Williams, J.
1. The firm of Kerr Tarruck & Co. prior to the month of October 1927, used to carry on business in Calcutta as importers and dealers. Their shippers used to draw bills of exchange on them for the price of the goods shipped. The plaintiffs used to finance the shippers by discounting these bills or by issuing other bills in exchange and took as security the bills of lading and other documents relating to the goods and the shippers from time to time executed letters of request and hypothecation in favour of the plaintiffs. These bills of exchange were called advance bills as distinguished from other bills of exchange which were handed to the plaintiffs by the shippers for collection only. By the terms of the letters of request and hypothecation it was agreed inter alia that the plaintiffs should accept the shippers bills of exchange drawn upon their indentore (in this case Messrs. Kerr Tarruck & Co.) accompanied by bills of lading, invoices, and marine insurance polices purporting to represent the relative merchandise shipped. The documentary bills were to be forwarded by the plaintiffs to their agents (in this case their Calcutta Branch) and the shippers undertook that their respective drawees (in this case Kerr Tarruek & Co;) would accept the bills on presentation and pay them at maturity. It was a term of the contract that the documents attached were not to be delivered until payment of the relative bills.
2. In consideration of the plain tiffs accepting their bills, the shippers undertook to pay the amount required to meet the acceptances in case the plaintiffs did not receive cover before maturity or should the amounts received be insufficient and to pay interest in case of default. Further in case of default by either the shippers or their indenters the plaintiffs were authorised to sell the goods. Kerr Tarruck & Co. had knowledge of these terms and of the terms of the contracts of sale and in particular of the fact that the bills were D./P., that is to say, payment must be made on or before delivery of the shipping documents. The plaintiff used to send the bills of exchange, with the bills of lading and other documents, to their branch in Calcutta and Kerr Tarruck & Co. accepted the bills. Thereupon and before obtaining payment, the Calcutta branch used habitually to hand over the bills of lading and other documents to Kerr Tarruck & Co. and take in exchange certain documents called trust receipts. This practice had been followed for 20 years prior to the year 1927 though obviously it was done in breach of the contract between the plaintiffs and the shippers contained in the letters of request and hypothecation, because, it enabled Kerr Tarruck & Co. to obtain delivery of the documents and the goods before payment.
3. By the terms of the trust receipt it was provided that in consideration of the plaintiffs having handed over the shipping documents in respect of goods hypothecated to them as collateral security for the due payment of the relative draft drawn upon and accepted by Kerr Tarruck & Co. the latter firm undertook to land, store and hold goods until sale as trustees for the plaintiffs and in the event of sale by Kerr Tarruck & Co. to receive the gross proceeds as trustees for the plaintiffs, and forthwith to pay them in full to the plaintiffs. Further, Kerr Tarruck & Co. agreed in case the goods were sold by them on credit to obtain from the purchaser a promissory note for the price payable on demand and endorse, it in favour of the plaintiffs forthwith if called upon to do so and to receive any sums paid in discharge of the notes, on behalf of the plaintiffs' to Whom such sums should belong, and to hold them as trustees for the plaintiffs and to pay them to the plaintiffs as and when received.
4. It is clear from the evidence that neither the plaintiffs nor Kerr Tarruck & Co. ever intended that these terms, which were printed, should be adhered to either strictly or in full. This was admitted by. Mr. Pollock, Mr. Warren and Mr. Warwick, sub-agents of the plaintiffs. For example, Kerr Tarruck & Co. were not expected to pay the gross proceeds of sale to the plaintiffs forthwith or at all. One of the witnesses of the plaintiffs described this term as ''silly.' They were to meet the relative bills of exchange at maturity and this they did invariably, over a long period of years, and until they became insolvent. Further, goods, such as corrugated iron sheets and sugar, were not stored, nor ever intended by either party to be stored in the godown but were sold ex jetty. Moreover, when goods were sold on credit Kerr Tarruck & Co. did not obtain promissory notes from the purchasers, but took bazar chits instead, nor did they pay the sums received in discharge thereof to the plaintiffs, when or as received, and when the plaintiffs became aware of these departures from the terms of the contract, they acquiesced rather than risk the loss of good customers of high commercial repute and good standing, such as Kerr Tarruck & Co. were recognized to be. This is confirmed by the correspondence. In fact, Mr. Warwick had to admit that the terms of the trust receipts contained in the first two, which are the main clauses of the agreement, had never been adhered to in practice. Having thus obtained the shipping documents, Kerr Tarruck & Co. used to get delivery of the goods from the ship and either sell them ex jetty or store them in a godown being the top flat of 'D' division of the Bengal Bonded Werehouse at No. 102-2, Clive Street, Calcutta, which they rented, and in which large quantities of other goods were stored.
5. For many years Kerr Tarruck & Co. were customers of the defendants, and for more than 15 years, had had an overdraft account on the basis of cash credit agreement, which was renewed every six months. This was secured by a pledge of all goods stored from time to time in the godown in the Bengal Bonded Warehouse, over which the defendants at all material times exercised effective control. Control was effected by placing one of the defendants godown, Sarkars in charge of the godown and the goods stored therein; This man wore upon his coat a metal badge engraved with the name of the defendants. The doors of the godown were secured by locks belonging to the defendants which also were engraved with their name. Every morning, the Sarkar used to get the keys from the accountant of the defendants and open the godown. During the day, he remained in charge, and checked and passed all goods going in and out, and made a report daily to the defendants. He used to sit at a table in the entrance to the godown, and at the end of the day, he locked up the godown and returned the keys to the defendants. While the godown was open, the keys used to hang on the door staples. Kerr Tarruck & Go. also put their own locks on the doors, and kept their own Sarkar there who, under the terms of the cash credit agreement, entered all movements of goods, in a register, which was open to the inspection of the defendants, and supplied them daily with a schedule or copy of the entries in the register.
6. By an agreement in writing, which was renewed from time to time, Kerr Tarruck & Co. permitted to remove from the godown as many as 30, cases per day without special reference to the defendants, and the Sarkar was instructed accordingly, but for the removal of any cases in excess of that number, Kerr Tarruck & Co. had to obtain a specific delivery order from the defendants, without which the Sarkar would not allow the goods to pass. The maximum overdraft allowed, including interest thereon, was Rs. 7 lakhs, but at no time was it to exceed with interest 75 per cent, of the market value (not being in excess of the normal value) of the goods for the time being pledged, that is to say, stored in the godown. The balance of the overdraft outstanding at any time was repayable on demand, and in default the defendants might sell the goods without notice.
7. It is admitted that the defendants received in good faith the good's thus stored and pledged with them. They had no knowledge of the arrangement between Kerr Tarruck & Co. and the plaintiffs, and believed that the goods belonged to Kerr Tarruck & Co. absolutely. In fact, Kerr Tarruck &. Co. gave them written assurances to this effect, from time to time. On the other hand, Kerr Tarruck & Co. never informed the plaintiffs that they were pledging the goods so obtained under the terms of the trust receipts, to the defendants.
8. But the plaintiffs used to send officials to inspect and check the goods in the go-down from time to time, and no attempt was made either by Kerr Tarruck & Co. or the defendants to conceal the fact that the latter were in possession and control of the godown and the goods contained therein, and, in my opinion, such possession and control was open and effective and ought to have been apparent to any one exercising reasonable care and intelligence. Further, the plaintiffs were aware that the godown contained large quantifies of goods in which they had no interest.
9. On October 12, 1927, Kerr Tarruck & Co., became insolvent, and the defendants locked up the godown and placed upon it a' notice marked 'Imperial Bank, mortgagees, in possession.' At (his date, Kerr Tarruck & Co., were liable to the plaintiffs for considerable sums of money in respect Of bills of exchange so accepted, and to the Imperial Bank in respect of their overdraft. All except two of such bills fell due after the date of the insolvency.' On October 14, the plaintiffs claimed the goods in which they were interested and the defendants replied giving particulars of their pledge. Subsequently all the goods in the godown were sold by arrangement between the various parties interested therein, and the proceeds are being held by the defendants pending the decisions Of the Court in this and other suits. On May 11, seven months after the insolvency, the plaintiffs issued their plaint in this suit. They contended that the alleged pledge to the defendants was invalid and of no effect, because the shipping documents and for goods had been dealt with by Kerr Tarruck & Co., fraudulently by concealing the terms and conditions on which the goods were held by them. That is to say, they contended that the alleged pledge was invalid because Kerr Tarruck & Co., had defrauded the defendants. The latter contended inter alia that the plaintiffs by their actions had permitted the defendants to believe that Kerr Tarruck & Co., were the owners of the goods or entitled to deal therewith, and to act upon such belief, and that in consequence the plaintiffs were estopped from disputing the validity of the pledge.
10. The case came on for hearing on January 17, 1929, when counsel for the plaintiffs asked for an adjournment oil the ground that the Official Assignee was about to file a plaint, asking for a declaration that the goods in question belonged to the general body of creditors of Kerr Tarruck & Co., and that it would be a waste of money to proceed with the suit in the circumstances. This application was refused and the case proceeded. The following issues were raised: (1) Are the plaintiffs entitled to maintain the suit (2) What, if any, was the property vested in the plaintiffs, in the goods which were the consideration for the bills of exchange mentioned in Ex. B to the plaint (a) before: and (b) after the delivery by the plaintiffs to Kerr Tarruck & Co., of the relative bills of lading (3) Did Kerr Tarruck & Co., hold such goods or any of them as trustees and/or as agents for the plaintiffs (4) Did Kerr Tarruck & Co., validly pledge such goods or any of them to the defendants (5) Are the plaintiffs estopped The hearing was adjourned from time to time and continued for several days; a number of witnesses were called and both parties closed their cases save and except for Counsel's final speeches.
11. Meanwhile, on January 28, 1929, the decision in the case of Rahimbux Ashan Karim v. Central Bank of India Ltd. : AIR1929Cal497 was upheld on appeal. Thereupon, it became apparent, in the light of that decision, that the defendants would probably succeed in this case, on the pleadings as they then stood, their position and claim as valid pledgees within the terms of the old Section 178, Contract Act, which was then in force, being much stronger than that of the Central Bank of India, Limited, in the case cited. That being the position, the Advocate General, on behalf of the plaintiffs, applied for leave to amend the plaint and to raise a new issue by alleging that the documents and/or goods had been obtained from the plaintiffs by Kerr Tarruck & Co., by fraud and the offence of cheating, and to rely upon proviso 2, Section 178. On April 19, 1929, judgment was given on this application, which was granted upon the terms that the plaintiffs should pay to the defendants the whole of the Costs of the suit up to the date of the amendment, and the further hearing was adjourned, with leave to both parties to call further evidence. The hearing was resumed on January 27, 1933, when the plaint was further amended by adding the following particulars of fraud:
(a) Obtaining bills of lading; and other documents on the representation that the terms of the trust receipts would be carried out, and that such terms had been carried out in the past, and by inducing the plaintiff back to part with such documents on such representations. The said firm acted as it did without any intention of carrying out such representations, (b) Concealing the fact that it had a cash credit account with the Imperial Bank secured by the pledge of all goods stored and to be stored in the 'D' division of the Bangal Bonded Warehouse, (c) Obtaining the goods covered by the documents with the intention of pledging the same with the Imperial Bank and by concealing the said intention from the plaintiff Bank.'
12. Subsequently, further evidence was called. The arguments on the resumed hearing were directed largely to the question, what is the legal relation created by so-called 'Trust Receipts.' This question was considered in the case, of In re, Nripendra Kumar : AIR1930Cal171 , and my remarks therein have been explained and amplified in the judgment of Ameer Ali, J., in the case of In re Stimermull Surana 140 Ind. Cas. 594 : A I R 193 : Cal. 680 : 59 C 818 : Ind. Rul (1933) Cal. 1, with which I agree. So far as the present case is concerned. the question can be disposed of shortly : Whatever be the relation created as between the plaintiff and Kerr Tarruck & Co., whether the trust receipts created contracts of agency or something more, such as a trust, they cannot affect the defendants who had no knowledge of them and who, bona fide, had given valuable consideration for the goods pledged. (Section 64, Trusts Act.)
13. It seems to me quite clear that Kerr Tarruck & Co. were in possession of the goods within the meaning of the old Section 178, Contract Act, and could and did make a valid pledge of them to the defendants apart from any question arising under the terms of the second proviso Further, I am satisfied, for the reasons given in the two cases to which I have just referred and in the circumstances of this case, that no trust was or could be created by means of the trust receipt and that the goods were not and could not have been delivered by the Chartered Bank to Kerr Tarruck & Co., or held by them upon trust. Where anyone holds property in trust, bona fide, whether the trust is express or implied, he is in possession as the legal owner: Joy v. Campbell (1804) I Ch. & Led. 328 Trusts Act, Section 3. It is clear that Kerr Tarruck & Co. were not the legal owners. They knew that their contract with the shippers was that the property in the goods should not pass, and delivery should not be given, except upon payment, arid they knew that the plaintiffs had given delivery to them in breach of the contract of hypothecation between the plaintiffs and the shippers. Further, the plaintiff's case is that Kerr Tarruck & Co. were not the owners of the goods.
14. The real object of such documents as trust receipts, in this as in many other cases, seems to try and defeat the provisions of Section 52(2)(c). Presidency Towns Insolvency Act, and this Mr. Warwick was finally constrained to admit was the real object of the plaintiffs in issuing them. (Q. and A. No. 159 of his deposition, dated January 28, 1932). In any case, such would be the effect if permitted. This would offend against the provisions of Section 4, Trusts Act, as also would the involved breach of contract between the Chartered Bank and the shippers. If no trust was created, and contrary to my opinion the pledge to the defendants was invalid for any reason, then the logical result of the plaintiffs' contention would be that Section 52(2)(c), Presidency Towns Insolvency Act would apply and the goods would form part of the property of the insolvents divisible amongst their creditors, as being goods in the order or disposition of the insolvents, in their trade or business, by the consent and permission of the true owner under such circumstances that they are the reputed owners thereof. This follows from the plaintiffs' contention that they are hypothecates, that is to say, the true owners of the goods within the meaning of the section.
15. Such being the case, it would appear to be unnecessary to consider that part of the plaintiffs' case which rests upon allegations of fraud, because in such a case the plaintiffs would not be entitled to maintain the suit, the property in the goods having vested in the Offical Assignee. Further, the plaintiffs, as regards the shippers, were in a similar position to that which they alleged against Kerr Tarruck & Co, Admittedly, they had obtained the shipping documents from the shippers upon the representation that they would not part with them, except upon payment, when their intention was immediately to deliver them to Kerr Tarruck & Co. in exchange for the trust receipts. Thus they were guilty of fraud or the offence of cheating and their claim in this suit is founded upon such tort-feasance. The contention is that the goods in suit were obtained from the plaintiffs by Kerr Tarruck & Co. by means of an offence or fraud within the meaning of the second proviso to the old Section 178, Contract Act. The plaintiffs do not rely upon the first proviso. Seldom has a case based upon allegations of fraud started under a heavier handicap It is perhaps unnecessary for me to repeat that the Court will not allow such allegations to be made lightly, or otherwise, than with the utmost, precision and particularity, and above all, promptly.
16. That their old and trusted customers, Kerr Tarruck & Co., had defrauded them, never entered the heads of the plaintiffs until at least 15 months after the insolvency. During this long period, when the plaintiffs. presumably, were in fairly constant communication with their legal advisers, not a word was said about fraud having been committed against the plaintiffs, and their case was launched and came to hearing without any mention of so serious an allegation. It is not contended that any new facts were disclosed during this interval, upon which this new charge could be founded, except the awkward fact which arose as the result of the decision in the case of Rahimbux Ashan Karim v. Central Bank of India Ltd. : AIR1929Cal497 to which I have referred. In other words, this allegation of fraud is an after thought. It has been raised upon the advice of lawyers, and it is clear from the evidence of Mr. Pollock that the officers of the plaintiff bank have experienced great difficulty and much searching of heart before they could be induced to swear upon oath, and with any sense of decency or honesty, that Kerr Tarruck & Co. had defrauded or had intended to defraud the plaintiffs. I have been informed that this is a kind of representative suit, and is being financed by several of the banks who wished to have the question raised by the issue of trust receipts finally decided. I cannot help regretting that the plaintiffs did not pursue the original intention to the end, without introducing fresh allegations of fact which in all the circumstances of this case, I cannot help thinking are not honestly believed to be true nor honestly contended. Nevertheless, I will deal with them upon the supposition that they have been truly alleged, and that they were omitted from the original plaint either by forget fulness and inadvertence on the part of the officers of the plaintiff bank, or by negligence on the part of their legal advisers.
17. The pledge to the defendants was of goods, not documents therefore we are concerned with the second proviso to Section 178 only so far as it relates to goods. In the first place it is difficult to see how the proviso can apply in the particular circumstances of this case. The lawful owners of these goods were the shippers, hot the plaintiffs. Kerr Tarrack & Co. obtained them from the ship owners who were in lawful custody of them. Assuming that the plaintiffs were the agents of the shippers for the purposes of the proviso, Kerr Tarruck & Co. obtained the documents not the goods from the plaintiffs. It may however be possible to contend that Kerr Tarruck & Co. obtained the goods from the shipowners, who were in lawful custody of them, by means of an offence or fraud committed upon a third party, namely, by getting the shipping documents, which are in the words of Bowen, L.J., 'the key to the warehouse' from the plaintiffs by means of an offence or fraud, and that this is sufficient to bring them within the terms of the proviso. The word 'offence' is not defined in the Contract Act, but in the General Clauses Act, Section 3(37), it is defined as 'any act or omission made punishable by any law for the time being in force.' The offence alleged by the plaintiffs is that of cheating, within the meaning of Section 415, Indian Penal Code which is as follows:
Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to 'cheat'.
Explanation-A dishonest concealment of facts is a deception within the meaning of this section.
18. Therefore to constitute this crime, there must be active deception, by which the accused must (a) fraudulently or dishonestly induce the person to deliver property, etc., or (b) intentionally induce him to do or omit something which causes damage, etc. to him, or there must be a dishonest concealment of facts, with the like results 'Fraudulently' meats doing a thing with intent to defraud (Section 25, Indian Penal Code). The word 'defraud' is not defined in the Code, but connotes generally an intention to deceive, coupled with the possibility of doing injury. 'Dishonestly' means with the intention of causing wrongful gain or loss (Section 24, Indian Penal Code). Wrongful gain or loss means gain or loss of property by unlawful means. (Section 23, Indian Penal Code).
19. 'Fraud' is defined in Section 17, Contract Act. It is doubtful whether this definition is intended to apply to the word 'fraud' in Section 178 and cogent reasons are adduced by the learned authors of Pollock and Mulla on the 'Contract and Specific Relief Acts,' Edition 5 at page 639, why it should be confined to the substantive wrong of deceit. But, whether or not these arguments are sound, the definition requires either an intent to deceive or to induce a contract, by a false suggestion known to be false, or the active concealment of a fact or a promise made without any intention of performing it, or any other act fitted to deceive, or any act specially declared by law to be fraudulent. Mere silence is not fraud unless there is a duty to speak, or unless it is equivalent to speech. There is no evidence, in this case, of active deception or concealment, and I am satisfied that there was no intention to deceive or to defraud. No one in this case, except the learned Counsel appearing for the plaintiffs, has had the courage frankly to state otherwise, though some witnesses have been induced to say that they had suspicions, whatever that may imply.
20. The firm of Kerr Tarruck & Co. carried on business in Calcutta prior to its insolvency for more then 70 years, and during all that time it is admitted that it held a very high reputation for commercial integrity. At all material times Mr. B.N. Sircar acted for Kerr Tarruck & Co. of which firm he was the senior partner; no one has suggested that he has ever been known to be or act otherwise than as an upright and honest business man. I do not believe that he ever had an intention to deceive or to act fraudulently or dishonestly; nor do I believe that the plaintiffs were induced to issue the shipping documents, by any deception or active, or passive concealment on his part or on the part of his firm. Throughout all this time, Kerr Tarruck & Co. never failed to meet every bill at or before maturity, generally before. I do not believe that either party ever intended the conditions of the trust receipts to be observed. They were and are devices created in an attempt to defeat the provisions of Section 52, Presidency Towns Insolvency Act, in case of insolvency. In my belief Kerr Tarruck & Co. had no more idea that, in pledging the goods to the defendants they were acting wrongfully or in breach of any contract, than the plaintiffs had, when they disregarded the plain terms of their contract with the shippers. The plaintiffs never relied or intended to rely on the security (if any) afforded by the trust receipts. They relied upon the reputation and proved integrity of Kerr Tarruck & Co. No effort was made to conceal the pledge to the defendants. The representatives of the plaintiffs were allowed to inspect the goods and the godown, whenever they wished to do so, and the engraved locks of the defendants were on the doors, and their godown Sarkar wearing conspicuously a metal badge with the name of the bank upon it, was always present. They were well aware that large quantities of goods were stored in the godown, which were not covered by the trust receipts.
21. In my opinion, the facts show that Kerr Tarruck & Co. honestly believed, so far as they ever directed their minds to the question, if at all that they were entitled to deal with the goods as they thought fit, subject to their obligation to meet the bills when they fell due, and that the property in the goods had passed to them on delivery. Just as the plaintiffs honestly believed that they were justified in issuing the shipping documents in return for trust receipts, the truth seems to be, that some, and perhaps many, businessmen nowadays, though of undoubted integrity, have scant regard for the sanctity of contracts, or even of trusts, or for meticulous adherence to their terms. Mr. Warwick's evidence under cross-examination is full of enlightenment upon this aspect of the case. Perhaps their cynical disregard of what was once considered to be the corner-stone of modern civilization is not surprising. There have occurred recently striking and notorious examples of breaches of contracts which had been confirmed and sanctified with all the deliberation and solemnity of Acts of the legislature itself and as deliberately broken. But it is my belief that those who treat contractual obligations with such scant respect will generally and in the long run have cause to regret their actions, and the result in this case is, that there must be judgment for the defendant with costs.