Money held by a company in trust for another party can be considered trust property and can be recovered by the beneficiary.

ORDER :

S.D. Dave, J.

Under a tripartite agreement between the workers, the workers' co-operative society and the mills company (in liquidation), the said mills company used to deduct amounts at the specified rate, from the worker's wages every month, and to transmit the same to the credit society to enable it to credit the amounts so received in the accounts of the workmen individually against the dues of the credit society. An amount of a significant value had remained with the mills company till the orders of winding up. The question before me is, as to whether the said money can be said to have been impressed with the character of trust money, for which the credit society can make a preferential claim, or whether the said money can be said to be the assets of the mills company in liquidation, for the recovery of which the credit society shall have to lodge a claim before the official liquidator, which once again shall have to rank pari passu with the dues of the secured creditors under section 529A of the Companies Act, 1956 ?

2. The subsequent question based upon the contention coming from the learned counsel for the secured creditor is, as to whether the credit society can make a preferential claim over the money, when the assets of the mills company were mortgaged to the secured creditors and the liquidator on a transfer of equity of redemption was entitled only to the redemption ?

3. The said questions arise in company application which has been taken out in the company petition by applicant, Nutan Mills Employees Co-operative Credit Society Limited. The respondents are the liquidator for the mills company in liquidation, the secured creditors and the Textile Labour Association, Ahmedabad.

The prayer in the Judge's summons which has been taken out by learned counsel for the applicant and is supported by the affidavit of one Shri Sindhi runs thus :

"That this court be pleased to issue direction to the respondent official liquidator to pay Rs. 8,95,196.50 to the applicant being the amount standing to the credit of the applicant in the books of accounts of Nutan Mills Ltd. (in liquidation) as it is impressed with the character of a trust and not forming part of the assets of the company. It stands in priority to claims of all creditors."

4. The relevant facts on the basis of which the abovesaid prayer has been sought by the applicant society could be gathered from the supporting affidavit of Shri Sindhi. The Chairman of the applicant society has said in his supporting affidavit that the applicant society was registered on 26 September, 1951, with the Registrar of the Cooperative Societies, with the main object of promoting, encouraging habits of thrift and saving and to extend credit on easy terms to the members of the applicant society. According to the applicant, the bye laws of the society provide that every member shall have to contribute compulsorily, the requisite amount as set out in bye laws of the society as the savings and that for the purpose of advancing of the loans the members of the applicant society and the smooth recovery thereof, a tripartite agreement came to be worked out between the applicant society, its members and the company in liquidation under which it was agreed that the society would advance loans to its members and that the loans would be repayable by monthly instalments and that the instalment amount and interest over the same would be deducted from the wages that would become payable to the employees. This deduction was to be effected by the mills company (in liquidation) regularly every month and that the society was to send every month a requisition to the company (in liquidation) showing the amount claimed from each of the employees of the company and that the company was to make deductions from the wages or salaries as per the requisition to be received from the society, and was to remit the said amount to the society.

5. It is the case of the applicant society that the mills company had starte