Andhra HC (Pre-Telangana)
Pilladi Venkata Rao vs Masakapalli China Venkatapathy And ... on 3 July, 1964
Equivalent citations: AIR 1965 ANDHRA PRADESH 410
JUDGMENT
(1) This second appeal by the 1st defendant arises out of a suit filed by the plaintiff to set aside the summary order dated 24-2-1960 passed by the District Munsif, Peddapuram in I. S. 129 / 60 in O. S. No. 10/60 on the file of that Court. It was alleged inter alia in the plaintiff that the 1st defendant filed a suit, O. S. 10/60 against the 2nd defendant on the foot of a promissory note and attached the stamps belonging to the 2nd defendant under Order 38, Rule 5 C. P. C. The plaintiff filed a claim petition objecting the attachment on he ground that the 2nd defendant had entered into an agreement with him whereunder the plaintiff agreed to advance necessary funds for the purchase of stamps and the 2nd defendant agreed to keep the stamp papers in the possession of the plaintiff as security for the amounts thus advanced. It was also agreed that the plaintiff or his nominee would be present at the time when the stamps are sold, so that the amounts thus realised would be handed over to the plaintiff towards the payment of the advances he had made. It was therefore contended that the plaintiff has a preferential right to recover the money from the sale proceeds of the stamps and that the stamps therefore cannot be attached.
The 1st defendant denied the execution of any agreement and also questioned the validity of the agreement.
Upon these pleadings the trial court framed appropriate issues and after recording the evidence of the parties dismissed the plaintiff's suit. It was held that the agreement has not been satisfactorily proved, and that it is invalid.
(2) Dissatisfied with the judgment the plaintiff preferred an appeal to the Principal Subordinate Judge, Kakinada. His appeal was allowed. It was held by the learned Subordinate Judges that the agreement pleaded by the plaintiff is true, valid and binding on the 1st defendant. He also held that the agreement amounts to an equitable assignment of the stamps attached by the 1st defendant and the plaintiff therefore is entitled to a preferential right in respect of the stamps. It is this view of the learned Subordinate Judge that is now assailed in this second appeal.
(3) The principal contention of Mr. A. Gangadhara Rao, the learned Counsel for the appellant, is that the agreement in question does not amount to a transfer within the meaning of Section 130 of the Transfer of property Act (hereinafter called the Act) and that the agreement therefore does not create any right in the plaintiff to claim preferential payment. In any case his argument is that the plaintiff is not entitled to claim preferential rights in respects of the stamps.
(4) In order to appreciate the above contention it becomes necessary to read the definition of actionable claim occurring in Section 3 of the Act. It reads as follows:
" ' actionable claim' means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of moveable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing conditional or contingent."
(5) Section 130 of the Act which is of great materiality reads as follows :
"130 (1) The transfer of an actionable claim whether with or without consideration shall be effected only by the execution of an instrument in writing signed by the transferor his duly authorised agent. . . . . . . .. . shall be complete and effectual upon the execution of such instrument, and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, vest in the transferee, whether such notice of the transfer as in hereinafter such notice of the transfer as is hereinafter provided be given or not :
Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transfer.
(2) The transferee of an actionable claim may, upon the execution of such instrument of transfer as aforesaid, sue or institute proceedings for the same in his own name without obtaining the transferor's consent to such suit or proceedings, and without making him a party thereto.
Exception :- Nothing in this section applies to the transfer of a marine or fire policy of insurance (or affects the provisions of S. 38 of the Insurance Act, 1938 (IV of 1938) )"
(6) A careful and close reading of these two provisions of the Act would disclose that the definition is of very wide import and to some extent differs from what is known as 'chose in action' in English law. The expression 'chose in action in England is used to describe all personal rights of property which can only be claimed or enforced by action and not by taking physical possession, claims enforceable by taking physical possession being known as 'choses in possession'. It is true that Chapter VIII of the Act is designed to bring the Indian Law in line with the English Law. But still the law now enacted presents several striking differences as compared with the English law, noticeable amongst which, as far as is relevant for this case, is that while English law still reserves a place for an equitable assignment, there is no room in it in the Indian law inasmuch as the assignment of an actionable claim including the equitable assignment has to be made in accordance with section 130 of the Act.
In the English law all personal property is either (1) in possession called 'chose in possession', or (2) in action called 'chose in action'. 'Chose in possession' are things, of which the owner has the present possession and enjoyment which he can deliver over to another, but things of which he has no actual possession or enjoyment but only the right enforceable by suit, were designated 'choses in action' since they could only be recovered or realised by action. Now such things may be (1) a debt, (2) a benefit of a contract or (3) damages for a wrong. All these rights would according to the English law fall within the term. But under the present definition of 'actionable claim' in the Transfer of Property Act cases referred to in class (1) in class (2) may be classed under the term 'actionable claim' but those falling in class (3) are expressly excluded.
(7) The term 'actionable claim' then must not be regarded as a synonym for the corresponding English phrase. It must also be under-stood that the definition of 'chose in action' is by no means settled even in English law. In an article on 'chose in action' Sir Howard Elphinstone examines the various, meanings and concludes that "' chose in action' according to modern usage, includes only money due, whether under contract or not, and contracts of every nature except contract for the sale of goods, where the word 'contract' is used in its widest meaning so as to include shares in the companies. The phrase is never at the present day used in the meaning of a right of action in respect of a tort and it is perhaps doubtful whether it includes patents, copyrights and trademarks" (Section 9 L. Q. R. 311). This view was supported subsequently by other writers.
(8) although therefore there is difference between the English law, as it now stands, and the Indian law codified in Chapter Viii, one thing which is clear is that the equitable assignment is recognised by Indian Courts but it has to be effected in accordance with section 130 of the Act. The present amended definition has now removed the difficulty experienced before by excluding from its debts secured by mortgages of immovable property or by pledge of movable property and by including claims in respect of which the cause of action may not have arisen. but may accrue on the proof. The actionable claim now means a claim to any debt other than secured debt or any beneficial interest in movable property not in possession of the claimant, which the Civil Courts recognise as affording ground for relief.
(9) What therefore, I have to see in the background of this discussion is whether what is contemplated by the agreement in question is (1) a debt or an interest in movable property, and (2) whether there is any transfer in favour of the plaintiff and if so, whether the provision of section 130 have been complied with.
(10) Now in regard to the question whether what is intended to be transferred is an actionable claim it has to be found out whether what is transferred is the stamps or the sale proceeds of the stamps or the sale proceeds of the stamps. It is unnecessary in my opinion to deal with the various rules made under the Stamp Act in order to find out whether stamps Act in order to find out whether stamps can be given by way of security or any change can be created thereupon. I am clear that the agreement in question does not create any charge on the stamps, nor it is contemplated by the parties. No ,question therefore, of violation of any rule made under the stamp Act arises in this case. In fairness it must also be said that no stress was laid during the course of the arguments on any such violation. In order to resolve this question therefore we have to read the agreement, the material portion of which is as follows :-
"Hence from now onwards for 3 years you shall given me as loan the necessary monies for stamp indents. As security for your investments, I shall keep the stamps with you whenever I indent them. In order that I may whenever I indent them . In order that I may not spend the sale proceeds otherwise, you or some one on your behalf may remain in my shop and the sale amount shall be retained with you."
This extract form Ex. A 1 would clearly denote that what was transferred in favour of the plaintiff was the interest in the proceeds of the sale of stamps. It is true that it is said that the stamps have been kept with the plaintiff by way of security, but that does not, in my opinion, affect the question under my consideration. I have already stated that the definition has now been extended so as to include such equitable choses in action as debts or beneficial interest in moveable property whether existent, accruing conditional or contingent. That being the position there can be little doubt about the validity of transferring a specific fund towards the payment of the debt incurred by the debtor. That is what has happened in this particular case. The 2nd defendant who had borrowed money from the plaintiff undertook to pay back the debt from a specific fund viz., the sale proceeds of the stamps. Now whether this amounts to equitable assignment which has been effected in accordance with Section 130 or not has to be seen.
Before I consider that, the argument that Ex. A. 1 merely directs payment must be considered. It must be noted that there is a difference between an order for payment of money and an equitable assignment. A pay order gives the payee no interest in the fund, and the liability of the debtor is still to the creditor and not to the payee. A pay Order generally presupposes moneys of the drawer in the hands of the party to whom the order is addressed, held on the terms applying such money as directed by the order of the person entitled to them. No such obligation arises in the case of an assignment. Again a pay order is revocable while an assignment is not, and a pay order ceases to be operative after the death of the creditor, while an assignment does not. It must be realised that the specifications of a particular fund generally points to an assignments, that is to say, that while the latter specifies the fund out of which the payment is to be made, the former is a mere directions to pay and in it there is no specified fund which is the subject of an equitable assignment. Looked at from this point of view of difference between the two, the agreement is not merely an order for payment of money but it specifies the fund from which the debt incurred by the 2nd defendant will be discharged. It is expressly stated that the plaintiff or his representative would be present at the same time when the stamps are sold and the sale proceeds would immediately be handed over to the plaintiff or his representatives.
It is true that there is no specific direction in the agreement that such an amount would be appropriated towards the discharge of the debt. The original agreement is in Telugu, reading of which would leave no one in doubt that what was intended was that such sale proceeds which are handed over and retained by the plaintiff would be appropriated towards the discharge of the debt or the advances which he had made for the purposes of indenting the stamps. it cannot, therefore, be validity argued that the agreement is merely an order for payment of money, but is a clear case of an equitable assignment because it species a particular fund out of which the payment is to be made. What must follow from the above said discussion is that what transferred was not the stamp papers, but call it a debt or interest in movable property viz., the specific funds, that is, the sale proceeds of the stamp papers. That fund was to be handed over to the plaintiff towards the discharge of the debt. It is unnecessary to decide - and no arguments were advanced before me- whether the direction to pay from a specific fund i. e., the sale proceeds of the stamps amounts to a debt or interest in movable property. In either case it will be an equitable assignment.
(11) Let me now consider some of the decided cases discussed at the Bar.
(12) In Travancore National Bank Subsidiary Co. Ltd. v. Travancore National and Quilon Bank Ltd., AIR 1940 Mad 258 Venkataramana Rao, J. held :
"Where there is an agreement between a debtor and a creditor that a particular debt should be paid from and out of a particular fund or money in the hands of a third party, the agreement will operate as an assignment of the debts or the money .But the assignee is under an obligation to refund to the assignor any surplus that may remain after discharge of liability."
Similarly Ramesam J., in Doraisami Mudaliar v. Doraiswami Iyengar AIR 1925 Mad 753 held :
"To effectuate an assignment of a debt there must be words of transfer in the instrument. A notice to the debtor not containing words of transfer nor referring to a transfer is not an instrument of transfer. An instrument of transfer would in general, be an instrument executed in favour of the assignee. But a transfer can be effected by an endorsement on the bond or other paper evidencing the debt sought to be transferred. Apart from such cases, an instrument of transfer would be addressed to the assignee. But assuming that the instrument may be addressed to the assignee. But assuming that the instrument may be addressed to the debtor there must be words operating as a transfer. The fund out of which the payments is to be made should be specified and if no fund is specified the order does not operate as assignment. The assignment of a debt must be of the whole debt. But the assignment may be absolute or by way of security."
(13) It was argued by Mr. Gangadhararao relying upon this case that Ex. A. 1 does not amount to a transfer. A reading of the agreement does not, however, support this contention. I have already stated that a direction to pay a debt from a specified fund amounts to an equitable assignment and if the agreement is read keeping in view this principle, there can be little doubt that Ex. A. 1 constitutes an equitable assignment and effects transfer of the specific fund towards the discharge of the debt.
(14) Official Assignee, Madras v. Hukumchand, AIR 1941 Mad 147 and Officials Assignee v. M. and S M Rly. Employees Co-operative Urban Bank Ltd. AIR 1941 Mad 297 are the cases decided keeping in view the facts of those cases. They do not, however, decide as far as the principle is concerned anything derogatory to which I have made reference.
(15) In B. N. Ry. Employees' Urban Bank Ltd. v. Erie Walter Seager, AIR 1942 Pat 307 it was observed by their Lordships as follows.
"So far as the Indian Courts are concerned regarding creation of equitable charges in respect of property which may come into being in future, the Courts are bound to follow the strict requirements of the Indian statute, and under the provisions of the Transfer of Property Act, such an equitable assignment or equitable charge can only be created by a document in writing as provided by those."
(16) In Thakar Das v. Malik Chand AIR 1933 Lah 102 a Bench of the Lahore High Court said :
"An agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor or an order given by a debtor to his creditor upon a person owing money or holding funds belonging to the giver of the order directing such person to pay such funds to the creditor, operated as an equitable assignment of that part of the debt or funds to which the agreement or order refers."
This case will answer the argument advanced that in cases of equitable assignment there ought to be a tripartite agreement. It is now fairly settled that even when a debtor enters into an agreement that the debt shall be paid out of a specific fund coming to the debtor himself even then there can be an equitable assignment to the fact that in this case the debtor sells the stamps and there is no specific person from whom the 2nd defendant has to recover some money. When it is conceded that by the sale of stamps the debtor himself would come in possession of specific funds and if he undertakes to pay the debt out of such a specific fund, it would my opinion , satisfy the requirements of an equitable assignment.
(17) In Ramu Aiyar v. Parthasarathy Chetty, 43 Ind Cas 385 : (AIR 1918 Mad 172) a Full Bench of the Madras High Court in a case where a defendant authorised plaintiff to collect certain decrees and to pay a certain sum out of the proceeds to himself held that this amounted to an equitable assignment of the decrees in the plaintiffs favour". It was also held that an agreement between an assignor and an assignee that a debt should be paid out of a specific fund or an undertaking to pay over to another moneys to be received from a particular source, amounts to an equitable assignment". It is clear from this case also that it is not necessary to constitute an equitable assignment that there should be three parties to such an agreement. Even when the specific fund reaches the hand of the debtor and he undertakes to pay over to another, moneys which he thus receives, would also satisfy the requirements of an equitable assignment. It is perhaps pertinent to note that in his judgment Seshagiri Aiyar, J. stated :
I think that Courts in India ought not to perpetuate distinctions between legal rights and equitable rights and should not hold that there might be an equitable assignment which is a thing distinct from a legal assignment."
Further on the learned Judge observed :
"I am unwilling that in India the assignment of a right to receive money's or a chose in action should be called an 'equitable assignment' instead of using unambiguous expressions showing the exact right assigned".
These observations indicate that the term 'equitable assignment' does not have the same connotation in all respects in India ; nevertheless the equitable assignment are recognised in India, but they must be effected in accordance with the provisions of S. 130 In this regard it is profitable to refer to Mulraj Khatau v. Vishwanath Vaidya , ILR 37 Bom 198 (PC).
In that case their Lordships of the Privy Council were required to consider the rival claims to the proceeds of a policy of insurance on the life of the debtor which he had been paid into Court by the Insurance Company as a defendant in a suit brought for the money in which the appellant was also a defendant. The appellant relied on an assignment by the debtor of the policy by an instrument in writing the appellant was also a defendant. The appellant relied on an assignment by the debtor of the policy with him by the debtor accompanied by any written instrument. It was held that the case was governed by section 130, sub section (1) of the Transfer of property Act, which precluded the application in India of the principles of English Law and the title of the appellant as being based on an instrument in writing, and so confirming in all respects with the provisions of that section, was absolute as against that of the respondent who acquired no right to the policy or its proceeds by reason of the deposit, It was also held that "the right to the proceeds was an 'actionable claim; and section 130 covered transfers, as appeared from illustration 2 to the section.
This decision therefore settles the question once for all. It is clear that equitable assignment now forms part of actionable claim and can be effected only in accordance with A. 130 of the Act. Such equitable assignments can either be absolute transfers, or can be effected by way of security. In this case there is not question of security. It is a case of an assignment of specific fund for the purpose of discharging the debt, which is an equitable assignment and as it has been effected in accordance with S. 130 of the Act the transfer in valid.
(18) The last which was cited was Navajee v. Administrator-General of Madras, 22 Ind Cas 566 : (AIR 1914 Mad 281). The agreement in that case was in the following terms :
"I pay you soon after I receive cheques from M. R. Co. for works done and in case I fail to remit your money after I receive from Mr. Co . . . . . . . . . . . . . . . . I am liable."
It was held that "these words clearly indicated an intention to pay out of a specified fund' and not when funds shall come' and were operative to create a valid equitable assignment of the funds when available and not a mere assignment of an uncertain future chose in action.
(19) It will thus be clear that the agreement in question is an equitable assignment directing the sale proceeds which reach the 2nd defendant the sale proceeds which reach the 2nd defendant to be immediately handed over to the plaintiff towards the discharge of his debt. It is also clear that such an assignment has been effected under Ex. A. 1 which fulfils all the requirements of S. 130 of the Act. I find therefore no difficulty in agreeing with the conclusion of the lower appellate Court, although I reach that conclusion through slightly a different route, that the plaintiff has a right to get preferential payment from the sale proceeds of the stamps attached.
(20) No arguments were advanced before me in regard to the question whether Ex. A. 1 is proved. The lower appellant Court has distinctly found on evidence that the 2nd defendant has executed the agreement in favour of the plaintiff . That findings of fact is binding on me.
(21) For all the reasons which I have endeavoured to give, I must reject this second appeal with costs. No leave.
(22) Appeal dismissed.