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Judgment
Anantanarayanan, J.—Arising out of the Liquidation Proceedings relating to the Kaleeswarar Mills Ltd., the two applications were filed
before Venkatadri J, namely, Company Appn. Nos. 398 of 1960 and 123 of 1961. The first was by the Official Liquidator, on behalf of the
company in liquidation, for directing the Dr. Alagappa Chettiar Educational Trust, hereinafter referred to as the ""trust"" (second respondent), to pay
a liquidated sum of Rs. 4,40,000, out of the amounts in the hands of the Trust, belonging to AL. SP. PL. Thirunavukkarasu Chettiar (first
respondent), and to retain the balance pending settlement of accounts between the company in liquidation and the aforesaid first respondent. Appn.
No. 123 of 1961 was also by the Official Liquidator, for an injunction restraining the Alagappa Textiles (Cochin) Ltd., hereinafter referred to as
the ""Textiles"" from paying to any party or otherwise disposing of a sum of Rs. 2,70,000 in their hands to the credit of Thirunavukkarasu Chettiar
(first respondent), and directing them to pay the said sum instead to the appellant on behalf of Kaleeswara Mills Ltd. The learned Judge
(Venkatadri J.) after setting forth the facts in considerable detail, held that the sole remedy available to the Official Liquidator, in the light of the
history of these matters, was to take possession of all the shares purchased by Thirunavukkarasu (first respondent) from and out of the funds of of
Kaleeswarar Mills Ltd., (in liquidation), while he was the Managing Administrator of that company, as 20,000 shares had been already sold under
orders of Court and moneys realised, the remedy still available to the Official Liquidator was only to proceed against Thirunavakkerasu for criminal
breach of trust, and deliberate flouting of the Court''s orders concerning his utilisation of the certain funds of the Kaleeswarar Mills, which were
entrusted to him. Upon the doctrine of election, following certain observations of Jessel M.R. in Re Hallett''s Estate 13 Ch. D. 676 the learned
Judge was of the view that the Official Liquidator had elected to pursue the property of the beneficiary, Kaleeswara Mills Ltd., wrongfully
converted to other uses by the fiduciary, Thirunavukkarasu Chettiar (first respondent), in the form of the shares, to which we have just made
reference. Having done this, the Official Liquidator could not pursue the moneys retained by the Trust, or the moneys standing to the credit of the
first respondent with the textiles. The Official Liquidator was also entitled to proceed against the remaining 13500 shares, (namely, out of the total
of 33500 shares, 20000 shares sold under orders of Court, and the balance of 12,500 shares delivered by Thirunavukkarasu Chettiar (first
respondent) as pledges etc., to third parties, by taking appropriate proceedings against the holders of those shares. For the rest, the applications
were dismissed. The present appeals, O.S.A. Nos. 45 and 46 of 1962, against the judgment of Venkatadri J., are being pressed not by the
Official Liquidator, but, pursuant to further developments in this matter, by the Board of Directors administrating the Kaleeswara Mills Ltd., as a
going concern, under the scheme recognised and ordered by this Court. O.S.A. 71 of 1962 covers the same ground but the appellant here,
Somasundaram Mills (P) Ltd., was the third respondent in the Company Appn. No. 398 of 1960 before the learned Judge. The issues that arise
for determination in these appeals may be tersely set forth in the following form:
Can the judgment of the learned Judge be upheld that the Board of Directors, on behalf of Kaleeswarar Mills Ltd. is powerless, either upon the
doctrine of tracing or with reference to garnishee proceedings, to attempt to recover any further moneys from the Trust or the textiles, because of
the application of the doctrine of election to the facts of the case?
Assuming that that doctrine does not apply to prevent the Board from pursuing further remedies, can it pursue further remedies against the Trust,
in the light of the established facts of the record?
Similarly, can the Board pursue any further remedies, against the Textiles, with the Trust necessarily impleaded as a party to the proceedings,
with regard to the moneys now with the Textiles, standing in their books, to this date, to the credit of Thirunavukkarasu Chettiar (first respondent)?
For the sake of brevity, we propose to condense a great deal of the previous history. We may commence with the intrusion of AL. SP. P.L.
Thirunavukkarau Chettiar (first respondent) in the liquidation proceedings, under orders of Court, as the Managing Administrator. The learned
Judge then seized of the matter (Ramachandra Iyer J., as he then was) passed an order dated 28th May, 1959 approving of a scheme submitted to
Court, and he appointed three persons as a Council of Administrators with Thirunavukkarasu Chettiar as the Managing Administrator. In
pursuance of the scheme, Thirunavukkarasu Chettiar deposited into Court Rs. 8,00,000 on 17th September, 1959 and latter submitted a list of
unsecured creditors of the Kaleeswarar Mills Ltd. On 19th December, 1959 Ramaswami J. passed an order directing the payment out of Rs.
3,00,000 to Thirunavaukkarasu Chettiar and also directing that, on such payment, Thirunavukkarasu Chettiar should keep the same under a
separate current account for payment to the creditors specified in the schedules of a report filed on 18th December, 1959. Thirunavukkarasu
Chettiar, despite those orders, encashed the cheque through his personal account in the Indian Bank Ltd., Coimbatore. Also, he did not pay the
dividends to the unsecured creditors under the orders of Court. Subsequently, the affairs of the mills were investigated under S. 237 (a) (ii) of the
Companies Act, 1956 and, largely as a result of the discoveries made by this investigation, Thirunavukkarasu Chettiar was discharged from the
office of Managing Administrator, his properties were attached and the Official Liquidator placed in charge of the affairs of the company. In brief,
Thirunavukkarasu Chettiar committed acts of misappropriation and diversion of the funds of the company (in liquidation) to private uses, in several
ways. Out of the sum of Rs. 3,00,000, entrusted to him, he advanced Rs. 2,00,000 to one PS. AR. SL. Subramaniam Chettiar, associated as
partner in his own family business, for personal uses. Again, he advanced large sums to the said Subramaniam Chettiar for supply of cotton, totals
aggregating to about Rs. 7,00,000, against which cotton worth about Rs. 3,00,000 only was supplied. Thus, a sum of about Rs.7,00,000 of the
funds of the company (mills) had been used or diverted by Thirunavukkarasu Chettiar for his personal benefit.
It is against this back ground that we have to appreciate certain events, which bring both the Trust and the Textiles into this picture of the
diversion, by a fiduciary, of large sums of money belonging to the beneficiary, the mills. The evidence tends to show that Thirunavukkarasu Chettiar
(first respondent) kept up a facade of propensity and that, until the exposure of the real state of affairs, he was taken to be a person of
considerable business worth and credit in his own right. On 11th January, 1960 an agreement was executed between Thirunavukkarasu Cettiar
and the Trust for sale of Rs. 1,22,057 ordinary shares of Rs. 10 each, and 865 preference shares of Rs. 100 each, held by the Trust in Textiles
[Alagappa Textiles (Cochin) Ltd.]. As the terms of this agreement are of importance, and much turns upon the interpretation of the character of this
agreement, we shall briefly set forth the relevant terms. Out of the total consideration of Rs. 29,35,001 (a) Rs. 50,000 constituted an advance ; (b)
Rs. 12,39,001 had to be paid within one month; to facilitate this, twelve bills or hundis were drawn on 16th January, 1960 by the trust in favour of
United Commercial Bank on Thirunavukkarasu Chettiar ; (c) Rs. 6,00,000, to be paid within one year with interest secured on ordinary shares of
the face value of Rs. 2,70,000 ; (d) Rs. 7,26,000, to be paid to Textiles for certain debts due by the Trust to the Textiles, and (e) Rs. 3,20,000 to
be paid to textiles for moneys due by Ashoka Charitable Trust, a sister concern of the Trust. The payments, actually made by Thirunavukkarasu
Chettiar (first respondent) under this agreement, are claimed to be the following by the Trust and the textiles ; (a) Rs. 50,000 paid as advance ; (b)
Rs. 4,00,000 paid to United Commercial Bank against four bills out of the twelve bills referred to in item (b) above. Against this, 33,500 ordinary
shares were received by Thirunavukkarasu Chettiar, with blank transfers from United Commercial Bank ; (c) Rs. 2,7,1159�42 paid to Textiles
or deposited with Textiles, by Thirunavukkarasu Chettiar (first respondent). There is acute controversy between the parties, whether this
represented the independent moneys of Thirunavukkarasu Chettiar kept with Textiles, or was a payment made in pursuance of the agreement.
According to the Trust and the Textiles, the totals of payments by Chettiar thus aggregate to Rs. 7,21,159-42.
We are now in a position to understand the circumstances under which the Board of Directors, succeeding to the Official Liquidator, has
attempted to pursue these moneys, respectively with the Trust and the Textiles, mainly upon the doctrine of the tracing of trust moneys by a
beneficiary, though such moneys might have come into the hands of third parties, who received them from the erring fiduciary; in other words, what
has sometimes been termed, the rule of trust pursuit (vide, American jurisprudence Vol 54. paragraph 248). We shall first give a condensed
account of what really happened subsequent to the agreement. According to the agreement, the ordinary shares were valued at Rs. 23�34 per
share, and the details are given in the counter affidavit filed on behalf of the Trust in C.M.P. No. 8275 and 8726 of 1963 before us. The Official
Liquidator, upon coming to know of the developments subsequent to the agreement, began correspondence with the Trust, claiming that the Trust
could not retain the money paid by Thirunavukkarasu Chettiar (first respondent). It must be here emphasised that, throughout the protracted and
somewhat intricate history of the developments, one fact at least emerges crystal-clear. The first respondent had no moneys of his own, and the
faeade of worth and credit which he put up, was sham; throughout all these dealings, he was converting to his own use moneys of the beneficiary
(the mills) of which he had come into possession as Managing Administrator. The Trust originally took up the position that the 33,500 shares,
transferred through the United Commercial Bank, had not in law passed to Chettiar (first respondent), and hence that the Trust could retain the
moneys in spite of the demands of the Official Liquidator. Inter, the Trust, advisedly, when it found that it could not lay claim both to the transferred
scrip and to the moneys it had received, took up the position that it advanced no claim to the 20,000 shares attached under orders of Court.
Out of 39500 shares, as we have earlier pointed out, 13,500 shares had been placed in the hands of third parties as pledgees by Chettiar (first
respondent), and the Official Liquidator could lay hold on 20000 shares alone. On 3rd February, 1961 Ramakrishnan, J., passed an order
allowing the third prayer in the petition before him, with regard to delivery of the shares, as the Trust had not pressed its claim. The Liquidator
applied for sale of the 20,000 shares, and pursuant to a later order of Kailasam J., the shares were sold at Rs. 9 each, in acceptance of an offer by
a concern under the proprietorship of a third party, Mr. Karumuthu Thiagaraja Chettiar. It may be here convenient to refer to our orders in C. M.
P. 8275 and 8276 of 1963, by which we have allowed certain amendments, in the interests of justice. That order will really have to be read as part
of this judgment, since it may be cumbersome and superfluous to reproduce it here. Therein, we have given our grounds for the view why we have
permitted the Board of Directors, as representing the mills, to enlarge the pleadings, so that, in virtual effect, the Board could claim moneys
retained by the Trust, upon the doctrine of tracing, and the sum of Rs. 2,71,000 odd with the Textiles, in the name of Chettiar (first respondent),
also, upon the alternative grounds of garnishee proceedings and the trust pursuit rule. It now remains for us to consider (1) whether the dismissal of
the applications by the learned Judge (Venkatadri, J.) upon the doctrine of election could be upheld, and (2) Whether, on the contrary, the Board
of Directors should now be permitted to pursue further remedies, either with regard to the moneys retained by the Trust, or moneys with the
Textiles, or both, and if so, to what extent.
We shall quite briefly set forth why, in our view, the dismissal of the applications before the learned Judge, on the doctrine of election, except as
held by the learned Judge to the extent of proceeding against Chettiar (first respondent) and the balance of 13500 shares in the hands of third
parties, cannot be sustained. In order to appreciate this, it is necessary to examine the actual implications of the doctrine of election, in regard to
facts of this kind and also to scrutinise how far the dicta in Re Hallett''s Estate 13 Ch. D. 696 are truly relevant to the present situation. As
observed in Halsbury''s Laws of England, 3rd Edn. Vol.14, paragraph 1104 page 596:
Election is a question of fact, and must be ascertained as such. It may be express, or may be implied from the acts of the person bound to elect. To
constitute an implied election, there must be clear proof that the person put to his election was aware of the nature and extent of his rights; and that,
having that knowledge, he intended to elect.
The principle in Re Hallett''s Estate 13 Ch. D. 696 on this particular aspect, has been stated in Halsbury (Ibid) at page 630 in the following form:
If the proceeds have been invested, without the addition of further money, in the purchase of other property, the beneficial owner has the right to
elect either to take the property purchased as to have a charge on it for the amount of the trust money.
Venkatadri J. was of the view that both the doctrine of election and the principle expressed above in Re Hallet''s estate 13 Ch. D. 696 applied
to the present situation, in the sense that the Liquidator could either pursue the 33500 shares, or the moneys received and retained respectively by
the Trust and the Textiles, but not both; having elected to pursue the shares, and realised moneys by sale of 20000 shares, the remedies against
those who had received moneys from the fiduciary (first respondent) under the agreement, were automatically extinguished. But the learned Judge
has not referred to the history of those developments, as they appear in the correspondence, the petitions before Court, and the several orders of
Court, as set forth in Vol. I of the typed papers. We have scrutinised these documents with care, and we have been taken through them in the
course of protracted arguments by Learned Counsel for the parties. We have no doubt whatever about one major factor. Throughout, in
corresponding with the Trust, and in attempting to trace the the moneys of the beneficiary (mills) with the Trust, or to sell the attached shares, the
liquidator was acting under the consciousness that the Trust had received Rs. 4,40,000 and parted with the shares in favour of the first respondent.
The true facts concerning the additional sum of Rs. 2,71,159�42, also representing moneys of the beneficiary, kept by the erring fiduciary (first
respondent) with the Textiles, came to light at a definitely later stage, and had nothing to do with any earlier election by the Liquidator, express or
implied. Thus, if there was any implied election at all, the Liquidator chose to pursue the available shares (20,000), instead of the equivalent
beneficiary''s money received by the Trust; even here, be does not appear to have intended to proceed against the remaining 13,500 shares in the
hands of others, and, indeed, he could not pursue those shares. In the context of these incontrovertible facts, it is impossible to hold that the
doctrine of election estops the Board from further progress under the trust pursuit rule. That doctrine, as we have seen, implies a knowledge of
alternatives, and a choice of one of two alternatives. That is not the case here. Even in a minimal view for the Board of Director, that would not
apply to moneys with the Textiles, and may not apply even with regard to the moneys with the Trust, over and above the actually realised value of
the shares sold under orders of Court. The point here is that the principle in Re Hallet''s estate 13 Ch. D. 696 relates to a clear and sharp
conversion of trust moneys into other forms of property, the pursuing beneficiary having knowledge of the conversion, and a choice of alternatives.
That cannot be the case where, for instance, there has been a partial conversion, to a limited extent, and the beneficiary seizes the property so
made available under the Trust pursuit rule; that does not imply that his claim to the balance of funds, not embodied in some other form of
property, is also lost. For these reasons, it seems clear that the disposal of the proceedings by the learned Judge (Venkatadri, J.) cannot be
sustained.
The more difficult question which has required anxious consideration at our hands is, whether the Board of Directors can now be permitted to
pursue remedies against the Trust, and if so, to what extent. Next comes the question, whether the Board can similarly pursue remedies against the
Textiles with regard to the sum of Rs. 2,71,159�42, retained with the Textiles, allegedly under the agreement, to the account of Chettiar (first
respondent). If this is to be permitted, the further question arises, what investigation of this aspect is now called for (i) treating the relief claimed by
the Board of Directors as in the nature of garnishee proceedings, and (ii) under the trust pursuit rules?
As far as the Trust is concerned, we are thoroughly satisfied, upon a very careful investigation of this aspect, that it will not be equitable, or
justified upon the facts and the principles to permit the Board of Directors to pursue moneys in the hands of the Trust any further, under the trust
pursuit rule. Mr. Govind Swaminathan for the Board has disputed the proposition that the Trust acted bona fide, without notice of beneficiary''s
title to the moneys. He has offered certain reasons why the Trust should have suspected that the Chettiar (first respondent) was not likely to have
made these payments, from his own resources. But we are totally unable to impute this knowledge to the Trust, in the light of the documents of
record. We are thoroughly satisfied that the Trust acted bona fide accepting the facade of credit and worth presented by Chettiar (first respondent)
and genuinely believed that the agreement would be implemented by him. Actually, the records show that even prior to establishing contract with
Chettiar (first respondent) the Board of Trustees in administration of the trust, consisting of persons of eminence in public life and worth, had met
and agreed that the sale of the holdings of the Trust in Alagappa Textiles (Cochin) Ltd., should be resorted to, as a measure of prudence. It was in
implementation this pre-determined policy that the agreement with Chettiar (first respondent) was finally entered into. The arguments of Mr. V.
Thyagarajan, for the Trust, could be expressed in the following form. Viewing the matter purely as a contract between the Trust and Chettiar (first
respondent) title in the shares had passed to the first respondent by virtue of the established facts. The shares are ""goods"" within the meaning of the
Indian Sale of Goods Act, 1930; vide S. 2 (7). The delivery of share certificates with blank transfers signed by the transferor, amounts to
conveyance of good title in the shares to the purchaser; and registry of shares is not necessary for vesting title; Manekji Pestonji Bharucha v.
Wadilal Sarabai and Co. 51 M. L. J. 1 (P. C.). Also Arjun Prasad v. Central Bank of India Ltd. A. I. R. 1956 32. Where there is a breach of
contract, as has undoubtedly occurred here, by the action of the first respondent in failing to implement the agreement, unless restitution in integrum
is possible, the party who stands to lose will be entitled only to compensation. Further the purchaser should pay to the extent to which he has taken
delivery of goods; Govindam Sexaria v. Edward Badbone (1948) II M. L. J. 1=61 L. W. 449 (P.C.). Per contra, on this aspect, Mr. Govind
Swaminathan, contends, on the authority of Murlidhar Chatterjee v. International Film Co., Ltd., (1943) 2 M. L. J. 369=56 L. W. 283 (P. C.),
that if the contract is broken by the purchaser before the completion of the contract, the amounts paid by him can only be treated as advance, or
benefit received by the vendor, which the vendor is bound to return, S. 64, of the Contract Act being applicable. It is also contended by Mr.
Govind Swaminathan, on behalf of the Board, that the company (Mills) can step into the shoes of the Chettiar (first respondent) to a limited extent,
and that there is no need to affirm the contract in its entirety. Integral restitution by bringing back the shares sold, or making available the value of
the shares, according to the contract or agreement rate, is not essential. But Mr. Thyagarajan relies upon S. 37 (1) of the Sale of Goods Act, for
the position that the buyer, having accepted the goods (shares), and dealt with them as owner by pledge or sale, he, or his successor-in-interest, or
even any beneficiary claiming in respect of his rights, is bound to pay at the contract rate for the goods.
On this aspect, we do not propose to give a conclusive finding on the mutual rights of parties, for it seems clear to us, that the Board is
estopped from further pursuit of moneys, as against the Trust, upon a far more sufficing and adequate ground. Even on this restricted aspect, there
is much to be said for the view that an integral restitution would have to be performed by the Board before it could seek to recover moneys which
have come into the hands of the Trust, under the agreement and to the extent to which parties had implemented it. There can be no doubt that
property in the shares had passed to the Chettiar (first respondent), and that, if the Board now claims to affirm the agreement, as successor-in-
interest of the first respondent, in one sense, the Board may also have to assume all the obligations which the first respondent failed to fulfil.
But the far more important ground is that the Trust is undoubtedly a transferee for valuable consideration, without notice of the claims of the
beneficiary, as far as the moneys received by it from Chettiar (first respondent) are concerned. The authorities are abundantly clear that, with
reference to such funds, the beneficiary must stop short of further pursuit. The beneficiary cannot recover moneys, whether obtained by fraud or
misuse by a fiduciary, which are in the hands of persons who are alienees for valuable consideration, without notice of the fraud or the trust. The
following authorities are adequate to show this. (1) 38 Halsbury (Simonds Edition) page 859, Para 1447. (2) 14 Halsbury page 628, paragraph
1163, (3) Lenin on Trusts, 15th Edn, page 733. (4) Diplock''s case (1948) 1 Ch. 465, where it was held that if claimant''s moneys are handed by
way of transfer to a person who takes for value without notice of the claimant''s equity, the claim (like all equitable claims in like circumstances) is
extinguished. (5) Observations of Lord Denning in Nelson and others v. Larholt (1948) 1 K.B. 339 at pages 342, and 343, that money taken from
the true owner can be traced or recovered from the person to whom it is paid, until it reaches one who receives it in good faith, and for value,
without notice of the want of authority, (6) Equity will follow the trust money only to the extent to which it can be identified; if there is a mingling
which makes identification impossible, tracing cannot be further pursued; James Roscoe Ltd. v. Winder (1913) 1 Ch 62 Also, Diplock''s case
(1948) 1 Ch. 465. The principles, so stated, are not disputed by Learned Counsel for the Board, Mr. Govind Swaminathan. He relies on Nelson
and others v. Larholt (1948) 1 K.B. 339�1947) 2 A.E.R. 751 and S. 63 of the Trusts Act for the proposition that moneys belonging to the
beneficiary could be traced in the hands not merely of one person, but of any number of persons. But he would concede that a bona fide transferee
for value, without notice of the trust, is indisputably protected; see S. 64 of the Trusts Act. His contention is that the original contract between the
Trust and Chettiar (first respondent), which was indivisible, had been converted into one for payment in instalments, and delivery of shares in
instalments. The Trust did not put an end to the contract at any time before 20th June, 1960. In such a case, according to law, the payments can
be considered as advances paid by Chettiar (first respondent) and, if he commits default, as the buyer, he can recover the payments subject to any
cross-claim by the Trust for damages for breach of contract; Chitty on Contracts, Volume I, para 1400, But, here again, we must emphasise that,
apart from the trust pursuit rule, we are quite unable to see how the Board of Directors, could now claim moneys from the Trust, without making
integral restitution, and without accepting liability for all the mutual rights and obligations between the parties under the original agreement. That the
Board is admittedly in no position to do. Upon the trust pursuit principle, we have no doubt whatever that the Trust is protected as a bona fide
transferee for value, without notice of the beneficiary''s rights in respect of the moneys which have come into the hands of the Trust, as paid by the
erring fiduciary (first respondent).
This makes it clear that all that we have got to consider is the rival cases of the parties, with regard to the moneys retained by the Textiles. The
point here is, how far should the Board of Directors be now permitted to further pursue this matter and what investigation is required before the
remedy, if any, can be ascertained and worked out.
Certain powerful arguments have been marshalled both by Learned Counsel for the Trust and Learned Counsel for the Textiles, in support of
the proposition that the amount of Rs. 2,71,159�42, with the Textiles is only part of Rs. 7,21,159�42, paid by the first respondent under the
agreement. As we have seen, one term of the agreement was that Rs. 7,26,000 should be paid by Chettiar (first respondent) to Textiles, for debts
due by the Trust to the Textiles. The following pieces of evidence are relied upon, in support of the contention that the amount of Rs. 2,71,159-42,
can be traced only to a payment under agreement, and to no other source. (1) The letter of the lawyer of the Trust to Chettiar dated 6th April,
1960 making an averment with regard to Rs. 7,21,159�42, which necessarily includes Rs. 2,71,159�42, (2) Similar letter of the lawyer of the
Trust to the Official Liquidator dated 4th August, 1960. (3) Letter of the Official Liquidator dated 25th August, 1960 reiterating the averment with
regard to Rs. 7,21,159�42, and claiming that the trust was not entitled to retain those moneys. (4) The letter of the lawyer of the Trust to the
Official Liquidator dated 3rd September, 1960. (5) Report of the Official Liquidator dated 16th September, 1960, again making reference to the
amount of Rs. 7,21,159�42, (6) Statement of the learned Judge (Venkatadri J.) himself to the effect that Rs. 2,71,159�42 was paid by
Chettiar (first respondent) in pursuance of agreement, in the course of the judgment. Other documents, emphasising the same circumstances, are
applications by the Trust to be impleaded as a party in Company Appln. No. 123 of 1961, the counter affidavit of the Trust in Company Appln.
No. 123 of 1961 and absence of any contention on behalf of the liquidator that Rs. 2,71,159-42, was not paid in pursuance of the agreement. Per
contra, Mr. Govinda Swaminathan for the Board places considerable reliance on two indisputable features. The first is that in the accounts of
Textiles, the amount of Rs. 2,71,159-42 had never been appropriated to the credit of the Textiles, as a debt due by the Trust and paid by the
Chettiar (first respondent) under the agreement. On the contrary, to this date, the amount is shown as moneys standing to the credit of the first
respondent Chettiar. The second is the equally incontrovertible fact that the amount itself was arrived at as a balance struck, after debits
succeeding the payment through credit from the Bank of Mysore of Rs. 2,52,677,05 on February 13; (page 115 of Vol I of the typed papers).
The entire ledger entries, according to the Learned Counsel are quite incompatible with the interpretation that this could be money paid by Chettiar
(first respondent) under the agreement, on behalf of the Trust, as a debt due from the Trust to the Textiles.
We do not propose to go into this matter, at any further length, for an important reason. It seems clear to us, that, since we are unable to
uphold to the disposal of the applications by the learned Judge on the doctrine of election at least as far as this matter of tracing of moneys kept by
the Textiles is concerned, further investigation and even recording of evidence have become essential. The first respondent is a party to these
proceedings. We are reliably informed that he has instituted a suit in a Court in Kerala State for recovery of Rs. 2,71,000, odd, claiming the
moneys to be a deposit of his private funds. The Textiles have been restrained by means of an interim injunction from payment of these moneys, or
appropriation of them in any manner, pending final adjudication. Upon the claim of the Board on the footing of garnishee, the Textiles have raised
the plea that the Court had no jurisdiction, since Textiles had their business head quarters outside the limits of Madras State, with specific reference
to Ss. 634 and 635 of the Companies Act and O. 40, R. 1 of the Original Side Rules. Also, see Begg Dunlop and Co. v. Jagannath Marwari 39
Cal. 104. They further claim a lien on the 20000 shares under Art. 27 of the Articles of their concern. They point out that the order for the sale of
the shares was without prejudice to the right of the Textiles, and that the lien will also attach to the remaining 13,500 shares. Venkatadri J. did not
go into the question of alleged want of jurisdiction of this Court treating the matter as a garnishee proceeding. We have held, in our order in C. M.
P. No. 8275 and 8276 of 1963, that we are unable to agree that ""The company Court will not have jurisdiction under S. 446 (2), to call upon the
third party creditor to stay his hands."" But that was for the restricted purpose of allowing the amendments prayed for, and the matter may have to
be further gone into. Mr. Govind Swaminathan for the Board contends that the lien on the shares of the Textiles was lost, because of the pledge by
the Trust with the United Commercial Bank. All these matters will have to be examined, with reference to the fundamental basis, whether the sum
of Rs. 2,71,159, odd represents money paid by Chettiar (first respondent) to Textiles under the agreement, or is an independent deposit of some
kind. Chettiar (first respondent) may himself have to be examined, and other evidence recorded. Since these matters were not at all gone into, by
this Court, in exercise of its original jurisdiction, we refrain from further comment. Accordingly, we allow the appeals, and remit the entire
proceedings for further enquiry and disposal upon these aspects which we have not concluded by our explicit findings above. The enquiry should
therefore be restricted to the claim by the Board of Directors for Rs. 2,71,000 held by the Textiles to the credit of Chettiar (first respondent).
Parties to bear their own costs.