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Judgment
This is an appeal by the Official Assignee of Madras and as such the Assignee of the property and credits of Arbuthnot & Co., insolvent-
debtors against the order of the Insolvency Commissioner passed in Petition No. 181 of 1906. The preliminary objection is taken that the Official
Assignee is not entitled to appeal. The respondent holds a fixed deposit receipt from Arbuthnot & Co. The amount with interest fell due on the 9th
October 1906. The respondent applied to the Official Assignee for payment of the amount due to him in full on the ground that he had demanded
payment from Arbuthnot A Co., on the 18th October 1903 and before that firm suspended payment. The Official Assignee refused to pay. The
respondent thereupon gave a notice of motion to the Official Assignee stating that he intended to move the Court for an order that the amount due
under the deposit receipt might be paid to him out of the assets of the insolvent in the hands of the Official Assignee. The Insolvency Commissioner
after hearing the Official Assignee passed an order as prayed for by the respondent. It is against this order that the Official Assignee appeals.
u/s 73 of the Indian Insolvency Act, 1848, ""any person who shall think himself aggrieved"" by an order of the Court may appeal. It does not, we
think, follow from this that any person can claim a hearing by merely stating that he thinks himself aggrieved. Unless it appears that he is actually
aggrieved,"" in the proper meaning of that expression, he cannot maintain ah appeal. Thus in Ex parte ''Bittern; In re Woods 11 Ch. D. 56 : 40 L.T.
297 it was held that a person who alleged himself to be a creditor but had not tendered any proof of debt was not a ""person aggrieved"" by the
order to which he objected and was not entitled to appeal against it. u/s 71 of the English Bankruptcy Act of 1869 and Section 101 of the Act of
1883 ''any person aggrieved"" may appeal. The words used in the Indian Statute do not seem to mean anything different. In Ex parte Side Botham;
In re Side Botham 14 Ch. D. 458, James, L.J. said: ""a person aggrieved must be a man who has suffered a legal grievance, a man against whom a
decision has been pronounced which has wrongfully deprived him of something, or wrongfully refused him something, or wrongfully affected his
title to something."" In Ex parte Official Receiver, In re Reed Bowen and Co. 19 Q.B.D. 174 the question arose whether the official receiver was a
person aggrieved"" by an order adjourning an application of his under Rule 191 of the Bankruptcy Rules 1886, for an immediate adjudication of
bankruptcy against a debtor. Lord Esher M.R. observed, at page 177: ""Therefore, he, as it seems to me, is made a party to an application against
the debtor for a judicial decision upon matters of fact which may be in contest and I cannot doubt that he is bound to maintain the application by
producing evidence and by arguing upon the effect of that evidence. Therefore, he is placed in the position of a party to a litigation before a judicial
tribunal."" His Lordship then proceeded to consider whether official receiver was a ""person aggrieved"" by the decision and so entitled to appeal and
after pointing out that James, L.J. in Ex parte Side Botham; In re Side Botham 14 Ch. D. 458 when saying a person aggrieved"" must be a man
who has suffered a legal grievance did not say a pecuniary grievance, a grievance to his property or to his person explained the definition of the
term given by James L.J. in Exparte Side Botham; In re Side Botham 14 Ch. D. 458 as meaning among other things that a person aggrieved"" must
be a man against whom a decision has been pronounced which has wrongfully refused him something which he had a right to demand."" Finally he
said: ""When yon see that the official receiver is by Rule 191, a person who is to make and to support this application and who is bound to prove
the grounds affirmative and negative on which the application ought to be granted, if he says that the facts have been wrongly decided against him,
or that, the facts being decided in his favour, the Court has come to a wrong conclusion in refusing the application, it seems to me that he is, within
the definitions given in Ex parte Side Botham 14 Ch. D. 458 : 42 L.T. 788 : 28 W.R. 715,, ""a person aggrieved."" In re Iamb Exparte Board of
Trade (1894) 2 Q.B.D. 805 : 71 L.T. 312 : 1 Man 373 : 42 W.R. 544, the question arose whether the Board of Trade was aggrieved"" by a
decision that an objection taken by them to the appointment of a. trustee of the property of a bankrupt was invalid. It was held that they were
aggrieved."" Lord Esher M.R. at page 812 referred to Ex parte Official Receiver, In re Reed Bowen and Co. 56 L.J.Q.B. 447 : 35 W.R. 860 4.
quoted above as determine that any person who makes an application to a Court for a decision or any person who is brought before a Court to
submit to a decision, is, if the decision goes against him, hereby a person ""aggrieved"" by that decision. He then proceeded to say: ""Here the
creditors summoned the Board the validity of their objection, to support the validity of their objection, and the Board went before the Judge. The
Board wad the creditors were heard and the Judge had to give his determination. That determination being against the Board upon the matter
which was brought before the Court they are aggrieved"" by it if is wrong. They are, therefore person aggrieved and are entitled to appeal to this
Court.
In the light of these rulings we have no hesitation in holding that the Official Assignee is a person aggrieved ""by the order now appealed against.
He was brought before the Court to submit to a decision that he was bound to pay a certain sum to the respondent, and the decision was against
him. An at tempt was made to distinguish In re Lamb; Ex patre Board of Trade (1894) 2 Q.B.D. 805 : 64 L.J.Q.B. 71 : 71 L.T. 312 on the
ground hat Lord Esher M.R. remarked that if the Board of Trade could not appeal there could be no appellant. It is pointed out that in the present
case, even if the Official Assignee did not appeal, any creditor might appeal. Again Ex parte Official Receive, In re Reed Bowen and Co. 19
Q.B.D. 174 : 56 L.J. Q.B. 447 : 56 L.T. 876, 4 Morr. 255, was sought to distinguished on he ground that the application was made thereby the
official receiver prior to adjudication and that the application having been refused the official receiver was the natural person to appeal the
definitions of ""person aggrieved"" were, however, arrived at quit independently of the special circumstances of these cases and are of general
application.
It is suggested that the notice of motion was in substance and appeal against the decision of the official assignee refusing to pay the sum
demanded, that that decision was passed by the Official Assignee in a quasijudical capacity and that he cannot be considered a party to an appeal
against his own order. If the respondent''s application had been an application under Rule 50 of the Insolvency Rules 1905, there might have been,
some force in the contention that the decision complained of was passed in a quasi-judicial capacity. But the application is not under that rule. The
respondent asked the Official Assignee to pay him something. The Official Assignee refused and cannot be said in so refusing to have been acting
in any sense judicially, neither the notice of motion nor the affidavit of the respondent treats the refusal of the Official Assignee as a Judicial order
and asks to have it reversed.
There has been considerable discussion as to the exact position of the Official Assignee But it is unnecessary to enter into that question seeing
that we are satisfied that in the present case the official assignee is a person aggrieved"" and, therefore, entitled to maintain the appeal. The
preliminary objection is, therefore, overruled.
The appeal again came on for hearing on Monday the 16th day of August 1909, and the Court delivered the following.
Judgment.
Munro, J.
As to the facts there is no dispute. The respondent is the holder of a fixed deposit receipt for Rs. 1,890 for ore year from Messrs. Arbuthnot
and Co., dated 9th October 1905. The amount of the deposit with interest having fallen due on the 9th October 1906, the respondent wrote to
Messrs. Arbuthnot and Co. on the 18th October 1906 enclosing the deposit receipt duly signed and requesting them to send him the amount due.
This letter reached Messrs. Arbuthnot and Co. on the 19th or 20th October at the latest. On the 22nd October Messrs. Arbuthnot and Co.
suspended payment. On these facts the learned Commissioner found that Messrs. Arbuthnot and Co. having received a demand for payment
before suspension held the money in a fiduciary capacity. He, therefore, directed the official assignee to pay the respondent the whole amount due
under the deposit receipt out of the assets of the insolvents Messrs. Arbuthnot and Co. in his hands.
The contention in appeal is that the fact that demand was made did not in any way alter the relationship between the parties which continued to
be merely that of debtor and creditor. The law relating to Banker and, Customer has recently been considered in Official Assignee of Madras v.
Smith 5 M.L.T. 164 : 1 Ind. Cas. 712. So far as is necessary for the present case, the law, as there laid clown, may be stated thus. When a person
pays money into a Bank then, if nothing further appears, the money becomes the money of the banker who is entitled to mix it with his other money
and use it as Iris own, but is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. In such a case
the relationship between the banker and the person paying the money is that of ordinary debtor and creditor. The person paying the money may,
however, at the time of payment, give directions to the banker which put the relationship upon a different footing and give it a fiduciary character
when this is the case the money does not become the money of the banker. He is not entitled to mix it up with his own money and use it, and if he
does so and afterwards fails, the unspent balance in his hands must be taken to include the money which it was his duty to keep separate and not
to use rather than the money which he had the right to dispose of it is on this principle that money held by a banker in a fiduciary capacity, may, if
he fails, be recovered in fall out of the general assets.
In the present case the money was paid into the Bank on the understanding that it should bear interest at 8 per cent, per annum for one year
from the date of being paid in, that at the expiry of the one year interest should cease unless the deposit was renewed and that no portion of the
money could be drawn without the production of the deposit receipt. There was nothing to prevent the operation of the rule that the money when
paid became the property of the banker. Messrs. Arbuthnot and Co. became, therefore, merely debtors to the respondent bound after the expiry
of the year to re-pay on demand accompanied by production of the deposit receipt, the amount of deposit with interest. In mand by letter was duly
made; but Messrs. Arbuthnot and Co. did not remit on the day the demand was received two or three days later they suspended payment without
having remitted the money. What we have to determine in this case is whether the demand altered the relationship of debtor and creditor which
previously existed between Messrs. Arbuthnot and Co. and the respondent, in respect of the money due under the deposit receipt, into one of a
fiduciary-character.
Now we have seen that a person at the time of paying money into a Bank may give directions which cause the banker to hold the money in a
fiduciary capacity. If the money had been paid in without such directions is there anything to prevent directions being given by the customer at a
subsequent time with the same result? I think not. The customer, in the case supposed, is, if the money was paid into his current account, entitled to
go to the Banker at any time and demand re-payment of his money and the banker is at once bound to re-pay. The customer having received his
money may at once hand it back to the Banker with directions such as cause the Banker, if he accepts the money in future to hold the money in a
fiduciary capacity. But it would be absurd to say that it is necessary for the customer to go through the process of actually receiving his money
across the counter and handing it back. It is manifestly sufficient if lie gives his directions. On receipt of those directions the Banker, if he retains the
money, is bound to act at once upon them, and thereafter to deal with the money as if it had actually been re-paid to the customer and again paid in
with the directions and it need hardly be said that it is not necessary for the customer to give his directions in person. If the money was paid into a
fixed deposit account the same rule would, on the same line of reasoning, apply after the expiry of the period of the deposit.
From the above it is clear that when Messrs. Arbuthnot and Co. on the 19th or 20th October received the respondents demand for re-
payment it was their duty to remit the money at once. After this demand they held the money in the same way as if on the day the demand was
made, the respondent had received the money and had then handed it back and asked them to hold the money for him in trust pending remittance
to him at a future date.
We have not been referred to any cases in which the effect of demand as between banker and customer has been considered. There is another
class of cases, however, in which a principle similar to that I have followed has been laid down. See, for instance, Ex parte Ward, In re Condon
L.R. 8 Ch. 144 where it WHS held that certain goods did not pass to the trustee in liquidation inasmuch as prior to the bankruptcy the owner had
demanded possession from the bankrupt.
I, therefore, agree with the learned Commissioner that after demand Messrs. Arbuthnot and Co. held the money of the respondent in a
fiduciary capacity and I would dismiss the appeal with taxed costs to be paid out of the estate.
The appeal is dismissed accordingly,
Abdur Rahim, J.
These appeals (O.S. Appeals Nos. 26, 27, 29, 30, 40, 50, 53, 54, 56, 67 and 68 of 1908) are ""preferred by the Official Assignee of Madras
and the question to be determined upon the facts of each case is whether the learned Commissioner in insolvency was right in saying that Arbuthnot
& Co., at the time of their insolvency, held the respective sums of money, ordered by him to be paid to the several petitioners, in a fiduciary
capacity or as mere Bankers. In none of the cases are the facts in dispute and the decision turns upon the right application of the law to the
admitted facts. Before deal with each case separately it will be more convenient to state generally the law which governs such questions and I
should like to observe that the principles and methods according to which Arbuthnot & Co., carried on their Banking business were so far as they
bear upon the present question much the same as those of other Bankers in this country and in England. Arbuthnot and Co., not only received their
customers'' money in current or deposit account but also acted as agents and bailees not only for their customers as the term is ordinarily
understood but also for persons who had no account with them. On moneys received in deposit they paid a current rate of interest and for acting
as agents or bailees they generally charged commission.
Now the following propositions may be taken to be well established by English cases. Ordinarily money paid into a Bank on current or deposit
account is no longer the customers'' money but the Banker''s. The Banker can deal with it in any way he chooses, his only obligation being to re-
pay a similar amount. He is further bound to honour the cheques of those customers who have a current account with him and as to fixed deposits
the banker according to the practice in this country is to re-pay the amount at the expiry of the stipulated period. The Banker is a debtor of his
customer in respect of such moneys and does not hold them as trustee or in any fiduciary capacity. In the event of the banker''s bankruptcy the
customer like any other creditor has a right of proof against the general assets of the Bank and no more. See Foley v. Bill 2 H.L. 28. It is
otherwise, however, when a Banker receives money in trust or as agent for an especial purpose as he often does. He cannot use money so
received as his own without being, guilty of breach of trust. His duty is to keep it separate and not to mix it with his own money. And if he mixes it
with his own funds or purchases airy property with it a Court of Equity will not allow it to be said the identical coins which the Banker received in a
fiduciary character are no longer traceable and must, therefore, be taken to form part of the general assets of the Banker."" the doctrine of following
trust property is no longer confined to properties which are capable of being traced in specie although it might have been so in the olden days. The
modern development of Equity enables the Court to follow trust money in all its transmutations and to seize upon the fund or property into which it
is traced for the purpose of making good there out the trust funds See In re Ballet''s Estate 13 Ch. D. 696, and Frith v. Cartland 34 L.J. Eq. 301.
The inviolability of trust money is carried still further. If a person holding money in trust of quasi trust mixes it with his own money and then draws
out a portion of the blended fund for his own use he will be heRl to have drawn his own money and no portion of the trust money. Similarly if he
spends part of the mixed fund and buys property with the rest he shall be deemed to have expended his own money and invested the trust money.
The reason underlying the rule is thus forcibly expressed by Jamese, L.J. in Ex parte Kelly and Co. 11 Ch. D. 306"". ""No doubt if a trustee
commits a breach, of trust by stealing or otherwise misappropriating the trust moneys, he becomes a debtor to his cestui que trust in respect of the
money which he has thus improperly taken, and if he becomes a debtor in that way he remains only a debtor, and the cestui que trust only a
creditor, unless he can ""ear-mark"" the money which the trustee has misappropriated. Bat I do not think it is for a Court of law to compel a man to
be a thief, or to hold that ho intended to be or that he did become a thief and, therefore, a debtor in respect of the money stolen by him, when he
had no such intention."" It is only when trust property is shown to be destroyed by misappropriation or otherwise and only to the extent that it is
destroyed that the Court of Equity will deem trust property to be lost. But as Bramwell, L.J. says in Exparte Kelly and Co. 11 Ch. D. 306, I
cannot think the law is that the money cannot be followed and traced where there was what may be called a technical or formal breach of trust in
not ear-marking the fund.
Again it was at one time thought that the rule regarding following trust property whether it be specific property or money applied only to cases
where there has been a trust in the ordinary acceptance of the word ''as is quasi trust'' and was not to be extended to property held in any other
fiduciary capacity, such as by an agent or a bailee. But since the judgment of Jessel, M.R. in In re Hallet''s Estate 13 Ch. D. 696, that notion has
been exploded and it is now settled law that the equitable doctrine as to following property belonging to one person in the hands of another applies
in all its refinements not only to the ordinary cases of trust but of quasi trust such as when money or other form of property is placed in the hands of
an agent or a factor for an especial purpose. In Gilbert v. Gonard. 54 L.J. Ch. D. 439, North, J., at page 440 states the rule thus: ""It is very well-
known law that if one person mikes a payment to another for a certain purpose and that person takes the money knowing that it is for that purpose
he must apply it to the purpose for which it was given. He may decline to take it if he likes, but if he chooses to accept the money tendered for a
particular purpose, it is his duty, and there is a legal obligation on him to apply it for that purpose."" Thus far the law is well established and I shall
now consider the questions as they arise in each case.
Appeal No. 27.--In this case L.D. Ramachandra Iyer had a fixed deposit of Rs. 1,890 for one year with Arbuthnot & Co., and the amount fell
due on the 9th October 1903. By a letter dated the 18th October 1903, Ramachandra Iyer demanded payment of the sum, and I assume that
Arbuthnot and Co. received this letter on the 20th October. On the 22nd October, Arbuthnot and Co. suspended payment. The argument urged
before us on behalf of Ramachandra Iyer which apparently found favour with the learned Commissioner is, that from the moment the letter reached
Arbuthnot and Co., the latter must be taken to have held the Rs. 1,890 as trustees or quasi trustees for Ramachandra Iyer because upon the
demand being made Arbuthnot and Co., were bound to hand over the money to their customer. We have not been referred to any authority in
support of this proposition which upon a little reflection would, appear to be wholly untenable. The contention really resolves itself into this, that a
creditor is competerit simply by making a demand for his debt to turn his debtor a trustee with respect to the amount of the debt without the debtor
having ever at any time accepted such a position. This, if allowed, would go far to obliterate all distinction between a debt and property held in
trust and if that be the necessary result of such an argument it at once shows the utter unsoundness of it. Here undisputedly Arbuthnot and Co.,
were mere debtors of Ramachandra Iyer in respect of the amount in deposit account and on expiry of the fixed period they became liable tore-pay
the debt and there is nothing to show that they ever assumed any fiduciary position towards Ramachandra Iyer. The relationship of debtor and
creditor must be taken to continue until it is terminated by payment or it may be that if Arbuthnot & Co., at any time agreed at the request of
Ramachandra Iyer to hold the amount in trust for him or to apply it in a particular manner as his agents and did something towards effectuating the
trust or applying it for the specified purpose a new and different kind of relationship would be established between the parties in substitution of the
old. But here there is no pretence of such a change of relationship having been effected unless it be by the mere fact of demand being made for
repayment which to my mind cannot possibly have that effect. And I think it would be quite absurd to say as suggested that on the demand for
payment being made Arbuthnot and Co., became agents of Ramachandra Iyer for the purpose of paying back the amount to him. The cases cited
at the bar and to which I have already referred only lay down that if money gets into the hands of a Banker impressed with n trust or for some
specific purpose it can be followed even if blended with other moneys. Before the rule as to following can he applied you must, therefore, first of all
find that the money in question was held in some kind of fiducially character and where that is wanting the rule cannot apply. I may mention that
especial reliance has been placed on be half of the respondent on Ex parte Ward v. Coulson L.R. 8 Ch. 144. But that case has no bearing on the
present question. There the point for decision was whether certain goods were within the order and disposition of the bankrupt with the consent of
the true owner of the goods and it was held that the owner having sufficient time before bankruptcy asked the bankrupt to forward the goods to
him furnishing the bankrupt at the same time with a cheque for cost of carriage and clearance from the warehouse, the consent of the owner had
been determined by the demand for possession. With every deference, therefore, I am of opinion that the order of the learned Chief Justice sitting
as Commissioner in Insolvency is based on a misapprehension of the law and I would allow the appeal and dismiss with costs the claim of
Ramachandra Iyer to be paid in priority to the other creditors of Arbuthnot and Co.