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Gurco Pharma P. Ltd. Vs. Syndicate Bank - Court Judgment

LegalCrystal Citation
Subject Company
CourtDelhi High Court
Decided On
Case NumberC.A. No. 538 to 1977
Judge
Reported in[1986]60CompCas1055(Delhi)
Acts Companies Act - Sections 446; Drugs Act; Indian Contract Act - Sections 148, 151, 152 and 172 to 179
AppellantGurco Pharma P. Ltd.
RespondentSyndicate Bank
Excerpt:
.....to the company. 7 lakhs on the basis of the outstanding in the overdraft facility granted by the bank to the company and the present claim for damage was set up by the company in its written statement but since the company failed to pay court fees on the counter-claims, it was granted liberty instead to file the present petition under section 446 of the companies act. 6. some of the legal issues like limitation, maintainability, and whether the petition disclosed a cause of action, were not pressed. the first question that needs to be determined is whether the bank was negligent in its failure to sell the pledged property within a reasonable time or within the period of the validity of some of the items forming subject-matter of the pledge. he admitted that the provisional liquidator..........p-a, is of july 29, 1971, it is the company's own case, according to exhibit p-c, list of the goods pledged with the bank, that the various items of raw material and finished goods, listed in exhibit p-c, were pledged on different dates between april 10, 1966, and march 12, 1969, and, according to this document, the total value of the items under the category 'raw material' was rs. 3,87,500 and that of the items under the category 'finished goods' was rs. 4,59,690.50, thereby making the total value of rs. 8,47,190.50. it was also not disputed that the pledge of the goods was a continuous process and although the different consignments were pledged on different dates, as mentioned above, the agreement of pledge, exhibit p-b or exhibit p-a of july 29, 1971, was in the natural of a.....
Judgment:

H.L. Anand, J.

1. M/s. Gurco Pharma (P.) Ltd., in liquidation, claims from its former bankers, Syndicate Bank, compensation on the allegation that before its winding up, the company had pledged medicinal goods, consisting of raw materials and finished medicines worth over Rs. 8 lakhs by way of pledge to secure advances made and/or to be made by the bank to it from time to time and that the bank failed to take reasonable care of the goods while they were in the bank's custody in that the goods, some or all of which had an expiry period, were allowed to become stale and the bank failed to dispose of the goods within the period of validity of the material with the result that the goods became worthless and had eventually to be destroyed thereby causing damage to the company. The company also sought a restraint order with regard to the destruction of the goods, a complete description and particulars of the goods from the bank, to call upon the bank to account for the pledged property and sought from the court relief after the evaluation of the goods and of the extent of damage caused to the company by the alleged negligent act of the bank. According to the company, the bank had used the company for recovery of about Rs. 7 lakhs on the basis of the outstanding in the overdraft facility granted by the bank to the company and the present claim for damage was set up by the company in its written statement but since the company failed to pay court fees on the counter-claims, it was granted liberty instead to file the present petition under section 446 of the Companies Act. The bank resists the claim of compensation but admits that medicinal goods stated to be of the value of over Rs. 8 lakhs were pledged by the company with the bank to the company. The bank, however, denies any liability to dispose of the goods within any validity period and contends that the pledged property was not sold because of the repeated assurances of the company that the release of the pledged goods would be obtained on payment of the outstanding and that, in any event, the bank was under no duty to enforce its rights as a pledgee except at a time of its own choice. It is further alleged that some of the items of raw material pledged with the bank, which had a validity period, had become state during the lifetime of the former chairman of the company, who had been consistently promising to get the goods released. It was further contended that the claim was not maintainable in law. It was further alleged that when the bank eventually decided to dispose of the goods, it was not allowed to do so by the Drug Controller and when the goods were eventually advertised for sale, there was no response with the result that the goods had to be destroyed, during the pendency of the proceedings, with the permission of the court. It is further alleged by the bank that after the winding up order, the official liquidator took possession of the factory premises where the goods were stored and it was with great difficulty that the bank was able to the goods transferred to the premises of a clearing agent.

2. On March 15, 1978, following three issues were framed and were ordered to be tried without any evidence as they then appeared to be purely legal in nature.

'1. Is the application not barred by time 2. Whether the respondent-bank has been negligent in failing to sell the pledged goods 3. Is there any cause of action ?'

3. Subsequently, parties sought leave to produce evidence and produced both oral and documentary evidence in support of the aforesaid issues, as indeed, on the other questions in controversy on the merits.

4. The company produced PW-1, a former director of the company, PW-2, an officer of the Punjab and Sind Bank, PW-3, a former general manager and director and secretary of the company and produced the pledge arrangement of July 29, 1971, exhibit P-A, and an identical copy of it, exhibit P-B, list of the pledged goods, exhibit P-C, and correspondence between the bank and the company consisting of exhibit PW-3/1 to exhibit PW-3/6. It also produced further correspondence between the parties, which could not be proved but was marked A, B and C. The bank produced the manager of the branch concerned.

5. I have heard learned counsel for the official liquidator and the bank, who have taken me through the records.

6. Some of the legal issues like limitation, maintainability, and whether the petition disclosed a cause of action, were not pressed. Some of the other questions raised in the pleadings have also become redundant because it is not disputed that medicinal goods, purporting to be of the value of over Rs. 8 lakhs, were pledged by the company with the blank, that some of these goods had a validity period; and that the validity period having expired and the goods having neither been sold nor otherwise got released, they became worthless; that the advertisement for their sale eventually produced no response; and that the goods ultimately had to be destroyed under the orders of this court, after obtaining the permission of the Drug Controller. The first question that needs to be determined is whether the bank was negligent in its failure to sell the pledged property within a reasonable time or within the period of the validity of some of the items forming subject-matter of the pledge.

7. On the material on record, the facts and circumstances relevant to the question of the duty of the bank and whether or not it was guilty of negligence, are not in dispute. Although the pledge agreement, exhibit P-B, and exhibit P-A, is of July 29, 1971, it is the company's own case, according to exhibit P-C, list of the goods pledged with the bank, that the various items of raw material and finished goods, listed in exhibit P-C, were pledged on different dates between April 10, 1966, and March 12, 1969, and, according to this document, the total value of the items under the category 'raw material' was Rs. 3,87,500 and that of the items under the category 'finished goods' was Rs. 4,59,690.50, thereby making the total value of Rs. 8,47,190.50. It was also not disputed that the pledge of the goods was a continuous process and although the different consignments were pledged on different dates, as mentioned above, the agreement of pledge, exhibit P-B or exhibit P-A of July 29, 1971, was in the natural of a renewal of pledge of various consignments effected between April, 1966, and March, 1969. It is also not in dispute, and is amply borne out by correspondence between the company and the bank, exhibits PW-3/1 to PW-3/6, that during the period November, 1969, to October, 1971, the bank had been insisting on the payment of the outstanding and the then chairman of the company, Dr. Gurbaksh Singh, had been requesting the bank to stay its hands in enforcing the pledge and promising that the bank would make payment and get the material released. Last of these letters is of October 20, 1971, exhibit PW-3/6, by a former director of the company, promising that the stocks would start 'rotating'. It was also not disputed that the validity period of the items, which has such period, had expired in February, 1971, and that the former chairman died in November, 1971, after the period had expired. The bank admittedly filed its suit in December, 1972, on the basis of the outstanding. The provisional liquidator was appointed in 1972 and the factory and godowns were taken into possession by the provisional liquidator which included the godowns containing the pledged property. Winding-up order was made on January 30, 1973. The goods were advertised for sale in June, 1972, but there was no response, and the Drug Controller declined permission for sale even in 1974. The goods were eventually destroyed under the orders of the court made on October 12, 1979, in C.A. No. 432 of 1979.

8. P.W. 1 Nihal Singh, former director of the company, proved exhibits P-A, P-B and P-C and claimed that the company had similar arrangement with another bank, Punjab and Sind Bank, and that the Punjab and Sind Bank sold the goods under pledge after the company was ordered to be wound up. He further stated that some of the items had an expiry date while other did not have and that the expiry date was normally marked on the packing in which the medicines are marketed. In cross-examination, he stated that the goods pledged with the Punjab and Sind Bank were imported goods and that 'it may be' that the raw material pledged with the Syndicate Bank was only indigenous. P.W. 2, H. S. Bhasin, and officer of the Punjab and Sind Bank, stated that his bank had allowed cash credit facility to the company and when the company made default, the bank exercised its right as pledgee and disposed of the property and recovered most of its outstandings. P.W. 3, a former general manager and director and secretary of the company, referred to what the Punjab and Sind Bank had done and added that the imported material mentioned in the list, exhibit P-C, were Tetracycline, Sodium Salicylate and quinol Barbitone-sodium, and that the other items mentioned in the list were manufactured by the company, except Sodium Salicylate, which was purchased from the local market. He further stated that off and on pledged goods used to be taken out and new goods pledged and some of the products had an expiry date which used to be mentioned on the label of raw materials and finished products. He mentioned some of the medicines which did not have an expiry date and stated that he was not sure if there was an expiry date for Sodium Salicylate. He further claimed that under the Drugs Act, the date of manufacture and the date of expiry, wherever prescribed by the Drugs Act, are to be mentioned. He also gave the expiry date of different medicines. He admitted that the provisional liquidator took charge of the offices, as well as godowns, and the sales tax authorities had also sealed the offices and godowns in September, 1972. He was unable to say if the validity period of medicines had expired during the lifetime of the former chairman of the company. He proved the correspondence between the company and the bank, exhibit P.W. 3/1 to exhibit P.W. 3/6.

9. On the material on record, it is amply established that, even though the validity period of some of the items was to expire in February, 1971, and the former chairman died in November, 1971, the company kept on pressing the bank from November, 1969, right up to October, 1971, for time to clear the outstanding and the company not only made no suggestion to the bank, at any time, that the pledged property should be disposed of because the validity period was approaching, but on the contrary, the bank was asked to defer he enforcement of the pledge on the assurances that the payments were not being made on account of unavoidable reasons and that the company was making earnest efforts to clear its outstandings. It is further established on the material an record that after the provisional liquidator was appointed in February, 1972 the premises of the factory of the company, including the godowns in which the material was stored, were sealed by the provisional liquidator as also by the sales tax authorities with the result that the bank had no possible access to the godowns, which were under its lock and key, and contained the pledged property. It was not disputed that the attempt in 1972 to sell the goods proved abortive and the bank was able to have the goods shifted to the premises of a clearing agent only in 1974, and that permission to dispose of the goods, even at that late stage, was refused by the Drug Controller. On this material it is hardly possible to fault the bank for not having disposed of the goods before February, 1971, when the validity period of some of the items is said to have expired whatever may be the extent of the bank's obligation to take reasonable care of the goods as pledgee.

10. Even otherwise, the bank was under no obligation to dispose of the goods expects at the time of its own choice and the duty to take reasonable care of the goods did not extend to its disposal within the validity period beyond which they may perish.

11. Chapter IX of the Indian Contract Act provides for bailment. Section 148 defines 'bailment' as 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 person to whom they are delivered is called the 'bailee'. Section 151 provides for the care to be taken by the bailee in case of bailment and the degree of care is as much as a man of ordinary prudence would under similar circumstances, take of his own goods of the same bulk quality and value as the goods bailed. Section 152 further provides that the bailee, in the bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care as described in section 151. Section 172 to 179, which occur in the same Chapter, deal with bailment of pledges. According to section 172, the bailment of goods as security for payment of a debt or performance of a promise is called 'pledge'. Section 173 incorporates the pawnee's right of retainer and provides that the pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interests of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledge. Section 176 incorporates the pawnee's right where there is default in payment and provides that if the pawnor 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 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.

12. It would thus be seen that bailment is the genus and pledge is one of its species. Bailment of goods may be for any purpose while a pledge or pawn is a bailment of goods by a debtor to his creditor to be kept by him till the debt is discharged. The bailment is intended is intended to be a security for some debt or engagement. The general property in the goods pledged remains with the playgoer but a special property in them passes to the pledgee in order that he may be able to sell the goods if his right to sell arises. This special property is strictly only a right to possession of the goods together with a power to sell upon default. The pledgee, since he is in possession of the pledged, is liable for failure to take reasonable care of it if it stolen from him. He will be discharged from liability if he can show that he took ordinary care of it. Similarly, he is excused where the thing was perishable and did in fact perish.

13. It cannot, thereforee be said that the bank was guilty of any negligence in dealing with the goods or failed to take reasonable care of the goods or is for that reason liable to the company for any compensation.

14. In view of the above conclusion, it is unnecessary to determine the extent of the damage which may have been suffered by the company on account of failure to dispose of the goods earlier.

15. The claim fails and is, accordingly, dismissed. In the peculiar circumstances, parties would bear their respective costs.


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