg. & Wvg. Mills Co-operative Credit Society Ltd. The Court concluded that the deducted amounts were indeed trust money, as the Mills Company acted as a trustee holding these funds for the Credit Society. Therefore, the Credit Society could make a preferential claim over these funds. 2. Preferential Claim Over Mortgaged Assets: The secured creditors contended that since the Mills Company's assets were mortgaged to them, the Liquidator had only the equity of redemption, and the funds should be paid to the secured creditors. The Court rejected this contention, stating that the funds deducted from workers' wages were trust money and not part of the Mills Company's assets. The trust money could not be mingled with the company's assets, and the Liquidator must pay the trust money to the Credit Society before distributing the company's assets. The Court emphasized that the trust nature of the funds remained intact despite the company's liquidation. The funds were to be treated separately from the company's other assets, and the Credit Society's claim was to be prioritized. Conclusion: The Court granted the Credit Society's prayer, directing the Liquidator to pay the amount due to the Credit Society from the available funds before distributing the proceeds from the sale of the Mills Company's assets. This decision was to be executed within four weeks, ensuring the Credit Society's preferential claim was honored.
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