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Andhra Pradesh High Court
Y. BHASKAR RAO,J. ESWARA PRASAD
State Bank of India - Appellant
Versus
S.B. Shah Ali (died) - Respondent
Decided On : 03/09/1994
HYPOTHECATION - RIGHT TO SEIZE AND SELL - INTERVENTION OF COURT - DISTINCTION BETWEEN PLEDGE AND HYPOTHECATION - RIGHT TO TAKE POSSESSION AND SELL - CONDITIONS - BILLS OF SALE ACT, 1882 - SECTION 7 - CONTRACT ACT, 1872 - SECTION 176 - TRANSFER OF PROPERTY ACT, 1882 - SECTION 58.
Fact of the Case:
The appellant-Bank filed a suit for recovery of Rs.46,987-62 ps. and interest at 11% per annum to the foot of a mortgage by deposit of title deeds, created by the defendants in favour of the appellant-Bank. The 1st defendant disputed the nature of the loan advanced to him and mainly raised the contention that the appellant-Bank has highhandedly seized his lorry bearing registration No. ADT 1520 which was hypothecated to the appellant-Bank and thus caused damage and loss to him and for that purpose he made a counter-claim for damages in the suit. The 1st defendant filed a suit earlier to the suit filed by the appellant-Bank in O.S. No.2449 of 1973 before the II Assistant Judge, City Civil Court, Hyderabad for a declaration that the seizure of the lorry is illegal and for an injunction restraining the appellant-Bank from selling the lorry. That suit was transferred and tried along with the suit filed by the appellant-Bank and numbered as O.S. No.315 of 1976. The issues in both the suits are almost common. The main controversy is whether the seizure of the lorry by the appellant-Bank is legal, and, if not whether the appellant-Bank is liable to pay compensation for the illegal seizure and for the damage caused to the 1st defendant.
Finding of the Court:
The Court held that the seizure of the lorry by the appellant-Bank is not unlawful nor does it amount to any breach of terms of the contract. Further, Clause 10 of the agreement is not opposed to public policy. The Court also held that a notice as contemplated under Section 176 of the Contract Act, 1872 has been issued by the appellant-Bank before the sale of the lorry.
Issues: 1. Whether the seizure of the lorry by the appellant-Bank is legal? 2. Whether the appellant-Bank is liable to pay compensation for the illegal seizure and for the damage caused to the 1st defendant?
Ratio Decidendi: 1. The distinction between pledge and hypothecation is that in case of hypothecation the hypothecator can be in possession of the goods hypothecated and enjoy the same without causing any damage to the rights of the hypothecatee whereas in the case of pledge the possession of moveables will be transferred to the pawnee and he will be in possession and the pawnor will not be able to enjoy the same as the possession has already been parted with. 2. In the case of hypothecation, the hypothecatee has got a right to take possession of the hypothecated moveable property and also a right to appoint a receiver to manage the properties and to sell the same by public auction or private contract for realisation of the amount advanced. 3. The hypothecatee can take possession of the hypothecated goods and sell the same without intervention of the Court, if there is a specific clause in the hypothecation agreement empowering the hypothecatee to take possession of the goods and sell the same, in the event of default in payment, as per the said terms the hypothecatee can proceed ahead without intervention of the Court. 4. Where the agreement provides for taking of possession of the goods hypothecated, the hypothecatee can take possession of the said goods without intervention of the Court. Where the goods are hypothecated only by creating a charge, then the hypothecatee has to take action to enforce the said charge according to law.
Final Decision: The appeal is allowed and the order of the learned single Judge and the trial court are set aside. The counter-claim of the 1st defendant in the suit i.e., the 1st respondent in this appeal is, negatived. The suit filed for recovery of Rs.46,987-62 ps. with interest at 11% p.a. by the appellant-Bank is decreed in its entirety. A preliminary decree is passed in the suit. Time for redemption: six months.
Y. BHASKAR RAO, J. :- This Letters Patent Appeal has been preferred by the appellant-Bank against the judgment of a learned single Judge of this Court in CCCA No.98 of 1990 dated 26-8-1987* Reported in (1987) 2 Andh LT 470
2. The facts of the case, briefly stated, are as follows: The appellant-Bank filed a suit, O.S. No.530 of 1973 on the file of the IV Additional
Judge, City Civil Court, Hyderabad for recovery of Rs.46,987-62 ps. and for interest at 11% per annum to the foot of a mortgage by deposit of title deeds, created by the defendants in favour of the appellant-Bank. The 1st defendant disputed the nature of the loan advanced to him and mainly raised the contention that the appellant-Bank has highhandedly seized his lorry bearing registration No. ADT 1520 which was hypothecated to the appellant-Bank and thus caused damage and loss to him and for that purpose he made a counter-claim for damages in the suit. The 1st defendant filed a suit earlier to the suit filed by the appellant-Bank in O.S. No.2449 of 1973 before the II Assistant Judge, City Civil Court, Hyderabad for a declaration that the seizure of the lorry is illegal and for an injunction restraining the appellant-Bank from selling the lorry. That suit was transferred and tried along with the suit filed by the appellant-Bank and numbered as O.S. No.315 of 1976. The issues in both the suits are almost common. The main controversy is whether the seizure of the lorry by the appellant-Bank is legal, and, if not whether the appellant-Bank is liable to pay compensation for the illegal seizure and for the damage caused to the 1st defendant. On that controversy, the learned IV Additional Judge, City Civil Court, Hyderabad held that in the absence of the 1st defendant the vehicle was taken by the appellant-Bank clandestinely and the 1st defendant suffered loss due to this forcible seizure and that Clause 10 of the agreement is invalid and that the appellant-Bank is liable to pay compensation at the rate of Rs.100/- per day and awarded a sum of Rs.15,300/- from 27-6-1973 to 27-11-1973 and decreed the suit filed by the 1st defendant restraining the appellant-Bank from selling the vehicle and also decreed the suit filed by the appellant-Bank deducting Rs.15,300/- towards the damages sustained by the 1st defendant and passed a decree for the balance of Rs.31,687-62 ps. Assailing the correctness of the said finding of the learned IV Additional Judge, City Civil Court, Hyderabad, the appellant-Bank filed CCCA No.98 of 1980 in this Court.
3. The learned single Judge after perusing Clauses 6 and 10 of the agreement for medium term loan observed that there is no assignment of interest in the property (vehicle) and no possession was given to the Bank but however it was described that the vehicle was hypothecated to the Bank. With regard to the legal consequence of hypothecating the vehicle, the learned single Judge observed that the hypothecation of goods may connote an idea that the goods are pledged or mortgaged, that hypothecation is a pledge when there is bailment of goods for the security of debt, that there must be delivery of possession of the goods either actual or constructive, that the title in the goods remains with the pledger or the pawnor as described under the Indian Contract Act, that is why under common law it is stated that the general property in goods remains with the pledger but special property alone is transferred and hence the pledgee has no right of foreclosure since he has only a special property in goods, that the hypothecation is a mortgage when there is assignment of title or what is called general property in goods is transferred, that the transfer of possession of goods is not necessary for a mortgage of moveable, that hypothecation of moveable which is neither pledge, nor mortgage, operates only as a charge creating equitable interest in the goods hypothecated, and that the description of a transaction as hypothecation is not decisive and the C
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