Dr. D.R. DHANUKA, J.
Varun Shipping Company Limited has made Company Application No. 271 of 1991 in Company Petition No. 389 of 1991 for a direction to the 1st respondent Bank duly represented by its Provisional Liquidator, the 2nd respondent, to pay to the applicant or to pay to such Bank or Banks as may be instructed by the applicant amounts of Rs. 2,04,24,500/- and Rs. 6,20,000/- totalling to Rs. 2,10,44,500/- collected by respondent No. 1 by way of sub-scription money in respect of the Public Issue of Fully Convertible Debentures from the members of Indian public and Non Resident Indians and further sum of Rs. 7,52,500/- along with interest accured thereon on the cause of action set out in affidavit in support of Judge Summons herein.
2. Geeta Polymers Ltd. has made Company Application No. 306 of 1991 for a similar direction to the respondents to refund a sum of Rs. 2,01,92,500/- collected by respondent No. 1 as and by way of sub-scription money in respect of the Public Issue of shares from members of Indian public along with interest thereon at the rate of 15% per annum commencing from 12th July, 1991 and for other connected reliefs.
3. Both these applications are heard together as the basic issues involved for consideration of the Court for deciding the said applications are identical. Both the said applications involve consideration of the following questions:-
(a) Whether the amounts in question in the custody of the 1st respondent Bank and/or its Provisional Liquidator, the 2nd respondent, are impressed with trust for benefit of the applicant Company to the extent of allotment money and for benefit of sub-scribers to the extent of refundable amount or to the extent of entire amount for benefit of the Company subject to the condition that the amount refundable must be refunded to the sub-scribers forthwith if not already refunded in view of the mandate of law contained in section 73(3) and section 73(3-A) of the Companies Act I of 1956 and/or the earmarking of the said amount for specific purpose in terms of prospectus issued by the applicant?
(b) Whether the amounts in question form part of the general assets of the 1st respondent Bank and would be available to all its creditors for pre-rate distribution in case the respondent No. 1 is ultimately wound up?
(c) Whether the amounts in question are refundable in full to the applicants with interest?
4. For the reasons, discussed in later part of this judgment and after consideration of all the relevant documents, statutory provisions and the case law cited at the Bar, I have reached the conclusion that the amounts in question are not part of general assets of the 1st respondent Bank and the same were and are impressed with trust for benefit of the applicant Company to the extent of allotment money and for benefit of sub-scribers to the extent of refundable amount and/or for the benefit of the applicant Company if the applicant company has already refunded the amounts refundable to the sub-scribers or the applicant company undertakes to refund the said amount to the sub-scribers with interest forthwith. I have reached the conclusion that the statutory provisions contained in section 73(3) and section 73(3-A) of the Companies Act, I of 1956 (hereinafter referred to as "the Act") create a statutory trust so as to impress the said amounts with trust, whether in the hands of the company or in the hands of the Bank. I have also reached the conclusion that the Bank holds the said amounts in a fiduciary capacity also by reason of entrustment of the said amount to the Bank under a special arrangement evidenced by the prospectus issued by the Company on the faith of which the sub-scribers have remitted the amounts to the 1st respondent Bank for being deposited and retained in a separate account on specific condition that the said amount shall be held by the Bank for the purposes specified in section 73(3-A) of the Act. I have also reached the conclusion that the amounts in question are refundable to the applicant in full subject to the condition that the refundable portion of the amounts shall be refunded, if not already refunded, to the sub-scribers concerned with interest as discussed below.
5. Section 69 of the Act prohibits allotment of shares unless minimum sub-scription is received by the company as set out in the said section. Section 69(4) of the Act provides that all moneys received from applicants for shares shall be deposited and kept deposited in a Scheduled Bank until the specified contingencies occur. The later part of section 69(4) of the Act prescribes penalty for contravention of the said provision. The said section contemplates refund of entire sub-scription amounts to the sub-scribers in case the shares applied for are not allotted at all.
6. Section 73 of the said Act deals with the subject of allotment of shares and debentures to be dealt with on Stock Exchange. Section 73(3) of the Act is almost identical with section 51(3) of the English Companies Act, 1948. Section 73(3) of the Companies Act I of 1956 reads as under:---
"73(3) All moneys received as aforesaid shall be kept in separate bank account maintained with a Schedule Bank (until) the permission has been granted, or where an appeal has been preferred against the refusal to grant such permission, until the disposal of the appeal, and the money standing in such separate account shall, where the permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub-section (2); and in default is made in complying with his sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees."
Section 73(3-A) of the Companies Act I of 1956 reads as under:---
"73(3-A) Moneys standing to the credit of the separate bank account referred to in sub-section (3) shall not be utilised for any purpose other than the following purposes, namely:---
(a) adjustment against allotment of shares, where the shares have been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus; or
(b) repayment of moneys received from applicants in pursuance of the prospectus, where share shave not been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or where the company is for any other reason unable to make the allotment of share.)"
7. Section 73(2-A) of the Act provides for refund of the excess amount to the sub-scribers without interest, provided the amount is refunded within 8 days from the day company becomes liable to pay it, and with interest if the amount is not repaid within the said period, and prescribes penalty for non-refund of the said amount on the company and every Director of the company who is an officer in default. The guidelines prescibed by Central Governments provide for refund of subscription amounts in full or part as the case may be with interest at the rate of 15% per annum from the specified date till payment. The aforesaid provision provides that the moneys to be collected from the subscribers pending allotment of shares shall be kept in separate Bank account in any Scheduled Bank. The object of these provisions is to provide complete protection to the persons who pay subscription moneys on the faith of a promise to refund the moneys in case certain conditions are not fulfiled and earmarking of subscription amounts in safe custody of the Bank. The application moneys do not form part of the general assets of the company or of the Bank. The moneys deposited are merely in custody of the Bank. The capacity in which the company or the Bank receives the said amount is a fiduciary capacity and the arrangement made by the Company and the subscribers is a special arrangement binding on the company as well as on the Bank having regard to the scheme and object of the provisions contained in the Act and the content of the said provisions. The provisions of the Act impose a statutory prohibition on user of application money for any purpose other than for the purposes specified in section 73(3-A) of the Act. The said provisions are mandatory and incapable of being waived. If the Bank uses the said amount for purpose of its business, it follows that at the most the trustee is permitted to use the trust money temporarily without losing its character as a trust money subject to the statutory trust continuing to operate throughout. Sometimes, it happens that the trustees are authorised to trust funds during the course of their business subject to special stipulation. In such cases, the trust fund does not cease to be trust fund merely because of permissive user of the trust fund, if any. In all such cases, the doctrine of tracing the trust fund would apply and the fiduciary obligation would attach to the equivalent amount. In such cases of specific statutory trust, it is of no consequences that the said trust funds are earmarked in form of fixed deposit receipt. In such cases even a stipulation on part of the Bank to pay interest on trust amount deposited with it does not destroy the character of the amounts deposited as a trust fund.
8. The relevant facts having bearing on the subject matter of the above two applications are briefly summarised hereinafter:
(I) Relevant facts having bearing on Company Application No. 271 of 1991 filed by Varun Shipping Company Ltd.
(a) The applicant Varun Shipping Company Limited is a Public Limited Company incorporated under the Companies Act I of 1956 carrying on business of shipping in India with large turnover.
(b) On 26th March 1991, the Board of Directors of the applicant company decided to issue Convertible Debentures for being subscribed by investing public as well as Right Issue for existing shareholders of the applicant company. On 26th March, 1991, the Board of Directors of the applicant company passed the requisite resolution authorising the Issue. The Issue was to be of (i) 13,30,770 Fully Secured Convertible Debentures of Rs. 200/- each carrying interest at the rate of 12.5 percent per annum aggregating to Rs. 26.62 crores, by way of Right Issue, and (ii) 9,3,384 Fully Secured Convertible Debentures of Rs. 200/- each aggregating to Rs. 18.70 crores for being subscribed by members of public. On 26th March 1991, the applicant issued the necessary prospectus, on basis of which the sub-scribers of various categories subscribed to the Issue. The terms and conditions of the said prospectus are of considerable significance. The Board of Directors of the applicant company appointed 24 Banks as Bankers to the Issue. The Banker to the Issue is an agent of the applicant company for purpose of receipt of applicants for sub-scription of debentures as well as the subscription amounts and acts in a fiduciary capacity so as to ensure compliance with mandate of the statute and faithful compliance of the promise contained in the prospectus. The said prospectus provided that the applicant-subscriber must forward the amount of cheque and/or Bank Draft along with the application for allotment of shares directly to either of the Bankers to the Issue and such Cheques and/or Bank Drafts must be drawn in a manner so as to indicate that the amounts forwarded were towards the sub-scription on account of the Issue and were meant to be credited in a separate account pertaining to the Issue. Thus the said prospectus provided for earmarking and segregation of sub-scription amounts towards allotment money as and when the allotment was made and for specific purpose of refund of the entire amount in the event of non-allotment or excess amount in the event of part of allotment to the subscribers coupled with an express or implied stipulation that the said amounts will not be treated as an asset of the company or of the Bank at any point of time.
(c) By its letter dated 4th March, 1991, the respondent No. 1 consented to act as Bankers to the above referred Issue. The applicant company confirmed the appointment of respondent No. 1 in this behalf by its letters dated 9th and 29th April, 1991.
(d) On 29th April, 1991, the abovereferred Issue of convertible debentures for members of the public was opened. The said issue was closed on 3rd May, 1991. Between 29th April, 1991 and 10th May, 1991. Issue IV NRIs was opened. Between 29th April, 1991 and 10th June, 1991, the Right Issue was opened. The 1st respondent issued certificates dated 20th and 21st June, 1991 certifying that the 1st respondent has collected a sum of Rs. 2,04,24,500/- in respect of Public Issue and Rs. 6,20,000/- in respect of NRI applicants. There is no dispute that the 1st respondent Bank collected in all a sum of Rs. 2,17,97,000/- from the various categories of applicants/subscribes alongwith their applications addressed to the company for allotment of said debentures. The said Issue was heavily over subscribed. The applicant-company allotted only part of the debentures to the applicants as indicated in a table submitted by the learned Counsel for the applicant-company at the hearing of the application furnishing all relevant particulars in this behalf. On 5th July 1991, the sub-Committee of the Board of Directors of the applicant-company, decided the basis of the allotment in consultation with the Stock Exchange. The Omman International Bank was also one of the Bankers to the Issue. The applicant decided to requisition other Bankers to the Issue to transfer the amounts collected by them from the various subscribes to Omman International Bank with the object of carrying the exercise of consolidation of all the subscription amounts in one Bank so as to facilitate appropriation of allotment money for benefit of the company and refund of the balance to the subscribes. On 5th July 1991, the applicant-company addressed a letter to respondent No. 1 to transfer the amounts collected from the subscribers to the issue as more particularly set out therein, to Omman International Bank. By a letter dated 27th April, 1991 the applicant had requested the respondent No. 1 Bank to keep the earmarked amount collected from the subscribes in 46 days' deposit by issue of Fixed Deposit Receipt. The respondent No. 1 had done so. On 15th July 1991, the State Bank of India was appointed as Provisional Liquidator of BCCI (Overseas) Ltd., Bombay, by an order passed by Brother Justice Cazi in Company Petition No. 389 of 1991. The respondents did not comply with the request of the applicant-company and all the moneys deposited in separate accounts with respondent No. 1 has remained so deposited. On 23rd July, 1991 the applicant decided the basis of allotment of Convertible Debentures in respect of Right Issue. On 24th July 1991, the applicant instructed the respondent No. 1 to transfer Rs. 7,52,500/- in respect of Right Issue pertaining to the aforesaid Issue of Convertible Debentures to State Bank of India. The applicant has filed a table/statement of account pertaining to the amount collected by respondent No. 1 indicating the amounts to be appropriated towards allotment money and the amounts to be refunded to the subscribers. The said table is appended hereto and marked "A" and shall form an integral part of this judgment. The applicant-company has represented to the Court that the applicant-company is entitled to receive Rs. 1,26,21,000/- as allotment money towards allotment of debentures to the various subscribers who had submitted their application to respondent No. 1 for allotment of debentures. The applicant-company has represented to the Court through its learned Counsel that in view of the penal provisions of the Act, the applicant-company has already allotted the debentures and already issued refund orders in sum of Rs. 91,76,000/- to concerned subscribes and the applicant is entitled to seek reimbursement from the respondents in respect of the said amount on such terms and conditions, if any, as this Hon'ble Court deems fit to impose. The respondent No. 1 is withholding the entire subscription amount in view of suspension of its operation and has contended that the said amounts form part of its general assets and are not trust moneys.
(II) Relevant facts having bearing on Company Application No. 306 of 1991 filed by Geeta Polymers Ltd.
(a) On 31st October 1984, the applicant-company known as Geeta Polymers Ltd. was incorproated as a Company under Companies Act I of 1956.
(b) On 27th October, 1990, an Extra Ordinary General Meeting of the applicant-company was held at which a special resolution was passed authorising issue of 33,50,000 Equity Shares of Rs. 10/- each on cash at par. The Board of Directors of the applicant-company appointed various Banks as a Bankers to the said Public Issue, including the 1st respondent Bank. On 27th March, 1991, the Board of Directors of the applicant-company passed a resolution to the effect that a separate Bank account of the company styled as "CPL Equity Issue" be opened with the 1st respondent Bank at Bombay. By the said resolution, the respondent No. 1 was authorised to receive applications for subscription alongwith subscription amounts on behalf of the applicant company in respect of the above referred Issue. The applicant consented to respondent No. 1 to Act as Bankers to the Issue.
(c) On 27th March, 1991, the applicant issued prospectus in respect of the above referred issue. It was specifically stated in the said prospectus as under:---
"All cheques or drafts accompanying the application form must be made payable to any of the Bankers to the issue with whom the application form is lodged and marked ""A/c. CPL Equity Issues" and crossed "Account Payee Only"" (for example -"CANARA BANK - A/c. CPL Equity Issue")."
It was specifically promised by the said prospectus that the amounts received as subscription money in respect of the said Public Issue will be kept in a separate account and the company will not appropriate the funds unless approval of the concerned Regional Stock Exchange was obtained for allotment of shares. It was provided by the said prospectus that in the event of the Issue being over-subscribed, the basis of allotment will be finalised by the Board of Directors of the applicant-company in consultation with the Stock Exchange. It was also provided by the said prospectus that payment of interest at the rate of 15% per annum on the excess application money will be made to the applicant-subscribers as per the guidelines issued by the Government of India, Ministry of Finance, vide their letter No. F8/6/SE/79 dated 21st July, 1963 as amended by letter No. F/14/2/SE/85 dated 27th September 1985, addressed to the Stock Exchange.
(d) On 3rd April 1991, the abovereferred Public Issue was opened. On 3rd May 1991, the Issue was closed. The said Issue was oversubscribed. The 1st respondent Bank received 22,600 applications for allotment of 38,48,500 shares in its capacity as Bankers to the Issue for and on behalf of the applicant. There 1st respondent Bank collected a sum of Rs. 2,01,92,500 as subscription amount in a fiduciary capacity. The said amount was specifically earmarked as "Subscribers' Money" in terms of mandatory provisions contained in Companies Act I of 1956. On 8th June 1991, the 1st respondent Bank issued its final certificate confirming receipt of the said amount from members of Indian public as subscription amount.
(e) On 29th June 1991, the Board of Directors of the applicant allotted the shares to the various subscribers in a particular ratio as the Issue was over-subscribed. The applicant-company decided to allot 2,05,900 shares to the various subscribers who had submitted their application for subscription to the Issue through the 1st respondent Bank. The learned Counsel for the applicant-company has tendered a statement giving particulars of the allotment made. A copy of the said statement is appended to this judgment and marked as Exhibit 'B'. The said statement shall form an integral part of this judgment. The applicant claims that the applicant is entitled to appropriate a sum of Rs. 16,88,500/- towards the allotment money out of the moneys collected by the 1st respondent as stated above. The applicant claims that the applicant is entitled to collect the balance of Rs. 1,85,04,000/- from the respondent for the purpose of being refunded to the subscribers along with interest at the rate of 15% per annum from 12th July 1991. The applicant has not yet refunded the amounts to subscribers as amount involved is large and the respondent are withholding the release thereof. The applicant is willing to give all necessary undertakings so as to ensure refund of the abovereferred amount of Rs. 1,85,04,000/- with interest as aforesaid.
(f) The applicant has approached Citibank NA, Bombay, as refund Bank and co-ordinators. The applicant therefore, requisitioned respondent No. 1 to transfer the abovereferred amount of Rs. 2,01,92,500 to Citibank NA, Bombay, with the object of consolidating all the amounts collected from the various applicants-subscribers in one Bank and then appropriate part of the amounts as allotment money and ensure refund of the balance to the subscribers in accordance with the mandate of the statute. The 1st respondent informed the applicant, by its letter dated 8th August, 1991 that the 2nd respondent has been appointed as its Provisional Liquidator and the amounts could not be handed over to the applicant or to the designated Bank at this stage. The applicant approached various Stock Exchange and other statutory authorities for prevailing upon the respondent for release of the said amount so as to enable the applicant to comply with its statutory obligation of refund of the refundable amounts to the subscribers. Copies of several letters addressed by the various authorities to respondent No. 1 and 2 annexed to the affidavit in support of the application. The respondent Nos. 1 and 2 expressed their inability to refund the said amount. The applicant has, therefore, taken out this Judge's Summons for appropriate directions to both the respondents as to refund the amounts with interest on such terms and conditions as this Court deems fit to impose.
9. One Mr. Nicolas Handley Jones, a Constituted Attorney of the Joint Provisional Liquidator of respondent No. 1 appointed by the Grant Court in Cayman Islands, has filed an affidavit in reply. By the said affidavit, it is 5 pointed out that the respondent No. 2 has wrongly taken into custody, possession and control of all the assets, properties and affairs of the 1st respondent Bank at Bombay. There is no merit in this contention. I have already rejected similar contention in my order dated 27th February 1992 passed in Company Application No. 242 of 1991 This Court has jurisdiction to wind up a company incorporated out of India as an unregistered company if such company has its assets in India and if such company has carried on business in India. On the merits of these applications, the defendant of the said affidavit has merely stated that the dependent does not admit that the amounts in question are trust moneys. I have formulated the relevant principles applicable in similar situations in my judgment dated 27th February 1992 delivered in Company Application No. 242 of 1991. I rely on the ratio of the said judgment for the purposes of this judgment also.
10. Principal contentions
The learned Counsel for the applicants has submitted as under:---
(a) Section 73(3) of the Companies Act I of 1956 obligates the company to deposit and retain the subscription amounts in a separate account with a Schedule Bank so as to earmark the same for specific purpose. The Banker to the issue is the agent of the company and is trustee or quasi-trustee of the amounts entrusted to the Bank for its sage custody. Such moneys are impressed with a trust, whether in the hands of the company or in the hands of the Bank. Such trust is a statutory trust. The fiduciary capacity of the Bank to hold the said amounts in trust is implied by law in view of the scheme, content and object of section 73(3) and section 73(3-A) of the Act. The said amounts do not form part of the general assets of the company or of the Bank. The said trust is also contractual inasmuch as the subscribers relied upon the promise of the company contained in the prospectus to the effect that the said moneys will be earmarked for specific purpose and shall not be used for any purpose other than the purpose for which the statute permits the user thereof. Both by reason of the promises and representations contained in the prospectus as well as by reason of the provisions contained in the Act, it is ensured that the moneys refundable to the applicants would definitely be refundable notwithstanding the intervention of insolvency of the company or of the Bank. The amounts in question are held by the Bank in a fiduciary capacity under a special arrangement for benefit of the company to the extent of allotment amounts and for benefit of the subscribers to the extent of refundable amount. Such refundable amount may be the entire amount in a given case where the shares are not allotted to the subscriber concerned or may be a differential amount in case the shares or debentures are partly allotted. The Bank holds the said amount in trust for the benefit of the company in case the company refunds the amounts refundable to the subscribers from out of other funds having regard to the penal provisions of the Act. The said trust continues throughout so long as the said moneys are kept deposited or retained to the Issue in question. Relief to be granted to the company can be moulded by the Court depending on the fact as to whether the refundable amount is already refunded to subscribers by the company or not.
11. The learned Counsel for respondents Nos. 1 and 2 has controverted the said contentions. The learned Counsel for respondent No. 2 submits that there is no privity of contract between the 1st respondent Bank and the subscribers. The learned Counsel for respondent No. 2 submits that the relationship constituted by the said deposit between the Bank and the company is an ordinary relationship constituted by the said deposit between the Bank and the company is an ordinary relationship of Banker and customer i.e. debtor and creditor and there is no special relationship in respect of the said amounts as contended on behalf of the applicants. The learned Counsel submits that the amounts in question form part of general assets of the 1st respondent Bank and must be available to the unsecured creditors of respondent No. 1 for pro-rate distribution in case the respondent No. 1 is directed to be wound up. The learned Counsel submits that even when a Charitable Trust opens a Bank account in a Bank, such Charitable Trust is not entitled to any preferential treatment vis-a-vis other account holders if the Bank is directed to be wound up. The learned Counsel has further submitted that at the most the company might be trustee of the said amount vis-a-vis the subscribers but not the Bank. In alternative, the learned Counsel has submitted that the trust, if any, is extinguished at least to the extent of allotment money. I am not impressed by any of these submissions made by the learned Counsel for the respondents. There is neither justice nor any legal merit in the contentions of the respondents. I am in complete agreement with each of the submission made on behalf of the applicants.
12. The learned Counsel for the applicants has cited large number of decided cases and text books in support of his submissions. It is not necessary to refer to all of them. I shall refer only to the leading judgments cited by the learned Counsel.
13. In (Shanti Prasad Jain v. The Director of Enforcement)1, 1962(2) S.C.R. 297 (328), the Apex Court held that deposit of moneys by a customer with the Bank may be a general deposit or a specific deposit. It was held by the Court that deposit of moneys by a customer with a Bank may generally create the relationship of debtor and creditor between the Bank and the customer, but when money is entrusted to a Bank for application to a particular specific purpose and is in the nature of a specific deposit, the aforesaid presumption would not operate. At page 328 of the said judgment, Venkatarama Aiyar, J., speaking for the Bench of the Apex Court, approved formulation of relevant principles in Paget's Law of Banking, Sixth Edition, page 43, and in Corpus Juris Secundum, Volume 9, pages 546 and 570. At page 43 of Paget's Law of Banking, Sixth Edition, it is stated that "superimposed on this general relationship of Banker and customer there may be special relationships arising from particular circumstances and requirements' and that the express terms of those relationship override the implied terms arising from the general relationship. The intention of the parties controls the character of the relation between Bank and depositor, which may be that of bailee and bailor. At page 570 of Corpus Juris Secundum, Vol. 9 it is stated as under :--
"......when money is delivered to a Bank 'for application to a particular specific purpose' it is not a general deposit creating the relationship of debtor and creditor, but a 'specific deposit' creating the relationship of bailee and bailor or trustee and beneficiary."
(The emphasis supplied by underlining the main words).
The above statement of law was approved by the Supreme Court and lays down the relevant principles accurately. In Shanti Prasad Jain's case, the account was opened with the German Bank with a stipulation that the said Mr. Jain was not to operate on the said account except, for the purpose specified and the Bank was informed of the arrangement under which the deposit was made. It was held by Venkatarama Aiyar, J., that in the circumstances, the Bank had only custody of the money as if it was a stakeholder with liability to hand it over to the person who would become entitled to it under the arrangement. It was held by Court that the moneys so held by the Bank under a special arrangement could not constitute relationship of debtor and creditor but constituted the Bank as a trustee or a stakeholder.
14. In (New Bank of India v. Pearey Lal)2, A.I.R. 1962 S.C. 1003, the Hon'ble Supreme Court held that the amount was held by the Bank as trust money in view of the moneys having been paid to the Bank with special instructions to retain the same pending further instructions. In this case, the customer had paid certain amounts to the registered office of the Bank at Lahore for purpose of transmitting the same to a Branch of the Bank which was proposed to be opened at Calcutta with an intention to obtain Fixed Deposits from the Calcutta Branch of the Bank subject to issuing necessary instructions in that behalf. The amounts were transmitted to the Calcutta Branch. The Branch of the Bank was opened. No instructions were issued by the applicant for issue of "Fixed Deposit". A moratorium was issued prohibiting the Bank from making any payment. A Scheme was sanctioned by the East Punjab High Court under which the depositors were to be paid 70 per cent of the deposits. The Calcutta Branch of the Bank had unilaterally issued Fixed Deposit receipts in favour of the respondent without any instructions of the respondent so to do. It was held by the Apex Court that the transaction was one of entrustment of the amount to the Bank for transmission to Calcutta and the Bank held the said amount as a trustee throughout. It was held by the Court that the said deposit was not an ordinary or general deposit. It was held that the applicant was entitled to receive the entire amount from the Bank and the relationships constituted was not that of debtor and creditor as would ordinarily be constituted when a customer opens an account with the Bank in ordinary course of Banking business. The Apex Court relied on the judgment of the English Court in the case of (Farlev v. Turner)3, 1857(26) L.J. Ch. 710 and held that a trust necessarily resulted when the amount is forwarded to the Bank for a specific purpose as directed by the applicant. It was held by the Court that in such cases the presumption which ordinarily arises by reason of payment of the money to the Bank is rebutted. The Supreme Court referred to several judgments of High Courts of Madras in paragraph 8 of its judgment and particularly the judgment in the case of (Official Assignee, Madras v. Natesam Pillai)5, A.I.R. 1940 Madras, 441 where the money was paid to the Bank with special instructions to retain the same pending further instructions. In that case also it was held that the Bank held the said amount as a trustee and the relationship constituted was not that of debtor and creditor, in view of special terms of the agreement. In other words, when amounts are deposited as a specific deposit for a specific purpose with specific restrictions and the same are earmarked or segregated for a specific purpose, the relationship between the Bank and the depositor is that of trustee and beneficiary.
15. In (Re Nanwa Gold Mines Ltd., Ballantyne v. Nanwa Gold Mines Ltd. & another)6, 1955(3) All.E.R. 210, decided by Harman, J., of Chancery Division held that the application moneys were impressed with a trust for the applicants-subscribes in view of the statutory provisions contained in section 51(3) of English Companies Act, 1948 and also in view of the terms of circular letter issued by the Company promising to keep the said amount in a separate account. In this case, the question for consideration of the Court was as to whether the amount collected from the intending subscribers to the issue in pursuance of the circular issued by the company and deposited in a separate account were impressed with trust for benefit of subscribers or were the asset belonging to the company so as to form part of the security available to debenture holders. In a debenture holders' action, it was contended that the said amounts formed part of the assets of the company and were not impressed with trust for the benefit of the subscribers. It was held by the Court that the subscription amounts were impressed with the trust and not were the assets of the company. During the course of the judgment, the learned Judge observed that the statutory provision contained in section 51(3) of the Companies Act, 1948 (meaning thereby English Companies Act, 1948) covered the ground. Section 51(3) of the said Act is identical to section 73(3) of the Companies Act I of 1956. It was held by the Court that there had been an attempt to erect by statute a kind of trust for applicants in a case of this sort. In addition to the concept of statutory trust or trust implied by law, the Court also referred to the promise made by the company to the subscribers contained in the circular issued by it to the effect that the company would deposit and retain the amount collected from the subscribers in a separate account and would use the same only for a specific purpose. To my mind, this case is on all fours with the case of the applicant. It is immaterial that in this case no specific question arose as to whether the amounts were liable to be treated as part of the assets of the Bank if the Bank was directed to be wound up. In this case the question which arose for consideration of the Court was as to whether the amounts deposited by the company or by the subscribers in a separate Bank account in terms of the mandate of the statute were immersed with the trust. The underlying principle is quite clear. The Banker to the issue collects the moneys from the subscribers as agent of the company and holds the money in fiduciary capacity. The Bank holds the said amount as a specific deposit for a specific purpose so as to ensure refund to the subscribers in the event of refund becoming payable. The Bank holds the amount in a fiduciary capacity for the benefit of the company to the extent of allotment money and for benefit of the subscribers to the extent of refundable money. The Bank is merely a custodian of the company. The Court is entitled to direct the bank to hand over the entire amount with interest to the company if the company has refunded the excess of the subscription amount to the subscribers in terms of its statutory obligation or on the condition that the amount refundable was definitely to be refunded forthwith if the same has not yet been refunded. The Court can mould the relief and adjust equities keeping in mind the mandate of relevant provisions contained in the Act. It is obvious from this case that the creditors of the company or creditors of the Bank in a separate account concerning the Public Issue. If the contention urged on behalf of the respondents is accepted, it would lead to absurdity and it would mean that the provisions contained in sections 73(3) and 73(3A) of the Act and other connected provisions are totally meaningless and ineffective. Such a construction of the beneficial provisions of the Act is impossible. The capacity in which the Bank holds this amount is clearly fiduciary and the relationship constitued by transaction of such specific deposit for specific purpose is not ordinary relationship of creditor and debtor. It is not possible to decide this case with reference to the analogy of an illustration given by the learned Counsel for respondent Nos. 1 and 2 where a trust opens an ordinary routine account with a Bank and makes general deposit with the Bank as contradistinguished with making of a specific deposit for a specific purpose and earmarking and segregation thereof. The two situations are not identical. I need not express an opinion on the question as to whether the trust-account holder would be entitled to preferential treatment if the Bank is directed to be would up.
16. I shall now refer to the leading judgment of House of Lords in the case of (Barclays Bank Ltd. v. Quistclose Investments Ltd.)6, 1968(3) All.E.R. 651. In my opinion the ratio of this judgment and the formulation of relevant principles by the Court of Appeal in the case of (Quistclose Investments Ltd. v. Rolls Razor Ltd.)7, (in voluntary liquidation), 1968(1) All.E.R. 613 also clinch the issue in favour of the applicants. In the above referred case, the House of Lords affirmed the decision of Court of Appeal. Lord Wilberforce delivered the main judgement on behalf of House of Lords and Lord Reid, Lord Morris of Borth-Y-Gost, Lord Guest and Lord Pearce concurred with Lord Wilberforce. It is necessary to notice the material facts of the case before deducing the relevant principles laid down in the case. In an annual general meeting of R.R. Ltd. July 2, 1964, payment of dividend was approved R.R. Ltd. had an overdraft with the Bank which exceeded the limit. The Bank refused to make funds available to R.R. Ltd. for the purpose of implementation of resolution declaring dividends. The respondents agreed to advance loan to R.R. Ltd. for the specific purpose of paying the dividend, R.R. Ltd. deposited the cheque of the respondent with the Bank with a covering letter clarifying the purpose and object of this special loan for a specific purpose. As required by the company, the amount of the cheque was credited in a separate account with the Bank on the stipulations expressly agreed. The Directors of R.R. Ltd. passed a resolution for voluntary liquidation of the company. Moneys in question were not utilised for distribution of dividends. The respondent claimed the amount from the Bank contending that the moneys deposited with the Bank were impressed with trust in favour of parties entitled to receive dividend and in favour of the respondents in case the abovereferred primary purpose failed for some reason. The Bank asserted that the Bank was entitled to set off these amounts against the liability of R.R. Ltd. in the overdraft account. The Court of Appeal as well as the House of Lords held that as between the respondent and R.R. Ltd., the terms on which the loan was made were such as to impress on the money with a trust in favour of the respondents in event of the dividends not being paid, because the money was never to become part of the assets of R.R. Ltd., but was entrusted for being used only for payment of dividend coupled with the conditions that if for any reason the dividend was not paid, the money must be refunded and/or repaid to the respondent. The Court held that law implied a primary trust for payment of dividends and secondary trust for benefit of the respondent it for some reason the primary trust failed. The Court took note of the fact that the Bank was fully aware of the terms on which the said amounts were entrusted by the respondents to R.R. Ltd. for purpose of being deposited in a separate account with the Bank. During course of his judgment, Lord Wilberforce observed that the arrangements of this character gave rise to a relationship of a fiduciary character or the trust. The House of Lords discussed several decided cases on the subject and observed that the moneys advanced for the specific purpose did not become part of the bankrupt's estate as the same were impressed with a trust primarily for dividends and secondarily for the respondents. After referring to leading judgment in the case of (Ioovers v. Rilne)8, 1819(2) R.A. Id. 683:106 E.R. 514, and several subsequent cases, Lord Wilberforce observed that these cases had the support of longevity, authority, consistency and good sense. The House of Lords affirmed the observations of Lord Justice Pussel of Court of Appeal in the same case to the effect that it would be giving a complete windfall to the Barclays's Bank Ltd. if it was held that the Bank had a right to retain the moneys in question. It is obvious that our legal system could not provide for such windfall in favour of the Bank or anyone else.
17. In the abovereferred judgment of the House of Lords, it was held that even moneys advanced as a loan could be treated as impressed with trust when the moneys were advanced for a specific purpose, the same were duly earmarked and the relevant stipulations attached to the advance of moneys for a specific purpose were brought to the knowledge of the Bank while depositing the amount in a separate account. It was held by the Court that the mere fact that the transaction originated as a loan by itself did not destroy the character of the amount being trust fund or the amount being considered as impressed with a trust for a specific purpose. Applying the principles of the principles of the abovereferred judgment and other relevant cases already noticed above, I hold that the amounts in question were merely entrusted to the Bank for a specific purpose and the same were impressed with trust throughout primarily for the benefit of subscribers and secondarily for the benefit of the company i.e. (i) to the extent of allotment moneys for the benefit of the company and (ii) to the extent of refundable amount for the benefit of subscribers. These moneys continued and would continue to be impressed with trust for the purposes specified in section 73(3-A) of the Act even after the release of the said moneys by the respondents and while the same are in the hands of the company or another Banker under the authority of the company till the specified purposes are carried out. If the company or its Directors have already refunded or undertake to refund the refundable portion of the amount to the subscribers, the Court can compel the Bank to refund the entire amount to the company with or without interest as the Court deems fit.
18. In (R.D. Seth Jessaram Fatechand v. Om Narain)9, 1967(2) S.C.R. 429, the Apex Court held that the question as to whether the "security deposit" furnished in a particular case could be treated as amount impressed with trust will have to be determined on the basis of the terms of the agreement and all the facts and circumstances of the case. It was held by the Court that if a trust can be clearly spelled out from the terms of the agreement, there ends the matter. It was held by the Court that the character of the amount in question as a trust money is not destroyed merely because the amount is kept in a fixed deposit or the party with whom the amount is deposited agrees to make payment of interest to the depositor.
19. At this stage, it is of some significance to recall the observations of the Honourable Supreme Court in Shanti Prasad Jain's case (supra) at page 330 wherein the Apex Court, following the ratio of the judgment of the privy Council in the case of (Official Assignee v. Bhat)10, 1933 L.R. 60 I.A. 203, held that a trust fund which was authorised to be invested in business could be traced into the assets of the business on the principles laid down in re (Hallett's Estate)11, 1890(13) Ch.D. 696.
20. Shri M.H. Shah, the learned Counsel for respondents Nos. 1 and 2, has relied on Division Bench judgment of High Court of Punjab in the case of (M/s. Jugal Kishore v. Ambala Commercial Bank)12, A.I.R. 1953 Punjab 98, in support of his proposition that in this case, the trust if any, was extinguished on the allotment of shares being made at least to the extent of allotment money. It is not possible to accept this submission of Shri Shah. The said case is clearly distinguishable. Nothing more need be said in view of the clear irrelevancy of the said case to the problem under consideration in this case. The trust continues till the moneys are actually and factually handed over by the Bank to the company and/or to the subscribers and even thereafter till the statutory obligations pertaining thereto are actually complied with.
21. In view of the above discussion, I hold that the relevant provisions of the statute already referred to hereinabove create a statutory trust in respect of the amounts forwarded by the subscribers, whether lying with the company or with the Bank, to the extent of allotment money for the benefit of the company and to the extent of the balance for benefit of the subscribers. The moneys were forwarded as specific deposits for specific purpose. The moneys in question were duly earmarked and segregated. Apart from statutory trust referred to hereinabove, I further hold that the 1st respondent Bank received the said amount in fiduciary capacity under the contractual arrangement as a Banker to the Issue and the conc
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ept of trust and fiduciary capacity is clearly spelt out from the terms of the prospectus on which the company, the subscribers as well as the Bank acted upon. I hold that the applicants are entitled to received the amounts in question from the respondents in full. I allow the claim of M/s. Geeta Polymers Ltd. with interest at 15% per annum from 12th July, 1992. I allow the claim of M/s. Varun Shipping Company Ltd. without interest. 22. In the result, I pass the following order:--- OPERATIVE PART OF ORDER OF COMPANY APPLICATION NO. 271 OF 1991 (Re. VARUN SHIPPING CO. LTD.) a) The respondent No. 1 Company and respondent No. 2 as Provisional Liquidator of respondent No. 1 are directed to deposit in this Court a sum of Rs. 2,17,97,000/- (Rupees two crores seventeen lacs and ninety-seven thousand only) on or before 16th April, 1992. The Prothonotary and Senior Master shall allow the applicant to withdraw the said amount forthwith on such deposit being made seen after 16th April, 1992 subject to the applicant complying with the following conditions:--- i) The applicant shall file an affidavit in this Court stating therein that the applicant has already allotted and despatched the requisite debentures to the concerned subscribers and the applicant is entitled to appropriate a sum of Rs. 1,26,21,000/- (Rupees one crore twentysix lacs and twenty-one thousand only) as allotment money out of the abovereferred amount of Rs. 2,17,97,000/-. The applicant shall also state in the said affidavit in conformity with the statement of its learned Counsel during the course of arguments that between 10th and 12th July, 1991, the applicant has issued and despatched refund orders in sum of Rs. 91,76,000/- (Rupees ninety-one lacs and seventy-six thousand only) to the concerned debenture holders towards refund of excess subscription. The said affidavit shall be filed by authorised Director of the company expeditiously. ii) The applicant shall also file a written undertaking in Court under the signature of a Director of the applicant duly supported by a Board Resolution on affidavit that the refund orders issued to each of the subscribers as aforesaid shall be duly and promptly honoured on presentation. (b) The Prothonotary and Senior Master shall allow withdrawal of the above amount after the aforesaid affidavit and the undertaking are approved by the Court. The Prothonotary and Senior Master shall allow the withdrawal of the amounts on the basis of certified copy of minutes of the order expeditiously. (c) There shall be no order as to costs. 23. OPERATIVE PART OF ORDER ON COMPANY APPLICATION NO. 306 OF 1991 (Re. GEETA POLYMERS LTD.). (a) The respondent No. 1 Company and respondent No. 2 as its Provisional Liquidator shall deposit in Court a sum of Rs. 2,01,92,500/- (Rupees two crores one lac ninety-two thousand and five hundred only) along with interest there on at 15% per annum from 12th July, 1991 till payment on or before 16th April, 1992. The Prothonotary & Senior Master shall allow the applicant to withdraw the said amount forthwith on such deposit being made soon after 16th April, 1992 subject to the applicant complying with the following conditions:--- i) The applicant shall file a written undertaking on affidavit duly signed by its authorised Director and duly supported by a Board Resolution undertaking to forward the share certificates in respect of shares allotted to the subscribers concerned forthwith along with fund orders for the refundable amount of Rs. 1,83,04,000/- (Rupees one crore eighty-five lacs and four thousand only) coupled with an undertaking to honour the refund orders expeditiously and file a compliance report in this Court expeditiously. The applicant is permitted to appropriate a sum of Rs. 16,88,500/- (Rupees sixteen lacs eighty-eight thousand and five hundred only) towards allotment money along with interest pertaining thereto and refund balance of Rs. 1,85,04,000/- (Rupees one crore eighty-five lacs and four thousand only) with interest at 15% per annum from 12th July, 1991 till payment to the subscribers. Such undertaking shall be filed expeditiously. ii) The applicant shall file an affidavit in this Court expeditiously confirming the statement made to the Court that the applicant has allotted shares as shown in the table filed with the Court and the applicant is entitled to appropriate a sum of Rs. 16,88,500/- (Rupees sixteen lacs eighty-eight thousand and five hundred only) towards allotment money in respect of 2,05,900/- shares allotted to the subscribers who submitted their application through respondent No. 1. (b) The Prothonotary and Senior Master shall allow withdrawal of the abovereferred amounts after the affidavit and undertakings are approved and accepted by the Court. The Prothonotary and Senior Master shall allow withdrawal of moneys on basis of certified copy of minutes of the order. (c) There shall be no order as to costs. Issue of certified copy is expedited. Order accordingly.