TMI Blog1992 (11) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... as "dealers" under the Act and/or assessing/demanding or collecting from them or taking any proceedings for assessment, demand or collection of sales tax from them in respect of the sale of unredeemed pledge and/or taking any other proceedings under the Act. In addition, they have also sought for a declaration that the auction of pledged article by pawnbrokers in exercise of their right under section 12 of the Karnataka Pawn Brokers Act, 1961 (hereinafter referred to as "the Pawn Brokers Act"), does not constitute "sale" within the meaning of the expression under section 2(1)(t) of the Act. Further they have also sought for a declaration that the pawnbrokers registered and licensed under the Pawn Brokers Act are not "dealers" within the meaning of the expression under section 2(1)(k) of the Act. 3.. In the other batch of writ petitions, the petitioners apart from seeking a writ of certiorari to quash the circular dated October 30, 1991, referred to earlier, issued by the Commissioner of Commercial Taxes, Karnataka, Bangalore, have also sought for quashing the notices dated August 5, 1991, October 28, 1991 and August 14, 1991, marked as annexures A1 to A5 issued by the Commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttels for sale to recover his money due on the pawn. Of course, in that event it would be open to the pawner to redeem the same by payment of the amount due. After the expiry of the period mentioned in section 11 of the Pawn Brokers Act, the pawnbroker would be entitled to sell the pawned articles through the auctioneer. That the petitioners are carrying on this business in the aforesaid manner in accordance with the provisions of the Pawn Brokers Act and the Pawn Brokers Rules, is not in dispute. However, they contend that though they are entitled to bring the pawned articles for sale, they cannot be considered to be the "sellers" within the meaning of that expression under the Sale of Goods Act, 1930 and as such they do not become "dealers" as defined under the Act. It is their contention that as they are not owners of the articles pawned with them, they will not be entitled to or competent to pass the general property in goods to the purchaser. Therefore, they cannot at all be considered as "sellers" so as to attract the definition of the word "dealer" contained in the Act. 6.. On the contrary, Sri Dattu, learned High Court Government Advocate, appearing for the State-responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary. Therefore, such a circular should not have been issued without hearing the petitioners. Though section 3A of the Act, does not in explicit terms provide for affording an opportunity before issuing such a circular, it would be bad in law because it would result in arbitrary exercise of the power which would be opposed to article 14 of the Constitution. 9.. On the contrary, it is contended by Sri Dattu, learned Government Advocate, that such an opportunity is not given because neither section 3A of the Act explicitly or implicitly provides for it, nor any right of the petitioners is affected by reason of issuing such a circular, because it would be still open to them to contend that their activities do not attract the provisions of the Act. It is further contended that the circulars contemplated under section 3A of the Act, are of a general nature applicable to one and all belonging to the categories mentioned therein and do not deal with any individual; therefore, the question of affording opportunity of hearing does not arise. 10.. In support of their contentions, both sides relied on various decisions which will be referred to at the appropriate place. 11.. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess from the point of taking goods and chattels in pawn for a loan till the disposal of the same. It only provides details of the manner in which the business of a pawnbroker should be carried on and how the rights and liabilities of the pawner and the pawnee should be adjusted and settled. These aspects which are contained in the Pawn Brokers Act are not found in the Contract Act. In specific terms, they are found in the judicial pronouncements which have been made while considering the provisions of the Contract Act. It is only to codify, exercise control, and regulate the business of the pawnbrokers, the Pawn Brokers Act is enacted. Therefore, the provisions of the said Act are to be understood and construed in the background in which it is enacted. 12.3 The definition of the expression "pawnbroker" as contained in clause (7) of section 2 of the Pawn Brokers Act is as follows: "(7) 'Pawnbroker' means a person who carries on the business of taking goods and chattels in pawn for a loan. Explanation.-Every person who keeps a shop for the purchase or sale of goods or chattels and who purchases goods or chattels and pays or advances thereon any sum of money, with or under an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awnbroker either to bring that article for sale to recover the amount due on the pledge pawned or to keep it without sale, in which event the pledger or the pawner would be entitled to redeem the same only if that article is not sold. Thus, it becomes clear that in the course of business as a pawnbroker, the pawnbroker is entitled to sell the pawned articles and recover the amount due on the pawn. Under sub-rule (4) of rule 20 of the Pawn Brokers Rules, a pawnbroker is also entitled to bid in auction and purchase the pawned articles. Therefore, in the course of carrying on the business of taking the goods and chattels in pawn for loan, a pawnbroker also sells and purchases the pawned articles; as such it becomes a regular course of business. Section 12 of the Pawn Brokers Act provides for sale of pledge and inspection of sale book. It specifically provides that a pledge pawned for a sum exceeding Rs. 10 shall, when disposed of by the pawnbroker, be disposed of by sale by auction and not otherwise and the sale shall be conducted in accordance with such rules as may be prescribed. While dealing with section 11 we have pointed out that it would be open to a pawnbroker either to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure and manner in which the auction shall have to be conducted by the auctioneer. Sub-rule (3) of rule 20 provides that the pledges of each pawnbroker in the catalogue shall be separate from the pledges of any other pawnbroker notifying the sale in a newspaper approved by the licensing authority or the Inspectors of Moneylenders and the Pawnbrokers furnishing the details of the pawnbroker's name and place of business and the months in which the pledges were pawned. Thus rule 20(3) ensures that not only the bidder comes to know of the pledged articles but also the name of the pawnbroker, and also as to whether the articles pledged and brought for sale are ripe for sale. It has also taken care to ensure that other particulars are mentioned so that the purchaser shall know about the nature of the articles to offer proper bid. Sub-rule (4) of rule 20 provides that where the pawnbroker himself bids at the sale, the auctioneer shall not take the bidding in any form other than that in which he takes, the bidding of other persons at the same scale, and the auctioneer on knocking down any article to a pawnbroker shall forthwith declare audibly the name of the pawnbroker as purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty in articles pawned and he is not empowered to pass general property in the articles pledged with the pawnbroker and as such he cannot at all be considered to be the seller; therefore, there cannot be any sale by the pawnbroker as defined in the Sale of Goods Act. 12.6 It is no doubt true that a contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another and a contract of sale may be absolute or conditional as defined in section 4 of the Sale of Goods Act, 1930. The expression "property" is defined in section 2(11) of the Sale of Goods Act. According to the definition, "property" means the general property in goods and not merely a special property. Therefore, it is contended that in order that a sale of goods is completed as per section 4 of the Sale of Goods Act, general property in goods and not merely a special property must pass to the purchaser, and that the general property will be always with the pawner and not with the pawnbroker. Therefore, it is contended, that the fact that the Pawn Brokers Act and the Pawn Brokers Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Lallan Prasad v. Rahmat Ali AIR 1967 SC 1322. In this case also the provisions contained in sections 172 to 176 of the Contract Act are considered and it has been held thus: "Under section 172 a pledge is a bailment of the goods as security for payment of a debt or performance of a promise. Section 173 entitles a pawnee to retain the goods pledged as security for payment of a debt and under section 175 he is entitled to receive from the pawner any extraordinary expenses he incurs for the preservation of the goods pledged with him. Section 176 deals with the rights of a pawnee and provides that in case of default by the pawner the pawnee has (1) the right to sue upon the debt and to retain the goods as collateral security, and (2) to sell the goods after reasonable notice of the intended sale to the pawner. Once the pawnee by virtue of his right under section 176 sells the goods the right of the pawner to redeem them is of course extinguished. But as aforesaid the pawnee is bound to apply the sale proceeds towards satisfaction of the debt and pay the surplus, if any, to the pawner. So long, however, the sale does not take place the pawner is entitled to redeem the goods on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le by the pawnbroker which would be opposed to entry No. 54 of List II of the Seventh Schedule. Therefore, it is contended that it is not permissible to construe that the sale conducted through the auctioneer under the provisions of the Pawn Brokers Act of the pawned articles amounts to sale by the pawnbroker as it would result in artificial definition of "sale" which would be opposed to the provisions of the Sale of Goods Act and entry 54, List II of the Seventh Schedule to the Constitution. Hence it is the contention of the appellants that the pawnbrokers cannot at all be considered to be the sellers of the pawned articles. In support of the aforesaid contention, reliance was also placed on the decision of the Constitution Bench of the Supreme Court in K.L. Johar Co. v. Deputy Commercial Tax Officer [1965] 16 STC 213; AIR 1965 SC 1082. At paragraph 16 of the judgment (page 226 of STC) it is observed thus: "The essence of sale under the Sale of Goods Act is that the property should pass from the seller to the buyer when a contract of sale is made except in a case of conditional sale. Hire-purchase agreements are not conditional sales. Therefore, any legislation by the State Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods. Further, in view of section 11 of the Pawn Brokers Act, the impact of which is referred to earlier, the general property in the goods also passes because a pledge pawned for a sum exceeding ten rupees shall continue to be redeemable only until it is disposed of. Further the sale takes place at the instance of the pawnbroker and the sale held through the auctioneer results in passing in the general property in the goods to the purchaser. Therefore, such a sale results in turnover within the meaning of its definition in the Act. We considered it necessary to deal with the aforesaid aspects in greater detail since the same would provide a proper background to resolve the crux of the question, viz., whether a pawnbroker would be a dealer within the meaning of that expression as defined under section 2(1)(k) of the Act, which reads thus: " 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes- (i) an industrial, commercial or trading undertaking of the Government of Karnataka, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turist who sells exclusively agricultural produce grown on land cultivated by him personally or a person who is exclusively engaged in poultry farming and sells the products of such poultry farm shall not be deemed to be a dealer within the meaning of this clause." We may also point out here that a "pawnbroker" falls within the compass of the general definition, as he would not fit in, in any of the items of the inclusive definition. A pawnbroker can be said to be a dealer if it can be held that he is a person who carries on business of buying and selling, supplying or distribution of goods directly or otherwise whether for cash or deferred payment or for commission or remuneration or other valuable consideration. In the earlier portion of our judgment we have already extracted the provisions contained in section 2(7) of the Pawn Brokers Act. It is significant to notice here that the explanation to the definition has enlarged the meaning of the said term. As per the explanation every person who keeps a shop for the purchase or sale of goods or chattels and who purchases goods or chattels and pays or advances thereon any sum of money, with or under an agreement or understanding ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Railway). To the same effect are the decisions in United India Insurance Co. Ltd. v. Commissioner of Commercial Taxes [1990] 78 STC 99 (Kar); ILR 1989 Kar 3473, District Controller of Stores, Northern Railways v. Assistant Commercial Taxation Officer [1976] 37 STC 423 (SC), Bagal Kot Cement Co. v. State of Mysore [1976] 37 STC 73 (SC) and in Braemore Estates Ltd. v. State of Kerala [1990] 78 STC 263 (Ker) at page 266. However, it is contended that if the pawnbroker is considered as a dealer, section 11 of the Act will be rendered meaningless. We now, advert to section 11 of the Act, which reads thus: "11. Agents liable to pay tax.-(1) Notwithstanding anything contained in any law for the time being in force including this Act, every person who for an agreed commission or brokerage buys or sells on behalf of any principal who is a resident of the State of Karnataka shall, subject to the provisions of subsection (5) of section 5 or section 6-B be assessed to tax or taxes under this Act at the rate or rates leviable thereunder in respect of such purchase or sale notwithstanding that such principal is not a dealer or that the turnover of sale or purchase relating to such principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as provided by the said rule. The auctioneer will be under the control of the licensing authority or the Inspector of Moneylenders and the Pawnbrokers. Therefore, we are of the view that the auctioneer cannot at all be considered to be the agent of the pawnbroker. If that be so, application of section 11 of the Act does not arise. In addition to this, it is also necessary to notice that an auctioneer simply conducts the sale and remits the money recovered in the sale after deducting the expenses incurred by him for conducting the sale. The amount has to be disbursed by the auctioneer to the pawnbroker, and the latter has to keep the amount with him and pay the same to the pawner as and when he approaches pawnbroker for the refund of the money recovered in excess of the amount due to the pawnbroker. Therefore, we are of the view that section 11 of the Act will be of no assistances to the appellants. It is contended by the learned counsel for the appellants that if it is held that the sale of pawned articles conducted at the instance of the pawnbroker results in passing property to the purchaser, it would be contrary to the concept of sale as contained in the Sale of Goods Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of the pawnbroker to bring the pawned articles for sale. The sale of the pawned articles takes place occasionally and in many cases the sale conducted at his instance will not be sufficient to attract the provisions of the Sales Tax Act because the amount of turnover does not exceed the prescribed limit and that therefore, he cannot at all be considered to be a dealer. We may point out that this contention suffers from an infirmity. It is only when the turnover of the pawnbroker exceeds the limit prescribed under sub-section (5) of section 5 of the Act, he becomes liable for filing the return and paying the sales tax. Therefore, we are of the view that this contention will not have any bearing on the question as to whether the pawnbroker can be considered to be a dealer within the meaning of and as defined under the Act. In the view that we have taken it is not necessary for us to allude to the other decisions cited at the Bar since in the said decisions there is nothing which would compel us to take a view different from the view which we have taken as above. Further the various decisions of the Supreme Court referred to and discussed earlier are exhaustive on the question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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