Kerala High Court
The Dhanalakshmi Bank Ltd. vs K.K. Jose Alias Jose Mohan And Ors. on 1 March, 1991
Equivalent citations: AIR1991KER388, AIR 1991 KERALA 388, AIR 1991 GUJRAT 113, (1991) ILR(KER) 3 KER 459, (1991) 2 LJR 364, (1991) CIVILCOURTC 441, (1991) 1 GUJ LR 279, (1991) 2 BANKLJ 358, (1991) 1 KER LJ 613, (1992) 1 BANKLJ 237, (1991) 2 CURCC 332, (1991) 1 GUJ LH 145, (1993) 78 COMCAS 604, (1991) 2 BANKCLR 168
JUDGMENT K.P. Balanarayana Marar, J.
1. Plaintiff in a suit for realisation of money is the appellant.
2. The suit O. S. 595/81 before Sub Court, Ernakulam was filed by plaintiff for realisation of an amount of Rs. 17,427.77 due from defendant under a key loan transaction. A promissory note was executed by defendant on 11-12-1978 for Rs. 12,000/- and an Instrument of pledge of goods was also executed on the same day. The balance amount due was not paid in spite of a registered notice and hence the suit.
3. Defendant admitted the execution of the promissory note and the instrument of pledge, but contended that he had not received any consideration for the promissory note and that the documents were executed at the instance of the bank officials. He contended that the key loan transaction was entered into at the time of closure of a gift scheme sponsored by the plaintiff bank known as "Grihalakshmy Gift Scheme" as part of plaintiff's deposit mobilisation scheme. The washing machines pledged with the bank under Ext.A2 did not belong to defendant and he had no responsibility of selling those machines and to discharge the amount covered by Ext.A1. Defendant disclaimed liability to pay any amount.
4. Both parties produced documents and adduced oral evidence. On an appreciation of the documents and evidence the court below held that the transaction of key loan was not hit by undue influence. At the same time it was found that the transaction was entered into in the circumstances alleged by the defendant in his written statement. Relief was denied for the reason that plaintiff sued on the pronote without exhausting the remedy of sale of the goods available to plaintiff under the Banking Regulations. In consequence the suit was dismissed. Aggrieved by that decision plaintiff has come up in appeal.
5. It is urged by Sri C.M. Devan, learned counsel for appellant that a grave error was committed by the court below in denying the relief after finding that defendant had executed Exts.A1 and A2. It is also contended that the pledgee has a right to retain the good s as security for the loan and sue for the amount due. On the other hand it is contended by learned counsel for respondent that the promissory note was not supported by consideration and that the note and the instrument of pledge were executed only to oblige the officials of the bank to enable them to close the Grihalakshmy Gift Scheme started by them without the permission of the Reserve Bank. It is also contended that plaintiff cannot retain the goods pledged and at the same time sue for the amount due.
6. On the contentions raised by both sides the following points arise for consideration ;
(i) Whether defendant is liable to pay the amount due on Ext. A1?
(ii) Whether plaintiff is entitled to sue on the promissory note before exhausting the remedy of sale of the pledged goods?
7. Point No. 1 : The execution of Ext.A1 pronote and A2 instrument of pledge of goods is admitted by defendant. Plaintiff bank had started a gift scheme by name "Grihalakshmy Gift Scheme" as part of deposit mobilisation. Defendant is a dealer in home appliances. The scheme was prepared by defendant at the instance of plaintiff bank. He acted as a promoter and the goods were ordered by him. The correspondence between defendant and the supplier on the one hand and defendant and plaintiff on the other would indicate that it was defendant who ordered for the goods though the documents were received by the bank and the goods taken delivery of by them. It may therefore appear that defendant had only acted as a promoter or agent on behalf of the bank. But there are documents to suggest that defendant had undertaken to pay the amount mentioned in Ext. A1 on the pledge of the goods mentioned in Ext.A2.
8. As observed earlier the execution of the documents is admitted. It might have been executed in the circumstances mentioned by defendant in his written statement. But he had undertaken the liability to pay the amount due under Ext.A1. Ext.A3 is a letter sent by the bank to defendant on 31-12-1979 informing him about the balance due and requesting him, to sign, the confirmation therein. The defendant had confirmed the correctness of the amount mentioned therein and had subscribed his signature in token thereof. Ext.A4 is a letter sent by defendant on 14-3-1980 requesting the bank to hand over one washing machine on remitting Rs: 1,200/-. That letter was sighed by DW I himself. He had sent another letter on 3-4-1980 requesting the bank to release one more machine kept under the key loan transaction. He had informed the bank that he was remitting Ks. 1,200/ - towards the account. On behalf of defendant a letter is seen to have been sent on 29-3-1980 as A4(a) assuring the plaintiff that the entire machines will be released within a few days by paying the full amount. The liability of defendant to pay the amount under Ext Al on the pledge of the articles mentioned in Ext.A2 has therefore been admitted. Moreover defendant had requested plaintiff by Ext.A5 letter to forgo the interest part of the transaction and to permit him to pay the balance amount at the rate of Rs. 100/- per week. He had further informed the bank that the possession of the washing machines need be taken only after clearing the amount due to the bank in this account. Mention is also made about the balance due to the bank as on that date. In view of this letter, wherein defendant had undertaken to pay the balance amount in instalments, it is idle for him to contend that he had not received any consideration for Ext. Al or that he had not pledged the goods mentioned in Ext. A2. The liability of defendant to pay the amount under Ext. A1 has therefore been established by the documents produced in the case.
9. It is contended by appellant that the claim is not sustainable since Ext. Al is not supported by consideration. Reliance was placed on the testimony of PW1 who admitted in chief examination that (here is no cash consideration for Ext. Al. whereas it was executed in connection with the gift scheme. True, no amount was paid to defendant in cash on the date of Ext.Al. But there, is material on record to show that the goods were supplied as per the orders placed by defendant at the instance of the plaintiff. He had undertaken to take back the goods on paying the value thereof. Part of the goods was got released by paying proportionate amount. The correctness of the balance found due by the bank was confirmed by defendant in Ext. A3. He had also undertaken to pay the balance amount due in instalments and had even requested the bank to forgo interest. He is therefore liable to pay the amount due to the bank as per the accounts. To the registered notice sent by the bank before filing of the suit no reply was sent by the defendant. His contention appears to be that he had met the bank officials who advised him not to send a reply. This explanation is not convincing. The first opportunity available to the defendant to repudiate the claim on the basis of Exts. Al and A2 was not availed of by him. The non-sending of the reply coupled with the admission in various documents can only lead to the inference that he had no objection to the averments contained in the registered notice. The result is that defendant is liable to pay the amount due on Ext.Al.
10. Point No. 2 ; The court below refused the relief for the reason that plaintiff has failed to exhaust the remedy available to it under the Banking Regulations. The bank had retained the goods and sue on the promissory note for the amount due. A question arises as to whether the bank can retain the goods as collateral security and at the same time sue for the amount due.
11. The goods were retained by the bank while suing for the amount due, presumably in exercise of their right to retain the goods as collateral security. Since the goods were delivered as security for payment of the debt the transaction is a pledge or pawn. The two ingredients of a pawn are: (i) The property pledged should be actually or constructively delivered to the pawnee, and (ii) the pawnee has only a special property in the pledge, the general property remaining with the pawnor and the same will revert to him on discharge of the debt. In case of default by a pawnor to repay the amount borrowed, the pawnee has three rights under Section 176 of the Indian Contract Act. They are: (1) He may bring a suit upon the debt, (2) he may retain the pawn as a collateral security, and (3) he may sell the goods after giving the pawnor reasonable notice of sale.
12. The Calcutta High Court in AIR 1963 Calcutta 132 -- Haridas Mundra v. National & Grindlays Bank -- observed that the right to retain the pawn and the right to sell it are alternative and not concurrent rights. It was held (at page 134):
"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 collateral security only. Nor does the sale of the pawn destroy this right; the pawnor is still liable on the original promise to pay the balance due."
It was further observed that the institution of a suit upon the debt or promise does not reduce the pledge to a passive lien and destroy the pawnee's right to sell the pawn. Such right continues in spite of the institution of the suit. The pawnee has thus every right to retain the goods as a collateral security and at the same time can sue on the debt. But then he has the liability to return the goods on the pawnor discharging the debt. The pawnee can bring the goods to sale only after notice to the pawnor. The pawnor has an absolute right to redeem the property pledged upon tender of the amount due. But that right would be lost if the pawnee has in the meanwhile lawfully sold the properties pledged after notice to the pawnor. A contract of pawn thus carries with it an implication that the security is available to the pawnee to satisfy the debt by the sale of the articles pledged. At the same time the pawnor has a right to get the property redeemed from the pledge until a sale had taken place. After the pawnee exercises his right and sells the goods he must appropriate the proceeds towards the amount due to him, the surplus, if any, after such adjustment to be returned to the pawnor and the balance if any to be realised from the pawnor. The right of the pawnor to redeem the property pledged therefore continues till the properties are sold by the pawnee. The liability to return the goods is always there on the pawnee and can be exercised by the pawnor till the pawnee exercises the right of sale and sells the goods after notice to the pawnor;
13. What is the right of the pawnor if the pawnee is not in a position to return the goods on the pawnor tendering the amount due on the debt? Can the pawnee even in such a case sue the pawnor on the debt without accounting for the goods pledged? These questions require answer in this appeal. The Supreme Court had occasion to consider this aspect in the decision in Lallan Prasad v. Rahiriat Ali -- AIR 1967 SC 1322. After observing that the pawnee's right of sale is derived from an implied authority from the pawnor and such a sale is for the benefit of both the parties and if the pawnor tenders payment of the debt the pawnee has to return the property pledged, the Supreme Court held (at page 1326):
"If by his default the pawnee is unable to return the security against payment of the debt, the pawnor has a good defence to the action."
The Supreme Court further observed that there is no difference between the common Saw of England and the law with regard to pledge as codified in Sections 172 to 176 of the Contract Act. After referring to the relevant provisions contained in these sections the Supreme Court held thus (at page 1325):
"So long, however, the sale does not take place the pawnor 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, thought 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."
The Supreme Court observed that the pawnor would he placed in a position where he incurs a greater liability than he bargained for under the contract of pledge in case he is not in a position to get back the goods on tendering the amount and at the same time he has to suffer a decree for the debt due. The Supreme Court ultimately held (at page 1326):
"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."
Reference can also be made to the decision of the House of Lords in Trustee of the Property of Ellis and Company v. Dixon Johnson --1925 AC 489 where it is held (at page 491):
"I have always understood the rule in equity to be that, if a creditor holding security sues for his debt, he is under an obligation on payment of the debt to hand over the security; and if, having improperly made away with the security, he is unable to return it to his debtor, he cannot have judgment for the debt."
14. Following the decision of the Supreme Court in Lallan Prasad's case (supra) I hold that the pawnee is not entitled to sue on the debt and realise the amount due unless he is in a position to redeliver the goods on payment of the debt by the pawnor. In case the pawnee is not in a position to return the goods to the pawnor on the pawnor tendering the amount due the pawnee is not entitled to get a decree.
15. The next aspect that falls for consideration is whether the principle enunciated above can be applied to the facts of the present case where the goods pledged are available, but not in the condition in which they were at the time of pledge. Pledge is a bailment of goods as security for payment of a debt or performance of a promise. Bailment as defined in Section 148 of the Contract 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. The purpose in this case is the security for payment of the debt due from defendant. When the purpose is accomplished, viz the discharge of the debt the bailee is bound to return the goods pledged to the bailor. Section 150 of the Act stipulates that the bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extraordinary risks; and if he docs not make such disclosure, he is responsible for damage arising to the bailee directly from such faults. Section 151 enjoins a duty on the bailee to take as much care of the goods bailed (o him as a man of ordinary prudence would under similar circumstances, take of his own goods of the same bulk, quality and the value as the goods bailed. The loss or damage of goods entrusted to the bailee is prima facie proof of evidence of his negligence. The burden to prove absence of negligence is on the bailee. Section 152 of the Act stipulates that in the absence of any special contract, the bailee is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care it is described in Section 151. The bailee is therefore bound to take care of the goods as an ordinary prudent man would take care of his own goods. The standard of diligence required is that of an ordinary prudent man. A bailee can escape from liability for lost goods if it is shown that he has taken as much care an ordinary man would take of his own goods. In case the goods are not returned, delivered or tendered at the proper time on account of the default of the bailee he will be responsible to the bailor for any such loss, destruction or deterioration of the goods from that time. Vide Section 161 of the Act.
16. These provisions make it clear that the pawnee has a duty to take care of the goods as a man of ordinary prudence would take of his own goods and will be liable to the pawnor for the loss or damage caused to the goods on account of his negligence. It necessarily follows that the goods (o be returned by the pawnee should be the same goods pledged by the pawnor and they should be in the same condition in which they were entrusted to the pawnee meaning thereby that no damage should have been caused to those goods on account of the negligence of the pawnee.
17. Having found that the pawnee is bound to return the goods in the same condition in which they were on the date of pledge it has to be seen whether any damage has been caused to the goods pledged by the defendant and whether plaintiff is in a position to redeliver the goods in the same condition in which they were at the time when they were entrusted to the bank on the strength of Ext. A2. The court below has issued a commission to inspect the premises of the bank and report about the condition of the washing machines pledged under Ext. A2, The Commissioner has sought the assistance of a qualified Engineer. The report of the Engineer is Clause (a). Six washing machines were seen kept in the staff room of the bank. Motor, heater, wire and switch were not seen in two of the machines. Motor was not seen in two other machines. In the 5th machine there is only a drum and a heater and all other parts were missing. Some parts were found missing in the 6th washing machine. The Engineer reported that the main parts of a washing machine are its FHP motor and impeller. He further reported that in most of the machines motor and impeller were not seen. He opined that it is better to scrap these items rather than attempting to repair the same. That means repair will cost more than the purchase of a new washing machine. The machines were kept in the staff room of the bank. It appears that the staff room is used as a dining room. The Commissioner noticed a dining table and some chairs in that room. The room was opened at the time of inspection. The washing machines pledged with the bank were not kept properly by the pawnee, whereas they were placed in a room accessible to all the members of the staff with the result that valuable parts were removed from the washing machines. From the Commissioner's report it is evident that the machines have become worthless and can be sold only as scrap. Considerable damage has therefore been caused to the goods. The pawnee is not thus in a position to redeliver the washing machines pledged under Ext. A2 and what is available is only the machines without their valuable parts. The pawnor will not be in a position to get back the same articles pledged by him on tendering the amount due. Under such circumstances the pawnee has no right to sue on the debt. The Supreme Court has held that 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. Since plaintiff is not in a position to return the goods to the pawnee in the same condition in which they were entrusted to them at the time of pledge they have no right to sue on the debt whereas they can only retain the goods or whatever left of them. The result is that defendant is absolved of all liabilities under Ext. A1 and the claim of plaintiff for return of the money has only to be negatived.
In the result the appeal is found to be devoid of merit and in confirmation of the judgment and decree of the court below the appeal is dismissed, but in the circumstances without costs.