Skip to content


G. Bhar and Co. Vs. United Bank of India Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtKolkata High Court
Decided On
Case NumberA.F.O.D. No. 168 of 1954
Judge
Reported inAIR1961Cal308
ActsTransfer of Property Act, 1882 - Sections 58 and 100
AppellantG. Bhar and Co.
RespondentUnited Bank of India Ltd. and ors.
Appellant AdvocateBankim Chandra Banerjee, ;Jagannath Gangopadhya and ;Tharit Kumar Nag, Advs.
Respondent AdvocateAjit Kumar Dutta, ;Salil Kumar Dutta and ;Satyendra Nath Sen, Advs.
DispositionAppeal dismissed
Cases ReferredTripura Modern Bank Ltd. v. Nabadwip Chandra Das
Excerpt:
- .....bank. the trial court further held that the attachment having been effected with notice of the bank's mortgage, the appellant firm cannot claim any priority. that court, therefore, passed a preliminary decree for mortgage in respect of all the properties covered by the mortgage bond. 8. mr. banerjee who argued the appeal on behalf of the appellant firm contended before us that the trial court had committed an error in law in rejecting the claim of the appellant to have priority over the bank regarding the sale proceeds of the stock-in-trade. he submitted that the mortgage or charge which was created in respect of the cloth business of the mortgagor firm was at best a floating charge, and as that charge was not crystallised until the institution of the suit by the mortgagee bank, the.....
Judgment:

Renupada Mukherjee, J.

1. This appeal has arisen out of a mortgage suit. The plaintiff in the Trial Court was the United Bank of India Limited. There were altogether four defendants in the Trial Court. Defendant No. 1 is a partnership firm going by the name and style of Eastern Bengal Society. Defendants Nos. 2 and 3, Sm. Surabala Shom and Kshirode Chandra Shome are two partners of that firm. Defendant No. 4 is another firm going by the name of G. Bhar and Co.

2. The suit was instituted by the plaintiff Bank for recovery of a sum of Rs. 22,220/14/4 pies from the defendants on the basis of a mortgage bond. Defendants Nos. 1 to 3 of the Trial Court are said to be mortgagors. Defendant No. 4 was added as a defendant, because this firm is said to have attached the stock-in-trade of a shop of the mortgagors which is said to have been included in the mortgage.

3. The mortgagors did not take any interest in the suit beyond filing a written statement The suit was really contested by defendant No. 4. The defence of this defendant was that it had supplied some goods to the partnership firm between 6th August, 1952, and 27th August, 1952, and as the price of the goods had not been paid, it had filed a money suit against the partnership firm for recovery of a sum of Rs. 3707/- and attached the stock-in-trade of the partnership firm. Accordingly defendant No. 4 contended that the plaintiff Bank was not entitled to get a mortgage decree so far as the stock-in-trade of the partnership firm is concerned.

4. Several issues were framed in the Trial Court. The only relevant issue which is material for our consideration in this appeal was issue No. 2. It runs as follows:

'Were all the stock-in-trade of defendant No. 1 hypothecated and charged to the plaintiff? Is the plaintiff entitled to priority over defendant No. 4?' This issue and all other issues tramed in the Trial Court were decided in favour of the plaintitf Bank. So this appeal was preferred by defendant No. 4 of the Trial Court.

5. Several items of properties were admittedly mortgaged in favour of the respondent Bank by defendant No. 1 of the Trial Court, namely, the firm known as Eastern Bengal Society Defendant No. 3 of the Trial Court, Kshirode Chandra Shom, was also a party to this indenture in the capacity of a guarantor. The mortgage bond is dated 29th May, 1952. In the present litigation we are concerned only with one item of property which is a movable property described in schedule A of the mortgage deed which was marked exhibit 1 in the Trial Court. It is described as follows:

'All that stock of clothes, garments, chattels, goods and furniture and stores at the business place of the Borrower at No. 161-A, Rash Behari Avenue or elsewhere belonging to the Borrower.'

The borrower firm admittedly carried on business in clothes in premises No. 161-A, Rash Benari Avenue. This business with its entire stock-in-trade was also made a security for due repayment of the loan of Rs. 21,700/-. The possession of the business was, however, left with the borrower, and the bond provided, among other terms, that the borrower firm shall be permitted to dispose of the articles of merchandise of the mortgaged business in the ordinary course of business. The borrower was not allowed to create any mortgage or charge thereon or on any part of the assets of the business.

6. The Mortgage Suit was instituted in the Trial Court on 22nd October, 1952. Before the institution of the Mortgage Suit, the appellant firm had instituted a money suit against the mortgagor firm bearing. Money Suit No. 30 of 1952, for recovery of a sum of Rs. 3707/- on the allegation that the appellant had supplied goods worth that amount to the mortgagor firm, but the price had not beenpaid. In that Money Suit the appellant made a prayer for attachment before judgment of the stock-in-trade of the business which had been made one of the subject-matters of hypothecation. The stock-in-trade of the business was actually attached, and the attachment was followed by a sale by the Nazir. We do not get from the records of this case what sum of money was fetched by the court-sale, but the judgment of the Court below shows that the sale proceeds have been kept in deposit in Court in connection with the Money Suit

7. The question in controversy in the Trial Court as also in this appeal is which party has got preferential claim to the sale proceeds. The Trial Court held that when the attachment was effected, the appellant firm was fully aware of the mortgage, because pursuant to one of the terms of the mortgage bond, a notice board was put up at the place of business of the mortgagor firm showing that the goods and articles of the business had been hypothecated with the respondent Bank. The Trial Court further held that the attachment having been effected with notice of the Bank's mortgage, the appellant firm cannot claim any priority. That Court, therefore, passed a preliminary decree for mortgage in respect of all the properties covered by the mortgage bond.

8. Mr. Banerjee who argued the appeal on behalf of the appellant firm contended before us that the Trial Court had committed an error in law in rejecting the claim of the appellant to have priority over the Bank regarding the sale proceeds of the stock-in-trade. He submitted that the mortgage or charge which was created in respect of the cloth business of the mortgagor firm was at best a floating charge, and as that charge was not crystallised until the institution of the suit by the mortgagee Bank, the prior attachment effected at the instance of the appellant should prevail.

9. The first question which called for our determination in this case was whether the mortgage or charge which was created in respect of the disputed business was a floating charge or not. Mr. Dutt submitted on behalf of the respondent Bank that there was no floating charge, but it was a fixed charge covering all the article of business of the shop. Mr. Dutt further submitted that it did not matter if portions of the stock were sold out from day to day and replenished from time to time. Mr. Dutt argued that as soon as any new articles came in the shop after the sale of old articles, the new articles became stamped with the stamp of mortgage, and so the mortgage became crystallised. We cannot accept this contention of Mr. Dutt. The business in the present case was a business in cloths and garments. By the very nature of the business, the stock fluctuated not only from day to day, but from hour to hour, A hypothecation of such a business of which possession was left with the borrower, is a floating charge in the true sense of the term.

10. The next and the most vital point for our consideration is what would be the legal position as between the mortgagee and the subsequent attaching creditor in a case like this. Mr. Banerjee submitted on behalf of the appellant firm that as the charge was a floating one and as it did not crystallise before the institution of the suit, the attachmenteffected at the instance of his client should prevail. In support of this contention Mr. Banerjee drew our attention to a case reported in : AIR1933Cal154 H. V. Low and Co. Ltd. v. Pulinbiharilal Singha, in which it has been held that the governing idea o a floating security is to allow a going concern to carry on its business in the ordinary course, the effect of which would be to make the assets liable to constant fluctuation, and some event must happen or some act must be done by the mortgagee to crystallize the same. Quite a number of cases have been cited in the decision referred to above. We may usefully repeat here the quotation given by the learned Judges from an English case reported in 1910-2 KB 979, Evans v. Rival Granite Quarries Ltd. The quotation runs in the following terms:

'A floating security is not a future security; ft is a present security, which possibly affects all the assets of the company expressed to be included in it On the other hand, it is not a specific security; the holder cannot affirm that the assets are specifically mortgaged to him. The assets are mortgaged in such a way that the mortgagor can deal with them without the concurrence of the mortgagee. A floating security is not a specific mortgage of the assets, plus a license to the mortgagor to dispose of them in the course of the business, but is a floating mortgage applying to every item comprised in the security, but not specifically affecting any item until some event occurs or some act on the part of the mortgagee is done which causes it to crystallize into a fixed security.'

Mr. Banerjee contended on behalf of the appellant that until a floating charge is crystallized, or until it becomes attached to the subject matter of the charge, it has got no value. It is not possible for us to accept this proposition of law enunciated by Mr. Banerjee. A charge or mortgage of the present description may remain floating for a period. The charge or mortgage may not be crystallized until some event occurs which either puts a stop to the business, or prevents the mortgagor from carrying on the business in the usual way. It cannot, however, be said that the stock-in-trade of the business which has been expressly offered as a security by the borrower would not be liable under the mortgage until the charge is crystallized. To say this would be equivalent to frustrating the mortgage bond itself. In the present case, the charge or mortgage became crystallised as soon as the attachment before judgment was effected at the instance of the appellant, because, after that date, the stock-in-trade of the business became fixed, and the borrower could not possibly deal with the stock-in-trade after the attachment. The mortgage suit was, no doubt, instituted some time after attachment. That does not mean that the stock-in-trade was not the subject matter of the mortgage from the very date of the execution of the bond.

11. In the above connection our attention was drawn to a case reported in : AIR1931Cal223 , Imperial Dank of India v. Bengal National Bank, Ltd. It has been held in that case that a floating charge is a present charge, though it does not finally attach or crystallize upon any specific property until the happening of some eventwhich puts an end to the right of the Company to deal with the property in the course of its business. It a floating charge is a present charge then it must be held that the whole of the disputed business with its stock-in-trade was under charge from the date of the mortgage, and the mere tact that the charge became crystallized at a later date does not mean that the charge would be enforceable against the business only with effect from the date of the crystallization. The first contention urged on behalf of the appellant, therefore, fails.

12. The second contention urged by Mr. Banerjee on behalf of the appellant was that the appellant supplied goods to the mortgagor without getting the price, and in equity it should have priority over the respondent Bank in respect of the sale proceeds of the stock-in-trade. Mr. Banerjee contended that when the goods were supplied by the appellant firm, it was not aware of the mortgage, and as this was a mortgage of movable properties which were left in the possession of the mortgagor, the appellant should be allowed to get the sale proceeds. It is true that the appellant firm supplied these goods to the mortgagor firm after the mortgage deed was executed by the latter. A charge may, however, be created upon property which is to come into existence in future. Vide the Tripura Modern Bank Ltd. v. Nabadwip Chandra Das, 49 Cal WN 494. In a sense it is not a case of mortgage of future property. The Bank took mortgage of a running business. Under the terms of the mortgage bond, the borrower was to replenish the stock-in-trade periodically as old stock would come to be sold. The goods supplied by the appellant firm were purchased by the borrower for replenishing the old stock. Even if it be held that this was a case of a charge or mortgage of articles which would come into existence in future, we are of opinion that the creation of such a mortgage is permissible by law as has been held in the above case. From whatever aspect the matter may be looked at, there is no escape from the conclusion that vis a vis the respondent Bank, the appellant occupies the position of an unsecured creditor. The Bank is in the position of a secured creditor, and that security came into existence before the supply of goods by the appellant. We perceive that the appellant firm has been defrauded by the defendant No. 1 of the suit. There is, however, no reason why the Bank which took a security from defendant No. 1 should be made to pay the price of the goods supplied by the appellant. The second contention urged on behalf of the appellant, therefore, fails.

13. Both the contentions urged on behalf of the appellant having failed this appeal is dismissed with costs to respondent No. 1.

K.C. Sen, J.

14. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //