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1988 DIGILAW 59 (MAD)

Official Assignee v. Canara Bank

1988-02-01

RAMALINGAM

body1988
ORDER Ramalingam, J. 1. The first two applications have been filed by the learned Official Assignee against the respondent Canara Bank. T. Nagar Branch, Madras, under the following circumstances: In these two applications, the prayer of the Official Assignee is for vesting the machineries and stock detailed in schedule A to the report of the Official Assignee, free from any hypothecation in favour of the respondent by virtue of Section 52(2)(c) of the Presidency Towns Insolvency Act. Application No. 309 of 1986 is by the Canara Bank, third party, for directing the Official Assignee to hand over the machineries, electrical equipments, furnitures and fixtures, office equipments, tools, stocks including finished and semi finished goods either found specifically in the security document like hypothecation agreement or not and further permit the Bank to sell and appropriate the net sale proceeds after defraying the expenses of the sale towards the liability due by the insolvents, P.K. Pattabiraman and Mrs. P. Kantha to the Bank, who were adjudicated as insolvents on 19-8-1986. 2. In Application No. 293 of 1986, the properties relate to the debtor Mrs. P. Kantha, proprietrix of 'Quality Metal Products'. The properties referred to in Appln. No. 294 of 1986 belong to P.K. Pattabiramaa, Proprietor of Sree Prosperity Industries'. Mr. Pattabiraman is the sole proprietor of 'Sree Prosperity Industries' at plot No. 3, G.N. Industrial Estate, Alapakkam, Madras, Mr. Kantha is the proprietrix of 'Quality Metal Products' in the same premises. Both the businesses were looked after and managed by the insolvent viz., Pattabiraman, the husband of Insolvent, Mrs. P. Kantha, the second wife of Mr. P.K. Pattabiraman. The insolvents have not filed their schedule of affairs till 6th November, 1986 the date of the report of the Official Assignee. However, the insolvents in their application for adjudication have disclosed their over-all joint liability at Rs. 1,34,59,539-36. They include immovable properties belonging to the insolvents separately as well as machinery and stock-in-trade available in the business premises for both the businesses. On their adjudication, the business premises were sealed immediately and the learned Official Assignee has taken over charge of them. Thereafter, the landlord of the business premises filed an application for direction to the Official Assignee to hand over the business premises. Those applications are still pending. 3. On their adjudication, the business premises were sealed immediately and the learned Official Assignee has taken over charge of them. Thereafter, the landlord of the business premises filed an application for direction to the Official Assignee to hand over the business premises. Those applications are still pending. 3. While so, a letter was received from the counsel for Canara Bank No. 132 Usman Road, T. Nagar, Madras setting forth details of the credit facilities granted to 'Sree Prosperity Industries' belonging to Pattabiraman as well as the facilities granted to Quality Metal Products belonging to Mrs. P. Kantha. In that letter, the contention of the bank is that credit facilities have been granted on the security of the fixed assets belonging to the two firms and that necessary open cash credit agreement and hypothecation agreement were executed. As such, the Bank claimed a charge over the machinery and stock-in-trade. Copies of the hypothecation deed executed by the Insolvents were also filed. A detailed inventory was taken in the presence of a representative of the Bank by the staff of the Official Assignee on 27-9-1986. The staff of the official Assignee found no display of any board as to indicate that the machineries have been hypothecated to the Canara Bank, nor any one of the machineries carried any mark or writing to indicate that they have been hypothecated to the Canara Bank. Schedule-1 to the reports contains all the items found in the premises of 'Quality Metal Products' and in the office room as well as in 'Sri Prosperity Industries' respectively. Schedule B of the reports of the Official Assignee filed in Application No. 293 of 1986 mentions list of machineries hypothecated to the Canara Bank by 'Quality Products' Schedule C of the aforesaid report mentions the list of goods and commodities referred to in the agreement. 4. Schedule B in Application No. 294 of 1986 describes the machineries belonging to 'Sri Prosperity Industries' Schedule C mentions list of goods and commodities, viz. M.S. Plates, M.S. Sheets, M.S. Rods, semi finished and finished goods and all other goods belonging to Sri Prosperity Industries. The additional reports filed by the Official Assignee correlates the machineries specifically mentioned in the hypothecation deeds executed by the insolvents with that of the machineries found in the first two reports. 5. The applicant examined the insolvent Pattbiraman, the husband of the second insolvent Mrs. The additional reports filed by the Official Assignee correlates the machineries specifically mentioned in the hypothecation deeds executed by the insolvents with that of the machineries found in the first two reports. 5. The applicant examined the insolvent Pattbiraman, the husband of the second insolvent Mrs. P. Kantha and marked Exs.B1 to B6. 6. The question that now arises for consideration in these three applications is whether the goods found by the Official Assignee while taking the inventory were in the possession, order or disposition of the insolvents in their trade or business, at the commencement of the insolvency by the consent or permission of the true owner, and under such circumstances, the insolvents were the 'reputed owners' thereof? 7. According to the learned Official Assignee, unless there is something to indicate that the Canara Bank is the true owner, the insolvents cannot be treated as 'reputed owners' as provided under Section 52(2)(c) of the Presidency Towns Insolvency Act. Whereas the contention of the applicant Bank is that the insolvents are not involved in any trade or business, but they are only manufacturers. As such, the Canara Bank can lay claim by virtue of the hypothecation deed with reference to the machineries that have been hypothecated to them under the deeds of hypothecation, since the machineries are not connected with any trade or business of the insolvents, as the insolvents are only 'manufacturers'. 8. A perusal of the oral and documentary evidence clearly proves that the contention of the learned Counsel for the applicant Bank in Application No. 309 of 1986 has no substance. It is not the case of the insolvent, who has been examined as a Court witness, that he stopped his business long prior to his petition for insolvency. In fact, the statements of accounts of the Bank (Ex.P5 and P6) show that the insolvents were active in their business till 12th August, 1986. Even P.W.I the first insolvent has not stated that he stopped his business long prior to the filing of the insolvency petition. As such, the contention of the learned Counsel for the Canara Bank that all goods that have been hypothecated to the Canara Bank were in the insolvent's trade or business by consent and permission of the Canara Bank and under such circumstances, the insolvents are the 'reputed owners' thereof, has no substance. As such, the contention of the learned Counsel for the Canara Bank that all goods that have been hypothecated to the Canara Bank were in the insolvent's trade or business by consent and permission of the Canara Bank and under such circumstances, the insolvents are the 'reputed owners' thereof, has no substance. In that view of the matter, the decision reported in Official Assignee of Madras v. Suresh Electric Co., will not apply to the facts of this case. The learned Judges have stated that the record in that case showed that the insolvents had by the time of adjudication is running the trade of business long prior to his petition for insolvency. 9. Yet another contention of the learned Counsel for the Canara Bank is that the insolvent is not engaged in trade or business but only in manufacture. I find the word 'business' in the Presidency Towns Insolvency Act should be seen in a wider content than the word 'trade'. The trend of judicial decisions has been in favour of the enlargement rather than the restriction of the connotation of the term 'trade'. The trend of judicial decisions has been in favour of the enlargement rather than the restriction of the connotation of the term 'trade and business'. Ex.P2 and P4 hypothecation deeds show that credit facility was availed by insolvents for expansion of business and to improve the methods of manufacture. These two exhibits show that the goods were intended for manufacturing business also. 'Business' always involves continuous exercise of activity. So long as the liabilities incurred in the course of a business remain undischarged, the business activity should be deemed to be continued. If authority is needed for this proposition, it is available in Muniratnarn Naidu v. Meena Financiers. (1977)2 M.L.J. 399 ; 90 L.W. 539. 10. Now coming to the contention of the learned Official Assignee, I find that in order to claim the right of 'reputed ownership', the true owner should have taken such precaution that the insolvents did not obtain false credit either by putting a Board on the premises or by giving notice to the public by any other adequate means that the insolvents were not absolutely entitled to all the goods which were under their control. It is not the case of the Bank that the insolvents have erased the steps taken by them to indicate that they are the reputed owners. The Canara Bank, having failed to take any such precaution, the goods pledged even if they have not been parted with by the insolvents, should vest in the Official Assignee. The doctrine of 'reputed ownership' incorporated in Section 52 of the Presidency Towns Insolvency Act has been part of the Bankruptcy Law of England, from the time of James I. Its object is to prevent receipt by a trader from the visible possession of property, to which he is not entitled to. Where a Banker allows a businessman possession of goods pledged to the Bank so as to enable the businessman to obtain false credit, then the owner of the goods, namely, the Banker who has permitted the insolvent to obtain that false credit has to suffer the penalty of losing his goods for the benefit of those who have given the credit. It is well settled that when property possessed by the bankrupt in his character as trustee has become so amalgamated with his general property, the representative of the trust has no other remedy but to come in as a general creditor and prove for the amount of the loss. (Lewin on Trusts Edn.12, Page 27. Ex parte Wingfield 1879-10 Ch.D.591 at p 594) Chartered Bank of India, Australia and China v. Imperial Bank of India A.I.R. Cal.366; and Ghulamali T-Mandimail v. Official Assignee A.I.R. 1937 Sind 37. 11. For these reasons, I hold that the remedy of the applicant Bank in Application No. 309 of 1986 is to prove its claim before the official Assignee as an 'unsecured creditor'. 12. In the result, Application No. 309 of 1986 is dismissed and Application Nos. 293 and 294 of 1986 are allowed.