Union of India (UOI) vs The Bank of the East Ltd. and Others

Deka, J.—This is an appeal on behalf of the Union of India against the decree passed by the Subordinate Judge, L.A.D., in Money Suit No. 71 of 1948 decreeing against the Union of India a sum of Rs. 13,414 with proportionate costs, jointly and severally with Defendant 1 Gous Ahmed who is Respondent 2 in this appeal.

The Plaintiff''s case is that they were a banking concern with its Head Office at Gauhati and it started an Over-Draft account in the name of Defendant 1 with a view to finance him in carrying on Military contracts under the G.E. 153 I.W.S. on a stipulation that he would repay the amount with 9 per cent interest per annum and agreed to execute and did actually execute a power of attorney on 20-10-44 in favour of the Plaintiff authorising them to collect all bills in connection with the contract work No. W/153/178/44-45 or any other contract work under the said G.E. 153 I.W.S.--and started taking money by overdrafts from 26-10-1944. The above power of attorney was forwarded to the G.E. 153 I.W.S. by the Secretary of the Plaintiff-Bank with a covering letter dated 8-11-44 and the G.E. was requested to register the contents in his books and return the original--which request was complied with. The said G.E. through 26 Staff Master sent cheques of some final bills of Defendant 1 to the Plaintiffs and the bank duly credited all such receipts to the Cash Credit Account of Defendant 1. I am quoting below few of the paragraphs from the plaint which are not materially contradicted by the Defendants:

* * * 6. That in order to secure the said arrangement more fully, the said Defendant 1 besides the execution of the said power of Attorney also executed pro-notes up to the arranged limits of overdrafts by way of security along with letter of continuity. Such a pro-note was executed by Defendant 1 at the very start of the transaction on 19-10-1944 for Rs. 5,000/- only as was the limit arranged then.

That sometime after the said first arrangement, Defendant 1 produced a certificate of his final bill for the contract No. W/153/264 of 44-45 showing the approximate amount of his said bill would be Rs. 15,600 only and requested proportionate raising of the O/D accommodation. Accordingly, the Plaintiff bank agreed to raise the Said overdraft limit of Defendant 1 up to Rs. 12,500 with the hope that the said amount due on the said final bill would be sufficient to cover the said limit. Defendant 1 also executed a fresh pro-note for Rs. 12,500/- with a letter of continuity by way of security for the said overdraft limit acknowledging his debts to the Plaintiff Bank on 27-6-1945.

That after allowing the said overdraft facilities to the said Defendant 1, the Plaintiff had been anxiously awaiting the receipt of a cheque in respect of the said final bill for the said contract No. W/153/ 264/ 44-45 but nothing being heard for a long time, they issued reminders to the G. E. 153 I.W.S. who at last by his letter No. 211/E. 2, dated 30-4-1945 informed the Plaintiff bank that the said final bill for Rs. 15,769-13-0 only was still pending in his office.

That since the, receipt of the said information the Plaintiff bank issued several reminders to the said G.E. as well as to the G.E. 905 through whom the payment of the said final bill was to be made and also to the D.C.E. 142/Wo''rks Indian, Shillong, who by his letter No. 8006-C 3324/E.-8 dated 13-5-1946 demanded of two copies of "NO DEMAND" certificates from the Defendant No. 1, with the said two copies of certificates. In response to Plaintiff''s reminders the G.E. Gauhati too by his letter No. 812/296/E-8, dated 20-6-1946 informed the Plaintiff bank that the bill in question was under audit and the payment would be made on receipt of the payment Order 10. That in the meanwhile the office of the G. E. 153 I.W.S. Gauhati, being abolished and merged with the office of the G.E. Shillong Division, the Plaintiff Bank issued reminders to the G.E. Shillong Division to expedite payment of the said final No. W/153/264 of 44-45 and after a long silence the A.G.E. Shillong Division by his letter No. 560/69/E-5 of 14-10-1947 informed the Plaintiff Bank that the case of payment of the bill C.W. No. E/153/264 of 44-45 had been taken up by the D.C.E. Biling Centre Port William for disposal, and payment would be made when the said bill was received in his office duly passed for payment.

No money being received, further correspondence passed between the Plaintiff and the G.E. or the Military authorities and the A.G.E. P/S Shillong Division by his letter dated 18-2-48 informed the Plaintiff-Bank that the payment in respect of the bill No. C.A. No. W/153/264 of 44-45 had already been made direct to the contractor Defendant 1 on 6-2-1948 under a cheque for Rs. 13,414. The Plaintiff claimed a sum of Rs. 17,312-14-0 against Defendant 1 as per copy of the accounts enclosed, but prayed for a decree for Rs. 13,414 against the Union of India jointly and severally with Defendant 1 for the sum covered by the final bill paid to Defendant 1 directly. The cause of action against Defendant 1 is stated to have taken place from the date when the transaction began on the O/D account till 29-10-1946 and against Defendant 2 from 8-5-1948 on which date the statutory time of two months from date of service of notice on Defendant 2 and its officers expired. Defendants 3 to 5 were respectively the G.E., A.G.E. and Head Clerk of the Office of the G.E. Shillong Division.

Defendant 1 denied all liabilities and his plea was that the account with the Plaintiff was adjusted and the power of attorney revoked. He raised some other legal pleas in bar. Defendant 2 on the other hand contested that there could be no decree against this Defendant--as they were not parties to the transaction nor privy to any contract that might have existed between the Plaintiff and Defendant 1--and that the power of attorney could not restrict the option of the Government in the matter of making the payment to the contractor in whose favour the bill stood, in preference to a person holding his power of attorney. They further pleaded that the procedure followed in the matter of submitting the power of attorney was not in conformity with the rules and regulations of the Government and had no binding force against the Government of India--and that no liability accrued to the Dominion of India by virtue of payment by its officials to the principal and not to the agent authorised for collection Defendant 1 denied that there was any collusion in the matter of payment or that the bills were'' pledged to the Plaintiff--or that there was any contractual obligation between the Plaintiff and Defendant 2 by virtue of which the Plaintiff could ask for a decree against this Defendant. Other Defendants did not file any written statement Several issues were framed in the suit--of which Issues Nos. 2, 6 and 7 are material for the purpose of this appeal, they being:

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(2) Is the suit barred by limitation?

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(6) Is the notice issued u/s 80, CPC on Defendant 2 legal?

(7) Whether Defendant 2 is liable for Plaintiffs claim?

The Plaintiff examined three witnesses, Defendant 2 examined one and Defendant 1 none. The learned Subordinate Judge decided all the issues in favour of the Plaintiffs.

The learned Junior Government Advocate appearing for the Appellant urged that Issues Nos. 2, 6 and 7 have been wrongly decided by the learned Subordinate Judge and he further contended that the learned Subordinate Judge ought to have found that the Plaintiff''s claim was hit by Section 175(3), Government of India Act, 1935--and should have dismissed the Plaintiff''s claim against tie Dominion of India.

Let me take Issue No. 7 first--that being the most material issue. It is not challenged that the power of attorney executed by Defendant 1 in favour of the Plaintiff was forwarded to the G.E''s office with a request that its contents may be noted and the document returned and it was so done. Does the service of a copy of the power of attorney create any legal obligation on the party so served to make all payments exclusively to the holder Of the power of attorney and not to the principal even if he presses for it? The learned Advocate appearing for the Plaintiff-Respondent submits that fit does. His contention is that a charge was created with respect to the bills u/s 130, T.P. Act in favour of the holder of the power of attorney who became an assignee and the debtor was bound to pay to the assignee after he got an express notice,--as Defendant 2 did in this case. Mr. Goswami, for the Appellant urges that Section 130, T.P. Act has no application to the facts and circumstances of the case and there was no transfer in interest with respect to the bill by the power of attorney, nor was there any valid notice of the alleged transfer of interest. Before expressing any view in the matter, let us examine the power of attorney itself, the text of which runs as follows:

Know all men by these presents that in view of the fact that Messrs. Bank of the East (1927) Limited, Gauhati, having agreed to finance me in executing the contract works No. W/153/178/ 44-45 entered into by me with the G.E. 153 I.W.S. or any other contract works under the said G.E. 153 I.W.S., I,M. Gous Ahmed, son of late Maulvi Abbas Ali of Lanka, district Now-gong, Assam do hereby nominate, constitute and appoint the said Messrs. Bank of the East (1927), Limited, having its registered office at Gauhati, in the district of Kamrup my true and lawful attorney for me:

To have and receive payment of all cheques which will be drawn up in. course of payment of all running and final bills in relation to the execution of the aforesaid contracts by me from the M.E.S., to draw, endorse and negotiate the same, to present them to the Accounts Office, Government treasury on my behalf and give valid discharge for those cheques or bills and to act in relation to the said contracts for me and in my name and on my behalf as may be required to give effect to these presents according to their true meaning and import and I hereby ratify and confirm all acts whatsoever my said attorney do or hereby cause to be done in the premises by virtue hereof.

In witness whereof I do hereunto set my hand, this the 20th day of October, 1944. Schedule of works:

Contract No. W/153/178/44-45 under G.E. 153 I.W.S.

And generally any other contract or contracts under the said G. E. 153 I. W. S.

Sd/- M. Gous Ahmed

It is evident that the Plaintiffs--the Bank of the East, Ltd.,--wife nominated to be true and lawful attorney for the purpose of collecting all bills running and final with respect to the contract work done by Defendant 1 under the Garrison Engineer 153 I.W.S.--and to act in relation to those contracts on behalf of Defendant 1 and in his name--and he undertook to ratify and confirm those acts. The authority to collect the bills or receive payments in connection therewith does not ''ipso facto'' signify that the power to collect those bills no longer remained with the holdler or drawer of the bills. It is nowhere stated in the said document that the power to collect the bills or receive payments on the same has altogether eclipsed with Defendant 1 by virtue of executing the power of attorney. When a person executes a power of attorney in favour of a lawyer,--it is not that he cannot appear in person before a Court of law. The Plaintiffs understood their difficulties and that is why they made two statements in the plaint which are not found to be substantiated. One is that Defendant 1 executed an "irrevocable" power of attorney (vide paras 3 and 4 and the second was--that the final bill was "pledged" to the Plaintiffs (refer para. 12). There is nothing in the power of attorney to signify that it could not be terminated at will or that there was any transfer of interest with respect to the bills that would be drawn for the contract work or that they were to be treated as security against the loan advanced by the Bank. It only signified that there was a standing arrangement between the parties on the basis of which the Bank agreed to finance Defendant 1 and the Bank had the power to collect the bills for and on his behalf--and there was nothing to suggest that it was to his exclusion--or how long this arrangement was intended to continue. There was no mention even of an overdraft account.

Mr. Ghose for the Plaintiff-Respondent has laid much stress on the decision of this Court reported in--''Alkash Ali Khalifa v. Nath Bank Ltd.'' AIR 1951 Assam 56(A) wherein it was held that a power of attorney executed by a contractor in favour of a Bank embodying the arrangement between the parties according to which the Bank agreed to advance the money to the contractor on the security of the bills that were to accrue due and gave the Bank the necessary authority for collection of bills, served the purpose of a writing required u/s 130, T.P. Act. It was further contended that Section 130, T.P. Act does not prescribe any particular form that the instrument in writing must take. The requirements of the section would be satisfied if there is writing from which an intention to create a charge or hypothecation can be gathered. We have not to travel far to distinguish that case from the present one. In that case, in the words of Ram Labhaya, J.:

The fact that the proceeds of the business were to serve as security was distinctly stated in the power of attorney. The Bank agreed to advance the money on the security mentioned in the document. The rest of the arrangement which deals with collection of bills was '' made mainly to enforce the security.

The relevant passage in the power of attorney in that case ran as follows:

...the said Bank agrees to lend and advance me money for my said business on overdrafts account or otherwise on the security of contracts and supplies with the Military and also against bills drawn in my favour and/or against drawn up bills to be endorsed in favour of the said Bank for discounting and collection on my agreeing to execute an irrevocable power of attorney in favour of the said Bank on terms and in the manner hereinafter mentioned.

In this case, I have already pointed out that there was nothing to indicate in the power of attorney that it was irrevocable till the satisfaction of the loan or adjustment of accounts or that the proceeds of the contract business were to be treated as security for satisfaction of the loan,--nor was the bill in question endorsed in favour of the Plaintiff--as was done in that case. Ram Labhaya J. has discussed in that judgment-- Bengal Nagpur Railway Employees'' Urban Bank, Ltd. Vs. Erie Walter Seager, and distinguished that case because of the fact that 1 in the Patna case the terms of the bond (power of attorney) left the debtor free to pay the amount from other sources--and it was nowhere stated; in that bond that the salary that was to become due in future was hypothecated. The authority was given only for the collection of the pay bills.

In this case also, we are not satisfied that any charge was created or assignment made in favour of the Plaintiff bank with respect to the bill or bills--and there was therefore no legal obligation on the part of the military authorities to pay up the sum covered by the bill once again to the Plaintiffs simply because they held a power of attorney.

Lagdir Nauji Vs. Surendra Mohun Nag and Another, was another case relied on by the learned Advocate for the Respondent 1 and in that case too, it was stipulated in the Indenture that all bills made out by Defendant 2 against the Railway Company would be forthwith made over to the Plaintiff who would have the exclusive right to collect the monies due on the bills under an irrevocable power of attorney executed by Defendant 2. Here in this case, we have already observed that there was neither the exclusive right of collection reserved in favour of the Plaintiffs by the power of attorney, nor was it irrevocable,--therefore that decision has no application to the fact of this case.

''Gopalakrishna Iyer v. Gopalakrishna Iyer'' 33 Mad 123(D) is another case cited in support of Respondent l. In that case it was held that where a creditor hypothecates a debt due to him, and authorises the person to whom the debt is hypothecated by power of attorney in writing to recover the debt from the debtor, the debt is absolutely transferred to the transferee u/s 130, T.P. Act. There were two documents executed in that case in favour of the Plaintiff,--one a hypothecation deed and the other a power of attorney authorising the Plaintiff to receive from the Railway Company so much of the sum due by them to Defendant 1 as could then be drawn and to give a proper discharge for the amount to the company; In this case, there was no hypothecation of any amount due to Defendant 1 nor did the power of attorney allude to any such hypothecation and this ruling consequently does not apply.

Another case on which Mr. Ghose relied was--''Tripura Modern Bank Ltd. v. Nabadwip Chandra Das'' 49 Cal WN 494(E). In this case the contest was between a bank'' who advanced money to Defendant 3 and his creditors who attached certain money in the hands of the Municipality, which was due to Defendant 3 for certain contract work done by Defendant 3 for the Municipality with the finance supplied by the Plaintiff-Bank. There was a. power of attorney executed in favour of the agent of the Bank authorising him to collect the amount covered by the bills and there was a letter of lien written by Defendant 3 to the agent of the Bank, the relevant portion of which ran as follows:

I hereby give you lien on all my bills of my accepted tender for the Municipal Works of the Karimganj Municipality for the year 1938-1939.

From a construction of these two documents it was easy for the Judges to hold that the intention clearly was to make an assignment in favour of the bank of moneys which were to fall due in future to the Defendant 3 by the Municipality. In the present case, no lien was created with respect to the bills nor could the intention be said to be clear that there was an assignment of the bills in favour of the bank by execution of the power of attorney (Ex. 1).

In this case, we are of opinion that it is governed by the principle decided in-- Bengal Nagpur Railway Employees'' Urban Bank, Ltd. Vs. Erie Walter Seager, and no equitable charge was created in favour of the bank with respect to the bills as contended by the learned Advocate for Respondent 1. In the Court of the first instance, it was not really contended as pointed out by the learned Advocate for the Appellant that there was an assignment of the bill in question in favour of the Plaintiff-Bank and that the case was governed by Section 130, T.P. Act. It is evident from the set of issues framed in the suit. This point however, could have been raised from the pleadings and we have not therefore thought it fit to preclude the learned Advocate for the Respondents from arguing on this basis. We however, hold for the reasons indicated above, that there was no assignment of the bills in favour of the bank and even though the military authorities on some past occasions sent a few cheques to the bank in satisfaction of the bills at the request of the bank authorities, it does not in any case persuade us to believe that the military authorities treated the power of attorney as a deed of assignment or hypothecation. In our opinion, therefore, Issue No. 7 ought to have been decided in favour of Defendant 2--the Union of India.

The learned Subordinate Judge could not possibly understand the legal implication as he nowhere tried to construe the power of attorney (Ext. 1) nor can it be said that he was correct in interpreting the exchange of letters between the Bank and the military authorities as an act of admission on the part of the military authorities of any legal liability to the Plaintiff Bank. He goes on to say that the final bill was not sent to the bank authorities in spite of correspondence but was paid direct to Defendant 1, amounted to an "instance of a breach of gentleman''s agreement". We do not quite understand what he meant by a "gentleman''s agreement" nor do we know of its legal bearing. A party can be bound only by legal and valid contract either by a certain act between the parties or by construction of a statute. In this case apparently there was no contract entered into between the military authorities and the Plaintiff about any transaction relating to the work done by Defendant 1 nor was there any equitable charge created by the power of attorney with respect to the bills and as such, the Plaintiff could have no case for damage against Defendant 2 for payment made with regard to the final bill in favour of Defendant 1.

Mr. Goswami has further contended that no legal or contractual liability could be enforced against the Government unless there was a specific contract drawn up and signed duly by or on behalf of the Government as provided u/s 175, Government of India Act and in the present case, there being violation of Sub-section 3 of the above Section, the Plaintiff could get no relief against the Union of India even if there was any contractual liability and he has cited certain authorities in support of this contention. Mr. Ghose for Respondent 1 had conceded that there is no contractual liability against the Government unless there was a legal liability as provided u/s 130, T.P. Act. We have already held that Section 130, T.P. Act has no application to the facts of this case and as such the Respondent''s contention is 4 bound to fail.

Mr. Goswami has urged some more grounds namely as to limitation and that the notice served on the Government was not in strict compliance with Section 80, Code of Civil Procedure.

In view of our finding as to Issue No. 7 as framed by the trial Court, we might do without going into any of these contentions. We would, however, like to indicate that these two points raised on behalf of the Appellant have not much force. In our opinion, there was a mutual and current account between Defendant 1 and the Bank and the transactions were governed by Article 85, Limitation Act. The learned Subordinate Judge was, therefore, right in holding that the suit was not barred by limitation and the cause of action being shown to have occurred on 8-5-1948 against the Government, the suit could not be said to be filed out of time against the Government. Section 80, CPC provides that a notice in writing should be served on the State authorities or the public officer in respect of any act purporting to be done by such public officer in his official capacity stating the cause of action, the name, description and place of residence of the Plaintiff and the relief which he claims; and the plaint shall contain a statement that such notice has been so delivered or left. In the present case, the notice was served u/s 80, CPC a copy of which is made an exhibit. Exhibit 13 gives a substance of the claim as made by the Bank of the East, Ltd., against the Government and though in the plaint, the relief is sought both against Defendants 1 and 2, the claim against the Government is based on the identical ground as notified. We hold, therefore, that the learned Subordinate Judge decided this issue correctly.

In view of our finding as to issue No. 7 as framed by the trial Court, we hold that the learned Subordinate Judge was wrong in allowing the claim of the Plaintiff against Defendant 2. We, therefore, direct that that portion of the order be vacated and the decree be modified accordingly.

The result is that this appeal is allowed with costs throughout against Respondent 1.

Ram Labhaya, Ag. C.J.

I agree.