1961 (11) TMI 33 - HC - Companies Law

Summary

Issues Involved:
1. Nature of the relationship between the holders of demand drafts and the bank.
2. Whether the bank held the money in a fiduciary capacity.
3. Applicability of established banking practices and legal precedents.
4. Entitlement to preferential payment in the liquidation process.

Issue-wise Detailed Analysis:

1. Nature of the Relationship Between the Holders of Demand Drafts and the Bank:
The primary issue was whether the relationship between the holders of demand drafts and the bank was that of an ordinary debtor and creditor or something more. The applicants argued that the bank was an agency employed for the transmission of money, thus holding the money in a fiduciary capacity. The liquidator, however, contended that the relationship was purely that of debtor and creditor.

2. Whether the Bank Held the Money in a Fiduciary Capacity:
The judgment explored whether the bank held the money paid for demand drafts in a fiduciary capacity. It was concluded that a demand draft is a negotiable instrument governed by the Negotiable Instruments Act and typically creates an ordinary debt. However, the court recognized the possibility of a special contract for the carriage of money, implying a fiduciary relationship.

3. Applicability of Established Banking Practices and Legal Precedents:
The judgment referenced several cases, such as *New Bank of India, In re* [1949], *Noakhali Union Bank, In re* [1950], and others, to determine the established banking practices. It was noted that while these cases generally treated the relationship as that of debtor and creditor, they also recognized the possibility of a special contract for money transmission. The court found that the Indian banking practice implied a contract for the transmission of money, supporting the applicants' case.

4. Entitlement to Preferential Payment in the Liquidation Process:
The court examined the statement of affairs submitted by the general manager of the bank, which placed unpaid drafts among preferential payments. This supported the applicants' claim that the money was held in a fiduciary capacity. The evidence from banking experts (C.W. 1 and C.W. 2) and the bank's internal documents indicated that the essence of the transaction was the transmission of money, not merely a debtor-creditor relationship.

Conclusion:
The court concluded that the relationship between the holders of demand drafts and the bank was not merely that of debtor and creditor but involved a fiduciary element due to the implied contract for the transmission of money. Consequently, the applicants were entitled to the preferential payment they claimed. The applications were allowed, and the applicants were granted priority in the liquidation process. No order as to costs was made.