1. This appeal by the plaintiff is directed against the decree and judgment of the learned Subordinate Judge, Chittoor in O. S. No. 13 of 1960 on bis file. The short facts are as follows:
2. Defendants 2 and 3 are the sons of the first defendant, Appalaswamy Naidu, and all of them were members of a joint Hindu family whose affairs were managed by defendants J and 2. For the purpose of family necessity defendands 1 and 2 borrowed from the Bank of Chit-four Limited (hereinafter referred to us the Bank) a sum of Rs. 10,000 under a promissory note, Exhibit A. 1, dated 19-9-1949, re-payable with interest at 9 per cent, per annum, and as collateral security for its due re-payment, pledged under Exhibil A 2 of oven date a Cinema projector and other accessories belonging to deiendants 1 to 3 described in the schedule attached to Exhibit A. 2. In respect of the amount due under Exhibit A.1. defendants 1 and 2 on behalf of themselves and the third defendant executed a fresh promissory note. Exhibit A. 5, dated 15-2-1956 for Rs. 17,640, repayable with interest at 9 per cent per annum with quarterly rests. On the same day they offered collateral security of the same Cinema projector and accessories, and pledged the same under Exhibit A-6. Defendants 1 and 2 acknowledged their liability to pay the debt due under Exhibit A-6 by a letter Exhibit A. 7 dated 7-2-1957. The property pledged was kept by the Bunk with defendants 1 to 3, since they formed the equipment of a running Cinema. While matters stood thus, the pledged machinery was sold away by defendants 1 and 2 to the 4th defendant, contrary to the terms of the pledge, and the 4th defendant obtained the same in spite nf his knowledge, that they were pledged to the Bank. The Bank, thereupon issued notices to defendants 1 and 2, and the 4th defendant, on 20-12-1958, demanding the payment of the amount due under the promissory note.
Defendants 1 and 2 acknowledged receipt of the notice, but did not reply. The 4th defendant sent a reply, Exhibit A. 21, with false allegations, pleading that he was not aware of the instrument of pledge, that he purchased the pledged goods, which termed part of a touring Cinema called 'Chandra Touring Talkies', under Exhibit B 2 dated 27-6-1958, for Rs. 9,999 that he was a bona fide purchaser for value without notice, and that the sale in his favour is true, valid and binding on the Bank. The pledged goods were kept in the custody of the 4th defendant by defendants 1 and 2, and he (the 4th defendant) executed a letter, Ex. A. 10 dated 12-9-1953 in favour of the plaintiff-Bank, acknowledging the pledge in its favour, and agreeing to produce them before the Bank whenever called upon to do so, and that he had no man ner of right. The 4th defendant taking advantage of their having been placed in his custody, purchased them, though he was aware of the pledge in favour of the Bank for the suit amount. The plaintiff is, thus entitled to proceed against the pledged goods for the realisation of the suit amount. The suit was, therefore, filed for a decree against the defendants personally, and also for sale ol the pledged goods in the hands of the 4th defendant for recovery of Rupees 21, 555.
3. The suit was contested by defendants 3 and 4. The third defendant put the plaintiff to strict proof of validity of the suit promissory note, and the binding nature of the debt. He also con. tended that as the acknowledgement of the debt was made after the partition between himself and the other members of the family, it would not bind him.
4. The 4th defendant contended, inter alia that he had no knowledge of the debt incurred by defendants 1 and 2, or the pledge in favour of the Bank. The defendants borrowed Rupees 2,500 for discharging their debts in the Cinema business, promising to discharge the same by running the Cinema at Pallipat. Subsequently, he came to know that the projector and accessories were pledged with the Bank, when they came to Pallipat to remove the articles. The 4th defendant prevented the removal, unless he was paid his debt. Defendants 1 and 2 executed a letter, agreeing to pay Rs. 2,500 due to him, and thereupon he executed the letter Ex. A-10 dated 12-9-1953, agreeing to the removal of the articles. Thereafter, defendants 1 and 2 removed them, and began to run the show themselves. Defendants 1 and 2 failed to discharge the debt due to the 4th defendant under the promissory note, and later executed a mortgage of their lands for Rs. 3,500, and were themselves running the Cinema shows at Pallipat. The defendant contended that he had no notice of the subsequent pledge in 1956, and that in 1958, defendants 1 and 2 represented to him that they discharged the debt due to the Bank, and as they could not discharge the debt due to the defendant, they offered to sell the Cinema equipment to him.
The pledged, goods always remained in the possession of defendants 1 and 2, as they were running the shows, and the defendant believed their representations, and agreed to purchase them for Rs. 9,999. Setting off Rs. 3,500 due to him, the 4th defendant paid Rs. 6,499 to defendants 1 and 2, and took possession of the said articles, and a sale agreement, Ex. B. 2, was executed between him and the 1st defendant on 27-6-1958. The 1st defendant also assured him that no other person had any claim over the articles, and undertook to indemnify him against the claims, if any, by means of Ex. B-1. The defendant is a bona fide purchaser for value without notice. There was no legal pledge at any time either in 1949 or 1956, with the Bank, as there was no delivery of possession of the goods to the Bank, and defendants 1 and 2 alone had possession of the same. As defendants I and 2 were the owners, and they were allowed to remain in possession of the pledged goods, enabling them to hold themselves as full owners, the plaintiff's claim can be only against defendants 1 and 2, but not the 4th defendant. The allegation that the 4th defendant purchased the goods taking advantage of his custody of the same is not true. The 4th defendant also claimed from the plaintiff R.s. 5,000 alleged to have been spent by him on the pledged goods since his purchase in 1958.
5. During the pendency ot the suit, the Ist delendant died.
6. On these pleadings, the learned Subordinate fudges framed appropriate issues. He held on issue No. 7 that the partition took place on 1-3-1956. that the claim as against the third defendant was not in time, and that he was liable only for the assets of the 1st defendant, if any. in his hands. On issue No. 8 the trial court found that the pledged goods were not taken possession of by the Bank, and that therewas no valid pledge, and the 4th defendant is not a purchaser with notice ot the pledge. On issue No. 9, the trial Judge found that, in any view, the 4th defendant was not entitled to be reimbursed by the Bank to the time of Rupees 5,000 or any other sum. On those findings, he granted a decree against the 2nd defendant personally and against the estate of the 1st defendant in the hands of defendants 2 and 3, and dismissed the suit against defendants 3 and 4.
7. Aggrieved by the decision dismissing the suit against the 4th defendant, the Bank has preferred this appeal.
8. Sri Venkatappayya Sastry, the learned counsel for the appellants, made the following submissions:
1. The promissory note and the pledge in 1956 are only a renewal of the earlier promissory note, and pledge, of the year 1949.
2. There was a valid pledge in favour of the Bank, as defendants 1 and 2 were in possession on behalf of the Bank.
3. The 4th defendant had notice ot the pledge in 1949 as well as in 1956, and purchased the pledged goods with notice thereof, and his rights are only subject to those of the Bank.
4. The Bank is entitled to a decree for sale of the pledged articles in the possession of the 1th defendant.
9. We shall now examine the evidence ad-duced in the case.
10. Ex. A. 1, the promissory note dated 19-9-1949, was executed at Nagari by defendants 1 and 2 for Rs. 10,000 repayable with interest at 9 per cent per annum. On the same day, the instrument of pledge Exhibit A. 2, was executed at Nagari in favour of the Bank, pledging the projector and nine other items being its accessories, of the market value of Rs. 25,020, against the said advance of Rs. 10,000. This was also executed by defendants 1 and 2. Besides the usual terms, it recited that the goods have been delivered to the Bank as bailee for due re-payment of the debt due under the promissory note dated 19-9-1949 for Rs. 10,000. It entitled the Bank without any previous notice and without any prejudice to any of the other rights of the Bank, to sell or otherwise dispose of the goods by public auction or private con tract at any time, and appropriate the net pro ceeds first towards the costs charges and expenses for keeping and selling the goods, and then towards debt due under the promissory note. If after such an appropriation any balance remained, the Bank was entitled to appropriate it towards any other debt or liability of the defendants owing to the Bank, whether secured or not, and whether they became due or not. Clause (8) of the document reads thus:
'I/We further agree that, notwithstanding the discharge of the debt due by me/us as security for payment of which I/we have pledged with you the goods/documents of title to goods particularised overleaf, you shall have the right to retain and hold such goods which may remain in your possession at the time of discharge of the debt for which they were originally pledged as and by way of security for all other debts or liabilities of mine/ours owing to you on any account at any office of the Bank (whethersingly or jointly, whether as principal debtor or as surety) and you shall have all the rights of a pledgee over the said goods in respect of such debts or liabilities and all such powers and discretions as arc cxercisable by you under this instrument as pledgee shall also be exercisable by you in respect of the goods so remaining.'
It would thus be seen that under EX. A. 2 possession of the goods was delivered to the Bank, and that after the appropriation of the sale proceeds of the pledged goods to the debt, if any balance was due, the same could be appropriated by the Bank towards the discharge of the other liabilities of the defendants, Clause (8) expressly provided that notwithstanding the discharge ot the debt for which Ex. A. 2 is executed, the Bank shall have the right to hold the pledged goods with all the rights of a pledgee For recovery of other debts or liabilities, which may be due from the defendants.
11. On the same date, i.e., 19-9-1949. the first defendant executed three documents, two printed and one typed. The two printed documents conferred various other rights on the Bank which it is not necessary to consider. The typed letter marked as Ex. A. 3 is in the following terms;
The Bank of Chittoor Ltd.,
Ref: Loan dated 19-9-1949 on the pledge of Cinema machinery and allied machinery:--
I request you to leave the Cinema projector and allied machinery pledged to the loan dated 19-9-1949 in my possession to rim the shows. I vvill hold the same to the Bank in trust and will be prepared to give possession of the entire machinery to the Bank whenever so demanded. During the possession of the machinery I will keep all the articles and the projector safe and I would be responsible for any loss or damage to the same.
Sd. Appalaswami Naidu.
This letter acknowledged the possession of the Bank in respect of the pledged goods, and recited that the first defendant was having the possession of the pledged goods as a trustee of the Bank, and that he agreed to deliver the machinery to the plaintiff whenever so demanded.
12. One of the contentions on behalf of the 4th defendant in the lower court, which is repeated before us, is that there is no valid pledge at all even in the year 1949, as the Bank never had possession. In appreciating this contention, it is necessary to advert to Sections 148 and 149 of the Contract Act. which are in the following terms:
148 'A 'bailment 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 person delivering the goods is called the 'bailor'. The personate whom they are delivered is called the 'bailee.'
149. 'The delivery to the bailee may be (sic) by doing anything which has the effect of putting the goods, in the possession of the intended bailee or of any person authorised to hold them on his behalf'.
13. Section 149 corresponds to Section 34 of the Sale of Goods Act. A reading of these two sections makes it clear that the delivery to the bailee may be made by the bailor by doing anything which has the effect of putting them in the possession of the bailee or of any person authorised to hold them on his behalf. It is, therefore, not always necessary that the bailee himself should be in physical possession of the goods. Delivering them to a person authorised to hold them on behalf of the bailee is also sufficient delivery, and constitutes a valid bailment.
14. In the instant ease, having regard to the language of Ex. A. 3, it must he held that there was a constructive delivery, or delivery by al-tornment, to the Bank. Since then there was a change in the legal character of the possession of goods, though not in the actual and physical custody. Even though the bailor continued to remain in possession, it was the possession of the bailee. We, therefore, rcjeei the contention of the 4th defendant that the Bank did not obtain possession under the first pledge, Ex. A. 2. We shall now examine the other documents.
(Then after discussing the documentary and oral evidence (Paras 15 fo 41) his Lordship pro-ceeded).
42. In view of the foregoing discussion, we hold that there was a valid pledge in favour of the Bank on the date of execution of Ex. B-2 in favour of D-4, that he purchased the pledged goods with the knowledge of the subsistence of the debt due to the Bank and that he is not a bona fide purchase) for value without notice, even granting that he paid the consideration. It follows that his rights under Ex. B-2 are only subject to the rights of the Bank as a pledgee.
43. The next contention of Sri Venkatapathy Raju, the learned counsel for the 4th defendant, is that even granting that there was a valid pledge, the appellant is not entitled to pray for a sale of the pledged goods. In Mahalinga Nadar v. Ganapathi Subbien, (1904) ILR 27 Mad 528 (FB), a suit was filed for recovery of the money advanced to the defendants on the pledge of jewels. The defendant contended that the suit was time-barred. That contention was up-held by the Subordinate Judge holding that Article 57 of the Limitation Act applied, but not Article 120. The plaintiff claimed the amount from the defendant from the proceeds by sale of the jewels. Their Lordships had to consider the applicability of the relevant Article of the Limita-tion Act, and in that context had to consider whether a pledgee of goods could ask for their sale. Subrahmania Ayvar. J and Bauson J., holding that the claim to proceed against the properties pledged is governed by Article 120 of the Limitation Act, and that the claim to proceed against the debtor personally is governed by Article 57 of that Act, observed thus:
'There can be no question hut that the plaintiff is entitled to sue for the sale of the property pledged to him, notwithstanding thathe is also entitled under Section 176, Indian Contract Act, to sell the property without reference to the Court.
It is obvious that a right to sue for the sale of the property exists even in the absence of a right to sue for a personal decree against the debtor for the money lent. It would be clearly so if it had been agreed between the parties that no personal liability for the debt was to accompany the pledge of the jewels.
It would follow therefore that in a case where both rights exist they are concurrent rights and the right to proceed against the property pledged is not merely accessory to the right to proceed against the debtor personally.
This has been clearly laid down in regard to the right to proceed against immoveable property hypothecated for a debt, Chetti Goundan v. Sundaram Pillai. (1865) 2 Mad HCR 51 and Kristna Row v. Hachappa Sugapa, (1863) 2 Mad HCR 307.
We can see no distinction in principle be-tween that case and cases of pledge, mortgagor hypothecation of movable property.'
Davies, J., held that suit for recovery of mones personally from the pledgor is governed by Arti-cle 57, and that it was time-barred, and that a suit for the sale of pledged goods did not lie, and hence did not decide the question of limitation. According to the majority view, it is clear that a pledgee is entitled to pray for sale of the goods pledged through Court, even though he is entitled under Section 176 of the Contract Act to sell them himself without reference to the Court.
44. This decision was followed by a Bench of the Allahabad High Court in Jiwan Das v. Sahu Sarju Prasad, AIR 1945 All 299.
45. Following the decision in (1904) ILR 27 Mad 528 (FB) we hold that the plaintiff Bank is entitled to pray for sale of the pledged arti-cles through Court.
46. Yet another argument was advanced on behalf of D-4. The contention is that the ap-pellant entered into a compromise with the judg-ment-dcbtors, by which a sum of Rs. 17,500 was accepted in full discharge of its liability, and that the Bank is, therefore, not entitled to realise the balance by the sale of the pledged goods in his possession. In support of that statement, the learned counsel relied upon the deposition of Sri Doraiswami Iyer, Sooretary of the Bank, in O. S. No, 109 of 1961.
47. No material has been placed before it to find that the Bank accepted Rs. 17,500 from defendants 1 to 3 in full satisfaction of the suit claim. It may also be mentioned that there is no petition filed in this Court for recording any compromise, nor was any petition filed in the lower Court for entering full satisfaction. Undo these circumstances, we cannot hold that the claim of the Bank is fully satisfied by the payment of Rs. 17,500 by the defendants, even it true. Even if the Bank has received that amount as a part payment, it will be entitled to recove the balance.
48. In the resull, all the contentions advanc-ed on behalf of the respondents fail. For the reasons aforesaid, we are unable to accept the finding of the learned Subordinate Judge thatthe pledged articles were not in possession of the Bank, and, therefore, there was no valid pledge in its favour, or that the 4th defendant has no notice of the pledge.
49. The decree of the court below is there fore modified, and there shall also be a decree, in addition to the decree of the trial Court, in favour of the plaintiff for the sale of the pledged goods described in the plaint schedule in the possession of the 4th defendant for the realisation of the amount decreed, after giving credit to any amount which the Bank has already realised from defendants 1 to 3. The balance of the sale-proceeds, if any, after the claim of the Bank is fully satisfied, shall he paid over to the 4th defendant.
50. Since the appeal is contested only bythe 4th defendant, he shall pay the costs or theappellant in this Court. The 4th defendant willalso be liable along with the 2nd defendant andthe estate of the 1st defendant in the hands ofdefendants 2 and 3 fur the costs of the plaintiffin the trial Court.