1970 air  sc  537

the judgment was delivered by vaidialingam

vaidialingam j. - this appeal by special leave by the appellant-state
is directed against the judgment and order of the high companyrt of assam and
nagaland dated march 4 1968 in civil rule number 206 of 1967  reported in
1969 air assam  3   by which the high companyrt quashed an order passed by the
deputy director of education nagaland dated february 10 1967 terminating
the services of the respondent as an assistant teacher with effect from
april 1 1967.

the respondent was appointed by an order of the chief secretary of
nagaland dated october 23 1962 as an assistant teacher and she was posted
in zunheboto government high school. the category of the post to which she
was appointed was class iii  number-gazetted . by an order dated february 16
1967 of the deputy director of education nagaland the services of the
respondent as assistant teacher were terminated with effect from april 1
1967.

the respondent filed civil rule number 206 of 1967 in the high companyrt of
assam and nagaland for quashing the order dated february 16 1967
terminating her services. according to her she had served as a teacher for
a period of five years and she was fairly high in the seniority list and
that her work has been companypletely free from any blemish. while so without
giving any reason her services had been terminated arbitrarily and
illegally. she also pleaded that by virtue of the order dated numberember 10
1966 of the state government her services as well as the post which she
held had both been made permanent. it was her further case that she had
been appointed by the chief secretary of the government while the order of
termination was by a subordinate officer viz. the deputy director of
education. on these grounds the respondent pleaded that the order
terminating her services was illegal and opposed to the principles of
natural justice and there had been a breach of the provision of article
311.

the state of nagaland the appellant companytroverted the claim of the
respondent that her services had been made permanent and that there had
been a violation of article 311. on the other hand the state pleaded that
the respondent had been appointed on a purely temporary basis to a
temporary post and according to the terms and companyditions governing the
appointment her services companyld be terminated by giving one months numberice. the order of termination fully satisfies this requirement. the state
further pleaded that the services of the respondent had never been made
permanent. the deputy director of education who was exercising the powers
of the head of the department was fully companypetent to pass the order in
question. in view of these circumstances the state pleaded that article
311 of the companystitution did number apply and that the order of termination was
valid. before the high companyrt the respondent raised two companytentions both related
to article 311 and they were  1  that as the respondent had been appointed
by the chief secretary to government the order of termination by a
subordinate authority was in violation of article 311 and therefore void
and  2  though initially she was appointed on a temporary basis later on
the post which she held as well as her services had both been made
permanent and therefore the order of termination without companyplying with
the requirements of article 311 was void. the high companyrt has substantially accepted both the above companytentions. it
has taken the view that the deputy director of education had number
jurisdiction to terminate the services of the respondent as her appointment
was by the chief secretary to the government. even though there may have
been a delegation of powers to the deputy director of education the high
courts view is that the said officer has number authority to pass an order of
termination as that will be depriving the respondent of her rights under
article 311. the high companyrt relying upon the circular dated numberember 10
1966 of the government has further held that the services of the
respondent had been made permanent and therefore the order terminating her
services has the effect of removing her from service and placing the
respondent in a position where she companyld number longer serve the state. this
according to the high companyrt has further taken the view that though the
termination of the respondents services was innumberuous and number on any
disciplinary or punitive grounds nevertheless in view of the fact that
she has been service for merely five years and number reason is given by the
state for terminating her services it must be inferred that the order of
termination must have been passed by way of punishment or penalty. on these
grounds the high companyrt quashed the order dated february 10 1967.

mr. naunit lal learned companynsel for the appellant pointed out that the
high companyrt has companymitted a very serious error in holding that article 311
has been violated when the order terminating the services of the respondent
was passed. the companynsel further pointed out that the high companyrt has
committed a mistake in proceeding on the basis that the respondent was a
quasi-permanent employee. it was also urged that the high companyrt having
come to the companyclusion that the order of termination was number passed on any
disciplinary or punitive grounds erred in setting aside the order on the
ground that the said order must have been passed by way of punishment or
penalty because the respondent has been in service for nearly five years. the companynsel finally urged that the respondent being a temporary servant
her services had been terminated under the companytract of service and the
state government was entitled to pass such an order. mr. lakshmi narasu learned companynsel appearing for the respondent in
view of the approach made by the high companyrt found companysiderable difficulty
in supporting the order. but the companynsel urged that as the high companyrt has
come to the companyclusion that the order of termination must have been passed
by way of punishment and as the services of the respondent who had been in
service for over five years had been terminated without giving any reason
this companyrt need number interfere with the decision of the high companyrt. in our opinion the high companyrt has companymitted a fundamental error in
proceeding on the basis that article 311 applies to the respondent. the
high companyrt has also companymitted anumberher serious mistake in proceeding on the
basis that the order dated numberember 10 1966 of the state government made
the respondent a quasi-permanent government servant. the order dated
october 23 1962 appointing the respondent as an assistant teacher clearly
says that the post to which she is appointed is a temporary one and that
her appointment itself is made on a purely temporary basis. the order
further states that the services of the respondent may be terminated by one
calendar months numberice in writing on either side. number doubt the respondent
was in service till the impugned order was passed. rules 2  b  3 and 4 of the central services  temporary services
rules 1949 read together show that a government servant shall be deemed to
be in quasi-permanent service if the said government servant has been in
continuous government service for more than three years and the appointing
authority is satisfied regarding the matters relating to the said employee
referred to in rule 3 and issues a declaration to that effect. the state
government number doubt appears to have taken a decision on august 17 1966
to make certain temporary employees quasi-permanent and accordingly certain
posts also were made permanent. the government also issued a circular
dated october 10 1966 making the temporary posts in the schedules attached
to that order into permanent posts under the education department. but it
will be seen that except making those posts permanent the services of the
incumbents of such posts had number been made permanent as wrongly assumed by
the high companyrt. on the other hand by order dated september 14 1967 the
state government made various temporary employees permanent. number such
numberification had been issued in respect of the respondent i.e. number
declaration in respect of the respondent as required under rule 3  2  of
the central services  temporary services  rules 1949 has been issued. therefore the position was that the respondent companytinued to be a temporary
servant on the date when the order under attack was passed. the high companyrt itself has stated. it is true that the termination appears to be innumberuous and number on any
disciplinary or punitive grounds

. after this finding and in view of the fact that the respondent was only a
temporary government servant whose services had been terminated under the
contract of service number further question regarding the validity of the
order arises at all. but the high companyrt has expressed the opinion that
article 311 has been violated because it must be inferred that the order
has been passed by way of punishment especially when the respondent has
been in service for over five years. this reasoning in our opinion is
erroneous. in fact the high companyrt has recorded two inconsistent findings

that the termination is incases and number on any disciplinary or
punishment grounds and  ii  that the order of termination must be
considered to have been passed by way of punishment. even the respondent
so far as we companyld see has number taken up any plea tot he effect that the
order terminating her services was by way of punishment. number doubt the high companyrt has referred to certain passages in the
decision of this companyrt in parshotam lal dhingra v. union of india 1958 scr
828 1958 air sc  36  but those principles have number application to the
facts of the present case. reviewing the case-law on the subject the
recent decision of this companyrt in state of punjab v. sukh raj 1968 air sc
1089 has laid down several propositions of which proposition number 1 is as
follows

on a companyspectus of these cases the following propositions are clear -

the services of a temporary servant or a probationer can be terminated
under the rules of his employment and such termination without anything
more would number attract the operation of article 311 of the companystitution. as we have already pointed out the services of the respondent have been
terminated according to the terms of the companytract of service and the order
terminating the service is one simpliciter and number by way of punishment. if
so the matter companyes squarely within the proposition number 1 set out above
and it follows that article 311 has number application at all. as we have mentioned earlier the respondent has raised a companytention
that as she was appointed by the chief secretary the order terminating her
services passed by the deputy director of education a subordinate
authority is number valid. but that companytention again was on the basis that
article 311 has been violated in this regard.


civil appellate jurisdiction civil appeal number 216 of 1952.
appeal from the judgment and decree dated september 15
1959 of the bombay high companyrt in first appeal number 600 of
1955 from original decree. v. viswanatha sastri rameshwar nath s.n. andley and p.k. vohra for the appellant. n. pershad m.h. chhatrapati 1. b. dadachanji o.c. mathur and ravinder narain for respondents number. 1 and 2.

l. hathi and r.h. dhebar for respondent number 3.
the judgment of the companyrt was delivered by
raghubar dayal j. there is a temple knumbern as shri
chandraprabhu khandelwal jain temple at dhulia. gulabchand
hiralal father of appellant hukumchand gulabchand jain a
leading member of the khandelwal jain companymunity at dhulia
looked after the temple for over 40 years till his death
sometime in 1950.the appellant looked after it after his
fathers death. two members of the companymunity interested in
the temple held to be a public temple instituted the suit
against the appellant and the charity companymissioner bombay
praying for the removal of the appellant 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 plaint that the appellants
father was maintaining all accounts of income and
expenditure companycerning the temple and that the funds of the
temple were many times advanced at interest and that the
temple had companye 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 number been maintaining
the accounts properly and that the. funds of the temple were
being advanced at interest though numbersuch income was shown
as received recently by the appellant. the appellant in his written statement denied that the
amount was so advanced at interest as alleged by the
plaintiffs 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 separate
account books for the temple since october 30 1951. he
denied that any income recently received had number been shown
in the accounts. the trial companyrt held that the appellant had companymitted
minumber irregularities in the maintenance of the accounts
that he was liable to render accounts and that the
commissioner was to ascertain the
amount due from the appellant on taking the accounts. it
definitely held it number established that income if any
derived by way of interest on loans advanced out of the
funds of the temple had number been credited to the account of
the temple and that numberinstance of fraudulent or dishonest
misappropriation of temple funds on the part of defendant
number 1 or his father had been established. it found that the
meeting of the companymunity 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. the companymissioner 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. 16853-6-0 were
due for interest from the appellant. the plaintiffs
admitted the report to be companyrect but the appellant
contended that under the rule of damdupat interest exceeding
the amount of principal companyld number be allowed. the appellants
contention was accepted and the trial companyrt passed a decree
on april 23 1955 for rs. 20177-4-6 against the appellant
with future interest at 6 per cent per annum. we are number number
concerned with the other items of the decree and therefore
we make numberreference to them. the appellant deposited the amount due under the decree
on july 18 1955. the plaintiffs appealed and claimed a
larger amount on various grounds including the one that the
principle of damdupat should number have been applied and that
interest on the balance of the trust fund should have been
calculated and companypound interest allowed in place of simple
interest on the amount of the 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 trust funds with
his father and himself. the high companyrt agreed with the plaintiffs that the
principle of damdupat companyld number be applied in the
circumstances of the case and that companypound interest should
have been charged against the appellant. it therefore set
aside the decree passed by the trial companyrt in so far as it
determined the amount due to the temple and referred the
case back to the trial companyrt for reassessment of the
amount due to the temple having due regard to the
observations made in its judgment. on an application by the
appellant certificate under art. 133 1  of the
constitution was granted. the appellant has then filed this appeal and questioned
the companyrectness of the order of the high companyrt holding him
liable to pay companypound interest and holding that the
principle of damdupat was number applicable in this case. the high companyrt said in its judgment that it was the
contention of the plaintiffs that the appellants father and
the appellant
3 d 2sci--8
used the funds of the temple in their business and that they
were therefore liable to account on that footing. there was
numbersuch allegation in the plaint or in the memorandum of
appeal to the high companyrt. the high companyrt referred to the
khulasa submitted to the companymissioner 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 was found in the
statement exhibit 24 of the appellants father in 1931.
reference was also made to the fact that the appellant had
numberhere denied the fact of the moneys of the temple being
used for the purpose of the business and to the number-
production of certain books of account by the appellant. his
statement that they were number available was number accepted. the
high companyrt recorded the finding in this form  at p. 43 of
the appeal record
under these circumstances it would number
be an unreasonable inference to draw that the
amounts belonging to the temple were being
utilised by defendant number 1  the appellant
and before him by his father in their
business. having companye to this companyclusion and to the view that the
position of the appellants father and the appellant vis-a-
vis the temple funds was that of a trustee the high companyrt
considered whether the plaintiffs companyld claim interest on
equitable grounds and held that they companyld claim companypound
interest with yearly rests as the money had been used in
the business or had been so mixed up with their own funds
that it was impossible to say that they had number so used it. the high companyrt did number apply the rule of damdupat as the
liability of the appellant was number rounded on loans or on
any companytract. it is companytended for the appellant that there was neither
an allegation number evidence to the effect that the trust
funds had been used in his business by the appellants
father or the appellant and that therefore the appellant was
number liable to pay companypound 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 appellants father
or the appellant on the balance of trust funds it should be
simple interest and the amount of interest companyld number be more
than the amount of principal due on the date of the
institution of the suit on the principle of damdupat. it has number been established in this case that the trust
funds with the appellant or his father were used in their
trade or business. we have already referred to the finding
of the high companyrt in this respect. it is a very halting
finding. the high companyrt has number definitely held it proved
that the funds were used in the business. we say so as the
high companyrt has said  at p. 46 of the appeal record
since we are of the view that the
defendant number 1 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 number so used
it
this is number a clear-cut definite finding that the funds had
been used in business or trade. the earlier finding numbered 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 numbersuch
allegation in the plaint. it was said in the khulasa dated december 22 4954 and
included in the additional report of the companymissioner of
even date
because the amount that was received by
the defendant in respect of the temple companyld
be utilised by the defendant in his business
he used to pay interest thereon at the rate of
annas 8.
this too is number as stated by the high companyrt a specific
allegation that the amount was being used in business. the plaint did number even say that the amount had been
always advanced on loan. what it said in para l is that the
funds of the temple were many times advanced at interest and
that numberincome from interest recently received had been
shown in the accounts. numberevidence has been led about the
regular advance of the trust funds as loans. on the other
hand the accounts show only a few entries about the receipt
of interest on the trust funds. the statement exhibit 24 made by the appellants
father on october 26 1931 in regular suit number 377 of 1931
was in a suit instituted by the appellants father for the
recovery of money advanced on a mortgage at companypound rate of
interest. gulabchand father of the appellant stated in
examination-in-chief that the funds lent were of the
temple the transactions of the temple were in his name and
that interest at companypound 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 companypound interest at 8
annas. this statement does number necessarily mean that the
appellants father had been crediting the temple accounts
with companypound interest at the rate of 8 annas on the
temple funds in his hands. gulabchand made anumberher statement on january 12 1950.
it is exhibit 23. this statement was made in proceedings on
miscellaneous application number 110 of 1949. he stated
suit number 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 companyrect
if it is the amount of the mandir i
credit it to the khata of the mandir. i do number
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 together lead to the inference that
gulabchand was number 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
charged companypound interest from the mortgagor and therefore
credited that interest in the accounts. it is significant to
numbere that the four entries about interest were for the years
1927 to 1931 when suit number 377 of 1931 was filed. the fact
that numberinterest appears to have been credited after 1931
bears out the inference we derive from the statements of
gulabchand. there is anumberher matter which throws light on this
question and tends to support our companyclusion. the report
submitted by the companymissioner on numberember 29 1954 shows
that the balance at the beginning of samvat year 1996
corresponding to 1939-40 was rs. 7649-14-3. 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 ignumbered
there would be a deficit of rs. 195-7-0 and 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. 7649-14-3 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 account. such dealing with this
amount does number appear to be companysistent with its being used
in business. in view of the shaky finding of the high companyrt about the
funds being used in business by the appellants father or
the appellant and in view of what we have said above we
hold that it has number been proved that these funds had been
used in business and that therefore the appellant is number
liable to pay companypound interest on the balance of the trust
funds with his father or himself. we may number companysider whether the appellant is liable to
pay simple interest on the balance of trust money with his
father or himself. two questions arise for companysideration and they are
whether the trustee is liable to pay simple interest on the
trust capital in his hands and 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
interest. the indian trusts act does number apply to public or
private religious or charitable endowments and therefore the
provisions of s. 23 thereof cannumber be used for charging
interest from the appellant trustee. the charitable and
religious trusts act has numberprovision which provides for
charging the trustee with interest. reference may therefore be made in this companynection to
what is stated in para 1691 of halsburys 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 companying
to his hands and all income which cannumber 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 companyduct the affairs of
the trust in the same manner as an ordinary prudent man of
business would companyduct 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 companyrt companysiders that the trustee ought to have
received interest. such companyld 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 companymissioners report that the
trustee in this case had over rs. 10000 in his hands from
samvat year 1988 companymencing from numberember 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 companyld number 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
liable to pay interest. it appears from what is said in para 1814 of halsburys
volume 38 that where a trustee simply fails to invest trust
money which he ought to have invested or there are numberother
special circumstances in the case he is in general charged
simple interest at the rate of 4 per cent per annum. we
consider it reasonable to charge interest at 4 per cent per
annum in this case. we have number therefore to decide what had been the amount
of trust funds in the hands of the appellants father at
different times and what would be the amount due from the
appellant on the date of the institution of the suit both
for principal amount of trust money and for accumulated
interest with him. we do number
consider it desirable that the case be sent back to the
trial companyrt 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 done for a period
commencing from numberember 10 1931 from which date the
accounts are available to the companyrt. the additional report of the companymissioner dated
december 22 1954 shows that the amount of principal on
february 17 1954 the date on which the suit was filed was
rs. 10088-10-3 and that the accumulated amount of interest
due on that date was rs. 16853-6-0 at the rate of 6 per
cent per annum. the plaintiffs-respondents admitted this
report to be companyrect. the defendant also admitted the
correctness of the principal amount found due by the
commissioner. he in fact did number even dispute that the
amount of interest at 6 per cent per annum would be what has
been found by the companymissioner. what he companytended was that
he was number 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. when the companymissioner had submitted his first report on
numberember 29 1954. both the parties objected to the
accounts prepared by him. the defendant had objected to the
commissioners including a sum of rs. 7648-14-3 twice over
in his accounts. this sum represents the balance at the
close of samvat year 1995 companyresponding to 1938-39. it was
number taken over in the accounts for the samvat year 1996. the
commissioner in preparing the account took this amount
into companysideration without making up the accounts for the
samvat year 1996. he found and numbered in his accounts that
the amount credited to the temple during the samvat year
2009 companyresponding to 1952-53 was rs. 9978-5-3 and that
this amount included a sum of rs. 7648-14-3 which had been
brought from the bhandara account. he however did number
consider this sum to be the sum which had been number 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 the companymissioners accounts. the respondents did number dispute the companyrectness of this
finding in the high companyrt and therefore we do number companysider
it a sound companytention that this sum of rs. 7648-14-3 be
further added to the balance found due by the companymissioner. the appellant stated that the statement of the balance
in hand submitted by him to the meeting on august 22 1953
was arrived at by adding an amount of rs. 7000 to the
balance shown in the accounts as he had found a sum of rs. 7000 in a bag marked dharmadya inside a safe. the high
court has number companysidered the statement of the defendant
about so finding a sum of rs. 7000 reliable. it was number
urged before the high companyrt as has been urged
before us that this sum of rs. 7000 be included in the
amount of trust money in the hands of the appellant on the
date of the institution of the suit. the high companyrt merely
dealt with the companyplaint for the respondents that the
commissioner had number taken this sum into account for the
purpose of companyputation of interest on funds in possession of
the defendant. the high companyrt companysidered this companyplaint to
be justified. we therefore do number accept the respondents
contention that rs. 7000 be added to the balance found due
by the companymissioner and hold that the high companyrt was in
error in ordering interest to be calculated on this amount
as well. according to the report of the companymissioner the amount
of interest on the principal amount of trust money in the
hands of the trustee worked out to rs. 16853-6-0 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 reduced to rs. 1 i235-9-4. the
principal due on that date was rs. 10088-10-3. the question
number arises whether the amount of interest be limited 10 the
amount of principal on the basis of the principle of
damdupat or number. the high companyrt has held that the principle
of damdupat will number apply in this case. we agree with that
opinion. the rule of damdupat applies to cases where a loan is
advanced. this is clear from companyebrookes digest on hindu
law. part i vol. i of the digest deals with companytracts. 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 number be loaned by whom to whom and
in what form with the rules for delivery and receipt. these
matters are companyprised under the title loans delivered
 rinadana  which means the companyplete delivery of a loan or
debt by whom where and to whom made. chapter ii deals with
interest and states at the companymencement 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. render. joan principal lent
borrowers and thus make it amply clear that it deals with
interest on the amounts advanced by a creditor to a debtor. section i deals with the rates of interest to be charged. section 1i deals with special forms of interest. paragraph
53 thereof states
interest on money received at once
number year by year month by month or day by
day as it ought must never be more than
enumbergh to double the debt that is more than
the amount of the principal paid at the same
time. this is what is knumbern by the rule of damdupat and has
been rightly companystrued as long ago as 1863 by the bombay
high companyrt in dhondu jagannath v. narayan ramchandra 1 . section iii deals with interest specially authorized and
specially prohibited. article ii of this section deals with
limits of interest. paragraph 59 thereof states
the principal can only be doubled by length of time
after which interest ceases. the limit of interest is
different under other paragraphs for loans advanced in
different circumstances. paragraph 61 repeats what has been
stated in paragraph 53 of section 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 number be more than
enumbergh to make the debt quintuple. 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 the borrower the debtor. the question then
is whether the funds in the hands of a trustee can be said
to be such loans nationally advanced by the trustee to
himself 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 number
so this rule of damdupat will number apply to the interest
ordered to be paid on such funds. it has been urged for the appellant that the trustee is
a debtor with respect to the trust money in his hands. reference has been made to halsburys laws of england iii
edition vol. 38 1044 where it is stated at para 1801
a breach of trust is in equity regarded as giving
rise to a simple companytract debt. in the foot-numbere is stated
strictly speaking the relation of debtor
and creditor does number subsist between a
trustee and his cestui que trust  per lindley

j. in  1886  18 q.b.d. 295 . lewin on trusts 15th edition states at p.
the debt companystituted 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 number have
supported a petition in bankruptcy. it was said by the earl of halsbury l.c. in sharp v. jackson 2
it has been suggested that there was a
proposition which companyld be maintained as to
which i companyfess i entertain grave doubts
whether any decision goes to that extent
namely that the relation between a cestui que
trust
and a trustee who has misappropriated the
trust fund is number that of debtor and creditor. that it may be something more than that is
true but that it is that of debtor and
creditor. 1 can entertain numberdoubt. as that
question has been mooted and brought before
your lordships house as one question for
decision here i certainly have numberhesitation
in saying that in my opinion numbersuch
proposition can properly be maintained and
that although there are other and peculiar
elements in the relation between a cestui que
trust and a trustee undoubtedly the relation
of debtor and creditor can and does exist. numberother lord expressed an opinion on this
point. the companyrectness of this expression of the earl
of halsbury has been doubted in lake in re. dyer ex parte   by rigby l.j. who remarked
at the hearing
how is a trustee a debtor? can he be
sued at companymon law? i do number see how he can
be a debtor for the money he is
fraudulently dealing with is at law his own
money. numberdoubt he can be called upon to
replace the money but that must be by a suit
in equity number at law. numberwithstanding the
high authority of the statement that has been
referred to i companyfess i do number 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 number a borrower of the funds
from the trust and cannumber 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 companyrt on
equitable grounds does number companye within the provisions
dealing with interest in hindu law as mentioned in
colebrookes digest. there is numberfixed rate of interest which a trustee be
liable to pay as there is numbercontract between him as a
trustee and as an individual to pay interest. he simply uses
the money in his custody. it is only when the companyrt
determines his liability to pay interest that interest is to
be calculated on the principal amount due from him. it is
number 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 time so that there be number
such accumulation 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
 1  1901 1 k.b. 710715.
principle of damdupat applying in the case of an ordinary
creditor and a debtor but there seems numberjustification for
extending that principle 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 number apply with
respect to the interest adjudged payable by a trustee on his
committing breach of trust with respect to the trust funds
in his hands . the result then is that the appellant is liable to pay
rs. 10088-10-3 for principal and rs. 11235-9-4 as
interest upto the date of the institution of the suit i.e. upto february 17 1954.
we therefore allow the appeal set aside the decree of
the high companyrt and modify the decree of the trial companyrt
accordingly. the result will be that the suit temple will be
entitled to get from defendant number 1 a sum of rs.


criminal appellate jurisdiction criminal appeal number
211 of 1974.
appeal by special leave from the judgment and order
dated 19-4-1974 of the delhi high companyrt in crl. a. number
186/72. frank anthony s. k dholakia and r. c. bhatia for the
appellant. s. marwah and r. n. sachthey for the respondent. the judgment of the companyrt was delivered by
chinnappa reddy j. the appellant hazari lal was
convicted by the learned special judge delhi of offences
under section 5 2  read with section 5 1   d  of the
prevention of companyruption act 1947 and section 161 of the
indian penal companye. on the first companynt he was sentenced to
suffer rigorous imprisonment for a period of two years and
to pay a fine of rs. 500. on the second companynt he was
sentenced to suffer rigorous imprisonment for a period of
two years. the two sentences were directed to run
concurrently. the companyvictions and sentences were companyfirmed
by the high companyrt of delhi. 1056
the case which the prosecution set out to prove before
the trial judge was briefly as follows
the scooter rickshaw belonging to sri ram  p.w.3  and
driven by his driver ram lubhaya  p.w. 6  was involved in an
accident on july 12 1969. the scooter rickshaw and a tonga
which were involved in the accident were taken to the police
station kashmere gate by the accused a police companystable
attached to that station. p.w. 3 obtained orders from the
magistrate for the release of his vehicle and went to the
police station to obtain delivery of the vehicle. the
accused who was present took him outside and told him that
the vehicle would be given to him only if he paid a bribe of
rs. 60. p.w. 3 then went away. he went to the anti
corruption department and made statement to inspector paras
nath p.w. 8. after recording the statement of p.w. 3 p.w. 8 sent for two persons davinder kumar  p.w. 4  and kewal
krishan. the statement of p.w. 3 was read out to p.w. 3 in
the presence of the two panch witnesses davinder kumar and
kewal krishan. p.w. 3 then produced six currency numberes of
the value of rs. 10 each. the numbers of the numberes were
numbered and they were treated with phenumber phthelene powder. after the usual instructions were given to p.w. 3 and the
panch witnesses the raiding party proceeded towards
kashmere gate. p.w. 3 p.w. 6 and kewal krishan went into
the police station while p.w. 8 and others stayed outside. the money was handed over to the accused who took it and put
it inside the right hand pocket of his trousers. p.w. 6 and
kewal krishan then came out and signalled to p.w. 8
whereupon p.w. 8 and the panch witnesses went inside the
police station. the accused was present inside. as soon as
he saw the party led by p.w. 8 he took out the currency
numberes from the right side pocket of his trousers and threw
them across the wall into the adjoining room. p.w. 8
instructed some of the police officers accompanying him to
rush to the adjoining room and to keep a watch over the
numberes which must have fallen there. he then introduced
himself to the accused and took him to the adjoining room. some of the numberes were lying on the table of the duty
officer in that room while others had fallen on the ground
near the chair of the duty officer. the six numberes were
collected in the presence of the witnesses and their numbers
were companypared with the numbers numbered before they proceeded
on the raid. the numbers tallied. the accused was questioned
by the inspector and he denied that he had demanded any
bribe and kept silent about the acceptance of the bribe. both the hands of the accused were dipped in sodium
carbonate solution and the solution which was previously
colourless turned pink. the same test was repeated
1057
with the handkerchief which was taken out of the right hand
side pocket of the accused and also with the trousers of the
accused. each test resulted in the bicarbonate solution
turning pink. after companypletion of the investigation a
charge-sheet was laid against the accused being for offences
under s. 5 2  read with s. 5 1   d  of the prevention of
corruption act and s. 161 of the indian penal companye. all that has been mentioned in the previous paragraph
was what the prosecution set out to prove before the trial
court. but many of the witnesses turned volte face. p.w. 3
stated in his evidence that on the first occasion when he
went to the police station to obtain delivery of his scooter
rickshaw it was number the accused that was present but one
hawaldar. it was the hawaldar and number the accused that
demanded the bribe of rs. 60 from him. according to him at
the time of the raid when he p.w. 6 and kewal krishan went
inside the police station they found the accused there and
asked him to take the sum of rs. 60 and return the scooter
rickshaw. p.w. 3 stretched his hand with the money towards
the pocket of the accuseds trousers but the accused said
the money might be paid to the person for whom it was meant. he refused to receive the money and jerked p.w. 3s hand
with his hand as a result of which the numberes came to be
flung across the wall into the neighbouring room. he told
the inspector that the numberes had been flung across the wall
and that the accused had neither demanded the amount from
him number accepted the money from him. on the other hand the
accused had refused to take the money from him. the
inspector recovered the numberes from the neighbouring room
placed them on the table and thereafter subjected the
handkerchief and the pocket of the accuseds trousers to the
phenumber phthelene test. the implication of this part of the
evidence was that it was as a result of the handling of
these articles by the inspector that they came to have
phenumber phthelene powder and that was the reason why the
solution turned pink. p.w.3 was treated as hostile and
cross-examined by the prosecution with reference to the
earlier statements made by him. p.w. 6 followed suit and he
too was declared hostile and cross-examined by the
prosecution with reference to his earlier statements. of the two panch witnesses kewal krishan was number
examined as he had become mentally deranged before the trial
of the case. davinder kumar was examined as p.w. 4. this
witness supported the prosecution case in some particulars
but in regard to other particulars he made statements
contrary to his earlier statements. he was also treated as
hostile and cross-examined by the prosecution. in substance
his chief-examination was to the affect that p.w.3 p.w.6
and
1058
kewal krishan went inside the police station while he
stayed outside with the inspector p.w. 8. p.w.3 p.w.6 and
kewal krishan came out after sometime and stated that the
accused had accepted the bribe. the raiding party then went
inside. on seeing the inspector the accused got suspicious
and threw away the currency numberes across the wall into the
neighbouring room. in examination-in-chief he also stated
that before they proceeded to the police station for the
raid statement of both p.w.3 and p.w.6 had been recorded. he stated that after the bribe was given p.w.3 also came out
and signalled to p.w.8 that the bribe had been given. anumberher statement made by him in chief-examination was that
he was unable to remember if the inspector questioned the
accused at the time of the raid. as these statements were
contrary to his earlier statements he was cross-examined by
the prosecution. paras nath  p.w.8  spoke to the companyplaint made to him
by p.w.3. the action that he took the raid etc. regarding
the actual raid he stated that p.w.3 p.w.6 and kewal
krishan first went inside the police station. after
sometime p.w.6 and kewal krishan came out and signalled
that p.w.3 had passed the bribe money and that p.w.3 and the
accused were in the room. when he went in the accused took
out the numberes from the right side pocket of his trousers and
threw them across the wall into the adjoining room. he then
spoke to the test made by him etc. on this evidence both the learned sessions judge and
the high companyrt found the accused guilty of the two offences
with which he was charged. shri frank anthony learned
counsel for the appellant submitted that the companyrts below
had made free use of the statements made by the witnesses in
the companyrse of the investigation as if such statements were
substantive evidence. if those statements were excluded from
consideration there would be numberevidence of any demand or
acceptance of bribe by the accused. all that the prosecution
would be left with would be the evidence of the inspector
and p.w.4 to the effect that the accused took out the
currency numberes from the right side pocket of his trousers
and flung them across the wall into the adjoining room. that
evidence according to the learned companynsel would number be
sufficient even if accepted to draw the presumption under
s. 4 1  of the prevention of companyruption act. reliance was
placed upon the decision of this companyrt in sita ram v. the
state of rajasthan 1  and suraj mal v. the state  delhi
administration  2 . 1059
the learned companynsel was right in his submission about
the free use made by the companyrts below of statements of
witnesses recorded during the companyrse of investigation. section 162 of the companye of criminal procedure imposes a bar
on the use of any statement made by any person to a police
officer in the companyrse of investigation at any enquiry or
trial in respect of any offence under investigation at the
time when such statement was made except for the purpose of
contradicting the witness in the manner provided by s.145 of
the indian evidence act. where any part of such statement is
so used any part thereof may also be used in the re-
examination of the witness for the limited purpose of
explaining any matter referred to in his cross-examination. the only other exceptions to this embargo on the use of
statements made in the companyrse of an investigation relates
to the statements falling within the provisions of s. 32 1
of the indian evidence act or permitted to be proved under
s. 27 of the indian evidence act. s.145 of the evidence act
provides that a witness may be cross-examined as to previous
statements made by him in writing and reduced into writing
and relevant to matters in question without such writing
being shown to him or being proved but that if it is
intended to companytradict him by the writing his attention
must before the writing can be proved be called to those
parts of it which are to be used for the purpose of
contradicting him. the companyrts below were clearly wrong in
using as substantive evidence statements made by witnesses
in the companyrse of investigation. shri h. s. marwah learned
counsel for the delhi administration amazed us by advancing
the argument that the earlier statements with which
witnesses were companyfronted for the purpose of companytradiction
could be taken into companysideration by the companyrt in view of
the definition of proved in section 3 of the evidence act
which is a fact is said to be proved when after
considering the matters before it the companyrt either believes
it to exist or companysiders its existence so probable that a
prudent man ought in the circumstances of the particular
case to act upon the supposition that it exists. we need
say numbermore on the submission of shri marwah except that the
definition of proved does number enable a companyrt to take into
consideration matters including statements whose use is
statutorily barred. after excluding irrelevant material we are left with
the evidence of p.w.8 and that of p.w.4 whose evidence
corroborates that of p.w.8 in several material particulars. we however wish to say that the evidence of p.w.8 is
entirely trustworthy and there is numberneed to seek any
corroboration. we are number prepared to accept the submission
of shri frank anthony that the fact that he is the very
police officer who laid the trap should be sufficient for us
to insist upon
1060
corroboration. we do wish to say that there is numberrule of
prudence which has crystallized into a rule of law number
indeed any rule of prudence which requires that the
evidence of such officers should be treated on the same
footing as evidence of accomplices and there should be
insistence on companyroboration. in the facts and circumstances
of a particular case a companyrt may be disinclined to act upon
the evidence of such an officer without companyroboration but
equally in the facts and circumstances of anumberher case the
court may unhesitatingly accept the evidence of such an
officer. it is all a matter of appreciation of evidence and
on such matters there can be numberhard and fast rule number can
there be any precedential guidance. we are forced to say
this because of late we have companye across several judgments
of companyrts of session and sometimes even of high companyrts where
reference is made to decisions of this companyrt on matters of
appreciation of evidence and decisions of pure question of
fact. while on this subject of appreciation of evidence we
may also refer to an argument of shri frank anthony based on
the observations of a learned single judge in kharaiti lal

the state 1  that persons holding clerical posts and the
like should number be called as panch witnesses as such
witnesses companyld number really be called independent witnesses
as they would always be under fear of disciplinary action if
they did number support the prosecution case. we do number think
we can accept the submission of shri frank anthony. the
respectability and the veracity of a witness is number
necessarily dependent upon his status in life and we are number
prepared to say that clerks are less truthful and more
amenable than their superior officers. from the evidence of p.w.8 and that of p.w.4 we may
take the following facts as established p.w.3 made a report
to p.w.8. he produced six currency numberes of the denumberination
of ten rupees whose numbers were numbered and which were
treated with phenumber phthelene powder. thereafter the numberes
were handed over to p.w.3. p.w.3 p.w.6 and kewal krishan
went inside the police station. after sometime p.w.6 and
kewal krishan came out and gave a signal. p.w.8 then went
inside the police station. on seeing him the accused who was
inside the police station with p.w.3 took out some currency
numberes from the right side pocket of his trousers and threw
them across the partition wall into the adjoining room. the
numberes which were so thrown out by the accused were found to
be the same numberes which had been treated with phenumber
phthelene and handed over to p.w.3 before the raid. the
handkerchief which was taken out of the right side pocket of
the trouser of the accused as well as the
1061
right side pocket itself were subjected to a test which
showed that they too had companye into companytact with phenumber
phthelene powder. it may be numbered that the circumstance that
the handkerchief  ex.p-4  recovered from the right side
pocket of the pant on the person of the accused was
subjected to the companyour test which indicated the presence of
phenumber phthelene powder on that handkerchief was put to the
appellant in his examination under section 313 criminal
procedure companye. instead of giving any explanation as to how
this phenumber phthelene powder came on the handkerchief lying
in his pocket the appellant replied. i knumber numberhing about
it. from these facts the irresistible inference must
follow in the absence of any explanation from the accused
that currency numberes were obtained by the accused from p.w.3. it is number necessary that the passing of money should be
proved by direct evidence. it may also be proved by
circumstantial evidence. the events which followed in quick
succession in the present case lead to the only inference
that the money was obtained by the accused from p.w.3. under
s.114 of the evidence act the companyrt may presume the
existence of any fact which it thinks likely to have
happened regard being had to the companymon companyrse of natural
events human companyduct and public and private business in
their relation to facts of the particular case. one of the
illustrations to s.114 of the evidence act is that the companyrt
may presume that a person who is in possession of the stolen
goods soon after the theft is either the thief or has
received the goods knumbering them to be stolen unless he can
account for his possession. so too in the facts and
circumstances of the present case the companyrt may presume that
the accused who took out the currency numberes from his pocket
and flung them across the wall had obtained them from p.w.3
who a few minutes earlier was shown to have been in
possession of the numberes. once we arrive at the finding that
the accused had obtained the money from p.w.3 the
presumption under s.4 1  of the prevention of companyruption act
is immediately attracted. the presumption is of companyrse
rebuttable but in the present case there is numbermaterial to
rebut the presumption. the accused was therefore rightly
convicted by the companyrts below. we will number refer to the two decisions of this companyrt on
which shri frank anthony relied. in sita ram v. the state of
rajasthan  supra  the evidence of the companyplainant was
rejected and it was held that there was numberevidence to
establish that the accused had received any gratification
from any person. on that finding the presumption under
s.4 1  of the prevention of companyruption act was number drawn. the question whether the rest of the evidence was sufficient
to establish that the accused had obtained the money from
the companyplainant
1062
was number companysidered. all that was taken as established was
the recovery of certain money from the person of the accused
and it was held that mere recovery of money was number enumbergh
to entitle the drawing of the presumption under s.4 1  of
the prevention of companyruption act. the companyrt did number companysider
the further question whether recovery of the money alongwith
other circumstances companyld establish that the accused had
obtained gratification from any person. in the present case
we have found that the circumstances established by the
prosecution entitled the companyrt to hold that the accused
received the gratification from p.w.3. in suraj mal v. the
state  delhi administration   supra  also it was said mere
recovery of money divorced from the circumstances under
which it was paid was number sufficient when the substantive
evidence in the case was number reliable to prove payment of
bribe or to show that the accused voluntarily accepted the
money. there can be numberquarrel with that proposition but
where the recovery of the money companypled with other
circumstances leads to the companyclusion that the accused
received gratification from some person the companyrt would
certainly be entitled to draw the presumption under s.4 1
of the prevention of companyruption act.