Judgement

Appeal (No. 54 of 1936) from a judgment and decree of the High Court of Madras in its appellate jurisdiction (January 24, 1935) affirming a judgment and decree of that Court in its original jurisdiction (August 9 and November 15, respectively).

The appellants and the respondents, the Mercantile Bank of India, Ld., and the Central Bank of India, Ld., respectively, carried on the business of bankers in Madras. C. K. Narayana Ayyar & Sons (the merchants) carried on business in Madras as buyers and exporters of ground-nuts, and were entitled to obtain delivery of the ground-nuts from up-country growers under railway receipts. Both the appellants and the respondents had been in the habit of making loans to the merchants on the security of the goods covered by the several railway receipts. The practice was that the merchants should deliver to the bank the relevant railway receipts by way of pledge, giving at the same time to the bank a promissory note for the amount advanced and a letter of lien. The bank would then pass the railway receipts on to their own godown keeper so as to enable him to obtain possession of the goods. What was in practice then done was for the banks godown keeper, in order to avail himself of the merchants services, to hand the railway receipts back to the merchants, but only for the specific purpose of clearing the goods and storing them in the banks godown. The railway receipts concerned in this case were thirty-five in number. The merchants, in accordance with the practice and for the purpose described above, after having received the advances, were given the railway receipts by the respondents, and then fraudulently obtained a second advance from the appellants. In due course the fraud became known and the merchants were declared insolvent. Thereupon the respondents brought an action for damages for conversion against the appellants. The appellants, in their amended defence, pleaded that "The plaintiff bank having placed C. K. N. & Sons in possession of the railway receipts without anything therein to indicate that the plaintiff bank had any interest therein or that C. K. N. & Sons were not the owners thereof, enabled C. K. N. & Sons to hold themselves out as the owners thereof and thereby to pledge the said "railway receipts for value with the defendant bank, who acted in good faith, and the plaintiff bank is therefore estopped from setting up its title against that of the defendant bank to the relative goods or their value."

The facts appear from the judgment of the Judicial Committee.

The trial judge (Stone J.) disposed of the plea of estoppel by observing that the only effect of such an estoppel would have been to shut out evidence of the Central Banks title as pledgees, and since the Mercantile Bank had formally admitted that the Central Bank were bona fide pledgees for value of the railway receipts no evidence was required on that point and the estoppel therefore ceased to have any effect. He held, following the interpretation of s. 178 of the Indian Contract Act, 1872, in the decision in Official Assignee of Madras v. Mercantile Bank of India ([ 1935] A. C. 53.), that the respondents having obtained a valid pledge of the goods from the merchants by the pledge of the receipts, did not lose their rights as pledgees by what the merchants then did when they purported to pledge the goods with the appellants.

The High Court in its appellate jurisdiction (Beasley C.J. and Cornish J.), in separate concurring judgments, held that the question whether the Central Bank were estopped from setting up their prior title to the goods did arise, and they decided the question in favour of the Central Bank and dismissed the appeal.

1937. Oct. 28, 29. A. T. Miller K.C. and C. P. Harvey for the appellants. The railway receipts contained on their face a representation that C. K. N. & Sons were the owners of the goods covered thereby, and the respondent bank were, therefore, by their conduct in handing over the