New Bank of India Ltd. Vs. Pearey Lal
 INSC 361 (20 December 1961)
SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L.
CITATION: 1962 AIR 1003 1962 SCR Supl. (2)
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.
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 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.
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
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 which it then proposed to open in the near
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 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 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 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 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
In that view of the case the appeal fails and
is dismissed with costs.