A banker is not entitled to apply trust funds in discharge of a debt of a customer and can be compelled to make restitution. Knowledge and reasonable suspicion are crucial in determining liability in such cases.

1. The parties to this appeal are Nattukottai Chettiars. The appellant was the plaintiff in the suit. He is a trustee and he sued in that capacity on the original side of this Court to recover from the first respondent, a banker, trust moneys which he alleged the first respondent had wrongly-applied in reduction of a debt owed by the second respondent. The first respondent is one Lakshmanan Chettiar, who carries on business in Madras under the style of the Order R.M.O.M.S.P. Firm. The second respondent is the uncle of the appellant and a co-trustee.

2. The father of the appellant was one Meenakshisundaram Chettiar, who did business in Madras with the second respondent, his brother. Meenakshisundaram died in 1914. After his death the joint family consisted of the appellant, his minor brother Lakshmanan and the second respondent. In 1916 the appellant and his brother separated from the second respondent and a deed of partition was executed. It was decided by the appellant and the second respondent that they should set aside out of the family funds two sums of Rs. 10,000 as endowments of specified religious charities. One sum of Rs. 10,000 was to be devoted chiefly to the maintenance of a water-supply at the Tirukalikundram temple, a famous Hindu temple in the Chingleput District, and the other sum of Rs. 10,000 was to be an endowment of another Hindu temple, known as the Kalayar Koil in the Ramnad District. It is common ground that out of the Tirukalikundram fund the temple piper was also to be paid. The appellant and the second respondent were to contribute to these funds in the proportions of and respectively. These provisions except the provision with regard to the payment of the piper were included in the deed of partition, which also provided that the appellant and the second respondent were to act as the trustees of the funds. The trust funds were created and it is admitted that the second respondent, being the uncle of the appellant and much older, was given the management of them. It is f also admitted that the second respondent was given the right of investing the trust funds in his own business, if he so decided.

3. On the 1st December, 1916, the appellant drew, as his contributions to the two trusts, two hundies, payable to bearer, one for Rs. 6,250 and the other for Rs. 5,000. Previously a sum of Rs. 2,000 had been set aside for charity and this sum was taken into account in calculating the amounts which the appellant had to provide. The appellant handed the two hundies to the second respondent for investment on behalf of the trusts. At all material times both the appellant and the second respondent had banking private accounts with the first respondent. When the trusts were created the proprietor of the O.R.M.M.S.P. Firm was Subramaniam Chettiar, the father of the first respondent. He had assisted at the partition of the properties between the appellant and his brother and the first respondent and had signed the partition deed as a witness. The second respondent handed the two hundies drawn by the appellant to Subramaniam Chettiar, who realized them by debiting the appellants personal account, which was in credit, with the amounts. He then opened accounts in his books in the names of the two trusts, allocating to the Tirukalikundram temple trust the hundi for Rs. 6,250 and to the Kalayar Koil temple trust the hundi for Rs. 5,000. The allocations were in accordance with the instructions given to him. The arrangement made by the second respondent with the first respondent was that these moneys were to remain with the first respondent as thavanai loans with interest calculated annually. I should mention that the hundies themselves disclosed that they represented trust funds and an endorsement was made on each hundi by the then agent of the O.R.M.O.M.S.P. Firm acknowledging that the moneys had been received by the Firm. Subramaniam Chettiar died in 1918 and the business was then taken over by the first respondent,