P.L.N.K.M. Nagappa Chettiar vs The Official Assignee of Madras

Waller, J.—The applicant, as a co-trustee of the insolvent, asks that an account shall be taken of the amount due to the trust and for a first

charge on the assets in the hands of the Official Assignee to the extent of the sum found due. In January, 1916, there was a partition between the

applicant and his brother on the one side and the insolvent on the other. At the time of the partition it was agreed that the parties should set aside

two sums of Rs. 10,000 for each of two charities. The applicant''s branch was to contribute five-eighths, the insolvent''s share being the remaining

three-eighths. The applicant accordingly drew two hundis in favour of the insolvent on a firm styled O.R.M.O.M.S.P. The money realised on these

hundis was left on deposit with that firm, an account being opened in the name of each of the charities, and was to carry interest at the Nadappu

rate. There it remained until February, 1920, when the two accounts were transferred to the insolvent''s own business. In 1925 he was

adjudicated.

There can be no doubt but that in 1916 two trust funds were constituted. The agreement of that year is silent as to the manner in which the

insolvent was to deal with the money, but it is now common ground that he was to pay interest on it at the Nadappu rate and conduct the charities

out of the income so realised. On this it is argued that the case is merely one of creditor and debtor and that the act of the insolvent in mixing the

trust funds with his own money was not wrongful, for he was authorised to invest them in his own business. A similar argument was negatived by

Kumaraswami Sastri, J., in Krisknajee Bhat v. Sadativa Tawker (1926) 24 L.W. 869. For the reasons given by that learned Judge, I negative the

argument here also.

A more serious contention is based on the decision in In re Hallett & Co.: Ex parte Blane (1894) 2 Q.B. 237. On the evidence I am satisfied

that what happened in February, 1920, was this: that there was merely a book adjustment between the firm of O.R.M.O.M.S.P., to which the

insolvent owed money and the insolvent. Nothing really passed, but certain credit and debit entries were made in their respective accounts. No

doubt the result was that a debt of a sum of Rs. 18,000 which the insolvent owed to the other firm was wiped out, but I do not think that a book

adjustment of this kind can be treated as a passing of trust'' money into the hands of the trustee. In the words of Lord Esher, ""All that can be

shown is a settlement of account and a settlement of account, cannot be followed."" Following the decision above cited, I must uphold the

contention of the Official Assignee.

A further contention of the Official Assignee is that the fund in his hands is one on which the applicant can ""in any event"" have no claim. The legal

principle is clear that ""if a man mixes trust funds with his own, the whole will be treated as the trust property except so far as he may be able to

distinguish what is his own."" Frith v. Cartlond (1865) 34 L.J. (Ch.) 301. The Official Assignee has in his hands two funds. One consists of a sum of

Rs. 5,000 which was not derived from the business in which the trust . moneys were invested. The other consists of a sum of about Rs. 40,000,

which represents a rebate of Income Tax. The tax was paid in 1919 at a time when the trust funds were still in deposit with O.R.M.O.M.S.P. That

being so, it seems to me clear that the money in question cannot be treated as trust property or as anything but the trustee''s own property.

The application is dismissed with taxed costs.