(1) This is a reference under S. 57 of the Indian Stamp Act, 1899, made in pursuance of a writ of mandamus which was directed to issue by Srinivasan J, in W.P. No. 881 of 1960.* Tersely stated, the question is whether the instrument between the parties, viz., Messrs. Sundaram Finance (P.) Ltd., and the Punjab National Bank Ltd., which is termed an agreement for cash credit overdraft dated
18-6-1957, is properly chargeable to duty as an agreement relating to the pledge of moveable property, falling under the scope of Art. 6 of Sch. I, formerly Art. 5 of Sch. 1-A, of the Indian Stamp Act, 1899, or whether, as contended by learned counsel on behalf of Messrs. Sundaram Finance (P) Ltd., the instrument is merely an agreement falling under the scope of Art. 5 of Sch. I, and chargeable to duty under that Article.
(2) In directing the issue of the writ, the learned Judge referred to the character of this document, and set forth verbatim the principal clause appearing therein. We may state that the document purports to be an agreement between the parties for an overdraft of Rupees fifteen lakhs to be expended by the Punjab National Bank Ltd., Delhi, in favour of Messrs. Sundaram Finance (P.) Ltd., with specified rate of interest, and repayable to the Bank on demand. It is not in dispute that the Punjab National Bank Ltd., had in its possession, on that date, certain hire purchase agreements executed by third parties in favour of Messrs. Sundaram Finance (P.) Ltd., and also certain negotiable instruments executed by individuals in favour of Messrs. Sundaram Finance (P.) Ltd., which according to learned counsel for Messrs. Sundaram Finance (P.) Ltd., has to be regarded as collateral securities relating to the hire purchase agreements. Clause 11 of the present agreement purports to create certain rights in the creditor bank, in respect of these documents. As the crux of the issue before us is the interpretation of the present agreement, we think it is necessary to set forth the relevant part of clause 11 here, again, verbatim:
"That the borrowers do further agree and hereby give to the said Bank during the currency and for the payment of its dues, a general lien and right of set off and charge on all moveable property of every description coming into the possession of the said Bank on account of the borrowers or any one of them or for the time being held by the said Bank on behalf of the borrowers or any one of them, whether alone or jointly with others in India, or elsewhere including without prejudice to this generality, any moneys, bullion, deposits, deposit receipts for moneys, promissory notes, bills of exchange, hundis, stocks...... "
In clause 12 there is specific reference to the possible enforcement of the debt by pledgee (the Punjab National Bank Ltd.) by selling these securities, for the clause states:
"It is hereby agreed that in the event of there being a surplus available after payment of all such principal and interest moneys and all charges and expenses as aforesaid of the net proceeds of such sale of security as aforesaid; it shall be lawful for the Bank to apply the said surplus......."
(3) Upon the instrument, as it stands, and giving effect to the ex facie purport and tenor of the language employed, there would appear to be very little doubt in this case. At one stage of the argument it was seriously contended before us that the Bank might not have had in its possession any such hire purchase agreements and negotiable instruments, as alleged, and hence that the agreement might have to be strictly regarded as one to create obligations in respect of such title deeds only in futuro. In order to clarify this, which is purely a question of fact, we called for an affidavit, and the relevant affidavit has been filed by the Chief Accountant of Messrs. Sundaram Finance (P.) Ltd. This document makes it clear beyond doubt that there were in the possession of the Bank hire purchase agreements and negotiable instruments as collateral securities thereto, originally executed in favour of the borrower, on the date of the agreement; on the plain language of clause 11, these documents would become pledges with the creditor, the creditor (pledgee) having the lien and charge specifically declared in clause 11.
(4) We need not refer, in this context, to any other provision of law, but, the following definitions of sections of law may be of some relevance. Under S. 2(17) of the Indian Stamp Act, there is a definition of "mortgage deed", but we are not now concerned with the issue whether the agreement before us would operate as a mortgage of moveables or otherwise. Under Ss. 148 and 172, read with S. 176 of the Contract Act, it is clear that a "bailment" is 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. Further, that a bailment of goods as security for payment of debts, or performance of a promise, is a "pledge". Under S. 176, the right of the pawnee or pledgee to recover the debt by enforcing his claims on the pledged goods, is enunciated.
(5) The argument of learned counsel for Messrs. Sundaram Finance (P.) Ltd., has now to be set forth and considered. The argument, in effect, as we understand it, is as follows. Though clause 11 that we have reproduced earlier, uses very specific language, learned counsel contends that there has been no assignment of any interest in the documents, by this clause, and hence, that it follows as a logical consequence, that no security has been created in respect of the documents. Learned counsel cites and relies upon a decision of the Rangoon High Court in Finance Commissioner, Burma v. Imperial Bank of India, ILR 11 Rang 145 (AIR 1933 Rang 31) (FB), and argues that on the facts of that case, it was held that the promissory note handed over to the Bank was neither an instrument evidencing an agreement relating to the deposit of any title deeds, within Art. 6(1) of Schedule I of the Stamp Act, nor, an instrument evidencing an agreement relating to the pawn or pledge of moveable property. With regard to the exclusion of the latter category, Page C. J, observed that the promissory note had prima facie been transferred already absolutely to the Bank, in that case, and hence that the transaction is quite distinct from a pawn or pledge, where there must be a delivery of the goods pledged, to the pledgee, when only a special property in that passes to him.
(6) It appears to be clear to us that the decision in ILR 11 Rang 145: (AIR 1933 Rang 31 (FB)) has to be totally distinguished from the present situation, and that it is quite inapplicable to the present facts. The present is a case falling squarely within the language of Article 6 of Sch. I, since the agreement is clear evidence of a pledge or pawn of moveable properties. It is not in dispute that hire purchase agreements are moveable properties, and are also to be regarded as title deeds. Actually, in English law, they have been regarded as capable of assignments inter vivos, in respect of the two interests that they enshrine or embody, viz., the interest of the party in whose favour the hire purchase agreement is executed, and the interest of the hirer or purchaser. See Goods on Hire Purchase Law and Practice, 1962 Edn., pages 291 to 293. This apart, we do not see how it can be doubted that, when a party purports to deliver moveable properties, to his creditor, against the repayment of the debt, and specifically declares that this creditor as pledgee can retain the properties with a lien against the repayment of the debt, any argument is possible other than that the transaction has to be taken as an agreement to pledge moveable property.
(7) The point made by learned counsel seems to us to be really wide of the mark, on the narrow issue before us. The question, whether such an interest is truly assignable at law, or whether, as a chose in action, it cannot be assigned, and whether the pledgee may be able to effectively enforce his claim against any third party, is one not falling within the proper ambit of our determination at all. We leave the matter open, and it is between the two parties to the agreement. As far as the State is concerned, the State can properly claim that this falls within the scope of Art. 6 of Sch. I and is liable to tax accordingly. We answer the reference to that effect.
(8) Answer accordingly.