1. The petitioners in the court below are the appellants. This appeal arises from a claim preferred by the appellants in the winding up by court of the Seetharam Spinning and Weaving Mills Ltd., Trichur (in liquidation). The claim was for Rs. 42,209/- and interest amounting to Rs. 2,699 8 0. The Seethararn Spinning and Weaving Mills Ltd., hereinafter called the Mills, had entered into a contract with Messrs. Mohammed Sheriff and K. A. Palaniswamy & Co., Tiruppur for the purchase of 152 bales of certified Uganda cotton at Rs. 1, 200/- per candy, f. o. r. Trichur. The terms of the contract can be gathered from the correspondence between the parties. Ext. P.2 is a letter sent by the Mills to Messrs. Mohammed Sheriff and K. A. Palaniswamy & Co. and that is dated 2nd May 1953. In their reply dated the 4th May 1953 to the Mills M/s. Mohammed Sheriff and K. A. Palaniswamy & Co., have stated that M/s. Sri Krishna Ginning Factory, Sattur, will be despatching the 152 bales of cotton on their behalf and that 65 per cent of the value of the goods will be drawn through the bank against the R. R. and the balance of 35 per cent by Hundi. In pursuance to the contract, two consignments of cotton were despatched and the Mills took delivery of them on payment of 65 per cent of the value and giving Hundies for the balance. The last consignment of 50 bales were also despatched by M/s. Sri Krishna Ginning Factory and a bill was drawn for 65 per cent of the price of the goods as agreed to and sent through the Central Bank of India Ltd. The bill was not retired by the Mills. The Mills, however got delivery of the 50 bales of cotton from the railway administration by giving a letter of indemnity Ext. P.3 and the price thereof was entered in the accounts of the Mills to the credit of M/s. Sri Krishna Ginning Factory. Thereafter the Mills pledged 32 bales of cotton with the State Bank of Mysore Ltd., the 2nd respondent and the remaining 18 bales were used by the Mills in the course of their business M/s. Sri Krishna Ginning Factory came to know the non-payment of the bill and the taking possession by the Mills of the goods. They therefore demanded payment of the full value of the 50 bales. The Mills, however, did not pay the amount. Hence M/s. Sri Krishna Ginning Factory issued a lawyer's notice to the Mills demanding payment and stating that if the payment were not made they would be constrained to institute both civil and criminal proceedings. As there was no response to this notice, a criminal complaint was filed in the Second Class Magistrate's Court, Trichur, against the Managing Director of the Mills and another. The case was subsequently compounded with the permission of the court and Ext. P.11 is the order of the Magistrate, granting permission to compound the offence in C. C. 1041/1953, and leaving the matter to be decided in appropriate civil proceedings. The Sri Krishna Ginning Factory was able to pursue the 32 bales of cotton pledged with the 2nd respondent and these bales were seized and produced before the Magistrate's Court and sold in auction, fetching an amount of Rs." 12,504 12 0. As the Mills went into liquidation, a claim was preferred by the appellants before the liquidator for payment of the amount due to them. They claimed preferential payment in respect of the value of the 50 bales of cotton on the ground, that the property Pin the goods had not passed to the Mills and that the possession of the 50 bales were obtained by them by fraud from the railway administration. The appellants contended before the liquidator that the property in the goods namely, 50 bales of cotton had not passed to the Mills as there was no unconditional appropriation of the goods to the buyer, and that although the railway receipt was taken in the name of the Mills, it was sent to the Central Bank of India, and that the payment of the bill was a condition precedent to the Mills getting delivery of the goods from the railway administration. The