Sheth and Another v Official Receiver (Criminal Appeals Nos.' 25 and 26 of 1939) [1938] EACA 165 (1 January 1938)

#### APPELLATE CRIMINAL

# Before SIR JOSEPH SHERIDAN, C. J., AND LUCIE-SMITH, J.

# (1) HAKAM CHAND KALIDAS SHETH, (2) MOHANLAL KALIDAS SHETH, Appellants (Original Accused Nos. 1 & 2)

### THE OFFICIAL RECEIVER, Respondent (Original Prosecutor) Criminal Appeals Nos. 25 and 26 of 1939

Criminal Law-Bankruptcy offence-Rash and hazardous speculations—Bankruptcy Ordinance, 1930, section $137(1)(a)$ —Whether speculations in cotton futures may be connected with the business of an exchange merchant or banker-whether proceeds received by such merchant on sale of his draft subject to a fiduciary duty as to their use.

Appellants appealed from convictions and sentences in respect of offences under section $137(1)(a)$ of the Bankruptcy Ordinance, 1930, which provides that—

"Any person who has been adjudged bankrupt, or in respect of whose estate a receiving order has been made, shall be guilty of an offence; if, having been engaged in any trade or business. and having outstanding at the date of the receiving order any debts contracted in the course and for the purposes of such trade or business—

(a) he has, within two years prior to the presentation of the $\alpha$ bankruptcy petition, materially contributed to or increased the extent of his insolvency by gambling or by rash and hazardous speculations, and such gambling or speculations are unconnected with his trade or business: $\ldots$ $\ldots$ "

The main business carried on by the appellants in the Colony was that of exchange merchants whereby in exchange of East African currency they sold drafts payable in Indian Rupees on presentation to the appellants' firm in Bombay. With moneys received in the course of this business the appellants used to buy cotton and speculate in cotton futures and speculations of this nature entered into within two years of the presentation of their bankruptcy petitions resulted in losses which materially contributed to and increased the extent of their insolvency and their inability to honour their drafts.

The lower court held that it could not be successfully contended that it was part of the appellants' business as exchange merchants to indulge in speculations in futures with money which was not given to them for that purpose.

Held $(24-6-38)$ .—(1) That the relationship between the appellants and those who bought drafts of them was that of banker and customer with the result that the appellants were entitled to deal with the moneys so obtained as their own although the appellants were bound contractually to honour their drafts and accordingly the speculations were not in breach of a fiduciary duty:

(2) The speculations were connected with and formed part of the appellants' business of exchange bankers.

(Foley v. Hill, 9 E. R. 1002 referred to.)

Appeals allowed.

Shapley for the Appellants.

Anderson for the Official Receiver

JUDGMENT.—These are appeals by Hakam Chand Kalidas Sheth and Mohanlal Kalidas Sheth against their convictions and sentences under section $137(1)(a)$ of the Bankruptcy Ordinance. The section provides-

"137. (1) Any person who has been adjudged bankrupt, or in respect of whose estate a receiving order has been made, shall be guilty of an offence, if, having been engaged in any trade or business, and having outstanding at the date of the receiving order any debts contracted in the course and for the purposes of such trade or business-

$(a)$ he has, within two years prior to the presentation of the bankruptcy petition, materially contributed to or increased the extent of his insolvency by gambling or rash and hazardous speculations, and such $bv$ gambling or speculations are unconnected with his trade or business: $\ldots$

This provision is identical with section $157(1)(a)$ of the English Bankruptcy Act.

As will be seen from the language of the section, before a conviction can be had under it, the gambling or speculations, however rash and hazardous they may be, must be proved to have been unconnected with the bankrupt's trade or business. In these appeals we shall content ourselves with the question as to whether the transactions impugned were connected with the bankrupt's trade or business. The main business carried on by the appellants in this country was that of exchange merchants and, as Mr. Shapley submitted and it was not disputed, the course of business was for a person requiring money in India to go to the appellants in Kenya and with East African shillings purchase a draft on Bombay in exchange for which on presentation to the appellants' firm in Bombay Indian Rupees were received. Mr. Anderson contended that there existed a fiduciary relationship between the purchaser of the draft and the appellants and that they were bound to apply the actual money received in purchasing the draft—that the use of this money for any other purpose was a breach of trust. We do not consider that the transaction created a fiduciary relationship. For the purpose of this case it seems to us that the relationship between the appellants and those who dealt with them was that of banker and customer, and the case of Foley v. Hill, 9 E. R. 1002, is in point. At pages 1005 and 1006 of the report there appears the following passage in the judgment of the Lord Chancellor:-

"Money, when paid into a bank, ceases altogether to be the money of the principal (see Parker v. Marchant, 1 Phillips 360); it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money paid into the banker's, is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the

banker's money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places. The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of the principal, but he is of course answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands."

Thus we arrive at the position that the appellants with the money received by them as exchange bankers either buy cotton or speculate in cotton futures. It seems to us immaterial which they do for the purpose of this case. If they genuinely buy cotton for the purpose of re-sale they are employing the money they have received as bankers presumably in a prudent and advantageous manner. It cannot be expected that they will allow the money to lie idle. On the other hand if they employ the money in dealing in cotton futures it is true that their doing so may be, and probably is, particularly in the circumstances of this case, gambling or employing it in a rash or hazardous manner. But even if they are, it seems to us that they are using the money in connexion with their business, that of exchange bankers. The case of a banker is completely different from that of the grocer who with the money received from his trade as a grocer engages in betting on horses. Such a transaction cannot in any way be connected with the trade of grocer. (Rex v. Brewin, 19 Cr. App. Rep. 154).

The position of a banker is quite different as we have endeavoured to show. In the present case there is ample evidence to show that any gambling or speculations that may have been indulged in by the appellants were very much connected with and in fact formed part of their trade or business. Is the employment of money received by a banker in gambling or rash and hazardous ventures then unattended with any penalty? The answer to this is that on an application for discharge by a bankrupt a material matter for consideration is whether "the bankrupt has brought on, or contributed to, his bankruptcy by rash and hazardous speculations, or by unjustifiable extravagance in living, or by gambling, or by culpable neglect of his business affairs."

The appeals are allowed.