9911796707
TMI Blog1946 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... aim was dismissed with costs, and it is against that dismissal that this appeal has been brought. 3. The shares in question are of Rs, 25 each of which ₹ 5 only has been paid up and they still stand in the books of the Assurance Company registered in the name of Mr. Meyer Nissim, because by its articles the Assurance Company has an absolute right to refuse the transfer and consequential registration of any share in the company and in exercise of such right the Assurance Company has refused to transfer the shares, not, I think without good reason, since questions with regard to these 26,000 have been under litigation for over five years. The Official Assignee does not dispute that the plaintiff has some interest in the shares, but he alleges that the plaintiff is not the absolute owner thereof but the pledgee of them, by subrogation to the rights and interests of the New Citizen Bank of India, Ltd., (defendant No. 2 to this action, and respondent No. 3 to this appeal). Hence the counter-claim for redemption. 4. The transactions between the various parties to this action have already been the subject-matter of at least two suits in this High Court, one such suit being No, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank. It is not suggested that any money passed, the whole of the alleged transaction taking place as it is said by entries in various books of the bank, and so it is alleged that the bank thereafter held the shares, no longer as pledgee of Mr. Nissim, but as pledgee for Mr. Jamnadas Mehta to cover the latter's indebtedness to the bank. 7. On July 30, 1941, the plaint in suit No. 1001 of 1941 was declared, that being an action launched by the bank and Mr. Jamnadas Mehta against the Assurance Company, Mr, Nissim and the Official Assignee, the principal object of which was no doubt to have the nature and the extent of the alleged liens in favour of the Assurance Company on these 26,000 shares determined, but for which purpose it was necessary for the bank and for Mr. Jamnadas Mehta to plead respectively their titles. I will presently refer to the pleadings in this action in greater detail, for the importance of an accurate assessment of the contentions which they contain is very great, because the plaintiff's claim to title as the present absolute owner of the 26,000 shares is derived by virtue of a contract which was made subject to the contentions of the parties to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 24th October 1941. The bank accepts your offer contained in your letter on the understanding that the bank and Mr. Jamnadas M. Mehta are selling to you all their respective rights, title and interest in the said shares 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 to by you in your letter under reference. Yours faithfully, (Sd.) Jamnapas M. Mehta, Chairman. 10. No attempt has been made to prove any oral contract apart from the letters. As I have already mentioned, suit No. 921 of 1941 was compromised and a consent decree was taken and all parties before us agree that so far as this action and appeal are concerned Suit No. 921 of 1941 has no materiality, indeed the pleadings in it have been neither included in the Appeal Paper Book nor have they been produced before us. We therefore proceed as if the stipulation in the letter of October 24, 1941, referred to contentions in Suit No. 1001 of 1941 only. 11. At the date of the contract the position with regard to suit No. 1001 of 1941 stood as follows. The plaint had been declared on July 30, 1941, and the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are not material to the issues we have to determine. 14. By letter dated July 29, 1941, the solicitors to the bank and Mr. Jamnadas Mehta wrote to the Official Assignee saying that he had only been added as formal party to suit No. 1001 of 1941 and that no relief was claimed against him. Accordingly the Official Assignee was not represented in suit No. 1001 of 1941 and took no part in it. 15. On November 4, 1941, the Assurance Company filed its written statement and by it denied that the alleged agreement of July 10, 1940, had been made. Paragraph 23 of the written statement which is in these terms deals with the allegation of disclaimer:- With reference to paragraph 11 of the plaint the defendant company does not admit the alleged disclaimer of the interests of the second defendant (Mr. Nissim) by the third defendant (the Official Assignee). This defendant company does not admit that the first plaintiff bank were at any time or are the pledgees of the said 26,000 shares. This defendant company denies; the validity of each and all the submissions made in the said paragraph. 16. Upon those allegations and denials issues were framed, and it is issues No. 2 and 3 which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiff has become the absolute owner of the shares. His argument raises seven questions upon all of which we have thought it right to express our opinion since we are told that the matter will in any event go to the Privy Council, for we understand that the acquisition of these 26,000 shares can give control of the Assurance Company to one or other of rival combinations of shareholders. 18. The first question is whether the contract of October 23-24, 1941, was made subject to the result of suit No. 1001 of 1941, or, if it is not, whether it is obligatory upon the bank , if it could or can do so, to make title to the shares to the plaintiff in some other way than as pledgee of Mr. Jamnadas Mehta. 19. The second question is whether the whole dispute as to Mr. Jamnadas Mehta having purchased the shares immediately before the insolvency of Mr. Nissim can be re-opened and re-agitated or whether that question as between the plaintiff and the Official Assignee is res judicata by virtue of suit No. 1001 of 1941. . The third question is whether, if it is open to re-agitate the question of Mr. Jamnadas Mehta's alleged purchase of the shares, he did in fact purchase them. 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s subject to the Assurance Company's lien, if any, and with notice of the pending actions to the prosecution of which by the bank and Mr. Jamnadas Mehta the plaintiff offered to contribute and on the basis that thenceforth the actions should be conducted as the plaintiff should direct. The letter of acceptance by the bank of October 24, 1941, contains certain new terms which must be regarded as being made as a counter offer and makes it plain that the sale was upon the understanding that the bank and Mr. Jaranadas Mehta were selling all their respective rights, title and interests in the said shares and that you (the plaintiff) take them subject to the contentions of the parties to pending suits ...No. 1001 of 1941. That counter offer was accepted, for after it was made the share certificates were handed over, and also the six blank transfers, one of which was altered to show Mr. Jamnadas Mehta as transferee and the cheque for the purchase price was cashed on the day following - and the proceeds credited to Mr. Jamnadas Mehta's account at the bank. Are the words subject to the contentions of the parties to pending suits... .No. 1001 of 1941 to be treated as implying tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh it be that substantially the same issue, viz. whether Mr. Jamnadas Mehta acquired inter alia these shares on or about July 10, 1940, from the bank, should again be the subject-matter of an elaborate trial at which the learned Judge should come to the opposite conclusion to that pronounced in the earlier trial; there is in my opinion a sound reason which makes the doctrine of res judicata no bar to the present suit, though in my opinion if an appropriate application had been made the learned Judge should, in the exercise of the Court's inherent jurisdiction, have struck out the defence to the counter claim as being frivolous and vexatious; see the judgment of Lord Justice Scrutton in Mackenzie-Kennedy v. Air Council [1927] 2 K. B. 517. The question whether apart from the tripartite agreement alleged in suit No. 1001 of 1941, any agreement was come to on or about July 10, 1940, whereby Mr, Jamnadas Mehta purchased these shares might have been and should have been raised in that suit. But the judgment in the former suit was a judgment inter partes and in order for the doctrine of res judicata to apply there must be reciprocity. There is no difficulty with regard to the positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19, and has flourished because in the Civil Procedure Code there is no equivalent to Order XXV, Rule 4, of the Rules of the Supreme Court in England as to striking out a party against whom no relief is sought. The status of a pro forma defendant has thus been raised up and sustained as an ornamental follower of the principal defendants without any risk of his tailing out a summons to encompass his own elimination and for the payment of his costs. The Privy Council have negatived the special status claimed for a pro forma defendant: see Munni Bibi v. Tirloki Nath 33 Bom. L.R. 979 in which case Sir George Lowndes, delivering the judgment of the Board, said (p. 166) :- It is true that the appellant did not enter an appearance in the suit, and it is also said that she was not a necessary party to it; but their Lordships do not regard either of these factors as really material. The appellant was at all events a proper party to the suit and had the right to be heard if she so desired. If she chose to stand by and let the plaintiff fight her battle, it could not affect her legal position. 33. However, having regard to the letter of July 29, 1941, written by the plaintiff's solic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal witness and he was in the witness-box on five different days, during which time he tenaciously asserted that the arrangement of July, 1940, was that Mr. Jamnadas Mehta should take over all Mr, Nissim's liabilities to the bank and also all his securities therefor. In his; cross-examination he said: One complete arrangement had been arrived at between the parties orally. And a little later he was asked: Ques.: The arrangement arrived on the 5-7-40 was that Jamnadas Mehta should take over from Nissim all his liabilities to the bank and all his assets ? Ans. Yes, And later he said: This was the only arrangement which was arrived at between the parties before the 10-7-40. No other arrangement was arrived at between the parties till then. I drafted the minutes of the resolutions which were passed by the executive committee of the bank on the 10-7-40. And then the question was put to him: Q.: I put it to you that at that meeting of the 10-7-40 the whole of the arrangement arrived at on the 5-7-40 was sanctioned by the Executive Committee? A.: It was not sanctioned. Later in his evidence he said: The arrangement of the 5-7-40 was not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set up the tripartite agreement of July 5, 1940, though it is no longer so designated, and that it is still asserted that the subsequent events and documents were the mode of carrying this agreement into effect. 40. The first document is a letter which Mr. Jamnadas Mehta addressed to the-bank and which is dated July 6, 1940. It is in the following terms: Dear Sir, Deshpande, With reference to our conversation last week about the disposal of Mr. Nissim's shares in the Asian Assurance Co., Limited, I shall be glad to buy them myself for ₹ 73,000 (Rupees seventy-three thousand only). Please place this offer of mine before our next committee meeting. Yours sincerely, (Sd.) Jamnadas M. Mehta. 41. That letter was placed before the executive committee of the bank at their meeting held on July 10, and by resolution No. 7 of that day it was resolved: Resolved that the offer of Mr. J. M. Mehta for buying the shares numbering 26,000 in all, of the Asian Assurance Co, 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t -which continued in his name up to March 31, 1941, but in respect of this account which was primarily secured on Mr. Nissim's bank shares another letter was signed by Mr. Jamnadas Mehta on July 10, 1940: Dear Sir, Deshpande, I have consulted Dr. T. M. Kajiji and he has agreed to allow his name as the purchaser of Mr. Nissim's shares. In case of difficulty arising you may take my assuance that I shall remain ultimately responsible as already personally stated to you. Yours sincerely, (Sd.) Jamnadas Mehta. 45. The next document is one of particular significance. It is a letter of which three originals have been produced in this Court, though the bank is unable to produce any press copy from its regular records. The letter is dated July 412, 13, 3940, and is addressed to Mr. Nissim, is signed by Mr. Deshpande and is in these terms: To Ma. Meyer Nissim, M.A., J.P. 10, Outram Road, Fort, Bombay. Dear Sir, With reference to your conversation on the phone, we have to inform you that we have disposed [of] the shares of the Asian Assurance Company Limited and of our bank standing in your name and the sale proceeds have been adjusted to your loan accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in insolvency. 49. The whole circumstances connected with this letter far from suggesting bona fides indicate in my opinion that the bank was attempting to provide itself with documentary evidence which could be furnished, if need be, to the Official Assignee as trustee of Mr, Nissim, an insolvent. This view of the matter is consistent with what subsequently occurred, since in September, 1940, Mr. Nissim sent this letter to the Official Assignee with a covering letter dated September 6, 1940, in which he stated:- I beg to forward you attached hereto a letter from the New Citizen Bank of India, Ltd., dated July 12/13, 1940, in which the Bank states that the shares of the Asian Assurance Co., Ltd., and the New Citizen Bank shares standing in my name against which I had taken loans from the Bank have been disposed of and the sale proceeds have been applied in liquidation of my loans. Although the letter is dated July 12/18, the information was not known to me at the time when I had prepared my preliminary schedule on July 16, 1940. I have to explain that it is for this reason that in my preliminary schedule, the bank appears as a creditor of ₹ 1,83,500, against which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the bank and Jamnadas in this suit in the written statement which they have filed here, the suggestions and criticisms of Mr. Coltman as regards the absence of transfer of the amount in respect of the indebtedness of Nissim to the bank in the said sum of ₹ 92,500 advanced on the security of the bank shares, from the account of Nissim to the account of Jamnadas and the claim which the bank put forward in the insolvency of Nissim by its affidavit of claim dated October 9, 1940, have very great force. And later the learned Judge said: The bank had put its oath to that alleged tripartite agreement and was evidently bound to support Jamnadas in the said title of his. The representatives of the bank, viz. Deshpande and Paranjpe, -were thus interested in supporting Jamnadas's title to the said 20,000 shares on the basis of the said alleged tripartite agreement of July 10, 1940. Jamnadas was, moreover, appearing at the hearing of that suit and whatever influence he had on Deshpande and Paranjpe was presumably continuing at the time when the latter gave evidence before Chagla J, in suit No. 1001 of 1941. The position, however, hi this suit is quite different. The bank had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been, the position was precisely the same when they gave evidence in September, 1943, in suit No. 1001 of 1941, to what it was in February, 1945, when they gave evidence in this action. In both cases the contract of October 23, 24, 1941, had been made and no circumstances intervened between the trial of the two actions which altered the position of the bank under its contract with the plaintiff. Further $\ am unable to agree that the evidence of Mr. Deshpande and Mr. Paranjpe is corroborated by the documents, or that the documents establish the transaction alleged. In my opinion the contrary is the case. By the pleadings and on the evidence the only transaction alleged is that Mr. Jamnadas Mehta should take over all Mr. Nissim's liabilities and the securities therefor. Yet the letter of Mr. Jaranadas Mehta of the July 6, 1940, negatives any previously concluded and comprehensive bargain. On the face of it, it is an offer to purchase the Asian shares only for ₹ 73,000. The curious letter of July 10, 1940, saying that Dr. Kajiji has agreed to allow his name as the purchaser of Mr. Nissim's shares , which he in fact never did, is destructive of the alleged agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be shown in the balance-sheet. In fact the debt of Mr. Nissim's personal account in respect of the sum of ₹ 85,117-9-0 is shown in the balance-sheet as a debt due from the ex-director, meaning thereby Mr. Nissim. At the conclusion of my judgment in this Court in suit No. 1001 of 1941, I said: In the face of the letter to the shareholders sent by Mr. Mehta as the Chairman of the bank and the balance-sheet annexed to it, Mr. Mehta cannot be heard to say that there was an .agreement under which debt was his. Far from the documents supporting the tripartite agreement, they are, in my judgment, at variance with the existence of any such agreement. 53. In my opinion there can be no doubt that no concluded or enforceable agreement was ever come to in July, 1940, whereby Mir. 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's books and to bring some documents into existence, so that the position could be held in suspense, until it could be seen what emerged from the cri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t out of the Act. In the former section the words are in the absence of any special contract and in the three latter sections the expression used is in the absence of any contract to the contrary . In my opinion, therefore, except in these four sections, the provisions of the Act with regard to bailment are mandatory: see The Co-operative Hindusthan Bank, Ltd. v. Surendranath De (1931) I.L.R. 59 Cal. 667. 59. Section 176 of the Contract Act is as follows :- If the pawner makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawner upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawner reasonable notice of the sale. The rest of the section deals with the application of the proceeds of sale and is not material. 60. In my judgment, a notice must be given in all cases of pledge, even when the instrument of pledge itself contains an unconditional power of sale. This opinion is held by the three distinguished editors (Sir Federick Pollock, Sir Diushah Mulla and Sir Maurice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June 30, 1941, are relied upon. The former letter is written by a firm of solicitors on behalf of a prospective purchaser of certain shares in the Asian Assurance Co., Ltd., which still stand in the books of the Company in the name of Mr. Meyer Nissim , and after setting out what the firm of solicitors believed to be the position with regard to these shares, the letter alleges that the question of the voting rights of these shares has now arisen and continues:- In order that no difficulty as to the validity of the voting may arise in future we request you to confirm in writing that you as the Official Assignee have disclaimed the insolvent's interest in these shares and such interest has not been dealt with by you and that you have no objection to the insolvent exercising his right of voting in respect of these shares in such manner as he may be advised. 64. The reply of the Official Assignee of June 30, is guarded in its terms, and is as follows:- With reference to your letter dated May 26, 1941, I have to state that I have since made inquiries of the New Citizen Bank of India, Ltd., regarding the 26,000 shares of the Asian Assurance Co. Ltd., in question. The bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention of res judicata cannot be validly, urged. In my opinion any such suggestion is completely fallacious. 68. In the result the appeal must be allowed and an order for redemption of the 26,000 Asian shares passed in favour of the Official Assignee. There will have to be an inquiry as to the amount due and owing to the bank on October 24, 1941, under and by virtue of the instrument of pledge dated September 1, 1939, and signed by Mr. Nissim in favour of the bank. There will also have to be an account taken of the amount of principal, interest and costs due to the plaintiff, as subrogated to the bank's rights, from the footing of the amount found due in answer to the abovementioned inquiry, with all other consequential directions for redemption. 69. With regard to costs, we have heard arguments with regard to them and having taken all the circumstances into consideration, the order proposed is that the order with regard to costs made by the learned trial Judge should stand except that it should be varied by deleting from it the name of the Official Assignee as paying to the plaintiff one-third of his costs of the suit and counter-claim and that the plaintiff do pay to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in possession and that he has full and complete title in these shares. It is necessary to consider the terms of the contract under which these shares were sold to the plaintiff by the 2nd defendant bank. I might state that it was the case both of the plaintiff and of the 2nd defendant bank that these shares were sold by the bank to Mr. Jamnadas Mehta, defendant No. 3, on July 10, 1940, and that Mr. Jamnadas Mehta in Ms turn pledged these shares with the bank and the bank sold these shares to the plaintiff as the pledgees in possession of Mr. Jamnadas Mehta. On October 23, 1941, the plaintiff wrote to the 2nd defendant bank and put on record that the bank as the pledgees in possession of the 26,000 shares of the 1st defendant company had, with the consent of Mr. Jamnadas Mehta, sold the shares to him for ₹ 1,20,800. In this letter the plaintiff also agreed and undertook to tender the amount of the lien if any claimed by the 1st defendant company on these shares. On the next day the 2nd defendant bank treating this letter of the plaintiff as an offer accepted it on the understanding that the hank and Mr. Jamnadas M. Mehta are selling to you all their respective right title ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fendant company on these shares. I do not agree that by this expression subject to the contentions the plaintiff agreed to be bound by every finding on every issue that was raised in that suit No. 1001 of 1941. He undoubtedly agreed to be bound by the decision in that suit and that decision could only be with regard to the lien claimed by the 1st defendant company. 73. The question of the sale by the 2nd defendant bank to Mr. Jamnadas Mehta on July 10, 1P40, has been a matter of acute controversy between the parties. But Sir Noshirwan Engineer for the plaintiff has argued that irrespective of that sale in any event the 2nd defendant bank on the admission of the Official Assignee himself was the pledgee of Meyer Nissim, and as such pledgee it was entitled to sell the shares and pass good title to the plaintiff. The debt due by Meyer Nisshim to the 2nd defendant bank is not disputed by the Official Assignee nor is the pledge of the shares disputed. It is also admitted that there was default in payment of the debt, but it is contended that no title passed to the plaintiff because notice under Section 176 of the Indian Contract Act was not given to Meyer Nissim or the Official Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d parties cannot agree that in the case of any pledge the pledgee may sell the pledged articles without notice to the pledger. The Calcutta High Court (The Cooperative Mindusthan Bank, Ltd. v. Surendranath De I.L.R.(1931) Cal. 667 has taken the same view of the section. In Chitguppi Co. v. Vinayak Kashinath 22 Bom. L.R. 659 our High Court held that under Section 133 of the Indian Contract Act any variation made without the surety's consent in the terms of the contract between the principal debtor and the creditor discharged the surety as to transactions subject to the variation although the surety had agreed to such variation. It was held that such an agreement was inconsistent with the express provisions of Section 133 of the Indian Contract Act and Section 133 did not provide for any contract to the contrary. 76. It was then urged that even if notice was required under Section 176 of the Indian Contract Act, the absence of it is a mere irregularity and does not vitiate the sale or makes it void. 77. Now the sale by the 2nd defendant bank to the plaintiff was not by the owner of the shares, and under Section 27 of the Indian Sale of Goods Act the bank could not convey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be a sale in conformity with the provisions of Section 176 which gives the pledgee the right to sell; and if the sale is not in conformity with those provisions, then the equity of redemption in the pledger is not extinguished. 79. The statement of the law in Halsbury's Laws of England, Hailsham Edition, Vol. XXV, p. 12, is that the right to redeem is lost if the pawnee has lawfully sold the subject of the pledge. It is not enough that the pawnee should sell the subject of the pledge but he must sell it lawfully before the equity of redemption is extinguished. In this case by not giving the statutory notice he has not sold the subject of the pledge lawfully. 80. It is urged by Sir Noshirwan Engineer that the only right that accrues to the pledger when a sale is effected without notice being given to him is to sue the pledgee for conversion but he has no right to go against the purchaser for redemption. The Official Assignee's position in this case is that his right of redemption is not lost because there is no valid sale of the shares. He has a right to call upon the 2nd defendant bank to redeem the shares on payment of the debt. If the bank has transferred the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween Section 69(3) of the Transfer of Property Act and Section 176 of the Indian Contract Act, as I have already pointed out, there is a marked contrast between the two; while one protects the innocent purchaser, the other does not do so. In the absence of any provision in Section 176 of the Indian Contract Act in favour of the innocent purchaser, to import such protection from the provisions of another statute is, again, with respect, wholly fallacious and unjustifiable. 82. In Johnson v. Stear (1868) 15 C. B. 330 the date of repayment of the loan was on January 29. The plaintiff sold the goods pledged a day earlier, and it was held by the Court that that amounted to a conversion. It further held that the amount of damages for conversion was nominal as there was no intention on the part of the pledger to redeem the pledge by paying the loan. Halliday v. Holgate (1868) L.R. 3 Ex 299 is a very instructive case. A holder of scrip certificates for shares borrowed from the defendant a sum of money on the security of his shares and deposited with him the share certificates. The plaintiff afterwards became bankrupt, and the defendant, without demand and without notice, sold a part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of their unauthorized dealing with the debentures. 83. In my opinion these cases do not support the contention put forward by Sir Noshirwan Engineer that the pledger cannot sue for redemption against a third person to whom the goods pledged have been transferred under an unlawful or unauthorized sale. The principles which I deduce from these decisions are: (1) that although the pledgee may sell the goods unauthorisedly or unlawfully, the contract of pledge is not put an end to and the pledger does not become entitled to the possession of the goods pledged without tendering the amount due on the pledge; or, in other words, without seeking to redeem the pledge; and (2) that without a proper tender of the amount due on the pledge, the only right of the pledger in respect of an unlawful or unauthorised sale is in tort for damages actually sustained by him. In fact in none of these cases the pledger instituted an action for redemption, and, therefore, the question whether he had the right to redeem or not was in terms never decided. If anything, these decisions lead one to the inference, especially the case of Donald v. Suckling, that if a proper redemption suit had been filed, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72 . The pledgee has on default a right to sell the pledge if the payment is to be made on a certain day; otherwise not; but a sale before default would be a conversion; yet the sale, whether wrongful or not, passes the title to the vendee as against the pledgor. Coote cites the cases of Donald v. Buckling and Halliday v. Holgate for the proposition that even a wrongful sale passes title to the vendee as against the pledger. I have already considered both these cases and with great respect to the learned author of that text book, those two cases do not bear out that particular proposition. As against this, in Story's well-known commentaries on the Law of Bailments, eighth edition, p. 272, it is stated: Thus, if a pledge is of a certificate of stock, which may pass by delivery, a bona fide purchaser, or subsequent pledgee, may hold the stock against the real owner. But in the foot-note the learned author says: But it has recently been held that a pledgee of stock has no legal right to sell the same without notice to the pledger, and such sale passes no title as against the pledger, even to a bona fide party. This recent decision is of the American Court, and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the pledgee of the said shares remained unaffected. The issue that is raised in this suit, namely, the sale by the 2nd defendant bank to Jamnadas Mehta, is not the same as the issue in the tripartite agreement raised in suit No. 1001 of 1941; but the principle on which the Official Assignee is relying is the principle of constructive res judicata. It is urged that this agreement ought to have been made a ground of attack by the plaintiffs in that suit; and inasmuch as they did not do so, the plaintiff who is claiming under the plaintiffs in that suit or at least under the bank who were the 1st plaintiffs in that suit is barred from raising the issue of the sale. 87. In order that the principle of res judicata should apply, all the conditions laid down in Section 11 of the Civil Procedure Code must be satisfied. In the first place, can it be said that the issue with regard to the tripartite agreement was directly and substantially in issue in suit No. 100.1 of 1941 ? As I have pointed out, the only relief that the plaintiffs sought in that suit was for a declaration that the Asian Assurance Company, Limited, had no lien on the 26,000 shares and for an injunction restraining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the finding on that issue but, on the contrary, it came to its decision in spite of the finding on that issue, and also for the purposes of the decision to which the Court came it was not necessary to decide that issue. 89. In suit No. 1001 of 1941 although both Meyer Nissim and the Official Assignee were impleaded as party defendants, no relief was sought against either of them; and in the letter that the plaintiff's attorneys wrote to the Official Assignee it was clearly stated that both he and Meyer Nissim had been joined as formal parties. The Official Assignee did not put in any appearance in that suit nor did he file any written statement. Now the question that arises is whether the issue with regard to the tripartite agreement could be said to have been decided as between the plaintiff and the Official Assignee who was merely a formal party. It is true that the mere fact that a party does not choose to put in an appearance and file his written statement does not make him a pro forma party if he is a necessary party or if any relief is claimed against him; but if lie is not a necessary party or no relief is claimed against him, it is open to him to take no part in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iffs' case. Therefore the mere fact that no relief was claimed against him did not make him a pro forma defendant. In any event once he had put in his written statement and joined in the litigation, he took the risk of any issue decided in that case becoming binding against him. At p. 458 Mr. Justice Edgley observed as follows: We think that the law contemplates that even a pro forma defendant should ordinarily be bound by a decree which has been obtained in his presence. With respect, I agree with this view if it means that a pro forma, defendant who takes part in the litigation would be bound by the decision. The learned Judge then goes on to say that the Judicial Committee of the Privy Council have laid down that if a pro forma defendant is a proper party to a suit he has every right to be heard, and it would follow that, if he refrains from putting his case before the Court, he does so at his own risk and he cannot afterwards complain if his rights in connection with the subject-matter of the suit are placed in jeopardy by reason of his neglect. With great respect, I do not think that it is a correct statement of the law and it is not borne out by the decisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was described as a formal defendant. The Privy Council held that the decision in that suit bound the sister although she was described as a formal party. But it will be seen from the facts that the plaintiff's sister although she was described as a formal party was a very necessary party to the suit, the suit being an administration suit, and as it is so pointed out in the judgment itself at p. 255: The suit brought by Ma Sein was an administration suit, the purpose and object of which was to have the mother's estate divided among her four children as her heirs. To that suit all the alleged heirs were necessary and proper parties, for every one entitled to a share would be entitled to be heard upon the question whether or not an order for administration should be made. 94. In Kedar Nath Goenka v. Ram Narain Lal 37 Bom. L.R. 794 the Subordinate Judge held that the issue as to the validity of the sale was not res judicata between the plaintiff who was defendant No. 1 and the Mahant who was defendant No. 2 in a previously instituted suit. The learned Subordinate Judge's reason for so holding was that no relief was sought as against the Mahant who was defendant No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 exercise of his power of sale. But these documents have got to be considered in their proper context. On the same day Jamnadas Mehta executed a promissory note for ₹ 75,000 in favour of the bank and he also executed an instrument of pledge in respect of all securities pledged by Jamnadas Mehta with the bank. The suggestion is that as Jamnadas Mehta was not in a position to pay the purchase price, he executed this promissory note as collateral security and pledged the shares with the bank. But the most curious thing is that, the amount of the price is not credited in the overdraft account of Meyer Nissim nor is the amount debited in the account of Jamnadas Mehta. A note in red pencil appears on the top of Meyer Nissim's overdraft account signed by Deshpande who was and still is the managing director of the bank. This note states that Meyer Nissim's overdraft account is to be closed as Jamnadas Mehta has agreed to buy the 26,000 shares as per resolution of the executive committee and Jamnad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w stood as security for the indebtedness of Jamnadas Mehta and not Meyer Nissim. There is another document in this connection to which I must refer and that is the letter alleged to have been written by Deshpande to Meyer Nissim on July 12, 13, 1940. This letter states that the bank had disposed of the shares of Meyer Nissim and of other shares and that the sale-proceeds were being adjusted to Meyer Nissim's loan accounts, and Meyer Nissim was informed that he was no longer a debtor of the bank. A rather fantastic story was told in the witness-box as to how this letter came to be delivered to Meyer Nissim. I need not enter into all its entanglements and complexities. But the undisputed fact remains that this letter was in the possession of Meyer Nissim on September 6, 1940, and he handed it over to the Official Assignee on that day. But it has to be remembered that the letter is not numbered by a serial number which would give one a definite idea as to when it was written, and although the bank maintains a despatch book, it is not entered in the despatch book because it is alleged to have been delivered by hand, and although a receipt is produced which bears the date July 15, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, whether defendant No. 3 had taken over the liabilities of defendant No. 4 and all the security therefore as alleged in paragraph 8 of the plaint, in the negative. The learned Judge obviously overlooked the fact that when one looks to paragraph 8 of the plaint, issues Nos. 1 and 2 really refer to one and the same allegation in paragraph 8 of the plaint. The bank in its reply to the Official Assignee's counter-claim still stoutly maintained that there was a tripartite agreement and rather naively alleged that the tripartite agreement was carried out inter alia by the sale by the bank to Jamnadas Mehta of the 20,000 shares. It is difficult to see how the tripartite agreement could be carried out by a sale by the bank as pledgee in possession to Jamnadas Mehta of the 26,000 shares when the very essence of the tripartite agreement was not the sale by the bank to Jamnadas Mehta but of Jamnadas Mehta taking over the liabilities of Meyer Nissim. 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 plainti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in the account of Meyer Nissim or in the account of Jamnadas Mehta. Although it wrote a letter to Meyer Nissim stating that it had disposed of his shares, it was written in a manner which made it 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 might justify. 99. Considerable emphasis has been laid by Sir Noshirwan Engineer on the books of account of the bank. But in my opinion the books of account of the bank have been maintained in a manner which would be unworthy of even a petty trader, The only reason why a Court of law attaches importance to books of account kept in the ordinary course is because they are a contemporary record of events. If the bank chooses not to make the relevant entries on the due dates, it has got to thank itself if its books are disbelieved and discredited. 100. I should also like to say this; that to this transaction of sale, according- to the plaintiff, there were two parties, namely, the bank and Jamnadas Mehta. Jamnadas Mehta also at all relevant times was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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