The judgment established the interpretation of 'local authority' and 'debt due' under Section 49 of the Presidency Towns Insolvency Act, affirming the entitlement of the Port Trust to priority in insolvency proceedings.

1. This is an appeal from a judgment of Mockett, J. in the Insolvency Court. The facts leading up to this appeal need only be stated very briefly. C. K. Narayana Iyer & Sons, the insolvents, were dealers in groundnuts on a very large scale. They purchased groundnuts largely in the mofussil and these were consigned to them in Madras sometimes by their vendors and sometimes by themselves. Railway receipts were, in accordance with the railway practice, issued in respect of those groundnuts. On arrival in Madras the groundnuts came into the charge of the Port Trust. It is a general rule that these should not be handed over to the consignees without the production of the railway receipts but under Section 57 of the Indian Railways Act the Port Trust can hand over the goods to the consignee after taking an indemnity bond. At that time the insolvents used to pledge the railway receipts as security for advances made to them by some of the Madras banks and it has since been held by the Privy Council in The Official Assignee of Madras v. The Mercantile Bank of India, Ltd. 1934 58 Mad 181, that a pledge of a railway receipt operates as a pledge of relative goods. On 25th June 1928, a large quantity of groundnuts was banded over to the insolvents by the Port Trust without production of the railway receipts and instead the Port Trust took from the insolvents and one Pyda Rangiah Chetty an indemnity bond of that date in their favour. The insolvents took advantage of this procedure to commit a fraud. They pledged the railway receipts relating to the groundnuts with the Central Bank. After the insolvency the Central Bank claimed that the groundnuts covered by the railway receipts belonged to them and brought a suit against the Port Trust, C.S. No. 573 of 1929. The insolvent estate was of course represented by the Official Assignee and he and Pyda Rangiah Chetty were brought on record in that suit by means of third party notices. A decree was passed on 7th March 1934, in favour of the Central Bank against the Port Trust for Rs. 25,041-2-6 and in favour of the Port Trust against the Official Assignee and Pyda Rangiah Chetty for the same amount by reason of the indemnity bond, the Port Trust having claimed to be indemnified by the insolvents and Pyda Rangiah Chetty against the damages which under the decree it had to pay to the Central Bank and in consequence of this they claimed priority in respect of the amount payable by the insolvents estate under Section 49, Presidency Towns Insolvency Act. The Official Assignee admitted the Port Trust only as unsecured creditors and did not allow their claim to preferential payment. The Port Trust, therefore, by notice of motion prayed that this order of the Official Assignee should be varied contending that by reason of Section 49, Presidency Towns Insolvency Act, they ware entitled to priority in respect of this amount. Section 49 reads as follows:

(1) In the distribution of the property of the insolvent there shall be paid in priority to all other debts : (a) all debts due to the Crown or to any local authority.

2. Mockett, J. upheld the Port Trusts contention. Hence this appeal. For the appellant it is argued firstly that the Port Trust is not a local authority and there being no definition of local authority in the Presidency Towns Insolvency Act the definition section in the General Clauses Act, namely Section 3(28) is referred to. There the definition of local authority is as follows:

Local authority shall mean a Municipal Committee, District Board, body of Port Commissioners or other authority legally entitled to or entrusted by the Government with the control or management of a Municipal or Local Fund.

3. It is contended that the Port Trust is not entrusted by the Government with the control or management of Municipal or Local Fund and is not therefore a local authority within the meaning of that sub-section and that no fund has been constituted under the Port Trust Act of 1905 such as that in