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Md. Sultan and ors. Vs. Firm of Rampratap Kannyalal - Court Judgment

LegalCrystal Citation
SubjectCommercial;Contract
CourtAndhra Pradesh High Court
Decided On
Case NumberCivil Revn. Petn. No. 389 of 1960
Judge
Reported inAIR1964AP201
ActsIndian Contract Act, 1872 - Sections 172; Transfer of Property Act, 1882 - Sections 58 and 100; Andhra Court-fees and Suits Valuation Act, 1956 - Sections 23, 23(1), 23(2) and 31(8)
AppellantMd. Sultan and ors.
RespondentFirm of Rampratap Kannyalal
Appellant AdvocateY. Sivarama Sastry and ;V. Narasimhachari, Advs.
Respondent AdvocateK.G. Kannaviram, Adv. for ;2nd Govt. Pleader
DispositionPetition allwed
Excerpt:
contract - nature of transactions - section 172 of indian contract act, 1872, section 58 of transfer of property act, 1882 and sections 23 (1) and (2) and 31(8) of andhra court fees and suits valuation act, 1956 - whether nature of transaction is pledge or mortgage - revision petition before high court - suit is for redemption of shares given as security by petitioner for loan to respondent - nature of transaction is one of pledge as possession is transferred to respondent with limited rights and no ownership as defined in section 172 and not mortgage covered by section 58 - suit of redemption of pledged shares to be valued under section 23 (2) -revision petition allowed and case sent back to court of additional chief judge for revaluation. - - in the 3rd section of the transfer of.....ordergopalrao ekbote, j.1. this revision petition is directed against the order dated 23-2-1960 passed by the addl. chief judge, city civil court, hyderabad. 2. the petitioners instituted a suit in which they sought the following reliefs: (a) directing the defendant to deliver the share certificates of the vazir sultan tobacco co., ltd., as detailed in the plaint schedule a, (b) for a sum of rs. 5,000/- by way of damages intorts, and (c) far reasonable amount towards damages for breach of contract calculated at rs. 512/-. 3. these reliefs were sought on the footing that the plaintiffs and the father of plaintiffs 4 to 8 obtained a loan of rs. 90,000/- from defendant on 10th march, 1955 end executed a promissory note. the plaintiffs also pledged with the defendant share certificates of the.....
Judgment:
ORDER

Gopalrao Ekbote, J.

1. This revision petition is directed against the order dated 23-2-1960 passed by the Addl. Chief Judge, City Civil Court, Hyderabad.

2. The petitioners instituted a suit in which they sought the following reliefs:

(a) directing the defendant to deliver the share certificates of the Vazir Sultan Tobacco Co., Ltd., as detailed in the plaint Schedule A,

(b) for a sum of Rs. 5,000/- by way of damages intorts, and

(c) far reasonable amount towards damages for breach of contract calculated at Rs. 512/-.

3. These reliefs were sought on the footing that the plaintiffs and the father of plaintiffs 4 to 8 obtained a loan of Rs. 90,000/- from defendant on 10th March, 1955 end executed a promissory note. The plaintiffs also pledged with the defendant share certificates of the Vazir Sultan Tobacco Co., Ltd. A memorandum of pledge was drawn up. The plaintiffs requested the defendant to receive the balance of amount due and sought the redemption of the suit shares. The defendant admitting the transaction of pledge pleaded that the plaintiffs have no right to redeem the same until the expiry of three years. As the defendant had raised the plea that the suit was not properly valued, the lower Court framed issue No. 5 in that respect. The Court-fee Examiner also raised an objection regarding the valuation of the suit and the court-fees paid thereon. According to the Court-fee Examiner the share scripts are movables having market value and therefore the plaintiffs should pay the court-fee as payable under Section 23(1)(a) of the Andhra Court-fees Act, hereinafter called the Act.

4. The lower Court after hearing the parties through the order abovementioned upheld the objection of the Court-fee Examiner and found that the Court-fee paid in regard to relief No. 1 that is, redemption of pledge, inadequate. With regard to other reliefs there appears w be no grievance. It is this order of the Court below which is now challenged before me by the plaintiffs-petitioners.

5. It is agreed that the suit is for redemption of a pledge. I have therefore to see what court-fee is to be paid on sued a suit. It is conceded that the Act does not specifically provide for a suit for redemption of a pledge. There is, however, Section 31, in Sun-section (8) of which it is provided that

'In a suit against a mortgage for redemption of a mortgage, fee shall be computed on the amount due on the mortgage as stated in the plaint or on one-fourth of the principal amount secured under the mortgage, which ever is higher.'

I am not concerned with the two provisos of Sub-section (8). Section 31 does not specifically refer to mortgages of im-movables. It may, perhaps, therefore, be rightly argued, that the language of Section 31 is comprehensive enough to include within its meaning mortgage of movable property. In order to find, out whether the suit transaction falls within Section 31(8) it immediately becomes plain that I must find out whether it is a mortgage. Section 172 of the Contract Act defines 'pledge'. It is in the following terms:

'The bailment of goods as security for payment of a debt or performance of a promise is called pledge. The bailor is in this case called the 'pawner'; the bailee is the 'pawnee'.'

it is seen from the definition that there are three essential ingredients of a pledge.

(1) There must be a bailment of goods as defined in Section 148 of the Contract Act, that is, delivery of goods;

(2) The bailment must be by way of security.

(3) The security must be for payment of a debt or performance of a promise.

6. It is thus clear that a pledge is the delivery or goods by the pledger to the pledgee by way of security upon a contract that they shall when the debt is paid or the promise is performed, be returned or otherwise disposed of according to the directions of the pledger. A pledge would, therefore, create an estate which vests in the pledgee, which is distinguishable from ownership since an owner owns (a) the right of possession (b) the right of enjoyment and (c) the right of disposition. But a pledgee does not have the right of ownership though he has the rights of a pledgee which include only the right of possession but not the fight of enjoyment. A pledgee has the right of disposition which is limited to disposition of pledgee fights only and of a sale only after notice and subject to certain limitations as is dear from the various provisions of the Indian Contract Act. The distinction between pledge and ownership assumes importance when we consider the difference between pledge and mortgage. I am dealing with it later on.

7. Now according to Section 58 of the Transfer of Property Act various types of mortgages are defined, but all of such mortgages relate to immovable property, and it is clear that that Section has no application to a mortgage of a movable property. Thus as far as the Indian Law is concerned it can be said that only two types of hypothecations have been statutory recognised. One is the pledge as defined in Section 172 of the Indian Contract Act and the other is mortgage of immovable property as defined in Section 58 of the Transfer of Property Act. Perhaps a charge under Section 100 of the Transfer of Property Act may be another recognised form. Nevertheless it is now fairly settled that various other forms of hypotheca also are recognised although there may not be a statutory recognition for the same. In the words of Beaman, J., In Tehilram V. D'Mello, 18 Bom LR 587 at p. 600 : (AIR 1916 Bom 77 at p. 80):

'In the statute law of India it would be difficult to find anything making it imperative upon Courts to acknowledge any such doctrine. In the 3rd section of the transfer of Property Act, amongst other definitions, the definition of a chose in action mentions the hypothecation of movables as though that were an accepted part of the law of this country, and, again, in the Stamp Act Section 2, Clause 7, the like words are to be found. Elsewhere I do not believe that it would be easy to discover in the sufficiently voluminous statute law of this country any warrant for the assertion that the Courts of India are bound to recognise a mortgage of movables. Nor after having considered the case-law, both of this country and England which has gone to establish that doctrine, very carefully and critically for many years, am I able to discover any authority, in reason or equity, adequate to establish it. If, however, it is to be taken as a part of the law of India, and in the existing state of the case-law, I suppose it must be, then it is very necessary to examine the essential ingredients of the mortgage of movables end so arrive at a clear understanding not only of the nature of the legal notion but of all its legal consequences in relation to others who may have dealings with or rights in the movables so mortgaged.'

The learned Judge came to the conclusion :

'We may take it on the authority of all the text book writers that a mortgage of movables can be as validly effected by parole as by a writing, and that the immediate effect of such a mortgage is to pass the property in the chattels mortgaged from the mortgagor to the mortgagee. It is altogether unnecessary that actual possession of the chattel should be given'.

It is evident that apart from the pledgs and mortgage of immovable property, mortgage of movable property is also a recognised form of hypothecation. Similarly another form which is called hypothecation is also recognised on the same footing in India. The following decisions speak of such hypothecation. Such hypothecation not accompanied by possession confers a good title upon the person in whose favour it is made and the law recognises the transaction as security and equity gives effect to it.

Jatindra Chandra v. Rangpur Tobacco Co. Ltd., AIR 1924 Cal 990, Co-operative Hindusthan Bank Ltd. v. Surendra Nath, AIR 1932 Cal 524, Peoples Bank v. F. F. Campbell and Co. Ltd., AIR 1939 Lah 398.

8.-9. It has therefore to be recognised that although the hypothecation and mortgage of movables are not specifically mentioned in the Contract Act, but that Act not being exhaustive law on the subject and as the abovesaid transactions have long been recognised as valid in India, these transactions will have to be given effect to. In the absence of specific rules applicable to any matter, the principle recognised in the various Civil Courts Act is that the Courts should decide according to justice, equity and good conscience which is considered to be equivalent to the English Law wherever such law is applicable to Indian conditions. It is only under this principle that the hypothecation or mortgage of movable property, although not specifically provided in the Contract Act, are valid and a decree can be passed in enforcement of such transactions. As an instance, Section 16 of the Madras Civil Courts Act, 3 of 1873 can profitably be cited in this respect.

10. The next thing which has to be found out is whether the suit transaction is a mortgage of movables according to the accepted nature of that transaction by various decisions of Indian Courts. In order to so find out it becomes necessary to bear in mind the essential distinguishing features between a pledge and a mortgage of movables. A reference to the earlier history of the hypothecation would not be out of place. In the Roman Law there were two sorts of transfers of property, as security for debts, namely, hypotheca and pignus. The hypotheca was when the thing pledged was not delivered to the creditor, but remained in the possession of the debtor. The pignus or pledge was when anything was pledged as a security for money lent and the possession thereof was passed to the creditor upon condition of returning it to the owner when the debt was paid. In the Roman Law it appears that the word pignus was often used indiscriminately to describe both species of securities, whether applied to movables or immovables. Sir H.S. Gour refers to this history in his law of transfer in British India, Vol. II. page 911 in the following terns:--

'The earliest form of the Roman security, called fiducia, may be regarded as the prototype of the English mortgage to be presently discussed. In this security an actual conveyance was executed by the debter to the creditor on condition (contractus fiduciae) that if the purchase-money were repaid by a day named, the creditor would reconvey the property to the debtor. In this security the debtor naturally ran a great risk, for, having parted with his ownership, he had only a personal action against the creditor. The intervention of the proctor was only a matter of time. The law was next modified by an edict declaring that while the creditor retained possession of the property, its ownership remained with the debtor. This is pignus end marked the second stage in the history of civil mortgages. But the creditor did not always care to take possession of the thing pledged, nor did the debtor always wish to part with the possession. And so Servius dispensed with the transfer of possession and thus arose the hypotheca or pledge of a thing by mere agreement, without any formality, and without the delivery of possession. Servius gave the creditor remedy not only against the debtor, but against all other persons and was established a true right in rem'.

The learned author opines again at p. 911:

'A mortgage of movable property without possession is perhaps the nearest survival of this form of absolute security.'

It will thus be seen that although the Indian law recognised only pledge, and mortgage of immovable properly statutorily nevertheless, the other forms once in vogue with various changes continued to remain in operation and hypothecation and mortgage of movables are, the two forms which can be said to be the direct descendants of the earlier forms of hypothecation as mentioned above. In England under the Civil law although the debt for which mortgage or pledge was given was not paid at the stipulated time, it did not amount to a forfeiture of the right of property of the debtor therein it simply clothed the creditor with an authority to sell the pledge and reimburse himself for his debt, interest and expenses and the residue of the proceeds of the sale then belonged to the debtor. But the creditor might not in ordinary cases without any judicial sanction or giving proper notice of the intended sale, sell the goods, and this authority to make a sale might be exercised not only when it was expressly so agreed between the parties but also when the agreement between them was silent on the subject.

The Court of equity soon arrived at the just conclusion that mortgages are to be treated, as the Roman Law had treated them as a mere security for the debt due to the mortgagee, that the mortgagee held the estate as a trust of a peculiar nature, by which under certain conditions, the mortgagee could become, the purchaser of a security and pledge to hold for his own use and benefit; he had a distinct and independent beneficial interest in the estate and he was entitled to enforce his rights by an adverse suit against the mortgagor; and that the mortgagor had, what was significantly called as an equity of redemption, which he might enforce against the mortgagee if he applied within a reasonable time to redeem and offered a full payment of the debt and of all equitable charges.

In course of time, however, it came to be recognised that a mortgage is but a pledge or security for the payment, of the debt or the discharge of the other engagements' for which it was originally given. The mortgagor has now an estate in the property which may be granted, devised and entailed and the estate of mortgagee is like a chattel, interest and personal estate, capable of devolving on his legal representatives. (Vide Sanjiva Row on Indian Contract Act, Volume 2, p. 1280 and 1281).

11. The distinction between a pledge and a mortgage is that while under pledge there is only a bailment, under mortgage there is some sort of transfer of right of property by way of security. Where money is advanced by way of loan upon the security of goods the transaction may take the form of a mortgage or of a pledge. The transaction is one of mortgage if the possession of the goods remains with the borrower i.e., with the debtor. It is one of pledge if the goods are placed in the possession of the lender, that is the creditor. This is the distinguishing feature of the two kinds of securities. Theoretically there is yet another distinguishing feature, namely, that in the mortgage a general but limited properly is transferred to the creditor, whereas a special property passes under a pledge. Under mortgage the borrower retains the possession of the goods and transfers the property in them to the lender to the intent that if the money is re-paid the property will stand transferred to the borrower and if it be not re-paid, the borrower will give up possession also to the lender to satisfy the debt.

Broadly it can thus be stated that in case of hypothecation a general lien is created, but possession of the property is not transferred, whereas in case of a pledge a special interest and not special property is transferred to the pledgee who is impliedly authorised to sell the goods pledged in case of default in accordance with the provisions of the Contract Act. In case of mortgage, however, a general but limited property is transferred to the creditor, but the possession may or may not be transferred to the mortgagee. I have, already pointed out the difference between pledge and ownership.

12. It is useful in this connection to refer to some of the decisions on this point. That there can be a valid mortgage of movables is sufficiently borne out by the following decisions, Basivi Reddy v. Kamaraju, AIR 1933 Mad 241, Venkatachalam Chetti v. Venkatarami Reddi, AIR 1940 Mad 929.

13. Now regarding the difference between pledge and mortgage the following cases may be considered.

14. In Official Assignee, Madras v. Hukumchand, AIR 1941 Mad 147 speaking for the Bench Leach C. J, observed:--

'Now when the document in this case is read what does it amount to? it amounts to an instrument evidencing the deposit of policies of insurance by way of pledge and nothing more. Under this document the respondent has merely the rights of a pledgee of moveable property. A mortgagee is a transferee, but a pledgee is not although the pledgee has a special interest in the property as the holder of security. He may sell the property pledged if the condition of repayment is not fulfilled, but that does not make him in any way the owner or transferee of the property.'

15. The learned Chief Justice went on to observe : 'The difference between that case Muthukrishnien v. Viraragava Iyer, 23 Mad LJ 430 and the present one is that in that case there was a mortgage and the mortgage implied a transfer of the mortgagor's interest in the property, whereas in the present case there has been merely a pledge and a pledge has not the same significance.'

16. Another decision of the Madras High Court which is freely quoted in the subsequent decisions of the various High Courts is Radhakrishnan v. Madras People's Bank Ltd., AIR 1943 Mad 73 Chief Justice Leach, who wrote the opinion referred to Halliday v. Holgate, (1868) 3 Ex. 299 in which Willes, J., in delivering the judgment of the Exchequer Chamber said :

'There' are three kinds of security: the first, a simple lien, the second, a mortgage, passing the property out and out; the third, a security intermediate between a lien and a mortgage viz., a pledge -- where by contract a deposit of goods is made a security for a debt, and the right to the property vests in the pledgee so far as is necessary to secure the debt. It is true the pledger has such a property in the article pledged as he can convey to a third person, but he has no right to the goods without paying off the debt, and until the debt is paid off pledgee has the whole present interest.'

17. Approving this decision Leach, C. J., observed:

'.......the difference between a mortgage and a pledge of goods is that in the case of a mortgage the ownership of the goods passes whereas in the case of a pledge the pledgee gets possession, but no right to the goods beyond what is necessary to secure the debt.'

18. Our High Court also put a seal of approval on the abovesaid distinction between a pledge and a mortgage of movables. Seshachalapathi, J., who delivered the opinion for the Bench in Narasayamma v. Andhra Bank Ltd., : AIR1960AP273 said:

'The essential distinction between a pledge and a mortgage is that unlike a pledgee a mortgagee acquires the general property in the thing mortgaged subject to the right of redemption of the mortgagor, in other words, the legal estate in the goods mortgaged passes on to the mortgagee. But a pledgee has only the special interest in the goods pledged, namely, the right of redemption of the goods as security and in case of default he must either bring a suit against the pawner or sell the goods after a suitable notice. Whether a particular transaction is a mortgage of moveable property or a pledge cart only be determined by reference to the evidence of the parties and other surrounding circumstances.'

It is pertinent to note that in that case unlike the one which I am considering, shares were pledged. It was found in reference to the shares thus pledged;

'Under the Indian Law unlike in England a share is not a mere chose in action. With respect, therefore, to this class of movable property there can be a mortgage or a pledge. The mere fact that along with the instrument of security some shares were delivered along with blank share transfer forms duly signed without more, does not mean that the transaction is one of mortgage. A pledge of shares can also be accompanied by blank transfers. Obtaining of blank transfers is a convenient mode of exercising the right of sale when the pledgee is entitled to do'.

19. This distinction has also been followed by the ether High Courts in the following cases:

Jagannath v. Fatechand, AIR 1949 Nag 368, Kesrimal v. Bansilal, AIR 1952 Madh-B. 196, Padam Singh v. Hamakrishan, AIR 1954 Madh-B. 6.

20. Keeping this distinction in view when I lock into the nature of the suit transaction, I have no doubt that it is not a mortgage of movables as not only the possession of the property mortgaged is transferred to the transferee, but it is not accompanied with transfer of ownership in the shares pledged. It is, in my opinion, a pledge. H is useful to quote here a passage from the judgment of Lord Mersey, who delivered the judgment in In re The Odessa, 1916 AC 145. Lord Mersey who spoke for the court said at pp. 158 and 159:

'But when the nature of the right of a pledges to sell is examined it will be seen that the so-called 'special' property which it is said to create is in truth no property at all. This has been recognised by many judges who have used the expression 'special interest' as a substitute for 'special property'.

If it were not for the somewhat unfortunate peculiarity of English terminology involved in the established use of the words 'special property' when 'special interest would seem better, it is difficult to see how an argument could be maintained which would effectively distinguish pledge from lien for present purposes.

The very expression 'special property' seems to exclude the; notion of that general property which is the badge of ownership. If that pledgee sells he does so by virtue and to the extent of the pledger's ownership, and not with a new title of his own. He must appropriate the proceeds of the sate to the payment of the pledger's debt, for the money resulting from the sale is the pledgee's money to be so applied. The pledgee must account to the pledger for any surplus after paying the debt. He must take care that the sale is a provident sale, and if the goods are in bulk he must not sell more than is reasonably sufficient to pay off the debt, for he only holds possession for the purpose of securing himself the advance which he has made. He cannot use the goods as his own. These considerations show that the right of sale is exercisable by virtue of an implied authority from the pledger and for the benefit of both parties. It creates no jus in re in favour of the pledgee; it gives him no more than a jus in rem such as a lien holder possesses, but with this added incident, that he can sell the property motu proprio and without any assistance from the Court.'

21.-23. This observation very aptly applies to the nature of the transaction under my consideration. I have therefore no hesitation in reaching the conclusion that the nature of the suit transaction Is not that of a mortgage of movables, but is a pledge as defined in Section 172 of the Indian Contract Act and the present suit is instituted under Section 177 of the Indian Contract Act for the redemption of the pledge. It is clear from the above said discussion that as the suit transaction is not a mortgage of movables, but is a pledge, it cannot therefore, fell within the ambit of Section 31 of the Andhra Court Fees Act.

24. I have therefore now to see which other section is applicable to the present suit. The lower Court has field that the suit as far as the first relief sought is concerned falls within the purview of Section 23(1)(a) of the Act which is in the following terms:

'23 (1) In a suit for movable property other than documents of title, fee shall he computed:-- (a) where the subject matter has a market-value on : such value.'

25. It is however the contention of the learned Advocate, Mr. Sivarama Sastri, who appears for the petitioners, that it falls under Section 23(2)(b) which is as follows:

'23 (2)(b) In a suit for possession of documents of title where the plaintiff's title to the money or the property secured by the document is not denied, fee shall be computed on the amount at which the relief sought is valued in the plaint or at which such relief is valued by the Court, whichever is higher.

Explanation: The expression 'document of title' means a document which purports or operates to create, declare, assign, limit or extinguish, whether in present or in future any right, title or interest, whether vested or contingent, fn any property.'

26. The contention of the petitioners is that the shares pledged are 'documents of title' within the meaning of the said expression used in Section 23 and as the title of the plaintiffs to the shares is not denied, the suit has to be valued according to Section 23(2)(b). It is according to his submission a document of title which creates an interest in the property, that is, the share capital in that particular company. It is deer from a reading of Section 23 that whereas Sub-section (1) applies to general moveable property. Sub-section (2) makes an exception and it specifically applies to those movables which are 'documents of title'. It must therefore be found out whether the shares of a limited company which are pledged with the defendant are documents of title within the meaning of Section 23, because If it is found that it comes within Section 23(2), it goes without saying that Section 23(1) will be inapplicable. The expression 'document of titled is now specially defined in Section 23 of the Act. The definition is wide enough to include any kind of document which creates a right to property, the word 'property' itself being taken in its widest sense. It is useful to refer in this connection to the definition of valuable security in Section 30 I.P.C. which runs thus:

'The words 'valuable security' denote a document which is, or purports to be, a document whereby any legal right is created, extended, transferred, restricted, extinguished or released, or whereby any person acknowledges that he lies under legal liability, or has not a certain legal right.'

27. It is conceived that the words 'documents relating to title' or 'documents of title' are scarcely less wide than the above definition of 'valuable security' under Section 30 I.P.C. Thus the expression will include not only documents of title to immoveable property like deeds of sale or mortgages of movable property but also such documents as promissory notes, bonds, Government Securities etc. I was referred to Section 2(46) and Section 82 of the Indian Companies Act, which are in the following terms .--

'Section 2(46): 'Share' means share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied.'

'Section 82 Nature of Shares: The Shares or otherinterest of any member in a company shall be movable,transferable in the matter provided by the articles ofthe company'.

28. I was also referred to Section 2 (4) and (7) of the Indian Sale of Goods Act. According to these provisions in general and particularly in view of the definition or 'document of title' appearing in Section 23 of the Act itself, there can be no doubt that the shares of a Limited Company fall within the definition of 'document of title'. Now a suit by pledger for recovery of the pledged articles on payment of the pledge amount due, if any, if it is generally a movable property, falls within Section 23(1). This is supported by the following decisions:--

S. A. No. 518 of 1940 (53 Mad LW 34 Summary of Recent cases); AIR 1949 Nag 368.

29. But when the pledged movables are 'documents of title' it is Section 23(2) which is applicable. I have already referred to a Bench decision of this High Court in : AIR1960AP273 , according to which the transaction of this nature is a pledge and not a mortgage. As I have come to the conclusion that the suit falls within Section 23(2)(b) it is unnecessary to go in the details as to the scope and nature of Section 23(1). For the reasons mentioned above my concluded opinion is that the court-fee payable on the first relief should be computed on the amount at which the relief sought is valued in the plaint or at which such relief is valued by the Court, whichever is higher. The revision petition, therefore, is allowed and the Court below is directed to find out whether the plaint valuation regarding the first relief is correct and if not, What is the value which the Court puts on such a relief and collect from the petitioners under Section 23(2)(b) of the Act Court-fees keeping in view the valuation which is higher. In the circumstances of the case I make no order as to costs.


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