1940 (9) TMI 14 - DSC - Companies Law

Summary

Issues Involved:

1. Entitlement to the return of Government Promissory (G.P.) Notes or the exact amount due.
2. Entitlement to priority over other creditors and shareholders.
3. Entitlement to interest.
4. Deduction of Rs. 1,175-6-6 without handing over the G.P. Note for Rs. 1,000 with accrued interest.

Issue-wise Detailed Analysis:

1. Entitlement to the Return of G.P. Notes or the Exact Amount Due:

The Court examined whether Mst. Krishna Piari was entitled to the return of the G.P. Notes or a monetary equivalent. The Company Judge concluded that the notes could not be traced and thus could not be returned. The notes had disappeared from the Bank, and their return was deemed impossible. Consequently, the Judge determined that Mst. Krishna Piari was entitled to Rs. 8,700, the value of the notes at the time of deposit, less Rs. 3,341 odd, resulting in a net claim of Rs. 5,854 odd.

2. Entitlement to Priority Over Other Creditors and Shareholders:

The Company Judge relied on a precedent from the Madras High Court (Travancore National & Quilon Bank Ltd.) which held that amounts deposited with a bank for a specific purpose constituted trust money and did not form part of the bank's divisible assets among creditors. The Court agreed that the G.P. Notes were entrusted to the Bank for the ultimate benefit of Mst. Krishna Piari, making the Bank a trustee. The Bank's defence that the trust was terminated by the notice of May 20, 1935, was rejected. The Court found no evidence of trust termination under Section 77 of the Indian Trust Act. The trust could only be extinguished upon the complete fulfillment of its purpose, which had not occurred.

3. Entitlement to Interest:

The Official Liquidator argued that interest should only be allowed up to the date of the winding-up order. However, the Court held that Mst. Krishna Piari's claim was for a sum due under a trust, governed by Section 23 of the Indian Trust Act. Since the Bank had ceased paying interest on the promissory notes, Mst. Krishna Piari was entitled to recover interest up to the time of payment, as held by the Company Judge.

4. Deduction of Rs. 1,175-6-6 Without Handing Over the G.P. Note for Rs. 1,000 with Accrued Interest:

This issue was resolved as the G.P. Note had already been handed over to Mst. Krishna Piari.

Additional Arguments and Cross-Objection:

The appellant argued that the Bank did not hold the money as a trustee on the liquidation date and that there was no evidence that the notes were disposed of by the Bank and included in its accounts. The Court dismissed these arguments, emphasizing that the burden of proof lay with the Bank under Section 106 of the Indian Evidence Act. The Official Liquidator's admission in the list of debts and claims further supported the respondent's position.

The respondent's cross-objection argued for the full face value of the G.P. Notes and additional compensation due to the delay caused by the appeal. The Court agreed to add Rs. 300 to the amount decreed by the Company Judge to account for the difference in market value due to the delay.

Conclusion:

The appeal of the Official Liquidator was dismissed with costs, and the cross-objection of the respondent was allowed to the extent of Rs. 300, with no order as to costs of the cross-objection. The payment was ordered to be made within 10 days to avoid further loss.