TMI Blog2007 (8) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods. The High Court ought not to have passed such an interim order of consequence especially in the light of the legal principles settled by this Court. The order of the High Court, therefore, cannot be sustained and calls for interference. Appeal allowed. - CIVIL APPEAL NOS.3499-3500 OF 2007 - - - Dated:- 7-8-2007 - CHATTERJEE, TARUN AND BALASUBRAMANYAN P.K.I., JJ. JUDGMENT P.K. BALASUBRAMANYAN, J. Leave granted. 1. These appeals challenge the interim order passed by the Division Bench of the High Court in a pending writ appeal, directing disbursement of certain amounts realised on sale of stocks of sugar, owned by the first respondent company held under pledge by the appellant--bank. The Labour Commissioner had passed an order under Section 33(c) of the Industrial Disputes Act against the first respondent company in respect of the dues to the workmen. The same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Act. 4. Learned counsel for the appellant--bank submitted that the High Court was clearly in error in ignoring the rights of the appellant as a pawnee and in ignoring the binding decisions of this Court on the rights of the pawnee to the proceeds of the sale of the goods pledged to it to secure a debt due from the borrower. According to him, the bank as pawnee has the first charge on the stock of sugar and the charge crystalised when the stock of sugar pledged with it was sold. When it has thus crystalised, the bank had a priority over the debts due to other unsecured creditors. Neither the Cane Commissioner, nor the Labour Commissioner, in this case or the workmen, on whose behalf he was acting, were secured creditors. Consequently, the right of the appellant as the pawnee must prevail. Counsel submitted that the workmen become secured creditors only when there is a winding up and it is Section 529 of the Companies Act that made them secured creditors, entitled to disbursement pari pasu with other secured creditors. In the absence of any winding up proceeding the workmen had no preferential rights and their status, at best, was that of unsecured creditors. Counsel further subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 7. In the Bank of Bihar vs. State of Bihar and others (1971 Suppl. SCR 299) the law is set down thus: "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 things 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to give the plaintiff a primary right to sell the goods in satisfaction of the liability of the pawnor. The Cane Commissioner who was an unsecured creditor could not have any higher rights than the pawnor and was entitled only to the surplus money after satisfaction of the plaintiff's dues." (emphasis supplied) 8. It has to be noticed that the Cane Commissioner was held to be an unsecured creditor, he could not have any higher right than the pawnor and was entitled only to the surplus money after satisfaction of the pawnee's dues. 9. In Karnataka Pawnbroker's Association and others vs. State of Karnataka and others (1998 (7) SCC 707) this Court summed up the position as under: "It cannot be and it is not disputed that the pawnbroker has special property rights in the goods pledged, a right higher than a mere right of detention of goods but a right lesser than general property right in the goods. To put it differently, the pawnor at the time of the pledge not only transfers to the pawnee, the special right in the pledge but also passes on his right to transfer the general property right in the pledge in the event of the pledge remaining unredeemed resulting in the sale of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the Crown's preferential right or a Crown debt was held to be subservient to the rights of a pawnee. 13. In O. Konavalov vs. Commander, Coast Guard Region and others (2006 (4) SCC 620) this Court held that the lien of a pawnee traceable to Sections 172, 173 and 176 of the Contract Act is capable of satisfaction from property in the hands of the Government obtained even by lawful seizure. This Court followed the views expressed in the decision in Bank of Bihar vs. State of Bihar (supra). 14. In Workers of M/s Rohtas Industries Ltd. Vs. M/s Rohtas Industries Ltd. (1987 (2) SCC 588) a direction was made for payment of the workers dues by stating that such dues will have priority over other banks and financial institutions. Ongoing though the facts, it is seen that it was a case where proceeding for liquidation of the company was going on and obviously Section 529 of the Companies Act was attracted. Moreover, it is not seen that the rights of a pawnee vis-`-vis the rights of the workmen is discussed. Since a liquidation had intervened there, which is not the case here, the said decision cannot be of any assistance to support the order passed by the High Court. In fact, in Worker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y from the custody of the pawnee, the appellant-bank. In view of the fact that the goods were validly pawned to the appellant bank, the rights of the appellant-bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods. 19. We are also of the view that pending the writ appeals, the High Court ought not to have passed such an interim order of consequence especially in the light of the legal principles settled by this Court. The order of the High Court, therefore, cannot be sustained and calls for interference. 20. We, therefore, allow these appeals and set aside the impugned order of the High Court, directing payment out of parts of the sale proceeds to the Labour Commissioner and to the Cane Commissioner. We hold that the appellant as the pawnee, is entitled to the amount in satisfaction of its debt to secure which, the goods had been pawned and to appropriate the sale proceeds towards the debt due and only if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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