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Madholal Sindhu Versus The Official Assignee of Bombay and Another

1949 (5) TMI 15 - FEDERAL COURT

Civil Appeal No. 34 of 1948 - Dated:- 6-5-1949 - Sir Harilal Kania, C.J., Sir Fazl Ali, Mehr Chand Mahajan and Mukherjea, JJ. For the Appellant: Sir Noshirwan P. Engineer Manibhai M. Desai and Ram Behari Lal with him For the Respondent: K.M. Munshi S. Krishnamurti Aiyar with him ORDER JUDGMENT Sir Harilal Kania, C.J. 1. This is an appeal from a judgment of a Division Bench of the High Court at Bombay setting aside a decree of a single Judge of that Court. The material facts are these: By January .....

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account of his with the bank, including interest. It further provided as follows:- "With power to you (the bank) at your discretion to sell all or a sufficient portion of such securities in the event pi my not maintaining a margin of 40 per cent, on the market value of the securities for the time being or on my failing to repay the amount of any loan made by you to me on the due date of such loan". On these shares the Company claimed a lien for ₹ 1,10,000. When Nissim pledged th .....

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shares. Nissim had further guaranteed repayment to the bank of loans standing to the debit of Kuberdas Raghavji and Issac Ezra. 3. Mr. Jamnadas Mehta (3rd defendant) was the Chairman of the Board of Directors of the Company and also of the bank. He and Nissim were great friends and they had also money dealings. It appears that there arose a disagreement between Jamnadas and Nissim and on the 1st March, 1940, Nissim filed Suit No. 396 of 1940 in the High Court of Bombay against Jamnadas claiming .....

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ing him to repay the loan. There is no document to show that there was an agreement or understanding under which Nissim had to repay the loan by the end of March, 1940. In the last paragraph of the bank's letter it is stated that the loan may be repaid, if possible, fully or at least some partial repayment of ₹ 25,000 or ₹ 30,000 at least maybe made. Nissim did not repay anything and the bank did nothing thereafter. 4. The evidence shows that Jamnadas had the complete controlling .....

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rote to Deshpande, the managing director of the bank, a letter in the following terms:-" With reference to our conversation last week about the disposal of Mr. Nissim's shares in the Asian Assurance Company Ltd., I shall be glad to buy them myself for ₹ 73,000 only. Please place this offer of mine before our next Committee meeting". There is no evidence to show that this letter was written with the knowledge or consent of Nissim. On the 10th July, 1940, Jamnadas wrote another .....

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resided. Resolution No. 7 was in these terms :-"Resolved that the offer of Mr. J.M. Mehta for buying the shares numbering 26,000 in all of the Asian Assurance Company Ltd. standing in the name of Meyer Nissim for a sum of ₹ 73,000 or thereabouts, as contained in his letter of the 6th instant, be and is hereby accepted and Mr. J.M. Mehta's account be debited with the purchase price". Another resolution in respect of the bank shares was passed at the same meeting and was in the .....

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similar to those passed by Nissim. Deshpande made the following endorsement in red pencil on the overdraft account of Nissim with the bank: 1. Ledger clerk to note. Mr. Meyer Nissim's O/D a/c is to be closed as Mr. Jamnadas Mehta has agreed to buy the 26,000 shares of the Asian Assurance Company pledged with the bank by Mr. Nissim. The Ex-Com. approved the transaction as per resolution No. 7 of 10th July, 1940. Mr. J.M. Mehta's a/c is to be debited with the purchase price, but for final .....

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er an entry appears under date 10th July, 1940, reciting that the shares were purchased by Jamnadas and pledged with the bank. It cannot be stated when that entry was made. In the remarks column against that entry it is stated "The amount to the debit of Mr. Meyer Nissim actually transferred to Mr. Jamnadas M. Mehta's account, on 31st March, 1941, on being ratified by the Board. Sd/- M.G. Pranjpe." In spite of Deshpande drawing lines in red pencil in the overdraft account of Nissim .....

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s passed at their meeting held on the 15th April, 1941, by crediting ₹ 76,966-5-0 to Nissim and debiting the same to Jamnadas's overdraft account. The evidence further shows that the debit entry in the name of Jamnadas was made in the suspense account and remained in that way in the bank's books till 1944. On 12/13th July, 1940, Deshpande wrote to Nissim in these terms :-"With reference to our conversation on the phone we have to inform you that we have disposed of the shares .....

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n the 16th July. In his statement of assets and liabilities filed with the Official Assignee on that day he showed these shares as held by the bank as security against his account. He sent the letter dated the 12th July to the Official Assignee with his letter of 6th September, 1940 and asked for permission to amend his schedule. 5. On the 1st November, 1940, the bank wrote to the Company intimating that the Board had decided to get the 26,000 shares transferred to the name of another party who .....

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decree being passed against him in favour of the Official Assignee for ₹ 50,000. 6. On the 14th July, 1941, Nissim revoked the power of attorney and proxy. Jamnadas and another thereupon filed Suit No. 921 of 1941 claiming that the revocation was invalid and Nissim should be directed to vote as directed by Jamnadas. On the 30th July, 1941, the bank and Jamnadas filed Suit No. 1001 of 1941 against the Company, Nissim and the Official Assignee as assignee of the estate of Nissim. In that pla .....

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77; 1,15,000. 10. On or about the 16th July, 1940, the 2nd defendant was adjudicated an insolvent and all his estate and effects became vested in the 3rd defendant as the Official Assignee of Bombay. The 1st plaintiff bank informed the 1st defendant Company that the interest of the 2nd defendant in the said shares had been transferred to another constituent of the bank meaning thereby the 2nd plaintiff. The 3rd defendant thereafter disclaimed the interest of the 2nd defendant in the said shares. .....

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greement mentioned in paragraph 9 above is not proved the rights of the 1st plaintiff bank as the pledgee of the said shares remain unaffected. 7. The prayers were for a declaration that the Company had no lien on the shares, that in any event the lien, if any, was subject to the security created by Nissim in favour of the plaintiffs or in any event subject to the payment by the Company to the plaintiff of ₹ 5 for each of the said 26,000 shares, for an injunction restraining the Company fr .....

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he purchased the 26,000 shares. The relevant portion of the letter is in these terms: Rs. 20,000 shares of the Asian Assurance Company Ltd. standing in the name of Mr. Meyer Nissim. As the pledgee in possession of the above shares of the above Assurance Company Ltd. and with the consent of Mr. Jamnadas M. Mehta, the present holder of these shares, you have sold the said shares to me and I have purchased the same this day for a sum of ₹ 1,20,800.... I have agreed and undertaken to tender th .....

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s. A special and urgent meeting of the executive committee of the bank was held on the 24th October, 1941, to consider the offer of the plaintiff for buying 26,000 shares of the Company. Jamnadas was present at the meeting. Jamnadas was asked whether he would give his consent to the acceptance of the plaintiff's offer and he replied that he would give his consent to the transaction if the bank would declare him fully exonerated from all and any liabilities to the bank in respect of loans giv .....

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ed your letter of the 23rd instant and the same was placed before the executive committee of the bank at their meeting held on the 24th October, 1941. The bank accepts your offer contained in your letter on the understanding that the bank and Mr. Jamnadas Mehta are selling to you all the respective rights, title and interests in the said shaves and that you take them subject to the contentions of the parties to the pending Suits Nos. 921 of 1941 and 1001 of 1941 in the Bombay High Court referred .....

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d the Official Assignee were made party defendants. The plaint recites that on the 23rd January, 1940, the bank held the shares as pledgee or mortgagee for the total advance of ₹ 75,000 made by the bank to Nissim and for all other debts and liabilities of Nissim to the bank. It was next stated that Nissim was adjudicated insolvent on his own petition on the 16th July, 1940. In paragraph 7 of the plaint, the plaintiff's letter to the bank to purchase the shares and the bank's reply .....

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3rd defendant having taken over the liabilities of the 4th defendant and all the security therefore, and that the 2nd defendant Company had disposed of the said shares to the 3rd defendant. 11. The plaintiff alleged that on the sale of the said shares to him by the bank he became the owner and Jamnadas had no further interest therein. It was pleaded that in Suit No. 1001 of 1941 the fact that Nissim and the Official Assignee had no interest left in the said shares was asserted and not denied by .....

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en, the amount of it may be ascertained and that out of the money brought by the plaintiff in court the same may be satisfied. The fifth defendant (the Official Assignee) filed his written statement and counterclaim in which he claimed that the bank continued to hold the shares as pledgee from Nissim and all the intermediate transactions were not binding on the Official Assignee. The counter-claim was to redeem the shares on payment of the amount due by Nissim against the same. The plaintiff fil .....

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urt under its extended jurisdiction. 12. In the trial court several issues were raised on the counter-claim of the Official Assignee. The learned Judge, inter alia, came to the following conclusion :- (1) That the Official Assignee was not estopped from disputing the sale of the shares in favour of the plaintiff. (2) That the issues about the fact and validity of sale in favour of Jamnadas was not res judicata by reason of the proceedings in Suits Nos. 1001 of 1941 and 396 of 1940. (3) That the .....

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f the written statement of the Official Assignee were not proved. On appeal, the findings in favour of the Official Assignee were confirmed. The appeal court, however, differing from the trial judge, held that there was no sale of the shares to Jamnadas and that as no notice under s. 176 of the Contract Act had been given by the bank, the bank had no right to sell the shares and therefore no title as owner passed to Jamnadas or to the plaintiff. Before us it was strenuously contended on behalf o .....

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y finding. During the hearing of the suit in the trial court, counsel for the plaintiff intimated that he abided by the decision in Suit No. 1001 of 1941 that the tripartite agreement between Nissim, Jamnadas and the bank was not established and he did not want to re-agitate the same question here. The appeal therefore remains to be decided on that footing. 13. The first point urged before us was that even though the tripartite agreement might not be proved, if the 26,000 shares were sold by the .....

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nadas became the owner of the shares. There it is only recited that Jamnadas had become the owner of the said shares before Nissim's insolvency and had pledged them with the bank, "Jamnadas having taken over the liabilities of Nissim and all the security therefor". Read as a whole, this paragraph only affirms that Jamnadas's title to the shares arose because of his carrying out the tripartite agreement. It is true that during the hearing of the case witnesses have made statemen .....

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he evidence of Pranjpe, the other bank official, has no bearing on this question. He made entries and only carried out the directions afterwards given by Deshpande and or Jamnadas. Jamnadas has not been called as a witness to prove any such sale. As regards the oral evidence of Deshpande and Pranjpe, the learned trial Judge in his judgment observed as follows:-"I may go 60 far as to observe that if Deshpande and Pranjpe had not been corroborated by any documents which are contemporaneous an .....

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id or credit agreed to be given for the same. The Advocate-General contended that there was such a sale because by his letter dated 10th July, 1940, Jamnadas made an offer to buy and the back accepted the offer by its resolution of 10th July. Jamnadas then gave a promissory note for Bs. 75,000 and also passed a letter of hypothecation in favour of the bank. It was argued that this constituted a complete transaction. I am unable to accept this contention. The price offered by Jamnadas was ₹ .....

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expression was ambiguous, some witness should have been asked to clear the ambiguity and state the correct meaning. Deshpande was the only witness called on this point by the plaintiff and he was not even asked what "thereabouts" meant. When oral evidence is given and no such question is asked I do not think it is proper for the court to draw an inference from the documents, particularly when they are not clear. In the whole of his evidence Deshpande has nowhere stated that for the sa .....

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nt of Nissim, in my opinion, support the case only of a tripartite agreement. If this was normal transaction of sale of shares by the bank as pledgee from a customer, no sanction of the board of directors was necessary under the Articles of Association of the bank. The not made by Deshpande clearly shows that even after the resolution of the executive committee the sanction of the board was considered necessary for making the transfer entries. That also explains why in fact no entry closing the .....

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een no credit or debit entries in the account after that day. The transfer of ₹ 2,132 on 18th July, 1940, to the credit of this account from Nissim's current account is inexplicable if the consideration for the transfer of the shares was the balance due at the foot of the overdraft account on the 10th July, 1940. In his evidence, Deshpande said that he considered that the bank was entitled to take this credit because Jamnadas had taken over all assets of Nissim and therefore the bank w .....

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l this clearly shows that on the 10th July there was no concluded sale of 26,000 shares of the Company by the bank to Jamnadas. The entries are explicable on the theory of there being a tripartite agreement, but not otherwise. If such an agreement existed, all these entries will be consistent with it, because whether Nissim was liable to the bank on one account or another was immaterial, as all the liabilities and securities of Nissim were to be treated as of Jamnadas thereafter. It is very sign .....

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idence. Ex. W. is a transfer form in blank, i.e., without the name of the Company, the number of shares, the distinctive number of shares, the consideration or the date filled in. It is signed by Nissim as transferor and by Jamnadas as transferee. Ex. A-47 is a transfer form with similar blanks but signed only by Jamnadas as the transferor. It was stated that on the 10th July, Jamnadas signed Ex. W. and also signed Ex. A-47 to show that he had purchased the-shares from Nissim and re-pledged them .....

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n signed by Jamnadas as the transferee. It would be surprising if, while these transfer forms with the name of the Company filled in existed, another form, without the name of the Company, should have been utilised for showing that Jamnadas had become the owner of these 26,000 shares of the Company. Similarly, if there was a conscious effort to record that these 26,000 shares of the Company were pledged by Jamnadas to the bank on 10th July, 1940, the name of the Company would have been filled in .....

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ot; which had been given by Nissim when the money was paid to him against the shares of the Company. One form was used in this manner and the rest continued to be in his possession. He had put all these forms in an envelope in his safe. He admitted that none of these transfer forms was produced or mentioned by him throughout the trial of Suit No. 1001 of 1941 or at any time before he gave evidence in this suit, as he had forgotten their existence. In the end he admitted that besides the two tran .....

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ction is still more clear. He said that he was present when the sale of these 26,000 shares was completed and the share certificates and the transfer forms (Ex. A-8) were handed over in the office of solicitors. He then added as follows:-"There were no transfer forms signed by Jamnadas. I did not ask for any transfer forms signed by Jamnadas in respect of these shares as I understood that the blank transfer forms signed by Nissim as transferor were quite enough for the purpose. I did not he .....

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art from the tripartite agreement. 16. Even if a different view is taken and on 10th July, 1940, the bank purported to sell the shares to Jamnadas, in my opinion, the appellant cannot succeed. Jamnadas was the Chairman of the board of directors of the bank and knew that the bank was a pledgee of the shares and as such had only a limited title thereto. Under s. 176 of the Indian Contract Act it is clear that before a pledgee can exercise the power of sale, when a fixed time for repayment is provi .....

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amount to such a contract. The demand for payment contained in the bank's letter of 10th April, 1940, is not a notice to sell. It is therefore clear that no notice to sell was given by the bank to Nissim, as required in law. In the trial court it was suggested that Nissim had waived such a notice. The trial court did not record any finding on this issue, as it considered it unnecessary to do so. The appellate court held that there was no waiver on the part of Nissim. In my opinion, on the e .....

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fferent thing, even as regards the money value, to say that such a person agreed to the transfer of one specified security against the transferee taking over only one specific liability. Jamnadas was not examined on the point and Deshpande had not deposed to any such consent or waiver on the part of Nissim. The plaintiff has not even pleaded that the sale was with the consent of Nissim at any time. Some reliance was placed on the letter of the 12th July by the bank to Nissim in which there was a .....

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of immediate protest, which Nissim was not obliged to make in law, woes not amount to a waiver of notice. Therefore, the gale by the bank to Jamnadas, who knew all the facts, did not give Jamnadas a better title than the pledgee. In my opinion, even after such alleged sale if Nissim or the Official Assignee had claimed to redeem the shares, they would have been entitled to do so from Jamnadas. Section 27 of the Sale of Goods Act provides that a seller cannot give a better title to a purchaser t .....

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rs and securities together with other securities of his customers with various banks as security for the loan accounts running between him awl them, the blanks in the transfers of stock being filled up with the names of nominees of the banks. In so dealing the banks either actually knew, or had reason to believe, that the securities did or might belong not to M. but to his customers. M. became bankrupt. The banks sold some of S.'s securities and claimed to hold the proceeds and the unsold re .....

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se in respect of the securities sold the legal title was ostensibly in the banks and the purchaser had no notice of any defect in the banks' title to the securities. It was noticed that to complete the pledge, the execution by S. of blank transfer forms was an incident of the transaction. It wais held that the banks had the legal estate and they were purchasers for value. The whole question resolved itself into a question of fact: "had the banks notice of the infirmity of M.'s title .....

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t with them as owner was not acting by right of ownership. They took for granted that he had authority but for some reason or other they did not choose to inquire what that authority was. They relied either on some assumed custom or general usage of bankers or on M.'s representations.... If they relied on M.'s representations, it turns out now that in this case his representations were not well founded and as loss had occurred the loss must fall on those who trusted without enquiry to th .....

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is name for an undisclosed principal and the principal sued the buyer for the price. The buyer sought to set off a debt due from the agent. It was held that he could not do so unless in making the contract he was induced by the conduct of the principal to believe and did, in fact, believe that the agent was selling on his own account. When a person thus is in possession of goods to sell which he had either absolute or limited authority, the question would be one of fact. It was observed by Lord .....

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of shares which stand in someone else's name, it is his duty to enquire whether the person tendering the security had authority to do so. Section 27 of the Sale of Goods Act is applicable to the relationship of pawnor and pledgee also. In the present case, therefore, as no notice of the bank's intention to sell the shares was given to Nissim, the bank had no authority to sell the same and Jamnadas must be held aware of this want of authority. 18. The next question is in respect of the s .....

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the history pi these shares or whatever else he knew about the same. The plaintiff did not want to know anything further from me." The knowledge of Fouzdar is the knowledge of the plaintiff. Knowing the full history of these shares and being in charge of the transaction on behalf of the plaintiff, Fouzdar must have been also aware of the resolutions passed by the executive committee of the bank on 24th October, 1941. The resolutions are very significant. In addition to the sale of these sha .....

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ipartite agreement with the plaintiff of the same type as before. In my opinion, Fouzdar was fully aware of the nature of the transaction and on the principle of Earl of Sheffield's case (1888) 13 A.C. 333 Fouzdar and the plaintiff had knowledge of the want of full title in Jamnadas to these shares. The plea of estoppel against the Official Assignee has been rejected by both the lower courts and the appellant did not rely upon the same in this Court. The plaintiff cannot therefore claim a be .....

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notice to Nissim of its intention to sell. No such notice was given. Moreover, as the plaintiff is a party who had notice of the true position in respect of these shares, he cannot acquire a better title to the shares than the bank which had the title of only a pledgee. 19. In my opinion therefore the appeal should be dismissed with costs. Mahajan, J. 20. This case comes before us on an appeal against a decree of a Division Bench of the Bombay High Court setting aside a decree of a single judge .....

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evidence as a whole, in my opinion, the appellate court in this case was not justified in reversing the decision of the trial judge and that decision should be restored. 22. The question to decide in the case is whether the 26,000 new shares of the Asian Assurance Co. Ltd. standing in the name of one Nissim had been lawfully transferred to Jamnadas Mehta and then to the plaintiff or whether the Official Assignee of Bombay on the insolvency of Nissim acquired the ownership of the shares subject t .....

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s a director of this company and was considered at that time to be a man of substance. He was also a director of the New Citizen Bank of India Ltd. The Chairman of both these companies was Jamnadas Madhavji Mehta. Nissim owed ₹ 1,10,000 on the underwriting agreement to the Company. He also owed some other amounts to it on the basis of other accounts. On 1st September, 1939, Nissim borrowed from the New Citizen Bank of India Ltd. ₹ 25,000 on a promissory note on pledge of fine shares .....

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was directed to send the share scrips when ready to the bank. On 6th October, 1939, Nissim borrowed another sum of ₹ 50,000 from the Bank on the pledge of the same shares and executed similar documents in its favour. Nissim was also a debtor to the Bank on other accounts as well. He had underwritten the issue of new shares of the Bank itself and a sum of ₹ 92,500 was owed by him to the Bank on this account. He had also guaranteed repayment to the Bank of certain loans of One Messrs. .....

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t remained in a state of suspended animation till August, 1941, when the Official Assignee tried to revive it but eventually gave up the attempt. 24. The financial position of Nissim had become unstable by the beginning of 1940 and the Board of Directors of the Bank resolved to recall the loans advanced to him. A letter of demand was accordingly issued to him by the Bank on the 12th April, 1940. Nissim had no money to meet the demand. He seems to have made up with the Chairman of the Bank, Jamna .....

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rities that Nissim had pledged to the Bank. On the following day Mehta wrote a letter to Deshpande, the Managing Director of the Bank, offering a sum of Bs. 73,000 for the purchase of 26,000 shared of the Asian Assurance Company that had been pledged by Nissim to the Bank. Mehta, Deshpande and Nissim, it appears, were having conversations on these matters and it is not unlikely that this offer was made to the knowledge of Nissim, who was also a director of the Bank. On 10th July, 1940, the execu .....

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in terms of the resolution of the executive committee. It is alleged that a concluded contract was thus arrived at between the Bank and Mehta regarding the sale of the 26,000 shares in its favour on the 10th July, 1940, for a sum of ₹ 73,000 or thereabouts. This expression, it is said, was understood by both the parties as meaning the amount due on the overdraft account on the two promissory notes totalling ₹ 75,000, for which the shares had been pledged. On the same day Jamnadas Me .....

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e committee of the Bank was not given effect to by debiting the balance in the overdraft account of Mehta, which account continued nearly till the end of the financial year. In Nissim's account an entry was made with a red pencil mentioning the transaction of sale and a week later the security register also mentioned the fact of this transaction. Nissim was also given information orally on the telephone on the 11th or 12th July and in writing by the 15th July that the sale of the shares had .....

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or 12th July, 1940. He corrected this matter when he filed his first schedule on 6th September, 1940. In his letter of 6th September, 1940, Nissim told the Official Assignee that the shares had been sold and did not belong to him. A copy Of the Bank's letter dated 12th July, 1940, received by him on 15th July, 1940, was also sent to the Official Assignee. The Official Assignee accepted the position as disclosed by Nissim to him in his letter of the 6th September, 1940 and never questioned t .....

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mall deficit which the sale proceeds had not covered. It, however, state that there was no surplus available which could be placed at the disposal of the Official Assignee. The Official Assignee on 10th June, 1941, again inquired about the date of sale and the reply given on 24th June was to the effect that the shares were sold on 10th July, 1940. Till March, 1942, when several, litigations began, no further correspondence passed between the Official Assignee and the Bank. Both Nissim and the Of .....

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as security on behalf of Nissim. It further said that these shares were subject to a lien for a loan of one lac of rupees advanced to Nissim and until the amount was paid, the Company was not prepared to agree to the transfer of the said shares from the name of Nissim to the name of the other party mentioned by the Bank. On the like ground the Company refused to pay any dividend to the Bank. 28. The 15th meeting of the Board of Directors of the Bank was held on 15th April, 1941 and the executiv .....

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lso given in his favour. The proxy, however, was revoked by Nissim on 14th July, 1941. 29. On 15th July, 1941, Jamnadas and Vijayakar filed a suit for a declaration that the revocation of the power of attorney and the proxy was invalid and that by the issue of an injunction Nissim shall be directed to vote it the meeting as desired by Jamnadas. This suit was numbered as 921 of 1941 and remained pending till August, 1943, when it ended with a consent decree. Nissim admitted that he had no interes .....

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das on one side and the Company on the other. The Company challenged the locus standi of both the plaintiffs to maintain the suit. Whether Jamnadas had a locus standi to maintain the suit or not the Bank as pledgee obviously was competent to maintain it. In order to establish his locus standi, it was contended by Jamnadas that by reason of a tripartite agreement arrived at between the Bank, himself and Nissim on 6th July, 1940 and given effect to on 10th July, 1940, he had become the owner of th .....

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, on the ground that the Company had a lien on the 26,000 shares pledged with the Bank for the amount due to it under the underwriting agreement of Nissim he appeal from this decision failed in November, 1944. 31. The net result of the three litigations fought out between Jamnadas Mehta and the Bank on one side and the Company, Nissim and the Official Assignee of the other was that the Company's lien was established in 26,000 shares to the extent of the underwriting Agreement, Jamnadas's .....

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nly on the hypothesis of his acceptance of the fact that they has been sold with his full knowledge and consent. Mehta, of course, was asserting his ownership to these shares and the Bank recognized it. The account of Nissim was adjusted by crediting the sale price in it and the account of Mehta was debited with it. The Bank did not claim from the Official Assignee any amount on account of this indebtedness. Enquiries were made by the Official Assignee about any surplus and he was told that inst .....

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tions of the parties in the two pending suits, viz., Suits Nos. 921 of 1941 and 1001 of 1941. Suit No. 921 of 1941 as already indicated, was for a declaration that Nissim was bound to vote at the meetings of the Company as desired by Jamnadas. That suit ended in favour of Jamnadas. The other suit concerned the lien of the Asian Assurance Company on the shares. The lien was held established to the extent of the balance of the Overdraft account. There is no question that this sale was a genuine on .....

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g, on 12th October, 1943, the present sail was filed by the plaintiff, Madholal Sindhu, for a declaration against the Asian Assurance Company that it had no lien on the 26,000 shares for the sum of ₹ 1,45,000 due to it on the other account of Nissim. The plaintiff deposited in court simultaneously with the plaint a sum of ₹ 1,07,500 to meet the Company's lien in Suit No. 1001 of 1941. The suit was necessitated by reason of the Company's threat regarding the sale of the shares .....

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of the shares was also disputed. The Company claimed alien cot only in respect of ₹ 1,10,000, but also in respect of ₹ 1,45,000 and certain costs. The Bank and Jamnadas did not file any written statement. They supported the plaintiffs allegations Nissim did not appear in the case. On 16th March, 1944, the Official Assignee contested the claim of the plaintiff and filed a counter claim alleging that before Nissim's adjudication as insolvent Jamnadas had not become the owner of the .....

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ny and the plaintiff, the dispute regarding the ownership of these shares had ended long before. That litigation, however, furnished an opportunity to the Official Assignee to put forward a somewhat belated claim for exercise of the right of redemption in the 26,000 shares. In all probability he was prompted in this litigation by some group of speculators who want to have control over the Company by purchasing these shares. There could be no other motive behind it as the amount due on the pledge .....

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full knowledge and concurrence of Nissim before the date of his insolvency. The learned judge pronounced the sale in favour of the plaintiff as a bona fide one and held that even if Jamnadas Mehta had not become the owner of these shares on the 10, July, 1940, the Bank as pledgee of these shares had every right to put them to sale and that the failure on his part to give notice to the Official Assignee as required by, s. 176 of the Indian Contract Act was a mere irregularity which did not affect .....

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uit No. 1001 of 1941; in other words, the alleged sale was the tripartite agreement of 5th July, 1940, in disguise and as that agreement had not been proved in the former case and was not pleaded in this case the sale could not be held proved. The learned Chief Justice reiterated the opinion expressed by him in Suit No. 1001 of 1941 that the documents executed on the 10th did not evidence a real transaction, while Mr. Justice Chagla thought that those documents were executed with a view to keep .....

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nlarged jurisdiction of this Court the appeal was heard by us. 35. As I have observed at the outset, this appeal should be allowed. The trial Judge, after considering the documentary evidence about the genuineness of which he was satisfied by the oral testimony heard by him, reached the conclusion that a concluded sale between Jamnadas and the Bank with the concurrence of Nissim regarding these shares had been proved and that the title in these shares after the 10th July, 1940, vested in Jamnada .....

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n Suit No. 1001 of 1941 though those decisions were not res judicata and were not otherwise relevant about the tripartite agreement and could not dissociate their minds from them. It has thought that the tripartite agreement pleaded in the former case was still the subject matter of the present suit and that it had only been given a new form. I am satisfied that this line of approach was not justified. Whether the sale transaction of the 10th July, 1940, was in pursuance of the previous arrangem .....

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ehta, no matter what negotiations preceded the sale and no matter whether the sale was made to give effect to a part of the agreement or was agreed upon independently of it. The Chief Justice, Sir Leonard Stone, considered that what took place on the 5th and 10th was a mere camouflage and that the whole transaction was a sham, that Jamnadas Mehta, the Chairman of the Bank, Nissim and officers of the Bank conspired together in executing the documents without any intent on their part of giving eff .....

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documents supporting the tripartite agreement, they are, in my judgment, at variance with the existence of any such agreement. In my opinion there can be no doubt that no concluded or enforceable agreement was ever come to in July, 1910, whereby Mr. Jamnadas Mehta was to take over all Mr. Nissim's liabilities and all his securities therefor. The evidence and the documents point in my judgment to a discreditable attempt on behalf of Mr. Jamnadas Mehta and the Bank to make entries in the Bank .....

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never had an estate or interest in these 26,000 Asian Shares. 36. With the greatest respect to the learned Chief Justice, it has to be pointed out that once it was held that the decision in Suit No. 1001 of 1941 had not the effect of res judicata and did not bar the trial of the issue in this suit, it had absolutely no relevancy and the observations of the learned Chief Justice cited above are open to serious objection. They afford no justification for setting aside the judgment of the single Ju .....

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al cannot receive the approval of this Court Mr. Justice Chagla arrived at the same conclusion on a different reasoning. He observed as follows: If the matter is left to be determined on these two documents alone, I should have no hesitation in holding that the plaintiff has established that these share were sold by the Bank to Jamnadas Mehta. As I have already pointed out, the Bank Was holding these shares as a pledgee of Meyer Nissim and the sale would then be by the pledgee in possession in e .....

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t offer on the 10th of July, 1940, it made no relevant entries either in the account of Meyer Nissim or the account of Jamnadas Mehta. Although it wrote Flatter to Meyer Nissim stating that it had disposed this shares, it was written in a manner which made p possible for the Bank if occasion arose either to disown it or to adopt it. The Bank apparently was waiting upon events. After the insolvency of Meyer Nissim, it wanted to be in a position to put forward such transaction as circumstances mig .....

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conduct of the Bank in making entries into books cannot affect the title of Jamnadas Mehta in the shares if the title had become indefeasible on the 10th July, 1940. I have not been able to appreciate the mark that the transaction was left in a vague and nebulous state. So far as I can see, there is nothing vague in the transaction and it cannot be said to be in any nebulous state. Either the transaction was completer it was not completed. That was the sole question to decide. Once the learned .....

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vidence of either of the parties. There is no evidence whatsoever on the record to suggest that any valid grounds exist for the suggestion, that the Bank, Mehta and Nissim entered into a conspiracy and the documents executed on the 10th were the result of the conspiracy and were not intended to be given effect to. 38. The broad facts in the case are that the Bank was a pledgee of the shares and was entitled to sell them, when Nissim failed to meet the notice of demand admittedly issued to him in .....

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th his securities. Nissim was quite willing to pass on his liability to Mehta along with the securities an apparently the securities were not sufficient to me them. Mehta was willing to take over these liability and securities because it was at his instance that (sic) Bank had advanced the loan to Nissim. It was on the 6th July that Mehta sent his offer to the Bank about these shares and on the 10th this offer was accepted by the Bank. The next day Deshpande in formed Nissim on the telephone abo .....

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r a debtor to the Bank. Not only was he informed about the sale but the Official Assignee was also pat in full possession of the facts later on. Jamnadas Mehta not only executed a promissory note, in favour of the Bank and gave a letter of pledge, but he also signed one of the blank transfer forms as transferee and two other forms as transferor. These documents he would not have executed had he not become the owner of these shares on the 10th July, 1940. On no other hypothesis is the execution o .....

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hat was owed to the Bank by Nissim. In these circumstances it is difficult to imagine that all these things happened as a result of conspiracy. The rights of parties cannot be decided on mere suspicions or conjectures and the law presumes in favour of honest dealing. The documents proved in the case clearly evidence a confided sale of the shares in favour of Mehta and they cannot be explained away on hypothetical grounds. If Nissim had not accepted the sale transaction it is inconceivable that h .....

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ole of the arrangement was not carried through or that it could not be satisfactorily proved. It does not follow however that what actually took place cannot be given effect to. The decision that there was a sale of these shares in favour of Mehta on 10th July, 1940, does not in any way run counter to the decision in the earlier suit about the tripartite agreement not being proved. On the other hand, it is consistent with that decision. It was therein observed that the sale may have taken place .....

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support the decision of the appellate court, on the ground that the document relied on by the plaintiff to prove his case did not standing by themselves, prove a concluded contract of sale of the shares between the Bank and Mehta with the consent of Nissim. It was contended that these documents may conceivably be evidence of a tripartite agreement but they do not prove an independent contract of sale dissociated from it for which a separate and severable consideration had been agreed upon and t .....

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ice of ₹ 73,000 or thereabouts. Further, it was id that by the use of the expression "thereabouts" even if Mehta agreed to the counter offer, the price was not ascertained or fixed and the contract did not satisfy the requirements of s. 9 of the Sale of Goods Act. According to Mr. Munshi, it had nowhere been said by any one that the sale of 26,000 shares was for the balance of the amount due to the Bank on the overdraft account of Nissim, on the 10th July, 1940 and that there was .....

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f did not know what the price was. The learned counsel contended that the true position was that the evidence disclosed some kind of an arrangement between Mehta, the Bank and Nissim, under which Mehta was to take over all the liabilities and assets of Nissim and as the whole arrangement was not carried out, a part could not be given effect to even if carried out as there was no separate consideration for it and either the whole had to stand or it had to go in its entirety and the effort to repr .....

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₹ 73,000 or thereabouts. It is also true that Deshpande made somewhat different statements at different stages as to the price. In express terms it was not deposed to by him that the sale of these shares was for the amount due from Nissim on the overdraft account of ₹ 75,000. But the whole transaction has to be judged in the light of the attendant circumstances. There is strong circumstantial evidence that unerringly fixes the meaning of the expression "73,000 or thereabouts&quo .....

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d the Bank were in agreement so far as the price was concerned. The contention of Mr. Munshi that stating the price in those terms does not bring the case under s. 9 of the Sale of Goods Act again cannot be sustained for the simple reason that both the Bank and Mehta fully knew what the meaning of this expression "73,000 or thereabouts" was on the 10th July, 1940, the amount of ₹ 73,698 was due from Nissim in this overdraft account and it was for this reason that the price was fi .....

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5,000. The promissory note was not taken for a sum of ₹ 73,000 or ₹ 73,000 odd for the simple reason that the overdraft account of Nissim was on the foot of the promissory note for ₹ 75,000. In stead of Nissim, Mehta was substituted in the promissory note account. Secondly on the account itself an endorsement was made that the securities pledge under that account had been transferred to Mehta along with the liability but that the account would be closed at a later date. Mehta w .....

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can therefore be question that so far as the sale of 26,000 shares of Asian Assurance Company is concerned, the sale (was made for the amount due on the overdraft account of Nissim and it could relate to no other account. The contention of Mr. Munshi that subsequently the Bank continued this account and even credited it with further amounts cannot in any way affect the case because what the Bank officials did later on would not in any way deprive the purchaser of the ownership of the shares tran .....

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Chagla in the following terms: Although both the pleadings and the issues raised are far from satisfactory for a trial of the question of sale by the Bank to Jamnadas Mehta, all the parties and the learned Judge himself went on with the trial on the basis of the plaintiff having alleged a sale by the Bank to Jamnadas Mehta. 41. The next contention of Mr. Munshi that even if this sale took place, the consideration for it was a part of the consideration for the whole of the tripartite agreement un .....

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securities in favour of Mehta for the sums due on different accounts. These securities were pledged in different accounts for different sums of money and these accounts had to be dealt with separately and this is what actually happened on the 10th July. One of the accounts was agreed to be adjusted by the sale of the 26,000 shares, the other account was adjusted by the sale of the Bank's shares in favour of Kajiji and the third and fourth accounts were adjusted by the letters of guarantee. .....

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the sale was given to Nissim under s. 176 and therefore the sale was void rib initio. This contention overlooks the fact that the pledgee before disposal of the shares had consulted the pledgor who was agreeable to the transfer of these shares by the Bank. His consent having been obtained for the disposal of the shares, the question of notice under s. 176 does not arise. Moreover, he was subsequently informed about it and throughout he ratified the transaction and acquiesced in it. As already p .....

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