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Punjab National Bank Vs. Union of India and Two ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtDelhi High Court
Decided On
Case NumberSuit Appeal No. 159 of 1978
Judge
Reported in[1983]53CompCas842(Delhi); ILR1981Delhi84
ActsIndian Contract Act, 1872 - Sections 172
AppellantPunjab National Bank
RespondentUnion of India and Two ors.
Advocates: D.S. Dang,; A.K. Tandon,; U.L. Watwani,;
Cases ReferredJaswantrai Manilal Akhaney v. The State of Bombay
Excerpt:
.....entered into with the company. before the appointed day the company had general property in the goods pledged and the special property or special interest was in the pawnee. only those rights and interests which the company possessed as owners in the pledged goods on the appointed day formed part of the undertaking. the rights which the bank possessed in the goods pledged did not form part of the undertaking. (the bank of bihar v. the state of bihar and others, air 1971 s.c. 1210 referred to). even if the custodian had lawfully come into possession of the goods pledged, he was bound to pay the sale proceeds of the pledged goods to the plaintiff-bank to the extent of their claim against the company.; 3. it is clear from a reading of the hypothecation deed and other documents that the..........owner of the pledged goods, under sub-clause (6) the bank was obliged to give possession of the goods pledged to the custodian and that further under sub-clause (7) the liability incurred by the company betore the appointed day could only be enforced against the company and not against the central government or the custodian and, thereforee, the suit of the plaintiff against the defendants is not competent. shri sanghi for his above contention also sought support from the provision of clause 4 (8).(9) it will be proper here to understand the legal rights of a pledger and pledgee in the goods pledged. the relevant provisions of the contract act having bearing on the point are sections 172, 173, 176, 180 and 181. section 172 defines a 'pledge' to mean the bailment of goods as security.....
Judgment:

R.N. Aggarwal, J.

(1) The dispute in this suit is between the Punjab National Bank, a Banking Company nationalised under the Acquisition and Transfer of Undertakings Act, 1970, and M/s. Atherton West and Co. Ltd. Kanpur, a public company whose management' was taken over by the Central Government by an Ordinance known as 'The Laxmirattan and Atherton West Cotton Mills' (Taking over of Management) Ordinance No. Ii of 1976 (now Act No. 98 of 1976).

(2) The relevant facts are that M/s. Atherton West and Company Limited, a limited company was carrying on the business of manufacturing and sale of textiles at Kanpur (hereinafter called the Company). The Company had taken credit facilities from the plaintiff Bank against hypothecation and pledge or its goods. On the coming into force of the Ordinance No. Ii of 1976 the Custodian of the Company under a threat of prosecution obtained possession of the pledged and hypothecated goods and sold the same. The value of the hypothecated pledged goods according to the plaintiff Bank was Rs. 79,15,552. The Plaintiff Bank has filed this suit for recovery of Rs. 79,15,552 on the allegation that the recovery of the goods by the defendants from the Bank was illegal, unwarranted and unauthorised and they are entitled to recover the price of the goods which were taken into possession by the defendants from the plaintiff Bank and sold. The plaintiff Bank has alleged that although the amount due to the Bank from the company as on 31st December 1977 amounted to Rs. 1,27,32,578 but the Bank was limiting its claim against the defendants to the value of the pledged and hypothecated goods. The plaintiff also claimed interest at the rate of 17 per cent per annum from the date the defendants had taken possession of the goods and until the recovery of the value of the goods.

(3) The suit is contested by the defendants. It is not disputed that the defendants had taken into possession all the goods lying in the godowns of the Punjab National Bank. The defendants have disputed the value of the goods of which possession was taken by them. According to the defendants the value of the stock of stores and spares was taken at 40 per cent less as the condition of the stock was unsatisfactory and the value of the stock of cloth bales was taken 30 per cent less due to the unsatisfactory condition of the stocks. Defendant No. I denied that the alleged goods were pledged or hypothecated by the defendants. The defendants further submitted that the action taken by defendants Nos. 2 and 3 in recovering possession of the goods in dispute was in accordance with law and was taken in good faith to protect the interest of the company. The defendants pleaded that in view of sub-section (7) of section 3 of Act No. 98 of 1976 the plaintiff has no claim against the defendants.

(4) Besides the pleas on merits, the defendant No. I raised a few preliminary objections, inter alia, (i) that under sub-section (7) of section 3 the alleged liability incurred by the company before the appointed day can be enforced only against the company and not against the Central Government, (ii) that M/s Atherton West and Company Limited was a necessary party to the suit and the suit is bad for its non-joinder, and (iii) that this Court has no jurisdiction to entertain the suit.

(5) On the pleadings of the parties, the following issues were framed: '1. Is the suit not maintainable against all or any of the defendants by reason of the provisions of section 3(7) of the Laxmi Rattan and Atherton West Cotton Mills (T.O.O.M.) Act, 1976 2. Is the present suit bad for non-joinder and or misguide of parties because M/s. Atherton West and Co. have not been poined as a party India And Two Others 3. Does this Court not have jurisdiction to entertain and try the suit 4. Has the plaintiff filed a suit for the recovery of Rs. 1,27,32,578 in Kanpur which also covers the present claim and what is the effect of the filling of that suit 5. What was the value of the pledged and hypothecated goods taken over by the defendants 6. What is the rate of interest to which the plaintiff is entitled 7. Relief.'

(6) On 29th November 1979 the Court had ordered for trial of issues I to 4 as preliminary issues. On 17th April 1979 the Court, at the suggestion of the counsel for the parties, directed that the preliminary issues and the other issues be decided together. The parties agreed to produce evidence by filing affidavits.

(7) There is no dispute that the goods in dispute were hypothecated and pledged with the plaintiff bank. To appreciate the contentions of Mr. Sanghi, learned counsel for the defendants, it will be proper to notice some of the clauses of Act 98 of 1976. Clause 3 on which the arguments mostly centered needs to be noticed in extenso and it reads as under : '3. (1) On and from the appointed day, the management of the undertakings of the two companies shall vest in the Central Government. (2) The undertakings of sach of the two companies shall be deemed to include all assets, rights, leaseholds, powers, authorities and privileges, and all property, movable and immovable including lands, buildings, works, workshops, projects, stores, spares, instruments, machinery, equipment, automobiles and other vehicles, cash balances, reserve fund, investments and book debts and all other rights and interests arising out of such property as were, immediately before the appointed day, in the ownership, possession, power or control of the concerned company, whether within or without India, and all books of account, registers, and all other documents of whatever nature relating thereto. (3) Any contract, whether express or implied, or other arrangement, in so far as it relates to the management of the business and affairs of either of the two companies in relation to its undertakings, and in force immediately before the appointed day, shall be deemed to have terminated on the appointed day. (4) All persons in charge of the management, including persons holding offices as directors, managers or any other managerial personnel of either of the two companies, immediately before the appointed day, shall be deemed to have vacated their offices as such on the appointed day. (5) Notwithstanding anything contained in any other law for the time being in force, no person in respect of whom any contract of management or other arrangement is terminated by reason of the provisions contained in sub-section (3), or who ceases to hold any office by reason of the provisions contained in sub-section (4), shall be entitled to claim any com- pensation for the premature termination of the contract of management or other arrangement or for the loss of office, as the case may be. (6) Notwithstanding any judgment, decree or order of any court, tribunal or other authority or any thing contained in any other law (other than this Ordinance) for the time being in force, every Receiver or other person in whose possession or custody or under whose control any undertaking of either of the two companies or any part thereof may be immediately before the appointed day, shall, on the commencement of this Ordinance, deliver possession of the said undertaking or such part thereof, as the case may be, to the Custodian, where no Custodian has been appointed, to such other person as the Central Government may direct. (7) For the removal of doubts, it is hereby declared that any liability incurred by either of the two companies in relation to its undertakings before the appointed day shall be enforceable against the concerned company and not against the Central Government or the Custodian.' Clause 4 provides for the appointment of the Custodian for the management of the companies and sub-clause (8) of the said clause is as follows : '(8) Every person having possession, custody or control of any property forming part of any undertaking of either of the two companies shall deliver forthwith such property to the Custodian or to any officer or other employee of the Central Government or the Custodian, as may be authorised by the Central Government in this behalf.'

(8) Shri Sanghi contended that in law the ownership in the pledged goods (unless the goods are disposed of as provided in section 176 of the Contract Act) continued to be in the owner and that as on the appointed daythe company was legally the owner of the pledged goods, under sub-clause (6) the bank was obliged to give possession of the goods pledged to the Custodian and that further under sub-clause (7) the liability incurred by the company betore the appointed day could only be enforced against the company and not against the Central Government or the Custodian and, thereforee, the suit of the plaintiff against the defendants is not competent. Shri Sanghi for his above contention also sought support from the provision of clause 4 (8).

(9) It will be proper here to understand the legal rights of a pledger and pledgee in the goods pledged. The relevant provisions of the Contract Act having bearing on the point are sections 172, 173, 176, 180 and 181. Section 172 defines a 'pledge' to mean the bailment of goods as security for payment of a debt or performance of a promise. The bailor is called the 'pawnor' and the bailee is called the 'pawnee'. Section 173 provides that the pawnee may retain the goods pledged not only for the payment of the debt or the performance of the promise, but also 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 pledged. Section 176 is in the following terms :

'176.If the pawnor makes default in payment of the debt, or performance, at the stipulated time. or 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 things pledged, on giving the pawnor reasonable notice of the sale.'

(10) Section 180 is to th& effect that if a third person wrongfully deprives the bailee of the use of the possession of the goods bailed or does him any injury the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury. According to section 181 whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests.

(11) The above sections of the Contract Act have been a subject of discussion in a number of authorities and the settled law appears to be that the 'pawn' is a security for a debt and the right to property vests in the pledgee so far as is necessary to secure the debt. The pawnee has a special property or special interest in the thing pledged, while the general property therein continues in the owner and the pawnee can compel payment of the debt or can sell the goods when the right to do so arises. See : Halsbury's Laws of England, Third Edition, Volume 29, page 211, and also pages 218,219 and 222.

(12) Reverting to the case in hand, the plaintiff had allowed ]cash credit facility, term loan facility, etc. to the company against hypothecation and pledge of the goods and commodities mentioned in the hypothecation deed (annexure 'C' at page 359). The amounts due to the bank as on 31st December 1977 amounted to Rs. 1,27,32,578. It is not the case of the defendants that the amounts due to the Bank under the various credit facilities granted to the company had been cleared. On the facts pleaded it is clear that on the appointed day, the Bank was in lawful possession of the goods pledged.

(13) As I see, the whole object in enacting the Act is to take over the management of the Company by the Government and make the sick mill healthy and the powers given in the various sections to the Custodian are with a view to achieve that object. Whether the Legislature wanted to interfere or do away with the rights of the Managing Directors/Directors, employees or the third parties, under any contract entered into with the company the Act expressly provides for it and arms the Custodian with necessary powers. See clauses 3(3), 3(4), 3(5), 6(b), 6(3), 6(4), Ii and 12. It is clear from a reading of the whole Act that the Legislature never wanted to extinguish the lawful rights of the third parties arising out of a contract entered into with the company.

(14) The above view, in my opinion, finds support from a reading of sub-clause (2) of clause 3 of the Act. According to sub-clause (2) the undertaking is deemed to include all assets, rights, leaseholds, powers, authorities and privileges investments and book debts and all other rights and interest arising out of such property as were immediately before the appointed day, in the ownership, possession, power or control of the company.

(15) Now before the appointed day the company had general property in the goods pledged and the special property or special interest was in the pawnee. From the words underlined it is clear that only those rights and interests which the company possessed as owners in the goods pledged ]on the appoint day formed part of the undertaking. The rights which the Bank possessed in the goods pledged did not form part of the undertaking.

(16) The matter under discussion, in my view, stands clinched by a judgment of the Supreme Court reported as The Bank of Bihar v. The State of Bihar and others, : AIR1971SC1210 . The facts of the cited case are that defendant No. 2 therein, had entered into a cash credit system agreement with the plaintiff therein, the Bank of Bihar against the pledge of sugar. On December 16, 1946, the advances made to defendant No, 2 stood at Rs. 3,20,486-2-0 and the Bank held 6239 bags of different varieties of sugar as security. These bags were kept in godowns provided by defendant No. 2 but under the lock and key of the bank. In December 1949 under an order issued by defendant No. I therein, the Rationing Officer and District Magistrate, Patna, got the locks of the godowns broken open and forcibly removed 1818 bags of 27-D quality of sugar. The total quantity removed weighed about 5000 maunds. No payment was made to the Bank which held the bags of sugar as pledgee under the cash credit agreement. The Bank filed a suit against the defendants therein for return of 1818 bags of sugar and in the alternative for recovery of Rs. 1,81,700-9-3 with interest by way of damages for illegal removal and detention of sugar or price thereof. The suit was contested by defendant No. 1 on the ground that the seizure was pursuant to a lawful order and that the sale proceeds of about 5000 maunds of sugar which included the sum of Rs. 1,50,039-10-9 was deposited in the treasury which was later on attached under the orders of certificate officer, Patna, under the Public Demands Recovery Act on account of arrears of sugar cess amounting to Rs. 2 lakhs due from the Bhita Sugar Factory with which defendant No. 2 had entered into an arrangement pursuant to which the entire quantity of sugar including 5000 maunds which had been seized had come into possession of defendant No. 2. The other defendants also resisted the suit on various grounds. The issue which the Courts were called upon to decide reads as under : 'was the sugar seized by the Government in possession of the Bank as a pledgee at the time of the seizure and have the rights of the Bank as such pledgee been determined by the seizure in question ?'

(17) The trial Court held that the order of seizure in respect of the stock of sugar was valid but that the plaintiff's right as a pledgee could not be extinguished by seizure of the sugar in its possession, and though the attachment order of the Certificate Officer was legal and binding on defendant No. 2 but it was not binding on the plaintiff and it could not be effective only in respect of that portion of the price which was not necessary for the liquidation of the dues of the plaintiff from defendant No. 2.

(18) Against the above order the State of Bihar filed an appeal to the High Court. The High Court came to the conclusion that in view of the finding that the plaintiff had not been wrongfully deprived of the sugar on account of the lawful seizure or its price owing to the certificate proceedings started by the Cane Commissioner, the plaintiff was not entitled to any decree against the State. The Bank went in appeal to the Supreme Court and Mr. Justice A. N. Grover speaking for the Court held :

'THUSthe rights of the pawnee who has parted with money in favor of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by the Government and by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. After the seizure, the Government is bound to pay the amount due to the pawnee. The balance alone is available for other creditors. If the Government deprives the pawnee of his amount due Government is bound to reimburse him for such amount which he, in ordinary course, would have realised by sale of goods pledged with him on the pawnor making a default in payment of debt.'

(19) To me, the above decision appears to be on all fours of the case in hand. Even assuming that the Custodian had lawfully came into possession of the goods pledged, he was bound to pay the sale proceeds of the pledged goods to the plaintiff Bank to the extent of their claim against the company. Mr, Sanghi referred to Jaswantrai Manilal Akhaney v. The State of Bombay, : 1956CriLJ1116 . I have gone through the cited authority and, in my view, it is not applicable to the case in hand

(20) There is yet another view to the contentions of Mr. Sanghi. By an agreement dated 27th October, 1972 the Company had hypothecated the goods mentioned in the schedule to the agreement (annexure 'C' at pagt 359). The possession of the bulk of the goods was delivered by the company to the Bank. The hypothecation deed provides that the bank and its officers shall have a right at any time to take possession of the hypothecated goods and dispose them of by public auction or private contract. It is clear from a reading of the hypothecation deed and other documents that the company had assigned its interest in the hypothecated!pledged goods to the plaintiff bank. Legally, it amounted to a mortgage of the movable property. The only right or interest left in the company or the Custodian was to redeem the goods after paying off the amounts accured to the Bank.

(21) The contention of Mr. Sanghi that the Bank could enforce the liability only against the company and not against the Central Government and the Custodian is without substance. Sub-clause (7) of clause 3 provides for liabilities incurred by the company in relation to the undertaking before the appointed day. It does not take within its way the liabilities incurred by the Company or the Custodian after the appointed day. The liability that is sought to be enforced in the suit against the defedants does not relate to 'the period prior to the apppointed day. The hypothecated and the pledged goods were taken into possession and sold by the Custodian after the appointed day and irrespective of the fact whether the seizure was lawful or unlawful the Bank has the right to recover the goods or the value thereof.

(22) For the reasons stated I find issue No. I in favor of the plaintiff.

(23) It is contended that the suit is bad for non-joinder of the company. This argument is without merit. The plaintiff bank was wrongfully deprived of possession of the pledged goods by the defendants. A reading of the plaint would show that the claims in the suit are not based on the debts, but on the illigal deprivation of the securities by the defendants under the colour of exercise of power under the Act (No. 98 of 1976). The plaintiff bank could maintain an action for the recovery of the goods or the value thereof without joining the Company as a party. Issue No. 2 is found against the defendants. Issue No. 3.

(24) Mr. Sanghi contended that the there is no challenge to the virus of the Ordinance or the Act and, thereforee the fact that the Ordinance was promulgated by defendant No. 1 in Delhi did not furnish any cause of action to the plaintiff to institute the suit in Delhi. Mr. Sanghi further contended that the loan was granted in Kanpur, the hypothecated and pledged goods were located in Kanpur, defendant No. 3 the National Textile Corporation (UP) has its offices in Kanpur, the pledged goods were delivered by the plaintiff to defendant No. 3 at Kanpur and the goods were disposed of in Kanpur and that on the above facts only the Courts at Kanpur would have the jurisdiction to entertain and try the suit.

(25) I do not agree. Defendant No. 2 the National Textile Corporation Ltd., a company owned and controlled by defendant No. 1, has its head office at Delhi. Defendant No. 3 the National Textile Corporation (UP) is a company wholly owned and controlled by defendant No. 2 Under sub-clause (1) of clause 4 of the Central Government had appointed defendant No. 2 as the Custodian for the Management of the undertaking. Sub-clause (2) provides that on the appoint- ment of a Custodian under sub-clause (1) the management of the undertaking shall vest in the Custodian. Sub-clause (3) empowers the Central Government to authorise the Custodian to appoint any person including a Government company as the additional Custodian of the undertaking. Sub-clause (4) provides that 'the additional Custodian shall assist the Custodian in the exercise of his or its powers and duties under this Act and shall function under the direction, supervision and control of the Custodian; and the Custodian may delegate to the additional Custodian all or such of his or its powers as he or it may think fit'.

(26) The Central Government had authorised' defendant No. 2 to appoint an additional Custodian and defendant No. 2 had appointed defendant No .3 as the additional Custodian. From a reading of sub-section (4) it is clear that the additional Custodian is only to assist the Custodian in exercise of his or its powers and duties and it is to function under the direction, supervision and control of the Custodian.

(27) Defendants I to 3 in para 8 of the Written Statement admit the factum of defendant No. 3 having taken possession of all the goods lying in the godown of Punjab National Bank. (Defendants 2 and 3 in para 8 of the written statement have given the details of the goods of which possession was taken from the godowns of the plaintiff Bank). There can be little doubt that defendant No. 3 in taking possession of the goods had acted under the direction, suprevision and control of defendant No. 2. Defendant No. 2 would be answerable for the acts and conduct of defendant No. 3. Admittedly, defendant No. 2 has its head office in Delhi and it would be amenable to the jurisdiction of this Court. My conclusion on issue No. 3 is that this Court has jurisdiction to entertain and try the suit. Issue No- 4.

(28) Admittedly, the plaintiff has filed a suit against the company and others including the defendants herein for recovery of Rs. 1,27,32,5781- in the Court of Second Civil Judge, Kanpur. Defendants 2 and 3 in part 2 of their preliminary objections have pleaded that on the same cause of action the plaintiff has filed a suit against the defendants at Kanpur for the recovery of Rs. 1,27,32,578 and, thereforee, the present suit (at Delhi) is barred. There appears to be no force in the above objection. The causes of action in the two suits are totally different. The suit at Kanpur is based on the various credit facilities that were allowed by the plaintiff Bank to the company. The suit in hand is for recovery of Rs. 79,15,552.00 against the price of the goods which are alleged to have been illegally seized and sold by the defendants. If the plaintiff succeeds in the present suit the liability of the company would be reduced to the extent of the relief granted to the plaintiff in the suit. The plaintiff, in my opinion was right in paying court fee on the amount of Rs. 48,17,026 (the difference between Rs. 1,27,32.578 claimed in the suit at Kanpur and Rs. 79.15,552 claimed in the Delhi Suit) and further undertaken to make good the court fee on the amount that may fall short of the amount claimed in the suit at Kanpur after the determination of the claims in the Delhi suit. Issue No, 4 is decided against the defendants.

(29) The value of the hypothecated/pledged stocks at the time of the pledge hypothecation was determined at Rs. 79,15,552. It is agreed that the hypothecated and pledged stocks were sold by defendants 2 and 3 for a total sum of Rs. 63,47,950. Accordingly, the value of the pledged and hypothecated goods taken over by the defendants is determined at Rs. 63,47,950.

(30) Interestthe plaintiff has claimed interest at the rate of 17 per pent per annum on the price of the goods from the date of defendants had taken possession of the goods until payment of its price. The plaintiff in para 13 of the plaint has alleged that the normal and customary rate of interest charged by the Bank, accordingly to the directive of the Reserve Bank of India, in cases like the one in hand is 17 per cent and that the plaintiff Bank would have earned interest of 17 per cent if payment had been made to it at the time of the take over of the goods. The defendants have in reply defined that the plaintiff is entitled to any interest. Shri Puri, the Manager of the plaintiff Bank at Alambagh branch of the Bank at Lucknow, has in para 12 of the affidavit stated that the rate of interest agreed to be paid to the bank by the company was 7 per cent above the Reserve Bank of India rate subject to a minimum of 13 per cent per annum.

(31) Mr. R. D. Aggarwal, another employee of the plaintiff bank, in the affidavit dated 5th August 1980 has deposed that the company had obtained substantial advances from the bank and an interest around 17 per cent per annum and that defendant No. 3 its liable to pay interest at 17 per cent per annum to the plaintiff Bank on the amounts realised by the sale of the goods from the date of the take over of the goods. There .can be no doubt that if the defendants Nos. 2 and 3 had not unjustly enriched themselves by retaining the price realised by 'the sale of the goods and had paid the said amounts to the plaintiff bank the Bank would have earned profits by way of interest by investing said amounts. I see no reason for denying the plaintiff the claim to interest.

(32) Defendant No. 3 had taken possession of the goods on 25th September, 1976. It is not disputed that the goods were seized and sold by the defendants Nos. 2 and 3 and the sale proceeds were either retained by defendants Nos. 2 and 3 or utilised for the company.

(33) In view of my findings on the various issues, a decree for Rs. 63,47,950 along with interest at 17 per cent per annum from 25th September, 1976 until the amount decreed is paid is passed in favor of the plaintiff and against defendants Nos. 2 and 3. The plaintiff shall also have the costs of the suit from defendants Nos. 2 and 3. A decree in favor of the plaintiff passed with interest.


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