P L D 1951, Dacca 1 (PLP)

AMIN AHMED, J.

‑The first four matters, that is, the petition of Jonah Ali in the matter of the Mahaluxmi Bank, Ltd., and the petitions of Muhammad Majibur Rahman, Abdul Goffar and Khan Bahadur Wakf Estate in the matter of the Pioneer Bank, Ltd., were heard together on the 23rd, the 27th and the 28th June, 1950, and the judgment was reserved. A few days later a similar application in respect of a similar matter in the matter of one Taibuddin Ahmed in the matter of Nath Bank, Ltd., was heard on the 11th July, 1950, and as they all relate to the same point of law as to whether the petitioners can claim priority over other ordinary creditors being the holders of drafts, I propose to make one order disposing of all the five petitions and this order will govern them all. Both in the cases of the Mahaluxmi Bank Ltd., and the Pioneer Bank. Ltd., applications under section 153 of the Companies Act were filed in this Court for the usual scheme and in each case preliminary directions were given and a Special Officer and Receiver was appointed by this Court for the management of the said Banks. Under the schemes all the creditors will rank as ordinary creditors and they will have to be paid according to the schemes but the above four petitioners in the matter of the Mahaluxmi Bank, Ltd., and the Pioneer Bank, Ltd., being holders of drafts apply for direction that they should be treated as preferential creditors and they claim pay ment in full before other ordinary creditors are paid. In case of the Nath Bank, Ltd., an application under section 277‑N of the Companies Act was made, and a Receiver was appointed and ad interim order was granted but in the first case the petitioners' claim is opposed by the learned Advocate for the Company and in the other three cages petitioners' claims are resisted by the Special Officer in the three matters of the Pioneer Bank, Ltd., through the learned Advocate for the Special Officer and Receiver and in the last case in the matter of Nath Bank, Ltd., it is opposed by the Special Officer and Receiver in person appointed under section 277‑N of the Company's Act on the grounds that I shall mention hereafter. The facts of each case will be stated hereafter but the point of law that has been urged and the cases on which reliance has been placed may be stated first. They are as follows : On behalf of these petitioners it has been strenuously argued that the money in respect of each draft has been issued by the different Banks on their different branches ; that the relationship of banker and customer of the bank does not exist, that the money held by the Bank is trust money and that the Bank has issued the draft in a fiduciary capacity and in these matters drafts were issued by the Banks as the agents of the person on whose account drafts were issued and therefore the holders of the draft cannot rank as an ordinary creditor along with the other ordinary creditors of the Bank. In support of this the learned Advocate of the different matters has drawn my attention to several cases, one of which that is strongly relied upon is the case of In the matter of A I R 1949 East Punjab 373, the New Bank of India, Ltd., Amritsar, reported in A I R 1949 East Punjab

373. That is a case in which Achhru Ram, J has discus sed various cases for and against and has dealt with similar cases of drafts at length. My attention has been particularly drawn to the following passage in his judgment "After giving the matter my most careful thought, I feel no hesitation in taking the view that where a banker remits a certain sum of money, either to his own branch at another place, or to some other bank doing business at that place, whether by means of book entries, made in the case of another banker with the express or implied consent of such banker, or according to some other usual method of transmit ting money ; for the express purpose of such sum being paid to a named individual or his nominee, the sum request be deemed to have been specifically appropriated for the purpose of such payment. In case the bank charged with the duty of paying the said sum closes business before discharging the obligation, the payee will have the right to be paid that sum in full and cannot be obliged to rank with the general body of creditors ; his having accepted a draft for the amount drawn on the branch of the bank notwithstanding". It will be noticed that in the case Achhru Ram J., has, how ever, qualified the above observation made by him just after what I have quoted above and has observed as follows :‑ However, the rule I have stated above will apply only to a case when it is proved beyond the possibility of reasonable doubt that the holder of the draft, or the person who secured the draft in his name, had paid the money to a banker only and expressly for the purpose of being transmitted to another place for being paid to a specified person or for being other wise spent in a specified manner and that the draft was obtained merely with the object of facilitating realisation of the money at the place of destination by the party to whom it was intended to be transmitted. The rule will have no application where the draft was obtained by the party concerned either for gain in the shape of exchange com mission or under a contract for giving accommodation to the prior or any other party or otherwise for commercial pur poses generally. In the above case a person paia money to a bank and took a draft on its branch in another place in favour of himself or any other person and the bank suspended payment before the encashment of the draft. It was held that prima facie there was relationship of banker and creditor between the bank and the person who purchased the draft but the person who bought the draft must content himself with receiving payment in the terms of the scheme but if he could prove that he had paid the money into a branch of the bank and had accepted a draft for the amount paid by him drawn on another branch, the sole object of making the payment was the transmission of the money from one place to another for the express purpose of being paid to himself or some nominee of his, the bank intended to be used merely as a transmitting agent, the parties might none the less be held to stand to each other in the relation of a principal and an agent, the money paid being specifically appropriated for transmission according to the instruction of the principal. It was also held that from the time of the receipt of such advice, the branch which issued the draft must be deemed to hold the money in fiduciary capacity till the said branch had actually remitted the sum and after the receipt of the money by the branch on which the draft was issued the said branch must be deemed to hold the money as an agent of the payee unless the payee had an account with the said branch and the amount was credited to his account. It was also observed in that case that the fact of making over of the draft to the party instead of sending it by the post would not make any difference. It is clear from the above case that Achhru Ram, J., held that although as a rule the holder of a draft had no priority over the ordinary creditor and must be treated like a holder of a bill of exchange in exceptional cases where in spite of a draft being issued by a bank on its branch or its agent in another place under specific and express instructions of a person who purchased a draft for the sole purpose of paying the amount of the draft to a named individual or his nominee the sum must be deemed to have been specifically appropriated for the purpose of such payment. Achhru Ram J. has also clearly stated that this rule would apply only to a case where it could be proved beyond the possibility of reasonable doubt that the holder of the draft paid the money to a banker only and expressly for the purpose of transmitting to another place for being paid to a specified person or for being spent in a specified manner and that the draft was obtained merely with the object of facilitat ing realisation of the money at the place of destination by the party to whom it was intended to be transmitted. The next case on which the petitioners rely is a case of this Court, viz., the case of In re : Pioneer Bank, Ltd., reported in 53 C W N 1 D R

162. In this case the applicant deposited certain amount with the branch of the Pioneer Bank, Ltd., at its Bogra branch on the 13th September, 1948, for the purpose of issuing a draft and an official receipt was given by the said Bank in respect of the deposit in the morning of the 15th September, 1948. The Pioneer Bank, Ltd., was officially closed on the 13th September, 1948. This order was received by the Bogra branch in the afternoon of the 15th September, 1948. In this case the applicant had no account of any kind with the Bogra branch of the Pioneer Bank, Ltd., or any other branch of the bank. It was held by Ormond J. that this money was a trust money of the applicant and the applicant was a preferen tial creditor. So on ~ the basis of this case it is argued that in those cases where a party has got no account with a bank or is not an ordinary customer of the bank and purchases a draft for the purpose of transmission of the money to another branch of the said bank or its agent the money should be held to be a trust money. The next case relied upon by the learned Advocates for the petitioners is the case of A I R 1940 Mad.

139. In the matter of Travancore National and Quilon Bank Ltd. v. Barkat Ali and others, petitioners, reported in A I R 1940 Mad.

139. In this case certain amount was deposited with the Bank for remitting it by telegraphic transfer to another place. The Bank did not credit the said sum in his current account but only debited the charge for the intended transfer of the amount. It so happened that on the very day on which the money was deposited, the Bank suspended payment. Venkataramana Rao J. held in this case that the money was held by the bank as the property of the person who handed over the money to the bank and the amount was received by the bank under the capacity of a mere agent. Therefore the applicant was entitled to preferential payment. My attention has alto been drawn to the case of Alliance Bank of Simla, Ltd., v. Amritsar Bank Ltd., reported in A I R 1915 Lah.

214. In this case the Alliance Bank of Simla, Ltd., Delhi branch sent bills to Gwalior branch of Amritsar Bank, Ltd., and distinctly asked the latter to send drafts on Delhi branch after realisation. Amritsar tank, Ltd., realised the money and after deducting the usual charges remitted the balance by two drafts on the Delhi branch of the Peoples' Bank Ltd. But before the drafts could be cashed both the Peoples' Bank Ltd. and Amritsar Bank, Ltd., went into liquida tion. The Alliance Bank of Simla, Ltd., claimed payment of the amount as trust money. But it was held by Rattigan and Shadi Lal JJ. that all the requirements which were essential to the creation of a fiduciary relationship were satisfied but that as soon as the drafts on Delhi were despatched and in accordance with the instructions of the Alliance Bank of Simla, Ltd., the special business, for which the agency had been created, was completed, the agency then terminated ipso facto (vide section 201, Indian Contract Act), the fiduciary relation ship came to an end and thenceforward the Alliance Bank of Simla, Ltd., was simply a creditor of the Amritsar Bank, Ltd., and if the drafts were dishonoured, the Alliance Bank of Simla, Ltd., was only entitled to claim the amount as an ordinary creditor. The above case of Alliance Bank of Simla, Ltd., reported in A I R 1915 Lah. 214 has also been referred to by Banerjee J. in the recent case of Calcutta Commercial Bank, Ltd., in 54 C W N, page

747. Reference has also been made to the case of the Official Assignee of Madras and as such the Assignee of Arbuthnot & Co. and Sir George Gough Arbuthnot and John Montgomary Young, Partners in the said firm of Arbuthnot & Co., Insolvent v. The Oriental Government, Security Life Assurance Company, Ltd., reported in I L R 33 Mad. 151 and also to the case of the Official Assignee of Madras (and as such the Assignee of the properties and credits of Messrs. Arbuthnot & Co., insol vent, petitioners) v. D. Rajam Ayyar, reported in I L R 36 Mad.

499. In the latter case reported in I L R 36 Mad. 499 it was held that when a person paid money into a bank with instruc tion to pay over the money to another person who had got no account with the bank and the bank wrote to that another person that it had received the money and it held the same in suspense account pending instruction from the latter, then the bank held the amount as an agent of the person who paid the money for remittance to the transferee and not as a banker of either of the transferor or the transferee. In opposing the applications, the learned Advocate on behalf of the Special Officer and Receiver in the matter of the Pioneer Bank, Ltd., and the learned Advocate on behalf of the Company in the matter of the Mahaluxmi Bank, Ltd., to rely on a (since reported in 54 C W N p. 744) case of the Calcutta High Court disposed of by Sinha J. on the 30th January, 1950, viz., in the matter of the Noakhali Union Bank, Ltd. In this case reference has been made to the above case of : In the matter of New Bank of India, Ltd., reported in A I R 1949 East Punjab 373, Sinha J. has very carefully considered the above case disposed of by Achhru Ram J. and has laid down the law on the point very clearly. They may be appropriately quoted as follows :‑ "Where drafts have been issued from the bank on payment of cash to it, the holder of the draft must be considered to be a creditor. "Ordinarily when a draft is issued by a Bank, the holder is a creditor and his remedy is on the draft. The rights of the holder are defined by the Negotiable Instruments Act. It is difficult to, see how the holder of the draft can have all the rights of a holder of a bill of exchange and the additional right to get the amount of the draft in preference to the general body of creditors. It is open to the payee to negotiate the drafts. If the draft is negotiable, it is difficult to see how there can be an agreement that the money represented by the draft would be paid to a specified person or would be spent in a specified manner. The fact that the draft has not in fact been negotiated does not affect the matter. If the draft was issued by the bank and accepted by the payee, his rights are those of the holder of a bill of exchange. There is in such cases no specified appropriation of the funds in the hands of the drawee for meeting the demands of the holder. "Assuming it is possible for a person who secures the draft from the banker to agree that the money represented by the draft will be paid to a specified person or be spent in a specified manner, it would require very strong evidence to prove such an agreement. "Where claim has been made before the Official Liquida tors based on a draft the claimant should, in my opinion, be treated as an ordinary creditor and a mere statement in an affidavit filed in Court that the money was paid for being transmitted to another place and for being paid to a specified person would not suffice to hold that the holder was a preferential creditor and better evidence will have to be produced. "In cases where the bank has collected money and issued a draft or drafts in compliance with the instructions of the party or in accordance with the ordinary course of business, the payee of the draft should be treated as ordinary creditor (see A I R 1915 Lah. 214). "Where the draft has been endorsed by the payee, the endorsee should be classed as an ordinary creditor. If there has been a re‑endorsement in favour of the original payee, he should also rank as ordinary creditor. "In cases where the bank acted as agent for collecting money and issued draft contrary to the instruction of the principal or did not issue any draft or pay order at all, the money collected should be treated as trust money and should be paid in full before payment is made to creditor." With great respect I agree with the above observations made by Sinha J. in connection with the drafts issued by a bank on payment of cash and it seems that His Lordship has considered all the decisions to which the learned Advocates for the peti tioners have drawn my attention, as, almost all of them have been referred to by Achhru Ram J. in the case of : In the matter of the New Bank of India; Ltd., Amritsar, reported in A I R 1949 East Punjab 373.. I myself have also gone through the difficult cases carefully and also the judgment of Achhru Ram J. There is no escape from the fact that a draft is nothing but a bill of exchange and ordinarily its holder is to be treated in the same way as the holder of a bill of exchange. Sections 5 and 85‑A of the Negotiable Instruments Act make it quite clear that prima facie the relationship between the holder of the draft and any prior party is that of a creditor and debtor as prescribed by section 36 of the Negotiable Instruments Act. So it has been rightly pointed out that unless exceptional circumstances can be proved the holder of a draft cannot claim to enjoy any priority over any other creditor. The gist of the rulings in the two last cases, one of the East Punjab High Court and the other case of the Calcutta High Court, reported in 44 C W N 744, only confirms the view that as a general rule draft‑holders should rank as ordinary creditors with reference to the bank which issues the drafts, and it is only in those cases where specific instructions are given to the bank by a party for dealing with the money paid in respect of the draft in a specified manner or where the money in question is earmarked for a specified person only or for specified purpose there will be exception to this general rule and the holder of the drafts will be allowed to claim preferential treatment. It has been further rightly laid down by Sinha J. that in order to come under this exception there must be strong evidence to support it and that mere affidavit will not be sufficient to l prove such an exception. It seems that there is an impression created by the ruling of cases In re : Pioneer Bank, Ltd., reported in 53 C W N 1 D R 162 that whenever a stranger who has got no account in a bank purchases a draft even without any specific instructions as to any specified person to whom the money is to be transmitted or as to any specific purpose for which the money of the draft is to be utilised, he is entitled to claim the money as a trust money and as a preferential creditor. In my opinion, this is entirely erroneous idea, for, the test is not whether the person has or has not got an account with the bank with which one deals for the purpose of obtaining a draft in consideration of the money, paid or money lying to one's credit in his current account, the real test is whether he has got an account or not with the bank which issues the draft whether there are clear and specific instructions to the effect that the money that is to be trans mitted is to be transmitted to specified persons or for specified purpose as mentioned above. For example, even if a person has an account with the bank X, it is open to him to prove from correspondence or otherwise that he instructed the bank, with whom he has account to transmit the money of draft to its branch or another bank on the express condition that the said money of the said draft must be made over to him on or before a particular date at a particular place for the express purpose of using that money during his period of stay at his destina tion. It is also possible to think of a case where the bank has instructed the issue of a draft with the crossed endorsement "Account payee only" followed by an advice and thereby make the draft not negotiable. I may at once point out that none of these five cases before me is a case of the kind which comes under the exception mentioned above or to which the observations made by me in respect of cases where draft money should be held to be trust money apply and in none of these cases, except the statements in the affidavits, no evidence to prove exceptional circumstances has been given, and even the statements in affidavits show that the transactions in question were only ordinary commercial transactions and the drafts thereof were issued like the bills of exchange in ordinary course of business. I may also mention that in some of these cases reference has been made by the learned Advocate for the Special Officer and Receiver to a notification issued by the State Bank of Pakistan, dated the 26th September, 1949, stopping encash ment of all drafts issued but owing to the view I have expres sed above, it is not necessary for me to refer to that point or to other points raised on behalf of the Special Officer and Receiver and the Advocates of other parties. For the reason stated above, I pass the following order :‑ (1) Mahaluxmi Bank, Ltd.‑Re:‑Petition of donab Ali.‑In this case M. Jonab Ali, the petitioner, claims that he is entitled to the payment of Rs. 18,611‑10‑0 including Rs. 11‑10‑0 of commission, received by the Chittagong branch of the Mahaluxmi Bank, Ltd., in respect of three drafts, viz., a draft for Rs. 8,600, dated the 25th August, 1948, issued by the Chita gong branch of the Mahaluxmi Bank, Ltd., on payment of cash consideration on the Calcutta branch of the same bank in favour of Messrs. Moulana Fancy House ; second draft is for Rs.5,000, dated the 2nd September, 1948, which was also pur chased on cash payment and issued by the Chittagong branch of the Company on its Madras branch in favour of Messrs. A. Kan appa Mudaliar ;and the third draft is for Rs. 5,000, dated the 7th September, 1948, issued by the Chittagong branch of the Mahaluxmi Bank, Ltd., on its Madras branch on payment of cash consideration in favour of Messrs. S. M. Sayeed Ali & Co. It may be mentioned that in all these cases drafts were issued in favour of certain parties or order and there is noth ing to show that there is any special or express instructions for transmitting the money to a particular party or that it should be used for any particular purpose, on the other hand, it seems that these were nothing but ordinary commercial transactions for the payment of which drafts were purchased. So, in my opinion, there is no reason why this claimant M. Jonab Ali should be allowed to rank as a preferential creditor. He should be treated as an ordinary creditor. Hence his application is rejected. (2) In the matter of the Pioneer Bank, Ltd.‑There are three petitioners‑(a) Md. Majibur Rahman, petitioner, claims to be a preferential creditor on the ground that he had no account with the Pioneer Bank, Ltd., at Bogra. He purchased a demand draft for Rs. 4,875, dated the 9th September, 1948, on the Calcutta Branch (12/2, Clive Row, Calcutta), of the Company. That demand draft was issued for payment to the order of Eton Press, but, as on the 14th September, 1948, the Company closed its door it could not receive the payment. In this case also I find that there is nothing special on account of which the petitioner can claim to be a preferential creditor. This application also, therefore, is rejected. (b) Abdul Goffar, petitioner.‑In this case the petitioner is one Abdul Goffar who had no account with the Dacca branch of the Pioneer Bank, Ltd., or with any other branch of the Company, on payment of cash consideration obtained a dem and draft of Rs. 6,000 from the Dacca branch of the Company on its Calcutta Branch (12/2, Clive Row, Calcutta), dated the 7th Septemeber, 1948, to the order of Messrs. Imperial Chemical Industries (India), Ltd. The Imperial Chemical Industries (India), Ltd., endorsed the same draft in favour of Hongkong and Shanghai Banking Corporation or order. This draft bears rubber stamp to the effect " Account, Imperial Chemical Industries (India), Ltd." At one stage a point was sought to be made of this instruction contained in the rubber stamp but in reply my attention was rightly drawn by the learned Advocate for the Special Officer and Receiver to the endorsement in the corner to the effect‑"& Co." This endorse ment "Account, Imperial Chemical Industries (India), Ltd." was made subsequently by the payee himself. This also seems to be the case of an ordinary draft issued in ordinary course of commercial transaction. There are no exceptional circumstances in this case either. So, this application will be rejected. (c) Khan Bahadur Wakf Estate.‑In this case three drafts were issued by the Sylhet branch of the Pioneer Bank, Ltd., on its branch at Dacca and are dated the 10th September, 1948. One demand draft was for Rs. 307‑8‑0 drawn in favour of Babu Radhasyam Basak, another was for Rs. 100 drawn in favour of one Babu Jitendra Nath Banerjee, and the third was drawn for Rs. 450 in favour of one Nripendra Nath Basak. All of them were made payable to the order of the parties men tioned above. All these drafts were made over to the petitioner and the petitioner had no account of any kind with the bank either at Sylhet branch or at Dacca branch of the Bank. The Dacca branch of the bank closed its door on the 15th Sep tember, 1948. In the case of the draft for Rs. 100 in favour of Babu Jitendra Nath Banerjee, the draft was endorsed by the payee Babu Jitendra Nath Banerjee in favour of one Tarak Banerjee and Tarak Banerjee deposited it with the Hooghly Bank, Ltd. As the petitioner failed to obtain payment in the case of all these three drafts he now claims payment in full as a preferential creditor. I see no special reason why he should have priority over the claims of ordinary creditors. So, this application is also rejected. (3) In the matter of the Nath Bank, Ltd.‑In this case the applicant is one Taibuddin Ahmed. In this case a demand draft on the Dacca Branch of the Company was purchased from the Noakhali Branch of the Nath Bank, Ltd. On the 13th February, 1950, Rs.3,400 on payment of cash consideration for payment to the order of Taibuddin Ahmed, the petitioner. An applica tion under section 277‑N of the Companies Act for morato rium was filed by the Company on the 3rd March, 1950, and on the 24th March, 1950, ad interim order was passed by me. So the petitioner could not get his payment in respect of the draft. Although in the summons for direction there is no prayer for direction on the Special Officer for payment of the said sum as preferential claim it appears from the paragraph 6 of the affidavit of the applicant affirmed on the 27th May, 1950, that that is his intention. But according to the summons if he is claiming payment as an ordinary creditor he will have to wait like the other ordinary creditors of the Company and, therefore; no direction is necessary ; but if he claims to be preferential creditor, as it may be the case from his statement in paragraph 6 of the affidavit affirmed on the 27th May, 1950, even then nothing has been heard to show that he is entitled to any preferential treatment. His case also seems to be an ordinary case of a draft‑holder in course of an ordinary business transaction. So, his application is also rejected. Costs.‑In the matter of Nath Bank, Ltd., as the Special Officer and Receiver did not either engage any lawyer or incur any cost, I make no order as to costs. In the matter of the Mahaluxmi Bank, Ltd., and in the matter of the Pioneer Bank, Ltd., as all these applications have been dismissed the petitioners will have to pay costs of three days hearings, viz., the 23rd, the 27th and the 28th June, 1950. However, it is certified that there will be one set of costs only, and one counsel only on each of the three dates of hearings. This one set of costs and the fee of one counsel for each of the above 3 days of hearing will be borne equally by the four petitioners and these costs are to be realised out of the assets of the petitioners with the Company at the time of payment of the claim of the petitioners by the Company and the respec tive Companies will be entitled to deduct the costs out of the assets of the petitioners in their hands before such payment. K. M. A. Applications rejected.