1. This appeal preferred by the 2nd Defendant arises out of a suit filed by the Plaintiff (1st Respondent) for a declaration that he is absolutely entitled to a pair of diamond thodus, which were wrongfully pledged by the 1st Defendant with the 2nd Defendant. It is common ground that the diamond thodus in question belonged to Plaintiff. Certain facts connected with the question how the Plaintiff came to part with the possession of the jewel, have been fairly established in the evidence. Plaintiff and 2nd Defendant are the only witnesses examined in this case, and some documents have also been filed. Plaintiff is a goldsmith by profession. There is no doubt, that by the machinations of two or three swindlers, the Plaintiff was made to believe that the 1st Defendant was a Government servant of respectable status, and hand over the jewel to 1st Defendant on 8th June, 1929, for inspection, and after approval for settlement of the price. When taking the jewel from Plaintiff, the 1st Defendant passed the chit (Ex. A). The approximate value of the jewel is fixed in Ex. A as Rs. 3,000. Though the jewel was given to 1st Defendant for inspection and return, in the belief that a sale can be effected on approval and settlement of the price, he clandestinely pledged the jewel wath the 2nd Defendant on the very next day for Rs. 1,500 (vide Ex. II). When making this pledge the 1st Defendant posed himself as a Corporation Overseer. 'To effectuate the scheme of fraud designed when first getting the jewel from the Plaintiff, the 1st Defendant along with his associates made a pretence of buying the jewel on 12th June, suppressing the fact of the pledge, and making the Plaintiff believe that the thodus suited the 1st Defendant's wife and were worn by her. After some higgling, the price was fixed at Rs. 2,350. The Plaintiff wanted the price to be paid In cash and said that he would sell on payment of the whole price in cash. But the associates of the 1st Defendant, representing that he was a Government servant and money was expected from Rangoon within 4 days, made a payment of Rs. 400 and a memo was accordingly signed by 1st Defendant and left with Plaintiff (Ex. B). It states that the price settled was Rs. 2,350 and a part payment of Rs. 400 was made. It is also noted therein that the inspection letter (Ex. A): was not received back from the Plaintiff, On the 14th June the Plaintiff came to know of the pledge, and of his having been swindled in this manner. A complaint was filed and it resulted in the conviction of 1st Defendant for the offences of cheating and criminal breach of trust. The diamond thodus were in the custody of the Chief Presidency Magistrate's Court, Madras, at the time of the filing of the present suit.
2. The main question is whether the pledge in favour of the 2nd Defendant on 9th June, 1929, is valid and binding on the Plaintiff. Section 178 of the Indian Contract Act, as it stood before its amendment by the Indian Contract (Amendment) Act, 1930, which came into force on 1st July, 1930, is the section governing the present case. According to that section, a person in possession of any goods may make a valid pledge of such goods: provided that the pawnee acts in good faith and under circumstances which are not such as to raise a reasonable presumption that the pawner is acting improperly: provided also that such goods have not been obtained from the lawful owner by means of an offence or fraud. With reference to the meaning of the word possession ' used in this section (as not distinguishable from the expression 'when any person is, by the consent of the owner, in possession of any, goods' found in Exception (1) to Section 108 of the Act) it has been held, that what is contemplated in Section 178 is juridical possession as distinguished from bare custody. We are of opinion that such a construction is the only reasonable one, though the general word ' possession standing by itself without any qualification may be deemed to be wide enough to include any kind of possession. A gratuitous bailee, such as the 1st Defendant, who merely took the jewel from the Plaintiff on 8th June, 1929, for inspection and return, cannot be deemed to have been in possession of it within the meaning of Section 178, to enable him to make a valid pledge of it. Moreover, the pledge to 2nd Defendant on 9th June would not be valid unless the requisites of both the provisos are fulfilled. We shall assume for the present, that the 2nd Defendant acted in good faith and the condition laid down in the first proviso has been satisfied. Can we hold that the jewel in question has not been-obtained from the Plaintiff (the lawful owner) by means of an offence or fraud? The Indian Penal Code is one of the important guides for determining whether an act is an offence or not, according to Indian Law. According to Section 415, Indian Penal Code, cheating as defined therein is an offence. Whoever, by deceiving any person, fraudulently induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, is said to 'cheat'. A dishonest concealment of facts is a deception within the meaning of this section. In the present case, it is clear from the evidence, that the Plaintiff was deceived into believing that the 1st Defendant was a Government servant (a Corporation Overseer) of respectable status, and the son of a Judge and that by the practice of such deception he was induced to deliver the diamond thodus to 1st Defendant on 8th June for inspection and purchase on approval and settlement of price. The Plaintiff was kept under the same spell of illusion about the 1st Defendant's status and worth, when he approached the Plaintiff on 12th June, with his associates, and negotiated for the purchase on credit (paying a small sum of Rs. 400, which in all probability was part of the sum of Rs. 1,500 raised by pledging the Plaintiff's jewel with 2nd Defendant), dishonestly concealing the fact of the pledge. If the delivery of the jewel to 1st Defendant on 8th June was brought about by means of the offence of cheating, we are of opinion that even on the 12th June, by the continuance of the same process of cheating, the Plaintiff was induced to consent to the retention of the jewel by 1st Defendant. But for that deceit, the Plaintiff would never have agreed to sell the jewel on credit to 1st Defendant, receiving only a minor portion of the price as ready cash. This contract of sale was itself Drought about by cheating, and the consent of the Plaintiff to such a bargain obtained by deceitful trick or fraud, cannot be deemed to be real consent. That this bargain of sale on credit was brought about on 12th June by cheating is apparent from the Illustration (a) to Section 415, Indian Penal Code, which runs thus:
A, by falsely pretending to be in the Civil Service, intentionally deceives Z, and thus dishonestly induces Z to let him have on credit goods for which he does not mean to pay. A cheats.
3. It follows from what is stated above, that not only was the jewel obtained from the lawful owner on the 8th June by means of the offence of cheating, but even the consent of the lawful owner to the 1st Defendant's retention of the jewel as per the contract of sale on credit was by means of the same fraud amounting to cheating. The condition mentioned in the 2nd proviso to Section 178 not being satisfied, the pledge in favour of the 2nd Defendant is invalid and inoperative as against the diamond thodus in question.
4. It is, however, strenuously contended by Mr. Narasimha Aiyar, the learned Advocate for the Appellant, that the sale of the jewel to 1st Defendant on 12th June was, if at all, only a voidable transaction, and if before its rescission by the Plaintiff, it was pledged to a third party who was a bona fide pledgee without notice of the defect in title, the pledge must be taken to be valid. In the present case, he invokes for his aid the principle of feeding the title by estoppel. It is argued, that though the 1st Defendant had no title whatever to the jewel, when the pledge was made on the 9th June, the subsequent acquisition of title on 12th June, by virtue of the sale, enures to the benefit of the pledgee, and the Plaintiff is estopped from denying the validity of that pledge. If the transaction of 12th June were a valid sale, such an argument would be unassailable, and would have the support of the Full Bench decision of our High Court reported in Sinnan Chetty v. Alagiri Aiyer I.L.R. (1923) Mad. 852 : (1923) 45 M.L.J. 516 (F.B.). But we have found that the so-called sale on the 12th June was the result of fraud amounting to the offence of cheating practised on the Plaintiff. An interest fraudulently acquired by 1st Defendant would not pass to the pledgee (2nd Defendant) nor is the Plaintiff estopped from impugning the validity of the pledge. Nothing was done by the Plaintiff after the transaction of the 12th June, which might have the effect of misleading the 2nd Defendant as regards the ownership of the jewel. On the other hand, he promptly rushed to the Criminal Court for prosecuting the 1st Defendant.
5. Some stress is laid on the wording of Exception (3) to Section 108 of the Contract Act, which indicates that a person in possession of goods under a contract voidable on the ground of fraud can make a valid sale to a bona fide purchaser, at any time before the contract is rescinded. That being so, why should a bona fide pledgee under similar circumstances be in a worse position than the purchaser One possible explanation is that this is due to the difference in the terms of Section 108 and Section 178. In the commentary on the Indian Contract Act by Pollock and Mulla (V Edition), while dealing with 2nd proviso to Section 178, the learned authors states that the true meaning of that proviso is not free from obscurijty. They throw out a suggestions that if the word 'fraud' used in the 2nd proviso be construed in a restricted sense as fraud amounting to an offence, such as cheating, there would be no difficulty in reconciling the principle of Section 178 with that of Exception (3) to Section 108 and there, would not be a striking departure from the principles of English Common Law. It may be that on account of the wording of the old Section 178, indicating that the term fraud is used in a general sense so as to cover cases of fraud not amounting to a criminal offence, and with a view to bring the Indian Law more in conformity with the Common Law of England, that the Legislature had this section deleted in 1930, by the Amending Act, and substituted in its place two sections, viz., 178 and 178- A. If these sections are applicable to the present case, the result may be different. The same learned , authors have stated in the VI Edition of their book with reference to these new sections as follows:
Under that section (old Section 178) a person Who obtained possession of goods by means of an; offence or fraud, could not make a valid pledge. Under the present section a person who obtains possession of the goods under a contract voidable under Section 19 or 19-A may make a valid pledge though the transaction may amount to an offence or fraud.
6. It would therefore be futile to attempt to import into, the old Section 178 all that is laid down by the Legislature in the new Sections 178 and 178-A, substituted for the old section. At any rate, in view of our finding in this case, that the fraud of the 1st Defendant, which vitiated the transaction of the 8th June as well as that of the 12th June was fraud amounting to the offence of cheating, the discussion on the above lines as to the obscurity of the meaning of the word 'fraud' in the 2nd proviso to Section 178, is not very necessary and is one of academical interest. When the question in this case is covered by a special section of an Indian statute, we have to decide it with reference to the provisions thereof. The principles laid down in English decisions some of which were relied on and referred to at great length, in the course of the arguments, have no application, especially when they seem to be based upon the provisions of the English Factors Act, and the notions of English Law as to what would be offences and what not. There are interesting observations as to What amounts to 'Larceny by a trick,' and what would simply bean obtaining of goods by fraud in the form of false pretences. We think that those English decisions are not of much help in deciding the question according to the express provisions of the old Section 178 of the Contract Act, and accordingly refrain from making a detailed reference to them.
7. In the result, we confirm the decree of the Lower Court and dismiss this appeal with the costs of 1st Respondent.