K. Sreedhar Rao, J.
1. This appeal is filed against the judgment and decree passed in R.A. No. 118 of 1994 on the file of the Civil Judge (Senior Division), Shimoga, arising out of the judgment and decree passed in O.S. No. 332 of 1981 on the file of Additional Munsiff, Shimoga,
2. The appellants are the defendants 2 and 3 in the suit. The first respondent-plaintiff filed a suit for declaration that they are entitled to a sum of Rs. 98,200/- held in the Criminal Court deposit in Crime No. 100 of 1977 on the file of Judicial Magistrate First Class, Sugar. The second respondent is the first defendant in the suit. The plaintiff contends that the first defendant acted as its agent for collecting levy-paddy in Sorab Taluk area and the levy-paddy collected was kept in the godown of the third defendant. It is said that the godown of the third defendant was commandeered under the Defence of India and Internal Security Rules, as a godown to be used for storing the paddy to the extent of 1500 quintals. Accordingly, levy-paddy collected was deposited in the godown by the first defendant, which belongs to the plaintiff. The President of the third defendant pledged the paddy stock in the godown of the third defendant with the 2nd defendant-Co-operative Bank and borrowed a loan of Rs. 1,27,000/-. On 10-3-1976 it is the day on which the Deputy Commissioner passed order commandeering the use of the third defendant's godown for the purpose of stocking the levy-paddy. It appears that there was a misappropriation charge against the President of the third defendant-Society. A complaint was lodged registered in Cr. No. 100 of 1977. In the course of investigation, the paddy in the godown of the third defendant was seized as it was a perished commodity, the same was sold, the value of Rs. 98,200/- realised was kept in the Criminal Court deposit. The sale of the paddy by the Criminal Court was made at the instance of the 2nd defendant. The sale realisation was kept in deposit, as there was rival claim between the first defendant and 2nd defendant. The first defendant was acting as an agent of the plaintiff in collection of the levy-paddy. The plaintiff claims that the paddy sold from the godown of the third defendant is the paddy belonging to the plaintiff. Therefore, the entire sale realisation belongs to them and seeks declaration in that behalf. The first and third defendants remained absent and placed ex parte. The 2nd defendant contends that the paddy in question was pledged with them by the third defendant, loan is advanced. The claim of the plaintiff that the paddy belongs to him is stoutly denied. On the other hand, the 2nd defendant contends that the pledged paddy absolutely belongs to defendant 3 and the valid pledge is created. The Trial Court upholds the claim of the plaintiff allowed the suit. The first Appellate Court dismissed the appeal of the defendants 2 and 3 confirming the findings in the judgment and decree of the Trial Court. Hence, the 2nd appeal.
3. The case at the stage of admission, Lower Court records have been secured. Counsels appearing for the parties assisted the Court and argued on merits for final disposal.
4. The following substantial question of law is framed for consideration:
"Whether the Appellate Court committed error in law in rejecting the claim of 2nd defendant as a pawnee and that 2nd defendant had valid lien over the pledged goods and that the claim of the plaintiff over the property was subject to the rights of the 2nd defendant as a pawnee?"
5. Shri Naganand, appearing for the respondents, relied on the Division Bench Ruling in Indian Bank Limited, Hyderabad v. Anomula Seshagiri Rao and Sons Company, Vijayawada and Ors., (DB) the
following observations are made:
"The facts of the instant case which we have noticed are totally different. There is nothing in the evidence, oral and documentary, to show that the goods in question after they were released on 13-6-1960 came into the possession of the 1st defendant. That was not even the case of the 1st defendant in his written statement. Nor the correspondence, to which we have referred, indicates that he came into possession of the goods. There is nothing in the evidence of P.Ws. 6 and 7 to show that they made any enquiry as to the ownership of the goods and that they bonafide believed either on the representation of the 1st defendant or from the enquiries they made that the goods belonged to the 1st defendant. It is a case where the appellant-Bank was negligent in not verifying as to whether the 1st defendant was the owner of the goods or whether he was acting on behalf of the 3rd defendant-firm. It is the specific case of the appellant-Bank that these goods are not the goods which were released by the Bank on 13-6-1960 and the evidence produced by the 3rd defendant-firm would go to show that these are the same goods that were released by the Bank on 13-6-1960 and not the goods subsequently purchased and stored by the 1st defendant. Therefore, we are unable to say from the facts that the appellant-Bank can invoke the aid of Section 178 of the Contract Act. So it is evident that in a case where the 1st defendant had neither custody nor possession nor title to the property, he can confer no better rights by reason of the pledge than he himself possessed. We therefore, confirm the judgment and decrees of the Court below in both the suits".
6. Counsel for the appellant placed reliance on the Ruling of the Supreme Court in Bank of Bihar v. State of Bihar, in paras 6 and 7 the following observations are made:
"6. According to the Statement in Halsbury's Laws of England "pawn" has been described as a security 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; in this sense it is intermediate between a simple lien and a mortgage which wholly passed the property in the thing conveyed". "The pawnee has a special property or special interest in the thing pledged, while the general property therein continues in the owner. That special property or interest exists so that the pawnee can compel payment of the debt or can sell the goods when the right to do so arises. This special property or interest is to be distinguished from the mere right of detention which the holder of a lien possesses, in that it is transferable in the sense that a pawnee may assign or pledge his special property or interest in the goods". "Where judgment has been obtained against the pawnor of goods and execution has issued thereon, the sheriff cannot seize the goods pawned unless he satisfied the claim of the pawnee" (based mainly on Rogers v. Kennay, (1846)9 QB 592 : 115 ER 1401). "On the bankruptcy of the pawnor the pawnee is a secured creditor in the bankruptcy with respect to things pledged before the date of the receiving order and without notice of a prior available act of bankruptcy". It has not been shown how the law in India is in any way different from the English law relating to the rights of the pawnee vis-a-vis other unsecured creditors of the pawnor.
7. In our judgment the High Court is in error in considering that the rights of the pawnee who had parted with money in favour of the pawnor on the security of the goods can be defeated by the goods being lawfully seized by the Government and the money being made available to other creditors of the pawnor without the claim of the pawnee being fully satisfied. The pawnee has special property and a lien which is not of ordinary nature on the goods and so long as his claim is not satisfied no other creditor of the pawnor has any right to take away the goods or its price. After the goods had been seized by the Government it was bound to pay the amount due to the plaintiff and the balance could have been made available to satisfy the claim of other creditors of the pawnor. But, by a mere act of lawful seizure the Government could not deprive the plaintiff of the amount, which was secured by the pledge of the goods to it. As the act of the Government resulted in deprivation of the amount to which the plaintiff was entitled it was bound to reimburse the plaintiff for such amount which the plaintiff in ordinary course would have realised by sale of goods pledged with it on the pawnor making a default in payment of debt".
7. The provisions of Sections 178 and 178-A of the Indian Contract Act, 1872 are extracted hercunder for convenient reference:
178. Fledge by mercantile agent.--Where a mercantile agent is, with the consent of the owner, in possession of goods or the documents of title to goods, any pledge made by him, when acting in the ordinary course of business of mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same:
Provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has no authority to pledge.
178-A. Pledge by person in possession under voidable contract.--When the pawnor has obtained possession of the goods pledged by him under a contract voidable under Section 19 or Section 19-A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods:
Provided he acts in good faith and without notice of the pawnor's defect of title.
8. The pawnee's right of lien over the pledged goods and preferential claim is recognised in law in Sections 178 and 178-A of the Indian Contract Act, on a qualified condition when the pawnee has acted in good faith and has no notice of defect in title or the absence of authority of the pawnee. This is essentially a fact to be pleaded and proved. The plaint averments rather acknowledges that the Bank has acted in good faith. The relevant material portion of the plaint in para 7 read thus:
"7. The Secretary of the third defendant seems to have borrowed some moneys for the purpose of the Society from the second defendant making them believe that the stocks in the godowns belonging to the third defendant belongs to them".
9. There may be no plea taken by the 2nd defendant in the written statement that they have accepted the pledge in good faith without notice of the defect of title or absence of power of third defendant to pledge the goods. It is also pertinent to note that the order of the commandeer was made on 10-3-1976. It is reasonable to expect that on the next day the order of commandeering the godown should have been communicated to the third defendant and before any such communication was made; the third defendant borrowed loan by pledging the goods on 10-3-1976. There is no evidence or pleading to show the Bank had acted negligently without verifying the title of the third defendant, accepted the pledge and granted the loan. The averment in para 7 of the plaint extracted above does not impute any mala fides on the part of the 2nd defendant. On the other hand, it gives a clean chit that the, second defendant was also made to believe that the property belongs to the third defendant and pledge was created. In view of such admitted contentions, it becomes clear that the 2nd defendant has acted bona fidely in accepting the pledge and in advancing the loan. The said transaction is a valid transaction in law creating valid right of lien over the pledged goods in favour of the 2nd defendant. In that view, the decision of the Andhra Pradesh High Court cited at the bar has no application to the facts of the case. The decision of the Supreme Court as cited is squarely on the point.
10. Indeed the Courts below did consider the legal aspects with regard to the right of pawnee. But took an erroneous view that the 2nd defendant cannot have right over the money, since the third defendant was not the owner of the property, the said view is contrary to law. In view of the reasons and discussions made above, the question of law is answered in the affirmative. The judgment and decree of the Trial Court is set aside.
11. Counsel for the appellants fairly concedes that both the institutions being public bodies, the appellants would restrict their claim to an extent of 50% of the amount in deposit and accrued interest thereon, if any, and agree for payment of balance amount and accrued interest thereon, if any, to the plaintiff. In view of the submissions made at the bar, it is directed that 50% of the amount in deposit with accrued interest shall be payable to the 2nd defendant and 50% of the amount in deposit with accrued interest shall be payable to the plaintiff. No order as to costs.