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TMI Blog1931 (7) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Dey on 20th December 1926 and his claim was laid at Rs. 18,243-8-0 with interest and costs. Originally, the mortgagors only were impleaded as the defendants, being defendants 1 to 3. Subsequently the plaintiff added as defendants 4 and 5, the Co-operative Hindusthan Bank Limited and one Uday Chand Daga, respectively, as subsequent mortgagees or pledgees of parts of the mortgaged properties and assets of U. Ray and Sons. In the meantime the firm of U. Ray, and Sons was adjudicated insolvent and a receiver was appointed. The receiver was then added as defendants in the suit. Defendant 6 did not contest the plaintiff's claim. 2. The bank, defendant 4, put in a contest alleging that they had advanced money from time to lime to the mortgagors on cash credit system on the pledge of their goods and under several agreements commencing from 19th November 1925, and that by the last of such agreements, dated 2nd July 1926, the bank became pledgees in possession of the moveable properties of the mortgagors as belonging to D. Ray and Sons, which were kept in premises No. 1 and 100 Gurpar Road. They further alleged that the dues of the mortgagors to the bank having amounted to Rs. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her not permitted at all or is fenced in by a multitude of rules which fare absolutely necessary for the prevention of fraud (Ghose's Law of Mortgage, Edn. 5, Vol. I ...114). 6. Though not accompanied by delivery of possession, the validity of such hypothecation has been recognized in India and it has sometimes been enforced even against bona fide purchasers without notice: see Deans v. Richardson [1871] 3 N.W. 54 Sham Sundar v. Cheita [1871] 3 N.W. 71 Ko Kywetnee v. Ko Koung [1866] 5 W.R. 189 Shivram v. Bhau [1902] 4 Bom. L.R. 577 Srish Chandra Roy v. Mungri Bewa [1905] 9 C.W.N. 14 Damodar v. Atmaran [1906] 8 Bom. L.R. 344 In the matter of A. Summers [1896] 23 Cal. 592 and Puninthavalu v. Bhashyam [1902] 25 Mad. 406. So far as the factum of the mortgage is disputed, the contention in, our opinion is amply answered by the terms of the deed itself. By the deed not only the goodwill and stock in-trade, machinery fixture, furniture and articles of the business of U. Ray and Sons at No. 100, Gurpar Road were hypothecated but also those of any subsidiary business situated either in those premises or elsewhere, and not only all things belonging to all the said businesses at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext question is whether the bank ever took possession of the articles hypothecated in its favour. It appears that the mortgagors used to receive overdrafts from the bank since 1928. Ex. D-26, dated 2nd April 1925, shows that a further overdraft in addition to Rs. 3,000 already obtained was received by them on security of goods lodged at premises No. 1, Gurpar Road, to be adjusted by 9th April 1925. On 9th April 1925 time was extended to 20th April 1925 on the same security: Ex D-25. Ex. II, dated 20th May j925, shows that an overdraft of Rs. 2,000 was taken in addition to Rs. 5,000 already taken on security of goods as per a cash credit agreement dated 9th March 1925 and on the security of the aforesaid Harrild's Machine, its price being stated there as Rs. 8,000 and it being further stated there that it had been already pledged with the bank. The machine therefore must have been brought to the premises shortly before-; 20th May 1925 and pledged with the bank. Thereafter there were three successive agreements, Ex. A dated 12th November 1925, Ex. B dated 19th April 1926 and Ex. 0 dated 2nd July 1926, appended to the last of which was a comprehensive list of all moveables hypothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding of the Court below so far as defendant 5 is concerned, is that he made no inquiries as to any previous hypothecation, that although he may have lent some money to the mortgagors he did not advance the entire amount which he protended to have lent, that he took advantage of the helpless and impecunious position of the mortgagors to impose unfair terms and to make unwarranted deductions on the ground of interest and commission, and that ha never took possession of. the goods. If ho seriously desired to dispute these findings his proper course was to prefer a frontal attack by means of a substantive appeal with the plaintiff and the bank as respondents; and not merely to seek to reopen those findings by means of a cross-objection. He has preferred a substantive appeal, Appeal No. 326, but the scope of that appeal, as will be seen hereafter, is confined to the order for costs that the Subordinate Judge has made as against him and in favour of the plaintiff. 10. The respective positions of the three parties then appear to have been as follows: The plaintiff held a mortgage of certain moveables under the deed dated 8th December 1920, but he had not reduced them to possession. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority. A very interesting and ingenious argument has been addressed to us on behalf of the plaintiff to establish the contention that the plaintiff as mortgagee had acquired all the rights of the mortgagors in the properties with the exception only of the latters' bare right of redemption and therefore the bank acquired no rights under the pledge subsequently made in their favour. It has been argued that the plaintiff is a mortgagee in whose favour the entire interest of the mortgagors minus their right to redeem had been transferred under the mortgage, that it does not matter that he did not take possession of the properties mortgaged, and that it is contrary to all principles that the mortgagors in whom remained only the right to redeem should be competent in any event to transfer to the pledgee an interest in the property which would entitle him to claim a priority over the mortgage. This argument at first sight might seem very catching, but, in oar opinion, it is not sound. It imports into the mortgage of moveables the implications of a simple mortgage of immovable property under the Transfer of Property Act, which by its terms is inapplicable to such a case; strictly speak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 222. 15. Mortgages of chattels in English law-are now generally governed by the Bills of Sales Acts 1878 and 1882 as amended by the Acts of 1890 and 1891. Under these Acts, upon certain conditions being fulfilled title to the property passes conditionally to the mortgagee. Prevention of fraud was the policy of the legislature in passing these enactments but the object does not appear to have been satisfactorily effectuated, while they have produced a vast amount of expensive litigation, and decisions not always easily reconcileable with each other: Coote on Mortgages, 9th Edn., Vol. 1, p. 217; see also Ghose on Mortgage 5th Edn., Vol. 1, p. 116. 16. So far as these Acts are concerned the following passage will show what the rights of the parties are: It has repeatedly been held that when goods are pledged or deposited by way of security for money, an instrument in writing accompanying the pledge or deposit and merely regulating the rights of parties with regard to the possession of the goods, but neither giving any authority to take such possession nor transferring any property therein are not within the mischief of either the Act of 1878 or the Act of 1832. But there ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iah, v. Venkataramiah [1919] 42 Mad. 59 it was held: When goods arc left in the possession of the mortgagor a wide door is opened for fraud and when the equities between the innocent purchaser and the mortgagee have to be weighed the preponderance must be given to the purchaser, for the mortgagee has by his omission to secure possession of the goods facilitated the commission of the fraud. 19. In the decision last mentioned reliance appears to have been placed upon the case of National Mercantile Bank v. Hampson [1880] 5 Q.B.D. 177 but that was a case of goods being left with the holders of a bill of sale which might be sold in the ordinary course of business, a distinction which was pointed out in the case of Payne v. Fern [1880] 6 Q.B.D. 620. The principle however is a sound principle of equity and as regards mortgages of immovable property has been enacted in Section 78, T. P. Act. The principle has been adopted in Burma in the Full Bench case of Manekjee Pallanjee v. S.A. Meyappa Chetty [1915] 7 L.B.R. 336 and in the recent decision of that Court in Backer Khorasanee v. Ahmed Esmail Jamal A.I.R. 1928 Bang. 28 and also in an earlier decision of that Court which was referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights, and Page could not 'have filed a bill to restrain Allen's action. 21. No question of equity could or did arise in the case. We are of opinion that in determining the order of priority in this country, where hypothecation of moveables is a matter not dealt with by the statute, the equitable principle to which reference has already been made ought to be applied, and the bank must be given priority over the plaintiff. 22. The next question is whether the bank were within their rights in holding the sale as they did and whether the sale was regular. The two clauses of the agreement Ex. C relevant in this connexion are the 7th and the 8th. Clause 7 provided that the dues were to be paid up on 31st August 1926 or on demand being made, on any earlier date; and Clause 8 provided that in default of such payment the bank may at any time after the said date and without any notice to the borrowers but without prejudice to their right of suit against them, either by public Auction or by private contract, absolutely sell or otherwise dispose of the pledged goods. It appears that the plaintiff instituted the present 'suit, in which as already stated he had not impleaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement ? 25. He gave the following answer: A.--As we received ready buyers we did not sell the goods by public auction. We engaged brokers to secure private buyers. I cannot mention their names. They were employed by our Inspector to my knowledge. They were authorized to negotiate sales. 26. None of the brokers however has been called. Two letters have been produced on behalf of the bank: one dated 7th January 1927 and signed by one G. Chaudhury of the Bijoya Press which contained an offer of Rs. 3,500 for the goods; and the other dated 10th January 1927 written by the proprietors of the Indian Soap Company and containing their offer of Rs. 4,425. Upon the evidence of Dutta Gupta it appears that the Indian Soap Company was an old constituent of the bank whose whole factory was under hypothecation with the bank on overdrafts to the extent of Rs. 40,000. On the night of the 10th the sale was concluded with them and from the early hours of the nomine' of the 10th the goods began to be removed. Within a few hours the removal was completed, the bank paying the lorry-hire for the removal; and several days after, the price was paid by the Indian Soap Company and received by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be given. We are also of opinion that the notice, that is to be given should, in the words of the section, be a reasonable notice of the sale. The notice in the present case satisfies none of the requirements of this expression. It says: Failing which, (i. e., the payment by the 7th) we shall arrange for sale of the hypothecated stock. 28. This is merely an intimation that arrangements will be made for a sale but it is not a notice of the sale that is to be held; such a notice would require more definite particulars. What such particulars should be must depend upon the peculiar facts of each case. And once a proper notice is given it is not necessary that a fresh notice is to be given if the contemplated sale is adjourned to a future date. Again, can it be said that a reasonable notice was given ? No inquiry at all was made as regards the whereabouts of the debtors though it was known that they had left the premises. No notice was put up at the premises, and only a few hour's time was allowed for payment of such a large sum of money. It should have been foreseen that this notice could never reach the debtors before the intended sale and far less would it enable them t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deducting therefrom the bank's dues Rs. 4,216-9-0 the balance left would be Rs. 6,807-3-3 and not Rs. 5,484: vide Order No. 142 dated 16th April 1928 in the order sheet of the suit. 30. In Appeal No. 326, which defendant 5, Daga, has preferred, his only contention is that he should not have been made liable for the plaintiff's costs. In our opinion this contention should be upheld. The mortgage no doubt was in respect of moveables, but the rules of Order 34 of the Code are based on well-settled rules of equity which, in the absence of any statutory provision to the contrary, should be applied in suits on mortgages of moveables as well. Unless it could be shown that by reason of the defence which defendant 5, Daga, put forward, the plaintiff was put to some extra costs, we can see no principle on which the usual rule as regards costs in mortgage suits should be departed from in this case. We have examined the schedule of plaintiff's costs as stated in the decree but we cannot say that there were any such extra costs, or if there were any they can in any way be distinguished. The decree for costs made by the Court below in favour of the plaintiff and against defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k's liability for the sale amounts to Rs. 6,807-3-3. The bank should also be liable to the plaintiff for the costs of this appeal, hearing-fee being assessed at 10 gold mohurs. The decree in favour of the plaintiff as against Daga for costs should be set aside and the said costs should be added to the plaintiff's dues under the mortgage. The rest of the decree of the Court below will stand. No other order for costs will be made in any of these appeals. The result is that Appeal No. 231 will be dismissed, the cross-objection of the plaintiff in connexion with it will be allowed in part, and defendant 5's cross-objection in connexion with it will be dismissed, and Appeal No. 32G will be allowed. 33. It appears that a final decree in the suit was subsequently passed by the Court below on 16th May 1928. Ordinarily it would have been necessary, as the preliminary decree has been varied by us in the manner indicated above to set aside the final decree and to allow a further period of grace and on the expiry of the same to pass a fresh final decree. But in the present case that procedure is not necessary because the mortgagors have not appeared and no question of redemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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