Case: Mukti Lal Agarwala Vs. Trustees Of The Provident Fund Ofthe Tin Plate Co. Of Ind

Chandrasekhara Aiyar, J.1. These appeal are by a creditor of six employees in the Tin Plate Co. of India Ltd. who had been adjudged insolvents. The employees are members in a Provident Fund of the Tin Place Co. and there were amount standing to their credit in the said Fund.2. The creditor, Mukti Lal Agarwala, filed applications under S. 4 of the Insolvency Act for orders that the amounts standing to the credit of the insolvents in the Provident Fund account were their properties and had vested in the court and were available for distribution amongst the creditors. He sought a direction that the monies may be brought into Court. The petitions were directed primarily against the Tin Plate Co. Ltd. and the Trustees of the Provident Fund. They pleaded in answer that the amount standing to the credit of each insolvent in the Provident Fund represented the contributions of the Company and of the employees and that the corpus was a trust fund in the hands of the trustees of the fund; so they were not properties of the insolvents over which they had a disposing power and that they were not debts due to the insolvents. It was said that according to the rules governing the Provident Fund the monies become payable to the employee or any other member of his family only on the happening of certain contingencies such as retirement, discharge dismissal or death and that till then no right accrued to the insolvent. It was further urged that the trustees could not be removed from the custody and control of the fund by the Official Receiver.3. The Insolvency Court, which was the court of the District Judge at Purulia, heard the petitions and found on a construction of the rules of the Provident Fund that the monies standing to the credit of A and C accounts in the name of each insolvent was his property over which he had a disposing power and hence they were available for distribution amount the creditors under the Insolvency Act.4. The trustees of the Fund and the Tin Plate Co. carried the matter on appeal to the High Court at Patna and they were successful. The learned Judges (V. Ramaswami and Sarjoo Prasad, JJ.) held that under the rules governing the Fund the insolvents had no present, disposing power over the monies standing to their credit and that the Fund was really vested in the trustees.5. As the amount involved in the several petitions taken together was over Rs. 20,000, the High Court granted leave to the creditors to appeal to this court.6. The main contentions urged by Mr. Isaacs on behalf of the appellants were three in number :-(a) The monies standing to the credit of each insolvent in the Provident Fund are his property, though payable at a future date and the question of present disposing power arises only for bringing within the scope of the definition what may not otherwise be regarded as "property".(b) Though the Provident Fund rules speak of a trust Fund and trustees, in reality, there was no transfer of ownership by the employees in favour of the trustees and that there is no trust as such.(c) In any event, even on the footing that a trust was created over the Fund, the beneficial interest continues in the employees and this interest would vest in the Official Receiver for the benefit of the creditors in insolvency.7. We have to examine the soundness of these contentions.8. The Provident Fund was started on 1-1-1929. The rules and regulations of this Fund are found in the deed of trust dated 15-7-1930, marked as Exhibit 1. These rules, as amended from time to time in certain respects by supplementary deeds, are given in the appendix to this judgment.9. On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the court or in a Receiver and shall become divisible among the creditors. (Section 28(2) of the Provincial Insolvency Act). The property of the insolvent for the purposes of vesting shall not include any property which is exempted by the Code of Civil Procedure, or by any other enactment for the time being in force from liability to attachment and sale in execution of a decree (Section 28(5)). Section 2(d) of Act states: "Property includes any property over which or the profits of which any person has a disposing power which he may exercise for his own benefit", A person has a disposing power over property which he may exercise for his own benefit, such as a power of appointment conferred on him under a will or a settlement, or the power of a Hindu father who is the manager of a joint Hindu family to sell the shares of his sons in the family property in discharge of their pious obligation to pay off his debts. In clause (b) of sub-s. 2 of S. 38 of the English Bankruptcy Act, 1914, this power is specified in these words :-"The capacity to exercise and to take proceedings for exercising all such powers in or over in respect of property as might have been exercised by the bankrupt for his own benefit at the commencement of his bankruptcy or before his discharge, except the right of nomination to a vacant ecclesiastical benefice;"All that we have to find out is whether the amounts standing to the credit of the several subscribers in the fund who have been adjudged insolvents are divisible among their creditors. If so, they would vest in the court or the Official Receiver and would become available for distribution. Whether they have any present interest in the monies is the primary question that falls to be considered.10. Section 60, Civil P. C. sets out what property is liable to attachment and sale and what items are not. The first part of S. 60 runs in these terms :"The following property is liable to attachment and sale in execution of a decree, namely, lands, houses, or other buildings, goods, money, bank-notes, cheques, bills of exchange, hundis, promissory notes, Government securities, bonds or other securities for money, debts, shares in a corporation and, save as hereinafter mentioned, all other saleable property, movable or immovable, belonging to the judgment debtor, or over which, or the profits of which, he has a disposing power which he may exercise for his own benefit, whether the same be held in the name of the judgment- debtor or by another person in trust for him or on his behalf".The exempted items do not apply. Clause (k) deals with funds governed by the Provident Funds Act. Reference has, however, been made to clause (m) which speaks of an expectancy of succession by survisorship or other merely contingent or possible right or interest".11. Let us now advert to the relevant rules of the Fund. The object of the Fund as set out in rule 2 is to accumulate for the benefit of the Companys employees who have joined the Fund certain sums as a future provision for them and for their families. Under Rule 3, any employee, who has completed one years service with the Company, shall be eligible for membership. Rule 4 Provides for a declaration as regards the disposition of the Fund in the event of death. This declaration can be cancelled and changed. Rule 5 provides that if the declaration becomes obsolete, the trustees could decide who were to be recognized as the next-of-kin and that payment by them to such person will be an absolute discharge. Every member shall be allowed to contribute any sum not exceeding one-twelfth of his or her earnings and such amounts would be credited in the name of each member in an account called A Account. (Rule 6). At the end of each year, an amount equal to the contribution by the member shall be paid by the Company and credited to another account to be opened in the name of the member and to be denominated his or her B Account. An increased contribution by the Company in certain events at particular specified rates is contemplated by Rule 7 (B) . This further sum will go into a C account to be opened in the name of each member. Rule 8 provides that the moneys of the Fund shall be invested by the Trustees in accordance with the provisions from time to time in force under the Indian Income-tax (Provident Funds Relief)Act, 1929. Every year the A, B, and C Accounts are to be made up including the income from the investment according to certain calculations.12.Then come the important Rules, 10, 11, 12, 13, 15, 16, 17 and 18. Though the Fund is intended as a future provision for the employees and their families. The membership is purely voluntary and arises on an application to the Company, the trustees having nothing to do with the admission.It is only the management of the Fund and the control of its funds which vests in the trustees under rule 1. There is no transfer of the ownership if the Fund. The contributions made by the members are not compulsory in their nature. The monies of the Fund may, no doubt, be invested by the trustees, but the subscriber does not divest himself or herself of control over the Fund in certain respects. He or she can declare to whom the monies are to be paid in the event of his or her death. This declaration can be changed at any time. If the service terminates after fifteen years, the subscriber can get the full amount in the A, B and C Accounts. If he or she retires with the Companys consent before completion of fifteen years service, he or she can get the amounts standing in A and C Accounts together with a portion in B account. Dismissal, or misconduct, or resignation without the Companys consent before completion of the 15 years would still entitle the subscriber to the payment of the moneys in A and C Accounts. The provision in Rule 16 that on the death of any member, the amount will be paid to the next-of-kin, of course proceeds on the same footing that the property belongs to the subscriber. Whether the provisions that in the event of the declaration becoming obsolete, or a member becoming insane or demented, the moneys can be paid at the absolute discretior of the trustees to whomsoever they determine to be the next-of-kin, or hold to be a proper and suitable person to receive payment, are valid is not a question that arises in these appeals.13. Retirement or death is not a mere possibility. It is a contingency that is sure to happen, sooner or later. Dismissal for misconduct or resignation without consent before 15 years service will secure earlier payment. (Rule 11).14.It is reasonably clear from these rules that a subscriber has a present interest in the Fund though the moneys may become payable to him, or his nominee or heirs only in the future. Even where there is a declaration about the nominee who is to receive payment after the subscribers death, the fund would still be the property of the subscriber in the hands of the nominee for the satisfaction of his debts, as there is no present gift to take effect immediately.15.It is not easy to see how it could be maintained that the subscribers have no right, title or interest in the fund, or that such interest as they may possess is dependent upon a possible contingency which may or may not occur. The amount standing to the credit of a subscriber even if payable in future would be a debt due by the Company to him within the meaning of S. 60 of the Code and hence liable to attachment and sale. See - Banchharam Majumdar v. Adyanath Bhattacharjee, 36 Cal. 936 (A).16.Rule 17 which provides that on the adjudication of the debtor as an insolvent the amounts standing to his credit in the Fund shall be liable to be forfeited to the Fund, was strongly relied upon by the respondents. But such a condition or agreement is invalid. A man may give (in India only by will) property or its income to a donee with a condition that the donees interest will cease on bankruptcy and the property will in that event go to another; if insolvency supervenes, the property will not vest in the Official Receiver. If there is no gift over on the cesser of the donees interest, the property will revert to the donee and will vest in the Official Receiver on the donees insolvency. But a person cannot enter into any arrangement or agreement by which his own title will cease in the event of bankruptcy, for it would then be a fraud perpetrated on the Insolvency Law.This principle has been enunciated in an early English case - Wilson v. Greenwood, (1918) 36 ER 469 at p. 475 (B) in the following words and adopted in later cases too:"The general distinction seems to be, that the owner of property may, on alienation, qualify the interest of his alienee, by a condition to take effect on bankruptcy; but cannot, by contract or otherwise, qualify his own interest by a like condition, determining or controlling it in the event of his own bankruptcy, to the disappointment or delay of his creditors";In re Dugdale", (1818) 38 Ch D 176 at p. 182 (C) we find the following observations of Kay J. -"The liability of the estate to be attached by creditors on a bankruptcy or judgment is an incident of the estate, and no attempt to deprive it of that incident by direct prohibition would be valid. If a testator, after giving an estate in fee simple to A, were to declare that such estate should not be subject to the bankruptcy laws, that would clearly be inoperative.I apprehend that this is the test. An incident of the estate given which cannot be directly taken away or prevented by the donor cannot be taken away indirectly by a condition which would cause the estate to revert to the donor, or by a conditional limitation or executory devise which would cause it to shift to another person".The proposition is thus stated in Williams on Bankruptcy 16th Edition at page 293: "But the owner of property cannot, by contract or otherwise, qualify his own interest by a condition determining or controlling it in the event of his own bankruptcy to the prejudice of his creditors".17. It appears to us to be unnecessary to refer to all the decisions cited and relied upon the course of the arguments on either side. A few cases may, however, be dealt with. The English decision relied upon by the learned counsel for the appellant do not furnish much guidance. Ex parte Dever (1887) 8 QBD 660 (D) was a case of what is obviously a contingent interest dependent upon a mere possibility. The decision in - Hudson v. Gribble, (1903) 1 KB 517 (E) dealt with a different question altogether. Under a scheme framed by the Municipal Corporation, persons in its service were to contribute to a Fund for the encouragement of thrift among their officers and servants a certain percentage of their salaries to be deducted from time to time from those salaries. Were they exempt from payment of income tax under the first rule of S. 146 of the Income-tax Act, 1842, was answered in the negative. The point was whether they were exempt because they were "sums payable or chargeable on the salaries by virtue of any Act of Parliament where the same have been really and bona fide paid and borne by the party to be charged". It is true that Lord Justice Vaughan Williams says at page 525 that the sums contributed never ceased to be the property of the persons from whose salaries or wages they were deducted; and Lord Justice Stirling observes at page 528 "It is obvious that, though the amounts so deducted are not immediately paid to the person employed, they remain his property to a great extent". Both of them refer to the fact that the subscribers were entitled to get back their contributions upon retiring from the service. But they were dealing with particular words employed in an Act of Parliament and the rules made under a Corporation Act. General observations of the kind should not be extracted from the context in which they were used and applied to other facts and different language.18. Coming to the Indian decisions, - D. Palaiya v. T. P. Sen, 1935 Pat 211 (AIR V. 22)(F) is a case where the rules of a provident fund created by the Tata Steel Company were similar to the rules we have before us but the forfeiture clause was construed as applying only to the portion of a the amount at the credit of members account contributed by the company and it was read to mean that it was inapplicable to the subscribers own contributions. Secy. Burma Oil Subsidiary Provident Fund (India) Ltd. v. Dadibhar Singh, 1941 Rang 256 (AIR V. 28) at p. 259 (G) which held against the vesting proceeded upon the footing that there was a trust created in favour of the trustees. Even if so, what was to happen to the beneficial interest was not dealt with. The relevant observations are:"The forfeiture does not vest the money in the trustees, the money having already vested in them. The money cannot be attached as a debt due to the judgment-debt- or, because the word debtas used in S. 60 and in 0.21, R. 46, Civil P. C. means an actually existing debt that is a perfected and absolute debt, not merely a sum of money which may or may not become payable at some future time or the payment of which depends upon contingencies which may or may not happen".The decision of Beaumont C. J. and Rangnekar J. in - Gajraj Sheokarandas v. Hukumchand Sarupchand, 1939 Bom 90 (AIR V. 26) (H) does not apply because in that case there was a clause in the articles providing that all moneys received by the East India Cotton Association from its members would be under the absolute control of the Association and could be used by it as if the moneys belongs to it absolutely. Further the deposit was also subject to certain liens. Subject to the liability to forfeiture and to the satisfaction of the liens, the deposit with interest was repayable to the member on his ceasing from any cause to be a member. The facts were, therefore, very different. Anandrao v. Vishwanath Watuji, 1944 Nag 144 (AIR V. 31) (I) is again a case where the money ceased to belong to the employee and the title was in the trustees. Reffering to a Karachi case reported in - Ismail Jakaria and Co. v. Burmah-Shell Provident Trust Ltd., 1942 Sind 47 (AIR V. 29) (J), Bose J. distinguished it one the ground that there the money was not vested in the trustees but was only handed over to them for the purposes of management, which was not the case before him.19. The learned counsel for the respondents strongly relied on - Biswa Nath Sao v. The Official Receiver, 1937 Pat 185 (AIR V. 14) (FB) (K) and argued that there can be no property within the meaning of the Insolvency Act unless the insolvent had a present absolute power of disposal over the same but the decision which is that of a Full Bench and which interpreted the decision of the Privy Council in - Sat Narain v. behari Lal, 1925 PC 18 (AIR V. 12) (L) does not support any such position; all that was held was that on the insolvency of a father, his power to sell the shares of his sons in the joint family property to discharge the pious obligation vests in the Official Receiver, though the shares themselves do not so vest.20. Sufficient has been stated above to show that not withstanding the rules of the Fund in the present case, the subscribers have an interest in the moneys which can vest in the Official Receiver on their adjudication. Even if we regard the deed creating the fund as a trust deed, notwithstanding that, no ownership has been transferred to the trustees and all that they have got is the right of the management and control, the subscribers, who joined the fund have undoubtedly got a beneficial interest which will vest in the Official Receiver as property liable to attachment and sale under section 60 which uses the language "whether the same be held in the name of the judgement-debtor or by another person in interest for him or in his behalf.21.The learned Judges of the High Court held that the property mentioned in the Insolvency Act must be such that the insolvent has an absolute and unconditional present disposing power over the same. With great respect, this, however, does not seem to be a correct interpretation. The word property is used in the widest possible sense which includes even property which may belong to or is vested in another but over which the insolvent has a disposing power which he may exercise for his own benefit; and as pointed out already this part of the definition has reference obviously to powers of appointment and the power of a Hindu father who is the managing member of a joint family. The fact that on the date of the adjudication the insolvent could not transfer the property does not militate against the view that he has a vested interest in the same. Reference was made to S. 56 (3) of the Provincial Insolvency Act which provides that "Where the Court appoints a receiver, it may remove the person in whose possession or custody any such property as aforesaid is from the possession or custody thereof: Provided that nothing in this section shall be deemed to authorise the court to remove from the possession or custody of property any person whom the insolvent has not a present right so to remove". This has no relevancy to the point at issue. Whenever possession and custody could be taken by the Receiver, the person in whose possession and custody the property is can be evicted. If possession or custody could not be taken, still the right of the insolvent will vest in the Official Receiver.22. Mention has been made of three accounts in the Fund called A, B and C; the first represents monies contributed by the subscriber, the second consists of monies paid by the Company and the third represents what may be roughly described as bonus which represents deferred wages. The learned counsel for the appellant confined the relief he wanted to the amounts standing to the credit of each subscriber in his A and C Accounts and conceded that the B Account monies would stand on a different footing. In fact, even in the Insolvency Court the creditor concerned himself only with the A and C Accounts.23. Mr. Isaacs contended at first that he was entitled to an order that the monies in the A and C Accounts should be brought to the Insolvency Court but later he abandoned this contention. For the respondents, it was urged that under S. 10 of the Employees Provident Funds Act, 1952, which came into force after these proceedings were instituted, there could be no attachment. This again is a question which is outside the scope of the present proceedings. Once it is held that the right, title and interest of the insolvents in the A and C Accounts with the Fund vest in the Official Receiver, it is for him under the directions of the Insolvency Court to take steps to realize the same, in whatever manner the law allow him to do.24. The learned counsel for respondents handed to us a paper showing which of the respondents was still in service and which have been discharged, their dates of appointments and of joining the posts. Mohibulla, Anjab Alli and Hasimulla, respondents insolvents in Civil Appeal No. 124, Civil Appeal No. 127 and Civil Appeal No. 126, have been shown as discharged from service. A.M. Joseph, Rasid Alli alias Tasim Alli, and Baldey Singh, respondents in Civil Appeals 135, 125 and 124, joined the Fund in 1933, 1932 and 1936 respectively and are still in service.

Decision:
1[ds]14.It is reasonably clear from these rules that a subscriber has a present interest in the Fund though the moneys may become payable to him, or his nominee or heirs only in the future. Even where there is a declaration about the nominee who is to receive payment after the subscribers death, the fund would still be the property of the subscriber in the hands of the nominee for the satisfaction of his debts, as there is no present gift to take effect immediately.15.It is not easy to see how it could be maintained that the subscribers have no right, title or interest in the fund, or that such interest as they may possess is dependent upon a possible contingency which may or may not occur. The amount standing to the credit of a subscriber even if payable in future would be a debt due by the Company to him within the meaning of S. 60 of the Code and hence liable to attachment andthere is no gift over on the cesser of the donees interest, the property will revert to the donee and will vest in the Official Receiver on the donees insolvency. But a person cannot enter into any arrangement or agreement by which his own title will cease in the event of bankruptcy, for it would then be a fraud perpetrated on the Insolvencythe decision which is that of a Full Bench and which interpreted the decision of the Privy Council in - Sat Narain v. behari Lal, 1925 PC 18   (AIR V. 12) (L) does not support any such position; all that was held was that on the insolvency of a father, his power to sell the shares of his sons in the joint family property to discharge the pious obligation vests in the Official Receiver, though the shares themselves do not sohas been stated above to show that not withstanding the rules of the Fund in the present case, the subscribers have an interest in the moneys which can vest in the Official Receiver on their adjudication. Even if we regard the deed creating the fund as a trust deed, notwithstanding that, no ownership has been transferred to the trustees and all that they have got is the right of the management and control, the subscribers, who joined the fund have undoubtedly got a beneficial interest which will vest in the Official Receiver as property liable to attachment and sale under section 60 which uses the language "whether the same be held in the name of the judgement-debtor or by another person in interest for him or in his behalf.21.The learned Judges of the High Court held that the property mentioned in the Insolvency Act must be such that the insolvent has an absolute and unconditional present disposing power over the same. With great respect, this, however, does not seem to be a correct interpretation. The word property is used in the widest possible sense which includes even property which may belong to or is vested in another but over which the insolvent has a disposing power which he may exercise for his own benefit; and as pointed out already this part of the definition has reference obviously to powers of appointment and the power of a Hindu father who is the managing member of a jointhas no relevancy to the point at issue. Whenever possession and custody could be taken by the Receiver, the person in whose possession and custody the property is can be evicted. If possession or custody could not be taken, still the right of the insolvent will vest in the Officialfact, even in the Insolvency Court the creditor concerned himself only with the A and Cagain is a question which is outside the scope of the present proceedings. Once it is held that the right, title and interest of the insolvents in the A and C Accounts with the Fund vest in the Official Receiver, it is for him under the directions of the Insolvency Court to take steps to realize the same, in whatever manner the law allow him toAnjab Alli and Hasimulla, respondents insolvents in Civil Appeal No. 124, Civil Appeal No. 127 and Civil Appeal No. 126, have been shown as discharged from service. A.M. Joseph, Rasid Alli alias Tasim Alli, and Baldey Singh, respondents in Civil Appeals 135, 125 and 124, joined the Fund in 1933, 1932 and 1936 respectively and are still in service.