Judgment :- Application No: 140 of 1994 in I.P. No. 34 of 1991 1. This is an appeal filed by the claimant under Section 86 of the Presidency Towns Insolvency Act against the order of the Official Assignee passed in Claim No. 127 of 1991 on 30.11.1993. The appellant herein Canara Bank preferred a claim in a sum of Rs. 13,23,588.51p. with future interest. The Official Assignee held an enquiry on the claim. On behalf of the claimant the Manager of the Bank and another witness were examined. On behalf of the insolvent the third insolvent was examined. The Bank produced documents which were marked as Exs. A-1 to A-36 while P-I was marked on the side of the insolvent. The Official Assignee by his order holding that the claimant Bank is not a secured creditor of the insolvents, admitted the claim in a sum of Rs. 12,68,740 and to rank them as unsecured creditor. Aggrieved by the said order of the Official Assignee, this appeal is filed under Section 86 of the Presidency Towns Insolvency Act. S. 86 provides that if the insolvent or any of the creditors or any other person is aggrieved by an act or decision of the Official Assignee, he may appeal to the Court and the Court may confirm, reverse or modify the act or the decision, comply or make such an order, as it thinks just. 2. It is first of all necessary for the purpose of deciding this appeal to determine the nature of the interest the bank has over the property. According to the Bank all the goods stored in different places were hypothecated to the plaintiff/Bank. Therefore it is necessary to decide about the right of the plaintiff/Bank with regard to the goods. The insolvents applied to the plaintiff/Bank for credit facilities and advances. The Bank accordingly sanctioned the advances sought for by the insolvents. The insolvents hypothecated the goods in favour of the Bank and executed necessary documents. Now we have to consider the nature and effect of those documents, viz. what is the interest that is created in favour of the Bank over those goods. It is in this connection to be pointed out that one of the insolvents was once employee of the Bank and served in the very same Bank for nearly 9 years. Now we have to consider the nature and effect of those documents, viz. what is the interest that is created in favour of the Bank over those goods. It is in this connection to be pointed out that one of the insolvents was once employee of the Bank and served in the very same Bank for nearly 9 years. This is an important factor because the Official Assignee has chosen to give importance, to certain aspects which in my opinion are not of any significance at all. 3. Ex. A-1 is the profit and loss Account for the period ending with by 31.3.1988 of the Insolvent Company. Ex. A-2 is the Balance Sheet. Exs. A-3 and A-4 are the profit and Loss Account & Balance sheet respectively. Ex. A-5 is the valuation certificate report relating to the property situate in plot No. A-3, in S.P. No. 160/2, 3, Abishekapuram Village, Tiruchy. Exs. A-6 and A-7 are the Profit and Loss.; Account and Balance Sheet for the year ending with 31.3.1990, while Ex. A-8 is the copy of Registration of Firms (acknowledgment). Ex. A-9 is the letter written by the insolvent Company to the Canara Bank praying for grant of credit facilities. Ex. A-10 is the application form. Ex. A-11 is the certificate issued by Videocon International Limited to the effect that they have achieved sales contract fixed by the Company. Ex. A-12 is the letter written by them, requiring upon cash credit limit of Rs. 10 lakhs. Ex. A-13 is the letter by New Bank of India. Ex. 14 is the application for overdraft facility of Rs. 10 lakhs. Ex. A-15 is the letter written by the New Bank of India to the effect that dues have been settled. Ex. A-16 is the promissory note executed by the insolvents on 13.11.1990 for Rs. 10 lakhs for such overdraft facility which was asked for and sanctioned. Ex. 17 is the agreement relating to opening of cash credit account. 10 lakhs. Ex. A-15 is the letter written by the New Bank of India to the effect that dues have been settled. Ex. A-16 is the promissory note executed by the insolvents on 13.11.1990 for Rs. 10 lakhs for such overdraft facility which was asked for and sanctioned. Ex. 17 is the agreement relating to opening of cash credit account. The commodities referred to in the agreement are noted as Electrical and Electronic goods such as T.V.s, V.C.Ps., Refrigerators, Grinders, Washing Machines, V.C.Rs., Mixies, Two-in-ones and other home appliances which belong to Rehoboth Traders, that may be stored at No. 9, Arya Gowder Road, West Mambalam, Madras-33, and No. 19, Bishop Road, Puttur Trichy and at No. 44, T.V. Swamy Road, R.S. Puram, Coimbatore-2 and No. 17, Thirumalai Mudaliyar Trunk Road, Wallajapet, North Arcot District. Ex. A-18 is the letter written to him confirming that they do not have any facility with any other Bank. Ex. A-19 is the letter of Guarantee stating that they are responsible for a limit of Rs. 20,00,000/- Ex. A-20 is the agreement of Guarantee deed executed by the insolvents guaranteeing repayment of Rs. 20 lakhs. Exs. A-22 and 23 are the stock statement. Ex. A-24 is the letter of request for overdraft facility. Ex. A-26 is the promissory note relating to the same. Ex. 27 is the undertaking not to avail open cash credit facility. Ex. A-28 is an agreement relating to open cash credit facility. Ex. A-29 is the letter informing about the cash credit facility (sic). Ex. P-30 is the insurance cover to the goods stored in the various godowns and Exs. A-31 and A-32 are statements of accounts. Ex. A-34 is the insurance poncy. Ex. A-35 is certification letter. 4. Now the two important documents referred to by the Official Assignee in his order are Exs. A-27 and A-28 and on the basis of these two documents the finding has been arrived at by the Official Assignee to the effect that the Bank is not a secured creditor. Now we have to see whether this finding by the Official Assignee merits acceptance. 5. The Official Assignee has stated that insertions have been found in Exs. A-17 and 28 and that throws doubt. But the Official Assignee has forgotten certain important aspects. The insertions have been made on the side of the documents, apparently because there was no space. Now we have to see whether this finding by the Official Assignee merits acceptance. 5. The Official Assignee has stated that insertions have been found in Exs. A-17 and 28 and that throws doubt. But the Official Assignee has forgotten certain important aspects. The insertions have been made on the side of the documents, apparently because there was no space. Initials and signatures have been obtained wherever insertions have been made. The insolvents have been submitting monthly statements periodically, where stocks held in all places have been mentioned. It is also to be pointed out that all the goods stored in different places have been insured by the Bank. Therefore in such circumstances these so called suspicious circumstance pointed out by the Official Assignee are really not at all circumstances of any importance. The execution of the document are admitted. It is for the insolvents who executed the documents to prove that the insertions or the writings found there are not of them especially when the additions and insertions have been initialled by the parties. The third insolvent himself was well aware of the procedure. For, he was employed in the same Bank for some time. Therefore in such circumstances, the Official Assignee was not justified in referring to them as suspicious circumstances or as interpolations and insertions made later by the Bank. 6. Now the documents show and establish that the goods have been hypothecated. The goods held by them in various places viz., Thiruchy, Madras, Coimbatore, Wallajahpet and Tiruvannamalai etc., have been thus hypothecated in favour of the Bank. The stock statement A-22 makes it clear. In respect of such goods undoubtedly the Bank has a preferential claim. The fact that the borrowers had not displayed Board in the premises to the effect that the goods have been hypothecated to the Bank is not a circumstances that would lead to any inference in favour of the insolvents or against the Bank. It is the duty of the borrower to put up such a Board. Hypothecation of goods is a concept which is not expressly provided for in the law of contracts. There is no transfer of interest of property in the goods by the hypothecator to the hypothecatee. It creates an equitable charge in favour of the hypothecatee. Delivery of possession is not a sine quo non for the creation of a charge under a deed of hypothecation. There is no transfer of interest of property in the goods by the hypothecator to the hypothecatee. It creates an equitable charge in favour of the hypothecatee. Delivery of possession is not a sine quo non for the creation of a charge under a deed of hypothecation. The possession of the hypothecated goods is left with the hypothecator, to enable him to deal with the goods subject to the right of the hypothecatee. It is so left with him for and on behalf of the Bank. The legal possession must be held to be with the Bank. 6 a. In the decision reported in AIR 1971 S.C. 1210 , it has been held: “as long as the claim of the pawnee is not settled, no other creditor or pawnor has any right to take away the goods or its price. That the relationship between the parties is that of pledger and pledgee, though it is termed “open cash credit’ in mercantile practice, is laid down in 1962(II) MLU 489. They have also held that there can be no hard and fast rule that delivery of the keys of the warehouse is essential to secure constructive possession. There cannot be any such rigid delimitation of the purposes for which the pledger is permitted to retain possession of the goods. The essential test is not the purpose but whether the dominion over the goods pledged is retained and the physical possession or handling of the goods by the pledger is under the delegated authority of the pledgee or is independent. Where the possession of the pledgee is not lost and possession may be manual or constructive, a subsequent pledgee even without notice cannot obtain any preference upon a rule of estoppel.” 7. In the decision reported in 1995-2 L.W. 188 ( Canara Bank, T. Nagar etc., v. Official Assignee ) it is held as follows:— “The machineries and materials have been used in the business of the insolvent in such manner and in such circumstances, that the insolvents are the reputed owners of the same. Hence the matter falls clearly under S. 52(2)(c) of the Presidency Towns Insolvency Act. Hence the matter falls clearly under S. 52(2)(c) of the Presidency Towns Insolvency Act. When property possessed by the bankrupt in his character as trustee had become so amalgamated with his general property that it can no longer be identified, the representative of the trust has no lien upon the movable assets of the debtor and he cannot claim to be paid before the other creditors, and his only remedy is to come in as a general creditor and prove for the amount of the loss.” But this decision is not for the position canvassed by the Official Assignee herein. The Division Bench of this Court has held that the Bank can only if at all claim to be a secured creditor with charge over the goods. That case proceeded on the fact that property hypothecated had become so amalgamated with the properties of the insolvent that they could not be identified. But, here we are not concerned with such a case. The entire goods in the godowns have been hypothecated. As the dealer for Videocon products, the insolvent held stocks in various godowns of electronics and electrical goods and appliances of Videocon manufacture. For the said purchases the credit facilities were utilised by pledging all the goods. Here all the goods are pledged. There is no question of mixing of goods. For there were no goods belonging to the insolvent. 8. In the decision reported in AIR 1977 Madhya Pradesh 188 ( Bank of India v. Binod Steel Ltd. ) it is held that though actual possession is left with company it is for and on behalf of the Bank which is secured creditor. Moveables cannot be attached and sold for satisfaction of the claims of other creditors of company without first satisfying claim of Bank”. The decision reported in AIR 1976 Delhi 115 ( Gopal sing v. Punjab National Bank ) is to the following effect:— “There is distinction between hypothecation of goods and pledge of goods, in that, the hypothecated goods need not be in the physical possession of the Bank but may remain under the actual physical possession of the borrower with a view to enable the borrower to use the same either as raw material or in the process of fabrication of goods or as finished goods. This is a facility granted to the borrowers by the banking institutions so that the actual operations of the borrowers are not affected. In such casesK the borrower is in actual physical possession but constructive possession is still of the bank because according to the deed of hypothecation, the borrower holds the actual physical possession not in his own right as an owner of the goods but as the agent of the Bank.” The decision in AIR 1980 A.P. 1 is to the effect that the Bank which is a secured creditor is entitled to the satisfaction of its debt from the sale proceeds deposited and defendants viz., other creditors arc only entitled to the surplus money. This is yet another case which sets down the position that the Bank as the hypothecatee though not in possession of the goods is entitled to priority over others in the matter of payment of the amount due to the Bank. In AIR 1969 Mysore 280 it was held that: “In the case of hypothecation or pledge of movable goods there is no doubt about to the creditors 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. Hypothecation is only extended idea of a 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.” Therefore these rulings are to the effect that though the possession of the goods hypothecated remains with the insolvents the Bank must be held to be in possession of the property and t he possession of the insolvent is only for and on behalf of the insolvents and as its agent and in trust and the Bank as the creditor in whose favour the goods were hypothecated is entitled to a charge over the goods. 9. The learned Official Assignee has also referred to the doctrine of reputed ownerships. The question of reputed ownership applies only to the traders proved to be in the possession of the property with the consent of the true owner. The insolvent was a dealer in Electrical goods. 9. The learned Official Assignee has also referred to the doctrine of reputed ownerships. The question of reputed ownership applies only to the traders proved to be in the possession of the property with the consent of the true owner. The insolvent was a dealer in Electrical goods. All the goods have been hypothecated in favour of the Bank. (sic). In other words, a charge is created in favour of the Bank and the Bank has got the right to take possession of the goods and sell the same and utilise the proceeds even without reference to the court. But to enable the debtor to deal with the property with the consent of the Bank, the possession is given to the debtors. The power of disposition was subject to the right of the Bank. Therefore, the properties are held by the insolvent practically in trust and as an agent and for the benefit of the Bank and on behalf of the Bank. The Bank is a secured creditor. The reputed ownership theory does not apply to a secured creditor. If the theory of reputed ownership is to be applied to such cases, then the very idea of lending to such people would become of non-starter. Day in and day out nationalised Banks grants facilities, such as overdraft facility, cash credit facility, key cash credit facility etc., to such dealers and obtain from the traders Or business people deeds of agreement and hypothecation, hypothecating the goods. If the theory of reputed ownership is to be applied to all such cases, then it will be really a sad day for the banking business. For, one can claim under this rule on adjudication of such dealer as insolvent the goods so hypothecated though in the possession of the debtor are to be treated as the properties of the debtor over which he had power of disposal without reference to the charge created in favour of the Bank, then the Bank will have no hold. That may to a great extent ruin the Banking system and economic progress will be impeded. Commercial activity would be eroded. Moreover, it would only encourage unscrupulous traders. Hence in my opinion such a legal fiction of reputed ownership cannot be extended to such cases. But, here it is not a case of hypothecation of material or machineries. That may to a great extent ruin the Banking system and economic progress will be impeded. Commercial activity would be eroded. Moreover, it would only encourage unscrupulous traders. Hence in my opinion such a legal fiction of reputed ownership cannot be extended to such cases. But, here it is not a case of hypothecation of material or machineries. The very purpose of sanction was to obtain the ( sic ) to deal with them dealership for these electrical and electronic goods and sell them with a view to make profit. In respect of those goods purchased or obtained by them as dealers from the principal manufacturers, the hypothecation documents have been executed. It is not a case where the goods have so amalgamated with his general property that it can no longer be identified. The non-exhibiting of the Board does not in any manner take away the right of the Bank. The ruling cited by the Official Assignee reported in 1995 (2) L.W. 188 will not apply to the facts of this case. Therefore, considering the nature of the case, the purpose for which the lending was made, the execution of the hypothecation agreement, the insurance, the stocks statements submitted by the insolvent, it it clear that all the goods in all the godowns were hypothecated. The doctrine of reputed ownership cannot be held to apply to the facts of this case. Therefore in such circumstances, the Bank has to be held as having a preferential claim viz, first claim. In other words, the Bank has the priority and only after satisfying the claim of the Bank, the surplus if any, left will be available to the other creditors. Therefore, in the context, the Bank has to be held as a secured creditor and not as an unsecured creditor. Hence, I am unable to agree with the conclusion and finding of the Official Assignee that the Bank must be held to be an unsecured creditor. The non putting up of the board or and leaving the keys with the borrower does not affect their position. Moreover, this is not a case where the advances were secured to purchase materials, equipments or spare parts for any manufacturing purposes. The insolvents herein were dealing with electrical and electronic appliances, i.e., finished goods. The appliances can be sold only by keeping it in a show-room. They are consumer products. Moreover, this is not a case where the advances were secured to purchase materials, equipments or spare parts for any manufacturing purposes. The insolvents herein were dealing with electrical and electronic appliances, i.e., finished goods. The appliances can be sold only by keeping it in a show-room. They are consumer products. Therefore, considering the nature of the business and the property they were dealing with as dealers, and the purpose for which the advances were sought for, and granted, I hold that the theory of reputed ownership will not apply to such a case. Therefore, in my view the conclusion of the Official Assignee that the Bank can be ranked only as an unsecured creditor is erroneous. On the other hand, the Bank has to be held as a secured creditor having a priority over all other creditors in respect of the goods hypothecated and stocked in the godowns at Madras, Trichy, Tiruvannamalai, Coimbatore and Walajapet. Hence in this view of the matter, I have no hesitation in allowing this appeal. 10. In the result this appeal is accepted. The order of the Official Assignee is hereby modified and it is hereby ordered that the Official Assignee shall treat the Appellant as a secured creditor. In the circumstances, there is no order as to costs.