Venkataramana Rao, J.
1. This second appeal raises a question of some difficulty and importance. The question is whether there can be a valid pledge of the shares of a company registered under the Indian Companies Act by the mere deposit of shares as a security for a debt. The question has arisen in this case thus. One Subramania Pattar was indebted to Ramakrishna Pattar on a promissory note dated 22nd March, 1931. This note was subsequently endorsed to the plaintiff. The case of the plaintiff is that when he demanded the amount due under the note, Subramania Pattar deposited the shares which he held in Parali Tile Works Ltd., as and by way of pledge. He therefore filed this suit for recovery of the debt by sale of the said shares. The main contesting defendant in the case is the fourth defendant who purchased the shares in Court auction in execution of a decree in S. C. No. 13 of 1934 on the file of the Palghat Sub-Court obtained by the third defendant against the said Subramania Pattar. He denies the validity of the pledge. The District Munsif was of opinion that the pledge was not valid because there was no transfer of shares in favour of the plaintiff. He therefore declined to give the plaintiff any relief on the footing of the pledge. The learned Subordinate Judge held that there was a valid pledge. The question now is whether this view is sound.
2. Section 172 of the Indian Contract Act defines a pledge as the bailment of goods as security for the payment of a debt or performance of an obligation. 'Bailment' is defined by Section 148 of the Act thus;
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 or otherwise disposed of according to the directions of the person delivering them.
3. Thus a valid pledge connotes two essential elements : (i) delivery of goods and (ii) security for a debt or performance of an obligation. There is no definition of 'goods' in the chapter relating to bailment nor in the Contract Act as amended. Before the amendment of the Act Section 76 of the Act defined 'goods' thus:
In this chapter 'goods' means and includes every kind of moveable property.
4. But the definition was only for the purpose of the chapter relating to sale of goods. Section 76 has been repealed and is replaced by Section 2(7) of the Act which runs thus:
'Goods' means every kind of moveable property other than actionable claims and money; and includes stock and shares....
5. Neither the definition of 'goods' in Section 76 of the Contract Act nor the definition in the Sale of Goods Act can be availed of for interpreting 'goods' in Section 172 of the Contract Act. There is a difference of opinion as to whether stocks and shares would be 'goods' within the meaning of the said section. In Lalit Mohan Nandy v. Haridas Mukherjee (1916) 24 C.L.J. 335 (F.B.), Sanderson, C.J., and Mukherjee, J., took the view that share certificates are not 'goods' within the meaning of Section 178 of the Indian Contract Act. The Bombay High Court has taken the view that they are (vide R. D. Sethna v. The National Bank of India : (1910)12BOMLR870 , and Jamshedji v. Maganlal : (1925)27BOMLR514 .) Taking the language of Sections 172 and 178 of the Contract Act together it would seem that the term 'goods' was intended to connote property which is capable of physical possession and transferable by manual delivery. This view derives support from the nature of a pledge. A pledge in law is neither a mortgage nor a lien and does not pass property in the goods but only passes what is described as 'special' property for want of a better term (vide criticism of the use of the term by Rash Behari Ghose in his Book on Mortgages,. Volume I--5th edition p. 112). What is meant by the expression is that no title to the goods passes but the pledgee is allowed to retain the thing pledged till payment of the debt and in default of payment, to sell the thing pledged so as to pass the property to the vendee. This is ordinarily possible in the case of property which is capable of physical possession, but the statute in certain cases treated documents of title as equivalent to 'goods'. Lord Wright points out in the Official Assignee of Madras v. Mercantile Bank of India (1934) 68 M.L.J. 26 : L.R. 61 IndAp 416 : I.L.R. 58 Mad. 181 that under the Common Law a pledge of a document is not a pledge of goods but that under the Factors Acts in England and India a pledge of certain mercantile documents was deemed to be a pledge of goods and the Indian Contract Act amended and consolidated the previously existing law and it shows that there can be a pledge of goods either by pledging the goods eo nomine or by pledging the relative documents. But what these documents are, are specified in Section 178 and why the statute treats a pledge of documents as a pledge of goods was thus explained by their Lordships of the Privy Council in Ramadas Vithaldas v. Ameerchand & Co. (1916) 31 M.L.J. 541 : L.R. 43 IndAp 164 : I.L.R. 40 Bom. 630 at , thus:
In their Lordships opinion the only possible conclusion is that when any doubt arises as to whether a particular document is a document showing title or 'a document of title' to goods for the purposes of the Indian Contract Act, the test is whether the document in question is used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or delivery the possessor of the document to transfer or receive the goods thereby represented.
6. It seems to me therefore that the view taken by the Calcutta High Court is sound. Shares in an incorporated company are what in England would be called choses in action, a known legal expression to describe all personal rights of property which can only be claimed or enforced by action and not by taking physical possession. They would be actionable claims within the meaning of Section 3 of the Transfer of Property Act, but by virtue of Section 137 of that Act are excluded from the purview of the chapter relating to actionable claims. They are moveable property under Section 28 of the Indian Companies Act for the purposes of transfer under that Act. Strictly speaking therefore share certificates would not be 'goods' within the meaning of Sections 172 and 178 of the Contract Act, but the Contract Act is not exhaustive. Under the Common Law stocks and shares can be the subject-matter of a pledge. Story in his Book on the Law of Bailments says as follows:
And first, as to the things, which may be the subject of it. These are ordinarily goods and chattels; but money, debts, negotiable instruments, choses in action (coupon bonds payable to bearer, shares in the stock of an incorporated company) and indeed any other valuable things of a personal nature, such as patent rights and manuscripts may by the Common Law be delivered in pledge.
7. But whether the Bombay view is to be taken or whether the Common Law is to be followed, to constitute a valid pledge there must be such delivery of possession of property intended to be pledged to the pledgee by virtue of which he can exercise the right of sale for realising the debt, a legal incident which attaches to every transaction of pledge. Dealing with the subject of delivery Story says thus:
What will amount to a delivery of the thing is, in many cases, matter of law. There need not be an actual manual delivery of the thing. It is sufficient, if there are any of those acts or circumstances which, in construction of law, are deemed sufficient to pass the possession of the property. Thus, goods at sea may be passed in pledge by a transfer of the muniments of title; as by a transfer of the bill of lading or by a written assignment thereof. So goods in a warehouse may be transferred by a symbolical delivery of the key thereof; (and a pledge of stock in an incorporated company may be created by a written transfer, by which the legal title passes to the creditor.)
8. Therefore a deposit of a share certificate would not confer any interest or property in the shares pledged because if default in payment is committed and the pledgee chooses to enforce the right of sale, he would not be in a position to transfer the title in them to the vendee. In order to constitute a valid delivery the pledgee must be put in control of the thing pledged so that he may effectively exercise the power of sale. In this connection I should like to refer to the decision in Lola Jyoti Prakash Nandi v. Lala Mukti Prakash Nandi 22 C.W.N. 297, where it was held that a mere deposit of Government securities cannot constitute a valid pledge. During the course of the judgment the learned Judges observed as follows:
It is difficult to apply the law relating to pawns as contained in the Contract Act to pledges of all classes of documents. Take the case of title deeds. What can the pawnee sell? There is no equitable mortgage even created by their delivery or deposit as collateral security outside presidency towns. They may be 'goods' in the sense of being pieces of parchment or paper, but what value are they as such? Mere delivery of Government securities gives no property in them for purposes of negotiation or sale without endorsement.
9. But no special property can be vested in the pledgee by a mere indorsement of the share certificate as in the case of Government securities. An assignment is necessary. The assignment operates as a constructive delivery of the thing pledged. This principle is recognised in Section 178 of the Indian Contract Act where in the case of certain documents of title mentioned therein, a mere delivery of the documents could not be enough, particularly in the case of a bill of lading. As pointed out by their Lordships of the Privy Council, an assignment of a bill of lading whether upon a sale or by way of pledge operates as a constructive delivery of the goods to which it refers, Ramadas Vithaldas v. Ameerchand & Co. (1916) 31 M L.J. 541 : L.R. 43 IndAp 164; I.L.R. 40 Bom. 630 The common form which is adopted in England and also in commercial circles so far as I have known in India is the delivery of the share certificates and blank transfer forms enabling the pledgee to deal with them by filling up the necessary details at the time of exercising the right of sale under the pledge.
10. Mr. Kuttikrishna Menon relied upon a passage in Halsbury and the decision in Harold v. Planty (1901) 2 Ch. 314. The passage in Halsbury is as follows (Halsbury Volume 5. P. 283):
A security may be given on shares by a legal mortgage, in which case a transfer to the mortgagee is executed and registered or by an equitable mortgage by deposit of the share certificate, with or without a transfer to the mortgagee or in blank, executed by the mortgagor,
and in the footnote there is the following statement:
Where a share certificate is deposited without any memorandum, the remedy of the lender is an order for transfer and foreclosure.
11. The case relied on for it is Harold v. Planty (1901) 2 Ch. 314. On a reference to that case it will be found that Cozens-Hardy, J., who dealt with a mere deposit of a certificate of shares observed as follows:
Now it is plain that a pledgee is in a very different position from an ordinary mortgagee. He has only a special property in the thing pledged. He may obtain a sale but he cannot obtain a foreclosure. I do not think that this is properly a case of pledge. A share is a chose in action. The certificate is merely evidence of title, and whatever may be the result of the deposit of a bearer bond * * * * I think I cannot treat the plaintiff as a mere pledgee. The deposit of the certificate by way of security for the debt which is admitted, seems to me to amount to an equitable mortgage, or, in other words, to an agreement to execute a transfer of the shares by way of mortgage.
12. This is relied upon by Mr. Kuttikrishna Menon for the purpose of showing that Cozens-Hardy, J., was inclined to treat the deposit in that case as even more than a pledge and as conferring a greater interest than in the case of a pledge and that therefore it follows that a mere deposit of the shares would be sufficient to create an interest in the pledgee entitling, him to obtain an order for sale. I am not able to agree with him in this connection. Under the English Law as pointed out by Coote in his book on mortgagees and also from the observations of Cozens-Hardy, J., extracted above, a person taking a deposit of share certificates and blank transfer forms by way of security is treated as an equitable mortgagee and not a pledgee. So also a person who takes a deposit without a transfer. This is how Coote explains it:
A share is a chose in action and where there is a simple deposit of certificate of shares unaccompanied by any transfer, the deposit will operate as an equitable mortgage like a deposit of title deeds of land and be deemed to give a right to a legal transfer of the shares, carrying with it the remedies incident to a mortgage, including the right to foreclosure.' (Volume I, 9th edition, p. 315).
13. It will be thus seen that a deposit of certificates is treated on the same footing as a deposit of title deeds of land. But this principle will not be applicable to India where even with reference to immoveable property, as pointed out in Lala Jyoti Prakash Nandi v. Lala Mukti Prakash Nandi 22 C.W.N. 297, the principle is of limited application being confined only to presidency towns. Further, as pointed out in Robbing on Mortgages on which the treatise by Coote is founded, a depositee of shares cannot exercise the right of sale unless the deposit is accompanied by a transfer of the shares. But if the deposit is accompanied by a delivery of blank transfer forms the English decisions seem to describe such a transaction indiscriminately as a pledge or as a mortgage and Coote points out that there is very little of practical importance in calling it by one name or the other because in such a transaction it is always open to the person who holds the shares to sell them, if a date is fixed for payment, on the expiry of the said date and if no date is fixed for payment, to sell them after reasonable notice, vide Stubbs v. Slater (1910) 1 Ch.D. 632, so that the legal incident of sale which is attached to a pledge is also available with reference to such a transaction. And in fact the learned author points out, commenting upon the Colonial Bank v. Whinney (1886) 11 A.C. 426, that English cases loosely use the expression 'pledge' when the transaction should be described only as an equitable mortgage. This is how he remarks on p. 316 of his book:
In one case where share certificates were deposited with a bank as security, accompanied with a blank transfer, which was inoperative as a transfer the transaction was throughout the judgments referred to as a pledge; but it seems that the term was not used in a strictly technical sense and that if any necessity had arisen for taking into account the distinction between a pledge and a mortgage, the transaction would have been treated as one of equitable mortgage by deposit.
14. It seems to me therefore that as the law stands at present in India a mere deposit of share certificates would not be enough to create a valid pledge.
15. In the result ,the appeal is allowed; the decree of the learned Subordinate Judge is set aside and the decree of the District Munsif is restored with costs throughout. Leave to appeal granted.