Orissa High Court
Tapanga Light Foundry And Ors. vs State Bank Of India, Khurda And Ors. on 25 July, 1986
Equivalent citations: AIR1987ORI174, AIR 1987 ORISSA 174, (1987) 2 LANDLR 312, (1987) 1 CURCC 167, (1986) 2 ORISSA LR 308
ORDER K.P. Mohapatra, J.
1. Civil Revision Nos. 471 and 505 of 1985 were heard analogously. The order which is going to be passed will govern both.
2. The facts relevant for disposal of these cases are narrated in brief. Opposite party No. 1 is the State Bank of India of Khurda. The petitioners 2 to 6 and opposite parties 2 to 4 are the partners of petitioner No. 1, M/s. Tapanga Light Foundry and Co. having its head office in Calcutta and the factory premises at Tapanga near Khurda. Opposite party No. 1 instituted T.MS. No. 92 of 1982(11) against the petitioners and opposite parties 2 to 4 in the court of the learned Subordinate Judge, Khurda praying for a preliminary decree for recovery of Rs. 94,06,349.22 and for sale of mortgaged property and pledged goods on the basis of a deed of mortgage. In their written statement the plaintiffs and opposite parties 2 to 4 did not deny execution of the deed of mortgage on receipt of loans from opposite party No. 1, but, inter alia, alleged that the amount due againt them was much less than the amount claimed and the suit was barred by limitation. One of the clauses in the deed of mortgage relates to pledge of goods and is to the following effect : --
"All stocks of raw materials and finished goods manufactured therefrom now or at any time hereafter during the continuance of this Agreement, stored or to be stored in Godown(s)/in the factory situated at Tapang, Khurda, Orissa, or in any other factory premises/Godown or Godown(s) approved by the Bank."
Opposite party No. 1 had advanced the loans in the year 1964 and thereafter from time to time on different dates in succeeding years. But the petitioners and opposite parties 2 to 4 did not make any repayment, as a result of which, the total amount due on them and claimed in the suit went up to the region of rupees one crore and so during the pendency of the suit, opposite party No. 1 filed petitions said to be under Order 39, Rule 6 of the Code of Civil Procedure ('Code' for short) for sale of pledged goods, all movables, in terms of the agreement contained in the deed of mortgage for part satisfaction of the admitted dues. Both the parties contesting the suit were heard. The petitioners agreed for sale of the pledged goods. Accordingly, the learned Subordinate Judge passed an order on 1-5-85 directing sale of the pledged goods by 17-6-85. Opposite party No. 1 took steps to advertise the sale in newspapers and many tenders from intending purchasers were received. The tenders were opened in the presence of the representatives of opposite party No. 1 and some of the petitioners and the highest tender of M/s. Rajkumar Pareshnath who had offered the price of Rs. 32,00,500/- was accepted. M/s. Rajkumar Pareshnath, however, backed out and so the sale could not be finalised within 17-6-85. Opposite party No. 1 again moved the learned Subordinate Judge for further time to effect sale of the pledged goods. At this stage, however, the petitioners raised objection on the ground that the pledged goods should be sold by weighment and not by lots to fetch a higher price. The matter was heard in presence of the contesting parties and the learned Subordinate Judge came to hold that the petitioners had agreed for sale by lots of the pledged goods. They had never raised any objection regarding the mode of sale when they agreed in Court for sale of the pledged articles nor when the tender of M/s. Rajkumar Pareshnath was accepted. There was also no agreement between the parties at the time of execution of the deed of mortgage that the goods should be sold by weighment. For these reasons the learned Court below by the impugned order dated 25-7-85 permitted opposite party No. 1 to effect sale within two months with a further direction that the sale price should be adjusted towards the suit claim. The petitioner being aggrieved with this order filed Civil Revision No. 471 of 1985.
3. Being fortified with the Court's order dated 25-7-85 opposite party No. 1 carried on negotiation and ultimately M/s. Vinayak Steel agreed to purchase the pledged goods in lots for a price of Rs. 33,50,000/- and on payment of the entire price wanted to lift the goods. The sale was effected on 1-8-85. On the same day the learned Subordinate Judge recorded that the sale had been effected. Being aggrieved with this order dated 1-8-85 the petitioners filed Civil Revision No. 505 of 1985. So the undisputed position now is that the pledged goods are alleged to have been sold in favour of M/s. Vinayak Steel for a sum of Rs. 33,50,000/- in lots on 1-8-85. The purchaser has not lifted the goods though anxious of doing so because of dispute raised by the petitioners in these cases. The hearing of the suit which is part heard is not yet complete. The industry (petitioner No. 1} is sick.
4. On the contentions raised by the learned counsel appearing for the parties the following points arise for consideration : --
1) Whether opposite party No. 1 was entitled to sell the pledged goods during pendency of the suit.
2) Whether Section 176 of the Indian Contract Act is of mandatory character.
3) Whether the petitioners and opposite parties 2 to 4 had notice of the sale.
4) Whether the sale has become complete. Point No. 1:--
5. It is not disputed that the petitioners and opposite parties 2 to 4 mortgaged property described in Schedules B, B-1 and B-2 of the plaint. Besides they pledged goods described in Schedule C of the plaint. Opposite party No. 1 sought to recover the loan by sale of the aforesaid property.
6. Opposite party No. 1 filed the first petition under Order 39, Rule 6 of the Code on 22-4-1985. He "stated therein that the pledged goods have been stocked and stored inside the factory premises without proper safeguard because the industry is sick and is not functioning. Some pledged goods have been sold by agreement of parties. On several occasions theft of raw-materials has occurred for which information has been lodged in the police station. Otherwise, being exposed to natural elements the goods are being wasted, damaged and deteriorating in quality so as to fetch a lesser value when sold in due course. Therefore, the pledged goods should be sold. As already referred to above the petitioners did not object and agreed for sale of the pledged goods and accordingly the learned Subordinate Judge on 1-5-1985 passed an order for sale of the goods by 17-6-1985. In accordance with the Court's order, sale notice was published in newspapers and as many as 34 intending purchasers submitted their tenders. When the tenders were opened on 14-6-1985 petitioners 2 and 4 were present on behalf of the petitioners and opposite parties 2 to 4 and officers of opposite party No. 1 were present. They had formed a committee to consider the tenders. They decided to accept the highest tender of M/s. Rajkumar Pareshnath for Rs. 32,08,500/- and drew up a proceeding duly signed by petitioners 2 and 4 and the Regional Manager and some other officers on behalf of opposite party No. 1 M/s. Rajkumar Pareshnath later backed out.
7. Thereupon, some firms who had previously submitted tenders were selected and negotiation was carried with them. In a meeting convened on 24-6-1985 by the committee in which petitioners 2 and 4, as well as, the Regional Manager, Branch Manager and other officers of opposite party No. 1 were present, the highest tender of M/s. Vinayak Steel for the sum of Rs. 33,50,000/- was accepted. Petitioners 2 and 4 had raised an objection in the said meeting that the pledged goods should be sold not by lots but by weighment. But ultimately it was resolved by the committee that petitioners 2 and 4 shall give their concurrence on 25-6-1985. This proceeding was signed by petitioners 2 and 4 and the officers of opposite party No. 1. On 25-6-1985 the committee again met and drew up a proceeding stating therein that petitioners 2 and 4 did not agree for sale of the pledged goods either by lots or by weighment. This proceeding was signed by the officers of the opposite party No. 1 and not by petitioners 2 and 4 in view of their letter dated 25-6-1985 which is quoted below : --
"In view of the order of the Hon'ble Subordinate Judge, Khurda dt. 1-5-85 the raw materials to be sold with consultation with Sri Dinabandhu Dutta and Sri Srinibas Paikray. We are sure that the value of the raw materials will be more if it will be sold by weighing and not by lot. For the interest of Bank and the Firm the material may please be sold as per measurement of M. Tons.
We are strongly objecting to take arbitrary decision to sell the goods as per will as stated in your letter dt. 24-6-1985.
We, therefore, request you to keep the auction matter pending till the Hon'ble Court will clarify his order dt. 1-5-85 for auction of the material of Tapang Light Foundry & Co.".
8. From the above narration of facts it is clear that the petitioners had agreed for sale of the pledged goods. If M/s. Rajkumar Pareshnath would not have backed out, the sale transaction could have been completed. When it was decided to sell the pledged goods to this firm no objection was raised as to whether the pledged goods shall be sold by lots or weighment. When the sale was deferred the petitioners raised the objection for sale of the pledged goods by weighment, presumably for the reason that it may fetch a higher price than offered by M/s. Vinayak Steel. It is, however, not known and there is no expert opinion as to whether the pledged goods would secure a price higher than the price offered by M/s. Vinayak Steel if sold by weighment. The sale notice does not indicate that the pledged goods in 15 lots were advertised for sale by weighment. A plain reading thereof will show that it was proposed to sell the lots by approximate quantity on "as is where is basis". No objection was raised when the learned Subordinate Judge passed the order for sale on 1-5-1985. Similarly, it was not pointed out on 14-6-1985 that the goods should be sold by weighment when the committee decided and drew up proceedings duly signed by petitioners 2 and 4. For sale of the pledged goods in favour of M/s. Rajkumar Pareshnath. It was only at a later stage that the objection was taken expecting that sale by weighment will fetch a higher price. The letter dated 25-6-1985, which has been quoted above, does not also indicate that petitioners 2 and 4 disagreed for sale of the pledged goods. Their objection was not to sell the same by lots but by measurement per M. Ton.
9. Under Order 39, Rule 6 of the Code the Court may direct sale of any movable property, being the subject-matter of such suit, which is subject to speedy and natural decay, or which for any other just and sufficient cause it may be desirable to have sold at once. Steel materials, which mostly the pledged goods are, though not subject to speedy decay, are subject to natural decay in course of time if exposed to weather. In course of time they will rust. They are also liable to be pilfered. In this case the petitioners had agreed for sale of the pledged goods. The industry is sick and is not in a running condition. The pledged goods are lying in the factory premises. Reports have been made at the police station that thefts have taken place. Nature will create havoc even though the pledged goods are mostly iron and steel materials. In course of time the value of the pledged goods will be less. In this connection, it is pertinent to quote the following from AIR 1967 SC 1322, Lallan Prasad v. Rahmat AH.
"Section 176 deals with the rights of a pawnee and provides that in case of default by the pawner the pawnee has (1) the right to sue upon the debt and to retain the goods as collateral security, and (2) to sell the goods after reasonable notice of the intended sale to the pawner. Once the pawnee by virtue of his right under Section 176 sells the goods the right of the pawner to redeem them is of course extinguished."
In AIR 1983 Punj and Har 244, State Bank of India v. Quality Bread Factory, Batala, reliance was placed on the above decision of the Supreme Court in the case of Lallan Prasad (supra) and it was held as follows : --
"From a reading of the section, it is evident that if the pawner makes default in payment of any debt the pawnee is entitled to file a suit for recovery of the debt and retain the pledged goods as a collateral security. In the alternative, he is entitled to sell the pledged goods and adjust the sale proceeds towards the debt. If the proceeds are less, the pawnee is entitled to recover the balance from the pawner. Thus, the pawnee in spite of the pledge of the goods is entitled to bring a suit without selling the goods."
In these circumstances and in view of the petitioners' consent, the learned Subordinate Judge was justified in passing the order for sale of the pledged goods during the pendency of the suit at the instance of opposite party No. 1.
Point No. 2 : -
10. Learned counsel for the petitioners contended that there was no compliance of Section 176 of the Indian Contract Act, which is mandatory in character. Section 176 lays down that if the pawner 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 pawner upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawner reasonable notice of the sale. In AIR 1958 Cal 644, Hulas Kunwar v. Allahabad Bank Ltd., it was held that the provisions of Section 176 relating to a "reasonable notice of the sale" are mandatory. In AIR 1960 Andh Pra 272, Wangapally Latchiah v. Peddi Laxmiah, it was held that before exercising the power of sale the pawnee should give to the pledger reasonable notice of the sale. In order that that provision should not be made nugatory, the proper interpretation to put on Section 176 is to hold notwithstanding any contract to the contrary notice has to be given. At the time of entering into a contract of pledge the pawner cannot agree to waive notice as it would be inconsistent with the provisions of Section 176. In AIR 1963 Cal 132, Haridas Mundra v. National and Grindlays Bank Ltd., it was held that the pawner is entitled to reasonable notice under Section 176. In AIR 1966 All 134, Prabhat Bank Ltd. v. Babu Ram. It was held that a notice of the character contemplated by Section 176 cannot be implied. Such notice must be clear and specific in its language and must indicate the intention of the pawnee to dispose of the security. On consideration of the above principles and the provision of Section 176 of the Indian Contract Act, it is clear that the pawner is entitled to reasonable notice before sale of the pawned goods and the provisions are mandatory in character.
Point No. 3 : --
11. Learned counsel for the petitioners contended that the petitioners had no notice for sale of the pawned goods according to Section 176 of the Indian Contract Act. Therefore, the sale of the pledged goods on 1-8-1985 is not binding on them.
12. It would be a travesty of truth and fair play, if the petitioners contend that they had no notice of sale. First of all, they agreed in the Court of the learned Subordinate Judge for sale of the pawned goods. They agreed the sale thereof in favour of M/s. Rajkumar Pareshnath and two of them, namely, Srinibas Paikray and Dinabandhu Dutta signed the proceedings dated 14-6-1985. They also agreed for the proposal to accept the highest offer of M/s. Vinayak Steel and signed the proceedings dated 24-6-1985 subject to their final concurrence. Only on the next day, namely, 25-6-1985 they objected to sell by lots, but in their letter dated 25-6-1985 did not categorically decline the sale of the pledged goods. The petitioners cannot go back on their promise. They cannot be allowed to plead one thing at one stage of the suit and take just the opposite plea at a later stage. Having agreed for sale of the pledged goods at one stage of the suit they are estopped from saying at a later stage that they had no notice of sale. On the other hand, the facts narrated above will show that they were not only consenting parties to the sale, but they were also fully aware of the proceedings of the sale transaction. Therefore, they cannot turn back and say that there was no compliance of Section 176 of the Indian Contract Act and had no reasonable notice of sale of the pledged goods.
Point No. 4 : --
13. By the impugned order dated 1-8-1985 in C.R.No. 505 of 1985, while considering a stay petition, the learned Subordinate Judge observed that in view of the fact that sale had already been effected by opposite party No. 1, the question of granting time for obtaining stay order from this Court did not arise. The learned Subordinate Judge, however, did not pass a categorical order after examining documents that as claimed by opposite party No. 1 the sale had been effected on 1-8-1985. When it is a question of sale of a huge quantity of pledged goods for a high price of Rs. 33,50,000/-, it is necessary that the learned Court below must be satisfied on records that the sale has lawfully been effected on 1-8-1985. If he will find on consideration of records that the sale has lawfully been effected and the transaction has been completed, then he must have to give effect to the same, so that neither opposite party No. 1 nor the purchaser M/s. Vinayak Steel shall suffer any loss. If on the other hand, he will find that the sale has not lawfully taken place and the transaction has not been completed, then he shall not give effect to the same in favour of M/s. Vinayak Steel, and will leave the parties to take steps according to law. It is needless to say that the price received by sale of the pledged goods shall be adjusted towards the debt and shall He in long term deposit so as to earn interest till the decision of the suit.
14. In the ultimate analysis, opposite party No. 1 has a right to sell the pledged goods during the pendency of the suit. The provisions of Section 176 of the Indian Contract Act are of mandatory character. The petitioners have sufficient notice of the sale. The learned Subordinate Judge shall on consideration of documents determine, whether the sale has been lawfully effected on 1-8-1985 and the transaction has been completed. If he will find on consideration thereof that the sale has lawfully been effected and completed in favour of M/s. Vinayak Steel, he will give effect to the same with all consequences attached thereto such as delivery of goods and adjustment of the sale price towards the claim of opposite party No. 1. The sale price shall remain in long term deposit in a bank to the credit of the court until disposal of the suit. If, on the other hand, he will find that the sale has not been lawfully effected and completed, he shall proceed according to law. He shall also try to dispose of the suit as early as possible.
15. In the result, subject to the observations made above both the civil revisions are dismissed. Parties shall bear their own costs.