KSHETRA MOHAN DASS Vs. DBASU CAOFFICIAL LIQUIDATOR OF EAST BENGAL SUGAR MILLS LTD

JUDGEMENT

(1.) The appellant Kshetra Mohan Dass became the sole selling agent of the East Bengal Sugar Mills, Ltd., a company registered under the Companies Act. The contract of agency (EX. A) was signed on 6 October 1937, but it became operative from 28 October following. The agency was to be for a fixed period of four years. The first party to the contract was the company and the second party the agent, Kshetra Mohan Dass. It is not necessary to set out all the terms of the contract. Clauses 6, 14 and 15 to 17 are the only clauses relevant for the determination of the question raised in this appeal. We reproduce them but in a different order: 15. For abiding by all the terms, etc., of this agreement and for the aforesaid sole agency business of sugar the second party keeps a security deposit with the first party for a period of tour years a sum of Rs. 10,500 carrying interest at the rate of 3 per cent, per annum. The first party shall pay to the second party, to his satisfaction, the aforesaid deposit money of Rs. 10,500 with interest within a month after the adjustment of the accounts of the sale of the sugar on the expiry of the term of four years mentioned in this deed of agreement. 16. The first party shall pay to the second party at the end of each year the amount of interest on the sum of Rs. 10,500 deposited by the second party at the rate of 3 per cent, per annum. 17. If the aforesaid agency is cancelled for any reason, then the first party shall remain bound to pay to the second party the aforesaid amount of security deposit together with the unpaid amount of interest within one month from the date of adjustment. 6. The second party will remove for sale from the godown of the mill of the first party, according to the terms of this agreement, twice a week, i.e., at intervals of three days; in default, the second party shall be liable for damages to the first party. Be it distinctly stated that the first party will be always competent to take the amount of damages due to them on deducting the same from the security money deposited with the first party. 14. The second party shall remain bound to pay to the first party the money on account of the price of sugar after deduction of the commission in accordance with the above rule (which was 2 1/2% on all sales) within 9 days of the taking out the sugar from the godown of the mill of the first party. In default, the first party will be competent to cancel the agency of the second party once for all, by notice, according to their will, and the first party will be entitled to realise the outstanding money from the second party with interest thereon at the rate of Re. 1 per cent. and the second party would remain bound to pay adequate compensation to the first party. The first party will be competent to take the amount of the aforesaid compensation on deducting the same from the amount of the security deposit of the second party.

(2.) These are all the relevant terms relating to the said security deposit. The mill worked for a few days of January 1988 and then stopped. The plaintiff, Kshetra Mohan Dass, made a written demand of the amount of his security deposit on 9 February 1939 and thereafter filed his suit against the company for its recovery on 16 February 1989. The company was wound up by an order of Court dated 26 June 1939. The cause title of the suit was thereafter amended and the Official Liquidator was added as a party defendant with leave of the Court. The question that has been raised is whether the plaintiff can get a decree for the sum of Rs. 10,500 with a preferential right to get the same first out of the assets of the company or should he be classed as an unsecured creditor of the company for that amount and take rateably with its other unsecured creditors. The learned Subordinate Judge has taken the last mentioned view.

(3.) The principles in cases of this kind seem to us to be clear and settled, but the application of those principles to concrete cases is often a matter of some difficulty. If the security deposit can be regarded as impressed with a trust, or the deposit can be regarded as being held by the depositee in a fiduciary capacity the depositor would in a competition with the creditors of the company get the whole of his money. If it is trust money or is so held the right of the depositor would not be affected simply because it has not (been kept by the company as an ear-marked fund but has been mixed up with other funds of the company and on the liquidation of the company, the depositor would be entitled to get it back from the assets before any creditor, secured or unsecured, of the company, can participate in the assets. The consequences would, in our judgment, follow from the principles laid down in In re Hallet's Estate; Knatchbull V/s. Hallet (1880) 13 Ch. D. 696 and our view accords with what has been expressed by this Court in In re Alliance Bank of Simla Ltd. , where the case in In re Hallet and Co. Ex parte Blane (1894) 2 Q.B. 237, was discussed and distinguished. If, however, the security deposit money cannot be regarded as being trust money or held by the depositee in a fiduciary capacity, the relation between the depositor and the depositee would be that of creditor and debtor and the former would have no preference over the creditors of the company in liquidation but must share the assets pro rata with them. Whether the security deposit will be considered as trust money in the hands of the company or as a loan to it would depend upon the facts and circumstances of each case, and where there is a written contract, the question would have to be decided on a construction of that instrument.