Mukti Lal Agarwala vs Trustees Of The Provident Fund Of The Tin Plate Co. of India

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 123 to 127 and 135 of 1953

Decision Date: 14 February 1956

Coram: Vivian Bose, Syed Jaffer Imam, Chandrasekhara Aiyar

In the matter of Mukti Lal Agarwala versus the Trustees of the Provident Fund of the Tin Plate Company of India, the Supreme Court of India delivered its judgment on 14 February 1956. The bench that heard the appeal was composed of Justice Vivian Bose, Justice Syed Jaffer Imam and Justice N. Chandrasekhara Aiyar. The case is reported in the 1956 volume of the All India Reporter at page 336 and also appears in the 1956 Supreme Court Reports at page 100. The dispute arose under the Provincial Insolvency Act of 1920, specifically section 4, which deals with the insolvency of employees of a company who have certain sums standing to their credit in the company’s Provident Fund. The central question presented to the Court was whether those sums constituted property of the insolvent employees over which they possessed a present power of disposal, thereby making the amounts available for distribution among the creditors, and how the term “property” should be interpreted within the meaning of the Insolvency Act.

The factual backdrop involved six employees of the Tin Plate Company of India Limited who had been adjudicated insolvent. Each of these employees was a member of the company’s Provident Fund and had a specific amount credited to their individual accounts in that fund. The creditor of the insolvent employees filed applications under section 4 of the Insolvency Act seeking orders against both the company and the trustees of the Provident Fund, asserting that the amounts standing to the credit of the insolvents were the property of those insolvents, had vested in the court, and should therefore be brought before the court for distribution among the creditors. In response, the trustees contended that the amounts in each employee’s account represented contributions made jointly by the company and the employee, and that the corpus of the Fund was held in trust by the trustees. Accordingly, they argued that the sums did not constitute property of the insolvents over which the employees had any present power of disposal, nor were they debts owed to the insolvents. The trustees further maintained that, according to the rules governing the Provident Fund, the monies became payable to the employee or a family member only upon the occurrence of certain contingencies such as retirement, discharge, dismissal or death, and that until such contingencies occurred no enforceable right had vested in the insolvent. Additionally, the trustees submitted that the Official Receiver could not remove the trustees from their custody and control of the Fund. The Insolvency Court, after construing the rules of the Provident Fund, ruled in favour of the creditor. On appeal, the High Court reversed that decision, holding that under the Fund’s rules the insolvents possessed no present power of disposal over the credited sums and that the Fund’s assets were vested in the trustees. When the matter reached the Supreme Court, the Court observed that the rules clearly indicated a subscriber’s present interest in the Fund, even though actual payment might be deferred until a future contingency. The Court held that a subscriber retained a present right, title and interest in the amounts credited to his account, and that such interest was not dependent on a contingent event. Consequently, the amounts standing to the credit of a subscriber, even if payable only in the future, constituted a debt due by the company within the meaning of section 60 of the Code and were therefore liable to attachment and sale. The Court further affirmed that a person could not enter into an arrangement whereby his title would cease upon bankruptcy, as that would constitute a fraud upon the insolvency law, and that the estate’s assets remain subject to attachment by creditors in bankruptcy or judgment.

In this case the Court observed that, even when the rules of the Provident Fund specify that a nominee is to receive payment after the subscriber’s death, the fund nonetheless remains the property of the subscriber while it is in the nominee’s possession for the purpose of satisfying the subscriber’s debts. The Court explained that no present gift is created that takes effect immediately; consequently the subscribers cannot be said to have no right, title or interest in the fund, nor can their interest be described as contingent upon a possible future event that may or may not occur. The amount that stands to a subscriber’s credit, even though it may be payable only in the future, constitutes a debt owed by the company to that subscriber within the meaning of section 60 of the Code, and therefore it is liable to attachment and sale.

The Court further held that a person cannot enter into any arrangement or agreement whereby his own title is to cease in the event of bankruptcy, because such an arrangement would amount to fraud on the insolvency law. The liability of an estate to be attached by creditors on bankruptcy or judgment is an incident of the estate itself, and any attempt to deprive the estate of that incident by a direct prohibition would be invalid. Notwithstanding the specific provisions of the Provident Fund in the present case, the subscribers possess an interest in the monies that can vest in the Official Receiver upon their adjudication. The Court explained that the term “property” in the Insolvency Act is to be given its widest possible meaning, encompassing even property that may belong to or be vested in another person but over which the insolvent retains a disposing power that he may exercise for his own benefit. This broad definition clearly includes powers of appointment and the power of a Hindu father who acts as the managing member of a joint family.

The Court also noted that the fact that, on the date of adjudication, the insolvent could not transfer the property does not defeat the view that he has a vested interest in that property. The Court cited numerous authorities in support of this reasoning, including Banchharam Mojumdar v. Adyanath Bhattacharjee ([1909] I.L.R. 36 Cal. 936), Dugdale v. Dugdale ([1888] 38 Ch. D. 176), Ex parte Dever. In re Suse and Sibeth ([1887] 18 Q.B.D. 660), Hudson v. Gribble ([1903] 1 K.B. 517), D. Palaiya v. T. P. Sen and another (A.I.R. 1935 Pat. 211), Secretary, Burma Oil Subsidiary Provident Fund (India) Ltd. v. Dadibhar Singh (A.I.R. 1941 Rang. 256), Gajraj Sheokarandas v. Sir Hukamchand Sarupchand and another (A.I.R. 1939 Bom. 90), Anandrao alias Adkoba s/o Risaram-ji v. Vishwanath Watuji Kalar and others (A.I.R. 1944 Nag. 144), Ismail Jokaria & Co. v. Burmah Shell Provident Trust Ltd. (A.I.R. 1942 Sind 47), Bishwa Nath Sao v. The Official Receiver ([1936] I.L.R. 16 Pat. 60) and Sat Narain v. Behari Lal and Others ([1924] 52 I.A. 22). The judgment was delivered in the civil appellate jurisdiction concerning Civil Appeals Nos. 123 to 127 and 135 of 1953, on appeal from the judgment and decree dated 12 May 1950 of the Patna High Court in appeal from Original Orders Nos. 266, 267, 268, 271, 274 and 280 of 1948 arising out of the order dated 26 June 1948 of the Court of the District Judge, Purulia in insolvency cases Nos. 1/44, 13/46, 12/46, 10/46 and 44/41, respectively.

In June 1948 the Insolvency Court of the District Judge at Purulia heard several insolvency proceedings identified as Cases No. 1/44, 13/46, 12/46, 10/46 and 44/41. The appellant was represented by counsel S. C. Isaacs together with assisting counsel P. K. Chatterjee. The respondents were represented by counsel Bhabananda Mukherji, S. N. Mukherji and B. N. Ghose. The judgment was delivered on 14 February 1956 by Justice Chandrasekhara Aiyar. The appeals before this Court were filed by a creditor, Mukti Lal Agarwala, who claimed the debts of six employees of the Tin Plate Co. of India Limited who had been adjudged insolvent. Each of those employees was a member of the company’s Provident Fund and each had a balance standing to his credit in that fund.

The creditor sought, under section 4 of the Insolvency Act, a court order declaring that the amounts credited to the insolvent employees in the Provident Fund constituted their property, had thereby vested in the Court, and should be made available for distribution among the general creditors. He further requested that the monies be brought under the control of the Court. The petitions were primarily directed against the Tin Plate Co. Limited and the trustees of the Provident Fund.

In response, the trustees and the company contended that the balances reflected contributions made jointly by the employer and the employees and that, by operation of the Fund’s rules, the corpus formed a trust held by the trustees. Accordingly, they argued that the amounts were not the property of the insolvent employees, that the trustees possessed the sole power to dispose of the funds, and that the balances did not represent debts owed to the insolvents. They further explained that, according to the Fund’s governing rules, the monies became payable to an employee or a member of his family only upon the occurrence of specific contingencies such as retirement, discharge, dismissal or death. Until any of those events occurred, no enforceable right had accrued to the insolvent employee. The respondents also maintained that the Official Receiver could not remove the trustees from custody and control of the Fund.

The Insolvency Court, sitting as the District Judge’s Court at Purulia, examined the petitions and, after interpreting the Provident Fund rules, concluded that the balances shown in the A & C accounts in the name of each insolvent amounted to property over which the individual had a present power of disposal. Consequently, the Court held that those amounts were available for distribution among the creditors in accordance with the Insolvency Act.

The trustees of the Fund and the Tin Plate Company appealed this decision to the Patna High Court. The High Court, through Judges V. Ramaswami and Sarjoo Prasad, reversed the lower court’s finding. The learned judges held that the Fund’s rules did not confer any present power of disposal on the insolvent employees, and that the Fund was, in effect, vested in the trustees. Because the aggregate amount involved in the several petitions exceeded Rs 20,000, the High Court granted leave to the creditor to challenge the decision before this Supreme Court.

The appellant’s counsel then advanced three principal contentions: (a) that the balances credited to each insolvent, although payable at a future date, constituted his property and that the issue of present disposal power was necessary to determine whether they fell within the definition of “property”; (b) that despite the Fund’s rules describing a trust and trustees, there was no actual transfer of ownership from the employees to the trustees and thus no trust existed; and (c) that even assuming a trust was created, the beneficial interest remained with the employees and that interest would vest in the Official Receiver for the benefit of the creditors in insolvency. The Court proceeded to examine the validity of these submissions.

The appellants consisted of three parties. Their first contention was that the sums credited to each insolvent employee in the Provident Fund constituted his property, even though the amounts were payable at a future date, and that the issue of a present disposing power arose only for the purpose of bringing such sums within the definition of “property”. Their second contention asserted that although the Fund’s rules referred to a trust and to trustees, in reality the employees had not transferred ownership to the trustees and therefore no trust existed. Their third contention maintained that, assuming a trust had been created over the Fund, the beneficial interest nevertheless remained with the employees and that this interest would pass to the Official Receiver for the benefit of the creditors in any insolvency proceeding. The Court set out to examine the validity of these three positions.

The Provident Fund had been established on 1 January 1929. The governing rules and regulations were contained in a deed of trust dated 15 July 1930, identified as Exhibit 1, and were subsequently amended in certain respects by supplementary deeds; the complete set of rules is reproduced in the appendix to this judgment. Under Section 28(2) of the Provincial Insolvency Act, when an order of adjudication is made, the entire property of the insolvent vests in the court or in a Receiver and becomes divisible among the creditors. Section 28(5) provides that property exempted by the Code of Civil Procedure or any other enactment then in force is not subject to attachment and sale. Section 2(d) of the same Act defines “property” to include any property over which a person has a disposing power that he may exercise for his own benefit. The Court explained that such a disposing power may arise, for example, from a power of appointment under a will or settlement, or from the authority of a Hindu father, as manager of a joint family, to sell his sons’ shares in family property to satisfy his debts.

The Court also referred to clause (b) of sub-section (2) of Section 38 of the English Bankruptcy Act, 1914, which describes the capacity to exercise all powers over property that the bankrupt could have exercised for his own benefit at the commencement of bankruptcy or before his discharge, except the right of nomination to a vacant ecclesiastical benefice. The central question, therefore, was whether the amounts standing to the credit of the various subscribers who had been adjudged insolvent were subject to division among their creditors. If the Court were to determine that such amounts were indeed divisible, they would vest in the appropriate authority – either the court or the Official Receiver – and become available for distribution to the creditors.

The Court examined whether the sums that were standing to the credit of the various subscribers in the fund, who had been adjudged insolvent, could be claimed by the court or by the Official Receiver and thereby become available for distribution. The principal issue was to determine whether those subscribers possessed any present interest in the monies at the relevant time. To resolve this, the Court referred to Section 60 of the Civil Procedure Code, which enumerates the categories of property that are liable to attachment and sale in execution of a decree and distinguishes them from items that are exempt. The first part of Section 60 reads as follows: “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 judgmentdebtor, 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 Court observed that the exempted items listed in the provision did not apply to the present case. It also noted that Clause (k) of the relevant statutory scheme dealt with funds governed by the Provident Fund Act, while Clause (m) referred to “an expectancy of succession by survivorship or other merely contingent or possible right or interest”. Having set out the statutory backdrop, the Court turned to the specific rules governing the Provident Fund to ascertain the nature of the members’ interest in the fund’s monies.

The Court then proceeded to outline the operative rules of the Fund. Rule 2 defined the object of the Fund as the accumulation of sums for the benefit of the company’s employees who had joined the Fund, aiming to provide a future provision for them and their families. According to Rule 3, any employee who had completed at least one year of service with the company became eligible for membership. Rule 4 allowed each member to make a declaration regarding the disposition of the Fund in the event of death; the Court emphasized that such a declaration could be cancelled or altered at any time. Under Rule 5, if a declaration became obsolete, the trustees were authorized to determine the appropriate next-of-kin and to make payment to that person, which payment would constitute an absolute discharge of the Fund’s liability. Rule 6 permitted every member to contribute any amount not exceeding one-twelfth of his or her earnings, and such contributions were to be credited in the member’s name to an account designated as the ‘A’ Account. At the conclusion of each year, the company was required to match the member’s contribution by crediting an equivalent amount to a separate ‘B’ Account opened in the member’s name, as provided by Rule 7(B). Rule 7(B) also contemplated an increased contribution by the company in certain specified circumstances, and this additional sum was to be placed in a ‘C’ Account also opened in the member’s name. Rule 8 directed that the monies of the Fund be invested by the trustees in accordance with the provisions prescribed from time to time under the Indian Income-Tax (Provident Funds Relief) Act, 1929. Finally, the Court noted that each year the balances of the A, B and C Accounts were required to be …

In describing the operation of the Fund, the Court explained that the accounts were to be compiled each year by including the income earned from investments, calculated in accordance with prescribed formulas. Following this, the Court turned to the provisions embodied in Rules 10, 11, 12, 13, 15, 16, 17 and 18, which it regarded as particularly significant. The Court observed that, although the Fund was created to provide for employees and their families in the future, membership was entirely voluntary and arose only when an employee made an application to the Company; the trustees had no role in admitting members. The Court noted that the trustees possessed solely the responsibilities of managing the Fund and exercising control over its assets, as set out in Rule 1, and that no transfer of ownership of the Fund occurred as a result of membership. Contributions made by members were characterized as non-compulsory, and while the trustees were entitled to invest the Fund’s monies, the subscriber did not relinquish all control over the Fund. Specifically, the subscriber could designate the person who would receive the monies upon his or her death, and such a designation could be altered at any time. The Court further explained that if an employee’s service terminated after fifteen years, the subscriber became entitled to receive the full balances in the A, B and C accounts. If the employee retired with the Company’s consent before completing fifteen years of service, the subscriber could withdraw the balances in the A and C accounts together with a portion of the B account. In cases of dismissal, misconduct, or resignation without the Company’s consent before fifteen years of service, the subscriber remained entitled to the amounts in the A and C accounts. The Court emphasized that the provision in Rule 16, which directed that upon a member’s death the amount be paid to the next-of-kin, operated on the premise that the property continued to belong to the subscriber. The Court stated that questions concerning whether, upon a declaration becoming obsolete or a member becoming insane or demented, the trustees might at their absolute discretion pay the monies to a person they deemed the next-of-kin or otherwise suitable, were not raised for determination in these appeals. The Court observed that retirement or death were not speculative possibilities but inevitable contingencies that would occur at some point, and that dismissal for misconduct or resignation without consent before fifteen years would precipitate an earlier payment, as prescribed in Rule 11. From these rules, the Court concluded that a subscriber possessed a present interest in the Fund, even though the monies might be payable to the subscriber, a nominee or the subscriber’s heirs only in the future. Moreover, even where a subscriber had named a nominee to receive the payment after his death, the Fund remained the subscriber’s property, held by the nominee only for the purpose of satisfying the subscriber’s debts, because no immediate gift had taken effect. Consequently, the Court found it difficult to accept any argument that subscribers lacked any right, title or interest in the Fund, or that any such interest was dependent on a contingent event that might never occur.

It was observed that a subscriber’s right to the fund is not merely hypothetical; the right exists even though its actual receipt may depend on a future event that might never happen. Accordingly, the amount that is shown as credit to a subscriber, even if it is to be paid at a later date, is considered a debt owed by the Company to that subscriber within the meaning of section 60 of the Code, and therefore it is subject to attachment and sale. This proposition was supported by reference to Banchharam Majumdar v. Adyanath Bhattacharjee (1). The respondents heavily relied upon Rule 17, which states that when a debtor is adjudicated as insolvent, the sums standing to his credit in the Fund shall be liable to forfeiture to the Fund, as reported in [1909] I.L.R. 36 Cal 936. The Court held, however, that any condition or agreement imposing such forfeiture is void. Under Indian law a person may devise property or its income by will to a donee subject to a condition that the donee’s interest terminates on bankruptcy, with the property then passing to another person; if insolvency occurs, the property does not pass to the Official Receiver. In contrast, a person cannot contract or agree that his own title to property will cease upon his own bankruptcy, because such an arrangement would constitute a fraud upon the insolvency law. This principle was first expressed in the English case Wilson v. Greenwood (1), which explained that while a property owner may qualify the interest of his alienee by a bankruptcy-triggered condition, he may not qualify his own interest by a similar condition that would prejudice his creditors. The same rule was reiterated in Re Dugdale (2), where Justice Kay observed that the liability of an estate to be attached by creditors in bankruptcy is an inherent incident of the estate, and no direct or indirect condition can deprive creditors of that incident. He analogized that a testator who, after granting a fee-simple estate to a beneficiary, attempts to exempt that estate from bankruptcy laws, would create an inoperative provision. This view is likewise reflected in Williams on Bankruptcy at page 293, which states that an owner of property cannot, by contract or otherwise, condition or control his own interest in the event of his own bankruptcy to the prejudice of his creditors.

The Court observed that the expression “event of his own bankruptcy to the prejudice of his creditors” encapsulated the principle that a testator cannot condition his estate to evade the operation of bankruptcy law. The Court considered it unnecessary to recount every decision that had been cited and relied upon by counsel on either side of the argument. Nevertheless, the Court chose to discuss a limited number of authorities that were directly relevant. The English authorities placed reliance upon by counsel for the appellant, the Court noted, did not provide substantial guidance for the issues before it. In the case of Ex parte Dever, the matter was not elaborated. In re Suse and Sibeth [1887] 18 Q.B.D. 660 represented a situation involving a contingent interest that depended merely on a possibility, and therefore did not align with the present dispute. The decision in Hudson v. Gribble [1903] 1 K.B. 517 addressed an entirely different question. The Court then described a scheme devised by a Municipal Corporation under which employees were required to contribute a certain percentage of their salaries to a fund intended to promote thrift among officers and servants. The contributions were to be deducted periodically from their wages. The Court explained that the question of whether such contributions were exempt from income-tax under the first rule of section 146 of the Income-Tax Act, 1842, was answered in the negative. The issue turned on whether the contributions qualified as “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.” The Court quoted Lord Justice Vaughan Williams, who at page 525 observed that the sums contributed never ceased to be the property of the persons whose salaries were deducted. Likewise, Lord Justice Stirling, at page 528, declared that “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 judges referred to the entitlement of subscribers to recover their contributions upon retirement. However, the Court warned that these observations were tied to specific language in a particular Act of Parliament and to rules made under a Corporation Act, and that such general statements should not be extracted from their context and applied to different facts or language.

Turning to Indian jurisprudence, the Court examined the decision in D. Palaiya v. T. P. Sen and another [A.I.R. 1935 Pat. 211], where the rules of a provident fund established by the Tata Steel Company were similar to those under consideration. In that case, the forfeiture clause was interpreted to apply only to the portion of the members’ credit contributed by the company, and it was understood to be inapplicable to the contributions made by the subscribers themselves. The Court also referred to Secretary, Burma Oil Subsidiary Provident Fund (India) Ltd. v. Dadibhar Singh [A.I.R. 1941 Rang. 256], which held that the vesting of the fund could not be predicated on the existence of a trust created in favour of the trustees. Even assuming such a trust, the decision did not resolve the fate of the beneficial interest. The Court reproduced the pertinent observation from that judgment: “The forfeiture does not vest the money in the trustees, the money having already vested in them.” This statement underscored that the forfeiture mechanism did not create a new vested right in the trustees, because the money was already vested. The Court therefore concluded that the cited Indian authorities did not support extending the forfeiture provision to the subscribers’ own contributions, and that the principles articulated in the earlier English cases could not be straightforwardly transplanted onto the present factual matrix.

The Court observed that the term “debt” referred to in Section 60 and in Order 21, Rule 46 of the Civil Procedure Code signified an actually existing, perfected and absolute liability, not merely a sum of money that might become payable in the future or whose payment depended on uncertain contingencies. The Court held that a judgment-debtor could not have the money attached as a “debt” within the meaning of those provisions. The Court further noted that the decision of Beaumont, C.J., and Rangnekar, J., in Gajraj Sheokarandas v. Sir Hukamchand Sarupchand and another was not applicable, because in that case the articles of the East India Cotton Association expressly provided that all moneys received from its members were under the absolute control of the Association and could be used by it as if the moneys belonged to it absolutely, and the deposits were also subject to certain liens. Moreover, the deposit, together with interest, was repayable to the member on his ceasing to be a member, subject to the liability to forfeiture and the satisfaction of the liens. The Court therefore concluded that the factual matrix in the present dispute was materially different. The Court also referred to the case of Anandrao alias Adkoba s/o Risaramji v. Vishwanath Watuji Kalar and others, where the money ceased to belong to the employee and the title passed to the trustees. In contrast, the Court distinguished the Karachi decision reported in Ismail Jakaria & Co. v. Burmah-Shell Provident Trust Ltd. on the ground that, in that case, the money had not vested in the trustees but was merely handed over to them for management, a situation that did not obtain here. The learned counsel for the respondents heavily relied on Bishwa Nath Sao v. The Official Receiver, arguing that property within the meaning of the Insolvency Act could exist only if the insolvent possessed a present absolute power of disposal over it. The Court rejected this argument, pointing out that the Full Bench decision interpreting the Privy Council judgment in Sat Narain v. Behari Lal held only that, upon the insolvency of a father, his power to sell his sons’ shares in joint-family property to discharge an obligation vested in the Official Receiver, although the shares themselves did not vest in the Official Receiver. The Court therefore found that, notwithstanding the rules of the Fund, the subscribers possessed an interest in the monies that could vest in the Official Receiver upon adjudication. Even if the deed creating the Fund were regarded as a trust deed, the Court emphasized that no ownership had been transferred to the trustees; the trustees possessed merely the right of management and control. The subscribers who had joined the Fund, however, unquestionably held a beneficial interest, and that beneficial interest would vest in the Official Receiver in the event of insolvency.

The Court observed that the provision in section 60, which provides for attachment and sale of “property liable to attachment and sale … whether the same be held in the name of the judgment-debtor or by another person in interest for him or in his behalf,” must be given a wide interpretation. It cited authorities such as A.I.R. 1944 Nag. 144, [1937] I.L.R. 16 Patna 60, A.I.R. 1942 Sind 47 and [1924] L.R. 52 I.A. 22, in which the learned Judges of the High Court had held that the term “property” in the Insolvency Act required that the insolvent possess an absolute and unconditional present power of disposal over the property. With great respect, the Court disagreed with that narrow view, holding that the word “property” should be understood in its broadest sense to include property that may belong to or be vested in another person but over which the insolvent retains a disposing power that he may exercise for his own benefit. The Court noted that this broader meaning naturally encompasses powers of appointment and the authority of a Hindu father who is the managing member of a joint family. It further held that the fact that, on the date of adjudication, the insolvent could not effect a transfer of the property did not defeat the conclusion that the insolvent retained a vested interest in it.

The Court then referred to section 56(3) of the Provincial Insolvency Act, which provides that when a court appoints a receiver it may remove the person in possession or custody of the property, “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.” The Court held that this provision was irrelevant to the point under consideration. It explained that whenever the receiver could take possession or custody, the person then in possession could be evicted; and even where possession could not be taken, the insolvent’s right would still vest in the Official Receiver.

The judgment then turned to the structure of the Fund, describing three separate accounts: Account A, which represented monies contributed by each subscriber; Account B, which consisted of monies paid by the Company; and Account C, which was a bonus or deferred-wage component. The learned counsel for the appellant limited the relief sought to the amounts credited to each subscriber in Accounts A and C, conceding that the monies in Account B would be treated differently. The Court noted that even in the Insolvency Court the creditor concerned himself only with Accounts A and C. Initially, Mr Isaacs argued that he was entitled to an order directing that the monies in Accounts A and C be transferred to the Insolvency Court, but he later withdrew that claim. For the respondents, it was submitted that under section 10 of the Employees’ Provident Funds Act, 1952, which had come into force after the proceedings were commenced, the situation was different, a contention that the Court indicated lay beyond the scope of the present proceedings.

In this case the Court observed that there could be no attachment of the funds, and noted that that question lay outside the matters that the present proceedings were called upon to decide. The Court explained that once it is determined that the right, title and interest of the insolvent persons in the A and C accounts of the Provident Fund vest in the Official Receiver, the Receiver, acting under the directions of the Insolvency Court, must take the steps necessary to realise those amounts in whatever manner the law permits. The learned counsel for the respondents then produced a document that listed each respondent’s service status, indicating which respondents were still employed and which had been discharged, together with their dates of appointment and the dates on which they joined their posts. According to that list, Mohibulla, Anjab Alli and Hasimulla, who were insolvent respondents in Civil Appeal No 124, Civil Appeal No 127 and Civil Appeal No 126 respectively, had all been discharged from service. By contrast, A M Joseph, Rasid Alli alias Tasim Alli and Baldev Singh, who were respondents in Civil Appeals No 135, No 125 and No 123, had joined the Fund in 1933, 1932 and 1936 respectively and were still in service at the time of the hearing. The Court consequently held that the appeals were partly allowed. It ordered a declaration that the right, title and interest of the aforementioned insolvent persons in the sums standing to their credit in the A and C accounts would vest in the Official Receiver. In all other respects the appeals were dismissed. The Court further directed that the Tin Plate Company, which was respondent No 2, should pay the appellant his costs incurred both in these proceedings and in the High Court, but that the costs awarded by this Court would be limited to one set.

After giving its directions, the Court attached an Appendix consisting of the Indenture dated the fifteenth day of July, one thousand nine hundred and thirty, executed between the Tinplate Company of India Limited, a joint-stock company with limited liability incorporated under the Indian Companies Act and having its registered office at No 4, Bankshall Street, Calcutta, and the trustees identified as Harry Douglas Townend, Charles Roland Hatfield and James Percy Ainscough, all of the same address, together with any other persons named in the Schedule or who might subsequently agree to become parties to the Indenture. The Indenture recorded that the Company had decided, effective from the first day of January, one thousand nine hundred and twenty-nine, to establish a Provident Fund for the benefit of its employees, and that contributions from employees would be accepted from that date. For the administration and regulation of the Fund the Company had framed a set of rules and regulations. The document concluded with the formal witness clause, stating that the parties had agreed that the Fund would be governed by the specified rules and regulations set out in the following sections.

Regulation 1 states that the fund shall be designated as “THE PROVIDENT FUND OF THE TIN PLATE COMPANY OF INDIA LIMITED.” Management of the fund, together with authority over its assets, shall be placed in the hands of the Trustees, who are required to perform their duties without receiving any remuneration. Regulation 2 provides that the purpose of the fund is to accumulate, on behalf of employees who have become members, sums of money that will serve as a future financial provision for those employees and for their families. Regulation 3 explains that every employee of the Company, except for those employees occupying the higher grades of pay who may, at the discretion of the Trustees, be excluded, shall become eligible to join the fund after completing one year of service with the Company. To become a member, an employee must submit a written application to the Company on the prescribed form, and the Company must then give the applicant a written notice confirming inclusion as a member. Regulation 4 requires that each application be accompanied by a declaration executed on the prescribed form, signed by the applicant in the presence of two witnesses who are unrelated to the applicant. This declaration must specify how any money standing to the applicant’s credit in the fund shall be dealt with in the event of the applicant’s death while a member. If a member later wishes to cancel the earlier declaration, the member may do so by delivering to the Company a revised or substituted declaration, signed and witnessed in the same manner as the original, and expressly cancelling and nullifying all prior declarations that the member had lodged with the fund. Regulation 5 provides that, should a declaration made under Regulation 4 become obsolete, the Trustees shall have full discretion to determine the disposition of any sums standing to the credit of a deceased member, and no person shall be recognized as having any claim to those sums except those identified by the Trustees or their duly appointed delegate after a satisfactory enquiry. The Trustees or their delegate shall act as the sole judge of the next-of-kin of the deceased, and any payment made by the Trustees to the persons identified shall constitute an absolute discharge of the Trustees from any further liability. Regulation 6 sets that each member may contribute a definite proportion of his or her earnings not exceeding one-twelfth of such earnings in any year; the contribution shall be deducted from the member’s earnings in monthly or weekly instalments. Each contribution shall be credited to an account opened in the member’s name, designated as the member’s “A Account.” For the purpose

In this case the Court clarified that, for the purpose of the fund, the term “earnings” was to be interpreted narrowly as the monthly or weekly sum paid to an employee as wages. The Court expressly excluded from that definition any accretions or perquisites, including acting allowance, commissions, bonus payments, overtime, messing charges, housing allowance, lodging money, travelling expenses and any other similar payments. Each member was permitted to contribute a definite proportion not exceeding one-twelfth of his or her earnings during any one year, and such contributions were to be deducted from the employee’s earnings in monthly or weekly instalments. The contributions thus made were to be credited to an account opened in the name of each member and designated as the member’s “A” Account. The Court further observed that, on or as at the thirty-first day of December each year, the company was required to credit to a second account, opened in the name of each member and designated as the “B” Account, a sum equal to the amount contributed by that member to his or her “A” Account during the year. The company retained the liberty to make additional contributions to the “B” Account as may be necessary for the purposes of Rule fourteen. In addition, the Court explained that if the net dividend paid by the company on its ordinary share capital for any financial year was at a rate of not less than seven and a half per cent, the company was to pay a further sum to the fund. Unless the company decided to allocate that further sum to a separate fund, the amount was to be paid into a third account opened in the name of each person who was a member on the thirty-first day of December of that financial year, the account being designated as the member’s “C” Account. The amount of the further sum was to be determined according to a scale based on the rate of the net dividend. The scale provided that a net dividend of not less than seven and a half per cent but not exceeding eight and three-quarters per cent entitled the member to a payment of one week’s wages; a dividend exceeding eight and three-quarters per cent but not exceeding eleven and one-quarter per cent entitled the member to two weeks’ wages; a dividend exceeding eleven and one-quarter per cent but not exceeding thirteen and three-quarters per cent entitled three weeks’ wages; a dividend exceeding thirteen and three-quarters per cent but not exceeding sixteen and one-quarter per cent entitled four weeks’ wages; a dividend exceeding sixteen and one-quarter per cent but not exceeding eighteen point one per cent entitled five weeks’ wages; a dividend exceeding eighteen point one per cent but not exceeding eighteen point seven-five per cent entitled six weeks’ wages; and for each additional two and a half per cent above twenty-one point one per cent, an additional week’s wages was to be added. For the purpose of this calculation the Court defined “one week’s wages” as follows: for a worker who received daily wages, one week’s wages meant six times his daily rate of pay as of the thirty-first day of December of the relevant financial year; for a worker who received monthly pay, one week’s wages meant one fifty-second part of twelve times his monthly rate of pay as of the same date. The Court further directed that the payment into each member’s “C” Account in accordance with these provisions was to be made as soon as conveniently possible after the holding of the annual Ordinary General Meeting of the company at which the net dividend in question was finally declared and ascertained.

The trustees were required to adhere to the provisions then in force under the Indian Income-tax (Provident Funds Relief) Act of 1929. On or as soon as practicable after the thirty-first day of December each year, the trustees were to determine the amount standing to the credit of each member in his ‘A’, ‘B’ and ‘C’ accounts as of that date. For that purpose a general account of the fund was to be prepared, showing the assets of the fund together with all receipts, payments, dealings and transactions that occurred during the calendar year ending on that December thirty-first day; this period was referred to as the “period of account”. The general account was to be divided into three separate revenue accounts, namely the ‘A’ Revenue Account, the ‘B’ Revenue Account and the ‘C’ Revenue Account. The ‘A’ Revenue Account was to be credited with all income accrued or profits realised during the period of account from investments that represented the monies lying to the credit of the members’ ‘A’ accounts, as well as any appreciation of such investments, if any. The ‘A’ Revenue Account was to be debited with any losses arising from depreciation of those investments and with all sums paid during the period in respect of interest on contributions to retiring members or to the representatives of deceased members, as previously provided. The ‘B’ Revenue Account was to be credited with all forfeits and with all income accrued or profit realised during the period of account from investments representing the monies lying to the credit of the members’ ‘B’ accounts, together with any appreciation of such investments, if any. The ‘B’ Revenue Account was to be debited with any losses due to depreciation of those investments and with all expenses of the fund. The ‘C’ Revenue Account was to be credited with all income accrued or profit realised during the period of account from investments representing the monies lying to the credit of the members’ ‘C’ accounts, with any appreciation of those investments, if any, and with all interest received by the trustees or withdrawals made under Rule 18. The ‘C’ Revenue Account was to be debited with any losses arising from depreciation of those investments. After completing the three revenue accounts, the balance of each – the ‘A’, ‘B’ and ‘C’ Revenue Accounts – was to be appropriated to the corresponding ‘A’, ‘B’ and ‘C’ accounts of the members in proportion to the amounts standing to the credit of their respective accounts at the close of the period of account. The trustees retained the discretion, however, to disregard any sum standing to the credit of any member in his ‘A’, ‘B’ or ‘C’ revenue account, provided that the amount disregarded did not exceed a prescribed rupee limit, and they could also carry forward to the next period of account any portion of the balance of the ‘A’ or ‘B’ revenue accounts that was not required to meet the obligations for that period.

In this case the Court observed that when the revenue account or the “C” Revenue account did not contain sufficient funds to discharge a complete one-half percent on the total amount standing in the “B” or “C” accounts, as the situation required, the credit of the “A” account could be applied to meet the shortfall for all members. The Court further provided that, for the purpose of determining the credit balance in a member’s “C” account, any sums withdrawn under Rule 18 on which the member was not liable to pay interest to the Fund must be deducted from that “C” account before the proportionate allocations were calculated. The Court then explained that, for the revenue account, the Trustees were required to value the Fund’s investments and securities, and that, in their opinion which was to be final and conclusive, any appreciation or depreciation that had occurred since the date of purchase—or, if a general account had been taken after purchase, since the date of the last preceding general account—had to be credited or debited to the revenue account as if it were a realised profit or loss. Notwithstanding the provisions of Rule 9(1), the Court held that the Trustees possessed an unfettered discretion to, in the interest of the members as a whole, prepare a general account of the Fund’s assets at any date in any year, either in addition to or instead of the usual 31 December accounting, and that the members’ “A”, “B” and “C” accounts would be adjusted accordingly. The Court clarified that, when a general account was prepared under Rule 9(2), the expression “the period of account” used throughout the rules was to be understood, where context allowed, as the specific period covered by that particular general account taken under Rule 9(2). Regarding retirement benefits, the Court stated that a member who retired with the consent of the General Manager before completing fifteen years of service was entitled to receive the entire balance standing in his or her “A” and “C” accounts together with one-fifteenth of the balance in the “B” account for each year of service actually completed. Conversely, if a member left before completing fifteen years because of dismissal for misconduct or resignation without the General Manager’s consent, the Court held that the member was to be paid only the balances then standing in the “A” and “C” accounts. Finally, the Court declared that any remaining balance in a member’s “B” account after payment of amounts due under the retirement rule, and the whole balance in the case of dismissal or resignation as described, would be forfeited to the Fund and transferred to the “B” Revenue account.

Rule 13 provided that when a member’s service terminated in any manner after the member had completed more than fifteen years of service, the member was entitled to receive the full balance that existed in both the “B” account and the “C” account at the time of termination. For the purpose of calculating the length of service under the preceding rules, only continuous service was to be counted, and the period of continuous service was to be measured from the date on which the employee originally entered service or re-entered service after any break.

Rule 14 dealt with a situation where the value of the securities underlying a member’s “A” account had declined. If, because of such depreciation, the amount that a member or the member’s representatives could receive from the “A” account was less than the total contributions that had been made to that account, the company was authorized to make an additional, contingent contribution to the fund equal to the shortfall, so that the member would receive the full amount of his or her contributions.

Rule 15 authorised the trustees, upon being satisfied that a member had become insane or otherwise incapable of managing his or her own affairs, to make a payment out of the monies standing to the member’s credit in the fund. Such payment could be made at any time, or at several times, to the person or persons that the trustees in their absolute discretion considered appropriate to act on behalf of the incapacitated member. The rule expressly excluded the monies that might be forfeited under Rule 17; those forfeited sums were to be dealt with by the trustees according to their absolute discretion under that rule.

Rule 16 prescribed the distribution of a member’s balances on death while the member was still employed by the company. Upon the death of a member, the total amounts standing in the member’s “A”, “B”, and “C” accounts were to be paid to the person or persons whose names appeared in the declaration form signed under Rule 4. If no such declaration existed, the payment was to be made to the individual or individuals who could be established as the member’s next-of-kin in accordance with Rule 5.

Rule 17 set out the exclusive rights of members and their designated beneficiaries to the fund’s monies. It stated that a member could claim the monies standing to his or her credit only as provided by these rules, and that no other person had any right to those monies except the member himself, the persons nominated in the declaration under Rule 4, or the next-of-kin identified under Rule 5. Any assignment by a member of the sums that would otherwise be payable, whether by outright transfer or by way of charge, was held to be void. Furthermore, if a member attempted such an assignment, was adjudicated insolvent, or if a court order directed the trustees to pay the member’s credit to any third party through attachment or any other legal process, the monies that would have become payable to the member at that time were to be treated as forfeited to the fund, subject to the trustees’ absolute discretion to use those sums for the benefit of the member or his or her dependents.

The Court observed that any assignment, insolvency or attachment affecting a member’s credit in the Fund would cause the amount to be forfeited to the Fund, provided that the Trustees, at their absolute discretion and without any legal duty, might nevertheless decide to pay and apply such amounts for the benefit of the member or his or her dependents and relatives. Rule 18 stipulated that Trustees were not to allow members to withdraw the money standing to their credit, except that withdrawals from a member’s ‘C’ account could be permitted on special grounds, subject to the conditions laid down by the Indian Income-Tax Act and the rules made thereunder, as they existed from time to time. Rule 19 required that the Fund always have at least three Trustees. Under Rule 20, whenever a Trustee died, resigned, became incapable of acting, or permanently left India, the Company was authorized to appoint one or more persons in his place as Trustees. Rule 21 provided that no copy of a member’s account could be furnished to the member, although the member was entitled to inspect the account in the Fund’s books at reasonable times. These provisions together formed the operative framework for the administration of the Provident Fund as detailed in the judgment.

The judgment further explained that the Rules governing the Fund could be altered, amended, added to or substituted by the Company and the Trustees at any time, without reference to the parties or any third party, as set out in Rule 22. However, if any addition or alteration curtailed the rights of members or increased their obligations, a member could, by written request, withdraw from the Fund and cease to be a member, thereby being paid the money standing to his or her credit, provided that such amount had not already been forfeited under Rule 17. The entitlement to the withdrawal was calculated as the portion the member would have received had he or she retired from the Company’s service with the consent of the General Manager. Any alteration or amendment had to be notified in writing to the parties responsible for recognizing the Fund under the Indian Income-Tax (Provident Fund Relief) Act, 1929. Rule 23 allowed the Company, at its discretion, to dissolve or terminate the Fund, in which event it would wind up the Fund and pay all members the monies standing to their credit, provided those monies were not forfeited under Rule 17 A, B or C. Finally, Rule 24 declared that any payment made under the Fund’s Rules to the member, his nominee, next of kin as ascertained, or to any other person, would constitute a full and effective discharge of all liability of the Fund in respect of that payment.

In this case, the Court noted that the Rules and Regulations provided that the Fund would be liable for any obligations arising under the matters specified in the preceding clause, designated as clause twenty-five. The liability of the Fund in respect of those matters was expressly stated. Furthermore, the document indicated that the entire set of Rules and Regulations would become operative on the first day of January in the year 1929. The commencement provision therefore fixed the date from which the obligations and rights created by the Rules would be enforceable. The Court explained that from that date the Fund would be bound to honour its responsibilities under the Rules, and any payments made thereafter would be governed by the terms set out therein. The effective date served as a clear temporal marker, establishing when the Fund’s duties and the application of the Rules would begin. The Court also observed that the language of the provision left no ambiguity regarding the start of the regulatory framework, thereby ensuring that all parties could rely upon a definitive point in time for the commencement of the Fund’s liability. Accordingly, the Fund’s exposure to liability was scheduled to arise only after that statutory commencement, and any actions taken before that date would not be subject to the regulatory scheme.