# HUKUMCHAND GULABCHAND JAIN v. FULCHAND LAKHMICHAND JAIN AND OTHERS

- **Citation:** [1965] 3 S.C.R. 91
- **Court:** Supreme Court of India
- **Decided:** 1965-02-16
- **Bench:** K. Subba Rao, Raghubar Dayal, R. S. Bachawat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hukumchand-gulabchand-jain-v-fulchand-lakhmichand-jain-and-others-3470
- **Pages:** 12

## Headnote

Public Trusts-Trustee-Liability to pay interest on trust fundsRule of damdupat-Applicability. ·
The respondents who were interested in a public temple filed a
suit against the appellant who was looking after the affairs of the
temple. They prayed for his removal from possession of the trust properties, for the rendering by him of true and faithful accounts and
for the framing of a scheme. The trial court held that the appellant
was liable to render accounts. Having ascertained the amount of principal, it determined the interest payable at an amount equal to that
of the principal on the basis of the rule of damdupat. The respondents appealed to the High Court and urged that the rule of damdupat should not have been applied and that compound interest should
have been charged against the appellant. The High Court held that
the appellant had used the trust moneys in his business and therefore
agreed with the contention of the respondents and remanded the case
to the trial court for ascertaining the amount due to the temple.
In the appeal to the Supreme Court, it was contended that (i}
there were no grounds for making the appellant liable to pay dompound interest, and (ii) even if there was liability to pay any interest, it was only for paying simple foterest and that the rule of damdupat should be applied.
HELD: (i) It had not been proved that the trust funds had been
used in the appellant's business and therefore the appellant was not
liable to pay compound interest on the balance of the trust funds
with him. f96 Gl
(ii) In the absence of statutes during the period of suit dealing
with public charitable trusts making a trustee liable to pay interest,
· interest could ·be charged only on equitable grounds. One such circumstance is, when the Court considers that the trustee ought to
have received interest, as when he retains trust money in his hands
u·ninvested. Since the accounts, in the instant case, show that the
oppellant had retained the principal amount uninvested for over
twenty years he would be liable to pay simple interest at the rate of
4 per cent per annum. Even though the interest calculated at that
rate exceeded the principal, that entire interest would have to be
paid, because, the rule of damdupat would not apply. The principle
of damdupat was evolved both as an inducement to the debtors to
pay the entire principal and interest at one and the same time in
order to save interest in excess of the principal, and as a warning to
the creditor to take effective steps for realising the debt from the
borrower within a reasonable time, so that, there may not be accumulation of interest in excess of the principal amount. But that rule
applies only to cases where a loan is advanced. Though a trustee Who
had custody of trust funds, has a pecuniary liabili~y to make ~oo?
those funds if he has used them and may, on the baSls of such a hab1lity be said to be a debtor of the trust, yet he, as an individual, is
not' a borrower of the funds from the trust and cannot be said to
have taken a loan from himself as a trustee in charge of the trust
funds. [96 H; 97 E-H; 99 D; E; 101 E-F, HJ
92
SUPREME COURT REPORTS
(1965] 3 S.C.R.
Sharp v. Jackson, (1899) A. C. 419 and Lake, in re Dye>r Ex Parte,
A
(1901)1 K.B. 710, referred to.
OVIL APPELLATE JURISDICTIOl'I: Civil Appeal No. 216 of
1962.
Appeal from the judgment and decree dated September 15,
1959 of the Bombay High Court in First Appeal No. 600 of 1955
B
from Original Decree.
A. V. Viswanatha Sa~tri, Rameshwar Nath, S. N. Andley and
P. L. Vohra, for the appellant.
·
S. N. Pershad, M. II. Chhatrapati, J. B. Dadachanji, 0. C.
Mathur and Ravinder Narain, for respondents Nos. 1 and 2.
K. L. Hathi and R. H. Dhebar, for respondent No. 3.

## Text

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HUKUMCHAND GULABCHAND JAIN
v.
FULCHAND LAKHMICHAND JAIN AND OTHERS
February 16, 1965
!) J.
(K. SUBBA RAO, RAGHUBAR DAYAL AND R. S. BACHAWAT, JJ.]
Public Trusts-Trustee-Liability to pay interest on trust fundsRule of damdupat-Applicability. ·
The respondents who were interested in a public temple filed a
suit against the appellant who was looking after the affairs of the
temple. They prayed for his removal from possession of the trust properties, for the rendering by him of true and faithful accounts and
for the framing of a scheme. The trial court held that the appellant
was liable to render accounts. Having ascertained the amount of principal, it determined the interest payable at an amount equal to that
of the principal on the basis of the rule of damdupat. The respondents appealed to the High Court and urged that the rule of damdupat should not have been applied and that compound interest should
have been charged against the appellant. The High Court held that
the appellant had used the trust moneys in his business and therefore
agreed with the contention of the respondents and remanded the case
to the trial court for ascertaining the amount due to the temple.
In the appeal to the Supreme Court, it was contended that (i}
there were no grounds for making the appellant liable to pay dompound interest, and (ii) even if there was liability to pay any interest, it was only for paying simple foterest and that the rule of damdupat should be applied.
HELD: (i) It had not been proved that the trust funds had been
used in the appellant's business and therefore the appellant was not
liable to pay compound interest on the balance of the trust funds
with him. f96 Gl
(ii) In the absence of statutes during the period of suit dealing
with public charitable trusts making a trustee liable to pay interest,
· interest could ·be charged only on equitable grounds. One such circumstance is, when the Court considers that the trustee ought to
have received interest, as when he retains trust money in his hands
u·ninvested. Since the accounts, in the instant case, show that the
oppellant had retained the principal amount uninvested for over
twenty years he would be liable to pay simple interest at the rate of
4 per cent per annum. Even though the interest calculated at that
rate exceeded the principal, that entire interest would have to be
paid, because, the rule of damdupat would not apply. The principle
of damdupat was evolved both as an inducement to the debtors to
pay the entire principal and interest at one and the same time in
order to save interest in excess of the principal, and as a warning to
the creditor to take effective steps for realising the debt from the
borrower within a reasonable time, so that, there may not be accumulation of interest in excess of the principal amount. But that rule
applies only to cases where a loan is advanced. Though a trustee Who
had custody of trust funds, has a pecuniary liabili~y to make ~oo?
those funds if he has used them and may, on the baSls of such a hab1lity be said to be a debtor of the trust, yet he, as an individual, is
not' a borrower of the funds from the trust and cannot be said to
have taken a loan from himself as a trustee in charge of the trust
funds. [96 H; 97 E-H; 99 D; E; 101 E-F, HJ
92
SUPREME COURT REPORTS
(1965] 3 S.C.R.
Sharp v. Jackson, (1899) A. C. 419 and Lake, in re Dye>r Ex Parte,
A
(1901)1 K.B. 710, referred to.
OVIL APPELLATE JURISDICTIOl'I: Civil Appeal No. 216 of
1962.
Appeal from the judgment and decree dated September 15,
1959 of the Bombay High Court in First Appeal No. 600 of 1955
B
from Original Decree.
A. V. Viswanatha Sa~tri, Rameshwar Nath, S. N. Andley and
P. L. Vohra, for the appellant.
·
S. N. Pershad, M. II. Chhatrapati, J. B. Dadachanji, 0. C.
Mathur and Ravinder Narain, for respondents Nos. 1 and 2.
K. L. Hathi and R. H. Dhebar, for respondent No. 3.
The Judgment of the Court was delivered by
Raghubar Dayal, J. There is a temple known as Shri Chandraprabhu Khandelwal Jain Tempie· at Dhulia. Gulabchand Hiralal,
father of appellant Hukumchand Gulabchand Jain, a leading member of the Khandelwal Jain Community a( Dhulia, looked after D
the temple for over 40 years till his death sometime in 1950. The
appellant looked after it after his father's death. Two members
of the community interested in the temple, held to be a public
temple, instituted the suit against the appellant and the Charity
Commissioner, Bombay, praying for the removal of the appellant E
from possession of the trust properties, for the rendering of true
.and faithful accounts of all the assets and income of the trust property and for the framing of the scheme for the administration of
the trust. It was alleged in the pla;nt that the appellant's father was
maintaining all accounts of income and expenditure concerning the
temple. and that the funds of the temple wer~ many times advanced F
at interest and that the temple had come to hold large properties,
movable and immovable. It was further alleged that the temple
had a large income from offerings, house-rent etc., but the appellant
and his deceased father had not been ma;ntaining- the accounts
properly and that the funds of the temple were being advanced at
interest, though no such income was shown as received recently
G
by the appellant.
The appellant, in his written statement, denied that the amount
was so advanced at interest as alleged by the pla;ntilis and stated
that his father had been keeping a ledger in the name of the temple
in the accounts in which its income and expenditure had been duly
entered since over 40 years and that the appellant himself had kept R
separate account books for the temple since October 30; 1951. He
denied that any ·income recently received had not been shown in
the accounts.
The trial Court held that the appellant had committed minor
irregularities in the maintenance of the accounts, that he was liable
to render accounts and that the Commissioner was to ascertain the
,
Hl'KUMCHAND v. FULCHAND (Dayal, J.)
D3
A amount due from the appellant on taking the accounts. It definitely
held it not established that income, if any, derived by way of interest on loans advanced out of the funds of the temple had not
been credited to the account of the temple and !\lat no instance of
fraudulent or dishonest misappropriation of temple funds on the
part of defendant No. I or his father had been establ;shed. It found
B
that the meeting of the community had passed a resolution on
August 22, 1958, by an overwhelming majority, sanctioning the
accounts submitted by the appellant and that only two persons
who opposed against the resolution were the two plaintiffs of the
suit.
c
The Commissioner
found
that on
the
date
of the
institution of the suit, i.e. on February 17, 1954, Rs. 10,088-10-3
were due for principal and Rs. 16,853-6·0 were due for interest,
from the appellant. The plaintiffs admitted the report to be correct
but the appellant contended that under the rule of damdupat interest exceeding the amount of pr!ncipal could not be allowed. The
D appellants contention was accepted and the trial Court passed a
decree on April 23, 1955, for Rs. 20,177-4-6 against the appellant,
with future interest at 6 per cent per annum .. We are not now concerned with the other items of the decree and therefore we make
no reference to them.
The appellant deposited the amount d'Ue under the decree on
E
July 18, 1955. The plaintiffs appealed and claimed a larger amount
on var!ous grounds, including the one that the principle of damdupat should not have been applied and that interest on the balarice
of the trust fund should have been calculated and compound interest allowed in place of simple interest on the amount of the
F
trust fund in the hands of the defendant or his father.
The appellant filed a cross-objection against the allowing of
interest on the balance of the tr'llst funds with h;s father and himself.
The High Court agreed with the plaintiffs that the principle of
darndupat could not be applied in the circumstances of the case
G and that compound interest should have been charged against the
appellant. It therefore set aside the decree passed by the trial Court
in so fa( as it determined the amount due to the temple and referred the case back to the trial Court for re-assessment of the
amount due to the temple having due regard to the observations
made in its judgment. On an application by the appellant, certiH ficate under Art. 133(1) of the Constitution was granted.
The app,ellant has then filed th's appeal and questioned the
correctness of the order of the High Court holding him liable to
pay compound interest and holding that the principle of damdupat
was not applicable in this case.
The High Court said in its judgment that it was the contention of the plaintiffs that the appellant's father and the appellant
L/B(D)2SCI-8
94
SUPREME
COURT
REPORTS
(1965] 3 s.c.R.
used the funds of the temple in their business and that they were A
therefore liable to account ·on that footing. There was no such
allegation in the plaint or in the memorandum of appeal to the
High Court. The High Court referred to the khulasa submitted to
the Commissioner by the plaintiffs and stated that it was specifically alleged therein that the amount was being used by the defendant and his father. in business. Support for such an allegation B
was found in the statement Exhibit 24 of the appellant's father in
1931. Reference was also made to the fact that the appellant had
nowhere denied the .fact of the moneys of the temple being used
for the purpose of the business and to the non-production of certain books of account by the appellant: His statement that they
were not available was not accepted. The High Court recorded the C
finding in this form (at p. 43 of the appeal record):
"Under these circumstances it would not be an unreasonable inference to draw that the amounts belonging
to the temple were being utilised by Defendant No. 1 (the
appellant) and before him by his father in their business."
D
Having come to this conclusion and to the view that the position
of the appellant's father and the appellant vis-a-vis the temple funds
·was that of a trustee, the High Court Considered whether the plaintiffs could claim interest on equitable grounds and held that they
could claim compound interest with yearly rests, as the money had
· been used in the business or had been so mixed up with their own E
funds that it was impossible to say that they had not so used it.
The High Court did not apply the rule of damdupat as .the liability
of the appellant was not founded on loans or on any contract.
It is contended for the appellant that there was neither an
allegation nor evidence to the effect that the trust funds had been F
used in his business by the appellant's father or the appellant and
that therefore the appellant was not liable to pay compound interest on the trust funds in his hands or in the hands of his father.
It was further urged that if interest was payable by the appellant's
father or the appellant on the balance of trust funds, it should be
simple interest and the amount of interest could not be more than
G
the amount of principal due on the date of the institution of the
suit on the principle of damdupat.
It has not been established in this case that the trust funds
with the appeliant or his father were used in their. trade or business.
We have already referred to the finding of the High Court in this H
respect. It is a very halting finding. The High Court has not definitely held it proved that the funds were used in the business. We
say so. as the High Court has said (at p. 46 of the appeal record):
"Since we are of the view that the defendant No. I and
his father have used the monies of the temple in their
business or have so mixed it up with their own funds that
it is impossible to say that they have not so used it .... "
HUKUlllCIUND V. FULCHAND (DJy3/, J.)
95
A Th's is not a clear-cut definite finding that the funds had been
used in business or trade. The earlier finding noted at p. 43 of the
appeal record and quoted by us earlier, loses its force in view of
what has been said later. There is no evidence about such use of
the money. There was no such allegation in the plaint.
B
It was said in the khu/asa dated December 22, 1954 and included in the Additional Report of the Commissioner of even
date:
c
"Because the amount that was received by the defendant in respect of the temple could be utilised by the defendant in his business he used to pay interest thereon at
the rate of annas 8."
This too, is not, as stated by the High Court, a specific allegatien
that the amount was being used in business.
The plaint did not even say that the amount had been always
D advanced on loan. What it said in para 1 is that the funds of the
temple were many times advanced at interest and that no income
from interest recently received had been shown in the accoUhts. No
evidence has been led about the regular advance of the trust funds
as ~oans. On the other hand, the accounts show only a few entries
about the receipt of interest on the trust funtls.
B
The statement, Exhibit 24. made by the appellant's father on
October 26, 1931, in Regular Suit No. 377 of 1931, was in a suit
instituted by the appellant's father for the recovery of money advanced on a mortgage at compound rate of interest. Gulabchand,
father of the appellant, stated .in examination-in-chief, that the
1
funds lent were of the temple, the transactions of the temple were
in his name and that interest at compound rate had been agreed
upon. In cross-examination he stated that he had with him funds
of the temple and that he paid· for them compound interest at
8 annas. This statement does not necessarily mean that the appellant's father had been crediting the temple accounts with comG pound interest, at the rate of 8 annas, on the temple funds in his
hands.
G_ulabchand made another statement on January 12, 1950. It
is exhibit 23. This statement was made in proceedings on Miscellaneous Application No. 110 of 1949. He stated:
B
"Suit No. 377 of 1931 had been filed. In the same my
deposition has been recorded. I have made a statement that
the amount was of the temple. But I gave a statement to
that effect as that amount has been set apart for the temple.
I have given a statement that after the mortgage deed was
executed and before the suit was filed, I set apart this
amount for the temple and that the transaction of the
temple was in my name. That statement is correct.
96
SU!'H,J'1ME
COURT
REPORTS
(! 965) 3 S.C'.R.
If it is the amount of the Mandir, I credit it to the
A
Kha ta of the Mandir. I rlo not pay interest for the amount
of the Mandir. As there was interest in the mortgage deed,
I have taken interest at eight annas from Mangilal. I have
made a statement that I have with me the amount of the
temple and that I pay interest for it at eight annas."
These statements. taken togclher, lead to the inference that
B
Gulabchand was not crediting interest on the temple funds in the
accounts except when he received interest on the amounts lent and
that this statement made in 1931 was in connection with the
amount lent on a mortgage deed. He ch;irged compound interest
from the mortgagor and therefore credited that interest in the accounts. Jt is significant to note that the four entries about interest C
were for the years J 927 to I 93 I when Suit No. 377 of I 93 I was
filed. The fact that no interest appears to have been credited after
193 I bears out the inference we derive from the statements- of
Gulabchand.
There is another matter which throws light on this question and D
tends to support our conclusion. The report submitted by the Commissioner on November 29, 1954 shows that the balance at the
beginning of samvat year 1996, corresponding to 1939-40, was
Rs. 7,649-14-3. The amount credited during the year was
Rs. 573-12-0 and the amount debited was Rs. 769-3-6. If the opening balance be ignored, there would be a deficit of Rs. 195-7-0 and E
the accounts for the samvat year 1997 opened with a debit balance
of Rs. 195-7-0. This shows that the opening balance of samvat year
1996, i.e. Rs. 7,649-14-3, had been taken out of the accounts. It
appears that this amount was taken ·over to some Bhandara account and was credited again in the temple accounts for samvat
year 2009, i.e., 1952-53, after being brought out from Bhandara P
account. Such dealing with this amount does not appear to be
consistent with its being used in business.
·
In view of the shaky finding of the High Court about the
funds being used in business by the appellant's father or the
appellant and in view of what we have said above, we hold that
G
it has not been proved that these funds had been used in business
and that therefore the appellant is not liable to pay compound interest on the balance of the trust funds with his father or himself.
We may now consider whether the appellant is liable to pay
simple interest on the balance of trust money with his father or
himself.
H
Two questions arise for consideration and they are whether
the trustee is liable to pay simple interest on the trust capital in his
hands arid if he is so liable what rate of interest be charged from
him in the present case. Interest can be . allowed on equitable
grounds only as no statutes in force· during the period in suit and
dealing with public charitable trusts made the trustee liable to pay
I
HUKUMCHAND v. FULCHAND (Du,yal, J.)
97
A
interest. The Indian Trusts Act does not apply to public or private
religious or charitable endowments and therefore the provisions of
s. 23 thereof cannot be used for charging interest from the appellant trustee. The Charitable and Religious Trusts Act has no provision which provides for charging the trustee with interest.
B
c
D
E
F
Reference may therefore be mad,e in this connection to what
is stated in para 1691 of Halsbury's Laws of England, III Edition.
Vol. 38:
"Subject to this, or unless a trustee is expressly otherwise authorised or required under the terms of his trust,
he must duly and promptly invest all capital trust money
coming to his hands, and all income which cannot be
immediately applied for the purposes of the trust; and he
is liable for any loss which may result from its being improperly invested or being left uninvested for an unreasonable length of time, and for interest during the
period of its being so left."
This is so because the trustee has to conduct the affairs of the trust
in the same manner as an ordinary prudent man of business would
conduct his own affairs. In para 1812 are set out the circumstances
in which a trustee, besides being required to account for the principal trust money, can also be charged with interest on it and one of
the circumstances is when the Court considers that the trustee ought
to have received interest. Such could be the case when the trustee,
in breach of his duty, retains the trust money in his own hands
uninvested or mixes it with his own money or property.
It appears from the Commissioner's report that the trustee in
this case had over Rs. 10,000 in his hands from samvat year 1988
commencing from November 10, 1931, upto February 17, 1954,
when this suit was instituted. The trustee kept such a large sum
uninvested for a long time extending over 22 years. The accounts
show that reasonably he could not have expected to require this
amount for any current purpose of the trust during these years. He
should have invested the amount. His failure to do so makes him
G l'able to pay interest.
It appears from what is said in para 1814 of Halsbury's Volume
38 that where a trustee simply fails to invest trust money which he
ought to have invested or there are no other special circumstances
in the case, he is in general charged simple interest at the rate of
R
4 per cent per annum. We consider it reasonable to charge interest
at 4 per cent per annum in this case.
We have now therefore to decide what had been the amount
of trust funds in the hands of the appellant's father at different
times and what would be the amount due from the appellant on
the date of the insfoution of the suit, both for principal amount of
trust money and for accumulated interest with him. We do not
98
SUPREME
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(1965) 3 S.C,B.
cm:isider it desirable that the case be sent back to the trial Court A
for these calculations, in the light of our finding, as this litigation
has been pending for over 10 years and as the accounting is to be
I
done for a period commencing from November IO, 1931, from
which date the accounts are available to the Court.
The Addit;onal Report of the Commissioner, dated DecemB
ber 22, 1954, shows that the amount of principal on February 17,
1954, the date on which the suit was filed, was Rs. 10,088-10-3 and
that the accumulated amount of interest due on that date was
Rs. 16,85.3-6-0 at the. rate of 6. per cent per annum. The plaintiffsrespondents admitted this report to be correct. The defendant also
admitted the correctness of the principal amount found due by the C
Commiss'oner. He, in fact; did not even dispute that the amount
of interest at 6 per cent per annum would be what has been found
by the Commissioner. What he contended was that he was not
liable to pay interest in excess of the amount of principal found
due, in view of the rule of damdupat. In these circumstances, these
figures can be accepted as correct.
D
When the Commissioner had submitted his first report on
November 29, 1954, both the parties objected to the accounts
prepared by him. The defendant had objected to the Commissioner's
including a sum of Rs. 7 ,648-14-3 twice over in his accounts. This
sum represents the balance at the clme of samvat year 1995 corresponding to 1938-39. It was not taken over in the accounts for
E
the samvat year 1996. The Commissioner, in preparing the account,
took this amount into consideration without making up the accounts for the samvat year 1996. He found and noted in his accounts that the amount credited to the temple during the samvat ·
year 2009 corresponding to· 1952-53 was Rs. 9,978-5-3 and that this
amount included a sum of Rs. 7 ,648-14-3 which had been brought 'II
from the Bhandara account. He however did not consider this sum
to be the sum which had been not included in the accounts of the
temple from the samvat year 1996.
The learned District Judge agreed with the objection of the
defendant and held that this amount had been included twice in G
the Commissioner's accounts.
The respondel)ts did not d;spute the correctness of this finding in the High Court and therefore we do not consider it a sound
contention that this sum of Rs. 7,648-14-3 be further added to the
balance found due by the Commissioner.
The appellant stated that the statement of the balance in ~and
submitted by him to the meeting on August 22, 1953 was amved
at by adding an amount of Rs. 7,000 to the balance shown in the
accounts as he had found a suin of Rs. 7 ,000 in a bag marked
'Dharrnadya' inside a safe. The High Court has not considered the
statement of the defendant about so finding a sum of Rs. 7 ,000
reliable. It was not urged before the High Court, as has been urged
B
H8KUMCHAND V. FllLCHf.ND (Dltyal, J.)
99
A before us, that this sum of Rs. 7 ,000 be included in the amount of
trust money in the hands of the appellant on the date of the institu·
tion of the suit. The High Court merely dealt with the complaint
for the respondents that the Commissioner had not taken this sum
into account for the purpose of computation of interest on funds
in possession of the defendant. The High Court considered thia
B complaint to be justified. We therefore do not accept the respond·
ent's contention that Rs. 7 ,000 be added to the balance found due
by the Commissioner and hold that the High Court was in error in
ordering interest to be calculated on this amount as well.
According to the report of the Commissioner, the amount of
tl interest on the principal amount of trust money in the hands of the
trustee worked out to Rs. 16,853-6-0 up to February 17, 1954 at
6 per cent annum. We have held that the interest be calculated
at 4 per cent per annum. If follows that at this rate the amount of
interest found due by the Commissioner would be requced to
Rs. 11,235-9-4. The principal due on that date was Rs. 10,088-10-3.
D The question now arises whether the amount of interest be limited
to the amount of principal, on the basis of the principle of Damdupat, or not. The High Court has held that the principle of Damdu•
pat will not apply in this case. We agree with that opinion.
E
F
G
The rule of Damdupat applies to cases where a Joan is advanced. Th's is clear from Colebrooke's Digest on Hindu Law.
Part I, Vol. I, of the Digest deals with Contracts. Book I of
this Part deals with Loans and Payment. Section I of Chapter I of
Book I deals with Loans in General and describes what may or
may not be loaned by whom, to whom and in what form, with the
rules for delivery and receipt. These matters are comprised under
the title 'loans deEvered (rinadana)', which means the complete
delivery of a loan or debt, by whom, where and to whom made.
Chapter II deals with Interest and states at the commencement of
Section I:
"Such interest, as may be taken without a breach of
duty on the part of the creditor, is a rule (dherma) for
delivery by the creditor. Or ... for it is the nature of a
loan, that it should produce to the lender the principal
sum advanced, and interest in addition thereto."
The various Articles in this Section use the expressions 'creditor',
'fender', 'loan', 'principal', 'lent', 'borrowers' and thus make ii
e:
amply clear that it deals with interest on the amounts advanced by
a cred;tor to a debtor. Section I deals with the rates of interest to
be charged. Section II deals with Special Forms of Interest Para·
graph 53 thereof states:
"Interest on money, received at once, not year by year,
month by month, or day by day, as it ought, must never
be more than enough to double the debt, that is, more
than the amount of the principal paid at the same time."
100
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COUR'f
REPORTS
[1965] 3 s.c.R.
This is what is known by the rule of Damdupai and has been
A
rightly construed, as long ago ·as Ul63, by the Bombay High Court
in Dlwndu Jagannath v. Narayan Ramchandra(/). Section III
deals with Interest Specially Authorized and Specially Prohibited.
Article II of th's Section deals with Limits of Interest. Paragraph
59 thereof states:
"The principal can only be doubled by length of time.
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after which interest ceases."
The limit of interest is different under other paragraphs for loans
advanced in different circumstances .. P;iragraph 61 repeats what
has been stated in paragraph 53 of Se~tion II and adds. a special rule
to the effect:
·
"On grain, on fruit, on wool or hair, on beasts of burden, lent to be paid in the same kind of equal value, it
must not be more than enough to make the debt quintuple."
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It is therefore clear, as stated earlier, that the rule of Damdupat
applies in respect of interest due on amounts lent by a creditor to D
the borrower, the debtor. The question then is whether the funds
in the hands of a trustee can be said to be such loans notionally
advanced by the trustee to 1:timself as an individual. If their character can be deemed to be such, there may be a case for applying
the rule of Damdupat to the interest on such funds and that if it is
not so, this rule of Damdupat will not apply to the interest ordered
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. to be paid on such funds.
It has been urged for the appellant that the trustee is a debior
with respect to the trust money in his hallqs. Reference has been
made to Halsbury's Laws of England, III Edition, Vol. 38, page
1044 where it is stated at para 1801:
"A breach of trust is, in equity, regarded as giving rise
to a simple contract debt."
In the foot-note is stated :
"Strictly speaking, the relation of debtor and creditor
Gioes not subsist between a trustee and his cestui que trust
(per Lindley, L. J. in (1886) 18 Q.B.D. 295)."
Cl
Lewin on 'Trusts', 15th Edition, states at p. 745:
"The debt constituted by a breach of trust is, even after
it has been established by a decree, an equitable debt only,
and until the Bankruptcy Act, 1869, would not have supported a petition in bankruptcy."
It was said by the Earl of Halsbury, L. C., in Sharp v. JackH
son('):
"It has been suggested that there was a proposition
which could be maintained, as to which I confess I entertain grave doubts whether any decision goes to that extent, namely, that the relation between a cestui que trust
(1) [1861] B>m. H.C'. Rep. 47, 49.
('J [1899] A.<'. 419, 426.
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HUKUMCHAND v. FOLCHAND (Dayal, J.)
and a trustee who has misappropriated the trust fund is
hot that of debtor and creditor. That it may be something
more than that is true, but that it is that of debtor and
creJitor. l can entertain no doubt. As that question has
been mooted and brought before your Lordships' House
as one question for decision here, I certainly have no
hesitation in saying that in my qpinion no such proposition can properly be maintained, and that although there
are other and peculiar elements in the relat'.on between a
cestui que trust and a trustee, undoubtedly the relation of
debtor and creditor can and does exist."
No other Lord expressed an opinion on this point.
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The correctness of this expression of the Earl of Halsburv
has been doubted in Lake, in rt. Dyer, Ex Parte(') by Rigby L. J.,.
who remarked at the hearing:
"How is a trustee a debtor? Can he be sued at common
law'' I do not see how he can be a 'debtor', for the money
he is fraudulently dealing with is, at law, his own money.
No doubt he can be called upon to replace the money, but
that must be by a suit in equity, not at law. Notwithstanding the high authority of the statement that has been referred to, I confess I do not understand it."
We are of opinion that though a trustee, who has custody of
trust funds, has a pecuniary liability to make good those funds if
he has used them and may, on the basis of such a liability, be said
to be a debtor of the trust, yet he, as an individual, is n~t a
borrower of the funds from the trust and cannot be said to have
taken a loan from himself as a trustee in charge of the trust funds.
His liability to pay interest, when ordered by the Court on equitable
grounds, does not come w;thin the provisions dealing with interest
in Hindu Law, as mentioned in Colebrooke's Digest.
There is no fixed rate of interest which a trustee be liable to
pay as there is no contract between him as a trustee and as an
ind'vidual to pay interest. He simply uses the money in his custody.
It is only when the Court determines his liability to pay interest
that interest is to be calculated on the principal amount due from
h'm. It is not the case of a creditor letting interest accumulate and
thus make the debtor pay interest much more than what he had
borrowed as principal.
The principle of Damdupat was evolved both as an inducement to the debtor to pay the entire principal and interest thereon
at one and the same time in order to save interest in excess of the
principal and as a warning to the creditor to take effective steps
for realising the debt from the borrower within reasonable t;me
so that there be not such accumulat;on of interest as would be in
excess of the principal amount due, as in that case he would have:
to forego the excess amount. There may be justification for the:
(') [19Jl] 1K.B.710, 711;.
102
SUPREME
COURT
REPORTS
[1965) 3 S.C.R,
principle of Damdupat applying in the case of an ordinary creditor
A
and a debtor, but there seems no justification for extending that
pr'nciple to the case of a trustee who has to pay interest on the
funds in his hand with respect to which on .certain grounds he is
held liable to pay interest. We therefore hold that the rule of
Damdupat will not apply with respect to the interest adjudged
payable by a trustee on his committing breach of trust w;th respect · B
to the trust funds in his hands .
The result then is that the appellant is liable to pay
Rs. 10,088-10-3 for principal and Rs. I l,235-9-4 as interest, upto
the date of the institution of the su't, i.e. upto February 17, 1954.
We therefore allow the appeal, set aside the decree of the
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High Court and modify the decree of the trial Court accordingly:
The result will be that the suit temple will be entitled to get from
defendant No. I a sum of Rs. 21,324-3-7 upto the date of the suit,
together with future interest at 4 per cent per annum on
Rs. 10,088-10-3 from the date of the suit till the date of payment.
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The 2ppellant will bear his costs throughout. The costs of the
respondents will come out of the estate.
A ppea/ allowed.
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