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TMI Blog1993 (7) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... have all the usual powers and rights taken by banks and financial institutions including ( a ) a charge' on all assets and equipment purchased from monies borrowed ; ( b ) the right to see that the first respondents were to utilise monies advanced ; ( c ) the right to adjust accounts and balances in other accounts of the first respondent, etc. The first respondents were permitted to utilise this facility at two branches, viz., at the Industrial Finance Branch at Bombay and at the M. G. Road Branch, Bangalore. It is not disputed that at the Industrial Finance Branch, there is due and payable by the first respondent to the applicants a sum of Rs. 52,03,544,02 and that at the Bangalore, M. G. Road Branch, there is due and payable a sum of Rs. 52,44,450. The third respondent appointed the applicants as their principal bankers for the purposes of collecting proceeds of the; rights equity issue of respondent No. 3 at Padmavatidevi Chaugan Branch, Baroda. As such principal banker, the applicants have collected on, behalf of the third respondent a sum of over Rs. 300 crores. Respondent No. 3 had availed of a bridge loan of Rs. 50 lakhs from respondent No. 1. Respondent No. 3 thus di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents, the applicants became entitled to credit the same into the account of the first respondent. He submits that by such crediting, there will be an appropriation towards the amount due and payable by the first respondent to the application. He submitted that even in law the application have banker s lien and tight of set off. He submits that the applicants are entitled to now appropriate this amount towards their dues. Mr. Doctor submitted that the right of appropriation is a right which is given to the applicants by reason of the agreements dated August 14, 1991. He submits that this right is prior to the first respondent being notified and, therefore, the prior right will prevail. He submits that there can be no attachment over these monies. As against this Mr. Kapadia has submitted that this court has no jurisdiction to entertain and try this application. He submitted that under the Special Courts Act this court has been established "merely for the purposes of trial of offences relating to transactions in securities. He submitted that this court has no jurisdiction to entertain or decide any civil claims in respect of any property. An identical submission was already agi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that so far as the sum of Rs. 50 lakhs is concerned, it is held by the applicants in trust for and on behalf of the third respondent. It was submitted that the applicants;; are bound to, follow the directions of the third respondent regarding the disposal of the sum of Rs. 50 lakhs. It is submitted that the third ; respondent directed, the applicants to pay this amount to the first respondent It is submitted that, by reason of the applicants not having paid the, amount till today, the debt due from the third respondent to the first respondent does not stand discharged till date. Mr. Kapadia and Mr. Joshi also submitted that on July 2,1992, all properties of the first respondent stood attached. They submitted that after an attachment, there can be no alienation of any of the properties of the. notified party. They submitted that as the amount became payable only on December 17, 1992, i.e., after the date of the notification, the amount stood attached in the hands of the third respondent. They submitted that, the amounts having stood attached in the hands of the third respondent, there can be no question of the applicant being entitled to exercise any lien or set off in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the rights issue. As has been set out by this court in the case of Reserve Bank of India v. Bank of Credit and Commerce International (Overseas) Ltd. [1993] 78 Comp Cas 230 (Bom.), monies which have been so received do not form part of the general assets of the bank. The bank receives these amounts in a fiduciary capacity. At the most the bank is a trustee in respect of these amounts. In this behalf, it would be relevant to set out certain observations and the discussion of law on this subject in this judgment. In the judgment it is stated as follows (at page 242) : " Learned counsel for respondents Nos. 1 and 2 has controverted the said contentions Learned counsel for respondent No. 2 submits that there is no privity of contract between the first respondent-bank and the subscribers. Learned counsel for respondent No. 2 submits that the relationship constituted by the said deposit between the bank and the company is an ordinary relationship of banker and customer, i.e ., debtor and creditor and there is no special relationship in respect of the said amounts as contended on behalf of the applicants. Learned counsel submits that the amounts in question form part of gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er : . . . . When money is delivered to a bank for application to a particular specific purpose it is not a general deposit creating the relationship of debtor and creditor, but a specific deposit creating the relationship of bailee and bailor or trustee and beneficiary. (emphasis supplied). The above statement of law was approved by the Supreme Court and lays down the relevant principles accurately. In Shanti Prasad Jain's case [1963] 33 Comp Cas 231 (SC), the account was opened with the German bank with a stipulation that the said Mr. Jain was not to operate the said Recount except for the purposes specified and the bank was informed of the arrangement under which the deposit was made. It was held by Venkatarama Aiyar J. that in the circumstances, the bank had only custody of the money as if it was a stakeholder with liability to hand it over to the person who would become entitled to it under the arrangement. It was held by the court that the moneys so held by the bank under a special arrangement could not constitute a relationship of debtor and creditor but constituted the bank as a trustee or a stakeholder." I shall now refer to the leading judgment of the House ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., but was entrusted for being used only for payment of dividend coupled with the conditions that if for any reason the dividend was not paid, the money must be refunded and/or repaid to the respondent. The court held that law implied a primary trust for payment of dividends and secondary trust for benefit of the respondent if for some reason the primary trust, failed. The court took note of the fact that the bank was fully aware of the terms on which the said amounts were entrusted by the respondents to R. R. Ltd., for the purpose of being deposited in a separate account with the bank. During the course of his judgment, Lord Wilberforce observed that the arrangements of this character gave rise to a relationship of a fiduciary, character or the trust. The House of Lords discussed several decided cases off the subject and observed that the moneys advanced for the specific purpose did not become part of the bankrupt's estate as the same were impressed with a trust primarily for dividends and secondarily for the respondents. After referring to the leading judgment in the case of Toovey v. Milne [1819] 2 B Ald. 683 ; 106 ER 514, and several subsequent cases, Lord Wilberforce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the moneys were received from subscribers in the capacity as principal bankers, the third respondents have also given specific directions for utilisation of the moneys. Therefore, by reason of this specific direction the moneys are held in trust. They are held in trust for payment to the first respondent. They now stand attached. There can now be no contrary alienation. No right of lien or set off can now be exercised. In any event no right of lien or set off can exist whilst the amounts are in the account of the third respondent. Mr. Doctor's submission that since, the money is already with the applicants they are entitled to credit it into the account of the first respondent is also of no substance. They have to pay to the first respondent. The first respondent can then decide how the amounts are to be utilised or where they are to be deposited. In effect the applicants are asking the first respondent to deposit as directed by them. Neither in general law nor under any of the contractual provision, is there any right in the applicants to so direct the first respondent. Also to do so, the amounts would first have to be released from attachment. Mr. Kapadia is quite right w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with accrued interest in either of the aforementioned two accounts of the first respondent with them. The applicants will then be entitled to utilise this amount as if it were a regular deposit. This deposit to be with effect from December 17, 1992. They will not charge interest on this amount after the date of deposit. As the deposit in the account is to be with effect from December 17, 1992, the applicants will not pay interest on the amount which is earned by the amount being kept as a fixed deposit. They will not claim any legal or contractual rights over this sum of Rs. 50 lakhs merely by reason of the fact that it is deposited in the account of the first respondent with them. This would include rights of lien, set off, adjustment of account, etc. It is clarified that this deposit is subject to such final orders as this court may pass under section 11. It is clarified that at that time, if called upon to do so, the applicants will bring back to court such amount not exceeding Rs. 50 lakhs, as this court may direct it to do. Mr. Joshi submits that the third respondent is liable to pay interest, from the date of the loan up to December 17, 1992. Mr. Joshi submits that the th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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