1. This is an appeal from an order directing the Official Liquidator of the Bengal Textiles Association (In Liquidation) to pay the sums of Rs. 3,591/12/0 and Rs. 6,287/10/6 or the dividends already declared on two shares of the said company to the petitioners Mohanlal Thalia and Dhaliram Thalia. Notice of this application was served on the Official Liquidator of the said Bengal Textiles Association and the Official Assignee of Calcutta.
2. The facts leading to the making of the application are as follows: One Sriniwas Ladia carried on business in partnership with Ranglal Ladia under the name and style of 'Shyamlal Sriniwas' each having eight annas share therein. Thepartnership firm became the holder of four shares in the Bengal Textiles Association under one scripNo. 0143/4 of the total face value of Rs. 60,000/-. The partnership stood dissolved in the year 1949but the share scrip continued to stand in the nameof the firm. The Thalias allege that Sriniwas owed a sum of Rs. 3,591/12/6 to one of themselves namely Mohanlal Thalia and Rs. 6,287/10/6 to Dhaliram Thalia. On demand being made for repayment of the sums due Sriniwas pledged and hypothecated with the Thalias his two shares in the Bengal Textiles Association by a deed dated January 14, 1954. On December 3, 1954, a petition for adjudication of Sriniwas Ladia as Karta along with members of his Hindu undivided family was presented to this Court and an order of adjudication was made onMarch 29, 1955. By letter dated April 15, 1957 the petitioners informed the Official Liquidator ofthe Bengal Textiles Association that Ranglal Ladia had not paid his share of Rs. 6,000/- in respect of the amount received from the Official Liquidator. The Official Liquidator was further requested to look into the document of the Thalias and topay over half of any allotment which might be made thereafter. The Liquidator informed the Ladias by letter May 24, 1957 that the requestcould not be acceded to as he was not concerned with any loan that might have been taken by Sriniwas Ladia from them. On May 9, 1960 one N. L. Singh, Advocate, wrote to the Liquidator onbehalf of the Thalias that Sriniwas Ladia hadpledged his undivided share scrip to the Thalias who had become secured and registered creditors No. B, 7 and B, 8 as per adjudication order No. 25 of 1954. The addressee was requested to pay over any moneys which might be payable to Sriniwas in respect of the said shares under the terms of the deed of pledge. On May 11, 1960 the Liquidator informed the Official Assignee of the step taken by the Thalias further informing him that a sum of Rs. 2,008.81 nP. had become immediately payable to Sriniwas Ladia. Several months thereafter the Official Assignee wrote to the Official Liquidator of the Bengal Textiles Association in reply to the letter mentioned above that Sriniwas Ladia was not the only person interested in the amount payable on the shares. The petitioners contended by their petition dated June 28, 1961, that as Sriniwas was the Karta of the joint family of the Ladias he was empowered to alienate the said shares to satisfy the joint family debts and in the premises they had become entitled to receive the sums already mentioned together with interest out of the dividends which had already been declared or might be declared in future.
3. In the affidavit in opposition affirmed on behalf of the Official Assignee a plea is taken that unless the petitioners prove their security in a proper legal proceeding they cannot be allowed to obtain an order of the kind sought for. It is stated further that as the Bengal Textiles Association had been directed to be wound up by an order of this Court in August 1948, any pledge or hypothecation of the shares created thereafter without the sanction of the Court was void.
4. The affidavit affirmed on behalf of the Official Liquidator shows that in respect of the 4 units of the Association held by Shamlal Sriniwas the first dividend of Rs. 30,000/- had been declared in April 1949, the second dividend of Rs. 12,000/-had been declared and paid to Shamlal Sriniwas on 22-4-1955 and thereafter by two orders of this Court dated 9-9-1957 and January 17, 1961, it was directed that further dividends to be declared on 2 out of the four units should be paid to Ranglal Ladia, Pursuant to this order further dividends declared were paid as to one half to Ranglal and a sum of Rs. 4,008.81 nP. was lying in respect of the two units payable to Sriniwas Ladia.
5. The deed dated January 14, 1954, recites that Sriniwas Ladia was the owner of two shares in the said scrip No. O143 in the Bengal Textiles Association and that two sums of Rs. 3,591/12/6 and Rs. 6287/10/6 were justly and properly due from Sriniwas Ladia to the Thalias and that Ladia had agreed to pledge with the Thalias his two shares in the Bengal Textiles Association to secure payment of the sums mentioned. The operative portion of the deed provides as follows:-
(A) Ladia pledges and hypothecates with the Thalias his two shares standing in the name of Shyamlal Sriniwas to the extent of the two sums mentioned with interest at 6 per cent per annum by way of security.
(B) Being unable to hand over the share scrip Ladia had given information of the pledge of the two shares to Ranglal Ladia to hold the scrip and
(C) Ladia agrees that he will give due information to the Thalias whenever any money willbe payable by the Bengal Textiles Association in respect of and under the scrip No. O143 so that the Thalias shall receive sum or sums which shall be payable in respect of two shares thereby pledged till their respective debts together with interest are discharged.'
6. Before the learned trial Judge it was contended on behalf of the Thalias that Sriniwas Ladia had created an equitable assignment of the moneys payable on the shares by the document of January 14, 1954 and that Ladia had become the trustee o! the moneys payable to him under the scrip. In thy result his rights in respect thereof did not pass to the Official Assignee.
7. On behalf of the Official Assignee it was contended that read as a whole the document dated January 14, 1954, purported to create a pledge or hypothecation of the two shares: as the share scrip could not be handed over to the creditor there was no pledge. At best there was a document of hypothecation which did not constitute an equitable assignment of the moneys payable. Further a pledge of shares made after the commence-ment of winding up was void unless the Court ordered otherwise under Section 536(2) of the Companies Act, 195C corresponding to Section 227 (2) of the Companies Act, 1913. It was urged that the hypothecation of shares would be void on the same principle.
8. According to the learned trial Judge it was not necessary to go into the question as to whether hypothecation of shares was invalid except under an order of the Court. The learned Judge held that under Clause (C) of the document Sriniwas Ladia had created an equitable assignment of moneys payable in respect of the two shares. He relied on Article 521 in Mulla's Law of Insolvency 2nd Edition at page 419 and came to the conclusion that in a case where future debts had been assigned before the debtor became an insolvent the debtor not being called upon to do any other act in order that the moneys should become payable the Official Assignee's rights in respect of the debt were subject to the assignment already made.
9. The paramount question in this appeal is whether there was an equitable assignment of a fund by virtue of Clause (C) set out above, To arrive at such a finding the document must be taken as a whole and the intention of the parties ascertained therefrom. There can be no doubt that the dominant intention of Sriniwas Ladia was to pledge with the Thalias his two shares standing in the name of Shamlal Sriniwas for securing the dues of the creditors. The idea was to create a special property in the shares. Even if the pledge had been perfected by delivery of the share certificate the pledgee would have acquired no right to get any dividends declared thereon unless he had his name registered in the share register of the company. A bailment by way of pledge would only clothe the creditor with rights secured under Section 176 of the Contract Act. The parties further recognised that it was not possible for the debtor to hand over the share scrip to the creditor to complete the pledge and in order that the rights of the creditor might not be ignored by Ranglal Ladia who along with the debtor owned the share scrip jointly the intimation of execution of the document was to be given to the latter. In my opinion, Clause (G) takes the matter a little further and enjoins upon the debtor an obligation to give information to the creditor whenever any moneys became payable by the Bengal Textiles Association in respect of two out of four shares standing in the name of Shamlal Sriniwas. This information was to be given
'so that the creditors shall receive the sum or sums which shall be payable in respect of the two shares pledged.'
The overall purpose of Clause (C) is that intimation should be given to the creditors so that they can take steps to obtain payment from the Bengal Textiles Association. There are no words charging the interest of the debtor in the moneys payable by the Bengal Textiles Association in favour of the creditors. There is no engagement or direction to pay the creditors out of a specific fund.
10. The nature and creation of equitable assignments were examined at some length in the case of Rodick v. Gandell, (1852) 1 De G M and G 763. After dealing with the earlier decisions on the point Lord Truro stated
'the extent of the principle to be deduced from them is, that an agreement between a debtor and a creditor that the debts owing shall be paid out of a specific fund coming to the debtor, or an order given by a debtor to his creditor upon a per-son owing money or holding funds belonging to the giver of the order, directing such person to pay such funds to the creditor, will create a valid equitable charge upon such fund, in other words, will operate as an equitable assignment of the debts or fund to which the order refers.'
In that case a Railway Company was indebted to their engineer who in his turn was indebted to his banker, the banker having pressed for payment, the engineer by letter to the solicitors of the Company authorised them to receive the money due-from the Railway Company and requested them-to pay it to the banker. The solicitors by letter promised the bank to pay him such money on receiving it, It was held that this did not amount to an equitable assignment of the debt.
11. In Tailby v. Official Receiver, (1888) 13 AC 523 the validity of an assignment of after acquired property as against the trustee in bankruptcy came up for consideration by the House of Lords. There by a bill of sale the debtor assigned to his creditor for valuable consideration his stock-in-trade, fixtures, shop and office furniture, tools, machinery, implements and effects then or which during the continuance of the security might be in upon or about the premises mentioned and also all the book debts due and owing or which might during, the continuance of the security become due and owing to the debtor. In the leading judgment delivered by Lord Macnaghten it was observed :
'it has long been settled that future property, possibilities and expectancies are assignable in equity for value. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. To effectuate the intention an assignment for value, in terms present and immediate, has always been regarded in equity as a contract binding on the conscience of the assignor and so binding the subject-matter of the con--had when it comes into existence, if it is of such a nature and so described as to be capable of being ascertained and identified.'
After considering a number of cases cited at the bar the learned Judge observed:
'the truth is that cases of equitable assignment or specific lien, where the consideration has passed, depend on the real meaning of the agreement' between the parties. The difficulty, generally speaking, is to ascertain the true scope and effect of the agreement. When that is ascertained you have only to apply the principle that equity considers that done which ought to be done. . . Take the present case. The rights of the parties are completely defined by the bill of sale. Though there is the usual covenant for further assurance, it is plain that no further deed was contemplated.'
In the result his Lordship and other law Lords decided against the Official Receiver.
12. In my opinion, the agreement in the present case did not operate as an assignment of the moneys to be receivable from the bengal Textiles Association nor was there an agreement that the debt owing should be paid out of such moneys
13. In Palmer v. Carey, 1926 AC 703 the borrower entered into an agreement with a lender to the effect that he was to purchase goods for his business from time to time and the lender was to advance money for the purpose; the borrower was to sell the goods as soon as possible and to pay the proceeds of sale into the lender's credit at the lender's bank; as a result of accounting which was to be done monthly the lender was to have one third of the gross profits and pay over the remaining two thirds to the borrower. The Judicial Committee of the Privy Council concurred with the minority judgment of the Chief Justice of the High Court of Australia that there was nothing to indicate that the intention was to assign any interest in goods purchased by the bankrupt or to create a charge over or a trust of such goods in favour of the lender. According to Lord Wrenbury
'an agreement for valuable consideration that a fund shall be applied in a particular way may found an injunction to restrain its application in another way. But if there be nothing more, such stipulation will not amount to an equitable assignment. It is necessary to find, further, that an obligation has been imposed in favour of the creditor to pay the debt out of the fund.'
14. In my judgment, such an obligation can-not be spelt out of the agreement in this case. '
15. The learned trial Judge relied on the statement of law given in Mulla's Law of Insolvency in India, 2nd Edition page 489 Article 521. That article is however devoted to considering the difference between the case of an assignment of a debt which is to fall due at a future time actually falling due only after insolvency and the case where the debt is due at the date of the assignment, but is payable at a future time. The learned author points out that in the latter class of cases the debt belonged to the assignee whereas in the former class the trustee in bankruptcy had a better title. In Wilmot v. Alton, (1897) 1 QB 17, (the case referred to by the learned trial Judge) a person who carried on the business of a the atrifical costumier contracted with a company to supply dresses and keep them in repair for 40 pounds a week for 12 weeks. She subsequently charged her right and interest under the contract in favour of the plaintiff as security for an advance made by him. The dresses were duly supplied to the company under the contract but before any moneys became due under it the person had become bankrupt. The Court of Appeal held affirming the judgment of the Lord Chief Justice that the charge in favour of the plaintiff gave no title as against the defendants, the trustees in bankruptcy, to moneys which might become due under the contract after the bankruptcy. There Lord Esher M. R. observed
'at the moment of the bankruptcy, there is, as regards sums to become payable in future under the contract, no debt due. There are amounts which may or may not become due according as the conditions of the contract are or are not fulfilled. In order to earn those amounts, the conditions of the contract must be fulfilled, and their fulfilment depends upon the question whether the trustee in bankruptcy will go on with the contract or not. * * * * * It seems to me that the Lord Chief Justice was right in holding that there was no debt due from the company in this case at the time of the bankruptcy, but only an obligation to pay certain moneys after certain conditions were fulfilled, and, when those conditions were performed, it was not by the bankrupt but by the trustee in bankruptcy for the benefit of the estate.'
The observation of Rigby, L. J., in the above case relied on by the learned trial Judge are directed to an altogether different set of circumstances from those in the instant Case. There the learned Lord Justice was considering the case of a person who had entered into contracts in the course of his business becoming bankrupt when some book debts had already accrued with other debts to become payable on the completion of the contracts. These two classes of book debts had to be treated differently. In the first class some moneys had already become due while in the second moneys would not be due until something more was done. It was with regard to the latter class of cases that Rigby, L. J., said
'the bankrupt cannot create greater rights in favour of an assignee from him than he was himself; it rests with the trustees to say whether the business is to be carried on and the contract performed or not, and, if he elects to perform it, he has a right to the consideration for such performance when it becomes due.'
16. Here the question is more fundamental, namely, whether by the agreement Sriniwas Ladia had assigned in favour of Thalias whatever moneys might be declared due by the Bengal Textiles Association. The distinction between moneys due under contracts which had already been carried out and those which might become due under contracts still to be completed does not have to be considered.
17. The other points canvassed by the appellant need not be considered in detail in view of the finding arrived at above. The first of these was that there could be no valid transfer of a future debt under Section 6 of the Transfer of Property Act. Secondly that there could be no assignment of part of a debt, thirdly that the dividend to be declared by the Bengal Textiles Association would become a debt only on declaration and fourthly that the creditor could not proceed against the insolvent except with the leave of the Court and no such leave had been obtained here. It is enough to say that in equity there can be a valid transfer of property which may be acquired afterwards although the creditor would have to wait till the property came into existence. Nor is there any bar to creating an assignment of a fund in favour of a creditor even though, the fund ultimately becoming available may overtop the creditor's dues. The validity of a pledge or hypothecation without the leave of the Court does not call for consideration as the creditor did not rely on such securities to enforce his claint
18. In the result the appeal must be allowedwith costs of both Courts.
19. Official Assignee to retain his costs as between attorney and client out of the funds in his hands.
20. Order dated November 27, 1962, directing Messrs. Jalan and Co., to hold the sums of Rs. 3591-12-6 and Rs. 6287-10-6 free, from lien and subject to further orders of this Court is hereby vacated.
21. Messrs. Jalan and Co., are directed to payover the said sums to the Official Assignee.
22. I agree.