Obul Reddi, J.
1. Two main questions areise in these two appeals preferred by the Indian Bank Ltd, (hereinafter referred to as the appellant-Bank); (1) Whether the Memo, Ex. A-27 dated 21-4-1959, constituted mortgage by deposit of title deeds and (2) whether the 589 and odd caster seed bags pledged by the 1st defendant in O.S. 1/1961 belonged to the 3rd defendant-firm and whether the 1st defendant had no agency or power on behalf of the 3rd defendant to pledge the goods with the appellant-Bank.
(Contd. on Column 2)
1. Open loan cash credit account
2. Key loan cash credit account.
3. Documentary bills purchasing account.
4. Clean bills purchasing account.
The total amount due from the 1st defendant on all the accounts is Rupees 1,16,419-71. In respect of the debt, he had deposited title deed under a letter, Ex. A-27. O.S. 1/61 was filed to recover the said amount not only from the 1st defendant but also from the 3rd defendant-firm as it claimed to be the owner of 589 bags of castor seeds pledged by the 1st defendant under Ex. A-28 dated 7-7-1960.
4. The 1st defendant, who filed his written statement and remained ex parte questioned the correctness of the accounts of the appellant-Bank and also claimed ownership of the goods pledged by him under Ex. A-28. The case of the 3rd defendant-firm is that the 1st defendant was acting as its commission agent and that he was purchasing castor seeds on its behalf during the period 15-4-1959 and 25-4-1959, that the castor seeds that were purchased through the 1st defendant were stored in go down NO. 1-6-33 in Jangoan town, that when it was told that the 1st defendant pledged the goods for a total amount of Rs. 17,700/- the pledge was redeemed and possession of the goods was taken by obtaining the keys of the go down from the agent of the Bank,. that thereafter no goods belonging to the 1st defendant were stored in that go down, that the goods pledged by the 1st defendant subsequently on 7-7-1960 did not belong to him but were the very same goods which belonged to the 3rd defendant-firm and that inasmuch as the 1st defendant pledged the goods not as the agent of the 3rd defendant firm is entitled to the value of the goods viz., 589 and odd bags of castor seeds pledged by the 1st defendant.
5. The learned District, Judge, Warangal on the main issues arising out
2. The parties in these appeals are referred to in the order arrayed in O.S. 1/61.
3. To appreciate the two questions involved it is necessary to state the relevant facts. The appellant-Bank filed O.S. 1/61 against the 1st defendant, the 2nd defendant who happened to be the lessee of the rice mill owned by the 1st defendant, the subject-matter of the mortgage, and against the 3rd defendant, a firm, on whose behalf the 1st defendant was purchasing castor seeds at Jangaon. The relief against the 4th defendant does not concern us in these appeals. The 1st defendant had four accounts with the appellant-Banks:
of the pleading held that the document, Ex. A-27 is registrable as it is not a document executed to evidence the deposit of title deeds and that the 589 and odd castor seed bags belong to the 3rd defendant-firm and as such the 3rd defendant-firm is entitled to the value thereof.
6. Mr. T. Ramachandra Rao appearing for the appellant-Bank assailed the findings of the Court below contending that the learned Judge has failed to see from what is stated in Ex. A-27 that it does not constitute a mortgage by deposit of title deeds and that he has totally failed to appreciate that the case of the 3rd defendant-firm throughout was that the 1st defendant was acting as its agent. It is also urged that the appellant-Bank in good faith believed that the 1st defendant and that therefore the 3rd defendant and that therefore the 3rd defendant is precluded or esteemed from as wailing the pledge of the goods effected by the 1st defendant.
7. Mr. K. Suryanarayana appearing for the 3rd defendant strenously contended that the appellant-Bank has given up its case as unfolded by it in the written statement filed by it in O. S. 5/61, where it has specificailly averred that the goods pledged on 7-7-1960 were the goods of the 1st defendant and not of anybody else and that they were not the same goods which were pledged in the first instance by the 1st defendant and having failed to prove what it has specifically alleged, it cannot be permitted to set up a case quite inconsistent with and contrary to its own pleas.
8. Mr. K.B. Ratna Sastry appearing for the minor legal representatives of the 1st defendant contended that the court below was right in holding that Ex. A-27 is compulsorily registrble as it is a document evidencing the contract of mortgage and as such there are no grounds for reversing the finding of the Court below in this regard.
9. We may first dispose of the question whether Ex. A-27 is a document which is compulsorily registrable. Section 58(f) of the Transfer of Property Act provides for mortgage by deposit of title deeds. The documents of title to immovable property are deposited with intent to create a security thereon. Patanjali Sastry. J., as he then was, dealing with the question as to whether the parties intended to reduce the bargain regarding the deposit of title-deeds to the form of a documents in Rachapal v. Bhagwandas, : 1SCR548 observed:
'The crucial question is: Did the parties intend to reduce their bargain regrind the deposit of the title deeds to the form of a document? If so, the document requires registration. If, on the other hand, its proper construction and the surrounding circumstances lead to the conclusion that the parties did not intend to do so, then there being no express bargain the contract to create the mortgage arises by implication of the law from the deposit itself with the requisite intention, and the document, being merely evidential does not require registration.'
This case was referred to and followed by the Supreme Court subsequently, See United Bank of India, v. Lekhram & Co., AIR 1965 SC 1951. Therefore the question in whether Ex. A-27 is merely evidential of the deposit of tittle deeds made by the 1st defendant or whether the parties intended to reduce the bargain regarding the deposit of title deeds to the form of a document. Mr. Ramachandra Rao invited our attention to Ex. A-48 to show that the documents of title were delivered to the appellant as early as 23-3-1959 and that it is only to evidence that delivery of title deeds that Ex. 27-A was drawn up and delivered to the Bank. It is therefore necessary to extract Ex. 27-A and also notice what is contained in Ex. A-48. Ex. A-27 reads:
'Nomula Lakkshminarayana Rice & Oil Mills, Jangaon (Central Railway).
Dated 21st April, 1959,
List of Title deeds deposited as Security by way of equitable mortage for the loans and advances by way of open loan, key Loan, Documentary Bills and Clean Bills purchasing facilities allowed to and Clean Bills purchasing facilities allowed to M/s Nomula Lakshinarayana Rice & Oil Mills, Jangaon, Proprietor; Mr. Nomula Lakshminarayana and/or any other liabilities outstanding and due to the Indian Bank Ltd. from the said firm or its proprietor Mr. Nomula Lakshminarayana:
1. Sale deed of Rice and Oil Mill Factory at Jangaon dated 4-6-1952 executed by Pabba Siddayya Gari Somayya and others in favour of Nomula Lakshminarayana, son of Ramayya and Male Anjayya for O.S. 6333,300/- including land and buildings plant and machinery, Engines, Bolier explores etc. together with plan.
2. Registered sale deed of 1/4th share in the above property belonging to Male Anjayya executed by him to Nomula Lakshminarayana for O.S. Rs. 16,000/- dated 30-7-1954.
3. Plan of the above said Mills approved by the Chief Inspector of factories, Government of Hyderabad.
4. Letter No. 1144/81/P/55-56 dated 2-6-1956 from Chief Inspector of Factories to Nomula Laksminarayana, approving the plans of the Mills and Factory buildings.
5. Permit No. (12) 1956-57 granted by Chief Inspector of Factories to Nomula Lakshminarayana for construction and use of the mills and addition of one oil expeller.
Sd. in telugu
This letter has to be read along with ex. A-48 to ascertain the intention of the parties. Ex. A-48 is an extract from the Registrar of equitable mortgages. As may be seen from the particulars given in Ex. A-48 an application was made by the 1st defendant on 23--1959 and he handed over the title deeds on 23-3-1959. The properties offered as security under Ex. A-27. Item 10 of Ex.A-48 is the relevant column and it reads 'Date of deposit of title deeds. 21st April, 1959.' The heading of Item 13 Reads: 'Transaction how effected' and against this column it is noted: Document of title handed over to the Bank in the presence of' and the names of persons in whose presence the documents were handed over are noted. It is because of the entry against Column 4 i.e., '23rd March. 1959' that Mr.Ramachandra Rao sought to argue that the deposit had taken place long prior to the date had taken place long prior to the date of Ex. A-27 and as such Ex,A-27 only evidences the deposit of title deeds made on 21-4-1959. This argument of the learned Counsel is not supported by the entries in the registrar of equitable mortgages. All that Item shows is that the 1st defendant handed over title deeds on 23-3-1959 and not that the documents were deposited so as to create and equitable mortgage Item 10 to which we have already referred is the relevant item and admittedly the deposit of title deeds was made on 21st April, 1959 at the time when Ex. A-27 was executed by the 1st defendant. There is also the evidence of the appellants employees, P. Ws. 6 and 7, couched that the deposit of title deeds was at the time when Ex. A-27 was executed Handing over of title deeds was for the purpose of scrutiny of the documents in order to see whether the 1st defendant had title to the properties which were offered as security. It is only when the appellant-Bank scrutinises the title deeds and finds that the 1st defendant has title to the properties offered as security, that the question of deposit of title deeds creating equitable mortgage would arise. If on the same date when the documents of title were handed over to the Bank the deposit of title deeds was also made and the letter Ex. A-27 was executed subsequently, then we would have no hesitation in holding that Ex. A-27 is merely evidential and therefore does not require registration. But this is a case where a deposit is made by letter explaining why the title deeds are deposited and in such a case the document required registration as the parties intended to reduce the bargain into writing. Therefore having regards to what the Supreme Court has laid down in : 1SCR548 and AIR 1965 SC 1951 we uphold the finding of the court below that Ex. A-27 is a document which is compulsory registrable and inasmuch as it is not registered it cannot be received in evidence.
10. The next question is whether the 3rd defendant on who, the initial burden rests to prove that the goods viz., 589 bags of castor seeds belonged to him and not to the 1st defendant, has discharged that burden. Mr. Suryanarayana in this connection invited our attention to several documents to prove the title of the 3rd defendant to the goods. Ex. B-12 is a patti dated 26-4-1959 made out by the 1st defendant regarding the purchase of castor seeds for the 3rd defendant firm. The total stock purchased also shown in the patti is bags 589-121/4 of castor seeds and this stock is pledged in Key Loan account with the appellant-Bank in the name of the 1st defendant. This pledge was approved by D.W.2 a representative of the 3rd defendant-firm. So far as this Pledge is concerned there is no dispute either as to the ownership or as to the authority of the 1st defendant to pledge the goods with the appellant-Bank on behalf of the 3rd defendant-firm. The dispute is only with regard to the third pledge of the goods on 7-7-1960. It is the specific case of the 3rd defendant-firm that the former pledge was redeemed on 17-3-1960 and after redemption the keys of the go-down were handed over by the Bank Officials to D.W. 5, was put in charge of the go-down. It is also the case of the 3rd defendant-firm that the 1st defendant pledged the very same goods and not any stocks purchased by him and stored in this particular go-down, that he had no authority whatsoever to pledge the goods which belonged to the 3rd defendant-firm and as such the 1st defendant cannot pass a better title to the goods then he himself possessed. It is necessary in this connection to also notice the specific case of the appellant-Bank as stated in para 5 of the written statement filed in answer to the plaint in O.S. 5/61. The case of the appellant-Bank in short was that the Key Loan was discharged on 17-3-1960 and the good viz. 590 bags of castor seeds were released on that day to him. Thereafter it is its (appellant-Bank's) case that the 1st defendant against pledged on 21-3-60 about 640 bags of castor seeds in loose storage in his key Loan Account and borrowed thereon Rs. 23,000 and redeemed the same on 13-6-1960. And again he obtained a loan on 540 bags by pledging them on 7-7-1960 under Ex. A-28. The goods pledged on 7-7-1960, it is specifically averred,. were distinct and different from the two earlier stocks and had no connection whatsoever with any goods alleged to have been purchased by the 1st defendant as Commission Agent of the 3rd defendant-firm in April, 1959. Nowhere either in the plaint in O.S. 1/61 or in its written statement in O.S. 5/61 has the appellant-Bank alleged that the 3rd defendant-firm has ever held out the 1st defendant as its Agent and under the bona fide belief that the 1st defendant was acting as the Agent of the 3rd defendant-firm the loan was given on the pledge of 540 bags of castor seeds on 7-7-1960.
11. It is therefore necessary, as has already been adverted to, to see whether the goods, 540 bags of castor seeds, belonged to the 3rd defendant-firm or to the 1st defendant or whether they are stocks which are distinct and different from those pledged by the 1st defendant from those pledged by the 1st defendant on any earlier occasion. We have only to look into the correspondence that passed between the 1st defendant and the 3rd defendant-firm to hold that the goods in question belonged to the 3rd defendant-firm and not to the 3rd defendant-firm and not to the 1st defendant Exs. B-14, B-14 (1) and B-15 are the accounts of the 3rd defendant-firm, which show that the 1st defendant purchased castor seeds on its behalf upto 25-4-1959. The total cost price of the castor seeds is given as Rs. 25,137-15-6: See Ex. B-16.Ex. B-18 is a letter dated 5-2-1960 addressed by the 1st defendant to the 3rd defendant-firm. In this letter he informed the 3rd defendant-firm that 'the market is highly fluctuating you may realise that it is not good on my part to advise you under these unfavorable conditions.' Ex.B.21 dated 18-6-1960 is another letter from the 1st defendant to the 3rd defendant-firm and here it is clearly stated that D.W.4 a partner of that firm, paid Rs.13,000/- towards the first pledge of the castor seeds and that he had given credit to that amount in the 3rd defendant-firm's account. There is a specific mention of the fact that the go-down pledge has been redeemed and the keys have been delivered to D.W.4 and that the locks of the go-down are intact. This letter has been relied upon by Mr. Suryanarayana to show that after the redemption of the pledge on 13-6-1960 the keys of the go-down No.1-6-33 at Jangaon were with D.W.4 and not with the 1st defendant and that here is no evidence at all to show, after Gopalakrishniah (D.W.4) took possession to the go-down by taking over the keys that any goods belonging to the 1st defendant were stored in this go-down as as to entitle the appellant-Bank to have any flaim obey the goods storied in that go-down. It is significant to bear in mind that on 6-7-1960 a day prior to the third pledge, which is now in dispute, the 1st defendant wrote a letter, Ex. B-22 dated 7-7-1960 informing the 3rd defendant-firm 'Your castor seed go-down will not be affected by any heavy rain you need not to worried regrinding the same.' Subsequently there is another letter dated 22-7-1960, Ex. B-23 addressed by the 1st defendant to the 3rd defendant-firm where he has informed the 3rd defendant-firm of the prices. He has advised the 3rd defendant-firm to wait till 15th September hoping that by then the prices might go up and the 3rd defendant-firm might earn some profit. These letters, Exs. B-21, B-22 and B.23, go to show that apart from the fact that the 1st defendant had no ownership or even possession of the goods, he was feeding the 3rd defendant-firm with lies without even telling him of the fact that the 3rd defendants firm's goods were pledged by him with the appellant-Bank. Mr. Ramachandra Rao contended in this connection that whatever correspondence passed between the 1st defendant and the 3rd defendant-firm regarding the ownership o the goods and possession of the go-down, so long as the Bank was not informed of the termination of the agency of the 1st defendant it cannot be made to lose the money advanced on the goods is good faith that the goods belonged to the 1st defendant and not to the 3rd defendant-firm. This argument of the learned counsel over looks the specific case of the appellant-Bank as put forward by it in para 5 of the written statement to which we have already made a reference. The initial burden is on the 3rd defendant-firm to show that the goods inquestion belonged to it and not to the 1st defendant and that burden has been clearly discharged by the 3rd defendant- firm. The burden shifts to the appellant-Bank to show that the goods that were pledged did not belong to the 3rd defendant-firm but belonged to the 1st defendant and even otherwise by reason of the fact that the 1st defendant was acting a the agent of the 3rd defendant-firm, as he did on the former occasion, the Bank was under the bona fide belief that he had authority to pledge the goods. So far as the case of the appellant-Bank, as stated by it in the written statement, is concerned, there is absolutely no evidence to show that the goods pledged by the 1st defendant on 7-7-1960 were distinct and different from the goods that were pledged earlier and released on payment of the lopan.The learned Counsel placed reliance upon the evidence of the go down keeper, P.W.6, to show that he reported to the Bank that the keys of the go-down were taken over by him from the 1st defendant on 7-7-1960. It is true that a note also was made to that effect in Ex. A-28. But from the correspondence, to which we have referred supra it is clear that the keys of the go-down were handed over by the go-down were handed over by the 1st defendant to D.W.4, a partner of the 3rd defendant-firm on 13-6-1960 itself when the goods were released by the appellant-Bank. It is categorically stated by D.W.4 that the keys of the go-downs were handed over to him by the Bank officials at the time when the goods were released on the earlier occasion. The correspondence between the 1st defendant and the 3rd defendant-firm would show that the Bank never had the [possession of the keys or of the goods and that the 1st defendant was only offering his advice as to the opportune period or time when the goods should be sold. Therefore it is clear that the goods belonged to the 3rd defendant-firm and not to the 1st defendant.
12. It is now to be seen whether the 1st defendant could act on behalf of the 3rd defendant-firm or whether the appellant Bank in good faith advanced the amount so as to enable the Bank to rely upon Section 178 of the Contract Act. Out attention has been invited to specific portions of the evidence of D.Ws.2 and 4 to show that the agency of the 1st defendant continued and it was not terminated after the redemption of the pledge on 13-6-1960. D.W. 2 is a cleark of the 3rd defendant firm and he stated in cross-examination that 'we did not go to Hyderabad to know how did not go to Hyderabad to know how the property was to be pledged because we were told on phone that property would not be pledged in D-3's name. On 25-4-1959 we had talked on phone from Jangam.' This does not show at D.W.2 had talked to any official of the Bank on phone on 25-4-1959 to say that the 3rd defendant firm approached for a loan on the pledge of the goods or that he informed the 3rd defendant firm that the appellant Bank was not prepared to advance any amounts to it on the goods. All that D.W.4 stated in cross-examination is that D.W.4 stated in cross-examination is that no permission was given to D.W 4 stated in cross-examination is that no permission was given to D.W.2 to pledge in the name of the 1st defendant as it was not necessary. This does not imply not necessary. This does not imply that the 1st defendant had authority to pledge the goods belonging to the 3rd defendant firm was not inclined to authorise him to pledge the goods and not the 1st defendant required no permission and he could Pledge the goods as he liked. Mr. Ramachandra Rao contended that there was no information to the Bank about the termination of the 1st defendant's agency after the redemption of the Pledge on 13-6-1960. It was never the case of the appellant Bank that the 1st defendant was acting as the agent of the 3rd defendant-firm when he pledged the goods on 7-7-1960, The fact that the draft, Ex. B-4, was in favour of D. W.4 and it was endorsed and given to the Bank to discharge the loan on the pledge on 13-6-1960 does not by itself show that because the 1st defendant was acting as the agent of the 3rd defendant, that this endorsement on the draft was made in favour of the 1st defendant to enable him to credit that draft to his account. Nowhere in their evidence P.Ws. 6 and 7, the employees of the appellant-Bank, stated that the Bank even treated the 1st defendant as an agent of the 3rd defendant-firm, or that D.W.4 when he went to the Bank on 13-6-1960 with the draft, Ex.B-4, to endorse it in favour of the 1st defendant, held out a representation to the Bank officials that the 1st defendant was acting as the agent of the 3rd defendant-firm. Mr, Ramachadra Rao in its connection raised upon a decision of the Madras High Court in Madras Automobilies v. Modern Bank, AIR 1993 8 Mad 545. The meaning of the words 'good faith' occurring in Section 178 of the Contract Act came to be considered by the learned Judges in that case. That was a case where a salesman acting on behalf of a motor dealer pledged a car with a Bank and it was held that there was nothing suspicious in the conduct of the salesman so as to make any reasonable man suspect that he had any authority to pledge the car. It was pointed out by the learned Judges that the respect granted by the Motor dear was sufficient evidence of the ownership of the car by the salesman. Further the Bank had made inquiries about the ownership of the car before it advanced any monies on the car pledged by the Salesman. Therefore it was held that the Bank acted in good faith inadvancing the money on the car. The facts of the instant case which we have noticed are totally different. There is nothing in the evidence, oral and documentary to show that the goods inquestion after they were released on 13-6-1960 came into the possession of the 1st defendant. That was not even the case of the 1st defendant in his written statement. Nor the correspondence, to which we have referred, indicates that he came into possession of the goods. There is nothing in the evidence of P.Ws. 6 and 7 to show that they made any enquiry as to the ownership of the goods and that they bona fide believed either on the representation of the 1st defendant or from the enquiries they made that the goods belonged to the 1st defendant. It is a case where the appellant-Bank was negligent in not verifying as to whether the 1st defendant was the owner of the goods or whether he was acting on behalf of the 3rd defendant-firm. It is the specific case of the appellant-Bank that these goods are not the goods which were released by the Bank on 13-6-1960 and the evidence produced by the 3rd defendant-firm would go to show that there are the same goods that were released by the Bank on 13-6-1960 and not the goods subsequently purchased and storied by the 1st defendant. Therefore we are unable to say from the facts that the appellant-Bank can invoke the aid of Section 178 of the Contract Act. So it is evident that in a case where the 1st defendant has neither custody nor possession nor title to the property, he can confer no better rights by reason of the pledge than he himself possessed. We therefore confirm the judgment and decrees of the Court below in both the suits.
13. The cross-objections preferred by the 3rd defendant-firm relate to costs in O.S. 1/61. Obviously costs were disallowed to it as costs were awarded to it in the other suit. Hence we find no grounds for allowing the cross-objections are dismissed with costs.
14. In the result the appeals are dismissed with costs of the 3rd respondent in A.S. 225/65. Advocate's fee was fixed for the Court guardian at Rupees 600/-. It is stated by Mr. Ranta Sastry that it has been paid to him on 10-3-1970.
15. Appeal dismissed.