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TMI Blog1965 (3) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... ercantile Bank Ltd., hereinafter called the Bank, against an advance of ₹ 20,000 made by the Bank to the firm. The said consignments did not reach Okhla. The railway company offered to deliver certain parcels to the Bank, but the Bank refused to take delivery of the same on the ground that they were not the goods consigned by the firm. As the railway failed to deliver the boxes, the Bank, as the endorsee of the said railway receipts for valuable consideration, filed Civil Suit No. 50 of 1950 in the Court of the Civil Judge, Senior Devision. Thana, against the Union of India through the General Manager, Central Railway, Bombay, for the recovery of ₹ 35,500, being the value of the goods contained in the said consignments as damages. The defendant in the written-statement averred that on February 1. 1950, the railway company offered to deliver all the consignments to the Bank, but the latter wrongfully refused to take delivery of the same on the ground that the consignments were not identical to the ones consigned from Thana; it put the plaintiff to strict proof of the allegation that the consignments contained menthol crystals as alleged or that the aggregate value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to sue trader the contracts did not pass to it. The decision on the first point depends upon the scope of the legal requirements to constitute a pledge under the Indian law. That calls for a careful scrutiny of all the relevant provisions of the Indian Contract Act, the Indian Sale of Goods Act and the Transfer of Property Act. for their combined consideration yields the answer to the problem raised. Under the Contract Act, delivery of goods by one person to another under a contract as security for payment of a debt is a pledge. Ordinarily delivery of tangible property is essential to a true pledge; but where the law recognizes that delivery of tangible symbol involves a transfer of possession of the property symbolized, such a symbolic possession takes the place of physical delivery. The short but difficult question, therefore. is whether the Indian law equates the railway receipts with the goods covered by them for the purpose of constituting delivery of goods within the meaning of the Contract Act. Before the amendment of s. 178 of the Contract Act and the passing of the Sale of Goods Act, 1930, the scope of railway receipts vis-a-vis the goods covered by them came up for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt used in the ordinary course of business as proof of the possession or control of goods. or authorising or purporting to authorise, either by endorsement or by delivery the possessor of the document to transfer or receive goods thereby represented'. Railway receipt was so nominee not included in the detinition. But the Privy Council, on the basis of the evidence adduced in that case, brought the railway receipts under that part of the definition describing generally the documents of title to goods. It may also be noticed that the Judicial Committee. though its attention was called to the provisions of ss. 4 and 137 of the Transfer of Property Act, preferred to decide that case decors the said provisions. In the Explanation to s. 137 of the Transfer of Property Act, 1882, which was introduced by the Amending Act 2 of 1900, the definition of the expression "mercantitle document" is practically the same as that found in the Indian Factors Act noticed by the Judicial Committee in the decision cited supra, with the difference that it expressly includes therein railway receipt. Under s.4 thereof the Chapter and the sections of the Act shall be taken as part of the Indian Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale of the goods; if not, the Official Assignee would be entitled to it. The Judicial Committee, after considering its earlier decision in Ramdas Vithaldas Durbar's case (1916) L.R. 43 LA. 164).) and all the relevant provisions which we have noticed earlier, came to the conclusion that there was a valid pledge of the goods represented by the receipts. It may be noticed that this decision also turned upon the relevant provisions of the Contract Act before its amendment in 1930, though at the time the decision was made the amendment came into force. On the question whether a pledge of a document is a pledge of the goods as distinct from the document, the Judicial Committee observed: "Their Lordships likewise in the present case see no reason for giving a different meaning to the term (documents of title to goods) in s.178 from that given to the terms in ss. 102 and 103; in addition a railway receipt is specifically included' in the definition of mercantile document of title to goods by s. 137 of the Transfer of Property Act, 1882, which, in virtue of s.4 of the Act, is to be taken as part of the Contract Act as being a section relating to contracts. A railway receipt is now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile agent cannot make a valid pledge of goods by transferring the documents representing the said goods. This argument appears to be plausible and even attractive; but, if accepted, it will lead to anomalous results. It means an owner of goods cannot pledge the goods by transferring the documents of title, whereas his agent can do so. As the Privy Council pointed out it is impossible to justify a restriction on the owner's power to pledge when there is no such restriction imposed on the like powers of a mercantile agent. A careful scrutiny of s. 178 of the Contract Act and the other relevant provision thereof indicates that the section assumes the power of an owner to pledge goods by transferring documents of title thereto and extends the power even to a mercantile agent. A pledge is delivery of goods as security for payment of a debt. If a railway receipt is a document of title to the goods covered by it, transfer of the said document for consideration effects a constructive delivery of the goods. On that assumption if we look at s. 178 of the Contract Act, the legal position is apparent. The material part s. 178 of the Contract Act reads: "Where a mercantile agent is, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist." This sub-section clearly recognizes that a buyer or his mercantile agent can pledge goods by transferring the documents of title thereto: it protects a bona fide pledgee from the buyer against any claim by the original owner based on the lien or any other right still left in him. If the owner--the purchaser becomes the owner-cannot pledge the goods at all by transfer of documents of title. the protection given under sub-s. (2) of s. 30 of the Sale of Goods Act to a bona fide purchaser is unnecessary. The material part of s. 53(1) of the Sale of Goods Act reads: "Subject to the provisions of this Act, the unpaid seller's right of lien or stoppage in transit is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented thereto: Provided that where a document of title to goods has been issued or lawfully transferred to any person as buyer or owner of the goods, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. (1914) I.L.R,. 38 .Rom. 659); Shah Muji Deoii v. Union of India(A.I.R. 1957 Nag. :31) Commissioner for the Port Trust of Calcutta v. General Trading Corporation Ltd. (A.I.R. 1964 cal. 290.); and Union of India v. Taherali (1956) 58 Born. L.R. 650). These raise a larger question on which there is a conflict of opinion. In the view we have taken on the question of pledge, it is not necessary to express our opinion thereon in these appeals. The law on the subject, as we conceive it, may be stated thus: An owner of goods can make a valid pledge of them by transferring the railway receipt representing the said goods. The general rule is expressed by the maxim nemo dat quod non habet, i.e., no one can convey a better title than what he had. To this maxim, to facilitate mercantile transactions, the Indian law has grafted some exceptions, in favour bona fide pledgees by transfer of documents .of title from persons, whether owners of goods or their mercantile agents who do not possess the full bundle of rights of ownership at the time the pledges are made. To confer a right to effect a valid pledge by transfer of documents of title relating to goods on owners of the goods with defects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49, in its favour. It also endorsed the railway receipts Nos. 233/27, 233/35 and 233/36 in favour of the Bank. The Accountant of the Bank deposed that the railway receipts were endorsed in favour of the Bank, which had.advanced the said amount to the firm on the security of the said railway receipts. The evidence of this witness was not challenged in the High Court. The Bank.advanced alarge amount of money to the firm. The three transactions, namely the advancing of loan the execution of the promissory note and the endorsement of the railway receipts, together form one transaction. Their combined effect is that the Bank would be in control of the goods till the debt was discharged. This is a well known practice followed by Banks.The Judicial Committee both in Ramdas Vithaldas Durbar v. S. Amerchand & Co.(1916) L.R. 43 I.A. 164), and the Official Assignee of Madras v. The Mercantile Bank of India, Ltd. (1934) L.R. 61 I.A. 416, 423) heId that such a transaction was a pledge. We, therefore, hold on the facts of this case that the firm by endorsing the railway receipts in favour of the Bank for consideration pledged the goods covered by the said receipts to the Bank. In this view it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments. In taking that view the learned Civil Judge followed a decision of the Bombay High Court in Shamji Bhanji & Co. v. North western Railway Company(A.I.R. 1947 Bomb.169). The Civil Judge accordingly dismissed the suit by a judgment and decree dated January 15, 1953. Against that decision the plaintiff-bank preferred an appeal to the Bombay High Court which continued the findings of the Civil Judge that tile Railway failed' to deliver the boxes at Okhla and the boxes contained "menthol crystals". The High Court also held that the plaintiff-bank assignees of the railway receipt was entitled to bring a suit for damages for breach of contract against the Union of India though the damages would be limited to the loss of its security. In taking this view the Bombay High Court relied upon its previous decision in The Union of India v. Taherali Isaji (1956)58 Bomb L.R. 650). The first question for determination in this case is whether there was a valid pledge of boxes of "menthol crystals" in favour of the plaintiff-bank by endorsement on the railway receipts by the firm. In English Law a pledge arises when goods are delivered by one person called the 'pledgor' to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page of the ipsa corpora of them, for the transfer of documents does not change the possession of the goods unless the custodian (carrier, warehouseman or such) was not filed of the transfer and agreed to hold in future as bailee for the pledgee. In Inglis v. Robertson and Baxter(1898) A.C. 616). It was held by the House of Lords that where goods are lodged in warehouses in Scotland a pledgee of the goods must, to make effective all real rights which depend on the constructive delivery of the goods, give notice of the pledge to the warehouse-keeper. The Factors Act 1889 enacts: "S.3. A pledge of the documents of title to goods shall be deemed to be a pledge of the goods."; and s. 1: 'For the purposes of this Act' (sub-s. 5). The expression 'pledge' shall include any contract, pledging, or giving a lien or security on, goods, whether in consideration of an original advance or of any further or continuing advance or of any pecuniary liability'. Sect. 9 prescribes that the effect of delivery or transfer of the documents of title of the goods under any pledge &c., by a person who having bought the goods obtains with the consent of the seller possession of the goods or docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of delivery .orders, although it may give the pledgee a right to retain the documents, does not give him any real right in the goods which they represent. He can only attain to that right by presenting the delivery orders to the custodier by whom they were granted, and obtaining delivery of the goods from him, or by making such intimation of his right to the custodier as will make it the legal duty of the latter to hold the goods for him. His right, which in so far as it relates to the goods is in the nature of jus ad rem, will be defeated if, before he has either obtained delivery or given such intimation, the goods are validly attached in the hands of the custodier by a creditor of the person for whom the custodier holds them." The principle is reiterated by the House of Lords in Dublin City Distillery Ltd. v. Doherty(1914) A.C. 823). in which the plaintiff advanced moneys to a distillery company on the security of manufactured whisky of the company stored in a ware-house. Neither the company nor the excise officer could obtain access to the warehouse without the assistance of the other, and the whisky could only be delivered out on presentation to the excise officer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 119); Bentall v. Burn ((1824) 3 B.&C. 423)." In our opinion, the position in Indian Law is not different Section 172 of the Contract Act which defines a 'pledge' affirms the English Common Law. Section 172 states that "the bailment of goods as security for payment of a debt or performance of a promise" is called' a "pledge". The bailor is in this case called the "pawnor" and the bailee is called the "pawnee". According to s. |48 of the Contract Act "a bailment is the delivery of goods by one .person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the 'bailor'. The person to whom they are delivered is called the 'bailee'. Section 149 states that the delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf. Reference should also be made to s. 178 of the Contract Act, as it stood before the Indian Contract (Amendment) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r documents of title under any sale, pledge of' other disposition the thereof to any person receiving the same in good faith and without notice of any/ten or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist." Section 178A of the Contract Act states: "178A. When the pawnor has obtained possession of the goods pledged by him trader a contract voidable under section 19 or section 19A, 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." After the passing of the Indian Contract (Amendment) Act, 1930 the legal position with regard to the pledge of railway receipts is exactly the same in Indian law as it is in English law and consequently the owner of the goods cannot, pledge the goods represented by the railway receipts in the present case unless the railway authorities are notified of the transfer and they agree to hold the goods as bailee for the piedgee. On behalf of the appellants Mr. Bhatt placed strong reliance upon the decision of the Judicial Committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03, and that the sellers were therefore not entitled to stop the good's in transit except upon payment or tender to the pledgees of the advances made by them. It is manifest that the decision cannot afford assistance to the appellants. because, in the first place, it related to the construction of old s. 103 of the Contract Act in regard to the right of stoppage of goods in transit, and, in the second place, there has been a significant change in the law in view of the legislative amendment of s. 178 of the Contract Act by the Indian Contract (Amendment) Act. 1930. In the present case, therefore, our concluded opinion is that there is no valid pledge of the consignments of menthol crystals represented by the railway receipts in favour of the plaintiff-bank and the finding of the High Court on this point is erroneous in law We shall next deal with the question whether the plaintiff can sue on the contract of bailment even though there is no valid pledge of the goods in favour of the plaintiff. It was contended on behalf of the appellants that the plaintiff-bank was the endorse of railway receipts and, therefore, it was entitled to sue the defendants for compensation for the loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f s. 2, sub. s. (4) of' the Sale of Goods Act, or the enactment of provisions analogous to ss. 103 and 178 of the Contract Act. As stated in Halsbury's. Laws of England, Hailsham Edition, Vol. 29, at p. 143, Art. 179: "Such documents, although they may purport to be, or may commonly be treated as, transferable, are not negotiable instruments, unless there be a trade usage to that effect. Accordingly, subject to the provisions of the Factors Act 1889, the owner cannot claim delivery of the goods except from the seller who is the issuer or immediate transferor of the document." It is manifest that there are no rights created merely by reason of the endorsement of a Railway Receipt between the endorsee and the railway company which has issued the railway receipt to the .consignee, the only remedy of the endorsee being against the endorser. This was the position in English law, except in the case of .bills of lading the transfer of which by the Law Merchant operated as a transfer of the possession of as well as the property in 'the goods as observed by Lord Wright in Official Assignee of Madras v. Mercantile Bank of India, Limited(1934) L.R. 61 I ,A. 416) at page 422. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt given by the railway company for the articles delivered for conveyance, must be given up at destination by the consignee to the railway company, otherwise the railway may refuse to deliver and that the signature of the consignee or his agent in the delivery book at destination shall be evidence of complete delivery. If the consignee does not himself attend to take delivery he must endorse on the receipt a request for delivery to the person to whom he wishes it made, and if the receipt is not produced, the delivery of the goods may, at the discretion of the railway company, be withheld until the person entitled in its opinion to receive them has given an indemnity to the satisfaction of the railway company." In the present case the plaintiff has not proved by proper evidence an assignment of the Contract of Carriage. In our opinion, the law on the point has been correctly stated by Bhagwati, J. in Shamji Bhanji & Co. v. North Western Rly. Co.( A.I.R. 1947 Bom. 169. I.A.C. 1.). It follows, therefore, that the plaintiff has no right to bring the present suit against the Union of India. Counsel for appellant has referred to the practice of merchants in treating a railway ..... X X X X Extracts X X X X X X X X Extracts X X X X
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