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Judgment
Prabha Sridevan, J.—The plaintiff is the appellant. The plaintiff- Bank tiled the suit for recovery of a sum of Rs. 78,642.33p with interest.
According to the appellant, the first respondent-firm opened an account and apart from other facilities the appellant-Bank also had granted bill
discounting facilities. The first defendant-firm was therefore permitted to book its consignments with approved lorry transport operators preparing
the invoice for the value of goods and mentioning the name of the drawee i.e., the parties to whom the goods were sent. The respondent also drew
''Hundis'' on the drawee''s name to pay the value of goods mentioned in the Hundi to the appellant on demand. The set of documents which
accompanied the dispatch of goods are called ''Bills''. On receipt of these documents the appellant-bank would credit the value of the goods into
the current account of the respondent''s firm which would thereafter be permitted to withdraw the amount at their convenience. Then the appellant-
bank would send the set of documents, the ''Bills'' to the collecting Bank who would pay the amount after the Hundi is drawn and the goods are
cleared. On 17-12-1979, the firm executed a letter of indemnity undertaking to indemnify all damages that may be sustained by the Bank acting for
and on behalf of the firm. The third defendant executed a deed of guarantee. A letter of hypothecation was also executed hypothecating the goods
recovered by the bills. Seven Hundis were dishonoured and the lorry rebooked the consignments to the Bank, which also kept the goods in their
custody. The appellant persuaded the first respondent-firm to clear the outstanding and to take back the rebooked lorry receipts and to clear the
goods. With regard to the first six consignments the first respondent firm represented that they will soon clear the goods. With regard to the 7th
consignment, the first respondent asked the Bank to take delivery of the goods, to sell the same and adjust the sale proceeds. This was done. In
spite of the repeated demands made by the appellant-Bank the other bills were not cleared and therefore, the suit was filed. In the written
statement, the respondent in addition to all the usual denials specifically stated that on the appellant''s own admission it is the appellant who is in
possession and custody of the goods belonging to the firm and therefore, the appellant ought to have sold the goods hypothecated to the appellant
and appropriated the sale proceeds to the amount due from the first respondent firm and claimed only the balance from the respondent. The Trial
Court dismissed the suit on the ground that when the creditor is given a security the creditor is not entitled to recover the amount of his debt, when
he is not in a position to return the security, when the debtor and the person giving the security are the same person. Against this, the present
appeal has been filed. Mr. V. Narayanaswami, learned counsel for the appellant would submit that the Trial Court erred in dismissing the suit. The
Trial Court ought not to have treated the hypothecation in favour of the Bank as being equivalent to a pledge. While the pledgee has a right of sale
the same right of sale may not be available to a person in whose favour the goods are hypothecated. According to the learned counsel it is the
respondents who have committed default and they had specifically issued the letter, Ex-A32 dated 27-08-1981, where they have requested the
Bank not to recall the other bills and that they would try to settle the amount within a minimum period of six months and they sought the indulgence
of the appellant-bank. Ex-A47 was also referred to wherein the respondent had again asked for time to pay the remainder in the overdue bills. He
would submit that they had not exercised their power of sale only because the respondents have asked them not to do so. Having tied the hands of
the appellant it is now not open to the respondents to say that since the appellant is not in a position to return the goods which were offered as
security the appellant is not entitled to claim the amount for which the security was given.
Mr. M. Kamalanathan, learned counsel for the respondents (RR4 to 8) would refer to para 10 of the plaint in which it was stated that all the
dishonoured hundis were returned to the appellant-Bank. Therefore, according to him not only the appellant has the possession of the goods since
they had been rebooked by the lorry transport operators, they also had the bills which are the documents of title in so far as the consignment is
concerned. Therefore, without the consent of the appellant, the respondent could not have sold the goods. If the appellant has to recover the
amounts due from the respondent then the respondent would suffer loss twice, He would have to repay the amount claimed in the suit and since the
appellant is not in a position to return the goods they have hypothecated the value of the goods are also lost to the respondents. According to the
learned counsel, therefore, the Trial Court had taken the correct and equitable approach and there was no reason to interfere.
The question for consideration is whether the appellant is entitled to the amount claimed in the suit. Both the counsel submitted at the time of
hearing that the goods that are the subject matter of the hundis have been lost and the appellant-bank is not even able to report to the Court as to
what happened to the goods. Therefore, it is a given fact that the appellant will not be able to return the goods. The learned counsel for the
appellant would submit that the Trial Court erred in treating the hypothecation as a pledge. The distinction between ''hypothecation'' and ''pledge''
has been dealt with in detail 1977 II MLJ 497(Union of India Vs. CT. Shentilanathan) by a Division Bench of this Court. In that case on facts it
was found that on the date when the hypothecation deed was executed, possession was not handed over to the creditor nor was it in
contemplation between the parties and it was observed thus:
As delivery of possession is not a sine qua non for the creation of a notional charge under a deed of hypothecation and as possession of the
hypothecated goods is always with the hypothecator, a wide door is open to the owner to deal with the goods without reference to the
hypothecate.
In this case, however the admitted facts are the goods were with the appellant-bank.
In The Dhanalakshmi Bank Ltd. Vs. K.K. Jose alias Jose Mohan and Others, which is also an appeal filed by the Bank the claim was for
realisation of an amount due under a key loan transaction. The goods were delivered as security for payment of debt. The transaction was held to
be either a pledge or pawn and when the pawnee is unable to return the goods to the pawnor on the pawnor tendering the amount due; the
pawnee is not entitled to get a decree, and it was also stated that a pawnee was entitled to take care of the goods as a man of ordinary prudence
would take of his own goods and will be liable to the pawnor for the loss or damage caused to the goods on account of his own negligence. The
goods were found damaged and therefore, the pawnor was not in a position to get back the goods pledged by him on tendering the amount due.
So the Court held that the pawnee has no right to sue on the debt.
5 Lallan Prasad Vs. Rahmat Ali and Another, was also a case which dealt with a case of pledge. In that case the possession was with the pledgee
and the Supreme Court held that a pledgee cannot maintain a suit for recovery of debt as well as retain the pledged property.
If by his default the pawnee is unable to return the security against payment of the debt, the pawner has a good defence to the action. This being
the position under the common law. it was observed in Trustees of the Property of Ellis and Co. Vs. Dixon-Johnson, 1925 AC489, that if a
creditor holding security sues for the debt, he is under an obligation on payment of the debt to hand over the security, and that if, having improperly
made away with the security he is unable to return it to the debtor he cannot have judgment for the debt.
In this case, the possession of the goods were undoubtedly with the Bank and the goods are lost. In fact as on date it is reported that the
appellant-Bank is unable to even ascertain what happened to the goods. No doubt, it is true that the respondent had sought for time to repay under
Exs-A32 and A47. But in the evidence on behalf of the appellant, P.W. 1, has stated that under the hypothecation agreement they had the right to
bring the properties to sale. They did not exercise the necessary care and caution to protect the goods in their control, nor did they take steps to
sell them if their goods were in danger of deteriorating or being lost. Even pending the suit the appellant had not taken steps to secure the interest of
the respondent in respect of the goods that were hypothecated which were admittedly in the custody of the appellant. If the appeal were to be
allowed the appellant would be entitled to recover the amounts due but he would not be in a position to give back the goods that were
hypothecated in favour of the appellant. This runs contrary to the judgments referred to above. The Trial Court has approached the matter from the
correct perspective. There is no reason to interfere with the same. The appeal is dismissed. No costs.