Security deposit held as trust property and excluded from liquidation assets, with full repayment to the depositor.

Money deposited with a company as security for a specific agency-related purpose, where no company claim had arisen, retained the character of trust property and did not become part of the company's general assets in liquidation. The amount did not vest in the liquidator as part of the estate, and it was therefore unnecessary to treat it as a debt requiring preferential payment under the Companies Act. The security deposit with accrued interest was held repayable in full to the depositor from the liquidation funds.

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Issues: Whether the security deposit of Rs. 5,000, with accrued interest, formed part of the company's assets in liquidation and could be treated as a debt payable only through the liquidation process.

Analysis: The deposit was made as security for claims arising out of the agency and was earmarked for that limited purpose. As no claim existed against the petitioner, the deposit retained the character of trust property and did not become part of the company's general assets. On that footing, it was unnecessary to treat the sum as a debt entitled to preferential payment under section 230 of the Indian Companies Act, 1913. Even with the application of sections 2(d) and 28(5) of the Provincial Insolvency Act through section 229 of the Companies Act, the amount did not vest in the liquidator as part of the company's estate.

Conclusion: The security deposit did not form part of the company's funds in liquidation and had to be repaid to the petitioner in full.

Final Conclusion: The petition was allowed and the petitioner was held entitled to immediate repayment of the security deposit with accrued interest from the liquidation funds.

Ratio Decidendi: Money deposited with a company as security for a specific purpose, when not available for satisfaction of any company claim, remains impressed with a trust and does not vest in the liquidator as part of the company's assets.

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