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2008(2) Bankmann 81 (Bom.)
DEBT RECOVERY APPELLATE TRIBUNAL, MUMBAI
S.S. Parkar, Chairperson
State Bank of India —Appellant
versus
M/s. J.K. Dal Mills and Ors. —Respondents
Appeal No. 146 of 2003
Decided on 30.10.2007
Counsel for the Parties:
For the Appellant:Mr. S.J. Bhambhalani, Advocate.
For the Respondents:Mr. S.G. Deshmukh, Advocate.
IMPORTANT POINT
An option is given to the pawnee either to file suit against the pawner for recovery of debt and retain the goods pledged as the collateral security or in the alternative to sell the things pledged on giving pawner reasonable notice of sale and thereafter make adjustments in the amount of debt.
Headnote:Indian Contract Act—Section 176—Pawnee’s right where pawner made default—Option is given to pawnee to file suit against pawner for recovery of debt and retain goods pledged as collateral security or sell the goods pledged on giving pawner reasonable notice of sale—Provision only gives option but does not caste obligation on lender to sell the pledged goods—Appellant bank gave notice to defendant-respondent before filing of the suit to sell the pledged shares of respondent failed to settle the claim—DRT disallowed part of appellant bank’s claim on ground that had bank sold the shares respondent would not have suffered losses—It was not obligatory on appellant Bank to sell shares only because said notice was served upon respondents—Appellant’s claim disallowed by DRT was liable to be decreed.
Result: Appeal allowed.
>S.S. Parkar, Chairperson—The short question which required consideration in this appeal is whether the option of sale of the pledged property given under Section 176 of the Indian Contract Act is discretionary or obligatory.
2. This appeal has been filed impugning that part of the judgment and order dated 16.6.2003 passed by the Presiding Officer, Debts Recovery Tribunal, Aurangabad in Original Application No. 30 of 2002 by which the claim of the appellant Bank was disallowed to the extent of Rs. 42,39,665.94 which includes interest on the notional sale proceeds of the shares from 21.7.2000.
3. Briefly stated the facts are as follows:
The appellant Bank had filed suit for recovery of Rs.71,09,136.21 being the amount due on a cash credit account opened by the respondents with interest thereon at the rate of 17 per cent per annum with quarterly rests and for the mortgaged immovable properties and hypothecated movable properties and for other reliefs. While partly decreeing the suit filed by the appellant Bank the D.R.T. disallowed part of the claim of the appellant Bank on the ground that had the appellant Bank sold the shares pledged with it on expiry of 15 days after serving the notice dated 6.7.2000 on the respondents the respondents would not have suffered losses. Reliance is placed on Section 176 of the Indian Contract Act. The appellant Bank had served the notice dated 6.7.2000 on the respondents calling upon them to submit stock statement immediately giving factual position and arrange for creation of second mortgage as agreed by them in respect of immovable property which was earlier mortgaged to M.S.F.C. and to liquidate the accounts in full at an early date. In the said notice it was stated that if the respondents did not respond to the said requisition within 15 days the Bank would be compelled to sell the shares held by it as security in the open market at the prevailing rate on the day of the sale at the risk of the respondents and to initiate legal action for recovery of the balance amount against them.
4. The defence of the respondents was that if the shares, which were pledged by the respondent, were sold by the appellant Bank as stated in the aforesaid notice the appellant Bank would have been in a position to recover more amount by way of sale proceeds of the 11,000 shares of Hindustan Lever Limited which were pledged with it as the prices of the said shares had gone down subsequently. The D.R.T. was of the view that the appellant Bank was obliged to sell the shares as stated in its notice dated 6.7.2000 and since the said shares were not sold the respondents were entitled for set off to the extent of difference in the prices of the shares. It was found that on the expiry of 15 days after service of the notice on the respondents i.e. on 21.7.2000 price of the shares of the said Company was about Rs.281 per share. It is not in dispute that the said shares were not sold by the Bank and they are still lying with the appellant Bank as a security for the repayment of the dues of the respondent. According to the D.R.T. if the said shares were sold on 21.7.2000 when the price of the shares was at of Rs.281 per share the appellant Bank would have received Rs.30,93,000 and therefore, the interest would not have accrued on the amount from that date till passing of the decree and therefore claim of the Bank was reduced to that extent.
5. The only question, therefore, which requires consideration in this appeal is whether the option given under Section 176 of the Indian Contract Act is discretionary or obligatory so far as the pawnee is concerned. In D.R.T. mainly reliance is placed on Section 176 of the Indian Contract Act and on the judgments of Gauhati High Court and of the Supreme Court.
6. As stated earlier, by the notice dated 6.7.2000 the appellant Bank had called upon the respondent to submit the stock statement giving factual position and to arrange for second mortgage as agreed earlier on the immovable pr
