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Issues:
- Interpretation of Section 282-B (1) of the Indian Companies Act regarding the deposit of employees' monies with a scheduled bank. - Priority of the appellant in the liquidation of a scheduled bank in which employees' security deposits were made. - Determination of the bank's role as a trustee and the legal effect of depositing monies for a specific purpose. Analysis: The judgment addressed the appellant, a company conducting a banking business, which required its employees to deposit money as security in compliance with Section 282-B (1) of the Indian Companies Act. The section mandated that such monies be deposited in a scheduled bank and utilized only for the purposes agreed upon in the contract of service. The bank in question, which was a scheduled bank under the Reserve Bank of India Act, later went into liquidation. The central issue revolved around whether the appellant could claim priority in the liquidation process over ordinary creditors due to the deposits made by employees. The appellant contended that although the bank did not hold the monies as a trustee for the employees, the property delivered for a specific purpose should not pass to the trustee in bankruptcy. Citing Halsbury's Laws of England, the appellant argued that such property is akin to trust property and should be treated as such. However, the court rejected this argument, emphasizing that while the deposited money was indeed trust money, it did not alter the basic debtor-creditor relationship between the bank and the appellant. The court clarified that the bank, though aware of the trust nature of the deposits, was obligated not to participate in any breach of trust by the appellant, but this did not elevate the bank to a trustee status. The court concurred with the lower court's decision, affirming that for the appellant to succeed in claiming priority, the bank should have been in a trustee position or the money should have been deposited for a specific purpose. Since the bank was not a trustee and the deposits were not earmarked for a specific purpose from the bank's perspective, the appellant's claim for priority failed. Despite the statutory obligation to deposit the monies in a bank, the bank's role remained that of a banker maintaining a customer account. The court concluded that there was no breach of trust by the bank, thereby dismissing the appeal and ordering costs to be paid by the appellant.
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