Trust over earmarked funds prevents liquidation pool treatment when money was advanced for a specific purpose and the purpose failed.

Money advanced for a definite and exclusive purpose, and not available for the recipient's own use, is impressed with a trust and is excluded from the insolvent estate. Applying the Companies Act, 1956 liquidation principles on trust and fiduciary property, the court noted that the funds were paid only to be passed on towards a specified deposit, were not to be diverted, and were returnable if the agency arrangement failed. The recipient therefore had no beneficial dominion over the money; when the underlying purpose failed, the amount retained its trust character and was payable in priority to the person who advanced it, rather than to general unsecured creditors.

---

---

Issues: Whether the sum advanced by the applicant to the company for deposit with the mills was impressed with a trust for a specific purpose so that the amount refunded to the official liquidator did not form part of the general assets of the company and was payable in priority to the applicant.

Analysis: Section 529 of the Companies Act, 1956 requires company liquidation to follow the insolvency rules as to trust property and property held in a fiduciary capacity. The agreement showed that the money was advanced only for a designated purpose, namely to be passed on towards the mills' deposit, could not be used for any other purpose, and had to be returned when the agency ceased or the purpose failed. The company had no beneficial dominion over the fund; the contractual arrangement therefore created an express trust or, at least, a trust impressed by the specific purpose. Even apart from the initial entrustment, the failure of the underlying agency arrangement gave rise to a secondary trust in favour of the applicant, so the refunded amount retained its trust character and could not be treated as part of the general assets available to unsecured creditors.

Conclusion: The preferential claim was rightly allowed and the amount held by the official liquidator was payable to the applicant.

Ratio Decidendi: Money advanced for a definite and exclusive purpose, which the recipient is not free to use as its own, is impressed with a trust and, upon failure of that purpose, must be held for the benefit of the person who provided it rather than forming part of the insolvent estate.

---