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2003 DIGILAW 732 (KER)

Canara Bank v. Bhavani Oil Company

2003-11-29

A.K.BASHEER, S.SANKARASUBBAN

body2003
Judgment :- Sankarasubban, J. This appeal is filed by the plaintiff - Canara Bank against the judgment and decree in O.S.No.80 of 1988 of the Sub Court, Ottappalam. Defendants are four in number, the first defendant being a Partnership Firm. 2. According to the plaintiff - Bank, the Firm was being advanced amounts by way of loan by the Bank and the Firm was its standing customer. In pursuance of the request of the Firm, the plaintiff - Bank permitted the said firm to avail of an open cash credit loan of Rs.1 lakh. Among the documents executed in respect of the loan, as security for the loan, an agreement, which is marked Ext.A4 by which the defendants hypothecated such movables as stocks of raw-materials like vettiver roots and other belongs to the Firm which includes movables shown in 'A' Schedule item to the plaint while there are other documents, was also executed. But we are not concerned with that now in this case. 3. The main argument raised in this case is regarding the loss of a barrel of vettiver oil. The Firm consigned one barrel if vettiver oil manufactured by it to Mysore. According to the plaintiff, about 220 Kgs, of the said oil were returned by the consignees on the ground that it was adulterated. Thereafter, the second defendant as Managing Partner of the Firm, requested the plaintiff - Bank by letter dated 17.5.1985 to take the returned consignment of oil in its custody, as the godown of the Firm had to be vacated on or before 4.6.1985. The second defendant also informed the Bank by this letter that the Firm will be taking necessary steps to get the said goods marketed at the earliest and that the custody by the Bank of the said oil was entirely at the risk and responsibility of the Firm. According to the plaintiff, as the said quantity of oil was in fact part of the hypothecation and on the basis of the above letter dated 17.5.1985, which is produced as Ext.A26 in this case, the Bank took the oil in custody and kept it in the Bank premises. Subsequently, when the Bank shifted to its new premises in early 1986, the said oil was transferred to in the annexure building leased by the Bank for storage and other purposes. 4. Subsequently, when the Bank shifted to its new premises in early 1986, the said oil was transferred to in the annexure building leased by the Bank for storage and other purposes. 4. On 2.11.1987, it was found that some miscreants had made some holes in the barrel with the use of rods through the window and some oil had leaked out from the barrel. The Manager of the Bank then filed a complaint before the Mannarghat Police Station. The Police, however referred the complaint as undetected. The salvage was kept in plastic and metal drums in the Bank's premises. It is shown and described in 'A' schedule. The plaintiff had a lien over the said quantity of oil, which comes approximately to 131 kgs. According to the Bank, the leakage was not due to any negligence on the part of the Bank. 5. According to the plaintiff, in spite of several demands and notices, the defendants did not repay the amount due under the loans. The Bank caused a notice dated 29.2.1988. In the notice, it is stated that the Bank has got a lien on the oil described in B schedule and it was entitled to dispose of it in as is where is condition for whatever price it may fetch. The Bank is uncertain as to the availability of a purchaser and in case of sale, the Bank is entitled to appropriate the proceeds towards the amounts due from the defendants. 6. A reply was given to the notice by the defendants. In the reply notice, the defendants submitted that the entire value of the oil should be credited to the defendants' account. On the basis of the above, the suit was filed for recovery of Rs.1,84,658.80 with interest thereon. 7. In the written statement filed by the defendants, it was stated that the defendants had availed of Rs.1 lakh as open cash credit loan and executed the documents mentioned in the plaint. The defendants admitted that 250 kgs. of vettiver oil was dispatched to the consignee on 26.2.1985 in Mysore. The cost of the oil was Rs.1,67,000/-. Syed Muktasa and Company, Mysore did not pay the amount and they wanted to verify the quality of the oil. Subsequently, the Company informed the defendants that the oil was not of the required quality and they have rejected the goods. of vettiver oil was dispatched to the consignee on 26.2.1985 in Mysore. The cost of the oil was Rs.1,67,000/-. Syed Muktasa and Company, Mysore did not pay the amount and they wanted to verify the quality of the oil. Subsequently, the Company informed the defendants that the oil was not of the required quality and they have rejected the goods. On verification, it was found that they have stolen a part of the oil and added an equal quantity of some other oil and therefore the defendants filed a complaint before the Police and the Police took 250 kgs. of oil in the custody and produced before the Chief Judicial Magistrate's Court, Mysore by registering Crime No.49/85. Subsequently, on the application of the second defendant, the Court released the goods on deposit of Rs.13,000/- as cash and by executing bond for Rs.1,76,300/- with two sureties and the oil was sent back to Mannarghat through Kerala Roadways as per receipt dated 27.4.1985 and when the goods reached at Mannarghat, the then Manager of the plaintiff Bank, Shenoi informed the Transport Company not to release the goods to the defendants and wanted it to be released to the Bank. Therefore, the second defendant gave the lorry receipt to the Bank after making endorsement for release of the goods and the Bank took delivery of the goods and kept it in their godown. So far as the letter dated 17.5.1985 is concerned, it denied the existence or otherwise. According to them, if at all there is any letter, it could only be fabricated. As the goods were also a charge, the Bank Manager compelled the defendants to keep it in their godown and 220 kgs. of oil happened to be kept in the Bank's godown. The oil was also insured by the Bank for Rs.1,80,000/-. After the transfer of Shenio, the then Manager and the posting of the new Manager to the Bank, sample was taken from the oil and it was sent to the Radha's Ayurvedic Soap Company at Quilon. As the rate offered by the Radha's Soap Company was very much less, the oil could not be sold to them. Later another sample was taken for sending it to S.H. Kelkar and Company, Bombay. But it was not sent and the sample was kept in the Bank itself. As the rate offered by the Radha's Soap Company was very much less, the oil could not be sold to them. Later another sample was taken for sending it to S.H. Kelkar and Company, Bombay. But it was not sent and the sample was kept in the Bank itself. If the oil was sold on that day, it would fetch Rs.90/- per K.G. and the defendants would have been able to wipe off the entire loan and the defendants would have got another Rs.60,000/- after wiping off the loan. It was at that time the incident happened. The Bank had the duty to keep the goods mortgaged to the Bank in safe and good condition. The Bank is responsible for the damage and the value of the oil. It is seen that subsequent to the filing of the suit, there was settlement between the Insurance Company and the plaintiff by which the claim was settled at Rs.42,655/-. Further, the oil left was sold for Rs.500/-. 7. On the above pleadings, the court below raised necessary issues. Exts. A1 to Ext. A31 were marked on the side of the plaintiff and Exts.B1 to B7 were marked on the side of the defendants and Exts. C1 and C2 are Court Exhibits. On behalf of the plaintiff, PWs 1 and 3 were examined and DW1 was examined on behalf of the defendants. 8. The main issues were issue Nos. 2 and 4; they are (1) whether the plaintiff - Bank is not liable for the loss sustained by the defendant due to loss and damage of oil while in their custody? And (2) whether the plaintiff is not liable to the defendant for the loss sustained due to the negligence of the plaintiff. There is no dispute as to the fact that certain quantity of vettiver oil was sent by the defendants to the consignee at Mysore. The consignee refused to take delivery of the goods as according to it, it was adulterated. It was sent back to the defendants. According to the defendants, when the goods reached Mannarghat, the plaintiff wanted that the goods should be stored in the godown of the Bank, as it was hypothecated the goods. According to the defendants, they were prepared to store it in the Bank's godown. But since the Bank insisted that it should have kept in the Bank's godown, there was no quarrel. 9. According to the defendants, they were prepared to store it in the Bank's godown. But since the Bank insisted that it should have kept in the Bank's godown, there was no quarrel. 9. The case of the Bank is that the defendants required the plaintiff to keep the goods in its custody, since the godown in which the goods are stored to be vacated shortly. According to the plaintiff, this was conveyed to the Bank by Ext. A26 letter by which the defendants agreed that the plaintiff will keep the custody of the goods. As per Ext.A26, the goods will be stored by the Bank at the risk and responsibility of the defendants. While the plaintiff would contend that the storing of the goods was on the basis of ext.A26, the defendants would contend that it was on he basis of Ext.A4 agreement, since he hypothecated goods were stored in the Bank's Premises. The plaintiff would contend that as per Ext.A26, the transaction was only a bailement and by the contract the defendants had agreed to suffer any risk or loss while the goods were stored in the premises. The court below took the view that the goods were hypothecated to the Bank. It was Section 75 of the Transfer of Property Act that applies and as per that the plaintiff has to take reasonable care and that the plaintiff was mortgage and it is in Management of the property. The lower court held that it cannot be said that on the basis of the evidence since sufficient care was taken and it amounts to negligence on the part of the plaintiff and hence, it was of the view that the plaintiff is liable for the loss. So far as Ext.A26 is concerned, it took the view that the words in Ext.A26 cannot lead to the conclusion that there was no liability on the part of the Bank for negligence. It is the above finding of the court below that is being attacked in this appeal. 11. Learned counsel for the appellant Sri.M.C.Sen contended that the storing of the goods in the Bank's premises is on the basis of Ext.A26, which shows that the storing is at the risk and responsibility of the defendants. Hence, he contended that it cannot be said that the goods stored were the hypothecated goods. 11. Learned counsel for the appellant Sri.M.C.Sen contended that the storing of the goods in the Bank's premises is on the basis of Ext.A26, which shows that the storing is at the risk and responsibility of the defendants. Hence, he contended that it cannot be said that the goods stored were the hypothecated goods. According to him, as per Ext.26, the transaction amounted to bailment. Section 151 of the Contract Act states that the bailee is responsible to take as much care of the goods as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed. That does not prevent the party from contracting out the liability. Learned counsel submitted that as per Ext.A26, that was a contract to the contrary and hence, the plaintiff Bank was liable for the loss of the goods. 12. Sri.K.T.Sankaran, who appeared on behalf of the defendants submitted that a perusal of Ext.A4 will show that the stored goods are hypothecated and it was never the case of the Bank that the goods were not hypothecated. According to him, even Ext.A26 admits that it will show that the goods have been entrusted as security for the loan. He further submitted that for the exclusion given under Ext.A26 cannot apply to the case of negligence. 13. Going by Ext.A4, it is true that all the goods belonging to the defendants are hypothecated with the bank. Even though a plea has been taken that the goods in question are bailed to the plaintiff, it goes against what is stated in Ext.A4. Ext.A4 clearly says that the goods are hypothecated. It was observed in Federal Bank Ltd. v. S.K.Rowther - 1981 K.L.T. 678, thus: "Now the T.P. Act refers only to mortgages of immovable property and the Contract Act refers only to pledges of movable property and neither Act deals with mortgages of moveable property. But mortgages or hypothecations of moveables have long been recognised by Courts in India. Law has recognised mortgages of movable property as also such remedies as sale and for closure and retained for the mortgagor the right of redemption freed from clogs on the equity of redemption. But mortgages or hypothecations of moveables have long been recognised by Courts in India. Law has recognised mortgages of movable property as also such remedies as sale and for closure and retained for the mortgagor the right of redemption freed from clogs on the equity of redemption. These have no statutory sanction as neither the Transfer of Property Act not the Contract Act applies to mortgages of moveables; they have been adopted from the law of mortgages of immovable properties as a matter of justice, equity and goods conscience. As for S.72, it is based essentially on principles that pre-date the Transfer of Property Act and these principles have been applied to areas where the Act has no application on grounds of justice, equity and good conscience. On principles of justice, equity and good conscience paragraph 2 of 72 has to be extended to mortgages of moveables. As paragraph 2 of 72 comes into play the plaintiff's claim for the insurance premium has to be sustained". Thus, the hypothecation amounts to a mortgages of movables and if that be so, the plaintiff had he liability. Under Section 76 (a) of the Transfer of Property Act, the mortgages has to preserve the goods as a man of ordinary course. Thus, if the goods are hypothecated Sections 72 and 76 will apply. Ext.A26 also given an indication that the goods in question are hypothecated. Ext.A26 itself starts by saying that the goods are hypothecated to the Bank to cover the liabilities on the cash credit account. It gives an indication that the goods are hypothecated. Even otherwise, in the plaint also, the plaintiff refers the goods as hypothecated goods. In paragraph 7 of the plaint, it is stated thus; "The 2nd defendant also informed the plaintiff - Bank by this letter, that the Firm will be taking necessary steps to get the said goods marketed at the earliest and that the custody by the plaintiff - Bank of the said oil was entirely at the risk and responsibility of the Firm. As the said quantity of oil was in fact part of the hypothecation, and on the basis of the above letter, the plaintiff Bank took the oil in custody and kept it in the Bank premises". Thus, there is an admission on behalf of the plaintiff that the goods are actually hypothecated. As the said quantity of oil was in fact part of the hypothecation, and on the basis of the above letter, the plaintiff Bank took the oil in custody and kept it in the Bank premises". Thus, there is an admission on behalf of the plaintiff that the goods are actually hypothecated. In that view of the matter, the view of the court below is correct in holding that since the goods which are hypothecated are lost, it was the duty of the Bank to prove that sufficient care was taken. There was no proof regarding this. Even if we accept the case that the transaction is covered by Ext.A26, according to us, the plaintiff cannot escape from its liability. Ext.A26 states thus: "We request you to hold the above barrel containing the a dulterated vettiver oil entirely at our risk and responsibility". Argument of the learned counsel for the appellant is that as a matter of fact, the goods were bailed to the Bank and the Bank is acting only as a bailee. Section 151 of the Contract Act cast a burden on the bailee to take much care of the goods bailed as a man of ordinary prudence. According to learned counsel for the appellant, there is nothing to prevent the Bank to exclude from the liability. Learned counsel referred to us certain decisions, which includes Bank's exemption from such liability. Pollock & Mulla on Indian Contract and Specific Reliefs Acts, 10th Edition at page 787, it is stated thus: "The learned authors considered that a contract by a bailee purporting to exempt himself wholly from liability for negligence was not valid, relying on the judgment of Sankaran Nair, J. in Sheik Mohamad v. The British Indian Steam Navigation Co. This opinion is based on the express provision for contracting out in S.152 and in fact throughout the Chapter on Bailments wherever a rule of law is to operate only in the absence of a contract to the contrary, it is expressly so stated in the section. This obiter dictum is, however, contrary to the dicta of the other two judges in the case, White C.J. and Wallis J. and the view of the latter has been preferred in Rangoon, in Bombay and in Madras". This obiter dictum is, however, contrary to the dicta of the other two judges in the case, White C.J. and Wallis J. and the view of the latter has been preferred in Rangoon, in Bombay and in Madras". In the same page, it is stated thus: 'A bailee's liability extends to damage caused by the negligence of his servants acting in the course of their employment about the use or custody of the thing bailed;" Under Section 152 of the Indian Contract Act, the bailee, in the absence of any special contract, it not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of it described in section 151. So far as the clauses regarding the exemptions are concerned, there can be exclusions. But we have to consider as to what extent the exclusion appears. 14. In Bombay Steam Navigation Co. Ltd. v. Vasudev Baburao Kamath - A.I.R. 1928 Bombay 5, a Division Bench of the Bombay High Court commenting upon Section 151 with regard to the ship owners, it is stated as follows:"It is competent to a ship owner to protect himself by express contract, from liability for the negligence of himself or his servants in spite of S.151". The Court followed the decision in Mahamad Ravuther v. British India Steam Navigation Co. Ltd. - 32 Madras 95. So far as our Court is concerned, the decision in Dena Bank v. Glorphis James - 1993 (2) K.L.T. 105 states that there can be exclusion from liability by contract to the contrary. According to us, the question whether exclusion covers negligence also requires that the clause should be very clear. In Balkrishan R. Dayma v. Bank of Jaipur ltd. and another - 41 Company Cases 557, the question was raised regarding exclusion clause. The court held thus: "that on a reasonable, business like construction of clause 7 of the agreement, which provided, inter alia, that "during the continuance of this agreement the borrowers shall be responsible for all losses, damages or deterioration of the said goods caused by theft, fire, rain, floods, earthquake, lightening or any other cause whatever, notwithstanding that the goods may be in the possession or under the control of the bank", the 1st defendant bank was exempt from liability for negligence on the part of their servants in taking care of the pledged goods. As clause 7 contains the words "loss caused by any other cause whatever', they are wide enough to include negligence on the part of the defendants servants in taking care of the pledged goods". This matter came before this Court in the decision referred to above. Dealing with this contention Kalliath, J. speaking for the Division Bench held thus: "Bank shall not be may suffer or sustain on any account whatsoever while the same are in possession of the Bank during the continuance of this Agreement." Thus whatever may be the cause of the loss, the bailor is responsible. The above decision states that to cover the liability of negligence there should be intention of conclusion. The words in the document, Ext.A26, merely say that storing of the oil is at the risk and responsibility of the defendants. Certainly this risk and responsibility refer only to the ordinary care which the bailee has to take under Section 151. Here, from the pleadings and evidence, the Bank is not able to say how the holes were made in the vessel, which were inserted through the window. The window would have opened. That shows that there was negligence on the part of the Bank or the servants. According to us, Ext.A26 will not take into account the negligence. There is a presumption if the goods are lost that it was because of the negligence of the party, who stored the goods. In so far as it is not shown that there was no negligence, we are of the view that the exclusion clause in Ext.A26 does not apply. 14. In the above view of the matter, we are of the view that the plaintiff is liable for the loss occasioned when the goods were in its possession. 15. Another contention raised by the appellant is regarding the loss estimated. The defendants have filed a Cross Objection stating that the amount given is not reasonable. The court below has fixed the price of the oil at the rate of Rs.475/- per kg. According to us, it is a reasonable fixation of the price taking into account the fact that Rs.500/- was valued on 22.7.1987. After that there was deterioration. Hence, we are of the view that the price fixed for the oil is correct. In the above view of the matter, we dismiss the appeal as well as the Cross Objection.