KARUNAKARAN NAIR v. SREEVARDHINI CHIT FUND — 1983 DIGILAW 45 (KER)

Judgment :- 1. The only question that arises in this Second Appeal is whether without executing an instrument of transfer the claim of a foreman against a prized subscriber can be transferred. The defendant had contended that such an instrument of transfer is absolutely necessary. Both the trial court and the lower appellate court have negatived the contention. Therefore the defendant has come up in Second Appeal to this Court. 2. It will be useful in this context to refer to the relevant portion in the plaint where the 2nd plaintiff's right to get the amount is pointed out. Para 5 in the plaint may be extracted: The prayer portion in the plaint also has some relevance here. It reads: The learned Munsiff had pointed out that in the plaint itself the 1st plaintiff had stated that he had assigned his rights to the 2nd plaintiff. Therefore the assignment in favour of the 2nd plaintiff is valid and proper. The learned Subordinate Judge, before whom the appeal against the trial court's decree had come up, had stated that it was contended before him that in any event there should be a formal instrument of transfer in view of S.130 of the Transfer of Property Act as the transfer is of an actionable claim and such contention would be unsustainable as it is well established that no particular form of words is necessary in order to effect assignment if the intention is clear. He would further state that from the averments in the plaint an equitable assignment can well be inferred. It cannot be disputed that amounts were payable by the 1st plaintiff to the 2nd plaintiff and that it is in lieu of the same that the assignment had been made. 3. What Mr. Vyasan Poti, learned counsel for the appellant, contends is that in view of the specific provision in S.130 of the Transfer of Property Act, transfer of actionable claim can only be made in accordance with that Section. S.130 reads:, "130. 3. What Mr. Vyasan Poti, learned counsel for the appellant, contends is that in view of the specific provision in S.130 of the Transfer of Property Act, transfer of actionable claim can only be made in accordance with that Section. S.130 reads:, "130. (1) The transfer of an actionable claim whether with or without consideration shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent, shall be complete and effectual upon the execution of such instrument, and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is hereinafter provided be given or not: Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transfer. (2) The transferee of an actionable claim may, upon the execution of such instrument of transfer as aforesaid, sue or institute proceedings for the same in his own name without obtaining the transferor's consent to such suit or proceedings, and without making him a party thereto. Exception. Nothing in this section applies to the transfer of a marine or fire policy of insurance or affects the provisions of S.38 of the Insurance Act, 1938 (IV of 1938)." About this provision Justice Rankin, as he then was, said in Sadasook Ram-protap v. Hoare Miller & Co. ((1923) 27 Cal. W. N. 733) that S.130 contains a very special scheme which has some of the features both of English Common Law and of Equity. In Common law choses in action were not assignable, but the King could grant or receive a chose in action. When the King granted an annuity, the grantee could bring an action in his own name, and certain choses in action became assignable by custom and by statutes, e.g., bills of exchange, promissory notes and policies of life and marine insurance. When the King granted an annuity, the grantee could bring an action in his own name, and certain choses in action became assignable by custom and by statutes, e.g., bills of exchange, promissory notes and policies of life and marine insurance. However, in English law equity from early times recognised the assignment of choses in action on the principle that equity considers that as done which ought to be done. Lord Truro said in Rodic v. Gandell ((1852) 1 De G. & M. & G. 763) at pages 777-778 thus: "An agreement between a debtor and a creditor that the debt owing shall be paid out of 9 specific fund coming to the debtor or an order given by a debtor to his creditor upon a person owing money or holding funds belonging to the giver of the order, directing such person to pay such funds to the creditor, will create a valid equitable charge upon such funds; in other words, will operate as an equitable assignment of the debts or fund to which the order refers." After the Judicature Act, 1873 and substantial re-enactment of the relevant provision in S.136 of the Law of Property Act, 1925, it had been designed to simplify the remedy of the assignee and to protect the debtor, because previously the remedy of the assignee to choose any action was imperfect. At law he had to sue in the name of the assignor or giving him an indemnity against costs. In equity the assignee could sue in his own name, but there had to be consideration for the assignment, and the assignee cannot sue the debtor in equity, but had to sue in law in the name of the assignor, unless the assignor had refused to allow the assignee to sue in his name. Moreover the assignee could not give a valid discharge, unless expressly empowered to do so by the assignment. By statutory intervention the position became thus: "A statutory assignment (1) must be an absolute assignment, (2) must be in writing, (3) takes effect from date of notice to the debtor, (4) enables the assignee to sue in his own name and to give a valid discharge. By statutory intervention the position became thus: "A statutory assignment (1) must be an absolute assignment, (2) must be in writing, (3) takes effect from date of notice to the debtor, (4) enables the assignee to sue in his own name and to give a valid discharge. An equitable assignment (1) May be an assignment by way of charge, (2) need not be in writing, (3) takes effect as between the assignor and the assignee from the date of the assignment, notice being necessary only to bind the debtor, (4) must be made for value except where it is perfect and complete and operates as a gift, and the assignee cannot give a valid discharge unless expressly empowered by the assignment." Justice Rankin pointed out, as noted earlier, that S.130 of the Transfer of Property Act has some of the features of the statutory and some of the equitable modes of assignment under English Law. It resembles the equitable assignment in that it applies to assignments by way of charge as well as to absolute assignments and takes effect as between the assignor and the assignee from the date of the assignment. On the other hand it resembles a statutory assignment in that it must be in writing and that it enables the assignee to sue in his own name and to give a valid discharge. 4. S.130, as originally stood, was a definition of actionable claim. That definition was: "A claim which the Civil Courts recognise as affording grounds for relief is actionable whether a suit for its enforcement is or is not actually pending or likely to become necessary." The transfer of an actionable claim was the subject of the former S.131. That section was: "No transfer of any debt or any beneficial interest in movable property shall have any operation against the debtor or against the person in whom the property is vested, until express notice of the transfer is given to him, unless he is a party to or otherwise aware of such transfer; and every dealing by such debtor or person, not being a party to or otherwise aware of, and not having received express notice of, a transfer, with the debt or property shall be valid as against such transfer." Chapter VIII of the Transfer of Property Act was remodelled and the sections were altered and rearranged by Act 2 of 1900. The definition of actionable claim was transferred to S.3 and S.131 became S.130. That section was substantially the same as the present one. The words "notwithstanding anything contained in S.123" were inserted by Act 38 of 1925 in consequence of representation made by Insurance Companies that it was a hardship that a gift of a life policy could only be made by a registered instrument under S.123. These words have been omitted by Act 20 of 1929 in view of the insertion of the words "whether with or without consideration". In view of this specific provision in S.130 most of the courts in India had taken the view that for transfer of an actionable claim S.130 should strictly be complied with. The transfer could be effected on the execution of the instrument in writing and as per the Stamp Acts of various States, the instrument has to be written in stamp paper of a particular value. Assignment must strictly conform to the provisions of the section and there must be words of transfer in the instrument. It is on this basis that a Division Bench of this Court in Chacko v. Union of India (ILR.1961(2) Kerala 732) said that while S.130 of the Transfer of Property Act shares some of the features of both the statutory and the equitable modes of assigning a chose in action in England, in view of the insistence on writing embodied in S.130 it is impossible to transfer an actionable claim in this country whether with or without consideration without the execution of an instrument in writing signed by the transferor or his duly authorised agent. In that case a power of attorney was executed by F in favour of G authorising the latter to demand and recover certain amount under deposit with the defendant. It was also stipulated as follows:- "I also hereby authorise my attorney herewith to appropriate the amount due from me to my attorney". The power of attorney was not revokable at any time without the consent of the attorney. The contention raised in that case was that the power of attorney amounts to an assignment of an actionable claim. Justice M. S. Menon, as he then was, speaking for the Bench consisting of himself and justice Joseph did not accept this contention. The power of attorney was not revokable at any time without the consent of the attorney. The contention raised in that case was that the power of attorney amounts to an assignment of an actionable claim. Justice M. S. Menon, as he then was, speaking for the Bench consisting of himself and justice Joseph did not accept this contention. The learned judge said that the terms of the document did not spell either an assignment of the fund in question or the creation of a charge over it. All that it seems to contemplate is a collection of the amounts due, and a subsequent appropriation by the appellant, neither of which had happened in that case. No doubt the learned judge also said that it is true that no particular form of words is necessary inorder to effect an assignment. The language is immaterial provided the meaning is plain and the intention to transfer is manifest from the language adopted. The decision in Bank of the East v. State of Assam (AIR. 1958 Assam 22) was relied on. In that case it had been held that the power of attorney was only an authority given to receive payments from the department concerned of the amounts, if and when they became due to the contractor. It neither created a charge nor was it a transfer of any debt due to the contractor from the Government and the provisions of S.130 of the Transfer of Property Act would not therefore be attracted. 5. In this connection what Justice Raman Nayar, as he then was, said in Palai Central Bank's case (1962 KLJ.1401) would also be relevant. His Lordship said that the instrument in writing contemplated by S.130 of the Transfer of Property Act need not be in any particular form and need not employ any particular words or any set formula. It is not even necessary that there should be a document which is the repository of the whole transaction. But all that is required is that there should be something in writing from which the intention to transfer the actionable claim can be gathered. It is not even necessary that there should be a document which is the repository of the whole transaction. But all that is required is that there should be something in writing from which the intention to transfer the actionable claim can be gathered. But a mere statement that a deposit receipt is to be held as security and that the money, when it becomes due is to be applied in a particular way, or to say that a particular sum in deposit is earmarked by way of security and that if a loan is not repaid in time it may be repaid from out of the deposit when the deposit becomes payable, would not manifest an intention to transfer the deposit itself. That the statements in the plaint manifest an intention to transfer the claim from the 1st plaintiff to the 2nd plaintiff is clear. But then, as Mr. Poti pointed out, there is no document of transfer and there is no document written in a stamp paper of appropriate value. I certainly take note of a number of decisions where it has been held that an instrument in writing by which the actionable claim is transferred must be an instrument of transfer and there must be words of transfer in such instrument. It has been held that a mere direction for payment of money to a certain person would not amount to assignment of money to that person 6. However, the Supreme Court in two decisions rendered in 1968 and reported in Seth Loon Koran v. I.E. John (AIR. 1969 SC. 73) and Bharat Nidhi Ltd. v. Takhaimal (AIR. 1969 SC. 313) makes a departure from those rules as such. In the first of these cases, Seth Loon Koran v. I. E. John (1969 SC. 73), the appellant before the court was indebted to a bank. He executed a power of attorney in favour of the bank authorising the bank to execute a decree obtained by the debtor against a third person and credit the realisations to the debtor's account. The bank levied execution of the decree. The execution application was filed in the name of the appellant, but it was signed by the Manager of the bank as his power of attorney holder. The appellant objected to the execution. The bank levied execution of the decree. The execution application was filed in the name of the appellant, but it was signed by the Manager of the bank as his power of attorney holder. The appellant objected to the execution. The Supreme Court said: "This takes us to the question whether the power given to the Bank amounts in equity to an assignment of the decree or any portion thereof, to the Bank. From the power of attorney it is clear that the amount under the decree was specifically earmarked for discharge of the debts due to the Bank. It was constituted as a special fund for the said purpose. The power to realise that fund was made over to the Bank with the further authority to set off the amount realised towards the debts due to it. In other words, the power of attorney is an engagement to pay out of the particular fund the debt due to the Bank and hence the same constitutes an equitable assignment of the amount due under the decree or so much of that amount as is necessary for discharging the debts due to it. That rule is recognised in Watson v. Duke of Wellington. (1830) 39 ER 231 To the same effect is the decision in Burn v. Carvalho, (1839) 41 ER 265. Therein the Court of Chancery held that in equity, an order given by a debtor to his creditor upon a third person having the assets of the debtor to pay the creditor out of such fund is a binding equitable assignment of so much of the fund. The courts in India, which administer both law as well as equity, have followed the rule laid down in the above decisions. In this connection reference may be made to the decision of the Bombay High Court in Jagabhai Lallubhai v. Rustamji Nasarwanji, (1885) ILR. 9 Bom.311, and of the Patna High Court in Prahlad Pd. Modi v. Tikaitni Faldani Kumari, AIR. 1956 Pat. 233. In the latter case, the Patna High Court held that a transaction similar to the one we are concerned in this case, in substance amounted to allocation of fund to be appropriated towards the debt and therefore it is an equitable assignment. No decision talcing: a contrary view has been brought to pur notice. 1956 Pat. 233. In the latter case, the Patna High Court held that a transaction similar to the one we are concerned in this case, in substance amounted to allocation of fund to be appropriated towards the debt and therefore it is an equitable assignment. No decision talcing: a contrary view has been brought to pur notice. We think that the rule laid down in the above decisions is a sound rule as it advances the interest of justice. We accordingly adopt that rule." To the same effect, but more explicit and forthright, is the pronouncement of the Supreme Court in Bharat Nidhi Ltd. v. Takhatmal (AIR. 1969 SC. 313). There a Contractor to the military and other authorities entered into an arrangement with a Bank whereby it agreed to finance the contracts and to advance monies to the Contractor against his bills for supplies under the contracts. For the purpose of carrying out this arrangement the Contractor executed an irrevocable power of attorney in favour of the Bank authorising it to receive payments of the bills from the authorities. The contractor made out a bill on the military authorities for a sum and handed over the same to the Bank for collection with an endorsement that it should be paid to the Bank. The Bank sent the bill for payment. The amount due under the bill was attached by a creditor of the Contractor in execution of a money decree obtained by him against the Contractor. The Supreme Court said that the attachment by the creditor under S.60 CPC. was not valid. The power of attorney coupled with the endorsement on the bill was a clear engagement by the Contractor to pay the Bank out of the monies receivable under the bill and amounted to an equitable assignment of the fund by way of security. 7. Mr. Harun Al Rasheed, who appeared along with Mr. Poti, on the the second day pointed out that the decisions of the Supreme Court are in cases where there was an instrument of transfer which may be in the form of power of attorney. He also pointed out that the Full Bench decision of this Court in Simon Thomas v. State Bank of Travancore (1976 KLT. Poti, on the the second day pointed out that the decisions of the Supreme Court are in cases where there was an instrument of transfer which may be in the form of power of attorney. He also pointed out that the Full Bench decision of this Court in Simon Thomas v. State Bank of Travancore (1976 KLT. 554), where the Supreme Court decision has been reiterated and applied, also is a case where there is an instrument of transfer in the form of an agreement. In that case the agreement had stated that the fixed deposit receipt had been offered as security for chitty moneys due from the appellant to the bank and that after providing Rs. 3,900/- for future subscriptions due from the appellant towards the chitty, the balance amount covered by the fixed deposit receipt be treated as security for the payment of promissory note amount. In that case it was contended that the handing over of the fixed deposit receipt duly discharged was to create an equitable assignment of the balance of the amount available with the Bank after setting off from the fixed deposit amounts the moneys due towards the chitty. There Chief Justice Govindan Nair speaking for the Bench referred to certain authorities which have referred to some of the circumstances in which an equitable assignment can be inferred: "Fisher on Mortgages deals with creation of an equitable assignment by way of security. It states that an equitable assignment by way of security may be made in the following manner: "(1) By an agreement between a debtor and his creditor that a specific thing in action which is, or will be, in the hands of or due from a third person and which belongs to the debtor, shall be applied in discharge of the debt; (2) By an order given by the debtor whereby the holder of a fund is directed or authorised to pay it to the creditor." (Fisher on Mortgages, Eighth edition at page 94) Chitty L. J. expressed the view in Dur ban Brothers v. Roberston 18981 Q. B. 765 at page 769 as follows: "A mere charge on a fund or debt operates as a partial equitable assignment " This is the 3rd way and the 4th is indicated in Fisher on Mortgages at page 96. "If, however, there is a sufficient indication that the supposed assignee is to have the benefit of the fund or thing in action in question, in addition to relying on the credit of the assignor, or, as it is sometimes put, is to be paid "out of the fund" as distinguished from "when the assignor gets the fund", a valid equitable assignment is created, provided that the transaction is for value. The intention must be that the property shall pass. A cheque is not an equitable assignment of the drawer's balance at his bankers, being in the nature of a bill of exchange." The Supreme Court had to consider the question whether there was an assignment of a debt in favour of a Bank by the appellant in the case before the court in Seth Loon Koran Sethiva v. Ivan E. John and others, AIR. 1969 SC 73. The facts stated in the head note of the decision are: "The appellant was indebted to a Bank. He executed a power of attorney in favour of the Bank authorising the Bank to execute a decree obtained by the debtor against a third person and credit the realisations to the debtor's account..." After reference to some more authorities, learned Chief Justice points out that a valid equitable charge is treated as an equitable assignment of the debts or funds to which the order refers and quotes again Chitty Q. who has said that a mere charge on a fund or debt operates as a partial equitable assignment. Chief Justice Govindan Nair further states that apart from the creation of a charge on the balance of the fixed deposit amount (balance after setting off chitti dues) there appears to be sufficient indication of intention that there should be an assignment of the fixed deposit amount by virtue of the discharge of the fixed deposit receipt by the appellant and, handing over the same to the Bank. It is not a case where there was a written document wherein an assignment could be spelt out. It was on the basis of the creation of an equitable right which was treated as an equitable assignment. Such an equitable assignment could be gathered by the wordings in the plaint itself in this case where both the assignor and the assignee figure as the plaintiffs. It was on the basis of the creation of an equitable right which was treated as an equitable assignment. Such an equitable assignment could be gathered by the wordings in the plaint itself in this case where both the assignor and the assignee figure as the plaintiffs. The Supreme Court has clearly stated in Bharat Nidhi Ltd. v. Takhat-mal (AIR. 1969 SC. 313) that an actionable claim may be transferred under S.130 of the Transfer of Property Act. But where a document does not amount to a transfer within S.130 it may apart from and independently of the section operate as an equitable assignment of the actionable claim. This makes it clear that apart from S.130 there could be a transfer of actionable claim by an equitable assignment. Therefore I think the learned Subordinate Judge was quite right in concluding that from the averments in the plaint an equitable assignment can very well be found. In this view I dismiss the appeal with costs.