Patna High Court
Luxmi Narayan Arjundas And Ors. vs State Bank Of India on 5 November, 1968
Equivalent citations: AIR1969PAT385, AIR 1969 PATNA 385, ILR 48 PAT 204
Author: N.L. Untwalia
Bench: N.L. Untwalia
JUDGMENT Untwalia, J.
1. This is an appeal by the defendants from the judgment and decree of the Court of the 3rd Additional Subordinate Judge at Purnea in Title Mortgage Suit 29 of 1957, whereby the suit of the plaintiff respondent for realisation of Rs. 65,555/3/9 has been decreed in full, and a preliminary mortgage decree has been passed.
2. The defendants were members of a joint Hindu Mitakshara family, of which the karta was Luxmi Narayan Changotia (defendant 2). The managing members of the business were also Ram Chandra Changotia (defendant 5) and Sheodayal Changotia (defendant 14). Defendant 2 died during the pendency of the appeal here, and his heirs have been substituted. They all caviled on their business under the name and style of M/s. Luxmi Narayan Arjundas (defendant 1) in village Banmankhi in the district of Purnea. They opened a cash credit account in the year 1948 with the Imperial Bank of India, which undertaking has been taken by the State Bank of India under the State Bank of India Act, 1955 (Act 23 of 1955) with all its assets, liabilities, etc. As the relevant transactions and facts took place and occurred when the bank was known as the Imperial Bank of India, for the sake of brevity, hereinafter in this iudg-ment, the reference to the plaintiff will be by the word 'Bank' only, which term, unless otherwise indicated in the context, will ordinarily and generally mean Imperial Bank and may mean the State Bank, as the suit has been instituted by the latter Bank. Since the argument in the appeal has been confined to two points only to be statrd hereafter, I shall state the relevant facts of this case only so far as they are necessary for the decision of the two points aforesaid.
3. After the opening of the cash credit account, there were several transactions between the defendants and the Bank in pursuance of eight written agreements executed by and on behalf of the defendants from the year 1948 to January, 1952, as detailed in paragraph 4 of the plaint. The Bank advanced money to the defendants against pledge of jute which was stored in the godown of the defendants situated near their residential house. There was a fall in the jute market in the year 1952 and the value of the pledged security became considerably low. Considerable amount was outstanding due from the defendants to the Bank, and when called upon by the Bank to cover the margin of the fall, the defendants failed to do so. They failed either to pay up the dues of the Bank or to cover the short fall in the value of the security. Hence, according to the case of the Bank, on or about the 14th January, 1953, the defendants created an equitable mortgage by delivering to the Bank in the town of Calcutta the documents of title of their immovable properties comprising their gaddi, residential houses and godown in Banmankhi Bazar and cultivable lands in Banmankhi and Rupouli which are fully described at the foot of the plaint.
It may be made clear here that there are five lots of the property described at the foot of the plaint, out of which lots 1 and 2 are situated in village Banamnnkhi, lot 3 is described as situated in village Rashar and the properties described in lots 4 and 5 are situated in village Rupouli, It seems that village Rashar is either a suburb of Banmankhi Bazar or very near it, and that is the reason why all throughout properties of lots 1 to 3 have been described as Banmankbi properties and will be described as such hereinafter in my judgment, and the properties of lots 4 and 5 will be called Rupouli properties.
4. The properties given in equitable mortgage were made further security for the Bank's dues against the defendants for advancements to be made. The defendants, however, could not redeem the mortgage and pay the Bank's dues in spite of several notices. Finally, in the last quarter of the year 1953 a sum of Rs. 1,48,399/0/6 remained due to the Bank from the defendants. After requisite notices and information to the defendants, the pledged jute, the weight of which was 6479 maunds as per Bank's records, was sold by public auction on 21-1-1954 to the highest bidder. Messrs. Rai Bahadur Hurduttrai Motilal Jute Mills Ltd. (for the sake of brevity hereinafter to be referred to as R. B. H. M. Jute Mills) at Rs. 17/10/- per maund. The said Mills agreed to take delivery on full payment after actual weighment of the goods.
5. The plaintiffs' case further is that the entire stock of pledged jute was in packed bales, some in 31 maunds and some in 1 1/2 maunds per bale. R. B. H. M. Jute Mills after their purchase paid to the Bank Rs. 1,14,192/6/- subject to adjustment by actual weighment. They were to start taking delivery of the goods from 24-1-54. A portion of the goods was delivered to the purchaser after actual weighment after keeping its record. 448 bales of jute weighing 1506 maunds 28 seers were taken delivery of by R. E. H. M. Jute Mills but they refused to take further delivery on the ground that many of the bales contained non-jute, that is, worthless materials described by them as gudri.
So the purchaser wanted to pick out good bales for delivery, but the Bank refused to allow the purchaser to pick and choose, as the entire stock was sold and purchased by the purchaser irrespective of quality as also because, as the case of the plaintiff in paragraph 14 of the plaint is, the Bank officers were under the impression that the bales contained jute and not worthless materials which were not jute, as stated by the purchaser. R. B. H. M. Jute Mills therefore filed Money Suit 75 of 1954 in the Court of the Subordinate Judge, Purnca, for refund of the part of the purchase money and also for damages for failure of the Bank to deliver the balance of the goods according to the contract. The total claim in the suit was to the tune of Rs. 1,00,106/10/6.
6. The plaintiffs' case further is that the Bank which was defendant in Money Suit 75 of 1954 applied to the Court for the sale of the balance of the stock. The prayer was allowed and the remaining goods were sold through Sri Ajablal Mandal, pleader commissioner, on 21-12-1954 to the highest bidder by public auction at Rs. 18/8/- per maund. This purchaser deposited Rs. 75,267/11/3 with the plaintiff Bank. The pleader commissioner weighed each bale and kept proper records and submitted a report to the Court. The plaintiffs' case further is that the pleader commissioner's report would show that there were altogether 1595 bales, out of which 1368 bales were normal and contained jute. They weighed 3821 maunds 4 seers and the remaining 227 bales contained gudri and weighed 247 maunds 17 seers. The pleader commissioner had opened one such bale, and it was found that it weighed 1 maund 11 seers, out of which the jute contents were 12 seers only and the rest 39 seers were gudri.
The case of the Bank Is that 227 bales were tied, bound and packed and made in such a way that they looked like normal bales, and it was impossible to know that they contained gudri. The Bank had accepted them in good faith as good bales containing jute upon representation by the defendants that the bates did contain jute. The fact that a large quantity of gudri was packed in 227 bales was an act of fraud on the part of the defendants practised by them upon the Bank which was detected at the time when the purchasers of the first sale. R. B. H. M. Jute Mills, were taking delivery. The main cause of the filing of the suit by the said Mills against the Bank was the fraud practised by the defendants, as a result of which the Bank had to spend and incur costs and expenses to the tune of Rs. 3,948/9/- in the said suit. The Bank is entitled to be indemnified against the said loss. In the 19th paragraph of the plaint the case made out is that the entire stock of the jute weighing 6479 maunds was sold on 24-1-1954, but owing to the fraud practised by the defendant, the purchasers refused to take delivery, instituted the money suit, and so the remaining stock left after the part delivery to the first purchaser remained lying in the godowns at Banmankhi which had earthen floor and tatti wall for full one year and the entire stock got deteriorated and became short in weight thereby by 903 maunds 31 seers. The Bank states that the loss on account of the shortage was also to fall on the shoulders of the defendants. As per accounts given in Schedule A appended to the plaint, the total claim of the plaintiff of the amount of Rs. 65,555/3/9 consists of the principal Bs. 46,516/4/9, insurance charges Rs. 4515/10/-, interest Rs. 10,574/12/- and cost of the money suit Rs. 3,948/9/-.
7. Several pleas were taken up in the written statement to defeat the entire suit of the plaintiff Bank. Both the sales, one held in January, 1954 and the other in December, 1954 were attacked on several grounds. The transaction of equitable mortgage was denied. It was asserted that the title deeds were not deposited by defendant 2 at the Calcutta head office of the Bank on 14-1-1953 or on any other date. As a matter of fact, the Bank's officers took away the sale-deeds from the custody of the defendants on one pretext or the other. The suit was barred by limitation. The allegations of the plaintiff that certain number of bales of jute contained gudri, that fraud was practised by the defendants, that the filing of the money suit was a result of the alleged fraud were all denied.
It was asserted that the Bank had taken entirely a different stand in its written-statement filed in the money suit and it cannot be allowed to change its stand in this suit. The defendants asserted further that they had no knowledge of the suit and they were not bound by the sale held during its pendency. R. B. H. M. Jute Mills wrongly refused to take delivery of the entire stock of jute, and in collusion with the plaintiff Bank and for their mutual benefit they made up their matters causing loss to the defendants. Thus, the defendants' liability to the various amounts claimed by the Bank in the suit was refuted.
8. The learned Additional Subordinate Judge has held that the auction-sales held on 21-1-1954 and 21-12-1954 are valid and binding on the defendants; they had knowledge of both the sales; they are liable to pay to the Bank not only the amounts of principal and interest claimed by the plaintiff but also the amounts on account of the shortage of the goods, insurance charges and costs of the money suit. He has further held that equitable mortgage was created on 14-1-1953 by delivery of all the title-deeds relating both to Banmankhi and Rupouli properties by defendant 2 at the Bank's Calcutta head office. Hence, the suit is not barred by limitation. In that view of the matter, the suit has been decreed for the full amount with interest pendente lite and future at the rate of 6 per cent per annum. The defendants have came up in appeal.
9. Mr. J. C. Sinha, learned counsel for the defendants, to put broadly, attacked the judgment and decree of the Court below on two grounds only, (1) that no equitable mortgage was created in respect of any property, and that being so, the suit filed on 20-9-1957 on the basis of the transaction which admittedly had closed in the year 1953 must be held to be barred by limitation under Article 57 of the Limitation Act, 1908; and (2) that in any view of the matter, the defendants are not liable to reimburse the Bank on account of any loss said to have been sustained by it for the failure of R. B. H. M. Jute Mills to take delivery of the entire stock of jute purchased by them on 21-1-54, either on account of the shortage in weight, insurance charges or costs of the suit nor are the defendants liable to pay any interest on the excess of the amount said to have remained due after the first sale as a result of the deficit caused by the second sale.
10. At the outset, I may make it clear that learned counsel for the appellants conceded, and in my opinion rightly, that if an equitable mortgage in respect of the properties or any portion of them is held to have been created on 14-1-1953, the suit will not be barred by limitation. The first question, therefore, which falls for our decision is whether an equitable mortgage was created on 14-1-1953 if so, in respect of what properties?
(In paragraphs 11 to 14 the judgment discusses the oral and documentary evidence in the case regarding the creation of an equitable mortgage in respect of all the 5 sets of properties and comes to the following conclusion. The judgment then proceeds:) I, therefore, hold that an equitable mortgage was in fact and validly in law created by and on behalf of the defendants on 14-1-1953 in so far as the Banmankhi properties described in lots 1 to 3 in Schedule B of the plaint are concerned. In view of my finding in regard to the Rupouli properties, it is manifest that the preliminary mortgage decree which is going to be upheld by me for a part of the amount will be operative on the Banmankhi properties only; that is to say, the Banmankhi properties will be liable to be sold in execution of the mortgage decree in accordance with law, and a personal decree will have to be passed if and when it is found that the sale proceeds from the Banmankhi properties are not sufficient to satisfy the entire decretal dues.
15. Coming to the second ground of attack on the judgment and decree of the Court below, I would like to state first that it Is not necessary to refer to the various letters written or notices given by the Bank to the defendants in the year 1953 or in January, 1954, before exercising its right under Section 176 of the Contract Act to sell the pledged property, the sale of which took place on 21-1-54. Exhibit 24 is a copy of the relevant entries in the ledger relating to cash credit accounts of the defendants. This would show that after debiting of various sums on account of insurance charges and other expenses which were liable to be made by the pawner, and after debiting interest up to 21-10-1953, the balance shown due on October 22, 1953 is Rs. 1,48,339/9/6. Exhibit A(5) is a letter dated 21-11-1953 from the Agent of the Purnea branch o£ the Bank to the Secretary and Treasurer of the Bank in Calcutta. The contents of this letter show that various qualities of jute, including as the evidence shows, the highest quality known as Tossa and the lowest quality of cross bottom were pledged with the Bank. The total number of bales pledged was 2042, out of which 334 bales only were weighing one and half maunds and the rest were weighing 3 and half maunds each. Thus, the total bales of jute pledged weighed 6479 maunds, on checking and verification of which a shortage in weight to the extent of 180 maunds was detected. But it appears from the evidence of P. W. 9, an Assistant of the Bank, as also from the evidence of P. W. 16, A. N. Gangoli, the Agent of the Bank, that this shortage was made good. This will also find support from the pleader commissioner's report (Ext. 6), reference to which will be made later on.
16. Exhibit 1 dated 12-1-1954 is a public notice notifying that baled jute weighing 6479 maunds will be sold by auction at the premises of Luxmi Narayan Arjundas, Banmankhi, at 12 noon on 21-1-1954. It was further notified that the stocks were held at the above place and could be inspected at any time before the auction. Exhibit 19 is the proceeding at the auction sale held on 21-1-1954. This, in short, contains the broad terms which were agreed upon between the Bank and R. B. H. M. Jute Mills, the purchaser at the said auction. It clearly recites that 2042 bales (1708 bales of 3 and half maunds each and 334 bales of 1 and half maunds each, total being 6479 maunds) pledged by Luxmi Narayan Arjundas, were sold to the highest bidder, R. B. H. M. Jute Mills at the highest bid rate of Rs. 17/10/- per maund. It was further stated that the weight given was as per the Bank's books, and the final amount of money will be calculated and adjusted after the actual weighment of the stock. The purchaser agreed and deposited a sum of Rs. 25.000 by cheque on the Central Bank of India Ltd., Katihar and undertook to pay the difference on 27-1-1954. It may be stated here that no other term in regard to the quality of the goods in express language was inserted in Ext. 19, which seems to have been signed also by the purchaser's representative at the auction.
17. Before I refer to Ext. 15, the plaint filed on 25-6-1954 by R. B. H. M. Jute Mills against the Bank in Money Suit 75 of 1954 I would refer in this connection to the evidence of some of the plaintiff's witnesses as to what happened at the time of delivery of the jute bales to R. B. H. M. Jute Mills in or about the last week of January, 1954. P. W. 10, S. C. Dutta, was a godown-keeper at Banmankhi under the employment of the Bank at the relevant time. He says that R. B. H. M. Jute Mills took delivery of the other bales saying that the jute was of bad quality as it contained gudri. They wanted to pick and choose among the bales in the godown; the Bank refused them to pick and choose. He further stated even in examination-in-chief that the jute pledged by the parties is not taken by the Bank on quality basis; they take it as jute only. In cross-examination, when he was asked as to whether he knew as to what was gudri, he answered the gudri means non-jute consisting of sticks, and then said jute sticks. P. W. 15, C. K. Puri. is a person who was giving delivery to R. B. H. M. Jute Mills on behalf of the Bank. He speaks about the dispute which cropped up after part-delivery, as the purchaser contended that it was not jute but was gudri. In cross-examination, P. W. 15 stated that although he was not an expert, he did know that Tossa is a good quality and cross bottom is an inferior quality of jute. He further stated that the auction purchaser wanted to pick and choose from the various qualities of jute, to which he did not agree.
18. Admittedly, as is clear from the evidence also, R. B. H. M. Jute Mills had paid the entire price of the jute amounting to Rs. 1,14,192/6/- within a few days of the auction sale. It is also undisputed that they had taken delivery of jute weighing 1506 maunds and odd, which was worth Rs. 26,555/9/6. The balance which remained with Bank out of the price paid was Rs. 87.636/12/6 on account of refusal of the representatives of R. B. H. M. Jute Mills to take delivery after they had taken delivery of a part of the goods. In Ext. 15, the plaint in Money Suit 75 of 1954, R. B. H. M. Jute Mills made out a case that there were transactions between the plaintiff and the defendant Bank from a long time and it was known to the defendants that the plaintiff required jute which was of merchantable quality and fit for manufacturing jute products. Hence, they stated that in the circumstances there was an implied condition and warranty that the jute should be in terms of the details given out by the Bank's Agent at the time of auction. Their further case was that after delivery of 1506 maunds of jute the goods which were offered for delivery were only gudri which did not come within the category of jute. In spite of repeated demands, the Bank which was defendant No. 1 or its Agent. A. N. Gangoli (who is P. W. 16 in the case and defendant 2 in the money suit) did not deliver the balance of the goods. Hence, they claimed a decree for refund of the sum of Rs. 87,636/12/6 as also for decree for damages and interest, me total claim being to the tune of Rs. 1,00,106/10/6. In the said money suit, two written statements were filed on identical lines-- one filed on 16-9-1954. Ext. H (1) was on behalf of the Bank and the other. Ext. H was filed on 24-9-1954 on behalf of defendant 2. I shall here refer to the written statement filed on behalf of the Bank which also was verified by A. N. Gangoli. Agent of the Bank, who is P. W, 16 in the suit and was defendant 2 in the money suit. In this written statement, hp stated that, even in December. 1953 R, B. H. M. Jute Mills had made an offer to purchase the entire stock at a fiat rate of Rs. 17/8/- per maund. and their representative Girdhari Mull had inspected the stock of jute at Banmankhi on 19-12-1953. It was further stated in the sixth paragraph:
"The allegation that only Gudris which did not come within the category of jute were sought to be delivered to the plaintiffs' agent is deliberately false. The plaintiffs had purchased the entire stock of the two godowns in one lot after thorough inspection of the same consisting of 6479 maunds as per Bank's Book, The plaintiffs had made inspections of godowns twice, once in December 1953 and again on the date of sale and having purchased with their eves open cannot no make any objection regarding the quality of jute".
The case of R. B. H. M. Jute Mills as made out in the plaint that there was an implied condition or warranty was denied in the written statement filed on behalf of the Bank.
19. P. W. 16 stated in his evidence (vide page 102 of the paper-book) that the written statement filed by him in Money Suit 75 of 1954 contained a true statement of his and the Bank's written statement filed in that money suit also contained true statement and that written statement was also signed by him.
20. The learned Additional Subordinate Judge has taken the view that an admission in the pleading of a previous suit is not binding on the party making that admission or (nor ?) is to be used against it in a subsequent suit In view of the decision of the Supreme Court in Basant Singh v. Janki Singh. AIR 1967 SC 341, the opinion of the Court below is erroneous. Gangoli (P. W. 16), instead of explaining the admission in the previous written statement, admitted it to be cor-rect. At this stage, I may only point out that the case made out by the Bank in the written statement, Ext. H (1), is inconsistent with the case made out in the plaint of the present suit. It is not the case of the Bank that the previous written statement was filed at the instigation or persuasion of the defendants of this suit and for their benefit. In that situation, it is difficult to follow the contradictory case made out by the Bank in the 17th paragraph of the plaint of this suit that the non-delivered bales of jute contained gudri and the fraud practised by the defendant firm on the Bank was detected at the time when the purchaser of the first sale R. B. H. M. Jute Mills, was taking delivery. If that was so, how is it that such a case was not made out in Money Suit 75 of 1954? Apart from the other reasons which I shall be giving hereinafter in my judgment, I have no difficulty in rejecting the case of fraud set up in the plaint of the present suit on this ground alone.
21. The entire stock of jute lying in the godown of the defendants which was kept in charge of the Bank had been sold to R. B. H. M. Jute Mills on 21-1-1954. They had paid the full price also. In such a situation, there is no difficulty in coming to the conclusion that the property in the goods under the Sale of Goods Act, 1930, had passed to the purchaser, viz.. R. B. H. M. Jute Mills. This finds further support from the pleadings in Money Suit 75 of 1954, as in the plaint there was no case made out by the purchaser that the properly had not passed and from the written statement it would appear, according to the case of the Bank that property had passed. Ext. 7 is the petition filed by the Bank on 5-11-1954 in Money Suit 75 of 1954, praying to the Court for arranging for the sale of the balance of the goods by appointment of a pleader commissioner. In this petition it was stated by the Bank:
"That the balance of the undelivered stock of jute lying in this defendant's godowns at Banmankhi is the property of the plaintiff company by virtue of purchase in public auction on 21-1-1954 and is lying at the godown at the risk and responsibility of the buyer."
To the same effect is the evidence of Gangoli (P. W. 16), when he said in cross-examination that the Bank had been holding the stock as a custodian on behalf of the purchasers who refused to take delivery of the goods from 21-1-54 to the end of December. 1954.
22. In pursuance of the order of the Court dated 4-12-1954 the Commissioner proceeded to sell the remaining quantity of jute during the pendency of the money suit. By the said order which is Ext. 33, the commissioner was also directed to ascertain if any gudri, which was called non-jute by the plaintiff, was mixed up with the stock of jute in the godown of the defendant. If so, he was directed to ascertain further the quantity of such gudri. Sri Ajablal Mandal was dead, as deposed to by certain witnesses, when the trial of this suit commenced in the Court below. His report, however, was admitted in evidence and marked Ext. 6. This is dated 3-2-1955. The statements in the report obviously are admissible in evidence under Section 32(2) of the Evidence Act.
(In the rest of paragraph 22 the judgment deals with the report of the Commissioner and oral evidence in the case regarding the content of Gudri in the jute bales and comes to the conclusion that gudri is not foreign matter unconnected with jute, that gudri is bound to be present especially in the cross bottom quality jute and that the auction-purchasers were not justified in refusing delivery of about 1600 hales of jute on the ground that all of them contained gudri. The judgment then proceeds:)
23. I think, it is neither necessary nor possible or permissible to give a decision upon the merits of the dispute between R. B. H. M. Jute Mills and the Bank in Money Suit 75 of 1954. On the pleadings of the parties and the facts as they emerge from the evidence in this suit, it is definitely clear that the Bank had a very good case for trial by way of defence against R. B. H. M. Jute Mills. At no point of time they gave any information to the defendants about the refusal of the delivery of the jute by R. B. H. M. Jute Mills or institution of their suit. At no point of time they sought any instruction from the defendants what the Bank was to do in the case of the dispute raised by the purchaser of the Goods at the auction held on 21-1-1954. They did not ask the defendants as to what steps were to be taken in respect of the undelivered quantity of jute. All what was done in the money suit on behalf of the Bank was on its own. It may well be, as found by the learned Additional Subordinate Judge, that the defendants had knowledge of the facts. In all probability, they must have knowledge. When the delivery was not accented by R. B. H. M. Jute Mills, the defendants must have known about the dispute raised by them. Nonetheless, the fact to he emphasised is that at no point of time the Bank thought it obligatory or proper to consult the defendants in regard to the dispute raised by R. B. H. M. Jute Mills.
The funniest thing which happened thereafter is that the Bank entered into a compromise with R. B. H. M. Jute Mills and filed a compromise petition on 10-2-1956 in Money Suit 75 of 1954. This is Ext. 7. In this compromise petition, it is stated that the defendants had deposited Rs. 87,630/12/6 in cash on 28-9-55 in favour of the plaintiff which had been withdrawn by the plaintiff. As against the balance of the amount paid by them, jute worth Rs. 26,555/9/6 had been delivered. Then, it is said in the third paragraph:
"That in order to restore good feelings between the parties the plaintiff will not press his further claim against the defendant and as such nothing remains due to the plaintiff from defendant in respect of the claim of this suit and neither party has got any claim against the other nor will lay any claim against the other in respect of the subject-matter of the suit or relating to the transaction of jute in question."
It is remarkable that without reference to the defendants, on whom, the Bank thought, will fall the ultimate loss brought about as a result of the money suit, the Bank entered into this compromise. Not only that, actually the money was refunded about five months earlier than the filing of the compromise petition. The statement contained in paragraph 3 of the compromise petition, which I have extracted above, read in the light of the case of R. B. H. M. Jute Mills in their plaint that they had transactions with the Bank since long would clearly go to show that the compromise was effected to restore good feeling between the parties to the money suit and not for the benefit of or in the interest of the defendants who obviously were not parties to the money suit.
(In paragraphs 24 and 25 the judgment works out the details of amounts which the plaintiff can claim by way of deficit, insurance charges and interest. The judgment then proceeds:)
26. The question now arises as to whether the defendants are liable to reimburse and pay to the Bank the sums of Rs. 12,369/1/3. Rs. 4515/10/, Rs. 3948-9-0 and Rs. 1440.00 on account of the various items discussed above which are as a result of the dispute raised by R. B. H. M. Jute Mills after their purchase at the auction in January, 1954. The answer to this question created some difficulty during the course of the argument at the bar. No direct case on the point of any Court, either in India or in England, could be cited before us. nor could we find any. The point fell for our decision on appreciation of the well-established principles which should govern the rights and liabilities of pawner and pawnee.
27. Section 176 of the Contract Act reads as follows:
"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 sale 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."
In Volume II of Chitty on Contracts, 22nd Edition, at page 107 in paragraph 218, 'pledge' is denned thus:
"A pledge or pawn is 'a bailment of goods by a debtor to his creditor to be kept by him till the debt be discharged'; the bailment is intended to be a security for some debt or engagement. The general property in the goods pledged remains in the pledgor, but a special property in them passes to the pledgee in order that he may be able to sell the goods if his right to sell arises. This 'special property' is strictly only a right to possession of the goods, together with a power of sale upon default..............."
At page 111 in paragraph 225 in the same volume, it is stated:
"If the pledgor makes default in payment at the stipulated! time, the pledgee may sell the pledge, even although there is no express agreement tc that effect, or he may sue the pledgor for his debt, retaining the pledge as a security............
He sells by virtue of an implied authority from the pledgor and for the benefit of both parties; hence, he must, after deducting his debt, account to the pledgor for any surplus of the proceeds of the sale........."
To the same effect is the law enunciated in Volume 23 of Halsbury's Laws of England. 3rd Edition, at pages 218 and 221 in Articles 415 and 421. I would only quote a few words from the latter passage which are to the effect:
"If the pawnee sells he does so by virtue and to the extent of the pawner's ownership, and not with a new title of his own.................. The right of sale is exercisable by virtue of an implied authority from the pawner and for the benefit of both parties......................"
It would thus be seen that although by virtue of the special property which passes to the pawnee, he gets a right to sell the thing pledged, as expressly engrafted in Section 176 of the Contract Act, he still does so not as a full owner of the thing, but by virtue of an implied authority from the pawner to do so. The sale must be held for the benefit of both the parties. The sale proceeds are the property of the pawner. The pawnee has a right to appropriate the sale proceeds or any portion thereof for satisfaction of his dues from the pawner. The surplus has got to be accounted for and refunded to the pawner. In such a situation, what is the legal position after the pawnee has exercised the right of selling the goods under Section 176 of the Contract Act when a dispute is raised by the purchaser of the goods? Can it be said that the pawnee then becomes entitled to deal with the dispute and bring it to an end, as he likes or as he thinks best, without referring the matter to the pawner? It is to be remembered that at no point of time the entire property in the goods in the sense of ownership passes from the pawner to the pawnee. Before the sale, the property is of the pawner in the cus-tody of the pawnee, and after the sale, if it is a completed sale, in the sense of the passing of the property it is of the purchaser. The right to sell may and must include a right to enter into an agreement to sell which will be a completed sale on the passing of the property to the purchaser, In that situation, let us take an instance to explain the view point. If the pawnee agrees to sell the goods to a person who agrees to purchase them, but the property does not pass, the ownership in the goods remains with the pawner. If the goods are destroyed by fire or otherwise for no fault of the pawner, the pawnee or the person who has agreed to purchase, it is manifest, the loss will fall on the head of the pawner. If, however, the goods are so destroyed after the property in them had passed to the person who had agreed to purchase them, it goes without saying on the well-established principles of law, that the loss will have to be borne by the purchaser. In that case, the pawner will not be liable for the loss. If in such a situation a dispute is raised by the purchaser asserting that since the property in the goods had not passed the loss was not his and he must get back the price which he had paid for the goods from the pawnee, while, on the other hand, the pawnee asserts that the property had passed and, therefore, he was not liable to refund the price, can it be said that in such a dispute the pawnee can proceed as he likes without any reference to the pawner? The answer, to my mind, obviously must be against the pawnee. The pawnee has no special property or right left, after he has exercised his right of sale under Section 176 of the Contract Act. Incidental to the sale, he may have the right of effecting delivery or the like. But on the raising of the dispute by the purchaser, he cannot proceed in the matter without referring to the paw-ner. He must inform the pawner, treating himself as his agent, that such and such disputes have been raised by the purchaser. In my opinion, on the raising of such a dispute, the pawnee becomes a mere agent of the pawner and cannot proceed in the matter without instructions of the principal, namely, the pawner.
28. That being so, the provisions of law contained in Sections 211, 214 and 215 of the Contract Act are attracted. It was the Bank's duty to deal with the dispute raised by R. B. H. M. Jute Mills and conduct the money suit according to the directions given by the pawners, the de-fendants of this suit. A difficulty and of a great magnitude was created by the purchaser, R. B. H. M. Jute Mills, by stating that they were not bound to take delivery of the balance of the goods. In terms of Section 214, therefore, it was the duty of the Bank to use all reasonable diligence in communicating to the defendants and in seeking their instructions. The Bank did nothing of the kind. It may well be that on seeking such instructions, if the money suit would have been decided against the Bank, the loss resulting from the decision in the suit would have fallen on the defendants of this suit. They would have been bound to reimburse the bank for all kinds of losses resulting from the decision in the suit.
29. On the facts and in the circumstances of the case, I am constrained to hold that the Bank dealt on its own with the dispute which was raised by R. B. H. M. Jute Mills, without obtaining the consent of the defendants and acquainting them with all material circumstances which came to its knowledge on the subject. In such a situation, the defendants are justified in contending that the dealings of the Bank had been disadvantageous to them and they are entitled to repudiate them and refuse to reimburse the Bank for the losses incurred by it as a result of such dealings, in accordance with Section 215 of the Contract Act.
30. Even assuming for argument's sake that seeking of such instructions was not essential or obligatory if the money suit would have proceeded to trial and disposal by a judgment of the court and that on the strength of that judgment with the aid of some more evidence the Bank would have been entitled to ask the defendants to reimburse it for the losses caused to the Bank as a result of the judgment, even though it had failed to seek instructions from the defendants, but I am definitely of the view that the Bank had no right to enter into a compromise with R. B. H. M. Jute Mills, treating the sale held on 21-1-1954, as annulled and repudiated, after the part delivery, and retain the balance of the price which undoubtedly in law was the property of the defendants, without referring the matter to them or without their consent. I find no principle or authority to support the contention put forward on behalf of the Bank by their learned counsel, Mr. Syed Akbar Hussain, that all that was done by the Bank in regard to the dispute raised by R, B. H. M. Jute Mills was incidental to the power of sale of the Bank under Section 176 of the Contract Act. It will be disastrous for the commercial world to accept this contention and hold it to be good. In the drastic example which I have given above, it will be noticed then that even in a dispute of the kind which crops up on the loss of the entire goods, the Bank will be at liberty to refund the entire price to the purchaser without referring the matter to the pawner or without his consent, even though the money obviously would be the money of the pawner and must go to satisfy the debts due to him from the Bank.
In my opinion, there is no reasonable or legal solution of the problem with which we are faced in this appeal on account of the dispute raised by the purchaser after the auction sale held in January 1954 which sale, as I have said above, has been held to be a good sale by the learned Additional Subordinate Judge and could not be otherwise attacked before us by the learned Advocate, other than the one which I have endeavoured to arrive at on the basis of certain principles of law.
31. I may also add that the Bank in its present plaint nowhere referred to the fact of entering into the compromise with R. B. H. M. Jute Mills in Money Suit 75 of 1954; nowhere it stated in the plaint as to under what circumstances and why it entered into a compromise with the plaintiff of that suit. The whole and sole basis in the plaint of this suit for throwing the burden on the shoulders of the defendants was that they had practised fraud on the Bank in that they had mixed gudri in a large number of jute bales. In the first instance, it is to be reiterated that this was not the case of the Bank in Money Suit 75 of 1954. Secondly, evidence is absolutely lacking on the point of fraud said to have been practised by the defendants. The learned Additional Subordinate Judge abruptly has arrived at the finding of fraud in paragraph 60 of his judgment, without referring to any relevant evidence, merely on the basis of the fact that, according to the pleader commissioner's report, some bales of jute contained gudri. No one has come forward on behalf of the Bank to say that the defendants at the time of pledging those bales had repre-tsented that the bales said to contain gudri contained jute. Nobody has come forward to say that even in ordinary course of business some bales of jute cannot contain any quantity of eudri. I have also referred to the fact that there is paucity of evidence in this case as to what was the gudri content in 227 bales which formed part of the undelivered goods. If I may express the view, on the basis of the terms of sale held on 21-1-1954, the only right of the purchaser was to an adjustment of the total price on reweighment of the goods. Even assuming that they were entitled to reject a portion of the goods which were found to be gudri and not pure jute, at best their right was not to take delivery of eudri and pay the price of the jute portion of the goods which was quite a considerable and major portion. I see no justification, nor could any be pointed out to us from the records of this case, which led the Bank to refund the entire sum of Rs. 87,636/12/6 to the purchaser and thus bring about an annulment of the first sale. So long as the first sale stood and was not annulled either by a judgment of the court or by consent of the parties, which must include the consent of the defendants of this suit, it was a good sale. There was no question of re-selling the goods by a second sale in exercise of the power under Section 176 of the Contract Act.
32. On a careful consideration of the matter. therefore. I have come to the conclusion that the defendants are not liable to reimburse or pay to the Bank such amounts as have been claimed, as a result of the dispute raised by R. R. H. M. Jute Mills. The total of such amounts, as has already been discussed and men-tioned, is Rs. 22,273/4/3. The Bank, in my opinion, is not entitled to set a decree lafiainst the defendants for this amount.
33. In the result, the appeal is allowed in part and the judgment and decree of the Court below are modified. The plaintiff-respondent will have a decree against the defendants for a sum of Rs. 43,281.97 P. (Rs. 65.555/3/9/- Rs. 22.273/4/3) only as against the decree for Rs. 65,555/3/9- passed by the court below. The plaintiff will have also the proportionate costs in the court below on the said sum of Rs. 43,281.97 P. As the success is divided in this court, I shall make no order as to costs in appeal. Interest pendente lite and future at the rate of 6 per cent, per annum will run on the amount of Rs. 43,281.97 P. from the date of the suit till realisation. The preliminary mortgage decree in terms of the decree of the Court below will be passed and be operative in respect of the properties described in lots 1, 2 and 3 of schedule B in the plaint. There will be no mortgage decree in respect of lots 4 and 5.
Wasiuddin, J.
34. I agree.