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Dhani Ram and Sons Vs. Frontier Bank Ltd., New Delhi and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtPunjab and Haryana High Court
Decided On
Case NumberSecond Appeal No. 71-D of 1957
Judge
Reported inAIR1962P& H321
ActsIndian Contract Act - Sections 176; Indian Limitation Act - Schedule - Article 120
AppellantDhani Ram and Sons
RespondentFrontier Bank Ltd., New Delhi and anr.
Cases ReferredNeckram Dobey v. Bank of Bengal
Excerpt:
.....lie against a judgment/order/decree passed by a single judge in exercising powers of superintendence under article 227 of the constitution. - the suit was resisted by the company as well as by messrs dhani ram and sons. stear, 15 cb (ns) 330 and many well known cases of the same kind, in which it has been held that where the pledgee of chattels with a power of sale which can only be exercised under the conditions sells the chattels without performing the conditions, he is guilty of wrongful conversion, and that the measure of damages is the value of the chattels at the time of conversion less the amount for which it was pledged......courts below and which has also been argued before me is about limitation. the court below have held the suit to be within time and applied article 120 of the indian limitation act. but as i look at the matter, i do not see how the question of limitation arises at all. so far as the appellant is concerned, the shares were in the possession of the bank with blank transfer deeds as pledgee and after their appropriation by sale the bank became the owner of the shares and the only right left with the pledgor was as to damages and not as to the return of the shares. therefore the appellant does not come in the picture so far as the present suit is concerned and there can be no question of limitation running out as between the pledgor and the bank but so far as the defendant no. 2 is.....
Judgment:

(1) This appeal must be dismissed though on grounds different from those on which the Court below have proceeded to pass a decree in favour of the respondent.

(2) The dispute in this appeal relates to shares of the Punjab Registered (Iron & Steel) Stockholders' Association Ltd., Ambala City. The number of shares is 150 of the face value of Rs. 100/- each. Defendant No. 1, Messrs Dhani Ram & Sons, who were hardware merchants at Lahore, had a cash credit account with the plaintiff Bank. This account was secured by mortgage of immovable property as the partition of the country, Messrs Dhani Ram, & Sons moved to Delhi and the Bank also moved amount due to it from Messrs. Dhani Ram & Sons by a notice Exhibit D 2 dated the 24th July, 1948 and by another notice Exhibit D 3 dated 16th April, 1953. In Exhibit D 3 the last paragraph is in these terms.

'I am further directed to call upon you to please arrange to take delivery of the shares mentioned above against payment of their value in case at Delhi Office of my client within two weeks from the receipt of this notice, failing which my client will be free to sell them away at any price available in the market by private or public sale at your risks and cost.'

It seems that instead of selling these shares, the Bank, which held the blank transfer deeds along with the share script, appropriated the same as its own property, though the question of appropriation is not admitted by the appellant inasmuch as the company did not recognise the Bank as the owner of these shares. The Bank filed the present suit for an injunction directing the company to register the Bank as the owner of those shares. The suit was resisted by the company as well as by Messrs Dhani Ram and Sons. The plea of Messrs Dhani Ram and Sons was that the shares had not been transferred to the Bank. It was further pleaded that the suit was barred by limitation. Both the Courts below found against the defendants on both these matters and decreed the suit. No second appeal has been preferred by the company but Messrs Dhani Ram and Sons have preferred one and by this order it is their appeal that will be disposed of.

(3) The first contention advanced by Mr. Prem Nath Khanna, the learned counsel for the appellant, is that the Bank was merely a pledgee of the shares and as such had only right to sell the shares in the event of the pledger not paying back the debt owed by him on the due date or after notice by the pledgee for its payment. For this the learned counsel relies on the provisions of Section 176 of the Indian Contract Act, which are in these terms:

'If the pawner makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawner upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawner reasonable notice of the sale.

If the proceeds of such sale are less than the mount due in respect of the debt or promise, the pawner is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawner.'

He further contends that the pledgee could not sell the shares to itself and such a sale would be void in law. Therefore the contention is that the pledger is still the owner of the shares, they having not been legally disposed of.

(4) It is not disputed by both the learned counsel that before the opinion under Section 176 is exercised by the pledged, the pledger is the legal owner of the shares but once the option is exercised the pledger loses his right to redeem the shares, though certain other rights may arise if the sale of the shares is not properly carried out for instance right to recover damages for the sale below the market-price.

(5) It is not disputed that the Bank did exercise its option vide notice Exhibit D. 3, but instead of selling the shares by auction the Bank sole the shares to itself and credited the pledger with the face value of those shares. Therefore the short question that arises for determination is whether the sale is void or is merely unauthorised because it if is unauthorised it will not make the sale invalid but may give rise to certain rights in the pledger against the pledgee. However, this matter is not res integra. In a case which came up before the Calcutta High Court in Neckram Dobey v. Bank of Bengal, ILR 19 Cal 322, the facts were that certain Government securities were pledged with the Bank. The pledgee in the exercise of its powers under S. 176 of the India Contract Act instead of selling the securities appropriated the same by sale to itself. On a suit filed by the pledger for return of the securities so appropriated on the ground that the sale by the Bank to itself was unauthorised and therefore void, it was held by a Single Judge of that Court that the sale was void and did not pass any title to the pledgee and therefore the Bank was directed to replace the paper, which it had improperly sold. On an appeal by the Bank, the matter was heard by a Full Bench presided over by the Chief Justice Petheram. Mr. Justice Tottenham, who delivered the leading judgment observed as under (at pages 327, 328):

'Upon this state of facts the question arises, whether assuming that the securities remained in the hands of the defendants after they had taken them over in the books, subject to the same rights as before the disposal of them some few days after the defendants by sale and exchange, was a conversion of them for which they are liable to pay damages, or whether they were in the position of trustees for their debtor, and so are liable to replace the funds. In our opinion no such relation existed with reference to the securities. No doubt, when a creditor has sold the pledge and paid himself out of the proceeds, he is a trustee of the balance, if any, which remains in his hands. But we are not aware that it has ever been held that a pledgee of chattels with a right to sell on due notice is a trustee for the pledger of the security, and we think that the special property, which he undoubtedly has in the security, is inconsistent with his position being that of a trustee.

In our opinion the position of the defendants, both before and after the taking over in their books, was that of pledgee of chattels. Granting that when the Bank took over the 4 lakhs, that transaction did not amount to a sale at all but that the 4 lakhs, still remained as a pledge in their hands, and their subsequently selling them without further notice and without further demand was a wrongful conversion of the securities, for which they are liable to pay damages; still, the only question is, what damages has the plaintiff sustained by such wrongful acts of the defendant, assuming them to be wrongful.

From this point of view the present case is not distinguishable from that Johnson v. Stear, 15 CB (NS) 330 and many well known cases of the same kind, in which it has been held that where the pledgee of chattels with a power of sale which can only be exercised under the conditions sells the chattels without performing the conditions, he is guilty of wrongful conversion, and that the measure of damages is the value of the chattels at the time of conversion less the amount for which it was pledged.'

(6) This decision was affirmed by the Privy Council and it is reported in Neckram Dobey v. Bank of Bengal, ILR 19 Cal 322. At page 333 of the report, their Lordships of the Privy Council observed as under:

'Their Lordships are of opinion that this decision should be affirmed. The sales by the Bank to itself, thought unauthorised, did not put an end to the contract of pledge, so as to entitle the plaintiff to have back the Government notes, without payment of the loans of which they were security, and until the delivery of the 'account on the 31st of January, the loans being unpaid after demand, the Bank was entitled to sell the notes and credit the plaintiff with the proceeds. The plaintiff did not sustain any damage by the sale to the Bank of the notes which were re-sold by it before the 31st January.

As to the notes which were re-sold by the Bank after the 30th January, the position of the Bank was different. It was represented to the plaintiff by the Bank, and believed by him, that the Government notes which he received on the 30th January were the whole of his securities remaining unsold in the hands of the Bank. He paid Rupees 6,74,467 in order, as he believed, to redeem the whole of his securities. It would be inequitable to allow the Bank after this transaction, to treat the securities, which it had sold to itself and then had in its hands, as still subject to the pledge. In their Lordships' opinion, the Bank should be held to be no longer a pledgee of these notes, and to have converted them to its own use, and to be liable in damages for the value of them, including the interest thereon. But if the Bank is so liable, the plaintiff cannot have credit in the loan account for the proceeds of these notes. He cannot both affirm and disaffirm the sales to the Bank.'

In view of this decision, the sale by the Bank to itself of the shares in question cannot be held to be void. It is not the appellant's case that the value of the shares credited to its account is below the market value and in any case that is a matter which will arise at the final accounting. In this suit the only question that requires determination is whether the Bank is the owner of the shares, and on a true view of the matter the Bank must be held to be the legal owner of the shares, and once that is held then defendant No. 2 could not refuse to transfer the shares to the Bank.

(7) The only other question that was agitated in the Courts below and which has also been argued before me is about limitation. The Court below have held the suit to be within time and applied Article 120 of the Indian Limitation Act. But as I look at the matter, I do not see how the question of limitation arises at all. So far as the appellant is concerned, the shares were in the possession of the Bank with blank transfer deeds as pledgee and after their appropriation by sale the Bank became the owner of the shares and the only right left with the pledgor was as to damages and not as to the return of the shares. Therefore the appellant does not come in the picture so far as the present suit is concerned and there can be no question of limitation running out as between the pledgor and the Bank but so far as the defendant No. 2 is concerned, the question of limitation will only arise after the appropriation by the Bank and that appropriation took place in the year 1954 and it is conceded that if limitation is reckoned from 1954 the suit is within time. Moreover, defendant No. 2 has not appealed and the decision of the Courts below so far as defendant No. 2 is concerned, has become final. Therefore the argument that the suit is barred by time has no merit and must be repelled.

(8) For the reasons given above, this appeal fails and is dismissed, but there will be no order as to costs in this Court.

Appeal dismissed.


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