Calcutta High Court
Rani Leasing & Finance Ltd vs Sanjay Khemani on 19 March, 2015
Author: Debangsu Basak
Bench: Debangsu Basak
C.S. No. 113 of 2002
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Rani Leasing & Finance Ltd.
Vs.
Sanjay Khemani
For the Plaintiff : Mr. Abhrajit Mitra, Sr. Advocate
Mr. Jishnu Chowdhury, Advocate
Mr. Soumabho Ghose, Advocate
Mrs. Sonia Sharma, Advocate
Mr. Uttam Sharma, Advocate
For the Defendant : Mr. Pradip Ghose, Sr. Advocate
Mrs. Lopita Banerjee, Advocate
Mrs. Suchismita Chatterjee (Ghosh), Advocate
Mr. J. Chatterjee, Advocate
Hearing concluded
on : March 02, 2015
Judgment on : March 19, 2015
DEBANGSU BASAK, J.
The suit is for recovery of money lent and advanced against pledge of shares.
The plaintiff contends that, it had lent and advanced a sum of Rs.1,10,00,000/- to the defendant against security of shares pledged by the defendant with the plaintiff. According to the plaintiff, from time to time between June 2000 to January 2001 the plaintiff had advanced a sum of Rs.1,10,00,000/- to the defendant and the defendant had pledged shares from time to time as security thereof. The plaintiff states that the shares pledged by the defendant lost their value substantially. The plaintiff had requested the defendant to pledge further shares. The defendant however, did not do so. The defendant had paid interest up to March 31, 2001 with such payment being made on April 24, 2001.
The plaintiff had, thereafter, issued a demand letter dated January 14, 2001. The defendant did not pay in spite of such demand. The plaintiff, thereafter, sold the pledged shares for the value of Rs.8,55,400/-. The plaintiff claims decree for the balance amount from the defendant along with interest and costs.
The defendant has filed its written statement. The defendant contends that, the transactions were had through a broker. The defendant had pledged shares to the plaintiff as security for the loans advanced. The defendant points out that, the shares pledged were actually transferred in the dematerialized account of the plaintiff by the defendant. The defendant by a letter February 7, 2001 had called upon the plaintiff to sell the shares pledged with it. The defendant was informed by the broker that the pledged shares were sold and that on payment of Rs.1,68,000/- the account would stand squared up. The defendant had paid the said sum of Rs.1,68,000/- by cheque on April 20, 2001 as full and final settlement of the accounts between the parties. The defendant refers to the transactions had by the defendant with the sister concern of the plaintiff and claims that the accounts was squared up by the payment of the sum of Rs.1,68,000/- by the defendant to the plaintiff. The defendant denies receipt of the letter dated February 14, 2002. The defendant claims that the plaintiff had sold the shares on February 20, 2001 when the defendant was asked the plaintiff to do so, the plaintiff would have received a far greater value in such shares. The defendant also contends that the plaintiff was obliged to mitigate its damages under Section 73 of the Indian Contract Act, 1862.
The issues were settled by the Order dated December 3, 2013. The issues are as follows:-
1. (a) Was there any agreement between the plaintiff and the defendant as alleged in paragraph 1 of the plaint?
(b) Did the plaintiff lend and advance any amount pursuant to such agreement?
2. Was there any agreement between the parties as alleged in paragraph 2 of the written statement?
3. Did the defendant receive the notice dated 14th January, 2002?
4. Was the plaintiff entitled to sell the shares pledged by the defendant to the plaintiff as security for the loan rendered by the plaintiff to the defendant of a sum of Rs.1,10,00,000/-?
5. Is the plaintiff entitled to decree as claimed in the plaint?
6. Did the plaintiff receive the letters dated 7th February, 2001 and 20th April, 2001?
7. To what other reliefs is the plaintiff entitled? The plaintiff examined one witness in support of his case. The defendant also examined one witness on its behalf.
The issue nos. 1 and 2 are taken up together for the sake of convenience. On these two issues, the learned Senior Advocate for the plaintiff contends the agreement between the parties is stated in paragraphs 1, 2 and 3 of the plaint. Issue no. 1(a) should be read in such context. He points out that, the plaintiff has stated in paragraph 2 of the plaint that it had lent and advanced the sum of Rs.1,10,00,000/- between the period June 2000 to January 2001. He refers to Exhibits 'C' to 'G' and submits that, a sum of Rs.1,10,00,000/- was paid by the plaintiff to the defendant. He also refers to the ledger of the plaintiff being Exhibit 'O' and submits that, it would demonstrate that interest up to March 31, 2001 was paid by the plaintiff to the defendant.
The learned Senior Advocate for the defendant does not seriously dispute the nature of the transactions between the parties. He however contends that, Exhibit 'O' is a ledger of the plaintiff and that in view of Section 34 of the Indian Evidence Act, such ledger entry need not be looked into for the purpose of accepting the contention that the sum of Rs.1,68,000/- paid by the defendant on April 20, 2001 was on account of interest.
The nature of transactions between the parties is not disputed. The parties agree that the plaintiff had agreed to grant and did in fact grant a loan of Rs.1,10,00,000/-to the defendant against the pledge of Himachal Futuristic Company Limited (HFCL) shares. The defendant had pledged the HFCL shares belonging to it with the plaintiff. However, the defendant had transferred the HFCL shares to the plaintiff by transferring such shares to the dematerialized account maintained by the plaintiff.
The parties differ as to the rate of interest payable by the defendant to the plaintiff and as to whether or not the payment of Rs.1,68,000/- made on April 20, 2001 by the defendant to the plaintiff was on account of full and final settlement of the claim of the plaintiff against the defendant or whether the same was payment on account of interest for the period up to March 31, 2001 as contended by the plaintiff.
Both the witness in evidence stated that the plaintiff used to lend and advance sums the defendant against pledge of shares and payment of interest. The rate of interest is however disputed. The plaintiff claims varying rates while the defendant contends that the rate of interest was agreed to be 18% per annum.
In such circumstances, issue no. 1(a) has to be answered by holding that there was an agreement between the parties as pleaded in paragraphs 1, 2 and 3 of the plaint.
The defendant in its written statement as well as in evidence through its witness admits that the receipt of the sum of Rs.1,10,000/- from the plaintiff as loan. The defendant however claims to have repaid the same.
In such circumstances, issue no. 1(b) has to be answered by holding that the plaintiff did lend and advance of Rs.1,10,00,000/- to the defendant pursuant to such agreement.
In view of the discussions with regard to issue no. 1(a) and the answer thereto issue no. 2 is answered in the negative and against the defendant.
Issue no. 3 relates to the notice dated January 14, 2002. This notice is marked as Exhibit 'J'. By this notice the plaintiff had called upon the defendant to pay the loan amount outstanding and in the event of default the plaintiff had stated that it would sell the shares held in pledge on account of the defendant. The defendant disputes the receipt of Exhibit 'J'.
I find that Exhibit 'J' was sent by Speed Post with acknowledgement due card. The witness of the defendant in cross- examination has stated that the notice dated January 14, 2002 was duly addressed to the defendant both at his residential address as well as at its office address. The postal envelope of Exhibit 'J' addressed to the residential address of the defendant is marked as Exhibit 'K'. Exhibit 'K' bears the endorsement "not claimed". The two envelopes addressed to the office address of the defendant were returned unserved with the endorsements "addressee is absent" and "receiver not received". The witness of the defendant in cross- examination has stated that the office of the defendant was closed on the particular days when the notice was sought to be served on the defendant at its office. The witness however on query from Court could not remember the reason as to why the office was closed on a working day.
Exhibit 'J' was sought to be served on the defendant both at his residential address as well as at his office address by Speed Post with the acknowledgement due card. The plaintiff has established that the letter being Exhibit 'J' was duly despatched by Speed Post to the correct address of the defendant at his residential and office addresses. The defendant did not claim Exhibit 'J' at its residential address and the envelope addressed to the office address was not received by the defendant as its office had remained closed. The facts established allows a finding of deemed service of the notice dated January 14, 2002 on the defendant.
In such circumstances, issue no. 3 is answered in the affirmative and against the defendant.
So far as issue no. 4 is concerned, the learned Senior Advocate for the plaintiff relies upon Sections 172 to 177 of the Contract Act, 1872 and submits that, the plaintiff as the pledgee was entitled to sell the shares at a time of its choice. He contends that, a pledgee is not bound by the rigours of Section 73 of the Contract Act, 1872. In support of such contentions he relies upon All India Reporter 1950 Travancore Cochin page 66 (Sankaranarayana Iyer Saraswathy Amal v. The Kottayam Bank Ltd.), All India Reporter 1991 Delhi page 278 (Bank of Maharashtra v. Racmann Auto (P) Ltd.) and All India Reporter 2000 Bombay page 151 (State Bank of India v. Smt. Neela Ashok Naik & Anr.).
The plaintiff was obliged to sell the shares on receipt of the letter dated February 7, 2001 and at least when the share prices were falling. The plaintiff had failed to act in terms of Section 73 of the Contract Act, 1872 and having failed to mitigate its damages, the plaintiff is not entitled to any decree as prayed for. In support of such contention the learned Senior Advocate for the defendant relies upon 1911-1913 All England Reports Reprint page 63 (British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London, Ltd.), 1918 All England Reports page 219 (Payzu, Ltd. v. Saunders), 1963 (3) All England Reports page 310 (Darbishire v. Warran) and All India Reporter 1962 Supreme Court page 366 (M/s. Murlidhar Chiranjilal v. M/s. Harishchandra Dwarkadas & Anr.).
In Sankaranarayana Iyer Saraswathy Amal (supra) a suit for recovery of balance of loan secured by pledge was decreed. On appeal it was contended that the sale of securities was without proper or reasonable notice and assuming that there was a valid notice of sale the power of sale was suspended indefinitely and that there was inordinate delay which resulted in the shares being sold at low prices. These contentions were negated. Sections 176 and 177 of the Contract Act, 1872 were considered. So far as Section 176 of the Contract Act, 1872 was concerned, it was held that the pawnee was entitled to sell the shares. It noted that the argument that a pawnee should give notice of the actual date, time and place of the intended sale to the pawnor is one which the Courts had always repelled. It was held that a pawnee may sell the thing pledged on giving reasonable notice of the sale and that an intimation of the intention to sell should be given and not that a sale should be arranged beforehand. On the question whether a pawnee has a right to choose his own time to put his power of sale into operation after he gives due notice of the sale, it has been held that no law or decision was referred to before their Lordships in support of the contention that the pawnee had no such right. On facts the appeal preferred was dismissed.
In Racmann Auto (P) Ltd. (supra) one of the questions answered, in a suit for recovery of money by a bank against the pledgee was whether there was any legal duty cast on the bank to take any early steps for disposing of the pledged goods. Section 176 of the Contract Act, 1872 was considered. It was held that, it was in the discretion of the pawnee to sell the goods in case the pawnor makes default but if the pawnee does not exercise his discretion no blame can be put on the pawnee and the pawnee has a right to bring the suit for recovery of debt and retain the goods pledged as collateral security. The power of the pawnor to force the pawnee to sell the pledged goods without clearing the debt was doubted.
In Smt. Neela Ashok Naik & Anr. (supra) again in a suit for recovery of money filed by a bank against pledge, the contention that Section 176 of the Contract Act, 1872 vests absolute discretion in the bank to retain the security and sue for the amount due or to adjust the security at the point of time at its discretion and sue the debtor for the balance amount came up for consideration. It noted the doubt expressed as to whether a pawnor could force the pawnee to dispose of the pledged goods without the pawnor clearing the debt in Racmann Auto (P) Ltd. (supra). The ratio laid down in Racmann Auto (P) Ltd. (supra) was followed.
British Westinghouse Electric and Manufacturing Co. Ltd. (supra) considers the measure of damages on account of a breach of a contract. In such suit it has been held that the principles to quantify damages are well-settled. As far as possible the person who has proved a breach of a contract should be placed as far as possible in as good a situation as if the contract had been performed. This principle however is quantified by a second principle which imposes a duty on the plaintiff in such a suit for damages to establish that such plaintiff had taken all reasonable steps to mitigate the loss consequent on the breach. This second principle debars a plaintiff in a suit for damages on breach of contract from claiming any damages which is due to his neglect to take steps to mitigate the losses.
In Payzu, Ltd. (supra) an appeal arising out of a suit for damages for breach of contract came up for consideration. The same principle for quantification of damages as that of British Westinghouse Electric and Manufacturing Co. Ltd. (supra) was reiterated.
In Darbishire (supra) the plaintiff's car was in collusion with the defendants and was seriously damaged by the defendants fault. The plaintiff had therefore sued the defendant in damages. In such context the first principle that the plaintiff was entitled to receive as damages such sum of money as would put him in as good a position as he would have been if the accident was not occurred was noted. The second principle that the plaintiff had a duty to mitigate the loss was also noted.
Section 73 of the Contract Act, 1872 is considered by the Supreme Court in M/s. Murlidhar Chiranjilal (supra). In a suit for breach of contract the two principles on which damages for breach of contract are calculated are stated.
It is contended on behalf of the defendant that the plaintiff had a duty to mitigate the losses in view of the explanation of Section 73 of the Contract Act, 1872 and that the provisions of Section 73 of the Contract Act, 1872 applies to a fact scenario where Section 176 of the Contract Act, 1872 applies. This contention of the plaintiff was doubted in Racmann Auto (P) Ltd. (supra).
Section 73 and Section 176 of the Contract Act, 1872 are as follows:-
"73. Compensation for loss or damage caused by breach of contract.- When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract.- When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation.- In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non- performance of the contract must be taken into account."
"176. Pawnee's right where pawnor makes default.- If the pawnor makes default in payment of the debt, or performance, at the stipulated time, of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.
If the proceeds of such are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor."
Section 176 of the Contract Act, 1872 allows the pawnee two options in the event the pawnor makes a default in the payment of the debt or the performance at the stipulated time of the promise in respect of which the goods were pledged. The first option granted to the pawnee under Section 176 of the Contract Act, 1872 is that he may bring a suit against the pawnor upon the debt or the promise and retain the goods pledged as a collateral security. The second option being that the pawnee may sell the thing pledged on giving the pawnor reasonable notice of the sale.
Learned Counsel for the defendant contends that a pawnee must mitigate the damages under Section 73 of the Contract Act, 1872 while acting under Section 176 of the Contract Act, 1872.
Mitigation of losses as a principle would have no manner of application in the first option given to a pawnee under Section 176 of the Contract Act, 1872. The pawnee is at liberty to retain the goods pledged as collateral security and bring a suit against the pawnor upon the debt or promise if the pawnor makes a default in payment of the debt or the performance at the stipulated time of the promise in respect of which the goods are pledged. Therefore, when the pawnee has a right to retain the pledged goods as collateral security, and he opts for the first option given to him under Section 176 of the Contract Act, 1872, the question of the pawnee mitigating his losses does not arise.
Under the second option, Section 176 of the Contract Act, 1872 enjoins upon the pawnee the obligation to give the pawnor reasonable notice of the sale before selling the thing pledged. Sankaranarayana Iyer Saraswathy Amal (supra) is of the view that, such notice under Section 176 of the Contract Act, 1872 only means an intimation of the intention to sell and not that, a sale should be arranged beforehand and due notice of all details given to the pawnor. Section 176 of the Contract Act, 1872 allows the pawnee to opt for the time of the sale. Section 177 of the Contract Act, 1872 allows the pawnor to redeem the thing pledged upon payment of the debt due. The pawnor has a right to have the pledge sold property and its sale proceeds applied to the debt due. In a given case where the pledgee can establish improper sale of the pledged good, he may claim damages. In the instant suit, the defendant has not been able to establish that the sale of the shares was done improperly or at a price not prevailing in the market at the material point of time. The defendant has also not been able to establish that it had called upon the plaintiff to sell the shares.
In the present case, the shares pledged were sold in the stock market within the parameters of the quoted prices for the shares prevailing on the date of the sale. The defendant has not questioned the sale of the shares per se. The defendant questions the date of the sale of the shares. Such question has no substance in the facts of this suit as the sale was undertaken after notice to the defendant.
In view of the discussions above the fourth issue is answered in the affirmative and in favour of the plaintiff.
The fifth and the sixth issues are taken up together for the sake of convenience. The plaintiff seeks a money decree against the defendant after adjusting the proceeds of the sale. The principal amount lent and advanced is Rs.1,10,00,000/-. The amount realised by sale of the pledged shares is Rs.8,55,400/-. The principal amount due by the defendant to the plaintiff is therefore Rs.1,01,44,600/-. The defendant presses letters dated February 7, 2001 and April 20, 2001 being Exhibits '7' and '6' respectively in support of the contention that the defendant had called upon the plaintiff to sell the shares and that the plaintiff not having done so, the defendant is not liable.
Exhibit '7' is the letter dated February 7, 2001. Exhibit '7' is addressed by the defendant to the plaintiff. There is a signature of one Mr. Govind Kedia on this letter. Exhibit '6' is the letter dated April 20, 2001. This letter is written on behalf of the defendant to the plaintiff purporting to enclose a cheque for the sum of Rs.1,68,000/- allegedly to meet the final balance amount of the loan account against pledge of shares. This again is claimed to be received by Mr. Govind Kedia on behalf of the plaintiff.
I find from Exhibits 'E' to 'G' that the plaintiff had made over several cheques to the defendant aggregating to a sum of Rs.1,10,00,000/-. These letters were issued by the plaintiff to the defendant and were received by the defendant by putting the stamp of the defendant therein. Mr. Govind Kedia is sought to be introduced through the two letters being Exhibits '6' and '7' the receipt of which has been vehemently denied by the plaintiff. The defendant himself has not come as a witness. The witness of the defendant claims himself to be the accountant of the defendant. Such witness claims that Mr. Govind Kedia has told the defendant that Exhibits '6' and '7' were handed over by Mr. Govind Kedia to the plaintiff. The defendant claims that Mr. Govind Kedia to be the agent of the plaintiff. No documentary evidence has been placed on record by the parties to establish that Mr. Govind Kedia was the agent of the plaintiff. The witness for the defendant in its oral testimony says that Mr. Govind Kedia has acted as an agent of the plaintiff. Mr. Govind Kedia has not been called as a witness. The whereabouts of Mr. Govind Kedia is not known to the witness of the defendant. The evidence of the witness of the defendant is hearsay and cannot be relied upon.
The defendant has therefore failed to establish that the plaintiff had received the letters dated February 7, 2001 and April 20, 2001 being Exhibits '7' and '6' respectively.
In view of the discussions above the sixth issue is answered in the negative and in favour of the plaintiff.
The loan for the sum of Rs.1,10,00,000/- is admitted. The value of the sale of pledged shares is Rs.8,55,400/-. The defendant is, therefore, entitled to the adjustment of the value of the pledged shares with the principal amount outstanding. Therefore, the principal amount outstanding is Rs.1,01,44,600/-. The defendant has paid interest upto March 31, 2001. The nature of transactions between the parties is commercial. The nationalized banks charge interest at rates not less than 12 per cent per annum in respect of commercial transactions. In such circumstances, the plaintiff is entitled to interest at the rate of 12 per cent per annum on and from April 1, 2001 until realization on the sum of Rs.1,01,44,600/-. The plaintiff is, therefore, entitled to a decree for Rs.1,01,44,600/- together with interest at the rate of 12 per cent per annum on such sum on and from April 1, 2001 until realization.
The fifth issue is answered accordingly.
So far as the seventh issue is concerned, I find that the plaintiff has paid a Court-fees of Rs.10,000/-. The plaintiff will therefore be entitled to a decree of Rs.20,000/- as assessed costs from the defendant.
C.S. No. 113 of 2002 is decreed accordingly.
The department is directed to draw up and complete the decree as expeditiously as possible.
[DEBANGSU BASAK, J.] Later:-
Stay prayed for is considered and refused.
[DEBANGSU BASAK, J.]