1938 (11) TMI 14 - HC - Companies Law

Summary

Issues Involved:
1. Applicability of Section 230(1)(e) of the Indian Companies Act to the provident fund of the employees.
2. Determination of whether the provident fund constitutes trust money or forms part of the Bank's assets.
3. Entitlement of employees to preferential payment from the provident fund upon the Bank's liquidation.

Issue-Wise Detailed Analysis:

1. Applicability of Section 230(1)(e) of the Indian Companies Act:
The primary issue was whether Section 230(1)(e) of the Indian Companies Act, 1936, which prioritizes payments to employees from provident funds during liquidation, applies to the Bank in question. The Court noted that Section 230(1)(e) mandates that "in a winding up there shall be paid in priority to all other debts all sums due to any employee from a provident fund, a gratuity fund or any other fund for the welfare of the employee maintained by the Company." It was determined that Section 230(1)(e) is a forensic rule applicable to the winding up of this Bank, despite it being a foreign company governed by the Travancore Companies Regulation I of 1902. The Court held that the employees are entitled to preferential payment from the provident fund, regardless of when they entered service, as long as they were employees on the date of the winding up.

2. Determination of Whether the Provident Fund Constitutes Trust Money:
The next issue was whether the provident fund moneys were held in trust or in a fiduciary character by the Bank. The Court examined the rules and regulations governing the provident fund, which included compulsory contributions from employees and matching contributions from the Bank, along with accrued interest. The Court found that all essential elements of a trust were present: the authors of the trust were both the employees and the Bank, the trust fund consisted of the contributions, and the beneficiaries were the employees. The Court referred to similar cases, including Re Alliance Bank of Simla, Ltd., and Re Fazalbhai Mills Ltd., which supported the view that such funds were held in a fiduciary capacity. The Court concluded that the relationship between the Bank and the employees was that of trustee and cestui que trust, and the provident fund did not form part of the Bank's assets.

3. Entitlement of Employees to Preferential Payment:
Given the determination that the provident fund was held in trust, the Court addressed whether employees were entitled to full payment of the amounts standing to their credit in the provident fund account. By the combined operation of Section 229 of the Indian Companies Act and Section 52 of the Presidency Towns Insolvency Act, the provident fund was excluded from the Bank's assets. Consequently, the employees were entitled to be paid in full the amounts due to them from the provident fund, irrespective of the applicability of Section 230(1)(e) of the Companies Act. The Court directed the official liquidators to pay the amount claimed by the applicant, V.S. Venkatarangam, from the provident fund.

Conclusion:
The judgment concluded that the provident fund constituted trust money, and employees were entitled to preferential payment from it. The official liquidators were directed to pay the amounts due to the employees from the provident fund account. The Court also ordered the payment of costs to the legal representatives and the official liquidators involved in the application.