Trust money and insolvency: personal decree without reserving equitable remedy barred specie recovery against the estate.

Money paid for a specific purpose before the contemplated agreement was executed was treated as held in a fiduciary capacity, so on insolvency the claimant's remedy was to trace the trust money and assert a charge on the estate rather than claim ordinary repayment. Because the funds were not kept separate and had been mixed with the firm's own money, the equitable remedy had to be preserved to be effective. After the claimant sued and obtained a personal decree without reserving that trust-based claim, Order II, Rule 2 of the Civil Procedure Code barred reliance on the alternative remedy against the estate. The Official Assignee therefore could not be compelled to repay the amount in specie.

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Issues: Whether the respondent could compel return in specie of Rs. 1,000 held by the insolvent firm, or whether after obtaining a personal decree and failing to reserve the trust-based remedy he was confined to proving as an unsecured creditor.

Analysis: The money was paid for a specific purpose before the contemplated agreement was executed, so the firm held it in a fiduciary capacity and, on insolvency, the amount formed part of the estate only subject to the respondent's equitable right. Because the money was not kept distinct and had been mingled with the firm's own funds, the respondent's remedy was to follow the trust money by obtaining a charge on the estate under the principle reflected in Section 66 of the Indian Trusts Act. However, after the respondent sued and obtained a personal decree without preserving the trust-based remedy, he became barred by Order II, Rule 2 of the Civil Procedure Code from enforcing that alternative remedy against the estate. In those circumstances, the Official Assignee could not be directed to repay the amount specifically.

Conclusion: The respondent was not entitled to recover the Rs. 1,000 in specie from the Official Assignee.

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