A.M. Ahmadi, J.
1. It is distressing to find that the Motor Accidents Claims Tribunal has foisted liability to pay compensation on the appellant Bank by a one line statement to the effect that 'the hypothecating bank, the Bank of Baroda, Ahmedabad, which also steps into the shoes of the owners is vicariously liable. Except this statement found in para 9 of the judgment, we do not find any discussion in support of the statement that the hypothecating Bank steps into the shoes of the owners of the vehicle by virtue of the fact that the offending vehicle was hypothecated with the Bank. It is indeed surprising that the learned Presiding officer constituting the Tribunal did not think it necessary to examine the relationship between the owners of the vehicle and the Bank arising out of the agreement of hypothecation. Except the ipse dixit of the learned , Presiding Officer that the hypothecating Bank steps into the shoes of the owners of the offending vehicle, there is nothing in the entire judgment to indicate that the Presiding Officer made any effort to understand the jural relationship between the owners of the offending vehicle and the hypothecating Bank. We will immediately point out that this averment of the Tribunal is wholly unsustainable.
2. On Feb. 10, 1981 at about 6.00 p. m. a passenger-bus and a motor truck.collided on the Morvi-Rajkot State Highway near culvert No. 1/59 at a short distance from village Shanala. The bus GTZ 1806 was proceeding towards Morvi with a marriage party and while it was crossing the culvert, the motor truck GRS 5069 came from the opposite direction and simultaneously tried to cross the culvert, in the process the two vehicles grazed each other causing injuries to some of the passengers of the bus. The injured preferred separate Claim Applications which were heard and disposed of by a common judgment.
3. The Claims Tribunal came to the conclusion that the drivers of both the vehicles involved in the accident were guilty -of want of care and caution and apportioned the liability at 25 per cent so far as the bus driver and 75 per cent so far as the truck driver were concerned. Holding them both jointly and severally liable for the accident, the Claims Tribunal awarded compensation to the claimants. So far as the question of negligence of the vehicle drivers and the quantum of compensation are concerned, the appellant does not dispute the same.
4. The appellant Bank had advanced a loan to original respondents 4 and 6, for purchasing the motor truck GRS 5069 The deed of hypothecation was executed by the owners, respondents 4 and 6, in favour of the Bank. Under that agreement the vehicle in question was pledged with the Baa for due repayment of the loan advanced by the Bank. The vehicle remained in the possession of the owners and was plied by original respondent No. 8 as the driver engaged by the owners on the date of the accident. The question which therefore arises for consideration is, whether the hypothecating Bank can be held vicariously liable to pay damages to the injured for the negligent act of the driver of the said vehicle. The Claims Tribunal has opined that the hypothecating Bank steps into the shoes of the owners and since the owners become vicariously liable for the tortious act of their servant, the hypothecating Bank must also be held vicariously liable. It may here be mentioned that the two owners of the vehicle have also been held vicariously liable for the tortuous act of their driver along with the hypothecating. Bank notwithstanding the fact that in the opinion of the Claims Tribunal the hypothecating Bank had stepped into the shoes of the owners.
5. In order to determine whether the hypothecating Bank can be held vicariously liable for the tortuous act of the truck driver, it is necessary to understand the exact relationship between the Bank and the owners of the offending vehicle. The Bank had advanced a loan against the security of the offending vehicle under a deed of hypothecation executed by and between the parties. By that agreement the vehicle remained in the custody of the pawner and the possession thereof was never transferred to the pawnee. Unlike in the case of a pledge, where the possession of the thing pawned is delivered to the pawnee, in 'the case of hypothecation the possession of the chattel continues to remain with the pawner.. The jural relationship which comes into existence is, therefore, that of a creditor and a debtor. The only right which the hypothecating Bank has under the arrangement is to have the chattel sold for realising its dues. The title in the vehicle remains with the owners. The de jure and de facto possession also remains with the others and the only right that the creditor Bank has is to recover the amount by the sale of the vehicle in the event of default. It is, therefore, difficult to understand how the Claims Tribunal came to the conclusion that the hypothecating Bank stepped into the shoes of the owners to foist the liability for payment of compensation on the Bank.
6. 'Hypothecation according to Corpus Juris Secundum, (Vol XLII), means 'a contract of mortgage or pledge in which the subject matter is not delivered into the possession of the pledgee or pawnee; or, conversely, a right which a creditor has over a thing belonging to another, and which consists in a power to cause it to be sold in order to be paid his claim out of the proceeds'. In para 635 of Halsbury's Laws of England, 'Fourth Edition), at page 438, the expression hypothecation of the cargo' has been explained as a pledge of the cargo without immediate change of possession; it gives right to the person making advances on the faith of it to have the possession of the goods if the advances are not paid at the stipulated time but it leaves to the owner of the good hypothecated the power of making the repayment, and thereby freeing them from the obligation'. Boubier's Dictionary, (Reprint 1983), describes 'hypothecation as a right which a creditor has over a thing belonging to another and which consists in a power to cause it to be sold, in order to be paid his claim out of the proceeds. Venkataramaiya's Law Lexicon, (Fifth Edition), Vol. 1, page 568, explains hypothecation as under: -
'A pledge in which the pledgor retained possession of the thing pledged as security for a debt It differs from a mortgate in that there is no actual or executory conveyance or assurance of the property hypothecated -for payment of the debt or loan, and from a pledge in that there is no actual or constructive delivery of the property.'
Hypothecation is a mode of creating a security whereby not merely the ownership, but also the possession of the thing, remains with the owner.'
Thomson's Dictionary of Banking, (Twelfth Edition), at page 309 observed : 'In banking matters the term hypothecation is sometimes used to denote an agreement to give a charge over goods or documents of title thereto without conferring possession, but undertaking to give a pledge when the goods or documents are to hand. It is not necessary to multiply by quoting from various other dictionaries or decided cases as it is sufficiently clear from what we have stated earlier that when a property is hypothecated with a creditor, it is pledged as security or collateral for a debt without physical transfer there of ,to the creditor. The title to the property does not pass to the creditor but the creditor has merely the right to sell the pawn upon default. It other words, hypothecation is a transaction where under goods are made available as security for a debt without actual transfer of either the property or the possession thereof to the creditor. The owners are under an obligation to discharge the debt within the stipulated time and if they fail to do so, the creditor has the right of re-entry for the limited purpose of repayment of the loan. The title n the goods remains with the pledgor; the de jure and de facto possession continues to remain with him and the pledgee/creditor has merely the right to recover his dues if need be, by the sale of the security, that is the pawn. It is, therefore, difficult to' understand how the Claims Tribunal took the view that the hypothecating Bank stepped into the shoes of the owners of the offending vehicle and was, therefore, vicariously liable to pay compensation to the victims of the accident. If the title to the property, that is, the vehicle, remained with the owners and if the de jure as well as de facto possession remained with them, they had the absolute control of the vehicle and at the relevant point of time when the accident occurred, the vehicle was being driven by the driver employed by them. The hypothecating Bank, a creditor, had merely advanced a loan against the security of that vehicle and had a special right to recover its dues in the event of default by, if need be, the sale of the vehicle. It had, therefore, no title over the vehicle. It was not even in constructive possession of the vehicle but it had merely a right to recover, its dues by the sale of that vehicle. So long as there was no default in the payment of the loan amount, it could not exercise that special right to sell the vehicle for realisation of its dues. Under the circumstances, we feel that the view taken by the Claims Tribunal is contrary to law and, ignores the elementary fact that under the agreement of hypothecation neither the title in the property nor the possession thereof stands transferred to the creditor Bank. The Claims Tribunal has betrayed total non-application of mind as regards the jural relationship which comes into existence on the hypothecation of the vehicle for securing the debt. We are therefore, of the opinion that the Claims Tribunal committed a gross error in law in holding that the hypothecating Bank had stepped into the shoes of the owners for having advanced a loan against the security of the vehicle in question.
7. We, therefore, allow these appeals and set aside the order of the Claims Tribunal insofar as it holds the appellant-Bank vicariously liable to answer judgment in the aforesaid Claim Applications. We hold that the Bank is not liable to pay compensation to the victims of the accident. We, therefore, direct that the Claim Applications against the Bank shall stand dismissed with no order as to costs throughout.
8. Appeals allowed.