Suganchand & Co VS Bhramayya & Co.

Messrs. Brahmayya And Co.These are three connected appeals against the orders of Rajagopalan J. passed on the Original Side and raise an important and interesting question regarding the rights of a person who has entrusted a bank with collecting his dues and remitting them to him by demand drafts where the bank has gone into liquidation and the drafts are therefore left uncashed. The question is whether a person in such a case will be entitled to get his full dues as a preferential creditor or must rank only with the other creditors and be content to receive the dividends given in liquidations in other words whether the fiduciary relationship of principal and agent of the jural relationship of creditor and debtor will obtain and in what circumstances each of these relationships will obtain. The facts are briefly these: O.S.A. No. 849 is an appeal against the order in Appln. No. 4549. There the claimants were Suganchand and Co. They made a claim against the Hanuman Bank in liquidation praying that they be treated as persons to be paid in full in preference to the ordinary creditors of the bank. Hanuman Bank had its head quarters in Tanjore and branches in several places in the Madras State like Madras Kumbakonam Thiruthuraipundi Madurai etc. It crashed and the head quarters suspended payment on 15th July 1947. The Madurai Kumbakonam Thiruthuraipundi and other branches of the Bank suspended payment only on 16th July 1947. Suganchand and Co. sold some goods to. Messrs. Swami Foundry Madurai for Rs. 3235 2 6 in April 1947 and as directed by the vendees sent the railway receipt with the bill for the above amount through the Madurai branch of the Hanuman Bank Ltd. for collection of the said amount from Swami Foundry Madurai and for remitting to them the amount so collected through a demand draft. The entire amount of Rs. 3235 2 6 was paid to the Madurai branch of the Hanuman Bank by Messrs. Swami Foundry on 10 7 1947 and the Madurai branch issued a demand draft for the entire amount of Rs. 3235 2 6 on their Madras branch for payment at Madras. This demand draft reached Suganchand and Co. and it was presented to the Hanuman Bank Madras on 14th July 194 7 through their bankers the Bharat Bank for collection. The Hanuman Bank was then about to close its doors and the draft was returned unpaid with the endorsement “Awaiting funds present again.” On 15th July 1947 the Hanuman Bank Madras closed its doors and most of its branches followed suit on 16th July 1947. Suganchand and Co. thereupon filed a claim for the payment of the full amount to the Official Liquidator but were refused. Thereupon they filed Appln. No. 454 of 1949 on the Original Side for full payment of the amount as preferential creditors with 9 per cent interest per annum alleged to be the usual trade rate from 10th July 1947 till date of payment. Rajagopalan J. held that as they had asked the Hanuman Bank to collect the amount and remit it by a demand draft payable at Madras the position was as if they had received money in cash at Madurai from the Hanuman Bank and had then purchased the draft over counter as the bank was made their agent for the purchase of the draft and so as the law stood they had got what they had bargained for namely a draft of the bank the payment of which depended on the solvency of the head office at the time of their presentation as held in In re Oriental Bank Corporation Ex parte Guillemin(1) and that they were entitled only to rank as ordinary creditors and not as preferential creditors and dismissed the application with costs. Hence this appeal. O.S.A. No. 849 was filed by the Canara Bank Ltd. Mangalore against a similar order of Rajagopalan J. in Appln. No. 10049. The facts there were briefly these. The Canara Bank sent to the Kumbakonam branch of the Hanuman Bank a bill for Rs. 1000 drawn by one Periyasami Mudaliar on Shanmugasundaram Pillai and Sons Kumbakonam. The Canara Bank s request ran as follows: “We shall thank you to collect the amount in trust for us and remit the proceeds to us by demand draft on Erode.” The Hanuman Bank Kumbakonam collected the amount of the bill and after taking the commission of as. 5 for expenses of realisation issued a demand draft for Rs. 999 11 0 in favour of the Canara Bank on the Erode office of the Hindu Bank Karur Ltd. The Canara Bank presented the draft at the Hindu Bank Karur on 15th July 1947 and it was returned unpaid with the endorsement “No advice. Present again.” That very day of course the Hanuman Bank Madras had closed its doors and other branches followed suit the next day. So the Canara Bank put in Appln. No. 1008 of 1949 on the Original Side for being treated as a preferential creditor and being paid in full and not merely ranked as an Ordinary creditor for this amount along with the other creditors in liquidation. Rajagopalan J. rejected this application for being treated as preferential creditors with costs for the same reason as the application of Suganchand and Co. holding that the trust imposed on the Hanuman Bank by the Canara Bank for collection and remittance by demand draft was discharged by the issue of the demand draft by the Hanuman bank on the Hindu bank Karur. Hence this O.S.A. No. 949 is against the order of Rajagopalan J. in Appln. No. 1274 of 1949 by the Indian Mutual Life Association Ltd. The Indian Mutual Life Association had appointed various branches of the Hanuman Bank Ltd. as its agents to collect monies due by its constituents towards the premia on policies taken out by them. The Hanuman bank had applied to the Indian Mutual Life Association for being appointed collecting agents for such premia. The Indian Mutual Life Association had by its letter dated 11th October 1945 authorised them to act as collecting agents on a commission of half an anna per hundred rupees regarding many of the branches. The material portion of the letter ran as follows: “Regarding transfer of funds our practice is that the collections of each month should be sect to us by a demand draft payable at Madras within the first week of the next month. There is at present no necessity for a current account with your head office. We adopt the above procedure with our bankers too. Kindly therefore direct your branches to remit the collections as advised above. Kindly also direct them to send us the triplicate challan promptly the same day as the money is received to enable us to send out our official receipt to the parties.” A sample of the subsequent dealing by the Hanuman Bank regarding the amounts so collected can be gathered by their letter dated 30th May 1947. The material portion of it runs as follows: “We beg to enclose herewith a draft No. 06422 for Rs. 1004 2 0 on our Madras branch the proceeds of which may kindly be credited towards premiums due on policies collected. The receipt of the same may kindly be acknowledged and the official receipt sent to us at your earliest convenience. Please excuse for the delay.” Then follows the detailed statement of the various collection of premia and deduction of postage and payment towards commission and arrival of the figure. On 30th June 1947 the Hanuman Bank Kumbakonam sent a cheque or draft on the Hanuman Bank Madras for Rs. 1540 9 0. It ran as follows: “On demand pay the Indian Mutual Life Association Ltd. or order a sum of Rs. 1540 9 0 only for the value received.” On 10th July 1947 the Hanuman Bank Thiruthuraipundi sent a cheque or draft for Rs. 57 7 0 to the Indian Mutual Life Association on the Hanuman Bank Madras. The form was as below: “On demand pay the Indian Mutual Life Association or order a sum of Rs. 57 7 0 only for the value received.” The first draft was presented by the Indian Mutual Life Association to the Hanuman Bank Madras for payment at first on 10th July 1947 and was returned unpaid with the endorsement “Awaiting funds Present again.” It was presented again along with the other draft on 15th July 1947. The bank returned both the drafts unpaid and closed its doors. Hence the Indian Mutual Life Association applied to the liquidator for payment in full of the sums covered by the above two drafts as well as two other sums of Rs. 3000 6 0 and Rs. 1174 3 0 collected by the branches of the Hanuman Bank but not remitted by demand drafts. The Official Liquidator filed Appln. No. 10049 praying for the Court s directions. Rajagopalan J. ordered the two sums of Rs. 3000 6 0 and Rs. 1174 3 0 to be returned in full to the Indian Mutual Life Association as the amounts had not been remitted by demand draft or otherwise dealt with as per the instructions of the principal and so the fiduciary relationship of principal and agent had not ceased but regarding the two demand drafts he rejected the claim of the Indian Mutual Life Association to be treated as preferential creditor entitled to be paid in full and directed it to rank only as an ordinary creditor along with the other creditors in liquidation. This appeal is confined of course to the order of Rajagopalan J. regarding the two drafts. We have perused the entire records and heard the arguments of the Counsel for the appellants and Mr. S. Swaminathan for the Official Liquidator. Mr. T.M. Ramaswami Aiyar argued generally on the legal position regarding the drafts for the appellants in all the three appeals the Counsel in the two other appeals supplementing his arguments only regarding the particular facts in those appeals. The law relating to demand drafts does not present any great difficulty. It is only the application of the law to the particular facts of each of these cases which causes some difficulty. A demand draft is of course a bill of exchange drawn by a bank on another bank or by itself on its own branch and is a negotiable instrument not offending the Proper Currency Act or the Reserve Bank Act. It is very nearly allied to a cheque the difference between it and a cheque consisting largely in two facts. Firstly it can be drawn only by a bank on another bank and not by a private individual as in the case of cheques. Secondly it cannot so easily be countermanded as a cheque either by the person purchasing it as by the drawer of a cheque or by the bank to which it is presented. In Malik Barkat Ali v. Imperial Bank of India(1) a Bench of the Lahore High Court has summed up this aspect neatly as follows: “Ordinarily a bank cannot stop payment of a draft unless there is some doubt as to the identity of the person presenting it as being or properly representing the person in whose favour it is drawn. This appears from Sheldon s Practice and Law of Banking 1931 page 156. The position of a bank in respect of its own draft is not quite the same as its position in regard to cheques drawn on it. Since it is taken on commitments of its own in favour of a third person at the instance of the purchaser…. On the other hand it does not appear that the purchaser is entitled to ask the issuing bank to stop payment on other grounds Such as matters relating to the consideration in respect of which the draft has been issued at his instance for this would often put the bank in an impossible position as when the purchaser of the draft is dissatisfied with some bargain which he has made with the person in whose favour the draft has been That is why demand drafts have been held not to be cheques See Bank of Baroda v. The Punjab National BankIn re Travancore National and Quilon BankThe Official Assignee v. Natesa PillaiThe Alliance Bank of Simla Ltd. v. The Amritsar BankThe Indian Hume Pipe Co. Ltd. v. Travancore National and Quilon Bank Ltd.and In re Calcutta Commercial Bank Ltd.The Alliance Bank of Simla Ltd. v. The Amritsar Bank(5) and other cases referred to above. But we are of opinion that if it is confined strictly to cases where a Bank issues a draft on its own branch and there is an express or implied agreement between the parties at the time of the issue of the draft by the bank on its own branch that the sole object of the issue of the draft is to transmit the money from one place to another for the express purpose of being paid to the person applying for the draft or some nominee of his it is supported by other rulings provided the bank has not actually parted with the money held by it as agent acting on the instructions of the principal thus terminating the relationship of principal and agent. The ruling confined to such strict limits cannot be said to be contrary to the other rulings being the direct result of the additional agreement express or implied proved beyond all possibility of doubt “that the banker was not to use the sum in question for his own purpose” as observed by Abdur Rahim J. in Official Assignee of Madras v. Rajam AiyarSinha J. referred to the above ruling of Achhru Ram J. and observed as follows: “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 draft. 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 a holder of a bill of exchange. There is in such oases no specific appropriation of the funds in the hands of the drawee for meeting the demands of the Assuming it is possible for a person who secures a 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 a claim has been made before the Official Liquidators 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.” So Sinha J. too contemplates the possibility of such an additional agreement entitling the payee of the draft in cases where he is also the applicant for the draft and where there is an agreement between the bank and him that the draft is got purely and solely for transmitting the money to him to another place to preferential payment though he rightly urges that very strong evidence would be required to prove such an agreement and that a mere affidavit would not do. We are also of the same opinion. On principle we do not see anything against the validity of such an agreement strictly restricted as stated above and applied only to cases where the bank has not accounted for the money collected by it on behalf of the principal and covered by the draft by paying it out either to the principal or his nominee or by purchasing a draft on any other bank as per the instructions of the principal by paying the amount collected for that purpose. Such a restricted and exceptional case would only amount to something similar to engaging a man to carry coins or currency notes in specie paying him wages for such transmission the only difference being that the man engaged will be the bank and that the transmission charges will be much lower and that an instrument called the draft is used in the place of the coins or the currency notes. Of course there must be the clearest proof that the bank was not to use the sum for its own purpose and that the holder of the draft uses it only for the transmission of the money. Thus if the draft is negotiated by the person getting it in favour of another the ordinary incidence of law will at once operate and make the assignee only a mere creditor of the bank the relationship of principal and agent having terminated. It is well settled that where a cheque or a bill is entrusted to a banker for collection whether or not the entrustment is by a person who has an account with the bank the bank receives the cheque or the bill and collects the amount as agent of the person who entrusted the bank with the cheque or bill and that the fiduciary relationship of principal and agent subsists till the money so collected is actually remitted by the bank to its principal. See In re Ferrow s Bank Ltd.In re Brown Ex parte Plitt(2) and The Official Assignee Madras v. Rajam Iyerobserved as follows: “Where the debtor is to collect and remit there is confidence and trust. Where the debtor is to use and repay on demand there is no trust.” The important distinction between the two cases is the existence of the fiduciary relationship between the bank and the customer in the first case which entitles the customer to preferential payment in full on liquidation and the mere relationship of creditor and debtor in the second case. The second case will of course also exist where the relationship of principal and agent has terminated by payment of the money collected to the principal or his nominee or by purchasing a draft on another bank on his instructions. The mere fact that the money so collected by the bank has been mixed up with money of its own is immaterial so long as there is a fund on which the principal cestui que trust can lay his hands: See In re West of England and South Wales District Bank Ex parte Dale and Co.(1) and The Official Assignee Madras v. Rajam Iyeras follows: “The question does not appear to me to be what the rights of the defendants are but what the Tights of the bankrupt are in equity as well as law and whether a third person has an equitable right which prevents the Official Assignee from interfering. This is a perfectly well known and established principle of Bankruptcy Law and from the decided oases it appears that this principle has been extended to the oases of money advances for a special purpose and it appears to me that the present falls within the authority of the case before Lord Tenterden This is a new case but I think we must look to ascertain whether the bankrupts had an equitable right to use the money as against all persons. I think equity would have prevented them from using it had there been time to interfere and so the bankrupts bad not the equitable right but only a legal right to the possession of the money and therefore I am of opinion that the money would not pass to the assignees under the principle of Bankruptcy Law to which I refer.” So the crucial test is the right of the Hanuman Bank in equity to the money claimed by the appellants in these cases and whether the bank has only a legal right to the possession of the money and the appellants have an equitable right which prevents the Official Liquidator from interfering with those monies and annexing them to the general funds of the bank available for all creditors. The test laid down in The Alliance Bank of Simla Ltd. v. The Amritsar BankIn re Noakhali Union Bank Ltd.(7) and In re Calcutta Commercial Bank Ltd.(8) namely where the bank has collected money and issued the 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 an ordinary creditor is in our opinion not quite accurate and is subject to the exception created by a special express or implied agreement referred to already by us though we are not prepared to go so far as Achhru Ram J. did in In the matter of New Bank of India Ltd.and the new relationship of creditor and debtor took its place. But merely purchasing drafts on their own bank at Madras in the name of the appellants as per the instructions of the appellants to remit by demand drafts on Madras and receipt of such drafts by these appellants did not in our opinion terminate the relationship of principal and agent. No doubt as Mr. Swaminathan urged the collections made on behalf of the appellants were mixed up with the other funds of the bank by such purchase of the drafts but that will not do away with the relationship of principal and agent as already stated as the funds can be traced from the funds of this bank with the liquidator. It is also significant that the appellants in these cases presented their drafts to the Hanuman Bank Madras for payment and that they were returned unpaid with the obviously disingeneous endorsement “Awaiting funds. Present again” and the doors of the bank were closed when presentation was made again as requested. Surely equity will compel this bank to honour the draft issued by itself on itself and will not allow it to escape its responsibility by this kind of tactics. The essence of payment by cheque or draft on oneself is the understanding that it will be honoured. Otherwise it will be like giving a worthless piece of paper as representing a currency note or valuable security. In view of this finding we allow O.S.A. Nos. 85 and 949 set aside the order of Rajagopalan J. dismissing Appln. Nos. 454 and 12749 regarding the claim of the appellants for the payment of their dues under the drafts in full in preference to other creditors and allow the claim of Suganchand & Co. to the payment of Rs. 3235 2 6 in full by the Official Liquidator of the Hanuman Bank with interest at 6% per annum from 10 7 1947 till date of payment and costs throughout and direct payment of Rs. 1540 9 0 and Rs. 57 7 0 covered by the two dishonoured drafts in full to the Indian Mutual Life Association by the Official Liquidator of the Hanuman Bank with interest at 6% per annumfrom 10th July 1947 till the date of payment and costs Now we come to O.S.A. 849. This appeal stands on a different footing because of the different facts and has to be rejected in law. In this case the appellant the Canara Bank Ltd. had asked the Hanuman Bank Kumbakonam to collect a bill for Rs. 1000 sent to it and to remit the proceeds to them by a demand draft on Erode and the Hanuman Bank Kumbakonam had collected the bill and sent a demand draft on the Hindu Bank Ltd. Karur for Rs. 999 11 0 after deducting the commission of as. 5 to the Canara Bank and thus terminated the relationship of principal and agent as the draft complied with the directions of the Canara Bank and was issued on another bank namely the Hindu Bank Karur having nothing to do with the Hanuman Bank and the collected amount had been fully spent as per the directions of the principal in purchasing a draft and sending it. No doubt the Canara Bank had not specifically named the bank on which the demand draft was to be sent. But the sending of the demand draft on another bank in Karur would meet the requirements of the request by the principal. In The Alliance Bank of Simla Ltd. v. The Amritsar Bankthe Alliance Bank of Simla Delhi branch sent two bills for collection to the Gwalior branch of the Amritsar Bank and directed the Amritsar bank Gwalior to send “your drafts on realisation” and the Amritsar bank realised the the money and remitted it less commission by two drafts on the Delhi branch of the People s Bank Ltd. and the People s Bank Ltd. and the Amritsar Bank both went into liquidation before the drafts could be cashed. A Bench of the Lahore High Court consisting of Rattigan and Shadi Lal JJ. held that the Alliance Bank could rank in respect of these dishonoured drafts only as a creditor along with the other creditors and receive payment pari passu along with the other creditors and could not claim preferential payment in full. The facts here are similar and we are satisfied that the decision in the Alliance Bank case is sound though we may not agree with the reasoning therein. We hold in this case that in law and equity the Canara Bank is entitled in respect of this dishonoured draft only to be treated as a creditor and to receive payment pari pissu along with the other creditors of the Hanuman bank. The fact that the Canara Bank stated in their letter to the Hanuman Bank Kumbakonam “We shall thank you to collect the amount thereof in trust for us” will make no difference as in such a case of principal and agent the trust is always there in the fiduciary relationship imposed by law whether it is stated expressly or not. It is significant that the Canara Bank was paid in full by the Official Liquidator of the Hanuman Bank two sums of Rs. 106 9 6 and Rs. 105 5 3 collected by the Hanuman bank where the instructions of the Canara Bank were “We shall thank you to collect the amount thereof and remit the proceeds to our Erode office under advice to us”. That was because no draft was purchased by the Hanuman Bank on another bank and the collections utilised. No doubt no one can justify the dishonouring of the draft issued by the Hanuman Bank to the Canara Bank for Rs. 999 11 0 in favour of the Hindu Bank Karur or the disingeneous endorsement “No advice. Present again”. It may be as the learned Counsel for the appellant in this appeal urged that the appellant may have a remedy against the Hindu Bank Karur for dishonouring the draft drawn on it. But we are not concerned with that in this appeal but only with the request of the appellant in this appeal to be treated as a person entitled to payment in full as a preferential creditor of the Hanuman Bank Ltd. In this view this appeal deserves to be and is hereby dismissed with costs. The Official Liquidator will of course meet the costs of the Bank in these appeals and also pay the costs in the two appeals decided against the Hanuman Bank from the Bank s assets. Advocate s fee fixed at Rs. 200 in O.S.A. Nos. 99 and 849and at Rs. 100 in O.S.A. No. 849. 

Summary: Where the debtor is to collect &amp; remit there is confidence &amp; trust. Where the debtor is to use &amp; repay on demand, there is no trust There the claimants were Suganchand &amp; Co. They made a claim against the Hanuman Bank in liquidation, praying that they be treated as persons to be paid in full in preference to the ordinary creditors of the bank. Hanuman Bank had its head-quarters in Tanjore, &amp; branches in several places in the Madras State, like Madras, Kumbakonam, Thiruthuraipundi, Madurai, etc. It crashed, &amp; the headquarters suspended payment on 15-7-1947.The Madurai, Kumbako-nam, Thiruthuraipundi &amp; other branches of the Bank suspended payment only on 16-7-1947. Suganchatd &amp; Oo. sold some gooda to Messrs. Swami Foundry, Madurai for Rs. 3235-2-6 in April 1947, &amp; as directed by the vendees, sent the railway receipt with the bill for the above amount through the Madurai branch of the Hanuman Bank Ltd. for collection of the said amount from Swami Foundry, Madurai &amp; for remitting to them the amount so collected through a demand draft. The entire amount of Rs. 3235-2-6 was paid to the Madurai branch of the Hanuman Bank by Messrs. Swami Foundry on 10-7-1947, &amp; the Madurai branch issued a demand draft for the entire amount of Rs. 3235-2-6 on their Madras branch for payment at Madras.This demand draft reached Suganchand &amp; Co. &amp; it was presented to the Hanuman Bank, Madras, on 14-7-1947 through their bankers, the Bharat Bank, for collection. The Hanuman Bank was then about to close its doors, &amp; the draft was returned unpaid with the endorsement, “Awaiting funds; present again”.ISSUE BEFORE THE COURT:Whether the fiduciary relationship of principal &amp; agent or the jural relationship of creditor &amp; debtor will obtain, &amp; in what circumstances each of these relationships will obtain?RATIO OF THE COURT:The court observed after hearing both the learned counsels and looking into the submissions that the law relating to demand drafts dots not present any great difficulty. It is only the application of the law to the particular facts of each of these cases which causes some difficulty. A demand draft is, of course, a bill of exchange drawn by a bank on another bank, or by itself on its own branch, &amp; is a negotiable instrument not offending the Paper Currency Act or the Reserve Bank of India Act.It is very nearly allied to a cheque, the difference between it &amp; a cheque consisting largely in two facts that first is it can be drawn only by a bank on another bank, &amp; not by a private individual as in the case of cheques. Secondly, it cannot so easily be countermanded as a cheque, either by the person purchasing it, as by the drawer of a cheque or by the bank to which it is presented.The law regarding the rights of a purchaser of a demand draft is also well settled. A mere purchaser of a demand draft from a bank is only a creditor of the Bank, &amp; there is no fiduciary relationship between the bank which issued the draft &amp; the customer who took it. The ownership of the money paid for the purchase of the draft passes to the Bank, as it is one of the usual &amp; recognised banking transactions, &amp; the purchaser gets what he has bargained for, namely, a draft of the bank, the payment of which depends on the solvency of the head office at the time of the presentation of the draft. See In re Oriental Bank Corporation ; Ex parte Guillemin, (1884) 28 ch. 634 at p. 641 ; In re Travancore National &amp; Quilon Bank, A. I. R. (27) 1940 Mad 101; The Official Assignee v. Natesam Pillai, A. I. R. (27) 1940 Mad. 441 ; The Alliance Bank of Simla Ltd. v. Amritsar Bank, A. I. R. (2) 1915 Lah. 214; Indian Hume Pipe Co. Ltd. v. Travancore National &amp; Quilon Bank Ltd., I.L.R. (1943) Mad, 187; In re Noakhali Union Bank Ltd., 54 C.W.N. 744 and In re Calcutta Commercial Bank Ltd., 54 C. W. N. 747.The court observed that this court did not saw anything against the validity of such an agreement strictly restricted as stated above, &amp; applied only to cases where the bank has not accounted for the money collected by it on behalf of the principal, &amp; covered by the draft, by paying it out either to the principal or his nominee or by purchasing a draft on any other bank as per the instructions of the principal by paying the amount collected for that purpose. Such a restricted &amp; exceptional case would only amount to something similar to engaging a man to carry coins or currency notes in specie, paying him wages for such transmission, the only difference being that the man engaged will be the bank &amp; that the transmission charges will be much lower, &amp; that an instrument called the draft is used in the place of the coins or the currency notes. Of course, there must be the clearest proof that the Bank was not to use the sum for its own purpose, &amp; that the holder of the draft uses it only for the transmission of the money. Thus, if the draft is negotiated by the person getting it, in favour of another, the ordinary incidence of law will at once operate &amp; make the assignee only a mere; creditor of the bank, the relationship of principal &amp; agent having terminated.The important distinction between the two cases is the existence of the fiduciary relationship between the bank &amp; the customer in the first case which entitles the customer to preferential payment in full on liquidation, &amp; the mere relationship of creditor &amp; debtor in the second case. The second case will, of course, also exist where the relationship of principal &amp; agent has terminated by payment of the money collected to the principal or his nominee or by purchasing a draft on another bank on his instructions. The mere fact that the money BO collected by the bank has been mixed up with money of its own is immaterial so long as there is a fund on which the principal cestui que trust can lay his hands.The court contended that all the three appellants only wanted the demand drafts for the purpose of transmitting the money to themselves. None of them had any banking accounts, current or deposit, with the Hanuman Bank &amp; in the case of the Indian Mutual Life Association they had expressly declined to open an account with the Hanuman Bank. In the case of the Indian Mutual Life Association, it is also clear from the correspondence between the parties; &amp; especially the letter of the Hanuman Bank dated 30-5-1947, that the sending of the drafts was understood by the parties to be not a discharge of the bank’s obligation as agent for collection, &amp; that the proceeds of the drafts had to be realised by the Indian Mutual Life Association &amp; credited towards the premia collected by the Bank as its agent &amp; a receipt given.The drafts, also called cheques in the Bank’s correspondence, issued to the Indian Mutual Life Association &amp; to Suganchand &amp; Co., the appellants in O. S. A. Nos. 99 &amp; 85 of 1949 respectively, were issued by branches of the Hanuman Bank on the Hanuman Bank, Madras. This court is satisfied, on the evidence, that there was request by the Indian Mutual Life Association &amp; by Suganchand &amp; Co. to the Hanuman Bank, to send the collections by demand drafts on Madras, &amp; that the sending of the drafts on the Hanuman Bank, Madras, would satisfy the terms of that request, &amp; we rejected the contention on behalf of these appellants that the request could be complied with only by sending the demand drafts on another bank in Madras. The court observe that the non-charging of commission on the amount collected &amp; remitted to Suganchand &amp; Co. is of no significance. But this court hold that the Hanuman Bank was entitled to hold the moneys involved in these two appeals only in law, and that the appellants had an equitable right to the moneys, preventing the Official Liquidator from merging them with the general funds of the bank, as the appellants had not got what they had bargained for, namely, the collections made on their behalf, &amp; the bank had not been authorised to use the collections &amp; had not accounted for the collections, as a matter of fact, to the appellants, their principals, by handing them over to the appellants or their nominees, or to another bank for purchasing the demand draft and terminated the fiduciary relationship of principal &amp; agent.The bank had not admittedly handed over the funds either to the nominees of the appellants, or credited them to any accounts of the appellants in the bank &amp; thus terminated the relationship of principal &amp; agent. Of course, if the appellants &amp; their nominees had taken the moneys from the bank &amp; purchased drafts even on the Hanuman Bank, Madras, for the purpose of transmission, &amp; without any express agreement that it was solely for the purpose of transmission &amp; that the bank would be liable to pay the amount of the draft, in any event, at Madras, to the appellants, before being discharged from their liability under the draft, the appellants would only rank as creditors, along with other creditors, &amp; would not be entitled to preferential payment, but that would be because the fiduciary relationship as principal &amp; agent terminated the moment the money was paid over &amp; the new relationship of creditor &amp; debtor took its place.But merely purchasing drafts on their own bank at Madras in the name of the appellants, as per the instructions of the appellants to remit by demand drafts on Madras, &amp; receipt of such drafts by these appellants, did not, in our opinion, terminate the relationship of principal &amp; agent. No. doubt, as Mr. Swaminathan urged, the collections made on behalf of the appellants were mixed up with the other funds of the bank by such purchase of the drafts, but that will not do away with the relationship of principal &amp; agent as already stated, as the funds can be traced from the funds of this bank with the liquidator.It is also significant that the appellants in these cases presented their drafts to the Hanuman Bank, Madras, for payment, &amp; that they were returned unpaid with the obviously disingeneous endorsement “Awaiting funds. Present again”, &amp; the doors of the bank were closed when presentation was made again as requested. Surely equity will compel this bank to honour the draft issued by itself on itself, &amp; will not allow it to escape its responsibility by this kind of tactics. The essence of payment by cheque or draft on oneself is the understanding that it will be honoured, otherwise, it will be like giving a worthless piece of paper as representing a currency note or valuable security. DECISION HELD BY COURT:The court stated that with the request of the appellant in this appeal to be treated as a person entitled to payment in full as a preferential creditor of the Hanuman Bank Ltd. In this view, this appeal deserves to be &amp; is hereby dismissed with costs.The Official Liquidator will, of course meet the costs of the Bank in these appeals &amp; also pay the costs in the two appeals decided against the Hanuman Bank from the Bank’s assets. Advocate’s-fee fixed at Rs. 200 in O. S. A. Nos. 99 &amp; 85 of 1949 (each) &amp; at Rs. 100 in O. S. A. No. 89 of 1949.