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1969 Supreme(Del) 35
High Court Of Delhi
A.M.R.DHAWAN - Appellant
Versus
MADAN MOHAN - Respondent
Decided On : 02/13/1969
A pledge is a kind of bailment and security, and the pawnee acquires only a special property in the goods pledged, leaving the general property intact with the pawnor. The pawnor is entitled to all the dividends that may be declared on the shares and to the bonus and right shares that may be issued in respect of the shares pledged.
Headnote:
PLEDGE - RIGHT TO DIVIDENDS, BONUS AND RIGHT SHARES - SECTIONS 172, 176, INDIAN CONTRACT ACT - DISTINCTION BETWEEN PLEDGE, MORTGAGE AND SALE - GENERAL PROPERTY REMAINS WITH PAWNOR - PAWNOR ENTITLED TO DIVIDENDS, BONUS AND RIGHT SHARES.
Fact of the Case:
The appellant pledged 91 shares of the Punjab National Bank Ltd. with respondent No. 5 as security for a loan. The Punjab National Bank Ltd. issued 444 shares of Rs. 2,500 each and 190 right shares of Rs. 425 each, and certain dividends accumulated. The appellant filed a suit for partition of his 2/3rd interest in the shares, including the bonus and right shares, and the accumulated dividends. The respondent No. 5 contested the suit, claiming that it had a right to the shares, dividends, and bonus shares.
Finding of the Court:
The court held that the pledge in favor of respondent No. 5 did not extend to the right shares, bonus shares, and the accumulated dividends declared in respect of 1/3rd of 91 shares of the Punjab National Bank Ltd. The court distinguished between a pledge, a mortgage, and a sale, holding that a pledge is a kind of bailment and security, and the pawnee acquires only a special property in the goods pledged, leaving the general property intact with the pawnor. In the case of a mortgage, however, an interest in the mortgaged property is transferred in favor of the mortgagee subject to the right of redemption of the mortgagor.
Issues: 1. Whether the pledge in favor of respondent No. 5 extended to the right shares, bonus shares, and the accumulated dividends declared in respect of 1/3rd of 91 shares of the Punjab National Bank Ltd.? 2. Whether the appellant was entitled to any interest in the shares dividends, bonus and right shares?
Ratio Decidendi: The court relied on sections 172 and 176 of the Indian Contract Act to hold that a pledge is a kind of bailment and security, and the pawnee acquires only a special property in the goods pledged, leaving the general property intact with the pawnor. The court also referred to the distinction between a pledge, a mortgage, and a sale, holding that a sale transfers the general property in the goods from the buyer to the seller, while a pledge only transfers a special property in the goods pledged.
Final Decision: The court allowed the appeal and modified the judgment and decree of the learned Sub Judge to exclude in favor of the appellant the right and bonus shares and dividends declared in respect of 1/3rd of 91 shares of the Punjab National Bank Ltd., originally pledged with respondent No. 5.
( 1 ) THE only question involved in this appeal is whether the appellant, who is the pawnor of certain shares in favour of respondent No. 5-Bank, is entitled to the dividends and the right, and bonus shares issued, in respect of the said pledged shares.
( 2 ) THE facts giving rise to this appeal are as follows : 101 shares of the Punjab National Bank Limited of the value of Rs. 100. 00 per share originally stood in the joint names of respondent No. 2 and his brothers respondents Nos. 3 and 4. Respondent No. 2 D entered into a partnership with the appellant under the name of New Shares Corporation.
( 3 ) THIS firm. New Shares Corporation, had an overdraft account with the Hindustan Commercial Bank Ltd. , respondent No. 5. As a security in the said account, 91 shares out of the said 101 shares of the Punjab National Bank Ltd. were pledged by the said firm with respondent No. 5, who, in a suit for the recovery of money due, obtained a decree for the amount found due to it. It was, however, held by the High Court in the said suit, that only 1/3rd right of respondent No. 2 in those shares had been pledged, as the share of respondents Nos. 2 and 4 could not be pledged by repsondent No. 2. Allowing the benefit of section 17 of the Displaced Persons (Debts Adjustment) Act LXXI of 1951, it was held that the Bank was entitled to recover the decretal amount by the sale of shares to the extent that they are validly hypothecated and not from the defendants personally in case of short fall.
( 4 ) THE present appellant then filed a suit (Suit No. 179 of 1955) for the declaration that the said shares were the exclusive property of the partnership. New Shares Corporation, and these belonged to him and respondent No. 2, in the ratio of their respective shares in the firm and were available for payment of firm s debts and for adjustment of the amounts due to him from respondent No. 2. The said suit was decreed only as regards 1/3rd share of respondent No. 2 and was dismissed as regards 2/3rd share of respondents Nos. 3 and 4. Respondents Nos. 3 and 4, in the meantime, sold their interest in the said shares in favour of respondent No. 1.
( 5 ) IN respect of the said total 101 shares, the Punjab National Bank Ltd. , issued 444 shares of Rs. 2,500. 00 each paid up and 190 right shares of Rs. 425. 00 each. Besides, certain sums were lying with the Punjab National Bank Ltd. as accumulated dividends.
( 6 ) RESPONDENT No. 1. Shri Madan Mohan then filed this suit, out of which the present appeal has arisen, for the partition of his 2/3rd interest in all the aforesaid shares, including the bonus and right shares, aforesaid, as also in the accumulated dividends. Respondent No. 5 was the main contesting party in the suit. According to it, respondents Nos. 2 and 4 had no interest in the original shares, all of them having been pledged in its favour by the new Shares Corporation as rightful owner. The decision in the earlier suit No. 179/55, according to it, was not binding upon it and, at any rate, all the interest of the appellant and respondent No. 2 in the said shares including their interest in the bonus and right shares and in the accumulated dividends was subject to its pledge. Hence, no partition could take place at all.
( 7 ) THE following issues were framed:-
1. Whether the defendant No. 5 (now respondent No. 5) is not bound by the decision in suit No. 179 of 1955 ? 2. If not, is the plaintiff (now respondent No. 1) the owner of 2/3rd shares in dispute ? 3. Whether the defendant No. 1 (now the appellant) is entitled to any interest in the shares dividends, bonus and right shares ? 4. Relief.
( 8 ) THE learned Sub Judge decided issue No. 1 against the respondent No. 5-Bank. Issue No. 2 was decided in favour of the plaintiff-respondent No. 1. Regarding issue No. 3, the learned Sub Judge held that the whole interest of respondent No. 2 had been pledged in favour of respondent No. 5 Bank and as such, appellant defendant No. 1, was not e
