Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 21
PETITIONER:
THE MORVI MERCANTILE BANK LTD. AND ANR.
Vs.
RESPONDENT:
UNION OF INDIA, THROUGH THE GENERAL MANAGER,CENTRAL RAILWAY,
DATE OF JUDGMENT:
03/03/1965
BENCH:
SUBBARAO, K.
BENCH:
SUBBARAO, K.
DAYAL, RAGHUBAR
MUDHOLKAR, J.R.
BACHAWAT, R.S.
RAMASWAMI, V.
CITATION:
1965 AIR 1954 1965 SCR (3) 254
CITATOR INFO :
RF 1978 SC 389 (9)
ACT:
Indian Contract Act (9 of 1872), s. 178, Transfer of
Property Act (4 of 1882). ss. 4 and 137 and Indian Sale of
Goods Act (3 of 1930), ss. 30 and 53--Endorsel of Railway
receipt--If pledgee of goods covered by receipt.
HEADNOTE:
A firm doing business in Bombay entrusted goods worth Rs.
35,500 the Railway for delivery in Delhi. The goods were
consigned to "self" and the firm endorsed the railway
receipts to a Bank against an advance of Rs. 20,000 made by
the Bank to the firm. The firm also executed a promissory
note in favour of the Bank for that amount. When the goods
reached the destination, the Bank refused to take delivery,
on the ground that they were not the goods consigned by the
firm. The Bank, thereafter filed a suit for the recovery of
the value of the goods. The trial court dismissed the suit.
On appeal by the Bank, the High Court allowed the appeal and
decreed the claim for Rs. 20,000 on the ground that as
pledgee of the goods, the Bank suffered loss only to the
extent of the loss of its security. Both the Bank and the
Railway appealed to this Court, and it was contended on
behalf of the Railway that the endorsement of the railway
receipt in favour of the Bank, did not constitute a pledge
of the goods covered by the receipt and that the Bank had no
right to sue for compensation.
HELD: (Per Subba Rao, Raghubar Dayal and Bachawat, J J):
The firm by endorsing the railway receipts in favour of the
Bank, for consideration. pledged the goods covered by the
said receipts, to the Bank, and the Bank being the pledgee
could maintain the suit for the recovery of the full value
of consignment amounting to Rs. 35,500. [264 H; 265 D-E]
On a reasonable construction of s. 178 of the Contract Act,
1872, ss. 4 and 137 of the Transfer of Property Act, 1882,
and ss. 30 and 53 of the Indian Sale of Goods Act, 1930,
an owner of goods, can make a valid pledge of them by
transferring the railway receipt representing the said
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 21
goods. To the general rule expressed by the Maxim nemo
dat quod non habet (no one can convey a better title than
what he had), to facilitate mercantile transactions. the
Indian Law has grafted some exceptions, in favour of
bonafide pledgees by transfer of documents of title from
persons. whether owners of goods who do not possess the full
bundle of rights of ownership at the time the pledges are
made, or their mercantile agents. To confer a right to
effect a valid pledge by transfer of document of title
relating to goods on persons with defects in their title
to the goods. and on mercantile agents, and to deny it to
the full owners thereof, is to introduce an incongruity into
the Act. On the other hand, the real intention of the
legislature will be carried out if the said right is
conceded to the Full owner of goods and extended by
construction to persons with defects in their title to the
goods or to mercantile agents. A pledge being a bailment of
goods under s. 172 of the Contract Act, the pledgee, as a
bailee. will have the same remedies as the owner of the
goods would have against a third person for deprivation of
the said goods or injury to them under s. 180 of the Act.
[264 A-C, H]
255
Ramdas Vithaldas Durbar v.S. Amarchand and Co., (1916)
L.R. 43 I.A. 164 and The Official Assignee of Madras v. The
Mercantile Bank of India, Ltd. (1934) L.R. 61 I.A. 416,
referred to.
Per Mudholkar and Ramaswami JJ. (dissenting): There was
no valid pledge of the consignments of goods represented by
the railway receipt in favour of the Bank and the Bank was
not entitled to sue the Railway for compensation for the
loss of goods, relying upon the endorsements of the railway
receipts in its favour. [272 G-H]
After the passing of the Indian Contract (Amendment)
Act, 1930, the legal position with regard to the pledge of
railway receipts, is exactly the same in Indian Law as it is
in English Law, and consequently, the owner of the goods
cannot pledge the goods represented by a railway receipt, by
endorsing the railway receipt, unless the railway
Authorities were notified of the transfer, and they agreed
to hold the goods as bailee of the pledgee. Under the
amended law a valid pledge can no longer be made by ever.v
person "in possession" of goods. It can only be made by a
mercantile agent as provided in s. 178 of the Contract Act
(after amendment in 2930) or by a person who has obtained
possession of goods under a contract voidable under s. 19 or
s. 19A of the Contract Act, as provided by s. 178 0 the Act.
or by a seller or buyer in possession of goods, after sale.
as provided in s. 30 of the Indian Sale of Goods Act. [271
F-G; 272 C-D]
Further, though a railway receipt and all other documents
enumerated in s. 2(4) of the Sale of Goods Act are
assimilated to bills of lading for the purpose of the
right to stoppage in transit and a pledge under s. 178 of
the Contract Act, its legal position is the same as in
English law, so that, no rights are created, merely by
reason of the endorsement of a railway receipt by the
consignee between the endorses and the railway company which
had issued the receipt to the consignee the only remedy
of the endorsee being against the endorser. The negotiation
of the receipt may pass the property m the goods, but it
does not transfer the contract contained in the receipt or
the statutory contract under s. 74E of the Indian Railways
Act. Negotiability is a creature of a statute or mercantile
usage, not of Judicial decisions apart from either. So, in
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 21
the absence of any usage of trade or any statutory
provision to that effect, a railway receipt cannot be
accorded the benefits which flow from negotiability under
the Negotiable Instruments Act, so as to entitle the
endorsee, as the holder for the time being of the document
of title, to sue the carrier --the railway authority--in his
own name. If the claim of the Bank was as an ordinary
assignee of the contract of carriage, then it had to
prove the assignment. In the absence of proof of such
assignment, or of the existence of any practice of merchants
treating a railway receipt as a symbol of goods making a
pledge of the receipt a pledge of goods, and in view of cl.
(3) of the notice printed at the back of the receipt that an
endorsement made on the face of the receipt by the consignee
was only meant to indicate the person to whom the consignee
wished delivery of goods to be made if he himself did not
attend to take delivery, the Bank had no right to sue the
Railway. [273 E-G; 274 D-G]
Since the language of s. 178 of the Contract Act is
clear and explicit, if any hardship and inconvenience is
felt because such a practice of treating the receipt as a
symbol of goods were not recognised. it is for Parliament to
take appropriate steps to amend the law and it is not for
courts to legislate under the guise of interpretation. [275
G]
256
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 474 and
475 of 62.
Appeal from the judgment and decree dated January 10.
1958, of the Bombay High Court in Appeal No. 375 of 1953.
J.C. Bhatt, B.R.Agarwala and H.K. Puri, for ’the
appellants (in C.A. No. 474 of 1962) and respondent (in C.A.
No. 475 of 1962).
Niren De, Additional Solicitor-General, N.D.
Karkhanis, B.R.G.K. Achar, for R.N. Sachthey, for Respondent
(in C.A. No. 474 of 1962) and appellant (in C.A. Nos. 475 of
1962).
The judgment of SUBBA RAO, DAYAL and BACHAWAT JJ. was
delivered by SUBBA RAO, J. The dissenting Opinion of
MUDHOLKAR and RAMASWAMI JJ. was delivered by RAMASWAMI J.
Subba Rao, J. On October 4. 1949, M/s. Harshadrai
Mohanlal & Co.. a firm doing business at Thana, Bombay.
hereinafter called the firm, entrusted 4 boxes alleged to
have contained menthol crystals to the then G.LP. Railway
for carriage from Thana to Okhla near Delhi under a railway
receipt bearing No. 233/27. On October 11, 1949, the firm
consigned 2 more such boxes to Okhla from Thana under 2
railway receipts bearing Nos. 233/35 and 233/36. All the
said 6 boxes were marked with the name of the said firm and
were consigned to "self". The said firm endorsed the
relevant railway receipts in favour of Morvi ’Mercantile
Bank Ltd., hereinafter called the Bank, against an advance
of Rs. 20,000 made by the Bank to the firm. The said
consignments did not reach Okhla. The railway company
offered to deliver certain parcels to the Bank, but the
Bank refused to take delivery of the same on the ground that
they were not the goods consigned by the firm. As the
railway failed to deliver the boxes, the Bank, as the
endorsee of the said railway receipts for valuable
consideration, filed Civil Suit No. 50 of 1950 in the Court
of the Civil Judge, Senior Devision. Thana, against the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 21
Union of India through the General Manager, Central Railway,
Bombay, for the recovery of Rs. 35,500, being the value of
the goods contained in the said consignments as damages.
The defendant in the written-statement averred that on
February 1. 1950, the railway company offered to deliver all
the consignments to the Bank, but the latter wrongfully
refused to take delivery of the same on the ground that the
consignments were not identical to the ones consigned from
Thana; it put the plaintiff to strict proof of the
allegation that the consignments contained menthol crystals
as alleged or that the aggregate value of the said
consignments was Rs. 35,500. or that the railway receipts
were endorsed in favour of the plaintiff for valuable
consideration.
The learned Civil Judge found as follows: (1) The boxes
consigned by the firm contained menthol crystals and by the
wrongful conduct of the employees of the railway
administration the contents of the boxes were lost; (2) the
said consignments were not offered
257
for delivery to the Bank, but what was offered were
different consignments containing caustic soda; (3) the
relevant railway receipts were endorsed by the firm in
favour of the Bank for valuable consideration; and (4) the
Bank, as endorsee of the railway recepts, was not entitled
to sue the railway company on the railway receipts for loss
of the consignments. On those findings the suit filed by the
Bank was dismissed with costs. The Bank preferred’ an appeal
to the High Court against the decision of the learned Civil
Judge, being First Appeal No. 375 of 1953.
The appeal was heard by a Division Bench of the Bombay
High Court, consisting of J.C. Shah and Gokhale, JJ. The
learned Judges agreed with the learned Civil Judge on the
first 3 findings; but on the 4th finding they took a
different view. They held that the Bank, as endorsee of the
said railway receipts, was entitled to sue for compensation
for the loss suffered by it by reason of the loss of the
consignments, but. as pledgees of the goods, it suffered the
loss only to the extent of the loss of its security. On that
view, the learned Judges gave a decree to the Bank for a sum
of Rs. 20,000 advanced by it with interest and proportionate
costs in both the Courts. The plaintiff as well as the
defendant preferred, by certificate, cross appeals to this
Court.
Learned Additional Solicitor General raised before us
the following points: (1) In law the endorsement of a
railway receipt does not constitute a pledge; (2) an
endorsement of a railway receipt for consideration
constitutes at the most a pledge of the railway receipt and
not the goods covered by it. and, therefore, in the present
case the Bank acquired only a right to receive the goods
covered by the relevant receipts from the railway; and (3)
if the endorsement of the railway receipts does not
constitute in law a pledge of the goods, the Bank has no
right to sue for compensation, as, though the proprietary
right in the goods was transferred to it, the right to sue
trader the contracts did not pass to it.
The decision on the first point depends upon the scope
of the legal requirements to constitute a pledge under the
Indian law. That calls for a careful scrutiny of all the
relevant provisions of the Indian Contract Act, the Indian
Sale of Goods Act and the Transfer of Property Act. for
their combined consideration yields the answer to the
problem raised.
Under the Contract Act, delivery of goods by one person
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 21
to another under a contract as security for payment of a
debt is a pledge. Ordinarily delivery of tangible property
is essential to a true pledge; but where the law recognizes
that delivery of tangible symbol involves a transfer of
possession of the property symbolized, such a symbolic
possession takes the place of physical delivery. The short
but difficult question, therefore. is whether the Indian law
equates the railway receipts with the goods covered by them
for the purpose of constituting delivery of goods within the
meaning
258
of the Contract Act. Before the amendment of s. 178 of the
Contract Act and the passing of the Sale of Goods Act, 1930,
the scope of railway receipts vis-a-vis the goods covered by
them came up for consideration before the Judicial Committee
in Ramdas Vithaldas Durbar v.S.Amarchand & Co., C). The
head-note of that case succinctly gives the following facts:
Sellers of cotton consigned it to the buyer in Bombay, and
forwarded to him receipts issued by the railway company
which had undertaken the carriage. The receipts provided
that they should be given up at the destination by the
consignee, and that if he did not himself attend to take
delivery he must endorse on the receipt a request for
delivery to whom he wished it to be made. The evidence
showed that similar receipts for cotton were used in the
ordinary course of business in Bombay as proof of the
possession and control of the goods therein referred to or
as authorising the holder to receive or transfer the goods.
The consignee endorsed and delivered the receipts as
security for advances made specifically upon them in good
faith. The sellers sought to stop the cotton in transit. The
Judicial Committee held that the railway receipts were
instruments of title within the meaning of the Indian
Contract Act, 1872, s.103, and that the sellers were
therefore not entitled to stop the goods except upon payment
or tender to the pledgees of the advances made by them. This
decision lays down 3 propositions, namely, (i) the railway
receipts in question in that case were used in the ordinary
course of business in Bombay as proof of possession and
control of the goods therein referred to, or as authorising
the holder to receive or transfer the goods; (ii) such
railway receipts were documents of title and a valid pledge
of the goods covered by the receipts could be made under the
Contract Act before it was amended in 1930. by endorsing and
delivering the same as security for advances made. to the
owner of the goods. It may be noticed at this stage that
under the Contract Act before it was amended in 1930 there
was no definition of the expression "documents of title",
but there. was one in the Indian Factors Act (XX of
1844) which. with certain modifications, made the provisions
of the English Factors Act. 1842, applicable to British
India. The last mentioned Acts defined the expression
"documents of title to goods as including any bill of
lading, dock-warrant. ware-housekeeper certificate, whar-
finger’s certificate. warrant or order for the delivery of
goods and any other document used in the ordinary course of
business as proof of the possession or control of goods. or
authorising or purporting to authorise, either by
endorsement or by delivery the possessor of the document to
transfer or receive goods thereby represented’. Railway
receipt was so nominee not included in the detinition. But
the Privy Council, on the basis of the evidence adduced in
that case, brought the railway receipts under that part of
the definition describing generally the documents of
title to goods. It may also be noticed that the Judicial
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 21
Committee. though
(1) [1910] T R. 45 T. A. 164.
259
its attention was called to the provisions of ss. 4 and 137
of the Transfer of Property Act, preferred to decide that
case decors the said provisions. In the Explanation to s.
137 of the Transfer of Property Act, 1882, which was
introduced by the Amending Act 2 of 1900, the definition of
the expression "mercantitle document" is practically the
same as that found in the Indian Factors Act noticed by the
Judicial Committee in the decision cited supra, with the
difference that it expressly includes therein railway
receipt. Under s.4 thereof the Chapter and the sections of
the Act shall be taken as part of the Indian Contract Act,
1872. In 1930 Parliament in enacting the Indian Sale of
Goods Act, 1930, presumably borrowed the definition of
"documents of title to goods" from the Indian Factors Act
and the English Factors Act noticed by the Judicial
Committee, but expressly included in the definition the
railway receipt. This indicates the legislative intention to
accept the mercantile usage found by the Judicial Committee
in Ramdas Vithaldas Durbar v. S. Amerchand & Co.(1). The
same definition was incorporated by reference in the
Explanation to s.178 of the Contract Act as amended in the
year 1930. This definition is also in accord with the
definition of "mercantile document of title to goods" in the
Explanation to s.137 of the Transfer of Property Act. The
Judicial Committee had another occasion to consider the
question of pledge of railway receipt in Official Assignee
of Madras v. Mercantile Bank of India. Ltd.(2). The facts in
that case were as follows: The insolvents did a large
business in groundnuts, which they purchased from the up-
country growers; the nuts were then dispatched by rail and
arrived in Madras by one or other of the two railways, the
Madras & Southern Maharatta Railway or the South Indian
Railway. Under an arrangement between the said Railways and
the Madras Port Trust, the consignments of nuts when
received were deposited in the go downs of the Madras Port
Trust. The general course of business was for the
insolvents to obtain from the railway companies in respect
of each consignment or wagon had a railway receipt. The
insolvents obtained loans from the respondent Bank after
sending to the said Bank the railway receipts duly endorsed
in blank and also after executing a promissory note for the
amount a letter of hypothecation. When the goods arrived at
the port, delivery was taken from the Port Trust against the
railway receipts. At the time the insolvents were
adjudicated the bags of ground-nuts in question in that case
were either in transit on the railway or in the transit
sheds or godowns of the Port Trust. On those facts. the
main question was whether the pledge of the railway receipt
was a pledge of the goods represented by them or merely a
pledge of the actual documents. If there was a valid pledge
before the insolvency, the Bank would be entitled to receive
the amount realised by the sale of the goods; if not, the
Official Assignee would be entitled to it. The Judicial
Committee, after considering
(1) (1916) L.R. 43 LA. 164.
(1) (1934) L.R. 51 I.A. 416, 423.
260
its earlier decision in Ramdas Vithaldas Durbar’s case (1)
and all the relevant provisions which we have noticed
earlier, came to the conclusion that there was a valid
pledge of the goods represented by the receipts. It may be
noticed that this decision also turned upon the relevant
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 21
provisions of the Contract Act before its amendment in 1930,
though at the time the decision was made the amendment came
into force. On the question whether a pledge of a document
is a pledge of the goods as distinct from the document, the
Judicial Committee observed:
"Their Lordships likewise in the present
case see no reason for giving a different
meaning to the term (documents of title to
goods) in s.178 from that given to the terms
in ss. 102 and 103; in addition a railway
receipt is specifically included’ in the
definition of mercantile document of title to
goods by s. 137 of the Transfer of Property
Act, 1882, which, in virtue of s.4 of the Act,
is to be taken as part of the Contract Act as
being a section relating to contracts. A
railway receipt is now included in the
definition of documents of title to goods in
s. 2, sub-s. 4, of the Indian Sale of Goods
Act, 1930."
On the construction of the expression
"person" in s. 178 of the Contract Act, it was
argued that the said expression took in only a
mercantile agent and that the law in India
was the same as in England. Rejecting that
plea, the Judicial Committee remarked at p.
426 thus:
"Their Lordships did not in that case
see any improbability in the Indian
Legislature having taken the lead in a legal
reform.
It may well have seemed that it was
impossible ’to justify a restriction on the
owner’s power to pledge which was not imposed
on the like powers of the mercantile agent.
The same observation may well be true m regard
to the words now being considered. The
reasonableness of any such change in the law
is well illustrated by the facts of the
present case, where it was clearly intended to
pledge the goods, not merely the railway
receipts, and the respondents have paid in
cash the advances they made on that footing.
In these circumstances, it would be indeed a
hardship that they should lose their
security."
These pregnant observations show that there is no
justification to the distinction that is being maintained
in England between pledge of a bill of lading and the
pledge of documents of title of the than a bill of lading.
The Judicial Committee in this decision clearly laid down,
after noticing all the relevant provisions of the Contract
Act, the Transfer of Property Act and the Sale of Goods Act
that railway receipts were documents of title and the goods
cover
(1)(1916) L.R. 43 I.A. 164.
ed by the documents could be pledged by transferring the
documents. This decision is in accord with the view
expressed by us on a fair reading of the said provisions.
Even so, it is contended that by the amendment of s. 178
of the Contract Act in 1930, the Legislature has taken away
the right of an owner of goods to pledge the same by the
transfer of documents of title to the said goods. Under the
old section "a person" who was in possession of any goods
etc. might make a valid pledge of such goods, whereas under
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 21
the present section "a mercantile agent", subject to the
conditions mentioned therein, is authorized to make a pledge
of the goods by transferring the documents of title.
Therefore, the argument proceeds, a person other than a
mercantile agent cannot make a valid pledge of goods by
transferring the documents representing the said goods. This
argument appears to be plausible and even attractive; but,
if accepted, it will lead to anomalous results. It means an
owner of goods cannot pledge the goods by transferring the
documents of title, whereas his agent can do so. As the
Privy Council pointed out it is impossible to justify a
restriction on the owner’s power to pledge when there is no
such restriction imposed on the like powers of a mercantile
agent. A careful scrutiny of s. 178 of the Contract Act and
the other relevant provision thereof indicates that the
section assumes the power of an owner to pledge goods by
transferring documents of title thereto and extends the
power even to a mercantile agent. A pledge is delivery of
goods as security for payment of a debt. If a railway
receipt is a document of title to the goods covered by it,
transfer of the said document for consideration effects a
constructive delivery of the goods. On that assumption if we
look at s. 178 of the Contract Act, the legal position is
apparent. The material part s. 178 of the Contract Act
reads:
"Where a mercantile agent is, with the
consent of the owner. in possession of goods
or the documents of title to goods, any pledge
made by him, when acting in the ordinary
course of business of a mercantile agent,
shall be as valid as if he were expressly
authorised by the owner of the goods to make
the same; provided that the Pawnee acts in
good faith and has not at the time of the
pledge notice that the pawner has not
authority
to pledge."
The section emphasizes that a mercantile agent shall be in
possession of documents of title with the consent of the
owner thereof; if he is in such possession and pledges the
goods by transferring the documents of title to the said
goods, by fiction, he is deemed to have expressly authorized
by the owner of the goods to make the same. The condition of
consent and the fiction of authorization indicate that he
is doing what the owner could have done. So too.
262
s. 30 of the Indian Sale of Goods Act discloses the
legislative mind. The relevant part of the said’ section
reads:
"Where a person, having sold goods,
continues or is in possession of the goods or
of the documents of title to the goods, the
delivery or transfer by that person or by a
mercantile agent acting for him, of the goods
or documents of title under any sale, pledge
or other disposition thereof to any person
receiving the same in good faith and without
notice of the previous sale shall have the
same effect as if the person making the
delivery or transfer were expressly authorised
by the owner of the goods to make the same."
This sub-section shows that a person who sold the goods as
well as a mercantile agent acting for him can make a valid
pledge in the circumstances mentioned therein. If an owner
of goods or his mercantile agent after the owner has sold
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 21
the goods, can make a valid pledge by transferring the
documents of title to the goods, it would lead to an
inconsistent position if we were to hold that an owner who
has not sold the goods cannot pledge the goods by
transferring the documents of title. Sub-s. (2) of s. 30 of
the Indian Sale of Goods Act relevant to the present enquiry
reads:
"Where a person. having bought or agreed
to buy goods. obtains, with the consent of the
seller, possession of the goods or the
documents of title to the goods. the delivery
or transfer by that person or by a mercantile
agent acting for him. of the goods or
documents of title under any sale, pledge or
other disposition thereof to any person
receiving the same in good faith and without
notice of any lien or other right of the
original seller in respect of the goods shall
have effect as if such lien or right did not
exist."
This sub-section clearly recognizes that a buyer or his
mercantile agent can pledge goods by transferring the
documents of title thereto: it protects a bona fide pledgee
from the buyer against any claim by the original owner based
on the lien or any other right still left in him. If the
owner--the purchaser becomes the owner-cannot pledge the
goods at all by transfer of documents of title. the
protection given under sub-s. (2) of s. 30 of the Sale of
Goods Act to a bona fide purchaser is unnecessary. The
material part of s. 53(1) of the Sale of Goods Act reads:
"Subject to the provisions of this Act,
the unpaid seller’s right of lien or stoppage
in transit is not affected by any sale or
other disposition of the goods which the buyer
may have made, unless the seller has assented
thereto:
Provided that where a document of title
to goods has been issued or lawfully
transferred to any person as buyer or owner of
the goods, and that person transfers the
document to a person who takes the document
in good faith
263
and for consideration, then, if such last
mentioned transfer was by way of sale, the
unpaid seller’s right of lien or stoppage in
transit is defeated, and, if such last
mentioned transfer was by way of pledge or
other disposition for value, the unpaid
seller’s right of lien or stoppage in transit
can only be exercised subject to the rights of
the transferee."
This sub-section protects a bona fide pledgee from an owner
against any rights still subs sting in his predecessor-in-
interest. This assumes that the owner can pledge the goods
by transfer of the relevant documents of title. The said
sections embody statutory exceptions to the general rule
that a person cannot confer on another a higher title than
he possesses.
The argument that s. 178 of the Contract Act, as amended
in 1930. restricts the scope of the earlier section and
confines it only to a mercantile agent was noticed by the
Judicial Committee in Official Assignee of Madras v.
Mercantile Bank of India, Ltd. (1) and it observed therein:
"The Indian Legislature may well have
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 21
appreciated in 1872 the exigencies of
business, even though in 1930 they recanted.
Or perhaps they did not appreciate fully the
effect of the actual words of the section."
These observations indicate that the Judicial Committee did
not express any final opinion on the construction of the
amended s. 178 of the Contract Act as the question in the
appeal before it related to the unamended section. Further,
it did not notice the other sections referred to earlier
which throw a flood of light on the true meaning of the
terms of s. 178 of the Contract Act, as it now stands. This
conclusion also accords with the view expressed by Bachawat.
J.. in Commissioner for the Port Trust of Calcutta v.
General Trading Corporation Ltd.(2).
The Indian decisions cited at the Bar do not deal with
the question whether a valid pledge of goods can be effected
by transfer of documents of title, such as a railway
receipt, representing the goods; they were mainly concerned
with the question whether an endorsee of a railway receipt
for consideration could maintain an action on the basis of
the contract embodied in the said receipt: see the firm of
Dolatram Dwarakdas v. The Bombay Baroda and Central India
Railway Co. C); Shah Muji Deoii v. Union of India(4)
Commissioner for the Port Trust of Calcutta v. General
Trading Corporation Ltd. (2); and Union of India v.
Taherali (2). These raise a larger question on which there
is a conflict of opinion. In the view we have taken on the
question of pledge, it is not necessary to express our
opinion thereon in these appeals.
(1) (1934) L.R. 61 LA. 416, 423. A.I.R. 1964 cal. 290.
(3) (1914) I.L.R,. 38 .Rom. 659.
(4) A.I.R. 1957 Nag. :31.
(5) (1956) 58 Born. L.R. 650.
264
The law on the subject, as we conceive it, may be stated
thus: An owner of goods can make a valid pledge of them by
transferring the railway receipt representing the said
goods. The general rule is expressed by the maxim nemo dat
quod non habet, i.e., no one can convey a better title than
what he had. To this maxim, to facilitate mercantile
transactions, the Indian law has grafted some exceptions, in
favour bona fide pledgees by transfer of documents .of
title from persons, whether owners of goods or their
mercantile agents who do not possess the full bundle of
rights of ownership at the time the pledges are made. To
confer a right to effect a valid pledge by transfer of
documents of title relating to goods on owners of the
goods with defects in title and mercantile agents and to
deny it to the full owners thereof is to introduce an
incongruity into the Act by construction. On the other hand,
the real intention of the Legislature will be carried out if
the said right is conceded to the full owner of goods and
extended by construction to owners with defects in title or
their mercantile agents.
We are glad that, on a reasonable construction of the
material provisions of the relevant Acts, we have been able
to reach this conclusion- To accept the contentions of the
respondents to the contrary would be a retrograde step and
would paralyse the entire mechanism of finance of our
internal trade. In this vast country where goods are carried
by railway over long distances and remain in transit for
long periods of time, the railway receipt is regarded as a
symbol of the goods for all purposes for which a bill of
lading is so regarded in England.
The next question is whether the plaintiff would be entitled
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 21
to recover the full value of the consignments amounting to
Rs. 35,500/- or, as the High Court held, only the amount
of Rs. 20,000/- with interest, i.e., the amount secured
under the pledges. The answer to this question depends upon
the construction of s. 180 of the Contract Act, it reads:
"If a third person wrongfully deprives
the bailee of the use or possession of the
goods bailed, or does them any injury, the
bailee is entitled to use such remedies as the
owner might have used in the like case if no
bailment had been made; and either the bailor
or the bailee may bring a suit against a third
person for such deprivation or injury "
Under this section, a pledge being a bailment of goods as
security for payment of a debt, the pledgee will have the
same remedies as the owner of the goods would have against a
third person for deprivation of the said goods or injury to
them. If so, it follows that the Bank, being the pledgee,
can maintain the present suit for the recovery of the full
value of the consignments amounting to Rs. 35,500/-.
265
The last question is whether the Bank was the pledgee of
the goods or was only the pledgee of the documents of title
whereunder they could only keep the documents against
payment by the consignee as contended on behalf of the
Railway. The firm borrowed a sum of Rs. 20,000/- from the
Bank and executed a promissory note, Ex. 104, dated October
6, 1949, in its favour. It also endorsed the railway
receipts Nos. 233/27, 233/35 and 233/36 in favour of the
Bank. The Accountant of the Bank deposed that the railway
receipts were endorsed in favour of the Bank, which
had.advanced the said amount to the firm on the security of
the said railway receipts. The evidence of this witness was
not challenged in the High Court. The Bank.advanced alarge
amount of money to the firm. The three transactions,
namely the advancing of loan the execution of the promissory
note and the endorsement of the railway receipts, together
form one transaction. Their combined effect is that the
Bank would be in control of the goods till the debt was
discharged. This is a well known practice followed by
Banks.The Judicial Committee both in Ramdas Vithaldas
Durbar v. S. Amerchand & Co.(1), and the Official Assignee
of Madras v. The Mercantile Bank of India, Ltd.(2) heId that
such a transaction was a pledge. We, therefore, hold on the
facts of this case that the firm by endorsing the railway
receipts in favour of the Bank for consideration pledged the
goods covered by the said receipts to the Bank.
In this view it is not necessary to express our opinion on
the question whether if the transaction was not a pledge of
the goods,the Bank would be entitled to sue on the basis of
the contract entered into between the firm and the Railway.
No other question was raised. In the result, Civil Appeal
No. 474 of 1962 filed by the Bank is allowed; and Civil
Appeal No. 475 of 1962 filed by the Railway is dimissed. The
plaintiff’s suit is decreed with costs throughout.
Ramaswami, J. We regret we are unable to agree with the
judgment pronounced by our learned brother Subba Rao J.
On October 4, 1949, M/s. Harshadrai Mohanlal & Co.,
(hereinafter referred to as the firm) entrusted 4 boxes
containing "menthol crystal" to the then G.I.P. Railway for
carriage from Thana railway station to Okhla near Delhi. On
October 11, 1949, the firm consigned 2 more boxes also
alleged to have contained "menthol crystal" to Okhla from
Thana railway station. The Railway Receipts issued were
numbered 233/27, 233/35 and 233/36. All the six boxes were
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 21
consigned to "self". It is alleged that the Rail way
Receipts with regard to these six boxes were endorsed in
favour of Morvi Mercantile Bank Ltd. (hereinafter referred
to as the plaintiff-bank) against an advance of Rs. 20,000
by the plaintiff-bank on security of the Railway Receipts.
The G.I.P. Railway offered to deliver the boxes at Okhla
rai1way station but the plaintiff-bank declined to accept
the same alleging that the boxes were not those
(1) (1916) L.R. 43 I.A. 164.
(2) (1934) L.R. 61 I.A. 416, 423.
266
which were consigned from Thana station. The plaintiff-
bank filed Civil, Suit No. 50 of 1950 in the Court of the
Civil Judge, Senior Division, Thana, claiming a sum of Rs.
35,000 as damages for breach of contract. The suit was
contested by the defendants on the ground that identical
boxes which were consigned by the firm at Thana were
offered to the plaintiff-bank who declined to accept the
same and the Railway Administration had, not committed an
breach of contract and, therefore, the Union of India was
not liable to pay any damages. The trial Judge held that
the boxes Consigned by the firm contained "menthol crystals"
and by the unlawful conduct of the employees of the
railway administration the contents of the boxes were lost,
but he took the view that the plaintiff bank. as endorsee of
the railway receipts, was not entitled to sue for
compensation for loss of the consignments. In taking that
view the learned Civil Judge followed a decision of the
Bombay High Court in Shamji Bhanji & Co. v. North western
Railway Company(1). The Civil Judge accordingly dismissed
the suit by a judgment and decree dated January 15, 1953.
Against that decision the plaintiff-bank preferred an appeal
to the Bombay High Court which continued the findings of the
Civil Judge that tile Railway failed’ to deliver the boxes
at Okhla and the boxes contained "menthol crystals". The
High Court also held that the plaintiff-bank assignees of
the railway receipt was entitled to bring a suit for damages
for breach of contract against the Union of India though the
damages would be limited to the loss of its security. In
taking this view the Bombay High Court relied upon its
previous decision in The Union of India v. Taherali
Isaji(2).
The first question for determination in this case is
whether there was a valid pledge of boxes of "menthol
crystals" in favour of the plaintiff-bank by
endorsement on the railway receipts by the firm.
In English Law a pledge arises when goods are delivered by
one person called the ’pledgor’ to another person called the
’pledgee" to be held as security for the payment of a debt
or for discharge of some other obligation upon the express
or implied understanding that the subject-matter of the
pledge is to be restored to the pledgor as soon as the debt
or other obligation is discharged. It is essential for the
creation of a pledge that there should be a delivery of the
goods comprised therein. In other words, a pledge cannot be
created except by delivery of the possession of the thing
pledged, either actual or constructive. It involved a
bailment. If ’the pledgor had actual goods in his physical
possession, he could effect the pledge by actual delivery;
but in other cases he could give possession by some symbolic
act, such as handing over the key of the store in which they
were. If. however, the goods were in the actual physical
possession of a third person, who held for the bailor so
that in law his possession was that of the bailor, this
pledge could’ be effected by a change of the character of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 21
the possession of the
(1) A.I.R. 1947 Bomb.169.
(2)(1956)58 Bomb L.R. 650.
267
third party, that is by an order to him from the pledgor to
hold for the pledgee, the change being perfected by the
third party attorning to the pledgee, thus acknowledging
that he thereupon held for’ the latter. There was thus a
change of possession and a constructive delivery; the goods
in the hands of the third party came by this process
constructively in the possession of the pledge. But. where
goods were represented by documents the transfer of the
documents did not change the possession of the goods, save
for’ one exception, unless the custodian (carrier,
warehouseman or’ such) was notified of the transfer and
agreed to hold in future as bailee for the piedgee. The one
exception was the case of bills of lading, the transfer of
which by the law merchant operated as a transfer of the
possession of, as well as the property in, the goods., This
exception has been explained on the ground that the
goodsbeing at sea the master could not be notified; the true
explanation was perhaps that it was a rule of the law
merchant, developed in order to facilitate mercantile
transactions, whereas the process of pledging goods on land
was regulated by the narrower rule of the common law.
The position in English Law, therefore, was that in the
case of delivery of documents of title other than bills of
lading, a pled of the documents is merely a page of the ipsa
corpora of them, for the transfer of documents does not
change the possession of the goods unless the custodian
(carrier, warehouseman or such) was not filed of the
transfer and agreed to hold in future as bailee for the
pledgee. In Inglis v. Robertson and Baxter(1). It was held
by the House of Lords that where goods are lodged in
warehouses in Scotland a pledgee of the goods must, to make
effective all real rights which depend on the constructive
delivery of the goods, give notice of the pledge to the
warehouse-keeper. The Factors Act 1889 enacts:
"S.3. A pledge of the documents of title
to goods shall be deemed to be a pledge of the
goods."; and s. 1: ’For the purposes of this
Act’ (sub-s. 5). The expression ’pledge’ shall
include any contract, pledging, or giving a
lien or security on, goods, whether in
consideration of an original advance or of any
further or continuing advance or of any
pecuniary liability’. Sect. 9 prescribes that
the effect of delivery or transfer of the
documents of title of the goods under any
pledge &c., by a person who having bought the
goods obtains with the consent of the seller
possession of the goods or documents of title,
shall have the same effect as if the person
making the delivery or transfer were a
mercantile agent in possession of the goods or
documents of title with the consent of the
owner."
Goods were stored by G, a domiciled Englishman, in a bonded
warehouse in Glasgow, transferred into the name of G as
owner; and the Warehouse-keeper issued to G delivery orders
showing that
(1) (1898) A.C. 616.
268
the goods were held to G’s order or assigns by endorsement
’hereon’. G obtained a loan from I an English merchant, and
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 21
delivered to him in England a letter of hypothecation
stating that he deposited a part of the goods with him in
security, with power of sale, and G endorsed and handed to I
the delivery warrants. I did not intimate or give notice of
the right he had acquired to the warehouse-keeper. R. & B.,
claiming as personal creditors of G, .arrested the goods in
the hands of the warehouse-keeper and then raised an action
against him in the Scottish Court claiming through the
arrestment a preferable right thereto. It was held by the
House of Lords that s. 3 of the Factors Act, 1889, was
merely intended to define the full effect of the pledge of
the documents of title made by a mercantile agent, and that
it had no application to the case .of the pledge of the
documents of title by one in the position of G, ’who was not
a mercantile agent within the meaning of the Act; nor was G
a pledgor within s. 9 of the same Act. At pages 625 to 627
Lord Watson states:
I can see no reason to doubt that, by
Scottish law as ’well as English, the
endorsement and handing over of delivery
orders in security of a loan, along with a
letter professing to hypothecate the goods
themselves, is sufficient in law, and
according to mercantile practice, to
constitute a pledge of the documents of title,
whatever may be the value and effect of the
right so constituted. In my opinion, the right
so created, whether in England or in Scotland,
will give the pledgee a right to retain the
ipso corpora of the documents of title until
his advance is repaid. The crucial question in
this case is whether the right goes farther,
and vests in the pledgee of the documents, not
a jus ad rein merely, but a real interest in
the goods to which these documents relates.
It was not disputed by the appellant’s
counsel, and it is hardly necessary to repeat,
that by the common law of Scotland the
indorsation and hypothecation of
delivery .orders, although it may give the
pledgee a right to retain the documents, does
not give him any real right in the goods which
they represent. He can only attain to that
right by presenting the delivery orders to the
custodier by whom they were granted, and
obtaining delivery of the goods from him, or
by making such intimation of his right to the
custodier as will make it the legal duty of
the latter to hold the goods for him. His
right, which in so far as it relates to the
goods is in the nature of jus ad rem, will be
defeated if, before he has either obtained
delivery or given such intimation, the goods
are validly attached in the hands of the
custodier by a creditor of the person for whom
the custodier holds them."
269
The principle is reiterated by the House of Lords in Dublin
City Distillery Ltd. v. Doherty(1). in which the plaintiff
advanced moneys to a distillery company on the security of
manufactured whisky of the company stored in a ware-house.
Neither the company nor the excise officer could obtain
access to the warehouse without the assistance of the other,
and the whisky could only be delivered out on
presentation to the excise officer of a special form of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 21
warrant supplied by the Crown. On the occasion of each
advance the company entered the name of the plaintiff in
pencil in their stock-book opposite the particulars of the
whisky intended to be pledged and delivered to the
plaintiff (1) an ordinary trade invoice and (2) a
document called a warrant, which described the particulars
of the whisky and stated that it was deliverable to the
plaintiff or his assigns. It was held by the House of Lords
that the plaintiff was not entitled to a valid pledge on the
whisky comprised in the warrants. At pages 843 and 847 of
the Report Lord Atkinson states the law on the point as
follows:
"As to the second question, it was not
disputed that, according to the law of
England, and indeed of Scotland. a contract to
pledge a specific chattel, even though money
be advanced on the faith of it, is not in
itself sufficient to pass any special property
in the chattel to the pledgee. Delivery is, in
addition, absolutely necessary to complete the
pledge; but of course it is enough if the
delivery be constructive, or symbolical, as it
is called, instead of actual.
The example of constructive delivery
frequently given is the delivery of the key of
the store or house in which the goods have
been placed; but that is because, in the words
of Lord Hardwicke, ’it is the way of coming at
the possession, or to make use of the thing’,
Ward v. Turner (1751) 2 Ves. Sen. 431 at P.
443).
The giving by the owner of goods of a
delivery order to the warehouse man does not,
unless some positive act be done under it,
operate as a constructive delivery of the
goods to which it relates: Mc Ewan v. Smith
(1849) 2 H.L.C. 309). And the delivery of a
warrant such as those delivered to the
respondent in the present case is, in the
ordinary case, according to Parke B., no more
than an acknowledgment by the warehouse man
that the goods are deliverable to the person
named therein or to any one he may appoint.
The warehouseman holds the goods as the agent
of the owner until he has attorney in some way
to this person, and agreed to hold the goods
for him; then, and not till then, does the
warehouseman.become a bailee for the latter;
and then, and not till then, is there a
constructive delivery of the goods. The
delivery and’
(1) (1914) A.C. 823.
270
receipt of the warrant does not per se amount
to a delivery and receipt of the goods: Farina
v. Home (16 M. & W. 119); Bentall v. Burn
((1824) 3 B.&C. 423)."
In our opinion, the position in Indian Law is not
different Section 172 of the Contract Act which defines a
’pledge’ affirms the English Common Law. Section 172 states
that "the bailment of goods as security for payment of a
debt or performance of a promise" is called’ a "pledge". The
bailor is in this case called the "pawnor" and the bailee is
called the "pawnee". According to s. |48 of the Contract Act
"a bailment is the delivery of goods by one .person to
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 21
another for some purpose, upon a contract that they shall,
when the purpose is accomplished, be returned or otherwise
disposed of according to the directions of the person
delivering them. The person delivering the goods is called
the ’bailor’. The person to whom they are delivered is
called the ’bailee’. Section 149 states that the delivery to
the bailee may be made by doing anything which has the
effect of putting the goods in the possession of the
intended bailee or of any person authorised to hold them on
his behalf. Reference should also be made to s. 178 of the
Contract Act, as it stood before the Indian Contract
(Amendment) Act, 1930. The original s. 178 states:
"A person who is in possession of any
goods, or of any biII of lading, dock-warrant,
warehouse-keeper’s certificate wharfinger’s
certificate, or warrant or order for delivery,
or any other document of title to goods, may
make a valid pledge of such goods or
documents: Provided that the pawnee acts in
good faith and under circumstances which are
not such as to raise a reasonable presumption
that the pawnor is acting improper
Provided also that such goods or documents
have not been .obtained from the lawful owner,
or from any person in lawful custody of them,
by means of an offence or fraud."
By the Indian Contract (Amendment) Act, 1930 the section
was repealed and the subject-matter of that section is now
spread over the present ss. 178 and 178A of the Contract Act
and s. 30 of the Indian Sale of Goods Act. The new section
178 of the Contract Act states:
"Where a mercantile agent is, with the
consent of the owner, in possession of goods
or the documents of title to goods, any pledge
made by him, when acting in the ordinary
course of business of a mercantile agent,
shall be as valid as if he were expressly
authorised by the owner of the goods to make
the same; provided* that the pawnee acts in
good faith and has not at the time of the
pledge notice that the pawnor has no authority
to pledge.
Explanation--in this section the expressions
mercantile agent’ and ’documents of
title shall have the meanings assigned to them
in the Indian Sale of Goods Act, 1930."
271
Section 30 of the Indian Sale of Goods Act
provides as follows:
"30(1) Where a person, having sold
goods, continues or is in possession of the
goods or of the documents of title to the
goods, the delivery or transfer by that person
or by a mercantile agent acting for him, of
the goods or documents of title under any
sale, pledge or other disposition thereof to
any person receiving the same in good faith
and without notice of the previous sale shall
have the same effect as if the person making
the delivery or transfer were expressly
authorised by the owner of the goods to make
the same
Where a person, having bought or agreed
to buy goods, obtains, with the consent of the
seller. possession cf the goods or the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 21
documents of title to the goods, the delivery
or transfer by that person or by a
mercantile agent acting for him. of the .goods
or documents of title under any sale, pledge
of’ other disposition the thereof to any
person receiving the same in good faith and
without notice of any/ten or other right of
the original seller in respect of the goods
shall have effect as if such lien or right did
not
exist." Section 178A of the Contract Act
states:
"178A. When the pawnor has obtained
possession of the goods pledged by him trader
a contract voidable under section 19 or
section 19A, but the contract has not been
rescinded at the time of the pledge, the
pawnee acquires a good’ title to the goods.
provided he acts in good faith and without
notice of the pawnor’s defect of title."
After the passing of the Indian Contract (Amendment) Act,
1930 the legal position with regard to the pledge of railway
receipts is exactly the same in Indian law as it is in
English law and consequently the owner of the goods cannot,
pledge the goods represented by the railway receipts in the
present case unless the railway authorities are notified of
the transfer and they agree to hold the goods as bailee for
the piedgee.
On behalf of the appellants Mr. Bhatt placed strong
reliance upon the decision of the Judicial Committee in
Official Assignee of Madras v. Mercantile Bank of India,
Limited (1) in which it was held that a railway receipt,
providing that delivery of the consigned goods is to be made
upon the receipt being given up by the consignee or by a
person whom he names by endorsement thereon, is a document
of title within the meaning of the Indian Contract Act,
1872, (s. 178 for which a new section was substituted. by
the amending Act IV of 1930), and a pledge of a railway
receipt operated under the repealed section as a pledge of
the goods. But this decision is not of much assistance to
the appellants, because it was concerned with the
interpretation and legal effect of s. 178 of the Contract
Act as it stood before the Indian Contract (Amending)
(1) (1934) 61 I.A. 416.
272
Act (Amending Act IV of 1930). It was held by the Judicial
Committee in that case that under the repealed s. 178 the
owner of the goods could obtain a loan on security of a
pledge of the goods by the pledge of the documents of title.
But it is significant to note that s. 178 has been amended
by the Amending Act, 1930 and under the present section
statutory power to pledge goods or documents of title is
expressly confined to mercantile agents while acting in the
customary course of the business. There are two other
instances in which a person other than the owner of the
goods may make a valid pledge of the goods and these two
instances are dealt with in s. 178A of the Contract Act and
s. 30 of the Indian Sale of Goods Act. The result,
therefore, under the amended law is that a valid pledge can
no longer be made by every person "in possession" of goods.
It can only be made by a mercantile agent as provided in the
new s. 178 of the Contract Act or by a person who has
obtained possession of the goods under a contract voidable
under s. 19 or s. 19A of the Contract Act as provided in s.
178A, or by a seller or by a buyer in possession of goods
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 21
after sale as provided in s. 30 of the Indian Sale of Goods
Act. Learned Counsel for the appellants also referred to the
decision of the Judicial Committee in Ramdas Vithaldas
Durbar v.S. Amerchand & Co.(1) in which the Judicial
Committee explained the legal effect of s. 103 of the
Contract Act, as it originally stood. It was held by Lord
Parker that the railway receipts are instruments of title
within the meaning of the Indian Contract Act. 1872, s. 103,
and that the sellers were therefore not entitled to stop
the good’s in transit except upon payment or tender to the
pledgees of the advances made by them. It is manifest that
the decision cannot afford assistance to the appellants.
because, in the first place, it related to the construction
of old s. 103 of the Contract Act in regard to the right of
stoppage of goods in transit, and, in the second place,
there has been a significant change in the law in view of
the legislative amendment of s. 178 of the Contract Act by
the Indian Contract (Amendment) Act. 1930.
In the present case, therefore, our concluded opinion is
that there is no valid pledge of the consignments of menthol
crystals represented by the railway receipts in favour of
the plaintiff-bank and the finding of the High Court on this
point is erroneous in law
We shall next deal with the question whether the
plaintiff can sue on the contract of bailment even though
there is no valid pledge of the goods in favour of the
plaintiff. It was contended on behalf of the appellants that
the plaintiff-bank was the endorse of railway receipts and,
therefore, it was entitled to sue the defendants for
compensation for the loss of the goods. We are unable to
accept this argument as correct. At Common law a bill of
lading was not negotiable like a bill of exchange so as to
enable the endorsee to maharaja an action upon it in his own
name, the effect of the
(1914) 43 I.A. 164.
273
of the endorsement being only to transfer the property in
the goods but not the contract itself. It was observed by
Alderson, B. in Thompson v. Dominy (1) as follows:
"This is another instance of the
confusion, as Lord Ellenborough in Waring v.
Cox expresses it, which ’has arisen from
similitude reasoning upon this
subject Because, in Lickbarrow v. Mason, a
bill of lading was held to be negotiable, it
has been contended that instrument possesses
all the properties of a bill of exchange; but
it would lead to absurdity to carry the
doctrine to that length. The word ’negotiable’
was not used in the sense in which it is used
as applicable to a bill of exchange, but as
passing the property in the goods only."
Delivery orders, warrants, written engagements to
deliver goods and similar documents are in the same position
as the bills of lading were before the Bills of Lading Act,
1855 (18 & 19 Vic. c. 111 ). They are mere promises by the
seller, being the issuer or transferor, to deliver, or
authorise the buyer to receive possession. It is only by
reason of the enactment of the Bills of Lading Act, 1855 (18
& 19 Vic. c. 111) that the issue or transfer of a bill of
lading operates as a delivery to the buyer of the goods
shipped, and the consignee of the bill of lading is entitled
to sue upon the contract contained in the same. The same
provisions are contained in the Bills of Lading Act (Act IX)
of 1856 in India. It is true that the railway receipt and
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 21
all other documents enumerated in s. 2, sub-s. (4), Sale of
Goods Act, are assimilated to bills of lading for the
purposes of the right of stoppage in transit under s. 103,
Contract Act and a pledge under s. 178, Contract Act as
explained by the Judicial Committee in Ramdas Vithaldas
v. S. Amerchand& Co.(2) and Official assignee of Madras v.
Mercantile Bank of India(1). But the effect of these
decisions is not to assimilate the railway receipt to a biIl
of lading for all purposes whatsoever. The legal position of
the railway receipt is the same as it was in English law and
that position is not affected at all by the enactment of s.
2, sub. s. (4) of’ the Sale of Goods Act, or the enactment
of provisions analogous to ss. 103 and 178 of the Contract
Act. As stated in Halsbury’s. Laws of England, Hailsham
Edition, Vol. 29, at p. 143, Art. 179:
"Such documents, although they may purport
to be, or may commonly be treated as,
transferable, are not negotiable instruments,
unless there be a trade usage to that effect.
Accordingly, subject to the provisions of the
Factors Act 1889, the owner cannot claim
delivery of the goods except from the seller
who is the issuer or immediate transferor of
the document."
It is manifest that there are no rights created merely by
reason of the endorsement of a Railway Receipt between the
endorsee and
(1) 153 E.R. 53x.
(2) (1916) LIt. 43 I.A. 164.
(3) (1934) L.R. 61 I.A. 416, 423.
274
the railway company which has issued the railway receipt to
the .consignee, the only remedy of the endorsee being
against the endorser. This was the position in English law,
except in the case of .bills of lading the transfer of which
by the Law Merchant operated as a transfer of the possession
of as well as the property in ’the goods as observed by Lord
Wright in Official Assignee of Madras v. Mercantile Bank of
India, Limited(1) at page 422. The endorsee may bring an
action as an assignee of the contract of carriage but then
the assignment has to be proved as in every other case. It
is true that by reason of s. 137 of the Transfer of Property
Act, the provisions relating to the transfer of an
actionable claim do not apply to a railway receipt, and the
assignment need not be according to any particular form, but
a railway receipt is not like d negotiable instrument (See
Mercantile Bank of India Ltd. v. Centarl Bank of India
Ltd.(2). It is also apparent that subject to the exceptions
mentioned in ss. 30 and 53 of the Indian Sale of Goods Act.
1930, and s 178 of the Contract Act, 1872. its possessor
cannot give a better title to the goods than he has. The
negotiation of the railway receipt may pass the property in
the goods. but it does not transfer the contract contained
in the receipt or the statutory contract under s. 74-E of
the Indian Railways Act. Negotiability is a creature of
statute or mercantile usage, not of judicial decisions apart
from either. So, in the absence of any usage of trade or any
statutory provision to that effect, d railway receipt cannot
be accorded the benefits which flow from negotiability
under the Negotiable Instruments Act. so as 10 entitle the
endorsee as the holder for the time being of the document of
title to sue the carrier-the railway authorities--in his own
name. If file claim of the plaintiff is as an ordinary
assignee of the contract of carriage, then the plaintiff has
to prove the assignment ’in his favour. In the present case
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 21
the plaintiff-bank has furnished no such proof of assignment
in its favour. In view of cl. (3) of the notice printed at
the back of the railway receipt it is clear that an
endorsement made on the face of the railway receipt by the
consignee is meant to indicate the person to whom the
consignee wishes delivery of the goods to be made if he
himself does not attend to take delivery. An endorsement
made by the consignee on the face of the railway receipt
requesting the railway company to deliver the goods to the
endorsee merely conveys to the railway company that the
person in whose favour the endorsement is made by the
consignee is constituted by him a person to whom he wishes
that delivery of the goods should be made on his behalf.
Clause (3) of the notice printed at the back of the railway
receipt states:
"That the railway receipt given by the
railway company for the articles delivered for
conveyance, must be given up at destination by
the consignee to the railway company,
otherwise the railway may refuse to deliver
and that the signature of the consignee or his
agent in the delivery
(1) (1934) L.R. 61 I ,A. 416.. .(2) (1937) 65
I.A. 75.
275
book at destination shall be evidence of
complete delivery.
If the consignee does not himself attend to
take delivery he must endorse on the receipt
a request for delivery to the person to whom
he wishes it made, and if the receipt is not
produced, the delivery of the goods may, at
the discretion of the railway company, be
withheld until the person entitled in its
opinion to receive them has given an
indemnity to the satisfaction of the railway
company."
In the present case the plaintiff has not proved by proper
evidence an assignment of the Contract of Carriage. In our
opinion, the law on the point has been correctly stated by
Bhagwati, J. in Shamji Bhanji & Co. v. North Western Rly.
Co.(1). It follows, therefore, that the plaintiff has no
right to bring the present suit against the Union of India.
Counsel for appellant has referred to the practice of
merchants in treating a railway receipt as a symbol of goods
and in making pledge of goods by pledge of railway receipts,
but no such practice or custom has been alleged or proved on
behalf of the plaintiff in the present case. In the absence
of such allegation or proof it is not open to the Court to
take any judicial notice of any such practice. Counsel for
appellant also referred to possible inconvenience and
hardship to merchants if such a practice is not judicially
recognised, but the argument from inconvenience and hardship
is a dangerous one and is only admissible in construction
where the meaning of the statute is obscure. In Sutters v.
Briggs(2). Lord Birkenhead stated:
"The consequences of this view of s. 2 of the Gaming Act,
1835 will no doubt be extremely inconvenient to many
persons. But this is not a matter proper to influence the
House unless in a doubtful case affording foothold for
balanced speculation as to the probable intention of the
legislature."
In the present case the language of s. 178 of the Contract
Act is clear and explicit and if any hardship and’
inconvenience is felt it is for Parliament to take
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 21
appropriate steps to amend the law and not for the courts to
legislate under the guise of interpretation.
For the reasons expressed, we hold-that Civil Appeal 474 of
1962 brought by the plaintiff-bank should be dismissed and
Civil Appeal 475 of 1962 brought by the Union of India
through the General Manager, Central Railway should be
allowed with costs and’ the suit of the plaintiff-bank
should be dismissed with costs throughout.
ORDER BY COURT
In accordance with the majority Judgment. Civil Appeal 474
of 1962 is allowed and Civil Appeal 475 of 1962 is
dismissed,plaitiff’s suit is decreed with costs throughout.
(1) A.I.R. 1947 Bom. 169. I.A.C. 1.
(2) [1922] I.A.C.1.
N)3SCI--5
276