Madras High Court
State Bank Of India vs N. Sathiah And Etc. on 7 October, 1988
Equivalent citations: AIR1989MAD279, AIR 1989 MADRAS 279, (1989) 103 MADLW 329
JUDGMENT Sathiadev, J.
1. These appeals are preferred by Stale Bank of India, Arantangi Branch against the judgments in O.S. Nos. 9, 10, 12 and 11 of 1978 on the file of Sub-Court, Pudukottal. The said suits were filed for recovery of amounts due and payable by the respective defendants based on amounts borrowed by them by executing promissory notes and pledging their jewels on different dates agreeing to pay interest at 2% above State Bank of India advance rate with a minimum of 12% p.a. with quarterly rests.
The loans were payable on demand. As Head Office of the Plaintiff Bank at Madras entertained suspicion on a large number of loans taken by one Sathiah, in July, 1975 a detailed verification of ornaments pledged by him, his relatives and associates of whom the defendants happened to be some; it was found that spurious jewels have been deposited, and therefore complaints were lodged with Arantangi Police, who investigated the matter and the same is pending.
The jewels were seized by the Police along with the original promissory notes. Without prejudice to the rights of plaintiff to proceed by way of sale of pledged articles, as and when they are returned to the plaintiff by the Criminal Court, the suits were filed, based on promissory notes, because in spite of reminders, no amount had been paid so far by defendants.
3. The defence taken was that, plaintiff has no right in law to base the cause of action on the promissory notes executed by way of security since the original cause of action was on pledge of gold jewels, and the relationship between the parties was based on contracts of pledge. Defendants are entitled to the return of specie i.e. with weight and description of jewels conforming to the details noted and accepted by the plaintiff Bank on various dates of pledges. Defendants have an obligation to pay the loan with interest, and in turn have a right to get back the jewels after satisfying the accepted descriptions at the time of the contract Plaintiffs agent and other Officers noted down the quality of the jewel, the weight of the jewel, etc. in pencil in the respective demand promissory notes. Only genuine jewels have been pledged, and to cover up misdeeds comitted by the Officers of the Bank, one of them gave a designedly false complaint to the Police. Defendants are prepared to pay the principal and interest up to date, only provided the plaintiff returns the items of jewels. If a decree is to be passed against the amounts covered, by the suit items, it should be provided in the decree that the plaintiff is entitled to recover that amount, only on returning the jewels covered by the suit items. The defendants reserve their right to file separate suits after proving in the criminal case that they pledged only genuine jewels.
4. The trial Court while taking note of the fact that the defendants are prepared to pay the principal and interest up to date and also to avoid multiplicity of proceedings, decreed the suit as prayed for, on condition that the plaintiff should deposit the gold ornaments into Court within three months as per the description, weight, etc. mentioned in the Gold Loau Demand Register available with it, and that after satisfying the decree, the respective defendants are entitled to gel back the pledged gold jewels from the Court, on payment of necessary Court-fees.
5. On appeal in A. S. Nos. 198 to 201 of 1979 to this Court, the learned Judge held an follows :
"..... aS There is dispute regarding the nature of the jewels pledged, the proper course would be to pass a decree in favour of the appellant in all the four suits for the amounts claimed in the plaint with the condition that the amounts under the decrees can be realised by the plaintiff only after the question regarding the nature of pledged jewels is decided by the Court either by the appellant filing a suit for decalration that the jewels now in his possession are the jewels pledged by the respondent and they are spurious jewels or the respondents filing suits for redemption by establishing that the jewels pledged by them are not spurious jewels and they are as per the description, weight, etc., mentioned in the Gold Loan Demand Register available with the plaintiff. The decrees passed by the trial Court in all these four suits are modified accordingly....."
6. Mr. T.R. Mani, learned Counsel for the appellant/plaintiff Bank, submits that, neither of the directives issued by the trial Court as well as by the learned Judge of this Court, is in accordance with the provisions of Section 176 of the Contract Act; and that once a pawnee is held to be entitled to file the suits based on promissory note reserving the right to proceed against the pledged articles if circumstances warrant, the suits ought to have been decreed as prayed for, without imposing any condition whatsoever.
7. As to what are the rights of the pawnee are exemplified in the following decisions cited by the learned Counsel for the appellant.
(i) A Full Bench of this Court in Mahalinga Nadar v. Ganapathi Subbien, (1904) ILR 27 Mad 528 held that a pawnee is entitled to sue for the sale of the properly pledged to him notwithstanding that he was also entitled under Section 176 of the Contract Act to sell the properly without reference to Court. This conclusion was arrived at on the basis that in a case where both rights exist, they are concurrent rights, and the rights to proceed against the property pledged is not merely accessory to the right to proceed against the debtor personally.
(ii) In Gulamhussain v. Clara D'Souza, (1929) ILR 53 Bom 819, at page 827 : (AIR 1929 Bom 471 at p. 474) a learned Judge of Bombay High Court held that in a case of pledge or hypothecation or mortgage of movable property, the creditor has two remedies and they are concurrent i.e. (i) he can proceed against the debtor personally, and (ii) he can proceed against the property pledged. The learned Judge further held:
"It is clear under the taw applicable to cases of a pledge that the creditor has two rights which are concurrent, and the right to proceed against the property pledged is not merely accessory to the right to proceed against the debtor personally. For the pledgee may have a right to sue for sale of the property even in the absence of a right to sue for a personal decree.
The same principles would apply to the case of hypothecation or mortgages of movable property."
(iii) A Division Bench of this Court in S.L.R. Ramaswamy v. M.S.A.P.L Palaniappa, AIR 1930 Mad 364 in construing S. 176, held that a pledgor cannot compel the pledgee to exercise the power of sale as a means of discharging or satisfying the decree, because he has only three rights. They being :
"(1) In case the pledgee exercises the power, to insist that it should be honestly and proposly done and the sale proceeds applied to the debt; (2) in case the pledgee does not exercise life power, to redeem the pledge on payment of the debt or so much of it as remains otherwise unpaid, and (3) in case the sale is improperly exercised, to get damages caused thereby."
(iv) A Division Bench of the Calcutta High Court in Haridas Mundra v. N. & G. Bank Ltd., , held that the right of the pawnee to sue upon the debt or promise does not exclude or destroy his right to sell the pawn. It was further held (at p. 134 of AIR) :
"In construing this section too much importance should not be given to the semicolen in the first paragraph. In a case where the pawner makes default, the pawnee has three rights ; (i) he may bring a suit against the pawner upon the debt or promise, and (ii) he may retain the pawn as a collateral security, or (iii) he may sell it on giving the pawner reasonable notice of the sale. The right to retain the pawn and the right to sell it arc alternative and not concurrent rights. While the pawnee retains, he does not sell; and when he sells he does not retain. But the pawnee has the right to sue on the debt or the promise concurrently with his right to retain the pawn or to sell it. The retention of the pawn does not exclude this right of suit, since the pawn is a collaterar security only. Nor does the sale of the pawn destroy this right; the pawnee is still liable on the original promise to pay the balance due....."
(v) By reference to the common law of England and the law with regard to pledge as codified in Sections 172 to 176 of the Contract Act, in Lallan Prasad v. Rahmat AM, , it has been held as follows (at pp. 1325-1326 of AIR):
".....Under Section 172 a pledge is a bailment of the goods as security for payment of a debt or performance of a promise. Section 175 entitles a pawnee to retain the goods pledged as security for payment of a debt and under Section 175 he is entitled to receive from the pawner any extraordinary expenses he incurs for the preservation of the goods pledged with him. Section 176 deals with the right of a pawnee and provides that in case of default by the pawnor 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. But as aforesaid the pawnee is bound to apply the sale proceed towards satisfaction of the debt and pay the surplus, if any, to the pawner. So long, however, the sale does not take place the pawner is entitled to redeem the goods on payment of the debt. It follows, therefore, that where a pawnee files a suit for recovery of debt, though he is entitled to retain the goods he is bound to return them on payment of the debt. The right to sue on the debt assumes that he is in a position to redeliver the goods on payment of the debt and, therefore, if he has put himself in a position where he is not able to redeliver the goods he cannot obtain a decree. If it were otherwise, the result would be that he would recover the debt and also retain the goods pledged and the pawner in such a case would be placed in a position where he incurs a greater liability than he bargained for under the contract of pledge. The pawnee, therefore, can sue on the debt retaining the pledged goods as collateral security. If the debt is paid he has to return the goods with or without the assistance of the Court and appropriate the sale proceeds towards the debt. But if he sues on the debt denying the pledge, and it is found that he was given possession of the goods pledged and had retained the same, the pawner has the right to redeem the goods so pledged by payment of the debt. If the pawnee is not in a position to redeliver the goods he cannot have both the payment of the debt and also the goods. Where the value of the pledged property is less than the debt and in a suit for recovery of debt by the pledgee, the pledgee denies the pledge or is otherwise not in a position to return the pledged goods he has to give credit for the value of the goods and would be entitled then to recover only the balance....."
(vi) After referring to pages 211, 218, 219 and 222 in Vol. 29 of Halsbury's Laws of England (3rd Edition) dealing with that point, it was held in Bank of Bihar v. State of Bihar, that it has not been shown how the law in India is in any way different from the English law relating to the right of the pawnee vis-a-vis other unsecured creditor of the pawner.
(vii) Following the decision in Lallan Prasad v. Rahmat Ali, ; a Division Bench in State Bank of India v. Quality Bread Factory, Batala, held that a pawnee can file a suit for recovery of loan without first selling the goods. The view expressed in referred to above, was reiterated in Balkrishan v. Swadeshi Polytex Ltd., .
8. Section 176 of Contract Act reads as follows:
"If the pawner makes default in payment of the debt, or performance, al 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.
If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawner is still liable to pay the balance. If the proceeds, of the sale are greater than the amount so due, the pawanee shall pay over the surplus to the pawner."
9. This section recognises three rights in a pawnee in case of default by a pawner. They are : (i) he may bring a suit upon the debt; (ii) he may retain the goods pawned as collateral security; (in) he may sell it giving the pawner reasonable notice of sale. The lights of a pawnee having been thus clearly spelt out, the pre-condition imposed preventing the plaintiff Bank from recovering he amounts due to it based on the promissory notes is certainly against the rights of the pawnee recognised under Section 176 of Contract Act. Having held that the suits as filed maintainable in view of Section 176, and that the spuriousness or the genuineness of the gold jewels is alien to the scope of the suits, the restraint put on the plaintiff that only after the question regarding the nature of the pledged jewels is decided by the Court, the decrees could be executed, is destructive of the rights of the pawnee, as recognised under Section 176 of the Act.
10. Mr. Surendanath, learned Counsel for defendants, would repeatedly point out that the original ease was foisted upon the defendants, that the Bank officials, who had been responsible for misdeeds committed to cheat both the Bank and the customers, have manoeurved to gel out of the criminal ease and innocent third parties are subjected to appear both in civil Court as well as in criminal Court; that the criminal revision petitions filed by them are pending disposal, and that once with the help of Appraisers, the jewels having been certified to be genuine, and necessary particulars having been entered in the register about the quality of the jewels; the Bank is bound to return the jewels of the description as found in its register, and unless and until the jewels pledged by them are returned, no amount could be recovered from the defendants; and therefore, to avoid multiplicity of proceedings, the directives given if not made available to them, it would result in considerable loss to defendants. He refers to the decision in P. S. Kothandarama Gupta v. N. Venkate Krishnan, 1974 TLNJ 68 which dealt with a suit filed on the pledge even though the plaintiff was not possessed of the pawned goods, and therefore, following the decision in Lallan Prasad v. Rahmat Ali, , it was held that when the pawned goods in specie could not be delivered by the pawnee, the suit was not maintainable: Hence, this decision has no relevance to the instant case.
10A. These contentions as could be seen are contrary to the intendment of Section 176, and the right of the pawnee to maintain the suits based on promissory notes cannot be defeated by imposing any condition in the nature as done. As to whether the jewels at the time of pledge were genuine or spurious, is certainly outside the scope of the suits filed, based on the promissory note. The pawnee is bound to return the jewels as soon as the amounts covered by the decrees are paid. As staled above, defendants have clearly stated in their written statement that "defendant is prepared to pay principal and interest up to date only provided, the plaintiff returns those items," and therefore, this stand taken by them by itself entitled the plaintiff to secure the decree as prayed for. It is not the stand of the plaintiff Bank that it would not return the jewels in specie, if the amounts claimed by it are paid by respective defendants. It is only when the jewels are returned, defendants would be in a position to decide whether the jewels as pledged by them are the same or otherwise. It is not open to them at this stage to claim that unless the jewels, as described in the registers of the Bank, are returned, decrees cannot be executed against them. This is an aspect, which is clearly foreign to the nature of the suits, and it is left to be considered in appropriate proceedings, which would be dependant upon what would transpire when the jewels are returned to defendants. If they find that the jewels returned to them in specie are not the jewels pledged by them or their description and quality is different from what they have pledged or that they do not satisfy the descriptions as found in the registers maintained by the Bank, it is then for the respective defendants to thereafter take appropriate proceedings against the Bank on the ground that the security furnished by them had not been returned in the same condition in which they had pledged them. How far the claims inter se between them relating to nature of pledged articles are true or not, would be gone into in the proceedings which they choose to institute, if circumstances warrant. Certainly, this right is available to them, and therefore, there is no need to impose any condition as done either by the trial Court or by the learned Judge. When the respective defendants deposit the amounts based on the plaint claims, plaintiff Bank is obliged to return the jewels in specie in whatever condition they are found and which will have to be noted down with as much precision as required relating to gold jewels, so that if the defendants are aggrieved that the Bank officials have cheated them, it will help them to seek for appropriate remedies.
11. Hence, all these Letters Patent Appeals are allowed, deleting the modified condition imposed upon the plaintiff, and resulting in the suit being decreed as prayed-
for with costs. There will be no order to costs in these appeals.