Calcutta High Court
Co-Operative Hindusthan Bank Ltd. And ... vs Surendra Nath Dey And Ors. on 22 July, 1931
Equivalent citations: 138IND. CAS.852, AIR 1932 CALCUTTA 524
JUDGMENT
1. This is an appeal from a decree passed in a suit for enforcement of a mortgage. One Upendra Kishore Roy Choudhuri used to carry on business asa photo-engraver, printer and block-maker under the name and style of U. Ray and Sons at premises No. 100 or 100 A (both the numbers are indiscriminately used in the documents as well as in the oral evidence in this case, as meaning one and the same premises), Gurpar Road. After his death his three sons, on 8th December 1920, borrowed from one Surendra Nath Dey war bonds of the face value of Rs. 16,100 and by way of security for the repayment of the said debt with interest mortgaged in his favour the goodwill and stock-in-trade of the business of U. Ray and sons including all plants, machineries, fitting and furniture etc. used in or to be brought in the said business and in any subsidiary business carried on in connexion there with. The mortgage was in the form of a simple mortgage with power to the mortgagee to realize his dues by sale of the mortgaged properties. The suit was instituted by Dey on 20th December 1926 and his claim was laid at Rs. 18,2438-0 with interest and costs. Originally, the mortgagors only were impleaded as the defendants, being defendants Nos. 1 to 3 Subsequently the plaintiff added as defendants Nos.4 and 5, the Co-operative Hindustan Bank Limited and one uday chand Daga, respectively, as subsequent mortgagees or pledgees of parts of the mortgaged properties and assets of U. Ray and Sons. In the meantime the firm of U. Ray and Sons was adiudicated insolvent and a Receiver was appointed. The Receiver was then added as defendent No 6 in the suit. Defendant No. 6 did not contest the plaintiff's claim.
2. The bank, defendant No. 4, put in a contest alleging that they had advanced money from time to time to the mortgagors on cash credit system on the pledge of their goods and under several agree-ments commencing from 19th November 1925, and that by the lostsuch agreements, dated 2nd July 1926, the Bank became pledgees in possession of the moveable properties of the mortgagors as belonging to U. Ray and Sons, which were kept in premisas Nos. 1 and 100 Gurpar Road. They further alleged that the dues of the mortgagors to the bank having amounted to Rs, 4,21690 on 31st December 1926, the bank, after giving notics to the mortgagors, sold the pledged properties to the Indian Soap Company on 16th January 1927 for Rs. 4,425 and appropriated the sale proceeds in full satisfaction of their dues leaving a balance of Rs. 208-7-0 in favour of the mortgagors. They claimed to be pledgees in possession and so to priority over Dey. Defendant No 5, Daga, pleaded that as security for repayment of advances to the extent of Rs. 25,000 together with interest, the mortgagors had hypothecated to him the articles and machineries, etc , belonging to U Ray and sons and had executed a memorandum recording the said transaction on 16th August 1925, and that since then he was in possession of the same and was consequently entitled to priority over Dey as well as over the bank.
3. The Subordinate Judge decided that the order of priority should be thus. The bank first, Dey second and Daga third. He held that the sale by the bank was irregular and not bona iide and that a regular sale would have fetched a higher price On the footing of these findings he made a decree, to the terms of whiah reference will be made hereafter
4. From this decision two appeals have been preferred: No. 231 of 1823 is an appeal by the bank, in connexion with which t here are two cross-objections one filed on behalf of the plaintiff Dey, and the other by defendant, No 5 Daga; and No. 326 of 1928 is a substantive appeal which Daga has also preferred.
5. One of the questions which require determination is whether a machine described in the list appended to the agreement in favour of the bank dated 1st July 1926, as one "Harrild's rapid demycylindar printing machine (No. 34442) with chasis, motor and fixtures. Price Rs., 6,000", was included in the plaintiff's mortgage. The Bank's contention is that it was not included; and they put this contention upon two grounds; viz., 1st the machine was not a property of the mortgagors at the date of the plaintiff's mortgage, but was subsequently purchased and so could not be included in the mortgage; and 2nd, the machine was never kept in premises No. 100, Gurpar Road, the moveables kept in which premises only were mortgaged in plaintiff's favour. On these grounds the factum as well as the validity of the mortgage is disputed:
In most modern systems of law the hypothecation of moveables is either not permitted at all or is fenced in by a multitude of rules which are absolutely necessary for the prevention of fraud. (Ghose's Law of Mortgage, Edn. 5 Vol. I,...14.)
6. Though not accompanied by delivery of possession, the validity of such hypothecation, has been recognized in India and it has sometimes been enforced even against bona fide purchasers without notice: see Deans v. Richardson (1871) 3 N. W. 54, Sham Sundar v. Cheita (1871) 8 N. W. 71 Ko Kywetneev. Ko Koung 5 W.R. 189, Shivram v. Bhau 4 Bom. L.R. 577, Srish Chandra Roy v. Mungri Bewa 9 C.W.N. 14, Damodar v. Atmaram 8 Bom. L.R. 344 In the matter of A. Summers 23 C.592 and Punin-thavalu v. Bhashyam 25 M. 406 : 12 M.L.J. 282.. So far as the factum of the mortgage is disputed, the contention in our opiuion is amply Answered by the terms of the deed itself. By the deed not only the goodwill and stock-in-trade, machinery fixture, furniture and articles of the business of U. Ray and Sons at No. 100, Garpar Road were hypothecated but also those of any subsidiary business situated either in those premises or elsewhere, and not only all things belonging to all the said businesses at the time but also all that may be brought at any time subsequently upon the said premises or upon any other place or places connected with any of the businesses were mortgaged. It has also been arguad on behalf of the Bank upon the first of the said two grounds that as the machine did not belong to the mortgagors at the time, the mortgage of it was invalid as being of property which had not yet come into being. That such a transaction is not governed by the Transfer of Property Act or by the the Contract Act, is clear' In the case of Misri Lal v. Mozhar Hossain 13C. 262, it was held that mortgage of indigo crops that may be grown upon a certain plot of land is a valid transaction and is in the nature of an agreement to mortgage moveable property that may come into existence in future. Tnat such a transaction creates a lien which may be enforced by a suit was held long ago in the case of Lala Tilak-dhari Lal v. Furlong 2 B. L.R.A.C. 230 : 11 W.R.149. ln the case of Collyer v. Isaacs (1841) 19 Ch. D. 342 : 51 L.J.Ch. 14 : 45 L.T.587 30 W.R. 70, Sir George Jessm, M. R, observed as follows:
The creditor had a mortgage security on existing chattels and also the benefit of what was in form an assignment of non-existing chattelswhich might be afterwards brought on the premises. That assignment in fact, constituted only a contract to give him the after-acquired chattels. A man cannot in equity, any more than at law, assign what has no existence. A. man can contract to assign property which is to come into existence in future, and when it has come into existence equity, treating as done that which ought to be done, fastens upon that property, and the contract to assign thus becomes a complete assignment: see also Holroyd v. Marshall (1842) 10 H. L.191 : 33 L. J. Clause 193 : 9 Jur. (N. S.) 213 : 7 L. T. 172 : 11 W.R. 171.
7. In the absence of any statutory enactment, this principle should ba adopted in this couitry and in fact has been recognized in numerous cases amongst which may be mentioned Bansidhar v. Sant Lal 10 A. 133 : A.W.N. 1888, 35, Palaniappa v. Lakshmanan 16 M. 429, Baldeo Prosad v. Miller 31 C. 667, Ram Sarup v. Mohan Lal. 75 Ind Cas. 810 : A.I.R. 1924 All. 833 and Babu Ram v. Ram Sarup 89 Ind. Cas. 410 : A. I.R.. 1926 All. 164 : L.R. 6 A. 564 Civ. The equitable title arising in a transaction of this kind would no doubt not avail against a subsequent transferee without notice of that title, Joseph v. Lyons (1884) 15 Q.B. 280 : 54 L.J.Q. B. 1 : 54 L.T., 740 : 33 W.R. 145, and Hallas v. Robinson (1884) 15 Q.B. 288 : 54 L.J.Q.B. 364 : 33 W.R. 246, and it has been so held in some of the cases just cited.
8. The next question is whether the bank ever took possession of the articles hypothecated in its favour. It appears that the mortgagors used to receive overdrafts from the bank since 1923. Exhibit D 26, dated 2nd April 1925, Bhows that a further overdraft in addition to Rs. 3,000 already obtained was received by them on security of goods lodged at premises No. 1, Garpar Road, to be adjusted by 9tn April 1925 On 9th April 1925 time was extended to 20th April 1925 on the same security: Ex. D-25.Exhibit H, dated 20th May 1925, shows that an overdraft of Rs. 2,000 was taken in addition to Rs. 3,000 already taken on security of goods as per a cash credit agreement dated 9th March 1925 and on the security of the aforesaid Harrild's Machine, its price being stated there as Rs. 8,000 and it being further stated there that it had been already pledged with the bank. The machine therefore must have been brought to the premises shortly before 20th May 1925 and pledged with bank. Thereafter there were three successive agreements, Ex A dated 12th November 1925, Ex. B dated 19th April 1926 and Ex. C dated 2nd July 1926, appended to the last of which was a comprehensive list of all moveables hypothecated and lying in No. 100, Gurpar Road, and in No. 1, Garpar Road. The Subordinate Judge has found that the bank took possession on 20th April 1926 and remained in such possession ever since, through a durawn, who remained on the premises, having been specially appointed for the purpose, and who also had the keys thereof. The plaintiff has challenged this finding of the Subordinate Judge and has drawn our attention to certain circumstances which he contends, throw a good deal of suspicion on the documentary evidence which has been adduced by the bank in support of their possession and he has pointed out to us certain discrepancies and conflicts that are said to appear in the oral evidence, by which such possession was sought to be established on behalf of the bank. We have examined these material, but we can see no good reason to differ from the view which the Subordinate Judge has taken as regards this matter.
9. Defendant No. 5, Daga, by a cross objection which he has filed in connexion with the bank's Appeal No. 231, has sought to raise the question of his priority over the bank as well as over the plaintiff Day. In so far as his attack is against the plaintiffs mortgage his cross objection seeks to raise a question as between two respondents inter se and is, a purely lateral attack in which the appellant, the bank, is not concerned or interested. In our opinion such a cross-objection cannot be entertained in view of the settled practice of this Court, both under the old and under the present Code: Bishnu Charan v. Jogindra 26 C.114, Shabiuddin v. Deomoorat 30 C. 65, 513 Ind. Cas. 653 Jadunandan v. Kalyan Singh 13 Ind. Cas. 653, Mathura v. Ram Kumar 35 Ind. Cas. 305 : 43 C. 790 : 23 C.L.J. 46 : 20 C.W.N. 370, Bhuban v. Co-operative Hindustan Bank, Shib Chandra v. Dulcken 48 Ind. Cas. 78 : 28 C.L.J. 123. We can see no exceptional circumstances in favour of defendant No. 5 which may justify us in departing from a rule of practice so well settled. His attack on the bank's pledge is competent no doubt, but it is obviously infructuous as under the decree which has been passed the plaintiff's mortgage, which as we have just held, he cannot touch, will continue to have priority over his: and not until it can be shown that the bank's pledge should come after the plaintiffs mortgage that his cross-objection, in so jar as it is directed against the bank will be of any avail to him. The finding of the court below so far as defandant No. 5 is concerned, is that he made no inquiries as to any previous hypothecation, that although he may have lent some money to the mortgagors he did not advanes the entire amount which he pretended to have lent, that he took advantage of the helpless and impecunious position of the mortgagors to impose unfair terms and to make unwarranted deductions on the ground of interest and commission, and that he never took possession of the goods. If he seriously desired to dispute these findings his proper course was to prefer a frontal attack by means of a substantive appeal with the plaintiff and the bank as respondents; and not merely to seek to re-open these findings by means of a cross objection. He has perferred a substantive appeal, Appeal No. 325, but the scope of that appeal, as will be seen hereafter, is confined to the order for costs that the Sobordinate Judge has made as against him and in favour of the plaintiff
10. The respective positions of the three parties then appear to have been as follow. The plaintiff held a mortgage of certain moveables under the deed dated 8th December 1920, but he had not reduced them to possession. The bank as far as can be seen, held as securities 'certain moveables as per a cash credit agreement of 9th March 1925 and also the aforesaid machine since 20th May 1920 or a short time before (Ex. H). The bank took possession on 20th April-1926 of all goods that were under hypothecation with them. The bank also became a pledgee in possession of all moveables mentioned in the list attached to the agreement of 2nd July 1926 (Ex. C) All the moveables that were or at any time might be brought in the business were mortgaged in plaintiff's favour; the bank was pledgee in possession of such of them as were covered by the list attached to the agreement Ex, C. Daga held a hypothecation dated 16th August 1925 in respect of some moveables all of which were included in plaintiff's mortgage which was anterior in date, and some including the machine were under a previous hypothecation in favour of the bank (vide Ex H), and some others including the machine were also the subject-matter of the pledge in their favour. A "pledge" as defined in the Contract Act is the bailment of goods as security for pay-ment of a debt Or performance of a promise (s.172). A "bailment" as defined in the said Act is the delivery of goods by one person to another for some purpose upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them (S.148). In old books they took the nature of the pledge to be that it ought to be delivered at the same time that the money was lent, but later authorities are of a different opinion:
There must be delivery of the goods to the pledgee and a keeping of them by him. The delivery need not be simultaneous with the lending of the money. The delivery may be a de facto or an actual delivery e.g., a manual delivery if the goods are not bulky The delivery may also be symbolical or constructive e.g., by delivery of the key of the warehouse where the goods are stored, or something may be done which is equivalent to delivery e.g. a keeping of the goods without any actual delivery as when the pledges already has the goods: Beal on Law of Bailments, p. 143.
11. If the evidence in the case is judged by these test, the bank were pledgees with possession, not merely constructive, but also actual in every sense.
12. Then arises the question of priority. A very interesting and ingenious argument has been addressed to us on behalf of the plaintiff to establish the contention that, the plaintiff as mortgagee had acquired all the rights of the mortgagors in the properties with the exception only of the latters' bare right of redemption and therefore the Bank acquired no rights under the pledge subsequently made in their favour. It has been argued that the plaintiff is a mortgagee in whose favour the entire interest of the mortgagors minus their right to redeem had been transferred under the mortgage, that it does not matter that he did not take possession of the properties mortgaged, and that it is contrary to all principles that the mortgagors in whom remained only the right to redeem should be competent in any event to transfer to the pledgee an interest in the property which would entitle him to claim a priority over the mortgage. This argument at first sight might seem very catching but in our opinion, it is not sound. It imports into the mortgage of moveables the implications of a simple mortgage of immovable property under the Transfer of Property Act, which by its terms is inapplicable to such a case; strictly speaking a simple mortgage of moveables with, a power of sale is a mere hypothecation with a stipulation that in the event of the debt not bsing paid and the mortgage not being redeemed the mortgaged properties may be realised by sale, Mortgage of goods at Common Law is a different thing; it has no analogy to a simple mortgage under our law. So far as such mortgages are concerned, the distinction between such a mortgage and a lien or a pledge has been thus explained :
Lien arises from the mode of dealing between the parties, the usage of the trade, or it is given by express contract. It is the right of a creditor to retain the goods until his debt is paid or satisfied. Pledge is a delivery of goods to the creditor as security for his debt and the right to the property vests in the creditor so far as is necessary to secure the debt, The pledgee has a special property in the goods pledged. Mortgage is more than a pledge; it is a conveyance of the goods to the mortgagee conditionally that if the goods are not redeemed at the time stipulated the title of the mortgagee becomes absolute at law; Beal on Law of Bailments page 133.
13. Story in his book on Bailments, 9th Edn., Section 287 says:
A. mortgage of goods is, at Common Law, distinguishable from a mere pawn. By a grant or conveyance of goods in gage or mortgage the whole legal title passes conditionally to the mortgagees; and if the goods are not redeemed at the time stipulated the title Becomes absoulte at law, although equity will interfere to compel a redemption. But in a pledge, a special property only, as we shall presently see, passes to the pledgee, the general property remaining in the pledgor. There is also another distinction. In the case of a pledge of personal property the right of the pledgee is not consummated, except by possession; and ordinarily when that possession is relinquished, the right of the pledgee is extinguished or waived. But in the case of a mortgage of personal property, the right of property passes by the conveyance to the pledgee and possession is not or may not, be essential to create or to support the title.
14. There are cases in which the distinction between a mortgage and a pledge has been explained more fully from different points of view, e g, Ryall v. Rolle (1749) 1 Atk. 165. Jones v. Smith (1794):2 Ves. 372 and Re Morrit, Ex parte Official Receiver (1886) 18 Q.B.D. 222 : 56 L.J.Q.B. 139 : 56 L.T. 42 : 35 W.R. 277.
15. Mortgages of chattels in English Law are now generally governed by the Bills of sales Acts 1878 and 1882 as amended by the Acts of 1890 and 1891. Under these Acts, upon certain conditions being fulfilled title to the property passes conditionally to the mortgagee, prevention of fraud was the policy of the Legislature in passing these enactments but the object does not appear to Shave been satisfactorily effectuated, while they have produced a vast amount of expensive litigation, and decisions not always easily reconcileable with each other: Coote on Mortgages, 9th Edn. Vol. 1, page 217 : see also Ghose on Mortgage, 5th Edn., Vol, I, page 116.
16. So far as these A asc are concerned the following passage will show what the rights of the parties are:
It has repeatedly been held that when goods are pledged or deposited by way of security for money, an instrument in writing accompanying the pledge or deposit and merely regulating the rights of parties with regard to the possession of the goods, but neither giving any authority to take such possession nor transferring any property therein are not within the mischief of either the Act of 1878 or the Act of 1882. But there appears to be no reported decision on the point whether a mortgage of chattels already delivered purporting to transfer the property therein and so to convert what otherwise might be merely a pledge or deposit into a legal mortgage conferring a right to foreclose, fails within the operation of the Acts so as to require to be registered, and to be void unless made in conformity with the statutable form prescribed by the Act of 1882, which is not applicable to transactions of this nature. Coote on Mortgages, Edn 9, Vol I, page 219.
17. From the distinction between a mortgage of moveables and a pledge, as it obtains under the English Law as indicated above, it would appear that the rights of the mortgagee are not of the same kind or character as those of the pledgee. In the case of a mortgaga the whole legal title passes to the mortgagee conditionally and if there is no redemption the title becomes absolute. In the case of a pledgee with possession a special (property passes to him and he is entitled to detain the goads to secure repayment of the debt due to him. The expression "special property" has evoked a good deal of criticizen, but for our present purposes the matter need not be discussed. The two rights not being of the same kind or character, bear no comparison with each other. In one sense the pledgee has a higher right for he can detain the goods against anybody and even against a prior mortgagee unless by reason of the fulfilment of the conditions imposed by the Bill of Sales Acts property in the goods has passed to the latter.
18. There have been cases in this country in which the question of priority in transactions of this character have been considered. Two cases have been referred to on behalf of the plaintiff: Ko Kywtenu v. Ko Koung 5 W.R. 189 and Sham Sunder v. Cheita (1871) 8 N. W. 71 In the former case the subsequent purchaser bought with actual notice and it was held that the mortgage would take effect as against him. In the latter case the mortgagee was allowed to enforce his security against a purchaser without notice. But in Ghose's Mortgage, Edn. 5, Vol. 1 page 115, where this case is cited there is mention of another case, Ramanna v. Ramji 2 C.P.L.R. 109n, in which a different view was taken. The pledgee was given priority, over a prior mortgagee in Chumman Khan v. Mody 70 P.R. 1874. In the case of Narasiah v. Vevkatarnmiah 47 Ind. Cas. 976 : 42 M. 59 : 35 M.L.J. 450 : 8 L.W. 517 : (1918) M.W.N. 718 : 24 M.L.T. it wan held:
Where goods are left in the possession of the mortgagor a wide door is opened for fraud and when the equities between the innocent purchaser and the mortgagee have to bo weighed the preponderance must be given to the purchaser, for the mortgagee has by his omission to secure possession of the goods facilitated the commission of the fraud.
19. In the decision last mentioned reliance appears to have been placed upon the case of National Mercantile Bank v. Hampson (1880) 5 Q.B.D. 177 : 49 L, J.Q.B.480 : 28 W, but that was a case of goods being left with the holders of a bill of sale which might be sold in the ordinary course of business, a distinction which wan pointed out in the cases of Payne v. Fern (1886) 6 Q.B.D. 620 : 50 L.J.Q. B. 446 : 29 W. R.441 The principle, however, is a sound principle of equity and as regards mortgages of immovable property has been enacted in Section 78, Transfer of Property Act. The principal has been adopted in Burma in the Fall Bench case of Manekjee Pallanjee v. S.A. Meyoppa Chetty 47 Ind. Cas. 976 : 42 M. 59 : 35 M.L.J. 450 : 8 L.W. 517 : (1918) M.W.N. 718 : 24 M.L.T. 454 and in the recant decision of the court in Backer Khorasanee v. Ahmed Esmail Jamal 28 Ind. Cas. 462 : 7 L.B.R. 336, and also in an earlier decision of that court which was referred to in that case. The proposition that no seller can give to the buyer of goods a better title to those goods than he himself has is not an inflexible proposition as the exceptions to Section 108, Contract Act, will show. On behalf of the plaintiff, in order to show that the mortgagee should have priority, reliance has been placed upon some other cases. Of these the one that requires to be noticed in Ex parte Allen andc (1870) 11 Eq, 209. That was a case in which Allen was the holder of a bill of sale dated 10th February, 1870, and registered on 2nd March, 1870, and Page was the holder of another bill of sale in respect of the same goods dated 28th February, 1870, and registered on 18th March, 1870. Page had no notice of Allen's bill of sale at the date of his own and took possession before he received notice of Allen's charge, and after such charge sold the goods.
20. It was contended in that case that Page was entitled to priority because by taking possession before Allen he had used superior diligence. It was argued that a person who contracts for an interest in-personal property must complete his title by possession, or in the case of a chose in action by giving notice of his interest, and for this reason that a bona fide encumbrancer who is without notice of a prior charge and obtains possession or gives notice of his own charge to the person who has the legal interest in or control over the property shall generally be preferred to earlier claimants who have not taken possession or who have given later or no notice even though the holder of the property have by other means acquired notice of the earlier claim. It was held that the fact that Page had taken possession did not give him priority over Allen, and that Allen had the first charge upon the sale proceeds. The case was decided under the Bill of Sales Act, 1854 (Vict. 17 and 18, C. 36) and it was held that that Act assumed that bills of sale are good against all the world and only made them void, if not registered in time, as against assignees in bankruptcy and execution creditors. The decision was under the Bankruptcy Act, 1869 Sir James Bacon, C. J., observed:
Here Allen's bill was registered in time and there was nothing to assign to Page except what might remain of the property after Allen's claim was satisfied. Between Allen and Page this is a question strictly of their legal rights, and Page could not have filed a bill to restrain Allen's action.
21. No question of equity could or did arise in the case. We are of opinion that in determining the order of priority in this country, where hypothecation of moveables is a matter not dealt with by the Statute, the equitable principle to which reference has already been made ought to be applied, and the Bank must be given priority over the plaintiff.
22. The next question is whether the Bank were within their rights in holding the sale as they did and whether the sale was regular. The two clauses of the agreement Ex. C relevant in this connexion are the 7th and the 8th. Clause 7 provided that the dues were to be paid up on 31st August, 1926, or on demand being made, on any earlier date; and Clause 8 provided that in default of such payment the Bank may at any time after the said date and without any notice to the borrowers but without pre-judice to their right of suit against them, either by public auction or by private contract, absolutely sell or otherwise dispose of the pledged goods. It appears that the plaintiff instituted the present suit, in which as already stated he had not impleaded either the Bank or Daga as defendant, on 20th December, 1926 It appears from the evidence of Bank's witness Dutta Gupta that about 2nd or 3rd January, 1927, the Bank first thought of selling the goods. On 5th January, 1927, a notice was issued by the Bank calling upon U. Ray and Sons to pay up Rs. 4,216 9-0 as the amount due up to that date on or before Friday the 7th. This notice was addressed to No. 100, Gurpar Road, which was the address of the mortgagors given in the mortgage and was also one of the premises where the pledged goods were stocked and it was sent through post. His evidence shows that the durwan in charge of the goods had reported a day or two before the 5th that the mortgagors had left the premises and were not coming to work and that the business had closed. The durwan also has given evidence that it was on the 4th that the mortgagors left the premises. It appears that proceedings in insolvency had been started in the meantime, and in those proceedings a Receiver was appointed on 8th January, 1927. On the same date a letter was received by the Bank from one A. T. Sen, written under the instructions from one K. Banerjee, informing them that another machine, described as a "Brilliant" treadle machine, had been sold by Banerjee to U. Ray and Sons and was lying in the go-down at No. 100, Gurpar Road, which was in the Bank's possession and that a search warrant had been issued in respect of it at his instance and would be executed on the 10th. The evidence of the bank's witness Jamini shows that on the 10th the managing director gave him order to settle goods and on that very day the goods were sold. What steps were taken for the sale may well be described in the words of the Bank's witnessses themselves.
23. Jamini says:
I saw the proprietors of some of the important presses and informed them that we were going to sell the goods. I saw the proprietor of the Indian Soap Company, Calcutta Art Printing Press and C. D Karmakar's Press. There are several other big presses in Calcutta. I did not send any information to them, I received the order in writing to sell at 11 or 12 a.m. of 10th January, 1927.
24. To Dutta Gupta the following question was put:
Q.--Can you give any reason for not selling the goods hypothecated to you by public auction instead of by private sale though both are provided for in the deeds of agreement?
25. He gave the following answer:
A.--As we received ready buyers we did not sell the goods by public auction. We engaged brokers to secure private buyers. I cannot mention their names. They were employed by our Inspector to my knowledge. They were authorized to negotiate sales.
26. None of the brokers however has been called. Two letters have been produced on behalf of the Bank; one dated 7th January, 1927, and signed by one G. Chaudhury of the Bijoya Press which contained an offer of Rs. 3,500 for the goods; and the other dated loth January, 1927, written by the proprietors of the Indian Soap Company and containing their offer of Rs. 4,425. Upon the evidence of Dutta Gupta it appears that the Indian Soap Company was an old constituent of the Bank whose whole factory was under hypothecation with the Bank on overdrafts to the extent of Rs. 40,000. On the night of the 10th the sale was concluded with them and from the early hours of the morning of the 10th the goods began to be removed. Within a few hours the removal was completed, the Bank paying the lorry-hire for the removal; and several days after, the price was paid by the Indian Soap Company and received by the Bank. An employee of the Indian Soap Company, one Biswas, has given evidence on behalf of the bank that the company was not a limited company, that it prepared soap and cardboard boxes and had also a printing machine, but he could not say whether the company had a license for printing-press business. The pledged articles, it may be mentioned here, included, besides furniture of various kinds, 50 reams of printing and writing paper (valued Rs. 880), 1,000 lb, of types (valued Rs. 2,000) accessories and borders (valued Rs. 1,000) photographic chemicals, 60 sets of tricolour blocks, and 300 half tone blocks (valued Rs. 3,300), 15 dozens of thermometers (valued Rs. 180), besides the Harrild's Rapid demy cylinder machine (valued Rs. 6,000) and printing inks and other accessories. These values are stated in the list appended to the agreement Ex. C of 2nd July, 1926. Biswas' evidence is:
There was no necessity for us to purchase chemicals but we purchased them as they were sold at the same lot. ".... We do not at any other time purchase clinical thermometers, and photographic goods.... The machine of U. Ray and Sons which we purchased is being worked by us in our printing business. The chemicals and photographic goods are lying about unused. The thermometers and the photographic goods are lying about, except a few given to Govinda Babu's (meaning the proprietor's) relations.
27. These being the facts, we have to consider in the first place whether notice was necessary and, if so, whether the notice that was issued was sufficient. Section 176, Contract Act, unlike some other sections e.g., Sections 163, 71 and 174 does not contain a saving clause in respect of special contracts contrary to its express terms. The section gives the pawnor the right to sell only as an alternative to the right to have his remedy by suit. Besides Section 177 gives the pawnor a right to redeem even after the stipulated time for payment and before the sale. In our opinion in view of the wording of Section 176 as compared with the wording of the other sections of the Act, to which we have referred and also in view of the right which Section 177 gives to the pawnor and in order that the provision of that section may not be made nugatory, the proper interpretation to put on Section 176 is to hold that notwithstanding any contract to the contrary notice has to be given. We are also of opinion that the notice, that is to be given should, in the words of the section, be a "reasonable notice of the sale." The notice in the present case satisfies none of the requirements of this expression. It says :
Failing which, (i.e., the payment by the 7th) we shall arrange for sale of the hypothecated stock.
28. This is merely an intimation that arrangements will be made for a sale but it is not a notice of the sale that is to be held; such a notice would require more definite particulars. What such particulars should be must depend upon the peculiar facts of each case. And once a proper notice is given it is not necessary that a fresh notice is to be given if the contemplated sale is adjourned to a future date. Again, can it be said that a reasonable notice was given? No inquiry at all was made as regards the whereabouts of the debtors though it was known that they had left the premises. No notice was put up at the premises, and only a few hours' time was allowed for payment of such a large sum of money. It should have been foreseen that this notice could never reach the debtors before the intended sale and far less would it enable them to make arrangements for payment of their dues and thus redeem the pledge or avert the sale. It is quite true that the Bank had some justification to be in a hurry. The Subordinate Judge has found that there was every indication that they had come to know of the plaintiff's suit and of the fact that proceedings in insolvency had commenced in respect of the debtors, and that there was apprehension of other creditors attaching the goods, He found that the sale was rot a bona fide one. But this hurry, by itself, is not to be deprecated. The mistake really was that the procedure adopted did away with all safeguards which a regular sale would have ensured. In our opinion, it is impossible upon the evidence to come to any other conclusion than this that the procedure adopted by the Bank was irregular in the extreme; no proper publicity was given to the intended sale, no sufficient inquiry was made to ascertain the then market-value; no real effort was made to sell at the highest available price.
29. The Subordinate Judge has held that the price for which the sale took place was far below what a court sale would have fetched. This conclusion no doubt is more or less conjectural and is not the test on which one can with confidence proceed. The proper basis to go upon in such a case is to determine the market value of the goods at the date of the sale. It was the duty of the Bank to give some evidence of it or of the depreciation that the goods may have undergone since 2nd July, 1926, on which date they must be taken to have accepted as correct the valuation stated in the list attached to the agreement Ex. Order As regards this matter they have given no evidence and have only advanced a general argument to the effect that the value of the goods must have depreciated, As basis for this argument they have only shown that the value of the machine as shown in Ex. H dated 20th May, 1925, was Rs. 8,000 and as shown in the agreement Ex. C dated 2nd July, 1926, was Rs. 6,000. The machine was being used but the other goods were according to the evidence yet unpacked and many of them were such as could not have undergone any deterioration at all. On the whole we think the deduction of 20 per cent which the Subordinate Judge has made cannot be said to be inadequate. There is an error in his calculation. If 20 per cent, is deducted the figure Rs. 9,700 should be Rs. 10,023-12-3 and so deducting therefrom the Bank's dues Rs. 4.216-9 0 the balance left would be Rs. 6,807-3 3 and not Rs. 5,484 : vide Order No. 142 dated 16th April, 1928, in the order sheet of the suit
30. In Appeal No 326, which defendant No. 5, Daga, has preferred, his only contention is that he should not have been made liable for the plaintiff's coats. In our opinion this contention should be upheld. The mortgage no doubt was in respect of moveables, but the rules of Order XXXIV of the Code are based on well-settled rules of equity which, in the absence of any statutory provision to the contrary, should be applied in suits on mortgages of moveables as well. Unless it could be shown that by reason of the defence which defendant No. 5, Daga, put forward, the plaintiff was put to some extra costs, we can see no principle on which the usual rule as regards costs in mortgage suits should be departed from in this case. We have examined the schedule of plaintiff's costs as stated in the decree but we cannot say that there were any such extra costs, or if there were any they can in any way be distinguished. The decree for costs made by the court below in favour of the plaintiff and against defendant No. 5, Daga, must accordingly be and is hereby set aside.
31. It remains now to consider what variations should be made in the decree appealed against in view of the conclusions we have recorded above. The decretal portion of the judgment of the Subordinate Judge runs in these words:
The defendant Bank is to produce the articles sold by them including the Harrild's machine within ten days. These goods will be sold first, the dues of the Bank will be paid to the Bank first out of the sale proceeds and the balance will be set-off against the dues of the plaintiff. The goodwill of the firm which alone was hypothecated to the plantiff will then be sold and then all the other properties, the plaintiffs' dues being first satisfied out of the sale proceeds and then the dues of defendant No. 5. If the Bank be unable to produce these goods the plaintiff will get a decree for the sum of Rs. 5,484 against the defendant Bank. He will be able to realize the balance of his dues firstly by the sale of the goodwill of the firm and then by the sale of the other goods of the firm. If any money is left after the satisfaction of the dues of the plaintiff, defendant No. 5 will get the same. As the defendant Bank really advanced the money he is not saddled with any costs. The plaintiff will get his costs against defendant No. 5 who contested the suit unsuccessfully.
Hence it is ordered that a preliminary decree usual in suits on the mortgage bonds be drawn up on the terms stated above, period of grace up till 28th February nest. The plaintiff will get interest at the mortgage bond rate of 24 per cent per annum on the amount claimed from the date of the institution of this suit till this day and on the amount decreed from this date till the date fixed, for payment and thereafter realize at 6 per cent per annum on the amount decreed till realization.
32. The Bank have asked to be allowed now to produce the machine saying that it has again come into their possession on the Indian Soap Company having gone in liquidation. To this the plaintiff objects and his objection seems to us to be perfectly reasonable in view of the long time that has elapased during which the condition of the manchine must have changed immensely for the worse. We think, therefore, that the Bank's prayer in this respect should not be allowed and the decree should be drawn up on the footing that the Bank's liability for the sale amounts to Rs. 6.807-3-3. The Bank should also be liable to the plaintiff for the cases of this appeal, hearing fee being assessed at 10 gold mohurs. The decree in favour of the plaintiff as against Daga for costs should be set aside and the said costs should be added to the plaintiff's dues under the mortgage. The rest of the decree of the court below will stand. No other order for costs will be made in any of these appeals. The result is that Appeal No. 231 will be dismissed, the cross objection of the plaintiff in connexion with it will be allowed in part, and defendant No. 5's cross objection in connexion with it will be dismissed, and Appeal No. 326 will be allowed.
33. It appears that a final decree in the suit was subsequently passed by the court below on 16th May, 1928, Ordinarily it would have been necessary, as the "preliminary decree has been varied by us in the manner indicated above to set aside the final decree and to allow a further period of grace and on the expiry of the same to pass a fresh final decree. Bat in the present case that procedure is not necessary because the mortgagors have not appeared and no question of redemption has been raised by any party, and the result of the variation that is to be made is to increase the plantiff's mortgage debt. We, therefore order that the final decree as passed on 16th May, 1928, should be set aside and that the decree to be framed as the result of the appeals and cross objections be drawn up in the form of a final decree for sale.