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T.S. Kotagi Vs. Tahsildar, Gadag and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtKarnataka High Court
Decided On
Case NumberW.P. No. 2666 of 1982
Judge
Reported inAIR1985Kant265
ActsIndian Contract Act, 1872 - Sections 25 and 176; Limitation Act, 1963 - Schedule - Article 19; Karnataka Debt Relief Act, 1976 - Sections 4 and 7; Karnataka Debt Relief (Amendment) Act, 1980 - Sections 3, 6 and 15; Evidence Act, 1872 - Sections 101-104
AppellantT.S. Kotagi
RespondentTahsildar, Gadag and ors.
Appellant AdvocateW.K. Joshi, Adv.
Respondent AdvocateGhotkhindi, Adv. and ;B.R. Nanjundaiah, Govt. Adv.
Excerpt:
.....action by the creditor'.12. an off quoted statement of cotton lj in curwen v. ' with respect there cannot be a better enunciation. if by his default the pawnee is unable to return the security against payment of the debt, the pawner has a good defence to the action. he only stated that he is a poor man......1900/-. on 21-12-1962, pledge authorised respondent-3 to discharge the loan and take release of pledged articles. according to petitioner's application dated 3-12-1976 (an. 'b') it was third respondent shivappa basappa mugali, who discharged the loan and took delivery of pledged articles; this is reaffirmed in his statement (annex. 'e') before the tahsildar. the petitioner is pledge's wife's uncle. during the enquiry, it transpired that petitioner (not respondent-3) took delivery of the pledged articles and he has signed the receipt, in the bank; the said receipt is not produced. the magistrate passed an order against the petitioner to return the articles; this order was challenged by the petitioner in w. p. no. 6473 of 1977, on the ground that petitioner was not a party to the.....
Judgment:
ORDER

1. Petitioner challenges the order dated 7-12-1981, passed by respondent-1, marked as Annex. 'U.

2. In retrospect, the facts are as follows :

On 8-8-1962, second respondent (hereinafter referred to as 'pledge') pledged gold ornaments with Canara Bank, Gadag, and obtained loan of Rs. 1900/-. On 21-12-1962, pledge authorised respondent-3 to discharge the loan and take release of pledged articles. According to petitioner's application dated 3-12-1976 (An. 'B') it was third respondent Shivappa Basappa Mugali, who discharged the loan and took delivery of pledged articles; this is reaffirmed in his statement (Annex. 'E') before the Tahsildar. The petitioner is pledge's wife's uncle. During the enquiry, it transpired that petitioner (not respondent-3) took delivery of the pledged articles and he has signed the receipt, in the Bank; the said receipt is not produced. The Magistrate passed an order against the petitioner to return the articles; this order was challenged by the petitioner in W. P. No. 6473 of 1977, on the ground that petitioner was not a party to the proceedings and there was no privet of contract between him and pledge. The said writ petition was allowed, after setting aside the order, the case was remanded; the copy of the order dated 7-2-1980, in W. P. No. 6473 of 1977 is filed as Annexure 'C'. The Court held that relationship of 'pledge' and 'pledgee' came to be created between the 2nd respondent and the petitioner and as such proceedings, under Karnataka Debt Relief Act were maintainable against the petitioner. There was no appeal, against this order and it has become final.

3. After remand, no further evidence was adduced, by the second respondent. The petitioner had given his statement on 14--2-1977. In view of findings. recorded in W. P. No. 6473 of 1977, the following findings become unassailable : -

1) There is a relationship of 'pledge' and pledgee;

2) The petitioner is in possession of the gold ornaments, belonging to the pledge.

4. The Tahsildar holding that the second respondent is a 'debtor' has passed the impugned order.

5. Mr. W. K. Joshi, learned counsel for the petitioner (pledgee) urged the following contentions : -

1) The 'debt' having become time barred and irrecoverable by him, it ceases to exist, on the date the Act came into force;

2) There cannot be a 'discharge' of time barred debt:

3) Since an order of discharge cannot be passed, consequential order of return of ornaments also cannot be passed; and lastly

4) the finding that second respondent is a 'debtor' is erroneous.

6. Mr. Gothkhindi argued that even if the petitioner's remedy to realize the debt is barred by limitation, the debt is not extinguished, it survives; it stands statutorily discharged, under K. D. R. Act. Hence the consequential order of return of ornaments is legal and unassailable. On the question of finding regarding respondent's position as 'debtor', he contended that it is a question of fact and cannot be interfered with. He also submitted that matter is already remanded once before, the object of law will be defeated if it is to be remanded again.

7. So far as the relationship of the parties is concerned, it stands concluded by the order in W. P. 6473 of 1977 (An. 'C'). Therefore, to appreciate the contentions of Mr. Joshi. it becomes necessary to find out rights and remedies, available to the pledge and pledgee under Ss. 172 to 177 of the Contract Act and the relevant provisions of Limitation Act.

8. S. 172. defines the word 'pledge' and pawner (otherwise called as pledge) and pawnee (otherwise called as pledgee). Under S. 173, the pledgee or pawnee has a right to retain the goods pledged not only for payment of 'debt' or the performance of promise, but for interest also. S. 176 creates two rights in the pawnee (pledgee).

1) To bring a suit against the pawnor, upon the 'debt' or promise;

2) Sell the thing pledged on giving the pledge reasonable notice of sale.

If he chooses to file the suit on the 'debt' or promise, he can retain the pledged articles as collateral security. The right to sue, on the debt, assumes that he is in a position to redeliver the goods on payment of debt. The section does not contemplate any notice prior to the institution of the suit. The pledgee can also bring a suit to sell the goods pledged. However a suit to recover the debt, by sale of pledged articles must be preceded by notice. Similarly if 'pledgee' wants to sell articles, without the intervention of the Court, he can do so, only after issuing a notice of sale to the pledge. Sale without notice is void and a vendee without notice of the pledge, takes only the limited rights or interest of pledgee, in other words, he steps into the shoes of pledgee. These being the rights and remedies of pledgee, question is what is the period of limitation to bring these actions. Art. 120 of the old Act i.e. Art. 113 of the Limitation Act (1963) governs such suits and the period, for both types of suits to be brought by pledgee is six years, from the date of pledging. In Fisher v. Ardeshir AIR 1935 Bom 213, Wadia, J., observed thus:

' .... The right which the plaintiff asserts in this suit is the right given to him under S. 176 to sell the pledged property. That right accrued to him on default of payment of his debt, and the debt being payable on demand and in fact not having been paid. there is an infringement of his right to sell, and the right to sue therefore accrued to him on default. There cannot in my opinion, be one terminus a quo or starting point of limitation for the right to sue on the debt and another for the right to sell the pledged property. In (1904) ILR 27 Mad 528 it was held that the claim to proceed against the pledged property was governed by Art. 120...........................................................................................................................................

The personal remedy of the pawnee on the loan and his right against the pledged property are distinct but concurrent, and even if the personal security is barred, the right to enforce the security against the property still remains .....'

9. In the instant case, the articles are taken by the petitioner on 24--12-1962; therefore his remedy to recover 'debtor' to bring the pledged articles for sale, expired on 24--12-1968, i.e. long before the coming into force of the Karnataka Debt Relief Act, 1976, which came into force on 21-10-1975. The contention of Sri Joshi is that the 'debt' ceased to exist on the date the Act came into force; in other words, according to the learned counsel, time barred 'debt' is no 'debt' at all, in the eye of law; this proposition needs examination.

10. In the Law of Contract, by Cheshire and Fifoot's (9th Edition) the authors, at page 625, the legal position is summed up thus :

'If the statutory period expires before action brought, the plaintiffs right is not extinguished. He is merely deprived of his two remedies of action and set-off. The statute is procedural not substantive. A statute-barred debt is still payable despite the fact that its payment cannot be enforced by action, and if there is any other method by which the creditor can obtain satisfaction it is at his disposal. Thus if a debtor pays money on account of debts, some of which are statute-barred and some not, and does not expressly indicate that the payment is made in respect of those which are still actionable, the creditor may appropriate the money to those that are statute-barred. Again if a party is entitled to a lien on goods for a general balance, and he gets possession of the goods of his debtor, he may hold them until his whole demand is satisfied notwithstanding that it is barred by the Limitation Act.'

11. In Bombay Dyeing and . v. State of Bombay : (1958)ILLJ778SC , their Lordships held thus :

' ........And if the law requires that a debtor should get a discharge before he can be compelled to pay, that requirement is not satisfied if he is merely told that in the normal course he is not likely to be exposed to action by the creditor'.

12. An off quoted statement of Cotton LJ in Curwen v. Milburn (1889) 42 Ch. D. 424, states :

'Statute barred debts are dues, though payment of them cannot be enforced by action.'

The above passage is approved by the Supreme Court in Khadi Gram Udyog Trust v. Shri Ram Chandraji Virajman Mandir : [1978]2SCR249 . Therefore the legal position is that notwithstanding the fact that the creditor's right to realise the ''debt' is barred by limitation, the 'debt' survives. This logic gains support from the fact a time barred 'debt' would constitute a valid consideration for a new contract. But, Mr. Joshi argued, that when 'debt' is irrecoverable being time-barred, there cannot be a 'discharge under the statute. To appreciate this argument, it has to be remembered that, in the instant case, the rights are reciprocal. While the pledgee can recover his 'debt' on the promise, and bring a suit for sale of pledged articles or sell them himself, after notice to pledge (debtor), the latter can bring a suit for recovering the pledged articles by tendering the amount. This position gains support from the statement made by Justice Chagla, as he then was, in Official Assignee, Bombay v. Madholal Sindhu AIR 1947 Bom 217, thus:

'........ that although the pledgee may sell the goods unauthorized or unlawfully, the contract of pledge is not put an end to and the pledge does not become entitled to the possession of the goods pledged without tendering the amount due on the pledgee or in other words, without seeking to redeem the pledge and; that without a proper tender of the amount due on the pledge, the only right of the pledge in respect of an unlawful or unauth6rised sale is in tort for damages actually sustained by him.'

With respect there cannot be a better enunciation.

The rights of pledge and pledgee, under the contract, are stated thus by Supreme Court in Lallan Prasad v. Rahmat Ali : [1967]2SCR233 :

'A contract of pawn thus carries with it an implication that the security is available to satisfy the debt and under this implication the pawnee has the power of sale on default in payment where time is fixed for payment and where there is no such stipulated time on demand for payment and on notice of his intention to sell after default. The pawner however has a right to redeem the property pledged until the sale. If the pawnee sells, he must appropriate the proceeds of the sale towards the pawner's debt, for, the sale proceeds are the pawner's monies to be so applied and the pawnee must pay to the pawner any surplus after satisfying the debt. The pawnee's right of sale is derived from an implied authority from the pawner and such a sale is for the benefit of both the parties. He has a right of action for his debt notwithstanding possession by him of the goods pledged. But if the pawner tenders payment of the debt the pawnee has to return the property pledged. If by his default the pawnee is unable to return the security against payment of the debt, the pawner has a good defence to the action. This being the position under the common law, it was observed in Trustees of the Property of Ellis and Co v. Dixon Johnson, 1925 AC 489, that if a creditor holding security sues for the debt, he is under an obligation on payment of the debt to hand over the security, and that if, having improperly made away with the security he is unable to return it to the debtor he cannot have judgment for the debt'.

As held by Supreme Court in Balkrishna v. Swadeshi Polytex Ltd., : [1985]2SCR854 , the legal title of the goods pledged would not vest in the pawnee. The pawner has only a special property; a pawnee has no right of foreclosure since he never had the absolute ownership at law and his equitable title cannot exceed what is specifically granted by law.

13. Suit for recovery of pledged articles is governed by Art. 70 of the Limitation Act, which prescribes a period of three years from the 'date of refusal after demand'. This right of the 'pledge' to recover his articles, by a separate suit, is an incident of the contract of pledge and can be exercised after tendering the amount. The obligation to tender the amount and claim the pledged articles is what is done away with, by the K. D. R. Act. The 'discharge of debt in this context has the effect of wiping out the debt. The dictionary meaning of 'discharge' of debt in this context has the effect of wiping out the debt. The dictionary meaning of 'discharge' is -

'to free from or relieve of a charge of any kind (burden, explosive, electricity, liability, accusation etc) : to be free : to acquit : to dismiss: to fire (as a gun) : to take the superincumbent weight from : to set down or send forth : to eject : to pour out : to emit or let out : to perform : to pay to give account for : to distribute (as weight) (obs). to forbid. - v. i. to unload: to become released from a charged state : to allow escape of contents : to flow away or out.- n. the act of discharging : release from a charge of any kind: unloading: liberation : acquittal : dismissal : outflow rate of flow : emission : release of tension payment : performance : that which is discharged. - ns. discharger, one who discharges .........'

14. In Webster's dictionary, 'discharge' means-

'the act of relieving of something that oppresses (as an obligation, accusation, penalty) Acquittance, dismissal, release (ask for the - of a debtor) : something that discharges or releases (as from imprisonment, an obligation, or a liability); esp. a certification of release or payment (produced his - as evidence) : the state or fact of being discharged or relieved (as of a debt, obligation, or accusation) : acquittal, exoneration (received a full - from responsibility for the incident) the act of discharging : removal of a load unloading (the - of a ship) (the - of a cargo) : legal release from confinement : liberation (ordering a conditional - of the alien on habeas corpus : a firing off : expulsion of a charge: expulsion (a - of arrows) (an artillery) ......

15. In the normal course, the debt is discharged by payment of the entire amount by the 'debtor' or by realisation through the court, by means known to law. In either of these cases, the debtor is required to make payment; but if it is 'discharged' statutorily, the liability to pay gets washed off and any article pledged as security becomes returnable. It is to achieve this object, S. 4(f) is enacted in the Karnataka Debt Relief Act. Therefore, even in cases of time barred 'debts', the order of 'discharge' would be an efficacious order, so as to enable the Magistrate to pass the consequential order for returning or restoring the pledged articles. Indeed with the discharge of debt, the debt gets extinguished. If the Karnataka Debt Relief Act had not provided for the return of pledged articles by the authority, under S. 4(f), in the normal course, it is only on the discharge of 'debt', by payment or otherwise the pledge could issue notice and bring a suit for the recovery of pledged articles. The same object is achieved by the K. D. R. Act by dispensing with the obligation to pay the debt. Hence the petition filed by the 2nd respondent was maintainable and the Magistrate had the jurisdiction to grant relief under S. 4 of the K. D. R. Act.

16. This takes me to the merits of the matter. The second respondent, in his petition dated 3-12-1976, did not state as to what type No costs. of 'debtor' he was. He only stated that he is a poor man. This aspect had not been considered in the previous writ petition. In his statement, copy of which is filed as An. 'E' he stated thus :

(Matter in Vernacular Omitted - Ed.)

17. Under the Debt Relief Act, there are three classes of debtors, namely -

1. landless agricultural labourer;

2. Small farmer; and

3. Man belonging to weaker section of people.

The Tahsildar has treated him as a person belonging to 'weaker section of people', the term as defined in the Act requires 'weaker sections of the people means persons not being small farmers or landless agricultural labourers, whose annual income from all sources does not exceed two thousand and four hundred rupees.

18. Under S. 7 of the K. D. R. Act, 1976, the burden of establishing that a person is a 'debt' of is initially on the claimant, as held by this Court in Sebastian Antony v. Ramanand Bhatt : AIR1982Kant73 . The second respondent has stated that on the date he filed his application, he was employed in Janata Bazaar and was getting Rs. 208/- per month, that means Rs. 2496/-per annum, which is more than what is prescribed in the Act namely, Rs. 2400/-. But during the pendency of the proceedings, the 1980 Act has come into force. S. 15 of the Act permits the 'debtor' to take benefit of that Act and claim relief, as held by this Court in Sebastian Antony's case referred to above.

19. The determination in this regard needs examination. Parties have to adduce evidence, keeping in view the provisions of K. D. R. Act 1976 as also 1980 Act. Hence I make the following order:

1. Rule made.absolute;

2. W. P. allowed; An. 'D' dated 30-11-81/7-12-81 is quashed;

3. The matter remitted to respondent 1 to determine the question regarding claimant's status as 'debtor' after affording reasonable opportunity to the parties and pass fresh orders, in accordance with law and in the light of the observations contained this order.

No costs.

20. Order accordingly.


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