The Central Bank of India vs The Authority under the Payment of Wages Act and Others

S. Nainar Sundaram, J.—The petitioner, the Central Bank of India, hereinafter referred to as the petitioner bank, has come to this Court,

stating, as follows : The fourth respondent requested for financial assistance for their working capital and long term financial requirements and the

petitioner bank agreed to give such facilities and gave advances for the working capital and long term financial requirements since the year 1968.

The entire fixed and movable assets of the fourth respondent consisting of land, building plant, machinery fixtures, stocks stores spares and other,

movable assets have been charged or mortgaged to the petitioner bank to form security for the fourth respondent''s indebtedness to the petitioner

bank under various facilities. By such financial assistance from time to time, the total out standings due by the fourth respondents to the petitioner

bank amounted to Rs. 1,24,52,319.83 on principal account and Rs. 95,76,466.42, towards interest from 1.1.1976 up to 30.6.1980. The

petitioner bank decided in July, 1978 to suspend further financial support to the fourth respondent, thus avoiding the increase of their liability to the

petitioner bank.

It is found that the fourth respondent did not pay the wages to its workmen for the months of July, 1978 to November, 19 78 and therefore

applications were filed u/s 15(2) of the Payment of Wages Act, 1936, (Act 4 of 1936) hereinafter referred to as the Act, by the workmen against

the fourth respondent claiming their wages and the Authority under the Act, by its Order, directed the fourth respondent to pay wages to the

workmen'' amounting to over Rs. seven lakhs. This determination is being sought to be implemented by resorting to the process under the Revenue

Recovery Act, by issuing distraint proceedings. The prayer in the writ petition is for the issue of a writ of Mandamus to forbear respondents 1 to 3

from prosecuting the distraint proceedings taken in this behalf.

Mr. K.S. Natarajan, Learned Counsel for the petitioner bank, would submit that the rights of his client stand secured u/s 176 of the Contract

Act, and apart from resorting to the ordinary right of a suit for recovery of the dues and for sale of the pledged properties, the petitioner bank is

also entitled to sell them personally without reference to court as a pawnee, satisfying the procedure therefor. Learned Counsel would also

advance a submission that the rights of the petitioner bank as pawnee cannot be extinguished or defeated by the distraint proceedings now taken.

In support of the submission, the Learned Counsel relies on three pronouncements.

In Re S.Y.C.W. and S. Mills AIR 1969 Mys 280. A. Narayana Pai, J. observed as follows:

In the case of hypothecation or pledge of movable goods, there is no doubt about the creditor''s right to take possession, to retain possession and

to sell the goods directly without the intervention of court for the purpose of recovering his dues. The position in the case of regular pledge

completed, by possession is undoubted and set out in the relevant sections of the Contract Act. Hypothecation is only extended idea of pledge, the

creditor permitting the debtor to retain possession either on behalf of or in trust for himself (the creditor)

Hence, so far as the movables actually covered by the hypothecation deeds are concerned, there can be no doubt that the bank is entitled to retain

possession and also to exercise the right of private sale.

In Bank of Bihar v. State of Bihar (1971) 2 S.C.J. 661, the goods pledged with the plaintiff bank by its debtor defendant No. 2, under cover of

an illegal seizure Order issued by the Rationing Officer and the District Magistrate, Patna defendant No 1, were forcibly and illegally removed after

breaking open the locks of the godown of the Bank where the goods were kept, and the bank laid the suit for recovery of the goods as seized, or

in the alternative, for recovery of damages for illegal removal and detention of the goods. The trial Court held that the Blank''s right as a pledge

could not be extinguished by seizure of the goods in its possession, and though the attachment Order was legal and binding on the debtor, it could

be effective only in respect of that portion of the price, which was not necessary for the liquidation of the dues of the Bank from the debtor, and in

that view, the trial court granted a decree to that extent in favour of the Bank. However, on appeal, the High Court took a different view and set

aside the decree of the trial court against defendant No. 1 and the decree was confined only against the other defendants. When the matter was

taken up to the Supreme Court this is what has been observed in its pronouncement:

In our judgment the High Court is 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 and the money being made available to other

creditors of the pawnor without the claim of the pawnee being fully satisfied. 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 plaintiff and the balance could have been made available

to satisfy the claim of other creditors of the pawnor. But by a mere act of lawful seizure the Government could not deprive the plaintiff of the

amount which was secured by the pledge of the goods to it. As the act of the Government resulted in deprivation of the amount to which the

plaintiff was entitled, it was bound to reimburse the plaintiff for such amount which the plaintiff in ordinary course would have realised by sale of the

goods pledged with it on the pawnor making a default in payment of debt. The approach of the trial court was unexceptionable. The plaintiff''s right

as a pawnee could not be extinguished by the seizure of the goods in its possession in as much as the pledge of the goods was not meant to replace

the liability under the cash credit agreement. It was intended to give the plaintiff a primary right to sell the goods in satisfaction of the liability of the

pawnor. The Cane Commissioner who was an unsecured creditor could not have any higher rights than the pawnor and was entitled only to the

surplus money after satisfaction of the plaintiff''s dues.

A question, similar to the one in the present case, camp up for consideration before a Bench of the High Court of Madhya Pradesh (Indore

Branch) in Bank of India Vs. Binod Steel Ltd. and Another, . In that case, there was a pledge of movables by a company in favour of bank. At the

instance of the Payment of Wages Inspector, for recovery of wages due and payable by the company, to its workmen, the movables pledged were

attached and were sought to be brought to public auction. The Bank''s objections having had been overruled by the Revenue Authorities, the bank

approached the Court under Article 226 and 227 of the Constitution of India to quash the Orders of the Revenue Authorities. There was an

advertence to the above two pronouncements and the proposition was summed up as follows-

That apart, the bank stands in the position of a secured creditor. The legal possession and custody of the machinery and other movables of the

Company, which were under a pledge, must be held to be in the Bank itself. The physical possession of the movables and the machinery of the

company may be with the company but in the eye of law, the company must be deemed to be in possession of the same for and on behalf of the

Bank. The legal entity that is entitled to be in possession of these movables must be the Bank and none else. The initiation of recovery proceedings

by the Tahsildar in respect of the amount due and payable by the company to the workers is on the assumption that the machinery and movables of

the company really belong to and are in the possession of the company itself. This conception of the revenue authorities is erroneous and illegal.

The legal rights of the Bank who is pledgee and who is in custodia legis of the machinery and the movables, have been ignored.

Mr. G. Venkataraman, Learned Counsel for the 5th respondent, would submit that determination having been done u/s 15(2) of the Act, and

the Act being a special legislation, the implementation of the determination and recovery of the amounts so determined must take precedence over

the dues of the petitioner bank. There is no provision in the Act which lays down that such a determination and the quantum so determined shall

have priority over the claims of the pawnee, such as the petitioner bank. In the absence of such a specific provision, it is not possible to spell out a

theory as the one advanced by the Learned Counsel for the 5th respondent. Section 176 of the Contract Act read as follows:

Pawnee''s right where pawnor makes default : If the pawnor makes default in payment of 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 pawnor upon the debt or promise, and retain the

goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the

proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

The rights of the pawnee are two-fold and they are concurrent. The pawnee has a right to recover his dues from the person of the pawnor or from

the property pledged, by resorting to the process of a suit before the court. The other right concurrently available to the pawnee is to sell the

property pledged personally without reference to court, of course, satisfying the requirements of Section 176 of the Contract Act. The power of

sale is conferred on the pawnee to be exercised for his benefit and according to his discretion in Order to realise his dues for which the pledge is a

standing security. The pronouncements referred to above have only reiterated the rights of the pawnee to have his claim satisfied out of the

property pledged with him, and in the absence of any priority, in law that could be put forth by any other creditor or the debtor against the pawnee,

his rights, two-fold as they are, as indicated. This is, of course, subject of the law of limitation, if any, applicable to such rights. This much statement

and exposition alone the petitioner bank can seek and have at the hands of this Court, since I am told that the petitioner bank has not so far

exercised its rights of sale without reference to court. Equally so, Learned Counsel for the petitioner is not in a position to commit himself as to

whether the petitioner bank has resorted to the ordinary remedy of a suit to enforce its rights as a pawnee, either personally against the fourth

respondent or against the properties pledged. Subject to the rights of the pawnee, in. the present case, the petitioner Bank, the claims of the

workmen of the fourth respondent; the interests of such workmen now being represented by the 5th respondent, can certainly be enforced. At the

same time, it must be made clear that such claims cannot have precedence over the rights and claims of petitioner bank, the pawnee, and such

rights and claims cannot be extinguished or defeated by the distraint proceedings. This is, of course, subject to the law of limitation, if any

applicable to such-rights and claims. There is sufficient time lapse and the petitioner bank Had the benefit of an injunction with regard to the

distraint proceedings, pending the writ petitions. Hence, in my view, the petitioner bank should be directed to enforce its rights and claims in any

manner available to it in law and the respondents 1 to 3 should be restrained from prosecuting the distraint proceedings referred to in the prayer in

the writ! petition for a further period if six months from today. This writ petition is Ordered on the above terms.