Bank of Baroda Vs. Collector of Indore and ors. - Court Judgment

Excerpt:
- - state of bihar, air 1971 sc 1210, laid down that the rights of the company who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by the government and by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. 9. in para 7 of the same judgment, the supreme court held that the high court was in error in considering that the rights of the pawnee who had parted with money in favour of the pawnor on the security of the goods can be defeated by the goods being lawfully seized by the government. the pawnee has special property and a lien which is not of ordinary nature on the goods and so long as his claim is not satisfied, no other creditor of the pawnor has any right to take away the goods or its price.s.k. jha, c.j.1. the question which falls for determination in this case is as to what will be the effect of a legal seizure and confiscation under section 6a of the essential commodities act, 1955, over the rights of a bank to whom the goods seized and confiscated are pledged under a cash credit agreement.2. the short facts giving rise to this petition under articles 226 and 227 of the constitution of india are these :the petitioners are a banking company in the public sector, governed by the provisions of the banking companies (acquisition and transfer of undertakings) act, 1970 (act no. 5 of 1970), having their principal office at mandvi, baroda, and a branch office at indore. in the ordinary course of their business of banking, the petitioners advanced a cash credit loan to respondent no. 5, indore produce company, against the security of pledge of stocks of soya bean to be purchased by respondent no. 5 for the purpose of sale, as dealers of soya bean. copies of the agreements entered into between respondent no. 5 and the petitioners on may 25, 1977, and february 8, 1979, containing terms and conditions of the pledge have been annexed as annexures 'a-1' and 'a-2' to the writ petition. pursuant to the said cash credit facility, respondent no. 5 purchased huge stocks of soya bean with the help of the loans advanced by the petitioner banking company by honouring cheques drawn by respondent no. 5 in favour of the parties from whom they purchased soya bean and giving credits in the cash credit account. the petitioners obtained a first charge by way of a pledge over the stocks of soya bean so purchased by respondent no. 5. the pledged stocks of soya bean were kept in a godown under lock and key of the petitioners in their actual and exclusive physical possession, control and dominion. the stocks of soya bean were redeemed by respondent no. 5 and were released by the petitioners from pledge from time to time in a chain and series of transactions against payments by respondent no. 5. the pledges were credited by pledge letters and deliveries were effected by delivery letters in pro forma such as annexures 'b' and 'c' to the petition, on february 9, 1979, the petitioners held stocks of soya bean purchased by respondent no. 5 with the help of money advanced by the petitioners to respondent no. 5 in the godown under lock and key of the petitioners at indore. this is evidenced by entries in the stock register, a photo copy whereof has been annexed as annexure 'd'. on that date, i.e., on february 9, 1979, respondent no. 5 owed rs. 5,78,161.51 to the petitioners. this is evidenced by a copy of the ledger which is annexed as annexure 'e' to the petition. on that very date, the assistant inspector, food and civil supplies, district indore, visited the office premises of respondent no. 5, inspected the records maintained by them and found that they had stocked 6,401 quintals and 70 kgs. of soya bean which had been pledged with the petitioners and were in the possession of the petitioners stored in the petitioners' godown, consequent upon the said inspection, the aforesaid stocks of soya bean were confiscated by respondent no. 1, the collector, indore, under section 6a of the essential commodities act, 1955, read with clause 4 of the madhya pradesh rules, edible oilseeds and edible oils dealers licensing order, 1977 (hereinafter referred to as 'the licensing order') and directed the food inspector to sell the same. a copy of the order of confiscation is marked as annexure 'f'. the petitioners came to know about the order of confiscation passed by respondent no. 1 from respondent no. 5 and filed an appeal before the learned sessions judge, indore, under section 6c of the essential commodities act, 1955. the appeal was allowed by the learned sessions judge, in cr. a. no. 187 of 1979, and the operative part of the order read as follows : ' the case is remanded to the collector, indore, with a direction that he will proceed with the stage of giving a notice in writing to the bank of baroda, as required under the provisions in section 6b of the essential commodities act, 1955 and will pass necessary orders about the essential commodity, namely, soya bean oil seeds, according to law. it is further directed that, as desired by all the parties and in order to safeguard the financial interests of all concerned, the seized stock of soya bean may be sold and the sale proceeds thereof may be kept in interest bearing fixed deposit so that no party would suffer any financial loss.' 3. the petitioners challenged the direction regarding remand contained in the aforesaid appellate order by filing a criminal revision in this court, being criminal revision no. 115 of 1980. while the revision was pending, respondent no. 1 issued a show-cause notice to the petitioners as directed by the learned sessions judge. the petitioners thereupon approached this court for stay of hearing before respondent no. 1 and this court, by order dated july 30, 1980, stayed the proceedings till the disposal of the aforesaid criminal revision. during the pendency of the criminal revision in this court, the petitioners requested this court to permit the petitioners to sell the stocks of soya bean which had been and were still in their possession. this court permitted the sale. pursuant to these orders, the petitioners sold the stocks of soya bean. a statement containing details of the sales has been marked as annexure 'g'. finally, however, by judgment dated november 24, 1981, this court rejected the contention of the petitioners that the learned sessions judge possessed no power of remand. as a result, the criminal revision was dismissed by this court and respondent no. 1 became entitled to resume the confiscation proceedings as directed by the learned sessions judge.4. on march 29, 1985, the collector, respondent no. 1, passed the order of confiscation of the stocks of soya bean holding that the petitioners were also knowingly or unknowingly a party to the breach of law. a copy of the order of confiscation has been marked as annexure 'i'. the petitioners thereupon filed an appeal to the state government, respondent no. 3. the petitioners' appeal was, however, rejected by the state government by order dated february 18, 1986, a copy of which has been marked as annexure 'j'. the petitioners came to know for the first time through a letter dated july 2, 1986, issued by respondent no. 1 which was served on the petitioners on july. 4, 1986. a copy of the said letter has been marked as annexure 'k'.5. on these facts, the question arises as to whether the legal seizure of confiscation under section 6a of the essential commodities act, 1955, as against respondent no. 5, would override the rights of a bank to whom the goods were pledged under law.6. shri a. k. chitale, learned counsel for the petitioners, placed reliance on the provisions of sections 172 and 173 of the indian contract act, and on the following decisions :(i) bank of bihar v. state of bihar, [1971] 41 camp cas 591 (sc) ; (ii) bank of india v. binod steel limited [1977] mplj 797 ; and (iii) state bank of indore v. additional tahsildar-cum-sales tax officer [1983] mplj 130. 7. section 172 of the indian contract act, lays down that the bailment of goods as security for payment of a debt or performance of a promise is called 'pledge'. the bailor is in this case, called the 'pawnor' and the bailee is called the 'pawnee'. section 173 lays down that the pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interest of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged. on an interpretation of these two statutory provisions, the supreme court in the case of bank of bihar v. state of bihar, air 1971 sc 1210, laid down that the rights of the company who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by the government and by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. after the seizure, the government is bound to pay the amount to the pawnee. the balance alone is available for other creditors. if the government deprives the pawnee of his amount due, government is bound to reimburse him for such amount which he, in the ordinary course, would have realized by sale of goods pledged with him on the pawnor making a default in payment of debt.8. in para 6 of the judgment, the supreme court has laid down that the pawnee has a special property or special interest in the thing pledged, while the general property therein continues in the owner. that special property or interest exists so that the pawnee can compel payment of the debt or can sell the goods when the right to do so arises. this special property or interest is to be distinguished from the mere right of detention which the holder of a lien possesses in that it is transferable in the sense that a pawnee may assign or pledge his special property or interest in the goods.9. in para 7 of the same judgment, the supreme court held that the high court was in error in considering that the rights of the pawnee who had parted with money in favour of the pawnor on the security of the goods can be defeated by the goods being lawfully seized by the government. the pawnee has special property and a lien which is not of ordinary nature on the goods and so long as his claim is not satisfied, no other creditor of the pawnor has any right to take away the goods or its price. after the goods had been seized by the government, it was bound to pay the amount due to the pawnor. a mere act of lawful seizure by the government could not deprive the pawnor of the amount which was secured by the pledge of the goods to it.10. to the same effect are the decisions of this court in cases of bank of india v. binod steel limited [1977] mplj 797 and state bank of indore v. additional tahsildar-cum-sales tax officer [1983] mpl] 130.11. it was argued on behalf of the government, however, that it was illegal for respondent no. 5 to hold the quantity of soya bean being violative of clause 4 of the licensing order. clause 4 lays down that no dealer shall, either by himself or by any person on his behalf, store or have in his possession at any time, any pulses or edible oilseeds or edible oils in excess of the quantities specified and the quantity of stock has been specified as 1,000 quintals for the wholesale dealers at indore. it was argued that the holding of stock in excess of the maximum limit of 1,000 quintals may amount to an offence under the essential commodities act, 1955, and that, therefore, the seizure and confiscation as against respondent no. 5 was valid and the petitioner banking company must be bound by the same as clause 4 states that no dealer shall either by himself or by any person on his behalf store or have in his possession and the petitioner must be deemed to be a person holding on behalf of respondent no. 5. this argument, however, is fallacious, tested upon the touchstone of the principles laid down in the aforementioned cases. the petitioner banking company was holding the stock in question not on behalf of the dealer, but in exercise of its own right as a pawnee to whom the goods had been duly pledged under cash credit agreement. in exercise of its right as a pawnee, it had every authority to have its debts discharged from out of the pledged goods before the same could be made available for any other purpose.12. in the result, therefore, we are constrained to allow this writ petition and quash the impugned orders as contained in annexures 'i', 'j' and 'k' in so far as the petitioners' rights are concerned. it is further declared that the respondents have no right to claim the sale proceeds of soya bean which have already been realised by the petitioners and respondent no. 1 is restrained from recovering the sale proceeds from the petitioners unless it be found that out of the sale proceeds anything in excess of the loan of the petitioners with interest and the expenses involved is still liable to be recovered from the petitioners. the petitioners would be entitled to a hearing fee of rs. 1,000. security amount, if deposited, be refunded to the petitioners.