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PETITIONER: NEW BANK OF INDIA LTD.

       Vs.

RESPONDENT: PEAREY LAL

DATE OF JUDGMENT: 20/12/1961

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L. HIDAYATULLAH, M. MUDHOLKAR, J.R.

CITATION:  1962 AIR 1003            1962 SCR  Supl. (2) 217

ACT:      Bank-Money delivered  by  constituent-Special instruction to  await direction,  for  deposits-If held by  the bank as trustee-Scheme for settlement of  bank’s   liabilities   sanctioned-Amount,   if subject to it.

HEADNOTE:      The  respondent  delivered  certain  sums  of money  to   the  appellant-bank   at  Lahore   for transmission to  Calcutta,  with  instructions  to await his  directions  regarding  the  opening  of accounts for keeping the money in fixed deposit in the Calcutta Branch of the bank which was proposed to be  opened in  the near  future. The respondent did not  however give  any instruction for opening any account,  fixed deposit or otherwise in regard to the amounts after they reached Calcutta. Within a few  days after  the  opening  of  the  Calcutta branch of the bank it ceased making payments and a moratorium for a limited period was declared under an  ordinance   issued  by  the  Governor  General restraining the  bank from  making payments to its depositors. After  the expiry of the period of the moratorium the  Calcutta branch of the bank raised objections to  the  respondent’s  application  for withdrawal of the amount 218 whereupon the  respondent  filed  a  suit  in  the Calcutta High Court for a decree for refund of the amount. During  the pendency  of the suit the High Court of East Punjab sanctioned a scheme under ss. 153 and 153A of the Indian Companies Act, 1913 for settlement of the liabilities of the Bank.      The courts  below  decreed  the  respondent’s suit. On  appeal by the bank by special leave, the questions which  arose for  decision were  whether the bank  was a  trustee for  transmission of  the amounts to  Calcutta and whether in the absence of

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any  instruction   for  opening  a  fixed  deposit account the  bank was  liable to  refund the  full amount or a reduced amount according to the scheme sanctioned by the Punjab High Court. ^      Held, that  when a person dealing with a bank delivers money  to the bank an intention to create a relation  of creditor and debtor between him and the bank  is presumed,  but the presumption may be rebutted by  proof of  special instructions.  When money is  paid to a bank with special instructions to retain the same pending further instructions, a trust  is   created  and   the  presumption  which ordinarily arises by reason of payment of money to the bank is rebutted.      Held, further,  that the  money delivered  by the Respondent remained in trust with the bank and was not  held by  it as  a deposit  subject to any scheme for  the settlement  of the  liabilities of the bank  sanctioned by  the High  Court under the Companies Act.      The  Official  Assignee,  Madras  v.  Natesam Pillai, I.L.R.  (1940) Mad.  845, Arbuthnot  v. D. Rajan Ayyar,  I.L.R. (1913) 36 Mad. 499 and Farley v. Turner, (1857) 26 L.J. Ch. 710, applied.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION:  Civil  Appeal No. 398 of 1960.      Appeal by special leave from the judgment and decree dated  June 23,  1959, of the Calcutta High Court in  Appeal from  Original Decree  No. 50  of 1955.      Veda Vyasa,  S. K. Kapur and B.P. Maheshwari, for the appellant.      K.  L.  Gosain  and  K.  L.  Mehta,  for  the respondent.      1961. December  20. The Judgment of the Court was delivered by 219      SHAH, J.-Mr.  Justice Bachawat  of  the  High Court of  Judicature at  Calcutta decreed Suit No. 1039 of  1948 filed  by one Pearey Lal-hereinafter called  the   plaintiff-for  a   decree  for   Rs. 1,35,000/- with  interest against  the New Bank of India Ltd.  The appeal  of the  Bank  against  the decree was  dismissed by  a Division  Bench of the High  Court.  With  special  leave  the  Bank  has appealed to this Court.      The   Bank   had   its   registered   office, originally at  Lahore but  after the  partition of India the  office was transferred to Amritsar. The plaintiff  who   was  a  resident  of  Lahore  had accounts with several banks including the New Bank of India  Ltd. In view of the impending partition, the plaintiff was anxious to transfer his moveable property outside  the territory it was apprehended would  be   included  in  Pakistan,  and  he  gave instructions for  transferring his  accounts  with the Bank  to its  other branches in India. He also paid an amount of Rs. 1,25,000/- on July 18, 1947, into the  Bank  at  Lahore  with  instructions  to transmit the  same the  to Bank branch at Calcutta

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which it then proposed to open in the near future. An amount  of Rs.  10,000/- was also paid into the Bank at  Lahore on  July 19,  1947,  with  similar instructions. In respect of these two transactions the Bank  executed  receipts  which  are  set  out below:           "Received the sum of Rs. 1,25,000/- (Rs.      One Lac & twenty five thousand) only from Mr.      Pearey  Lal   on  account  of  amount  to  be      remitted to  Calcutta  branch  for  preparing      various  F.D.   Receipts   subject   to   his      instructions on  or after  the  opening  date      when he would call upon them personally.      Lahore         for the New Bank of India Ltd. The 18th day of          Sd. Illegible   July, 1947.             Manager." 220      ................................         .... ..........      ............................................. ........           "Received the sum of Rs. 10,000/-(Rupees      ten thousand) only through Mr. Pearey Lal for      transmission  to   our  Calcutta  Office  for      making up  various  F.  D.  Receipts  at  his      instance when  he calls  upon them personally      on or after the opening date of the Branch.      Lahore              for the New Bank of India Ltd.      19-7-47.                    Sd. Illegible                               Manager." The two  amounts were  transmitted by  the Bank to Calcutta. A  branch of  the  Bank  was  opened  at Calcutta on  September 24,  1947, but within a few days thereafter  the Bank  ceased making payments. It appears  that a moratorium for a limited period was declared  under an  Ordinance  issued  by  the Governer-General restraining  the Bank from making payments to  its depositors.  In  December,  1947, after the  expiry of  the period of the moratorium the plaintiff  applied to  the  Bank’s  branch  at Calcutta for facility to withdraw the whole amount but the  Calcutta Branch  raised certain technical objections against  such a  course. On  March  24, 1948 the plaintiff commenced an action against the Bank inter  alia for a decree of Rs. 1,35,000/- in the Calcutta  High Court  on  its  original  side. During the  pendency of the suit the High Court of East Punjab  sanctioned a  scheme for  arrangement under ss.  153 and  153A of  the Indian  Companies Act, 1913,  for settlement of the liability of the Bank. By  the  first  clause  of  the  scheme  the expression  "deposit"   was  to   include   "Fixed Deposits, Bank’s  own Cash  Certificates,  Current Accounts, Deposits  at Call, Savings Fund Accounts Amounts lying  in Sundries or in any other kind of Credit Accounts,  Bank Drafts,  Cash  Orders,  and documents of  the like  nature and  amounts due to Bankers over  and above  the value  of  Government Securities lying with them against 221 such depositors".  It was  directed by the scheme, as it finally emerged, that the depositors were to be paid 701/2% of the deposits held by them and to he allotted  shares of the face value of 5% of the

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deposits.      The plaintiff claimed by his suit that he had entrusted to  the Bank at its registered office at Lahore Rs.  1,35,000/- on  July 18  and 19,  1947, with instructions  to transmit  the  same  to  the branch of  the Bank  which it  proposed to open at Calcutta and to hold the amount subject to further instructions to be given by him when he would call personally at  the branch  at Calcutta on or after the opening date, that prior to the opening of the said Calcutta  Branch the  plaintiff countermanded his instructions  on or  about September  13, 1947 and demanded  at Lahore  that it  be returned, but the Bank  wrongfully claimed  to have remitted the two sums  to its  Calcutta Branch and to have kept the same in a fixed deposit account in the name of the plaintiff,  even  though  the  plaintiff,  had opened no  such account at the Calcutta Branch and had given no instructions to put the same into any account by  way of fixed deposit or otherwise. The plaintiff, accordingly,  claimed that the Bank was a trustee  for transmission  of the  amount and in the absence  of any  instructions given by him for opening a fixed deposit account, in respect of the amount  transmitted   the  Bank   stood  qua   the plaintiff in  a fiduciary  relation and was liable to refund  the full  amount. In  substance, it was claimed by  the plaintiff  that the  amount  lying with the Bank at Calcutta was not a deposit within the meaning  of the  scheme and  was not liable to any reduction.      The Bank  submitted that  the amount  of  Rs. 1,35,000/- was  deposited by  the plaintiff at its head office at Lahore for the purpose of opening a fixed deposit account in the name of the plaintiff upon the terms that the fixed deposit would carry 222 interest  as   on  the  respective  dates  of  the deposits, that  it was  agreed that  the plaintiff would be  allowed to  take loans  upto 90%  of the deposit at  a rate  of interest  of  half  percent above the current fixed deposit rates and that the amount would be transmitted to the Calcutta Branch of the  Bank for the purpose of crediting the same to the fixed deposit account of the plaintiff. The Bank denied the alleged instructions in September, 1947, countermanding  the original arrangement and contended that  the plaintiff  was  bound  by  the scheme of arrangement sanctioned by the High Court of East Punjab. The Bank offered to pay the amount due  to   the  plaintiff   under  the   scheme  of arrangement and  also to allot shares of the value of 5% in accordance with the scheme.      A decree  on admission was passed against the Bank for  Rs. 81,000/-  and the suit was contested by the Bank for the balance of the claim.      The trial  Court held  that even  though  the plaintiff failed  to prove the instructions in the month  of   September,  1947,   set  up   by   him countermanding transmission, it was established on the evidence,  that the plaintiff had entrusted to the Bank  Rs. 1,35,000/-  for transmission and the plaintiff having  given no  further  instructions, the Bank  held  the  amount  as  trustee  for  the plaintiff and  that the  plaintiff’s claim was not

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liable to  be reduced  under the scheme sanctioned by the  High Court  of East Punjab. The Court also negatived the  plea of the Bank that the amount of Rs. 1,35,000/-  was deposited  with  the  Bank  at Lahore for opening a fixed deposit account subject to the  conditions which  the  Bank  set  up.  The finding of  the trial  Court  were  confirmed,  in appeal, by  a Division  Bench of the High Court at Calcutta.      The facts  found  proved,  according  to  the findings of the trial Court and confirmed by the 223 High  Court   are  therefore  that  the  plaintiff delivered an  amount of Rs. 1,25,000/- on July 19, 1947, and  Rs. 10,000/-  on July  19, 1947, to the Bank at  Lahore for transmission to Calcutta, with instructions  to   await  the  directions  of  the plaintiff regarding  the opening  of accounts  for keeping the  same in fixed deposit or otherwise in the Calcutta Branch of the Bank, and the plaintiff never gave  instructions for  opening any account, fixed deposit  or  otherwise,  in  regard  to  the amounts after they reached Calcutta.      Delivery of  the amount  for transmission  to the Bank  created ex  facie a  relationship  of  a fiduciary character.  But  counsel  for  the  Bank contends that  when the  amount was handed over at Lahore to the Bank by the plaintiff who was an old constituent of the Bank it must be presumed that a relationship of  debtor and  creditor arose and by the addition  of instructions for transmissions of the amount  to another  branch the relationship of trustee and  cestuique-trust  did  not  arise.  He submitted that  the contention  that the  relation between the plaintiff and the Bank was of creditor and  debtor   was  supported  by  three  important circumstances: (1)  that the  Bank agreed  to  pay interest on the amount delivered by the plaintiff; (2)  that   the  Bank  charged  no  commission  or remuneration for  transmission of  the amount  and (3) that  even on  the plaintiff’s case the amount was to  be  utilized  for  opening  fixed  deposit accounts at  Calcutta. It  is  true  that  in  the absence of  other evidence  a person  paying money into a  Bank, whether  he is  a constituent of the Bank or  not, may  be presumed  to have  paid  the money to  be held  as bankers  ordinarily hold the moneys  of  their  constituents.  If  no  specific instructions are  given at  the time of payment or thereafter, and  even if  the money  is held  in a suspense account  the bank does not thereby become a trustee  for the  amount paid.  In other  words, when a person dealing with 224 a bank  delivers money to the Bank an intention to create a  relation of  creditor and debtor between him and  the Bank is presumed, it being the normal course of  the business  of  the  Bank  to  accept deposits from  its customers. But this presumption is one  of fact  arising from  the nature  of  the business carried on by the Bank and is rebutted by proof of  special instructions,  or  circumstances attending the transaction. Where the money is paid to a  bank with special instructions to retain the same pending  further instructions  (The  Official

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Assignee, Madras  v. Natesam Pillai (1)) or to pay over the same to another person who has no banking account with  the bank  and the  bank accepts  the instructions   and   holds   the   money   pending instructions from  that other  person (Arbuthnot & Co. v.  D. Rajam Ayyar (2)), or where instructions are given  by a customer to his banker that a part of the amount lying in his account be forwarded to another bank  to meet  a bill  to become  due  and payable by  him and  the amount  is  sent  by  the banker as directed (Farley v. Turner (3)), a trust results  and   the  presumption  which  ordinarily arises by  reason of  payment of  the money to the bank is rebutted.      It  is   not  necessary  in  this  appeal  to consider whether  because of  an agreement  to pay interest the  relationship may  be deemed to be of debtor and  creditor, because  it was held by both the courts below that no such agreement is proved, and according  to the  settled  practice  of  this court the finding is regarded a binding.      The   Bank    charged   no    commission   or remuneration  for  transmitting  the  amount    to Calcutta,  but   that,  in   our  judgment,  is  a circumstance which permits of no inference against the plaintiff.  Undoubtedly, when  the amount  was delivered to  the Bank by the plaintiff it was his intention  to   open  fixed   deposit  account  in Calcutta with the 225 Bank’s branch  but the fixed deposit accounts were to be opened after instructions were received.      The transaction,  as  evidenced  by  the  two receipts, was  primarily one of entrustment of the amount to  the Bank  for transmission to Calcutta. After  the  purpose  for  which  the  moneys  were entrusted was  carried  out,  in  the  absence  of further instructions  the defendant  did not cease to be  a trustee. So long as instructions were not given by  the plaintiff  for appropriation  of the amounts the  Bank continued  to hold  the  amounts transmitted for and on behalf of the plaintiff and there is  no  evidence  that  the  plaintiff  gave instructions or  acquiesced in  the opening  of  a fixed  deposit  account  after  the  same  reached Calcutta. It is immaterial that the Bank purported to open  fixed deposit  account in the name of the plaintiff with  the amounts  received at  its head office  at  Lahore.  That  course  of  action  was adopted without  the consent  of the plaintiff and it could  not bind  the plaintiff.  The High Court was, therefore,  right in  holding that the amount delivered by  the plaintiff  to the Bank at Lahore remained in  trust even after it reached Calcutta, and it  was not  held by  the Bank, in deposit for the plaintiff  within the  meaning of  the  scheme sanctioned by the High Court of East Punjab.      In that view of the case the appeal fails and is dismissed with costs.                                  Appeal dismissed. 226