Full Judgment Text
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PETITIONER:
CANARA BANK
Vs.
RESPONDENT:
THE OFFICIAL ASSIGNEE, MADRAS
DATE OF JUDGMENT: 17/12/1996
BENCH:
G.K. RAY, B.L. HANSARIA
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
G.N. RAY,J.
Leave granted.
Heard learned counsel for the parties. This appeal is
directed against judgment dated 29.6.1995 passed by the
Division Bench of the Madras High Court in O.S.A. No. 134 to
136 of 1988. By the impugned judgment, the appellant’s claim
for being treated as secured creditor under the proviso to
Section 17 of the Presidency Town Insolvency Act
(hereinafter referred to as the Act) read with Section 52
(2)(a) of the Act has been disallowed. The appellants
claimed that the goods which were hypothecated to the
appellant bank by the insolvents could be sold by the bank
for recovery of its dues as secured creditor without
approaching the Official Assignee like an ordinary creditor.
The main contention of the appellant is that the goods
hypothecated to the appellant belonged to the insolvents who
had created a charge over the said goods in favour of the
appellant. In such circumstances Section 17 read with
Section 52(2)(a) of the Act. and not Section 52 (2)(c) of
the Act. is applicable. It will be appropriate to refer to
Section 52 of the Act for appreciating rival contentions of
the parties:
"52. Description of Insolvent’s
Property Divisible Amongst
Creditors.
(1) The property of the insolvent
divisible amongst his creditors,
and in this Act referred to as the
property of the insolvent. Shall
not comprise the following
particulars, namely
(a) property held by the insolvent
on trust for any other person:
(b) the tools (if any) of his trade
and the necessary wearing apparel,
bedding, cooking vessels, and
furniture, of himself, hi wife, and
children to a value, inclusive of
tools and apparel and other
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necessaries as aforesaid, not
exceeding three hundred rupees in
the whole.
(2) Subject as aforesaid the
property of the insolvent shall
comprise the following particulars,
namely:-
(a) all such property as may belong
to, or be vested in, the insolvent
at the commencement of the
insolvency, or may be acquired by,
or devolve on, him before his
discharge;
(b) the capacity to exercise, and
to take proceedings for exercising,
all such powers in or over, or in
respect of property as might have
been exercised by the insolvent for
his own benefit at the commencement
of his insolvency or before his
discharge; and
(c) all goods, being at the
commencement of the insolvency, in
the possession, order, or
disposition of the insolvent, in
his trade or business by the
consent and permission of the true
owner, under such circumstances
that he is the reputed owner
thereof;
Provided that things in action
other than debts due or growing due
to the insolvent in the course of
his trade or business shall not be
deemed goods within the meaning of
clause (c):
Provided also that the true owner
of any goods which have become
divisible among the creditors of
the insolvent under the provisions
of clause (c) may prove for the
value of such goods.
It is thus apparent that while Section 52(2) (a) of the
Act refers to all the properties as may belong to or vest in
the insolvent at the time of commencement of the insolvency
or acquired by or devolved on the insolvent before his
discharge, Section 52(2)(c) refers to specified goods namely
goods in possession of the insolvent in his trade or
business with the consent and provisions of the true owner.
Mr. Promod B. Agarwalla, the learned counsel for the
appellant, has submitted that the insolvents in respect of
the goods hypothecated to the appellant bank were in
possession of such goods at the commencement of the
bankruptcy as its true owners, and had not been in
possession of such goods belonging to a third party by the
consent of such party. The appellant bank as a mortgagee
cannot be termed as a true owner of the hypothecated
property. According to the learned counsel, when a
hypothedated is created, a floating charge is created on the
hypothecated goods, and the title to such goods continues to
remain with the mortgagor. Mr. Agarwalla has submitted that
the property in the possession of an insolvent may fall
either under Section 52(2) (a) of 52(2) (c) of the Act. In
the instant case, hypothecated goods are identifiable. The
goods which do not belong to the mortgagor put simply
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possessed with the permission and consent of true owner,
cannot be mortgaged. Hence. the identifiable goods which
belonged to the mortgagor and was hypothecated to the
appellant bank must come under the provisions of Section 52
(2) (a) of the Act, and not under Section 52(2)(c) of the
Act.
Mr. Agarwalla has submitted that the view as propounded
by the respondent, that a secured creditor holding charge
over debts due to a person omitting to give notice to the
debtor and allowing the debtor to hold the secured goods in
his possession, order or disposition would, upon such debtor
becoming insolvent, be disentitled to proceed against the
securities under the reputed ownership clause, will render
Section 17 of the Act ptoise. Mr. Agarwalla has contanded
that Section 17 nowhere provides that a secured creditor
will not be entitled to proceed against the securities
unless he would have given a prior notice to perfect his
title. It is also contended by Mr. Agarwalla that Section 52
does not have a non obstante clause. Hence, it cannot be
contended that Section 52(2)(d) is an exception to Section
17 of the Act.
Mr. V.R. Krishnamurthy, the learned counsel for the
respondent, on the other hand has submitted that law is well
settled by a catena of decisions of different High Courts in
India ever since 1924 that in cases of goods in the
possession and disposition of the insolvent in his trade or
business with the consent of true owner, only Section
52(2)(c) applies which gets attracted both in the cases
where the insolvent is the owner of the property and has
created a charge over the same by pledging, hypothecating or
mortgaging the same to a creditor, as held in the decisions
reported in (1912) 22 Madras Law Journal 441.AIR 1924 Madras
214. AIR 1929 Sind 167, AIR 1931 Sind 40, AIR 1931 Sind 44
AIR 1964 Madras 47 and 1977 (1) Madras Law Journal 36 so
also in the cases of the property belonging to the creditor
out allowed to be kept in possession or used by the
insolvent with the consent of such owner and the same was in
possession and disposition of the insolvent at the time of
insolvency, as held n the decisions reported in AIR 1930
Calcutta 171, AIR 1932 Calcutta 680, AIR 1933 Calcutta 366
and AIR 1937 Sind 37.
Mr. Krishnamurthy has also submitted that the
contention of the appellant that in case of secured creditor
section 17 of the Act will apply and not Section 52 (2) (c),
cannot be accepted. The term true owner includes the owner
of an acquitable interest. In support of such contention a
decision of Madras High Court reported in AIR 1924 Madras
214 was relied on. Mr. Krishnamurthy has submitted that
Section 52(2)(c) applies to cases where the insolvent
pledges the property or gives the property as security but
was in possession and disposition of the their security with
the consent of the creditor. That Section is attracted only
when secured creditor omits to give notice. In case of
omission to give notice, protection under Section 17 is not
available. In support of such contention, reference has been
made to the decision reported in AIR 1931 Sind 44
(Dhanrajmal Kishan Das vs. Official Assignee). Mr.
Krishnamurthy has submitted that in view of such settled law
no interference is called for in this appeal.
Mr. Agarwalla has however refuted the contentions of
Mr. Krishnamurthy. He has submitted that in the instant
case, the High Court (Division Bench) has held: "At first it
must be pointed out that the bank cannot claim to be true
owner of the goods. Mere hypothecation will not make the
bank owner of the goods." He has further submitted that the
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concept of reputed ownership need not be kept in mind in the
facts of this case. Mr. Agarwalla has submitted that in
Dhanrajmal’s case, the High Court proceeded on the footing
that the book debt (which was the subject matter of
security) which were shown in the books of insolvent and had
been assigned by him would be the property of the assignee
and would thus attract rebuted ownership clause. The High
Court followed the views given in Mulla’s book on law of
Insolvency to the effect; that a secured creditor was
required to perfect his title by giving notice to the
original debtor and in case he omits to do so and allow the
security to remain in the possession of the insolvent, the
property would rest in the official assignee under the
reputed ownership clause.
Mr. Agarwalla has further submitted that in
Dhanrajmal’s case, the High Court held that the insolent was
the reputed owner of the book debt standing in its books
with the consent of assignee who was the real owner of the
book debts. According to Mr. Agarwalla such findings cannot
be made in the facts of this case. That apart, the
applicability of reputed ownership clause in case of secured
creditor failing to give notice to the mortgagor militates
against Section 17 read with Section 52(2)(a) of the Act and
such view, therefore, requires rejection by this Court.
Considering the facts of the case and that the mortgage
is a nationalised bank and goods in question undisputedly
belonged to the mortgagors being the insolvents, and such
mortgaged goods were found to be clearly identifiable from
other goods belonging to the insolvents, and also
considering the submission of the learned counsel of the
appellant that the amount involved in the claim of the bank
is small. We feel that justice of the case requires that the
appellant ought to be allowed to recover its dues by sale of
the hypothecated goods, and we order accordingly at the call
of justice. The contentions raised by the respective parties
in this appeal as to the import of reputed ownership clause
and the overriding effect on Section 17 and 52(2)(a) of the
Act when a mortgagee fails to give notice to the mortgagor,
namely, the debtor insolvent to perfect his title even
though hypothecated goods belonged to the mortgagor, are
kept open to be decided in an appropriate case.
These appeals are accordingly disposed of without any
order as to cost.