Madhya Pradesh High Court
Central Bank Of India vs Grains And Gunny Agencies And Ors. on 8 March, 1988
Equivalent citations: AIR1989MP28, AIR 1989 MADHYA PRADESH 28, (1989) 1 ARBI LR 257, (1988) 25 REPORTS 455, (1988) 2 BANK CLR 389, (1988) JAB LJ 618, (1988) MPLJ 453, (1988) BANKJ 519
JUDGMENT P.C. Pathak, J.
1. This judgment shall also govern the disposal of F.A. No. 11 of 1979 Central Bank of India v. M/s. Nirbharam and Sons.
2. F.A. No. 114/1979 is filed by plaintiff/ appellant against the dismissal of his civil suit No. 4-A/72 while F.A. No. 115/1979 is filed by the plaintiff/appellant against partial dismissal of civil suit No. 3-A/72 of the Court of District Judge, Raigarh, who disposed of both the suits by a common judgment and decree dated 5-2-1979.
3. In both the suits, Central Bank of India, Branch Raigarh, M. P. (hereinafter in short 'Bank') is the plaintiff. In F.A. No. 114/79, the defendants/respondents are M/s. Grains and Gunny Agencies and its four partners. The plaintiffs case is that on 3-5-1971, the respondents Firm opened a Cash Credit Key Loan Account (hereinafter in short 'Key Loan Account') with the Bank. During the period 3-5-1971 to 10-9-1971, the defendants pledged their stocks of foodgrains with the Bank and obtained loan from time to time. The balance outstanding against the defendants as on 15-9-1971 was Rs. 67,553/-. Shri S. R. Sidhwa, Bank's Inspector of Godowns found various discrepancies in the quantity and the quality of the pledged stocks and therefore the Bank called upon the defendants to liquidate the accounts in full and also to furnish additional security. The defendants failed to comply with the demand. On 5-8-1971, the Bank purchased the defendants' bill for Rs. 2,920/-, drawn on M/s. Ramakant and Co. of Nagpur. The bill was, however, not retired by the drawee. The Bank called upon the defendants to pay the amount of bill with incidental charges and overdue interest. On their failure to do so, the amount of the bill, incidental charges and the interest were debited to the defendants' Key Loan Account on 15-10-1971. The Bank continued to retain possession of the pledged stocks and the goods under dishonoured documentary bills as per details in Anns. II and III for realisation of the outstanding dues against the defendants. The Bank claimed a sum of Rs. 77,302.69 p. as detailed below :
(i) Rs. 71,833.62 p. balance due Key Loan Account on 4-4-1972.
(ii) Rs. 1,779.62 p. interest from 1-4-1972 to the date of suit; and (iii) Rs. 3,679.45 p., towards the miscellaneous expenses.
The Bank further claimed a decree declaring a charge and a direction for sale of the goods specified in Anns. II and III with the liberty to appropriate the sale proceeds towards the satisfaction of the decree and a personal decree for the balance jointly and severally against the defendants together with the costs of the suit.
4. In F. A. No. 115/79, the defendant M/s. Nirbharam and Sons is a partnership firm comprised of partners defendants 2 to 6. On request by the defendants, the Bank prior to its nationalisation sanctioned the credit facilities, namely (i) Cash Credit Open Loan Facilities; (ii) Cash Credit Key Loan facilities; (iii) Documentary demand bills facilities; and (iv) Clean demand bills facilities. For availing the open loan facilities, the defendants hypothecated their stock in trade and goods in godown under their own lock and key to secure the loans. During the period 18-7-1962 to 6-9-1971, the defendants obtained open loan facility against hypothecation of stocks and the outstanding balance as on 15-9-1971 was Rs. 19,971.25 p. The defendants also availed a Key loan facility against pledge of their goods between 4-2-1971 to 6-9-1971 and the balance as on 15-9-1971 was Rs. 50,521/-. On inspection of the godowns, the Banks Inspector found several discrepancies in the quantity and qualities of the pledged stocks. However no such discrepancy was found in hypothecated stocks. The bank called upon the defendants to liquidate their all the outstanding loans. During the period 19-8-1971 to 8-9-1971, the Bank also purchased documentary bills aggregating to Rs. 47,930/-but these bills were not retired by the respective drawees on presentation. The Bank therefore called upon the defendants to liquidate all the loans and on their failure filed the suit for Rs. 1,36,227.79 p. as details : --
(i) Rs. 22,269.74 p. the balance due on 1-4- 1972 in open loan account;
(ii) Rs. 1,07,056.47 p., towards Key Loan Account as on 1-4-1972;
(iii) Rs. 3,221.82 p., interest on the aforesaid amount w.e.f. 1-4-1972 to the date of suit; and
(iv) Rs. 3,679.74 p., towards miscellaneous expenses.
The Bank prayed for decree for the aforesaid amount together with further interest and creation of charge on the hypothecated and pledged and the stocks under the dishonoured bills and a decree for sale of the said stocks with the liberty to appropriate the sale proceed towards satisfaction of the decree and personal decree against the defendants jointly and severally for the balance together costs of the suit.
5. The defendants 2 to 5 in F.A. No. 114/79, Nos. 2 to 4 in the other appeal filed their joint written statement and the rest remained ex parte. The defendants denied commission of any fraud or cheating by them. If any discrepancy was found in the stocks, it was absolute responsibility of the Bank's employees. In reply to the Bank's demand to liquidate the accounts, the defendants repeatedly requested the Bank to sell away the stocks and realise the outstanding balance. According to them whatever stocks were in possession of the Bank on the date of suit, were sufficient to clear all the outstanding dues but the Bank, through the negligence of its officers, failed to exercise the option and allowed the goods to deteriorate and become valueless. Therefore the Bank is not entitled to a decree as prayed for,
6. The learned District Judge recorded evidence separately in both the suits but on finding that a common question of law and facts arose in both the cases, decided both the suits by one judgment, Civil Suit No. 4-A/72 was dismissed on a finding that the Bank is not in a position to re-deliver the goods pledged with it and is therefore not entitled to claim a decree against the defendants. The claim in the other suit with regard to balance outstanding under the Key Loan facility was also dismissed on the same ground. However a decree was passed for a sum of Rs. 30,131/- representing the open loan account and cash credit loan together with interest @ 11.50% per annum as per details given in the judgment and decree and proportionate costs. Aggrieved by the said judgment and decree, Bank has filed two appeals as detailed above.
7. Learned counsel for the appellant/ Bank submitted that the dismissal of the suits to the extent of claims outstanding balance in respect of Key Loan Accounts on the basis of law laid down in Lallan Prasad v. Rahmat Ali, AIR 1967 SC 1322 was wholly illegal inasmuch as Clause 9 of pledge Agreement (Ex.P.23) reproduced below, grants total exemption to the pledgee Bank from liability in the event of loss, deterioration or damage to the pledged goods.
"Clause 9.-- That during the continuance of this Agreement the Bank shall not be responsible notwithstanding anything to the contrary in Section 152 of the Contract Act, for any loss or deterioration of or damage to or damage to the said goods whether caused by theft, fire, rain, flood, earthquake, lightning or any other cause whatever."
Relying on Sheik Mahamad Rayuther v. The British India, Steam Navigation Co. Ltd., (1909) ILR 32 Mad 95 (FB) and State Bank of India v. M/s. Quality Bread Factory, Batala, AIR 1983 Punj & Har 244, it was argued that a bailee can contract out its obligations imposed by Sections 151 and 152 of the Contract Act. He further argued that unless the nonreturn of goods is specifically pleaded, the suit could not be dismissed on that ground. As held in M/s. Prestolite of India Ltd., Faridabad v. Union Bank of India, AIR 1986 Punj & Har 64, before the Bank could be called upon to answer, the learned trial Court should have examined whether the Bank was responsible for the deterioration of the pledged goods. In the event of a finding that the goods become valueless on account of the negligence of the defendants, the suit could not be dismissed.
8. Learned counsel for the respondents submitted that the Bank through the negligence of its officers is solely responsible for the deterioration of the goods in "their absolute custody, and their becoming valueless with the result the Bank is not in a position to redeliver the goods and therefore a decree, as per law laid down in Lallan Prasad's case (supra) could not be passed in its favour. Referring to the pleading and evidence on record it was pointed out that the loan was advanced at the 50% value of the goods. Even after detection of discrepancies in the quality and quantity of the goods pledged, the Bank had substantial security in its possession on the dates the suits were filed and could sell them in exercise of its rights under Section 176 of the Contract Act. Instead the Bank allowed the goods to become valueless during the pendency of the suits and therefore it cannot claim the decree. Referring to the indemnity clauses relied on by the Bank, learned counsel for the respondents submitted that the said clause could be invoked only "during the continuance of the agreement". In view of the plea in para 7 of the plaint, the pledge agreement came to an end on detection of the fraud when the Bank called upon the defendants to liquidate their Key Loan Account in full and to put in additional security and actually obtained fresh agreement (Ex.P.3). The very opening clause of the pledge agreement (Ex.P.23) mentions that it was to remain in force "until closed by the Bank", The Bank closed the agreement when it called upon the defendants to repay the entire loan. It was also argued that the Full Bench decision of Madras High Court was mis-interpreted. That decision clearly holds that Section 151 lays down the absolute amount of care required by bailees. The amount of care required by Section 151 is irreducible by any contract between the parties. A contract limiting such liability is opposed to public policy and void under Section 25 of the Contract Act, as it will be against the interest of the mercantile community. Lastly it was submitted that Clause 9 stipulated the causes for the loss or deterioration which are either the natural calamities or. the causes beyond the control of human agencies. The words "any other cause whatever" should be interpreted ejusdem generis which will not include causes which can be attributed to the negligence of the Bank's employees. The Bank therefore cannot claim immunity under the said clause.
9. Counsel for the Bank, in reply submitted that the words "any other cause whatever" were interpreted in Balkrishan v. Bank of Jaipur, Ltd., (1971) 41 Com Cas 557 (Bom), to be wide enough to include negligence on the part of the Bank's servants in taking care of the pledged goods.
10. The question for decision is whether the dismissal of the suits on account of Bank's incapacity to redeliver pledged goods on account of their deterioration and becoming valueless was proper. The judgment of the trial Court is based on the law laid down by the Supreme Court in Lallan's case (AIR 1967 SC 1322) (supra). That was a suit by the creditor for recovery of loan advanced to the debtors against a promissory note, a receipt and an agreement of pledge on certain goods as security. The plaintiffs case was that the debtor failed to deliver the pledged goods and therefore the agreement did not ripen into a pledge. Consequently he claimed that he is entitled to recover the amount advanced by him on the basis of promissory note and the receipt. The defence was that the plaintiff was not entitled to obtain a decree unless he was ready and willing to redeliver the goods pledged with him. The learned trial Court held that there was no completed contract of pledge as the defendant failed to deliver the goods. Since the second defendant agreed to become a surety for repayment of the said loan, the plaintiff did not insist on the possession of goods. The plaintiff was therefore held entitled to maintain the suit and recover the money. On an appeal by the defendants, the High Court reversed the judgment holding that the agreement to pledge ripened into a pledge and that the plaintiff was not entitled to any relief in view of his stand that the goods were never pledged with him and were therefore not in his possession. The High Court dismissed the suit On further appeal, Supreme Court agreed with the High Court that the plaintiff was a pledgee of the goods delivered to him. Dismissal of the suit was maintained on a finding that if the plaintiff/pawnee is not in a position to redeliver the goods, he cannot have both the payment of the debt and also the goods. The appeal was accordingly dismissed
11. The Bank placed strong reliance on condition No. 9 in pledge memo Ex.P.23, in F.A. No. 114/79 and Ex.P.89, in F.A. No. 115/79 and submitted that by special contract the Bank contracted out its liability for the loss and deterioration of the pledged goods. The respondents submitted that in Sheik Mahamad's case (1909) ILR 32 Mad 95) (FB) (supra) conditions contracting out the liability of a bailee was held to be void being opposed to public policy. It is therefore essential to examine the Sheik Mahamad's case in detail.
12. In Shiek Mahamad, (1909) ILR 32 Mad 95 (FB) (supra) Shankaran Nair J., member of the majority judges held that a contract by a bailee purporting to exempt himself wholly from liability for negligence was not valid. This conclusion is however contrary to the dicta of other two judges White, C.J. and Wallis, J. The view taken by these two judges have been referred to by all High Courts including the Madras High Court in Karidan Kumber v. B.I.S.N., (1913) ILR 38 Mad 941 and Home Insurance Co. v. Ramnath and Co., AIR 1955 Mad 602. A contract of exemption from liability for any loss or damage due to the fault, carelessness or negligence of the staff binds the parties and is not hit by Section 23 of the Contract Act. See Indian Air Lines Corpn. v. Madhuri Chaudhari, AIR 1965 Cal 252 and Indian Air Lines Corporation v. Jothaji Maniram, AIR 1959 Mad 285.
13. Section 152 provides that the bailee, in the absence in special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care prescribed by Section 151. Thus Section 152 is subject to Section 151 which requires the bailee to take care of the goods bailed to him as a man of ordinary prudence would take of his own goods. Section 161 makes the bailee responsible for delivery or tender at the proper time of the goods bailed and in default makes him liable for/any loss, destruction, or deterioration thereof from that time. It is well settled that in cases governed by Sections 151 and 152, the loss or damages of goods entrusted to a bailee is prima facie evidence of negligence and therefore the burden to disprove negligence lies on the bailee. The bailee has to prove that he exercised due care and was not negligent. If, in spite of this, the lossoccurred, he is absolved of all responsibility.
14. As seen above, it is open to the bailee to contract himself out of any liability due to his own negligence as laid down in Shiek Mahamad's case (1909) ILR 32 Mad 95 (FB) (supra) and catena of cases cited at the bar on behalf of the appellant but the question arises whether in the present case, the Bank has contracted out of its liability due to his negligence of its servants. Clause 9 of the pledge agreement (Ex.P.23) exonerates the Bank from any liability for the loss, deterioration or damage whether caused by theft, fire, rain, flood, earthquake, lightening or any other cause whatever. This clause nowhere exempts the Bank from liability for negligence of its servants. The causes enumerated in the agreement are natural causes without the human intervention and which could not be prevented by any amount of foresight or care. The contract also contemplates loss of goods on account of theft which is an act of third party despite the care taken by the bailee. The Bombay High Court laid down in Hirji Khetsey and Co. v. B. B. and C.I. Railway Co., AIR 1914 Bom 154 that a bailee is absolved of liability : --
(a) where despite his care the cause was external to himself and beyond his control;
(b) or the cause was of such a nature, he could not have foreseen it and availed by the same by exercise of reasonable care and protection.
In Hollandia Pinmen v. H. Oppenheiner, AIR 1924 Rang 356, it was held that a clause intended to safeguard against the negligence of employees must be explicit in the contract The special condition which is to limit the liability of the bailee must be made known to the bailor and assented to by him. We are therefore of the opinion that the CL 9 of the agreement does not exonerate the Bank from liability for the loss on account of the negligence of Us servants. With utmost respect, we are unable to endorse the liberal interpretation put on words "any other cause" by Bombay High Court in Balkrishan's case (supra). In Cooch Behar Commercial Co. v. Union of India, AIR 1960 Cal 455 the bailee was held liable for the damage caused by the negligence of his servants.
15. It may also be mentioned here that the Bank nowhere pleaded that the loss or deterioration of pledged goods wason account of one or more of the causes specified in Clause 9 of the agreement and 'as such the Bank was not liable to return the same. There is no plea claiming exemption from liability on account of loss or deterioration of the goods due to the negligence of its servants. On the other hand the Bank claimed charges for protection, maintenance and supervision of the pledged goods and aserted its right to realise balance due by sale of the goods. When the Bank did not putforth the case of contracting out its liability for the loss or deterioration of the goods on account of negligence of its servants, it cannot be permitted to set up a new plea at the appeal stage.
16. The Bank admits in plaint paras 15 and 16 that it was in possession of goods detailed in Schedules II, III and IV of the plaint. Even if the Bank is entitled to claim exemption by virtue of special contract including negligence of his servants, still the Bank has to show that it took as much care of the pledged goods as an ordinary prudent man under similar circumstances takes of his own goods of the same quality and value as required by Section 151. There is not an iota of evidence on record to prove the care taken by the Bank to preserve the goods. Ramprakash Malhotra (P.W. 3) admitted that on 15-9-1971, the value of the goods found in order was Rs. 29,810/- and on the date of suit i.e. 20-6-1972, the goods were intact and were sufficient to recover the dues outstanding against the defendant. The witness also admitted that he did not apply for sale of the goods on instructions from Bank's head office. On the date his deposition was recorded, the goods had deteriorated and become valueless. Thus the Bank by laches of its own officers suffered the loss of goods and/or its value and became incapable of returning them .to the pledger/debtors. The immunity clause in pledge memo cannot be invoked in respect of goods possession whereof was taken on purchase documentary bills and detailed in Schedule IV. The Bank failed to take care of the goods as a prudent man and is not in a position to return them to the defendants.
The Bank is also not entitled to claim the amounts under documentary bills since it failed to mitigate the loss,
17. In view of the foregoing discussions, there is no merit in both the appeals and are accordingly dismissed There shall be no order as to costs.