Alfred Henry Lionel Leach, C.J.
1. This appeal raises a question with regard to the meaning of Section 109 (1) (e) of the Indian Companies Act. On the 5th February, 1938, the appellant placed with the Madras Peoples' Bank, Limited, a sum of Rs. 3,000 on fixed deposit for the period of one year. The Bank did not repay the money when it fell due and it was agreed that it should be redeposited, but that the amount should be split up into four sums of Rs. 500 each and one of Rs. 1,000, repayable on the 10th April, 25th April, 10th May, 25th May and 5th June, 1939, respectively. Being in financial difficulties the Bank was not able to repay any of these sums on the due date, but offered to indorse five promissory notes to the appellant as security for its indebtedness to him. The appellant agreed to this course and the terms of the arrangement were embodied in a document which was duly executed, but it was not registered with the Registrar of Joint Stock Companies.
2. On the 2nd November, 1939, this Court passed an order for the compulsory winding up of the Bank. The promissory notes indorsed to the appellant were of the aggregate face value of Rs. 4,476-13-3. They had been executed by debtors of the Bank as security for the moneys owed by them. It is common ground that after indorsement the promissory notes were delivered to the appellant, who instituted suits against the makers of these promissory notes, and that the net realisation was Rs. 1,173-3-9. On the 20th February, 1941, the Official Liquidator took out a Judge's summons calling upon the appellant to show cause why the agreement between the Bank and the appellant should not be declared void and why he should not pay over to the Official Liquidator the moneys collected on the promissory notes and indorse the instruments to him. The case of the Official Liquidator was that the agreement of the 29th June, 1939, required registration under Section 109 of the Indian Companies Act and as this had not been done it was void as against him. The case was heard by Gentle, J., who found for the Official Liquidator and passed an order in terms of the prayers in the petition. The appeal is from that order.
3. Section 109 (1) (e) provides that a mortgage or a charge, not being a pledge, on any movable property of a company, except stock-in-trade, shall, so far as any security on the company's property or undertaking is thereby conferred, be void against the Official Liquidator and any creditor of the company, unless the mortgage or charge has been registered with the Registrar of Joint Stock Companies within twenty-one days after the date of its creation. The learned Judge held that there was here a mortgage, not a pledge; and it was on this ground that he held the document to be void as against the Official Liquidator. For the appellant it is said that the transaction constituted a pledge and therefore registration of the document was, not necessary. Other contentions have been advanced on behalf of the appellant, but as we consider that this argument is well founded it is not necessary to refer to them.
4. In the agreement of the 29th June, 1939, the Bank is referred to as the borrower and the appellant as the lender. Paragraph 1 states that the borrower in order to secure the sum of Rs. 3,000 and the interest thereon as and by way of security shall transfer by endorsement to the lender the promissory notes. Paragraph 2 provides that the appellant shall be at liberty to collect the amounts due on the promissory notes and shall credit the net realisations towards the amount due by the Bank. Paragraph 5 says that on payment to the appellant of any balance due to him he shall re-transfer to the Bank such of the promissory notes as may be outstanding. Admittedly the appellant became entitled to realise the securities as and how he pleased.
5. In Halliday v. Holgate (1868) L.R. 3 Exch. Cases 299 Willes, J., in delivering the judgment of the Exchequer; Chamber, the other members of the Court being Blackburn, Keating, Montague, Smith and Lush, JJ., said:
There are three kinds of security; the first, a simple lien; the second, a mortgage, passing the property out and out; the third, a security intermediate between a lien and a mortgage, viz., a pledge, where by contract a deposit of goods is made a security for a debt, and the right to the property vests in the pledgee so far as is necessary to secure the debt. It is true the pledgor has such a property in the article pledged as he can convey to a third person, but he has no right to the goods without paying off the debt, and until the debt is paid off the pledgee has the whole present interest.
Therefore the difference between a mortgage and a pledge of goods is that in the case of a mortgage the ownership of the goods passes, whereas in the case of a pledge the pledgee gets possession, but no right to the goods beyond what is necessary to secure the debt.
6. Section 172 of the Indian Contract Act defines ' pledge ' in these words:
The bailment of goods as security for payment of a debt or performance of a promise is called' ' pledge.' The bailor is in this case called the ' pawnor.' The bailee is called the ' pawnee'.
7. Section 148 which defines ' bailment' reads as follows:
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. The person delivering the goods is called the ' bailor'. The person to whom they are delivered is called the ' bailee'.
Promissory notes are goods within the meaning of the Sale of Goods Act, see Section 2 (7).
8. The transaction of the 29th June, 1939, amounted to a bailment of the promissory notes and a bailment as security for the payment of the debt due to the appellant by the Bank. Therefore all the requirements of the Contract Act for a valid pledge were fulfilled. While agreeing that this is so the learned Official Liquidator says that, inasmuch as the promissory notes were indorsed to the appellant, there was a transfer of the property to the appellant and therefore a mortgage. He then says that as there is a mortgage which is something more than a pledge, the transaction cannot be regarded as being a pledge. It seems to me that to accept this argument would amount to amending section log (1) (e) of the Indian Companies Act. The section clearly contemplates that there can be a mortgage which is also a pledge. In inserting the words ' not being a pledge ' in this clause the Legislature must have had some object in view and the only object I can see it could have had was to provide that registration should not be necessary where the person entitled to the security has obtained possession of the goods. The transaction now in question may amount to a mortgage, but as there are here all the requirements for a valid pledge it is also a pledge, and being a pledge did not require registration. I would allow the appeal with costs, Rs. 250.
9. The Official Liquidator should refund the amount which he has received from the appellant and re-transfer the promissory notes and decrees to him.
10. I agree.