Important Rulings - Trust Funds

 Imp. Rulings - Trust Funds

Index;

1. High Court Jharkhand (01.05.2020) in  Electrosteel Steels Limited  V/s The State of Jharkhand & Ors

2. HC Bombay (27.02.1992) in Reserve Bank Of India vs Bank Of Credit And Commerce 

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High Court Jharkhand (01.05.2020) in  Electrosteel Steels Limited  V/s The State of Jharkhand & Ors.  [W.P.(T). No. 6324 of 2019] held that;

• # 16. It is also pointed out by the learned AAG that admittedly, the petitioner Company had collected the tax from its purchasers / customers in the name of VAT, but has not deposited the same in the State Exchequer, thus, amounting to criminal misappropriation of the Government money entrusted to the petitioner Company by its purchasers / customers, and has thus committed the offence of criminal breach of trust.

• # 22. We however, find force in the submissions of the learned Additional Advocate General that the tax amount, which had been sought to be realised from the petitioner Company, had already been realised by the petitioner Company from the customers which was to be deposited in the Government Exchequer, but that having not been done by the Company and the amount having been utilized for its business purposes, throughout after the years 2011-12 and onwards, shall certainly amount to criminal misappropriation of the Government money by the Company, and the State Government is entitled to realize the same with the penalty due thereon.

• # 23. There is yet another aspect of the matter. The amount of VAT must have already been realised by the petitioner Company from the customers. In that view of the matter, it is debatable whether the amount of VAT shall be covered by the expressions "debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government", so as to bring it within the definition of "operational debt", as defined in the IB Code. This Tax liability can very well be treated as the amount of tax already realised by the petitioner Company from its customers, on behalf of the State Government, and not the direct debt of the petitioner Company towards the State Government, in which case the tax liabilities of the petitioner Company, for realising which the impugned garnishee order has been issued, may not come within the definition of "operational debt", as defined in the IB Code. The decisions cited by learned counsel for the petitioner in Embassy Property Developments Pvt. Ltd.'s case (supra) and in Monnet Ispat and Energy Ltd.'s case (supra), are of no help to the petitioner Company, as they related to Income Tax dues, which were the direct debts of the corporate debtors in those cases.

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HC Bombay (27.02.1992) in Reserve Bank Of India vs Bank Of Credit And Commerce [1993 78 CompCas 207 Bom] held that; 

• # 21. In all the standard works relied on before me at the hearing, the case of Farely v. Turner [1857] 26 LJ Ch 710, has been specifically referred to and relied upon. Our Supreme Court has already approved the ration of the said judgment in the case of New Bank of India Ltd. v. Pearey Lal [1962] 32 Comp Cas 91 (SC) referred to in the earlier part of this judgment.

• # 22. In Farley v. Turner (29 Law Times Reports, 257) Vice Chancellor Kindersley, inter alia, observed as under :

• "It is true that the money was not earmarked as if it had been sovereigns in a box, but it was earmarked in this manner .... This sum was not deposited as part of the general account, but for the express purpose of being dealt with in a particular way, and beyond that they had nothing to do with it."

• # 23. In other words, if the amount is deposited with the bank duly earmarked for a specific purpose such amount is segregated in a business or commercial sense of the term though not in the physical sense of the term and such amount is impressed with trust. It is obvious that such specific deposits are held by the bank as a custodian, bailee or trustee, rather as a stakeholder and can never be treated as part of general assets of the bank.

• #34 . . . . . . . .A trust money does not cease to be trust money merely because of user thereof by the trustee. In such a case, the bank in bound to reimburse the beneficiary an equivalent amount and the doctrine of tracing the trust fund would clearly apply. The principles laid down in Hallet's case [1879-80] 13 Ch 696 were clearly approved by the Privy Council in the case of Official Assignee v. Bhatt [1933] LR 60 IA 203 and by our Supreme Court in Shanti Prasad Jain's case [1963] 33 Comp Cas 231 (SC). . . . . .

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