The Supreme Court held that when money is paid to a bank with special instructions to retain it pending further directions, a trust is created and the presumption of a creditor-debtor relationship is rebutted. Consequently, such amounts were not 'deposits' subject to a scheme of arrangement for the settlement of bank liabilities.
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This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
2 S.C.R. SUPH.l<:ME COURT REPORTS ryl~ • I
1961
In our opinion the proper test to apply in this case is, was the payment m:ide as a matter of prac· ticc which affected the quantum of salary or was there an expectation by the employee of getting a gratuity or was the sum of money expended on the ground of commercial expediency and in order in· directly to facilitate the carrying on of the business. But this has not been shown and therefore the amount claimed is not a deductible item under s. 10(2)(xv).
Gordon W11udroj/ie Le(Jt/ie1 lll anuja .. Juring Co, v. The Cemmissio11er of Income~fa.'I: M1,.dros
Kapur J,
The appeal therefore fails and is dismissed with costs.
Appeal dismissed.
NEW BANK OF INDIA LTD.
v.
PEAREY LAL
( B. P. SINHA, c. J., J.L. KAPUR, M. !ImAYATULLAH, J. c. SHAH and J. R. MUDHOLKAR, JJ.)
1961
December 20,
Bank-Mon<y delivered by constituent-;--Special instruction to await direction for deposits-If held by the bank as trustee-Scheme for settlement of bank's liabilittes sanctionedAmount, if subject to it.
The respondent delivered certain sums of money to the appellant-bank at Lahore for transmission to Calcutta, with instructions to await his directions regarding the opening' of accounts for keeping the money in fixed deposit in the Calcutta Branch of the bank which was proposed to be opened in the near future. The respondent did not however give any instruction for opening any account, fixed deposit or otherwise in regard to the amounts after they reached Calcutta. Within a few days after the opening of the Calcutta branch of the bank it ceased making payments and a moratorium for a. limited period was declared under an ordinance issued by the Governor General restraining the bank from making payments to its depositors. After the expiry of the period of the moratorium the Calcutta branch of the bank raised objections to the respondent's application for withdrawal of the amount
:!18 SUPREME COUHT REPORTS (1962] SUPP.
1>·61 whereupon the responde1•t filed a suit in the Calcutta High Ntw Bat•.J:. uf India Couft for a decree for refund of the amount. During the J;d. pendency of the suit the High Court of East Punjab sane· v. t1oned a scheme under ss. 153 and 153A of the Indian Com- l'm•.Y L.l panics Act, 1913 for set!lemenr of the liabilities of the Bank
The courts below decree.I the respondent's suit. On appcdl by the bank lJy speci•I k.1ve, the questions which arose for <leci~ion \Vere whether the bank was a trustee for transmission of the c..n1ounts to Calcutta and whether in the absence of auy instruction for opening a fixed deposit account the bank was liable to refund the full amount or a reduced an111u1tt according to the schc1ne sanctioned by the Punjab High Court.
Held, th 1t when a person dealing with a bank delivers money to tl1e bank an intention to create a relation of creditor and debtor between him and the bank is presumed, but the presumption mar be reburted by proof of special instructions. When money b paid to a bank with special illJtr1.1ctio11s to retain the same pending further instructions, a trust is created and the presumption which ordinarily arises by reason of payment ol money to the IJank is rebutted.
lle/d, f,1rthcr, that the money delivered by the Respondent remained in tn1st with the bank and was not held by it as a deposit suojcct to any scheme for the settlement of the liabilities of the bank sanctioned by the High Court uudcr the Companies Act.
1'he Ufjicial Assignee, Madras v. Nateaam Pillai, 1.L.R. (19401 Mad. 845, Arbuthnot v. D. Rajan .4.war, I.L.R. ( 1913) 36 Mad. 499 and Farley v. Turner, (1857) 26 L.J. Ch. i 10, applied.
CrnL APPELLATE JURISDICTION : Civil Appeal No. 398 of HlliO.
Appeal by special leave from the judgment an<l decree datc<l June 23, 1959, of the Calcutta High Court in App~al from Original Decree No. 50 of 1955.
Veda Vya&a, S. K. Kapur and B.P. Mahe&hwari, for the appellant.
K. L. Gosuin and K. L. Mehta, for the respondent. l!Hil. December 20. The Judgment of tho Court was delh'ered by
1961
2S.C.R. SUPREME COURT REPORTS 219
SHAH, J.-Mr. Justice Bachawat c.f the High Court of Judicature at Calcutta <lecrebd Suit No. 1039 of 1948 filed by one Pearey Lal-hereinafter called the plaintiff-for a decree for lts. l,35,0UO/with interest against the New Bank of India Ltd. The appeal of the Bank against the decree was dismissed by a Divi~ion Bench of the High Cvurt. With special leave the Bank has appealed to thie Court.
New Bonk of lndit Ltd:
v
Pearey Lal
Shah J.
The Bank had its registered office originally at Lahore but after the partition of India the office was transferred to Amritsar. The plaintiff who was a resident of Lahore had accounts ·with several banks including the New Bank of India Ltd. Ia view of the impending partition, the plaintiff was anxious to transfer his moveable property outside the territory it was apprehended would be included in Pakistan, and he gave instructions for transferring his accounts with the Bank to its other branches in India. He also paid an amount of Rs. 1,25,()00/- on July 18, 1947, into tbe Bank at Lahore with instructions to transmit the samethe to Bank's branch at Calcutta which it then proposed to open in the near future. An amount of Rs. 10,000/- was also paid into the Bank at Lahore on July 19, 1947, with similar instructions. In respect of these two transactions the Bank executed receipts which are set out below :
''Received the sum of Rs. l,25,000/(Rs. One Lac & twenty five thousand) only from Mr. Pearey Lal on account of amount to be remitted to Calcutta branch for preparing various F.D. Receipts subject to his instructions on or after the opening date when he would call upon them personally.
..
Lahore for the New Bank of India Ltd. The 18th day of Sd. Illegible July, 1947. Manager."
220 SCJPHEME COURT REPORTS [1962) SUPP.
1961
N11tJ LJ,uik of India Ltd. v. PeaitJ Lal .\hoh J.
............................................................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"l{eceived the sum of Rs. 10,000/-(Rupces ten thousa.nd) only through Mr. Pearcy Lal for transmission to our Calcutta. Office for making up various F.D. Rec<·ipts at his instance when he calls upon them poc•onally on or after the opening date of the Brnncb.
Lahore for the New Bonk of India Ltd. 19-i-4i. Sd. Illegible Manager."
Tho two amounts were transmitted by the Bank to Calcutta. A branch of tho Bank was opened at Calcutta on September 24, 1947, but within a few days thereafter the Bank ceased making payments. It appears that a moratorium for a limited period was declared under an Ordinance issued by the Governer-Genera.l restraining the Bank from ma.king payments to its depositors. In December, 1\147, after the expiry of the period of the moratorium tho plaintiff applied to the Bank's branh at Calcutt.a for facility to withdraw tho whole a.mount but th Calcutta Branch raised certain technical objections against such a course. On March 2i, 19!8 tho plaintiff commenced an action against the Bank int,er alia for a. decree of Rs. 1,35,000/- in the Calcutta High Court on its original side. During the pcndency of the suit the High Court of East Punjab sanctioned a scheme for arrangement under ss. 153 and l53A of tho Indian Companies Act, 1913, for sottlement of tho liability of the Bank. By the first clause of thti scbeme the expreBBion "deposit" was to include "Fixed Deposit.s, Bank's mm Gash Certificates, Current Accounts, Deposits at Call, Savings Fune! Accounts A'Uounts lying in Sundries or in any other kind of Credit Accounts, Bank Drafts, Ca.sh Order~, and documents of the like nature and amounts due to Bankers over and above the value of Government Securities lying .,.. ith them against
2 S.C.R. SUPREME COURT REPORTS
221
I
such depositors". It was directed by the scheme, as it finally emerged, that the depositors were to be paid 70!% of the deposits held by them and to he allotted shares of the face value of 5% of the deposits.
New Bank of India Ltd. •• P1arey Lal
Shah J.
The plaintiff claimed by his suit that he had entrusted to the Bank at its registered office at Lahore Rs. 1,35,000/· on July 18 and 19, 1947, with instructions to transmit the same to the branch of the Bank which it proposed to open at Calcutta and to hold th~ amount sub-ject to further instructions to be given by him when he would .call personally at the branch at Calcutta on or after the opening date, that prior to the opening of the said Calcutta Branch the plaintiff countermanded his instructions on or about September 13, 194 7 and demanded at Lahore that it be returned, but the Bank wrongfully claimed to have remitted the two sums to its Calcutta Branch and to have kept the same in a fixed C:eposit account in the name of the plaintiff, even though the plaintiff, had opened no such account at the Calcutta Branch and had given no instructions to put te same into any account by way of fixed deposit or otherwise. The plaintiff, accordingly, claimed that the Bank was a trustee for transmission of the amount and in the absence of any instructions given by him for opening a fixed deposit account; in· respect of the amount transmitted the Bank stood qua the plaintiff in a fidu·•ciary relation and was liable to refund the full amount. Jn substance, it was claimed by the plaintiff that the amount lying with the Bank at Calcutta was not a deposit within the meaning of the schme and was not liable to any reduction.
The Bank submitted that the amount of Rs. l,35,000/- was deposited by the plaintiff at its head office at Lahore for the purpose of opening a fixed deposit account in the name of the plaintiff upon the terms that the fixed deposit would carry
222 SUPREME COURT REPORTS [1962] SUPP.
JP81 Jl1w Bonk of lrt-fia lid. v. l"tPl:J lat S'cli J.
interest a.a on the reepeotive dates of the deposits, that it was agreed that the plaintiff would be allowl'd to take Joana upto 90% of the deposit at a rate of interest of half peroent. above the current fi:x:cd doposit rates and that the amount would be transmitted to the Calcutta Branch of the Bank for the purpose of orediting the i;ame to the fixed deposit account of the plaintiff. The Bank denied the alleged instructions in 8optember, l\147, countermanding the original arrangement and contended that the plaintiff was bound by the sch~me of arrangement sanctioned by the High Court of Enst l unjab. The Bank offered to pay the amount due to the plaintiff umkr the scheme uf arrangement 8lld also to allot shares of the value of 5% in accordance with the scheme.
A decree on admiselon was pa.s~d against the Bank for Rs. 81,000/and tho suit was contested bv tho Bank for the balance uf the olaim. ·
The trial Court held that oven though the plaintiff failed to prove the instructions in .the month of September, 1947, s0 t up by him countermanding tran.smission, it was established on the evidt-noe, that the plaintiff had entrusted to the Bank Rs.1,35,00'l/- fortraDBmission auu the plainti!f having given no further instructions, the Bank held the amount a.s trustee for the plaintiff and that the plaintiff'a claim waa not liable to bo reducl'd under the scheme sanotioned by the High C11urt of Eallt Punjab. The Court also neg..tived the pica of the Bank tba.t tit" amount of Ra.1,35,000/-was depoRited with thA · Bank at Lahnro for oprning a ft:x:ed depolrit account subject to the conditions which the Bank set up. The findii:1g of the trial Court were confirmed, in app"&l, by a Division Bencm of the ·:H'igh Court .llot Calcutta.
. The facts found proved, according to the findinga .of the trial Court and confirmed by the
..,
2 S.C.R· SUPREME COURT REPORTS
223
High Court are therefore that the plaintiff delivered an amount of Rs. 1,25,000/- on July 18, 194 I, and Rs. 10,000/- on July 19, 1947,. to the Bank at Lahore for transmission to Calcutta, with instructions to await the directions of the plaintiff regarding the opening of accounts for keeping the same in fixed deposit or othenyis~ in the Calcutta .Branch of the Bank, and the plamt1ff never gave mstructions for opening any account, fix<·d depo~it or otherwise, in regard to· the amounts after they reached Calcutta.
1961
New Bank ef India Ltd . .. P'earey Lal Shah J,
Delivery of the amount for transmission to the Bank created e.x facie a relationship of a fiduciary <:haraeter. But counsel for the Bank contends. that when the amount was handed over at Lahore to the Bank by the plaintiff who was an old . constituent of the Bank it must be presumed that a relationship of debtor and creditor arose and by the addition of instructions for transmission of the amou.nt to another branch the relationship of trustee and cestuique'trust did not arise. He submitted that the contention that the relation between the plaintiff -and the Bank was of creditor and debtor was supporteq by three important circumstances : ( l) that the Bank agreed .to pay interest on· the amount delivered by the plaintiff; (2) that the'Bank cha.rged no commission or remuneration. for transmission of the a.mount and (3) that.even on the plaintiff's ·case the amount was to be utilized · .for. opening fixed deposit accounts at Calcutta .. It is true. that in the ·absence of nther evldw.i• a peiiaon J:lYillg . monl)y into a ·Bank, whether. he· .. i;e· a cqiwent of the Bank or not, may he pret'Qme4.t 'have _paid the money to be held ~ bankers ordinarUy hold the money1 of their constituents. Jfno specific.instruction• are · giv('n at the time of payment or thereaftei:, and even if the money ie•luild iJ1 a su•pense account .the bank doea. not thereby become a trustee for . the a.mount paid. In other words, when a person dealing with
221 SUPREME COURT REPORTS [1962) SUPP.
1961
Ntw Bani nJ lndi1 /./J. v, r 111·1 1,.,1 Sho. J.
a. bank deliverR monoy to the Bank an intention to ert>1it.,.. a. relation of creditor a.nd debtor botween him 11.n1! the Bank is presumed, it being the normal cour"" of the b11sinPss of the Bank to accept deposit!! from its customers. But thia presumption is one of fact arising from the nature of the business carried nn by the B11.nk and is rebutted by proof of sp<'cial intmctions, or circumstances attending the transaction. Whero the money is pa.id to a bank with,special instructions to retain the same pending further instruct.ions (The Official Asaignee, Madral! v. Nale.wm PiUai (') ). or to pay over the same to · anothn prson who has no banking &ccount wit.h tho bank and the b11.nk accepts the instrutions Rnd h"lds the money pending instruotiorni from t.hat other person (Arbuthnot & Co. v. D. Ra,jam Ayyar (')), or where instructions are given by a customer to his banker that a part of tho amount lying in his account ho forwarded to another hank to meot a. bill to become due and na.vable ll\· him and the amount is sent by the bank,ir as dir<'cted (Fc"IR.y v. Turner(')), a trust reultH a1.d the presumption which ordinarily arises by rca.~on of paymont of the money to the bank is rebuttt·d.
It i~ not nOCl'ssary in this appeal to consider whether hrcauso of an agreemrnt to pay intcrPst the rPlationship ma:v be deemed to be of debt.or and creditor, beoa.us' it was held by both the courts brlow t.hat no such agrooment i• provP<l, anrl 11.coording to the Rettle<l prRotice uf this rourt the finding is r!'garded as binding.
The Bank char1wd no commiBSion or remune· ration fot trsn~mitting the amount to Calcntts, but that, in our judgment, ill a ciroumAtance which permit!! of no inference agRinet the pla.intiff. Undoubtedly, when thn amount was de'.ivered to the Bank bv the plaintiff it wa.8 his intention to open fixed deposit aooount in Calcutta with the (1) I L. R. tl940) Mad. 845. (2) I. L. R. (1913) 36 Mad. 499. {') {18S7] 26 L. J. Ch. 710,
2 S.C.R.
225
SUPREME COURT REPORTS
Bank's branch but the fixed. deposit accounts were to be opened after instructions were received.
The transaction, '\S evidenced by the two receipt.s, was primarily one of cntrustment of the amount to the B;ink for transmission to Calcutta. After the purpose for which the moneys were entrusted was carried out, in the absenoe of further instructions the defendant did not cease to be a trm;tee. So long as instructions were not given by the p!P.intiff for appropriation of the amounts the Bank continued to hold the amounts transmitted for 'ind on Lehalf of the plaintiff and thne is no evidence that the plaintiff gave instructions or acquiesced in the opening of a fixed deposit account after the same reached Calcutta. It is immaterial that the Bank purported to open .fixed deposit account in the name of the plaintiff with the amounts received at its head office at Lahore. That course of action was adopted without the ~onsent of the plaintiff and it could not bind the plaintiff. The High Court was, therefore, right in holding that the amount delivered by the plaintiff to the Bank at Lahore remained in trust even after it reached Calcutta, and it was not held by tho Bank, in deposit for the plaintiff within the meaning of the scheme sanctioned by the High Court of East Punjab.
lHl
J'tw Banlr. of lndta Ltd. v,
Pearey Lat
Shall J,
In that view of the case the appeal fails and is dismissed with oosts.
Appeal dismissed.
2 issues framed by the court
Whether money delivered to a bank for transmission and retention pending further instructions creates a trust relationship rather than a creditor-debtor relationship.
Whether amounts held in trust for a customer are subject to a scheme for settlement of bank liabilities under the Companies Act.
Colour shows how this judgement treated each authority
The Official Assignee, Madras v. Nateam PillaiApplied¶21
_The Official Assignee, Madras_ v. _Nateam Pillai,_ 1.L.R. (19401 Mad. 845
Arbuthnot v. D. Rajan AyyarApplied¶21
_Arbuthnot v. D. Rajan .4.war,_ I.L.R. ( 1913) 36 Mad. 499 · Who else cites this
Farley v. TurnerApplied¶21
_Farley v. Turner,_ (1857) 26 L.J. Ch. _i_ 10
1 provisions across 1 enactments
New Bank of India Ltd.
Pearey Lal
Sinha
Kapur
Hidayatullah
Shah
Mudholkar
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
