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1963 Supreme(Pat) 62
PATNA HIGH COURT
Kanhaiya Singh and Ramratna Singh JJ.
State Of Bihar
Versus
Bank Of Bihar Ltd.
Appeal from Original Decree No. 420 of 1955 ;
Decided On : APRIL 23, 1963
A pledgee's lien on the pledged goods ceases to exist when the goods are lawfully seized by a third party, and the pledgee has no cause of action against the third party who recovers the sale proceeds lawfully.
Headnote:
PLEDGE - WRONGFUL DEPRIVATION - REMEDIES - LIEN - SALE PROCEEDS - CERTIFICATE PROCEEDINGS - PRIORITY - LIMITATION - CONTINUING GUARANTEE.
Fact of the Case:
The Bank of Bihar Ltd. (Bank) entered into a cash credit agreement with Jagdishpore Zamindary Co. Ltd. (Company), whereby the Company pledged its entire stock of sugar with the Bank as security for advances. The Company's Directors furnished personal guarantees for the dues. In 1947, the Government of Bihar seized 5,000 maunds of sugar from the Company's premises under the Essential Supplies Act, 1946, as the Company failed to supply sugar to the Government as directed. The seized sugar was sold by auction, and the sale proceeds were deposited in the Government Treasury. Subsequently, the Cane Commissioner attached the sale proceeds through certificate proceedings to recover arrears of cane cess due from the Company.
Finding of the Court:
1. The seizure of sugar was lawful, and the Bank was not entitled to any damages from the State. 2. The Bank's lien on the pledged goods ceased to exist when the goods were lawfully seized by the State. 3. The Bank had no cause of action against the Cane Commissioner, who recovered the sale proceeds lawfully through certificate proceedings. 4. The Bank was entitled to its alternative remedy against the Company's Directors, who were personally liable for the dues under the cash credit agreement. 5. The Bank's claim against the Directors was not barred by limitation, as it was filed within three years of the execution of the continuing guarantee. 6. The Bank was entitled to a decree against the Directors for the amount due under the cash credit agreement, with interest and costs.
Issues: 1. Whether the seizure of sugar by the State was lawful and whether the Bank was entitled to damages from the State. 2. Whether the Bank had a lien on the pledged goods and the sale proceeds, and whether the Cane Commissioner's attachment of the sale proceeds was wrongful. 3. Whether the Bank had a cause of action against the Cane Commissioner. 4. Whether the Bank's claim against the Company's Directors was barred by limitation. 5. Whether the Bank was entitled to a decree against the Directors for the amount due under the cash credit agreement.
Ratio Decidendi: 1. The seizure of sugar was lawful as it was done under the authority of the Essential Supplies Act, 1946, and the Bank was not entitled to damages from the State. 2. The Bank's lien on the pledged goods ceased to exist when the goods were lawfully seized by the State, and the Bank had no cause of action against the Cane Commissioner, who recovered the sale proceeds lawfully through certificate proceedings. 3. The Bank's claim against the Company's Directors was not barred by limitation, as it was filed within three years of the execution of the continuing guarantee. 4. The Bank was entitled to a decree against the Directors for the amount due under the cash credit agreement, with interest and costs.
Final Decision: The appeal of the State of Bihar was allowed, and the Bank's claim against the State was dismissed with costs. The Bank was granted a decree against the Company's Directors for Rs. 93,910/10/9, with interest and costs.
Ramratna Singh, J.
1. This appeal has been preferred by the State of Bihar against the decision of the Fourth Additional Subordinate Judge, Patna, granting a decree for a sum of Rs. 93,910/10/9, together with interest at 6 per cent per annum from the date of the institution of the suit to the Bank of Bihar Ltd., the sole plaintiff, in the suit of which this appeal arises.
2. The facts now admitted are these : Under an arrangement with the South Bihai Sugar Mills Ltd., defendant No. 2, that is, the Jagdishpore Zamindary Co. Ltd. (hereinafter referred to as the Company) came into possession of the manufacturing section of the Mills at Bihta from the beginning of the crushing season of 1946-47. Defendants 3 to 5 were the Directors of the Company. Early in 1947, the Company entered with the Bank into a cash credit agreement, according to which tha company was to pledge with the Bank the entire stock of sugar manufactured by them in the Mills and to take advances of money from the Bank under the cash credit system. On tha 6th December, 1947 the outstanding advances of the Bank against the Company stood at Rs. 3,23,486/2/-, and the Bank was holding 6239 bags of sugar as pledgee, the sugar bags having been kept in the godowns within the premises of the Mills, but under the locks and keys of the Bank. The cash credit account was further secured by the personal guarantee furnished by the aforesaid Directors.
On the 24th August, 1947, the Sugar Controller for India passed an order under the Essential Supplies Temporary Powers Ordinance 1946, which was replaced by the Essential Supplies Act, 1946, directing the Mills to place at the disposal of the Government of Bihar 680 tons of sugar. Under Clause 7 of the Sugar and Sugar Products Control Order the Chief Controller of Prices and Supplies, Bihar, issued an order on the 27th September, 1947 directing the said Mills to supply to the District Magistrate of Patna 17441 maunds of sugar during the period from January to November, 1947; and the deliveries of sugar were to be made to different stockists as per direction of the District Magistrate or the Subdivisional Magistrates concerned. In pursuance of this order, a direction was issued to the Mills on the 2nd December, 1947 for the supply of 14,743 maunds of sugar. Even though the Factory Manager of the Mills had received advances from many of the stockists, no supply of sugar was made and it was apprehended that the Factory was only bidding time and trying to avoid making the supply until the 8th December, 1947, when sugar was to be decontrolled.
The Government of Bihar, therefore, passed an order on the 5th of December, 1947 under sec. 3 of the Act for the seizure of 5,000 maunds of sugar, and in pursuance of this seizure order, the Rationing Officer and the District Magistrate of Patna got the locks of the Bank put on the godowns broken open on the 6th or 7th December, 1947 and forcibly removed 4999 1/2 maunds of sugar.
Thereafter, two separate criminal cases were started against the General Manager and the Cane Manager of the Company. The case under Section 7 of the Essential Supplies (Temporary Powers) Act ended in acquittal; but the case under section 186 of the Penal Code against the General Manager, Shree Santosh Kumar Jan, ended in conviction, as the obstruction offered by the accused to the seizure was held to be illegal. This conviction was upheld by the Patna Higri Court in S. K. Jain V/s. State, AIR 1950 Pat 436 as also by the Supreme Court in S. K. Jain V/s. State, AIR 1951 SC 201. Both the High Court and the Supreme Court also found that the seizure was lawful. Ultimately, the seized sugar was sold by auction at Rs. 29/8/- per maund, and the amount of money fetched by the sale was deposited in the Government Treasury. Subsequently, however, the Cane Commissioner got a certificate issued against Jagdishpu Zamindari Company for realisation of arrears of cane cess and the entire sale proceeds deposited in the treasury we
