LexR.B. SETH JESSARAM FATEHCHAND versus OM NARAIN TANKHA & ANR.
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A c D E F G H R. B. SETH JESSARAM FATEHCHAND v. OM NARAIN TANKHA & ANR. January 19, 1967 (K. N. WANCHOO, R. S. BACHAWAT AND J.M. SHELAT, JJ.] Trust-Security deposited with co1npany by sole selling agent-In- terest payable by company-Deposit allowed to be mixed with other funds -Deposit whether held by company as trustee-Matters to be taken into consideration. The appellant firm was appointed sole selling agent of a sugar manu- facturing company and deposited Rs. 50,000 as security for due perfor- mance of the contract; this amount wao to carry interest at 6 per cent per annum. There was no restriction on the use of the said depoS1t by the company. According to cl. (9) of the agreement the security and mter- est were to be refunded at the termination of the apency; in default of such payment the appellant firm was entitled to a commission as if agency had not terminated. The clause further said that "as lon,g as security with interest is not refunded and commission due is not pt.id this agree--- ment will not be terminated." The company was ordered to be wound up befote the period of agency came to an end. Consequent on the winding up the appellant made an application praying for refund of its security deposit along with interest. It was contended that as the company held the amount of deposit as a trustee the appellant was entitled to priority among the creditors. On behalf of the liquidators it was denied that the amount deposited was in the nature of a trust entitled to preference over other debts. The company judge held that the amount was an ordinary debt. The Division Bench of the High Court also deci<ied against the appellant. In appeal by special leave to this Court. HELD: The deposit did not amount to a trust. The question whether the security deposit in a particular case can be said to be impfessed with ·a trust will have to be decided on the basis of the terms of the agreement and the facts and circumstances of each case without any leaning one way or the other on the fact that the money was given as a security dePosit. [434 CJ If a trust can clearly be spelled out from the terms of the agreement that ends the matter. But if the trust cannot be spelled out clearly the fact that there was no segregation provided for, and the fact that interest was paid, would go a long way to show that the deposit was not impressed with the character of a trust particularly when the person with whom the deposit was mape could mix it· with his own money and could use it for himself. In such a case the inference would be that the relationship bet- ween the parties was that of a debtor and creditor. Further besides these circumstances, if there is any other term which suggests one kin<l of rela- tionship rathe·r than the other that will also have to be taken into account. [436 B-C] In the present case the company was free to use the money for its own purpose and had to pay interest on it. Further, in cl. (9) of the agreement the security was put on a par with the commission which was nothing but a debt. The courts below had therefore rightly treated the security deposit as an ordinary debt. [436 Fl Peter Donahf Macpherson v. Dugald Mckechine and Ors. XXVIII (1923-24) Cal. W.N. 721. In the matter of Travancore Natfonal and 430 SUPREME COURT REPORTS [1967) 2 s.c.a. Qui/011 Be111k Li11Jitecl, Official Liquidators and A1101her App/ican1s, A.J.R. 1939 ~-fad. 337, Jn re Mn11<'kji Petit Man14fac1urif!g Compc,ny Ltd. A.LR. 1932 Born. 31 l, Ma/ie.'ihir11ri Brothers v. Official Liquidalors, l.l.R. ( 1942) All. 242. Kesh<tra Mo/ia,, Das v. D. C. Basu, I.LR. [1943] 1 Cal. 313. Gee v. Liddell, (1866) 55 E.R. 1038, K1u11chhull v. Hallett, (1879-80) XIII Ch. D. 696. /11 re llnlle// & Co., [1894] 2 Q.B.D. 237 and Frank M. Mckey v. Maurcie Paraclixe, 81 L. Ed. 75. referred to. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 891 of 1964 Appeal by special leave from the judgment and decree dated October JO, 1961 of the Allahabad High Court in Letters Patent Appeal No. 83 of 1951. N. C. Clral/erjee, B. C. Mishra, B. R. G. K. Achar and M. V Gos ... ami, for the ;ippellant. C/Jaman Lal Pandlri and S. L Pandhi, for the respondents. The Judgment of the Court was delivered by Wancboo, J. This is an appeal by special leave ag~;nst the judgment and decree of the Allahabad High Court. The appellant is a registered partnership carrying on business at Kanpur. It entered into a
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