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Jiwan Das and anr. Vs. Sahu Sarju Prasad and ors. - Court Judgment

LegalCrystal Citation
SubjectContract ;Civil
CourtAllahabad
Decided On
Reported inAIR1945All299
AppellantJiwan Das and anr.
RespondentSahu Sarju Prasad and ors.
Excerpt:
- - that is precisely what an encumbrancer asks for when he invokes the assistance of the court, and, in my view, there must necessarily always exist an inherent jurisdiction for the court by its order to direct the property to be dealt with, whether by sale or otherwise, in the proper manner for the purpose of implementing its own orders. it is, we believe, now well settled that when a mortgagee of immovable property brings a suit to recover the money advanced by sale of the property pledged, it is a suit to enforce his charge upon the said property;.....to think that there is an inherent jurisdiction in the court in a proper case to make an order for sale of property at the expense of any pledgee or chargee. this view is, to my mind, greatly reinforced when one finds that, in case after case, the indian courts have in fact exercised this jurisdiction. in vitla kamti v. kalekara ('88) 11 mad. 153 it is said that:.the power to bring the moveable property to sale is an incident in the nature of an accessory to the right to recover the debt...that must, i think, refer to a power to bring the property to sale in court. in mahalinga nadar v. ganapathi subbian ('04) 27 mad. 528 (f.b.) it was taken for granted that the court had power to entertain a suit for sale of moveable property at the instance of a pledgee. in madan mohan lal v. kanhai.....
Judgment:

Braund, J.

1. This is one of four connected appeals from the judgment and decree of the learned Civil Judge of Mirzapur in suits in?which the plaintiff, who carries on business at Mirzapur under the firm name of Jagdish Prasad Satish Prasad, has sued the partners of a firm called Prag Das Gobind Das, which also carried on business at Mirzapur, until it was adjudicated insolvent on a petition in the Calcutta High Court filed on 26th April 1938. The Official Assignee of the property of the insolvent defendant firm was made a defendant to the suit, and is the present appellant. The plaintiff, Sahu Sarju Prasad, who, as I have said, carried on business in the name of Jagdish Prasad Satish Prasad, also carried on a separate business at Mirzapur in his own individual name. In the course of one or other of these businesses the plaintiff lent the insolvent defendants various sums of money amounting in all to Rs. 49,302-4.0 which are the subject-matter of this particular suit. It appears that the plaintiff's business was in the nature of a money-lending business. The first two defendants, whom for convenience shall refer to as the defendant firm, on the other hand, dealt in metals, and, among other metals, in zinc. In the course of its business the defendant firm in April 1937 made a number of forward purchases of zinc from abroad of which they became, or were about to become, liable to take delivery. In those circumstances they approached the plaintiff with a view to obtaining from the plaintiff the finance wherewith to meet their obligations on these con. tracts of purchase as they fell due, and on 9th April 1937 an agreement was reached between the plaintiff and the defendant firm, the terms of which are to be found in Ex. 3, which is printed at page 11 in First Appeal No. 93. This document provided as follows:

To : Messrs. Sarju Prasad Sao, Mirzapur.

From : Prag Das Gobind Das, Mirzapur.

Our compliments to you. We have purchased foreign zinc in the market by means of forward transaction, for taking delivery of which we are in need of money. Hence we will take from you as much money as we will require in any month and after getting the goods weighed shall keep it in a separate room in our godown, which will be locked by you. The goods will remain in your possession so long as we do not pay the money and on payment of the money due to you we shall take possession of the goods. We shall pay you interest on money which we will take from you at the rate of 9 annas 6 pies per cent, per mensem.

Dated Chait Badi, 12th Sambat 1993. (Equivalent to the 9th April 1937)

Written by the pen of Jagan Nath Prasad Tewari.

Please note the contents of the letter.

Signature of Prag Das, Gobind Das by the pen of Gwal Das Binani.

2. In due course the plaintiff from time to time made some nine advances of money to the defendant, firm at various dates between 10th April and 24th July 1937, which are set out more particularly in Schedule A attached to the plaint. It is not disputed on the pleadings that these sums were advanced by the plaintiff to the defendant firm. The plaintiff alleged by his petition that the nine advances were all made in pursuance of the agreement of 9th April 1937 and that with the money so obtained the defendant firm purchased a little over 3407 maunds of zinc. This, according to Para. 6 of the plaint, was all placed under lock and key of his own by the plaintiff at first in a separate part of the defendant firm's godown or shop premises and later - from about 1st January 1938 onwards-in a portion of a godown in the plaintiff's own premises which had theretofore been rented to. the defendant film for the purpose of the storage of carpets. On 26th April 1938, certain creditors of the defendant firm filed a petition in insolvency against them founded on an act of insolvency dated 23rd April 1938, and in due course this defendant firm, was adjudicated insolvent. On the adjudication order all the assets of the defendant firm vested in the defendant, the Official Assignee, of, its property. The 3400 odd maunds of zinc in question remained, however, for the time being in the plaintiff's godown and no attempt was made by the Official Assignee to take possession of them for the reason apparently that the plaintiff claimed to be entitled to hold them as a secured creditor in respect of the Rs. 49,000 odd so advanced by him as aforesaid, together with interest thereon. It is possible that in these circumstances the plaintiff might have taken steps out, of hand to satisfy his debt by selling the zinc in his possession, but, instead of taking that course, he launched Suit No. 9 of 1938 out of which this appeal arises. It is perhaps worth pausing to observe the manner in which he has framed his prayer for relief, since the real issues have been somewhat obscured by the manner in which he has put forward his claim. After setting out the facts and alleging that 'under the circumstances the plaintiff is entitled to realize the security', the plaintiff proceeded to ask for the recovery of Rupees 53,507-14 0 in respect of principal and interest, together with the costs of the suit, and that a decree for this sum might be 'passed in favour of the plaintiff as against the defendants.' In view of the insolvency, this prayer was, of course,' from the outset misconceived. He asked, however, in addition that what was due to him might 'first be realized by sale of the goods which stand as security for the money claimed...' Allowing some latitude to the draftsman of the plaint, it may, therefore, be said that the plaint did include a prayer for the realization of the security by sale, meaning, it is to be supposed, by a sale by the Court of the zinc in the plaintiff's possession at the date of their insolvency.

3. The defendant firm, for obvious reasons, did not appear in the suit. The Official Assignee, after admitting the agreement of 9th April 1937, and that the sums in question had in fact been advanced, denied that the whole of the money borrowed from the plaintiff had been borrowed for the purpose of or applied in the purchase of zinc as provided for by the agreement of 9th April 1937. He admitted only that Rs. 29,800 had been so borrowed and applied, and alleged that only 1700 maunds of the zinc in the possession of the plaintiff were covered by the security constituted by the agreement. As to the remaining ' 1707 odd maunds of zinc and the balance of Rs. 19,502, he said, in effect that these constituted transactions altogether outside the agreement, and that the circumstance, that this 1707 maunds of zinc found its way into the plaintiff's godown was due only to the fraud of the gomashta of the defendant firm who, being the brother of the munif of the plaintiff, in collusion with the latter, had had it transferred about 1st January 1938 from the defendant firm's godown to the plaintiff's, premises for the fraudulent purpose of establishing a security to which the plaintiff had no title. In these circumstances the Official Assignee while admitting that the plaintiff was a secured creditor to the extent of Rs. 29,800 and that out of the zinc in possession of the plaintiff 1700 maunds were covered by the security, denied that the balance of 1707 odd maunds was covered by the agreement, and he accordingly claims the latter as part of the assets of the insolvents free from any charge in favour of the plaintiff.

4. Such, in brief, were the circumstances which gave rise to this suit. As so often happens, too little thought was given to the pleadings and to the settlement of the issues, which has resulted in a decree which it is not, altogether easy to understand, and it is evident that there will in any case have to be a substantial alteration in its form. The suit, as we have pointed out, could not in any circumstances result in a decree for personal payment by the insolvents or by the Official Assignee. The suit was in substance a suit for the purpose of obtaining a declaration as against the Official Assignee of the existence of the plaintiff's security over the assets of the insolvents in the plaintiff's possession consisting of the 3404 maunds of zinc, and, upon a somewhat liberal construction of the plaint, for the purpose of realizing that security by ordering a sale by the Court. Beyond that it is difficult to see that the plaintiff could properly go, since his remedy for any deficiency, after resort to the security obviously lay in proving against the estate.

5. Before going further, it must be said that the 3400 odd maunds of zinc have now been sold. The order for sale was made by the Civil Judge of Mirzapur in this suit a few days before passing his decree. The sale was conducted by the Official Assignee and, owing to the rise in the price of zinc, realized more than sufficient to answer the plaintiff's full claim in the suit. Whether these proceedings were regular or not, I do not know. Nor, I think, we are concerned to inquire, since they were conducted with the consent of all parties, including the Official Assignee. The result is, as far as this suit is concerned, that the plaintiff's claim has been transferred from the zinc to its proceeds of sale now standing in Court. The learned Civil Judge came to the conclusion on the evidence that the plaintiff had, upon the facts, established that the monies taken from him by the defendant firm were required and spent for the purpose of, and in, taking up parcels of zinc according to the agreement of 9th April 1937. He found that the whole of the 3407 odd maunds of zinc in the plaintiff's possession at the date of the insolvency had been 'pawned' for the amount claimed in the suit, and, accordingly, passed the decree we have referred to above, which in form appears to give to the plaintiff a decree against all the defendants, including the Official Assignee, for payment of the amount claimed, with a somewhat obscure proviso that

the property which is pawned in this suit shall be liable to be sold by auction in lieu of the decretal amount and that, if any decretal amount remains unpaid, then that unpaid decretal amount shall be realized in the manner permitted by law.

6. The first, and only troublesome point that has been taken in the appeal is that, under Section 17, Presidency-Towns Insolvency Act, the plaintiff required the leave of the insolvency Court to bring this suit and that, since he did not obtain it (as admittedly he did not) it is now too late to give it to him and his suit should accordingly have been dismissed. This point was, we think, taken before the learned Civil Judge who dealt with it, as issue 2, by holding that, as on the facts he had found the plaintiff to be a secured creditor, Section 17 of the Act either did not apply at all or, at least, the plaintiff, in taking steps to realize his security, was immune from its mischief, by virtue of the saving proviso to the section. The argument for the application of Section 17, Presidency-Towns Insolvency Act, has, however, been considerably elaborated by the appellant before us. What I understand to be said by the appellant is, first, that Section 17 applies to a secured creditor just as much as to any other creditor except so far as a secured creditor is exempt from its provisions under the proviso; and, secondly, that upon that view of the matter, it is impossible to say in this suit that the plaintiff is suing to realize his security because this is not what he asks for by the relief he claims in the plaint; nor, in fact, is there any relief that, as a mere pawnee, he could in law ask the Court to give him, recourse to the Court for sale not being a 'manner' of realizing the security of a pawnee known to the Indian law. The Official Assignee accordingly says that the plaintiff is not, in coming to the Court in this suit, seeking to 'realize' his security in any manner in which he would have been entitled to realize it, if no leave had been required, and, accordingly the saving proviso to Section 17 does not apply. That, as I understand it, is the argument.

7. So far as it is said that Section 17, Presidency-Towns Insolvency Act, applies to a secured creditor, subject to any benefit he may be able to derive from the proviso, I am not prepared to dispute. It seems to me to be clear that the word 'creditor' in Part. 1 of Section 17 must include a secured creditor, since it is difficult otherwise to give any meaning or purpose at all to the proviso. Nor am I prepared to hold, as has been held in the Rangoon case in In re L. W. Nasse ('29) 16 A.I.R. 1929 Bang. 229 that the word 'realize' in the proviso must be confined to a method of realization to which the secured creditor is entitled' without the intervention of the Court, with the result that in all eases in which a secured creditor seeks to realize his security through the Court he requires the leave of the Court, notwithstanding the proviso. I think that to adopt this construction would be to put on the word 'realize' an unnaturally narrow construction and one, moreover, which renders the ensuing words 'deal with' redundant. Apart from this, there is a considerable volume of authority of the Indian High Courts which has construed the proviso as covering the case of a secured creditor who seeks to realize his security by the institution of a suit and these I respectfully prefer to the Rangoon decision.

8. But it is said in the case before us that, even assuming that a secured creditor in realizing his security through the Court is covered by the proviso, the plaintiff in this case, as a mere pawnee, has no right inherent in his security to come to the Court to obtain a sale and that he is not, therefore, in this suit realizing or dealing with his security in the same manner as he would have been 'entitled' to do, if the section had not been passed. This is an ingenious argument, but in my view it does not bear close examination. It is beyond doubt that under English law a pawnee of goods, who has a special property in them, has a right to come to the Court and ask for a sale: Carter v. Wake (1877) 4 Ch. D. 605 Sir George Jessel., M. R., was there dealing with a case of a pledge of certain personal chattels, together with a deposit of certain bonds by way of equitable charge. The suit was a suit for sale of the personal chattels and for foreclosure of the equity of redemption in the bonds. The latter remedy was refused, since, unlike a legal mortgagee, the pledgee had no absolute ownership of the chattels at law and could not, therefore, foreclose; but no question was raised but that, both in the case of the chattels and the bonds, the pledgee had a right to come to the Court and ask for sale. It was, indeed, taken for granted that a right to ask for a sale was a right incident to the pledgee's security. It may be that the position of a pledgee under English law is somewhat different from that of a pledgee under Indian law, because, since 1881 at least, Section 25, Conveyancing Act, 1881, coupled with the definition of property contained in Section 2 (1) of the same Act, expressly confers on every form of chargee of property, real or personal, a statutory right of sale. This is reproduced in Section 91, Law of Property Act, 1925. It appears to be clear, therefore, that under English law a pledgee of goods since 1881 has had an express statutory right of sale, and I have no doubt that these statutory enactments reproduced the law enforced by the Courts, as it stood before the Conveyancing Act, 1881. It may be said, therefore, that in England a right of sale by the Court is expressly conferred on a pledgee whereas in India it is not. It is moreover pointed out that Section 176, Contract Act, expressly confers upon a pawnee certain specific right of sale out of Court, from which circumstance it is argued that a right to have a sale by the Court is by implication excluded. Section 176 says that, if the pawnor makes default,

the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged on giving the pawnor reasonable notice of the sale

9. This undoubtedly defines what I may describe as the personal rights of the pledgee of goods arising out of his special property in them conferred by the pledge, but I should be most reluctant to hold that there is any implication that the Contract Act, by defining his personal rights, cuts down in any way any remedy he may have through the Courts. The truth appears to me to be that the Court always has an inherent jurisdiction to administer, by sale or otherwise, the property of which it has seisin in any suit which is in effect an administration suit. I do not think that a suit on a mortgage or pledge is in its essential characteristics anything but an administration, suit of the same kind as a suit for the execution of a trust, for the administration of the estate of a deceased person, for the administration of partnership assets in a partnership suit or any other suit of the same kind. All such suits are in substance suits to ascertain and declare the rights of some person having an interest in specified property and asking the Court, in its administrative jurisdiction to ascertain and give practical effect to his rights. That is precisely what an encumbrancer asks for when he invokes the assistance of the Court, and, in my view, there must necessarily always exist an inherent jurisdiction for the Court by its order to direct the property to be dealt with, whether by sale or otherwise, in the proper manner for the purpose of implementing its own orders. It seems to me, therefore, that it is impossible to say that, because a statute confers on a pledgee certain special personal powers outside the Court altogether, for the reason the Court is divested of its inherent jurisdiction to entertain an administration suit in respect of the same property and in that suit to order a sale. The same question does not, of course, arise in the case of a simple mortgage in India, as the only remedy of a simple mortgagee is to obtain a sale from the Court. This, however, serves as no reason for supposing that, where a man has an additional remedy outside the Court, but prefers to come to the Court, he should be prevented from doing so. I am, therefore, strongly inclined to think that there is an inherent jurisdiction in the Court in a proper case to make an order for sale of property at the expense of any pledgee or chargee. This view is, to my mind, greatly reinforced when one finds that, in case after case, the Indian Courts have in fact exercised this jurisdiction. In Vitla Kamti v. Kalekara ('88) 11 Mad. 153 it is said that:.The power to bring the moveable property to sale is an incident in the nature of an accessory to the right to recover the debt...

That must, I think, refer to a power to bring the property to sale in Court. In Mahalinga Nadar v. Ganapathi Subbian ('04) 27 Mad. 528 (F.B.) it was taken for granted that the Court had power to entertain a suit for sale of moveable property at the instance of a pledgee. In Madan Mohan Lal v. Kanhai Lal ('95) 17 All. 284 which was a case under the Limitation Act, our own Court took it for granted that such a suit would lie. In Nim Chand Baboo v. Jagabundhu Ghose ('95) 22 Cal. 21 there was again no doubt expressed, but that a pawnee had a right to seek his remedies through the Court and was not bound to rely upon his personal remedies. The learned Judges in this case say:.It is, we believe, now well settled that when a mortgagee of immovable property brings a suit to recover the money advanced by sale of the property pledged, it is a suit to enforce his charge upon the said property; and we should think, by analogy the claim of a pawnee for a similar relief in respect of movable property is a suit to enforce his charge upon that property....

We find, therefore, numerous cases in the reports in which the Indian Courts have in fact recognised the right of a pawnee to come and ask for a sale. On the other hand, we have been referred to no case in which it has been suggested that such a right does not exist. To return to Section 17, Presidency-towns Insolvency Act, the words we are asked to construe are these:

Provided that this section shall not affect the power of any secured creditor to realize or otherwise deal with his security in the same manner as he would have been entitled to realize or deal with it if this section had not been passed.

10. I have, therefore, to ask myself whether the plaintiff in coming to the Court in this case and asking for a sale, as I must believe he has done, is the exercise by him of a 'power...to realize...his security in the same manner as he would have been entitled to realize...it' if no leave had been required. In short, the question is whether he would have been entitled to ask for a sale by the Court. For the reasons which I have given, I think he would have been so entitled, because such a right is, in the first place, an incident of his security. Even if it were not intrinsically an incident of his security, I should have no hesitation in holding that the fact itself that the Courts of India habitually recognise such a right would constitute a 'manner' of realizing the security to which, in India at any rate, he has become 'entitled.' On these grounds I think that the plaintiff is protected by Section 17, Presidency-towns Insolvency Act, and that, for the purpose of bringing a suit on his security and in such suit asking for a sale, no leave of the Court was required. I cannot accept the view that the proviso only refers to a case in which the plaintiff is bound to come to the Court where he has no other remedy open to him. I am fortified in this view by the fact that in Sir Frederick Pollock's and Sir Dinshaw Mulla's book on the Contract Act the bringing of a property by a pledgee to sale through the Court is a recognised remedy. (The rest of the judgment is not material for the report.)

Hamilton, J.

11. I agree.


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