Delivery of the amount for transmission to the bank created ex facie a relationship of a fiduciary character: New Bank of India v/s Pearey Lal (1962).

CaseNew Bank of India Ltd. v Pearey Lal, AIR 1962 SC 1003
CourtBefore the Supreme Court of India
Case NoCivil Appeal No 398 of 1960
BenchChief Justice Bhuvaneshwar Prasad Sinha, Justice JL Kapur, justice M Hidayatullah, Justice JC Shah and Justice JR Mudholkar
Author of the judgementJustice JC Shah
Decided OnDecember 20, 1961
Advocates for the appellantVeda Vyasa, Senior Advocate ( SK Kapur and BP Maheshwari, Advocates, with him)
Advocate for the respondentKL Gosain, Senior Advocaate (KL Mehta, Advocate, with him)
Author of the briefAditya Gor
KeywordsBanking, Trustee, Fiduciary Relations, Debtor-Creditor Relations.

Brief facts and procedural history:

The New Bank of India had its registered office originally at Lahore but after the partition of India it was shifted to Amritsar. The plaintiff who was the resident of Lahore had accounts in several bank including New Bank of India. (Para 2)

In view of the impeding partition, the plaintiff was anxious to transfer his movable property outside the territory which 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 18-7-1947 into the bank at Lahore with the instruction to transmit the same to the banks branch at Calcutta which it then proposed to open in the near future. An amount of Rs 10,000 was also paid into the bank at Lahore n 19-7-1947, with similar instructions. (Para 2)

Both the amounts were transmitted to the bank at Calcutta. The bank at Calcutta was opened on 24-9-1947, but within a few days thereafter the bank ceased making payments because of a moratorium for a limited period declared under an ordinance issued by the Governor-General restricting the bank to make payments to its depositors. After the end of such moratorium, the plaintiff applied to the branch for the facility to withdraw his entire amount but the bank raised certain technical objections against the same. (Para 2)

On 24-3-1948, the plaintiff commenced an action against the bank for the decree of rs 1,35,000 in the Calcutta high court.  During the pendency of the suit the high court of east Punjab sanctioned a scheme for arrangement under sections 153 and 153A of the Indian Companies Act, 1913, for the settlement of the liability of the bank. It was directed by the scheme that the depositors were to be paid 70.5 per cent of the deposits held by them and to be allotted shares of the face value of 5 per cent of the deposits. (Para 2)

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 claim (Para 5)

It was held in the trial court that even though the plaintiff failed to prove the instructions given in September 1947, it was easily established on evidence that the plaintiff entrusted to the bank rs 135000 for the transmission and the plaintiff having given no further instructions, the bank held as the trustee for the plaintiff and the plaintiffs claim was not liable to be reduced under the scheme sanctioned. This findings were confirmed in the appeal before the division bench pf Calcutta high court. (Para 6)

The bank has thus approached the supreme court of India under a special leave (Para 1)

Contentions of the plaintiff: 

  • It was claimed by him that he had asked the Lahore branch to transmit the amount to the Calcutta branch and then wait for further instructions from him. on or about September 13, 1947, the plaintiff countermanded his instruction and asked the Lahore bank to return the amount but the bank had said that they had transmitted the amount to the Calcutta branch and have deposited the amount in the fixed account. Though the plaintiff had never opened such an account and has never given such instruction. (Para 3)
  • It was accordingly claimed that the bank was a trustee for transmission of the amount and in the absence f 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. (Para 3)
  • Thus 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. (Para 3)

Contention of the bank:

  • The bank submitted that the amount was deposited by the plaintiff for the purpose of opening a fixed account and the amount be transmitted to the bank of Calcutta for crediting the same into the fixed account of the plaintiff. (Para 4)
  • The bank denied the alleged instruction in September 1947 and contended that the plaintiff was bound by the scheme sanctioned by the high court of east Punjab. (Para 4)
  • It was contended 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 transmission of the amount to another branch the relationship of trustee and beneficiary did not arise. There was a relationship of creditor and debtor and this can be supported by three important circumstance:
    • That the bank agreed to pay interest on the amount delivered by the plaintiff
    • That the bank charged no commission or remuneration for the transmission of the amount
    • That even on plaintiffs case the amount was to be utilized for opening fixed deposit accounts with the branch at Calcutta. (para 8)

Ratio of the court:

  • Delivery of the amount for transmission to the bank creates ex facie a relationship of a fiduciary character. It is true that in the absence of other evidence a person paying money into 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 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. (Para 8)
  • Where the money is paid to a Bank with special instructions to retain the same pending further instructions, 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, 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, a trust results and the presumption which ordinarily arises by reason of payment of the money to the Bank is rebutted. (Para 8)
  • According to the facts of the present case, no agreement to pay interest to the plaintiff was proved by the bank and thus the relationship may not be deemed to be of a debtor and creditor. (Para 9)
  • The alleged fixed deposit account were to be opened by the plaintiff in the branch of Calcutta only after his instructions and not otherwise. The bank adopted the course of action on its own and there is no evidence that such instruction were given by the plaintiff. (Para 10 & 11)


The view of the high court was thus correct and thus the appeal fails and is dismissed with cost. (Para 12)

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