Netai Das Poddar v. Bank of Baroda — 1991 DIGILAW 29 (CAL)

JUDGMENT M. R. Mullick, J. This appeal is directed against the judgment and decree passed by the Additional District Judge, 8th Court at Alipore, 24 Parganas dated 21st September, 1978 in Title Appeal no 135 of 1977 modifying those of Sri A. K. Sil, Subordinate Judge, 2nd Court at Alipore, District 24 Parganas dated 22nd December, 1976 in Title Suit no. 69 of 1973. The facts which are necessary for disposing of this second appeal may be briefly stated as follows :- 2. The plaintiff/respondent Bank of Baroda filed this suit for a decree for recovery of a sum of Rs. 9558/- against the defendants jointly and severally and also for a declaration of charge of the hypothecated stocks of ration foodgrains in the ration shop of the appellant/defendant no. 1 at no. 194, Jessore Road, Dum Dum, 24-Parganas with a further claim of interest on the above amount from 1st of June, 1973 till the date of the filing of the suit and also for interest for the post-suit period till the realisation of the plaintiff's dues. 3. On 26 11.69, the respondent bank at the request of the defendant/appellant no. 1 and in his name agreed to open a cash credit account to the extent of Rs. 10,000/- under the terms and conditions men1ioned in the plaint and in pursuance of the said agreement, the defendant/appellant no.1 executed at the plaintiff/respondent bank's branch at Dum Dum a promissory note in favour of the plaintiff bank promising to pay in favour of the bank or order a slim of Rs. 10.000/- with interest at the rate of 4 1/2% over the Reserve Bank of India rate minimum being 9 1/2%. The defendant no.1 also executed a deed of hypothecation in respect of the stocks of the ration foodgrains in his help no. A.R. 351, situated at 194. Jessore Road, Nagerbazar, Dum Dum and subsequently in continuation thereof and on 8th January, 1973 the defendant/appellant no.1 executed at the plaintiff's branch a fresh promissory note promising to pay to the plaintiff or order a slim of Rs. 10,000/- with an interest at the rate of 5% over the Reserve Bank of India rate the minimum being 11% per annum with 1. 1/2% minimum interest clause applicable each quarter. 10,000/- with an interest at the rate of 5% over the Reserve Bank of India rate the minimum being 11% per annum with 1. 1/2% minimum interest clause applicable each quarter. A fresh deed of hypothecation dated the 8th January, 1973 has also been executed and in consideration of the same, the defendant no. 2 on 26.11.69 executed a deed of continuing guarantee whereby he guaranteed the repayment of the said loan. The defendant no. 2 further on 8th January, 1973 executed at the plaintiff's said branch a deed of continuing guarantee whereby he guaranteed the repayment of the said loan. The defendant no. 2 further on 8th January, 1913 executed at the plaintiff's said branch a deed of continuing guarantee whereby he guaranteed repayment of the said loan again. After the cash credit was opened at the Dum Dum Branch of the plaintiff bank in the name of the defendant no. 1. the bank from time to time granted accommodation by way of cash credit to the defendant no 1. The plaintiff bank maintained a mutual open current and/or continuous account of all dealings and transaction with the defendant no.1 wherein the plaintiff debited to the defendant no.1 's account for all sum of money paid by the bank and also credited the said account for all sums of money paid by the defendant no. 1 to the plaintiff. The last entry in the sated account is dated 31st March, 1973 on which date the defendant no.1 paid a sum of Rs. 300/- to the credit of the said account. As according to the plaintiff the defendant no. 1 committed breach of the terms and conditions of the said agreement the plaintiff on 13.9.72 gave a notice in writing to the defendants and demanded payment of the sum of Rs. 10.298.90p. being the then outstanding balance of the said loan with interest. As the defendants had failed and neglected to pay any amount pursuant to the said notice there is now due and owing by the defendant to the plaintiff a sum of Rs. 9553/- with interest calculated upto 3rd August, 1973. With the above allegation, the above suit has been brought against the present defendants/appellants. The defendants no. 1 and 2 contested the suit by filing two separate written statements. 9553/- with interest calculated upto 3rd August, 1973. With the above allegation, the above suit has been brought against the present defendants/appellants. The defendants no. 1 and 2 contested the suit by filing two separate written statements. They took the plea that the present suit is barred by limitation; that the promissory note was without consideration; that the deed of hypothecation was illegal inasmuch as it contravened the provisions of the West Bengal Rationing Order, 1964. It is also denied that the account in the name of the defendant no.1 as mentioned in the plaint was a mutual open current and/or continuous account. 4. The learned Trial Judge held that the account being mutual, open, current and/or continuous account and the suit having been filed within three years from the date on which the last entry in that account was made, i e. on 31st of March, 1973, the suit is not barred by limitation. The learned Trial Judge, however accepted the defence case that the deed of hypothecation contravening the provisions of West Bengal Rationing Order is illegal being against the public policy and cannot be given effect to. In that view, the learned Trial Judge granted a personal decree against both the defendants and the plaintiff's prayer for declaration of charge and for sale of the ration foodgrains in the ration shop of the defendant no.1 at 194, Jessore Road, Dum Dum. 24-Pargana, has been refused. 5. Being aggrieved, the defendant/appellants have preferred the appeal and the respondent Bank also preferred a cross appeal. The learned Additional District Judge even though did not accept the learned Subordinate Judge's finding that the account was mutual open current and/or continuous account and Article 1 of the Limitation Act of 1963 was attracted to this case held that the Article 113 of the Limitation Act being the residuary article is attracted to this case and the suit having been filed within three years from the date of service of notice upon the defendants dated 13.9.72. the present suit is within time and is not barred by limitation. As regards the finding of the learned Trial Judge, that the deed of hypothecation was illegal, the learned First Appellate Court reversed the said finding holding the same to be quite valid. In that view the learned Additional District Judge affirmed the judgment of the learned. the present suit is within time and is not barred by limitation. As regards the finding of the learned Trial Judge, that the deed of hypothecation was illegal, the learned First Appellate Court reversed the said finding holding the same to be quite valid. In that view the learned Additional District Judge affirmed the judgment of the learned. Trial Judge with the modification that the plaintiff/respondent would get a decree of charge over the hypothecated stocks of ration foodgrains in the shop room of the defendant no. 1 at 194, Jessore Road, Dum Dum. He also directed the defendant/appellant to pay the decretal dues within two months, failing which, the plaintiff might apply for sale of the mortgaged property. It was further indicated that if occasion arose for the sale of the mortgaged property, it would preferably be made to the State Government or its authorised agent dealing with the rationing materials. Being aggrieved, the defendants have preferred this second appeal. 6 At the time of the hearing, the learned Advocate for the appellant has challenged all the finding, of the learned Additional District Judge. It is contended firstly that all the documents on the basis of which the bank loan was granted to the appellants clearly stipulate that the amount was payable on demand. It that view Article 21 of the Limitation Act was attracted and the limitation would run from the date of the last payment towards the loan made by the Bank which was in April, 1970 and the present suit having been filed in August, 1973 is barred by limitation. It that view Article 21 of the Limitation Act was attracted and the limitation would run from the date of the last payment towards the loan made by the Bank which was in April, 1970 and the present suit having been filed in August, 1973 is barred by limitation. 7 It is also contended that in view of the clear prohibition contained in the provisions of the West Bengal Rationing Order, specifically paragraphs 19, the appellant no.1 was clearly prohibited to enter into any agreement of hypothecation with the bank of the rationed article and that being so, the hypothecation agreement was a void document and it being a void document, the bank cannot recover any amount on the basis of the document which is void in law and against the public policy being prohibited under s. 23 of the Indian Contract Act and consequently the respondent's suit for recovery of the amount ought to have been dismissed and the learned First Appellate Court committed a great illegality in affirming the decree of the learned Trial Judge and also making a declaration of the charge of the hypothecated goods, which h also illegal, because no charge can also be created under the provisions of the Transfer of Property Act on the movable property. 8. We should first take up the question as to whether the claim of the respondent bank was barred by limitation. It is true that the learned Trial Judge treated that the account of the defendants respondents with the plaintiff bank was a mutual, current, open and/or continuous account and consequently Article 1 of the Limitation Act was applicable. The learned First Appellate Court rightly held that no such case was made out by the plaintiff/respondent and there is no doubt that under the documents executed, specifically the demand promissory note as well as the letter of continuity all indicated that the amount was payable on demand. 9. The learned advocate. for the appellant has submitted that when the money was lent by the B ink under the agreement, that it shall be payable on demand, the limitation in view of Article 21 of the Limitation Act is three years from the date when the loan was made. 9. The learned advocate. for the appellant has submitted that when the money was lent by the B ink under the agreement, that it shall be payable on demand, the limitation in view of Article 21 of the Limitation Act is three years from the date when the loan was made. He, therefore, submits that when the last loan was made in April, 1970 and on that date the amount that remained due after the adjustment of the payment made by the defendant/ appellants was the loan that was made by the Bank for the last time and the suit not having been filed within three years therefrom, the present suit is barred by limitation. 10. The learned Additional District Judge, did not accept the above contention of the learned Advocate for the appellant made before him on the ground that the promissory note was not the only document on the basis of which the loan was advanced, that there was also a demand promissory note, the deed of hypothecation and the latter of continuity executed by the defendant no.2 on two occasions granting the loan. In that view of the matter, the learned First Appellate Court came to the finding that Article 113 of the Limitation Act bring the residuary article is attracted, that the cause of action arose only when the demand was made by the Bank calling the loan dated 13.9.72 and when the suit has been filed admittedly within three years from that date the present suit is not barred by limitation. 11. It is to be remembered that this is not a simple suit for recovery of loan. It is the suit against the debtor as also against the guarantor of the loan. There was also a deed of hypothecation and the prayer for declaration of the charge of the goods as well as for the sale of the hypothecated goods was made. In view of the above, I am in full agreement with the observation made by the learned First Appellate Court that it is not a simple suit for recovery of money lent under an agreement. Moreover, there is no doubt that for enforcement of mortgage or pledge, the residuary article is attracted. In suburban Bank Ltd. V. Nishtaram Chakrabority reported in AIR 1955 Cal. Moreover, there is no doubt that for enforcement of mortgage or pledge, the residuary article is attracted. In suburban Bank Ltd. V. Nishtaram Chakrabority reported in AIR 1955 Cal. P.172 where a bank filed a suit for recovery of loan together with the enforcement of the charge, as the borrower gave his life insurance policy as security by assigning it to the bank, the old article 120 Act of the Limitation which corresponded the Article 113 of the present Limitation Act was held to be attracted. In that view of the matter, when this is not a simple suit for recovery of a loan taken under the agreement but also against the guarantor on the basis of the letter of continuing guarantee as also a prayer for declaration of charge of the goods alleged to be hypothecated and for sale of the goods Article 113 of the Limitation Act would be attracted. 12. On behalf of the respondents, my attention has been drawn to the decision of the Supreme Court reported in AIR 1979 SC p 102 Margaret Lalita v Indo Commercial Bank Ltd in which the Supreme Court has clearly held that in respect of a continuing guarantee bond, The starting point of limitation would only arise when the loan is called. In this particular case, there is no doubt that the cash credit account was opened with the bank with the limit of Rs.10,000/-, that the bank was making advances from time to time and the borrower was also making the repayment and when the bank felt that the borrower had committed the breach of the agreement, the bank issued a notice and thereafter called up the loan and since then did not make any further advances which is an admitted fact. Therefore, on the date when the bank called up the loan and the continuing guarantee ceased to be a continuing one the cause of action to sue against the borrower as well as against the guarantor arose. 13. On behalf of the appellants, it is urged that even after the said demand notice was issued, the borrower made some payments and therefore, did not deny and dispute the demand of the bank and consequently the notice cannot be the starting point of filing this suit. 13. On behalf of the appellants, it is urged that even after the said demand notice was issued, the borrower made some payments and therefore, did not deny and dispute the demand of the bank and consequently the notice cannot be the starting point of filing this suit. In support a decision of the Supreme Court reported in AIR 1966 SC p 170 at page 472 has been referred to, where It has been held that the cause of action under Article 113 of the Limitation Act corresponding to old Article 120 of the Limitation Act would only arise when the claim of the plaintiff was denies and disputed by defendant. 14. I am unable to accept the above contentions. So far as the bank loan is concerned as soon as the bank called up the loan the loan agreement as well as the continuing guarantee ceases to have any effect. Prior to that as long as the bank was advancing the loan and the borrower was making repayment of the loan from time to time, no question would arise for the bank to file the suit for recovery of the debt which was continuing in view of the continuing guarantee given by the guarantor. Moreover the bank called upon both the borrower as well as the guarantor to make the whole repayment of the loan, failing which the bank threatened to take legal proceedings. But that notice had not been complied with and even though some payments were made from time to time, it cannot be said that the notice of the bank by which the loan was called up would not give rise to cause of action in favour of the defendant to file the suit for recovery of the debt both from the borrower as well as from the guarantor would arise. In the above circumstances, I am of the view that when this is not a simple suit for recovery of a loan given under an agreement, that it being a suit against the borrower as well as the guarantor, who executed a continuing guarantee, the provision of Article 21 would not be attracted. In the above circumstances, I am of the view that when this is not a simple suit for recovery of a loan given under an agreement, that it being a suit against the borrower as well as the guarantor, who executed a continuing guarantee, the provision of Article 21 would not be attracted. Moreover, as there was a hypothecation of the rationed articles and the prayer for charge and sale of the said goods hypothecated has also been asked for in the self-same suit, Article 113 of the Limitation Act would be the appropriate article under which the plaintiff bank could bring this suit. Whether the deed of hypothecation is illegal and whether because of that the suit ought to have been wholly dismissed is absolutely for considering as to what article of the Limitation Act would be applicable when the suit is filed against the borrower of charge as well as for sale of hypothecated goods as prayed for by the respondent bank. In that view of The matter, I am unable to accept the contention of the learned Advocate for the appellants that Article 21 of the Limitation Act is attracted and that the suit is barred by limitation as the present suit had not been brought within three years from the last advance given by the bank to the defendant no.1. 15. 1 would now consider the validity of the deed of hypothecation. There is no doubt that the deed of hypothecation is in respect of the ration goods of the defendant/appellant no.1, who was a retailer in ration goods having a ration goods shop under the licence of the State Government issued under the provisions of the West Bengal Rationing Order. 16 The learned advocate for the appellants has first contended that so far as the movable is concerned there cannot he a charge under the provisions of the Transfer of Property Act. There is no dispute to the above legal proposition that a charge which is expressly mentioned in the Transfer of Property Act can only be created in respect of the immovable property. But there can be no doubt that there are several decisions of out High Court beginning from 36 CWN 263 that the mortgage of movables is permissible and Order 34 of the Code of Civil Procedure would be attracted in respect of such mortgage of movables. But there can be no doubt that there are several decisions of out High Court beginning from 36 CWN 263 that the mortgage of movables is permissible and Order 34 of the Code of Civil Procedure would be attracted in respect of such mortgage of movables. However, this decision has not been approved in AIR 1987 Cal. P. 143 in which even though the mortgage of movable was held not to be invalid in law, but Order 34 of the Code of Civil Procedure was held not applicable, but there could be a sale of such movables even though not under Or. 34 C. P Code However in a later decision reported in 1990 (1) CLJ p 8, the decision reported in 36 CWN 263 has been approved and it has been held that in respect of the mortgage of the movable Order 34 of the Code of Civil Procedure would apply. 17. In this particular case, we are concerned with a document which is described as the deed of hypothecation of movables. Even though neither the Contract Act nor the Transfer of Property Act specifically provide for such hypothecation of goods, but there cannot be any dispute that such hypothecation of goods is permissible. The Division Bench of Punjab & Haryana High Court in Bank of India, Bombay v. Jogeswar Kant Wadehera AIR 1987 Punjab 176 relying on a Madras High Court decision in Union of India v. C.T Shenti Lanathan (1978) 48 Com. CAS 640 has held that the hypothecation of goods is a concept which is not expressly provided for in the Law of Contract but is accepted in the law of Merchant by long usuage and practice. The Division Bench relying on the Madras High Court judgment has observed that the hypothecation is not a pledge and there is no transfer of interest of property in the goods by the hypothecator to the hypothecate and it only creates a notional and equitable charge in favour of the hypothecate and the right of the hypothecate is only to sue on the debt and proceed in execution against the hypothecation of the goods. In Pollock and Molla’s Contract Act 10th edition page 809 also similar distinction between hypothecate and pledge has been made. In Pollock and Molla’s Contract Act 10th edition page 809 also similar distinction between hypothecate and pledge has been made. In that view of the matter the legal effect of a hypothecate agreement is not exactly a mortgage but an equitable charge but even though the possession of the good- hypothecated remains in the borrower, the hypothecate has the right to recover the dues by filing a suit on the date and to proceed in execution against the hypothecated goods for sale Therefore, the hypothecation agreement gives the right to the hypothecate only to file a suit for the debt and in such suit to pray for sale of the hypothecated goods in execution of the decree passed against the debtor. It is not a strict sense of the term "a mortgage" and it is a distinct and separate concept from the mortgage of movables. Therefore, I am unable to hold that as the deed of hypothecation purported to create a mortgage of movables as well as a charge on movables, the deed is invalid, 18. The next point for decision is whether the hypothecation of the rationed goods as in the present agreement is invalid in view of the provisions of the West Bengal Rationing Order. The learned Advocate for the appellant has drawn my attention to the several provisions of the West Bengal Rationing Order in which it has been clearly stated that the retailer of the ration goods, who is the defendant no. 1 has only the duty to sale the goods to the ration card holders issued by the State Government and to nobody else and if he violates it he is liable to be penalised. It is, therefore, submitted that as under the agreement of hypothecation the bank had the right to take possession of the ration goods which the bank could not do and when such an agreement goes against the clear provision of the statute, it is illegal and against the public policy. 19. Mr. It is, therefore, submitted that as under the agreement of hypothecation the bank had the right to take possession of the ration goods which the bank could not do and when such an agreement goes against the clear provision of the statute, it is illegal and against the public policy. 19. Mr. Roy appearing for the respondents submits that regard being had to the fact that in the hypothecated goods the ownership and possession of the goods remains with the burrower and under the law even if there was such a stipulation in the agreement the bank could not take possession of the property on its own and could only obtain a decree for sale of the ration goods and appropriate his decretal dues by sale of the ration goods at such Court sale and when the West Bengal Rationing Order has nothing to do with the Court's power to order sale of the ration goods, it cannot be held that the hypothecation of ration goods is illegal because it does not contravene any provision of the West Bengal Rationing Order. 20. On a careful perusal of the West Bengal Rationing Order which has been elaborately reproduced in the judgment of the Trial Court, we are unable to find anything there in which a retail seller of the ration goods is specifically prohibited from hypothecating the ration goods with the Bank. When the West Bengal Rationing Order did not specifically forbid a retailer from creating any such equitable charge of hypothecation of the ration goods, then we are of the view that when the dealing of property in the ration goods by the retailer otherwise than in accordance with the provision of the. West Bengal Rationing Order is only prohibited, then when such a hypothecation of the goods is made, the court is competent in appropriate circumstances to order sale of the hypothecate goods and in this particular case, the learned First Appellate Court, regard being had to the provisions of the West Bengal Rationing Order has directed that sale should preferably be made to the State Government or its authorised agent dealing with the ration articles the deed of hypothecation cannot be held to be invalid. The object of the provisions of the West Bengal Rationing Order is to distribute essential commodities, like, wheat rice, etc. The object of the provisions of the West Bengal Rationing Order is to distribute essential commodities, like, wheat rice, etc. to the ration card holders regard being had to the size of his family so that the essential commodities which are scarce in the market are equitably distributed. When the West Bengal Rationing Order has riot prohibited a retailer from hypothecating the rationed goods then I am unable to hold that by executing such hypothecation deed under the terms of which and when under the law, the ownership and possession remains with the borrower until and unless a decree is obtained against the borrower and the order of sale is made by the Court and when such order of sale by Court cannot be prohibited under the provisions of the West Bengal Rationing Order then the first Appellate Court did nut commit any illegality. It is true that some of the terms of the Deed of hypothecation cannot be given effect to because such provision is against the provisions of the West Bengal Rationing Order, That would only render such provision ineffective. But when the hypothecation of the ration goods has not been rendered illegal or void by the West Bengal Rationing Order, the deed of hypothecation cannot be held to be absolutely illegal. In view of the above. I am unable to accept the contention of the learned Advocate of the appellant that the deed of hypothecation is invalid or that the learned First Appellate Court by giving a direction to sale the ration goods committed an illegality. However, the declaration of charge as made by the learned First Appellate Court not being permissible in law is vacated and it is only indicated that if the decretal dues are not paid within a period of two months from the date of this order, then the hypothecated goods shall be sold to the State Government or its authorised agent dealing with the ration goods for the recovery of the decretal dues of the plaintiff/respondent. With this modification, the judgment and decree passed by the learned First Appellate Court is hereby affirmed. The appeal is dismissed with costs. Manabendra Nath Roy, J. - I agree. Appeal dismissed with modification.