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1987 Supreme(AP) 180
Andhra Pradesh High Court
Judges : K.JAYACHANDRA REDDY, S.S.M.QUADRI
State Of A.P.REP.DY COLLECTOR, WEST GODAVARI DISTRICT.ELNRU - Appellant
Versus
Andhra Bank Ltd, with its Central Office at Hyderabad and Branch Office at Tanukn, West Godavari District - Respondent
A.S.No.737/78
Decided On : 03-19-87
Advocates Appeared :
Mr. C.V. Narasimha Rao,Mr. P. Ramakrishna Raju
Headnote:SUGAR CONTROL ORDER, 1966 CI.4 and Contract Act - Hypothecation of sugar stock by a company manufacturing sugar in favour of a Bank for extending cash credit facility limit - Not prohibited under Cl.4 or G.S.R.No.1752 dt.20-11.1967.
DOCTRINE OF PRIORITY OF CROWN DEBTS - Not applicable to hypothecatee Bank-HYPOTHECATION and pledge - Distinction - Explained - Suit on the basis of hypothecation Maintainable.
HELD: In the instant case, the transaction amounts to only hypothecation, in as much as possession of the sugar was not handed over to the Bank and the same remained with the Bank Company. In such a direction it does not amounts to otherwise disposal, of sugar.
There is no doubt whatsoever that the sugar was not sold and also was not delivered nor agreed to be delivered. In the same manner it cannot also be said that it was disposed of otherwise merely because it was hypothecated. Therefore, the hypothecation is not prohibited by clause.4 of the Control Order or G.S.R.No. 1752 published in the Gazette.
In this case, though it is not a pledge, yet the transaction being a hypothecation, the hypothecated, viz., the Bank has a lien on the goods which are held by, way of security and the Bank has a preferential claim as a secured creditor even against the Government s demand of taxes. The doctrine of "priority of crown debts" is not applicable as against secured debt.
The true distinction between pledge and hypothecation is that the constructive possession of the goods in the case of pledge is specifically secured by the terms of the contract and is continued unabated throughout. There is essential distinction between pledge and hypothecation and though such kind of mortgage of movables are not dealt within the Contract Act and though there are no specific rules applicable to such matters, yet the Courts have recognised on the Principles of common law and rendered justice according to equity and good conscience and therefore, that being the law in force, action does lie in the Court in respect of hypothecation.
A.S. Dismissed.
( 1 ) 1. Defendants 1 and 2 viz. the State of Andhra Pradesh represented by the Collector, West Godavari District, Eluru and the Director of Agriculture (Cane Commissioner), Government of Andhra Pradesh, OS. No : 33 of 1973 on the file of the Subordinate Judge, Tanuku are the appellants. The 1st respondent herein viz. , the Andhra Bank Limited filed the suit for a declaration that the plaintiff is entitled to certain sums, in the alternative for a money decree against some of the defendants. The 3rd defendant in the suit is the Sivakami Reserve Area Cane Producers and Suppliers and the 4th defendant is the Sivakami Sugars Ltd, a Public Limited company now at Madurai. 5th defendant is the Managing Director of sivakami Sugars Ltd, who died and defendants 6 to 19 are his legalrepresentatives.
( 2 ) THE plaintiff provided certain credit facilities to the 4th defendant,sivakami Sugars Ltd, and allowed open cash credit to the extent of Rs. 5,00,000/and key cash credit to the extent of Rs. 15,00,000/ besides some other facilities totalling to Rs. 27,00,000/and the 5th defendant executed a letter of guarantee on 22-1-1970 in favour of the plaintiff-Bank for the aforesaid credit facilities. The 4th defendant, Sivakami Sugars Ltd, had three godowns. The stock in godown No : 1 was the subject-matter of the hypothecation to the plaintiff-Bank under the open cash credit system to an extent of Rs. 5,00,000/and a promissory note for the same was executed by the 4th defendant on 22-1-1970 in favour of the plaintiff. Similarly the sugar stocks in godown Nos. 2 and 3 were pledged to the plaintiff-Bank to an extent of Rs. 15,00,000/under kev cash credit loan. The latter stocks viz in godown Nos. 2 and 3 were under lock and key of the plaintiff. While so, the Tahsildar, Tanuku acting on the instructions of defendants 1 and 2 attached the stocks of sugar in godown No : 1 hypothecated to the plaintiff bank for recovery of a sum of Rs. 5,20,682-96 said to be due towards sugarcane purchase tax to the State under the provisions of the Andhra Pradesh sugar cane (Regulation of supply and Purchase) Act, 1961 (hereinafter referred to as "the Act" ). The 4th defendant filed writ petition No : 1558 of 1970 before this court challenging the attachment by the Tahsildar and also filed WPMP. No : 6044/1970 for interim orders relating to the stock of 4331 bags of sugar in godown No : 1 hypothecated to the plaintiff. Pursuant to the directions given by this court, the stocks in godown No : 1 were sold and the amount realised was deposited. 4th defendant filed another writ petition in respect of godown No: 2. It was found out later that the Tahsildar did not attach any stocks in godown Nos. 2 and 3 and that writ petition was dismissed as not necessary. Now coming to the stocks contained in godown no : 1, the plaintiff-Bank came forward with the present suit claiming that as it is hypothecated, the Bank is entitled to preferential charge and lien to recover the suit amout due to it under the open cash credit loan from the 4th defendant and the defendants 1 and 2 being simple money creditors are entitled to any surplus that may be left over. After due notice u/s 80 of the cpc, the suit was filed. The 5th defendant died pending the suit and defendants 6 to 19 were added as his legal representatives.
( 3 ) THE 2nd defendant filed written statement which was adopted bythe 1st defendant. It is admitted that the stocks in godown No : 1 were attached as alleged in the plaint, but it is contended that the 4th defendant toad no right to pledge the sugar and the plaintiff is not entitled to accept the pledge as it is illegal and hence hvpothecation cannot be enforced in law. As per GSR. No : 1747 dt. M 6-11-1967 issued under clause 4 of the Sugar control Order, the Union Government prohibited sale or disposal or pledge of the sugar except on the directions issued in writing by the Union government. It is contended by the 2nd defendant that the possess
