1. The petitioner, the Bank of India, seeks in this petition under Articles 226 and 227 of the Constitution of India to quash the order of the Sub-Divisional Officer, Indore dated 28-1-1976 confirming the order of the Additional Tahsildar, Indore, dated 26-11-1975 rejecting its application not to attach the machinery of the M/s. Binod Steel Ltd. Company and directing the recovery of a sum of Rupees 25,765.78 P. due and payable by the Company to the workers towards their wages for the month of March 1975 by attachment and sale of the machinery.
2. The first respondent M/s. Binod Steel Ltd. Company had borrowed on mortgage of its machinery, a sum of Rs. 33 lacs on various debts from the petitioner Bank. The Company had closed its business on April 11, 1975. The Payment of Wages Inspector has raised a demand of Rs. 25,765.78 P. against M/s. Binod Steel Limited Company towards the amount of wages due and payable by the Company to the workers for the month of March 1975. The amount also includes some compensation payable by the Company. The Payment of Wages Inspector moved the Additional Tahsildar, Indore for recovery of Rs. 25,765.78 P. from M/s. Binod Steel Ltd. Co. having recourse to the provisions of the Land Revenue Code. The Additional Tahsildar took steps to attach the machinery and other moveables belonging to the Company and bring the same for public auction. At that stage the petitioner Bank objected to the recovery proceedings initiated by the Additional Tahsildar under the Land Revenue Code. The ground on which the petitioner Bank objected to the recovery proceedings is that it is a secured creditor having obtained a pledge or mortgage of all the moveables belonging to the Company and the revenue authorities or any other creditor has no right to proceed against the machinery and other moveables of the Company without satisfying the claim and debt of the Bank. The Additional Tahsildar dismissed the objection raised by the petitioner and proceeded to attach the moveables and bring the same for sale. Aggrieved by the decision of the Additional Tahsildar, the petitioner appealed to the Sub-Divisional Officer, Indore, who held that the Additional Tahsildar was competent to attach and auction the moveable property of M/s, Binod Steel Limited Company and the petitioner Bank is competent to receive any balance amount of the sale proceeds after satisfying the debt of the workers. Hence this writ petition.
3. The sum and substance of the contention of Shri K. A. Chitale, learned counsel for the petitioner is that the petitioner is the pledgee or mortgagee of the machinery and other movables of the Company and the possession of such moveables after the pledge or mortgage is for or on behalf of the Bank and, therefore, no proceedings by any creditor against the Company can be made in respect of the pledge of the machinery under other modes and consequently the orders of the Additional Tahsildar and that of the Sub-Divisional Officer are without jurisdiction and void and, therefore, liable to be quashed. This claim of the petitioner is resisted by the learned Deputy Government Advocate contending inter alia that the revenue authorities are empowered to have resort to the provisions of the Land Revenue Code in respect of the amount of Rupees 25,765.78 P. due to the workers from the Company and the petitioner-Bank is not entitled or justified to raise any objection and it is entitled only to the excess and surplus sale proceeds after satisfying the debt due to the workers.
4. Upon the respective contentions of the parties, the question that falls for decision is whether on the facts and in the circumstances, the revenue authorities are empowered to attach and sell the machinery and other moveables of the M/s. Binod Steel Ltd. Co., which were pledged and mortgaged to the petitioner-Bank for recovery of Rs. 25,765.78 P. due to the workers and employees of the Company without satisfying the debt due and payable to the Bank.
5. It admits of no doubt that the petitioner-Bank had taken pledges and mortgages of machinery and other moveable properties and advanced a sum of Rs. 33 lacs to M/s. Binod Steel Ltd. Co. on several dates. The petitioner-Bank instead of taking physical possession of the pledged moveables of the Company has permitted the Company itself to be in possession of the machinery and other moveables for and on behalf of the Bank. The Company was closed down on 11-4-1975. A sum of Rupees 25,765.78 P. is no doubt due and payable to the workers and employees of the Company for the wages towards the month of March 1975 and compensation. The debt due and payable to the petitioner-Bank had come into existence even prior to the incident of liability of the Company towards the workers.
6. That apart, the Bank stands in the position of a secured creditor. The legal possession and custody of the machinery and other moveables of the Company, which were under a pledge, must be held to be in the Bank itself. The physical possession of the moveables and the machinery of the Company may be with the Company but in the eye of law the Company must be deemed to be in possession of the same for and on behalf of the Bank, the pledgee and the mortgagee. That apart, we may add that the possession is according to the terms of the Contract Act. The Company has in fact agreed to be in possession of the moveables and the machinery for and on behalf of the Bank. The legal entity that is entitled to be in possession of these moveables must be the Bank and none else. The initiation of recovery proceedings by the Tahsildar in respect of the amount due and payable by the Company to the workers is on the assumption that the machinery and moveables of the Company really belong to and are in the possession of the Company itself. This conception of the revenue authorities is erroneous and illegal. The legal rights of the Bank who is the pledgee and who is the custodia legis of the machinery and the moveables. have been ignored. The respondents 3 and 4 did not approach the question with the correct principles of law in rejecting the objection raised by the Bank. Either the workers, who are considered to be the creditors of the Company or the authorities on behalf of the workers who initiated recovery proceedings, have no legal right to proceed against the property of the Bank or any property in which the Bank has got the custody and legal possession. They can at the most proceed against the property belonging to the Company or which is in its possession in its own right, otherwise not. The right to possess moveables and the machinery in the present case is vested in the Bank. No one can touch the pledged property until the claim of the Bank is satisfied. The misconception entertained by the respondents 3 and 4 is that they do not find any difference in law between the mortgage of a moveable property and that of immoveable property. In respect of the immoveable property, the mortgagor has got an equity of redemption, The creditor can certainly bring that property to sell subject to the rights of the mortgagee. That situation is not applicable to the case of moveable property. The law relating to moveable properties has been well settled in Bank of Bihar v. State of Bihar, (AIR 1971 SC 1210). The Patna High Court took the view first now advanced before us for and on behalf of the respondents. That view was held to be erroneous and illegal by the Supreme Court in the aforesaid case. The learned Judge, Grover, J., who spoke for the Court ruled at page 1213 thus :--
'In our judgment the High Court is in error in considering that the rights of the pawnee who had parted with money in favour of the pawnor on the security of the goods can be defeated by the goods being lawfully seized by the Government and the money being made available to other creditors of the pawnor without the claim of the pawnee being fully satisfied. The pawnee has special property and a lien which is not of ordinary nature on the goods and so long as his claim is not satisfied no other creditor of the pawnor has any right to take away the goods or its price. After the goods had been seized by the Government it was bound to pay the amount due to the plaintiff and the balance could have been made available to satisfy the claim of other creditors of the pawnor. But by a mere act of lawful seizure the Government could not deprive the plaintiff of the amount which was secured by the pledge of the goods to it. As the act of the Government resulted in deprivation of the amount to which the plaintiff was entitled it was bound to reimburse the plaintiff for such amount which the plaintiff in ordinary course would have realized by sale of the goods pledged with it on the pawnor making a default in payment of debt.
The approach of the trial Court was unexceptionable. The plaintiff's right as a pawnee could not be extinguished by the seizure of the goods in its possession inasmuch as the pledge of the goods was not meant to replace the liability under the cash credit agreement. It was intended to give the plaintiff a primary right to sell the goods in satisfaction of the liability of the pawnor. The Cane Commissioner who was an unsecured creditor could not have any Higher rights than the pawnor and was entitled only to the surplus money after satisfaction of the plaintiff's dues.'
In view of the aforesaid decision of the Supreme Court, it must be held that what has been done by respondents 3 and 4 is illegal and unjustified and without jurisdiction. The revenue authorities may if they so choose or desire, pay the entire amount due and payable to the Bank, take possession of the moveable property of the Company and proceed against it. In the present case the respondents are not prepared to pay the debt due to the Bank but at the same time desire to proceed against the pledged machinery and other moveables of the Company which are in legal custody and possession of the Bank.
7. We may notice in this context the decision of the Mysore High Court in In the matter of Sree Yellamma Cotton, Woollen and Silk Mills Co. Ltd. (AIR 1969 Mys 280). At page 287, the learned Judge, A. Narayana Pai, J. (as he then was) observed thus :--
'In the case of Hypothecation of pledges of movable goods, there is no doubt about the creditor's right to take possession, to retain possession and to sell the goods directly without the intervention of Court for the purpose of recovering his dues. The position in the case of regular pledge completed by possession is undoubted and set out in the relevant sections of the Contract Act. Hypothecation is only extended idea of a pledge, the creditor permitting the debtor to retain possession either on behalf of or in trust for himself (the creditor).
Hence, so far as the movables actually covered by the hypothecation deeds are concerned, there can be no doubt that the Bank is entitled to retain possession and also to exercise the right of private sale.'
8. The decision of a Division Bench of this Court in State Bank of Indore v. Regional Provident Fund Commissioner, (AIR 1965 Madh Pra 40) strongly relied upon by the Deputy Government Advocate does not assist him. That was a case of immoveable property. We have already pointed out the difference and distinction between the case of hypothecation of moveable and immoveable property.
9. For all the reasons stated, we have no hesitation to hold that the impugned orders are illegal, erroneous and without jurisdiction and are liable to be quashed. In the result we quash the impugned order (Annexures M & O) and issue a mandamus directing the respondents 2, 3 and 4 not to proceed against the machinery and other moveables pledged by the first respondent-Company to the petitioner. This writ petition is allowed with costs. Counsel's fee Rs. 200/- if certified. The amount of security deposit be refunded to the petitioner.