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1938 Supreme(Mad) 375
IN THE HIGH COURT OF MADRAS
Venkataramana Rao, J.
A.M. Gopalakrishnan
Versus
The Official Liquidators and Quilon Bank Limited
Decided On : 18.11.1938
The main legal point established in the judgment is that when money is handed to another person for a specific purpose, a trust is constituted in respect thereof, and the character of a trust fund is not destroyed by allowing the trustee to utilize the trust money in his own business.
Headnote:
Trust Fund - Bank Employee Security Deposit - Indian Companies Act, 1936, Section 282-B - The court discussed the nature of the relationship between the Bank and the employee in respect of the amount furnished by the employee as cash security. The court held that the amounts received by the Bank as security from the employees were held by the Bank in trust for the employees and did not form part of the assets of the Bank divisible among its creditors.
Fact of the Case:
The employees of a bank sought an order for the return of the security deposits they had made to the bank, claiming that the deposits were trust money held by the bank for a specific purpose.
Finding of the Court:
The court found that the security deposits made by the employees were held by the bank in trust for the employees and did not form part of the bank's assets.
Issues: The main issue was the nature of the relationship between the bank and the employees in respect of the security deposits made by the employees.
Ratio Decidendi: The court held that when money is handed to another person for a specific purpose, a trust is constituted in respect thereof. The court also emphasized that the character of a trust fund is not destroyed by allowing the trustee to utilize the trust money in his own business.
Final Decision: The court directed the Official Liquidators to pay the security deposits with interest to the employees, holding that the amounts were held by the bank in trust for the employees and did not form part of the bank's divisible assets.
Venkataramana Rao, J.
1. In Application No. 2162 of 1938 one A.M. Gopalakrishnan, an employee of the Travancore National and Quilon Bank, Ltd., prays for an order that directions should be issued to the Official Liquidators to pay the sum of Rs. 10,000 furnished by him to the above Bank as security for his post as the Chief Cashier in the Anderson Hall branch, in full and in priority to the claim of any creditor. In support of the application he has filed an affidavit stating that he was employed on the 9th March, 1938 and that his services were terminated due to the fact of the Bank being wound up. He submits that the security account was deposited for a specific purpose agreed upon between him and the Bank and that in the event of any loss caused to the Bank by his misconduct, the Bank might recoup themselves from out of the sum only such loss and nothing more and that on the termination of his services the amount should be returned to him. He contends that the Bank was trustee to him in respect of the said sum and that the said sum was trust money in the hands of the Bank entrusted for a specific purpose. One Venkatarangam, also an employee of the Bank, has made a similar application stating that he was employed in the Mount Road branch of the Travancore National and Quilon Bank, Ltd., and that he has furnished security for Rs. 500. The Official Liquidators also have made an application asking for directions in regard to payment of the amount of security furnished by the employees for the due performance of their duties. The question raised in these applications is one of considerable importance and before dealing with it, it is very necessary to state the facts and circumstances under which the said deposits were made. The Travancore National and Quilon Bank was the result of an amalgamation effected between the Travancore National Bank, Ltd., and the Quilon Bank, Ltd., on the 19th September, 1937. Thereafter the amalgamated Bank was styled as the Travancore National and Quilon Bank, Ltd. It also employed the staff of the Quilon Bank. Both the above-mentioned Banks took cash securities from a large number of employees. The cash securities given by the employees of the Quilon Bank, Ltd., were transferred to the Travancore National and Quilon Bank, Ltd. It will be seen from the rules of service of the Travancore National Bank, Ltd., which governs the present Travancore National and Quilon Bank, Ltd., that it is incumbent on all employees of the Bank to furnish cash security. Rule 29 provides thus:
It is incumbent on all employees of the Bank to furnish a cash security as they have to work in positions of trust. The following table will show the security required from the different classes of employees:
(a) Superior-
On probation .. ..Rs. 500. On confirmation .. ..Rs. 1,000.
(b) Subordinate-
1. First grade clerks Rs. 500 to 1,000 according to the responsibilities of the office one holds,
(c) Menial-
Rs. 50 to Rs. 200.
In the case of the Menials the managemant shall have the discretion to dispense with or regulate the amount of security.
2. There is no other rule or regulation as to how the security when furnished is to be dealt with by the Bank. Mr. Verghese, the Superintendent of the Travancore National and Quilon Bank has deposed to the following effect in his affidavit:
3. After the passing of the Indian Companies Amendment Act, 1936 and in view of the provisions of Section 282-B of the Indian Companies Act it was thought necessary to deal specifically with the cash securities and therefore the cash securities deposited with the Travancore National Bank, Ltd., before the date of amalgamation and those cash securities transferred by the Quilon Bank, Ltd., were treated as having been paid back to and re-deposited by the employees. The old receipts granted by the Quilon Bank, Ltd., as welt as the Travancore National Bank, Ltd., were returned by the employees and new receipts were issued to the employees by the Travancore Nationa
