# [1967] 2 S.C.R. 233

- **Citation:** [1967] 2 S.C.R. 233
- **Court:** Supreme Court of India
- **Decided:** 1966-12-13
- **Bench:** R. S. Bachawat, M. Shelat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1967-2-s-c-r-233-3996
- **Pages:** 8

## Headnote

lnclia11 Co11traC't Act (9 of 1872), s. 116--Pawnee denying pledge-·
Right to niaintain suit for recovery of anzount front pawner.
The appellant advanced Rs. 20,000 to the first respondent against a
promissory note and a receipt. The first respondent executed an agree·
ment whereby he agreed to pledge as security for the debt certain goods,
to deliver them to the !.ppellant, and to keep them in the appellant's.
custody. The appellant filed a suit on the promissory note claiming that. ·4
the first respondent failed to deliver the goods, that the agreement t1!er•··
fore did not ripen into a p!edge, and that consequently, he was entitled
to recover the amount advanced by him. It \Vas found on the evidence~,
that the goods were delivered to the appellant, and that he wa; a ;>ledgee
thereof.
On the question whether the appellant was entitled to a decree in
view. of his denial of the pledge and his taeure 'to offer to redeliver the
good~.
HELD : The appellant would not be entitled· to a decree on the
promissory note and also retain the goods found to have been deliverec;.
to him and to be in his custody. [240 F.G]
·
Section 176 of the Indian Contract Act, 1872. deals with the rights
of a pawnee and provides that in. case of .default by tho pawner the·
pawnec has (I) the right to sue upon the debt and to retain the goods
as collateral security, and (2) the right to sell the goods after reasonable
notice of the intended sale to the pawner.
So Jong, however. as theSi!le docs not take place, the pawner is entilted to redeem the goods
on payment of the deht.
Therefore, the right to sue on the debt
assumes th~t he is in ~ position to redeliver the goods on payment of t'1e
debt, and. 1f by denying the pledge or otherwise, he has put himself
1n 11 pos1tton whereby he 1s not ·able to redeliver the goolls, he cailnot
obtain a decree. [240 A-CJ
CIVIL APPELLATE JURISDICTTON : Civil Appeal No. 776 of°
1964.
.
Appeal from the judgment and decree dated September 15,
G
1961 of the Allahabad High Court in First Appeal No. 280 of
1952.
H
0. P. Rana, for the appellant.
J. P. Goyal, for respondent No. I.

## Text

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LAI.LAN PRASAD
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RAHMAT ALI & ANR.
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December 13, 1966
[R. S. BACHAWAT AND J, M. SHELAT, JJ.]
lnclia11 Co11traC't Act (9 of 1872), s. 116--Pawnee denying pledge-·
Right to niaintain suit for recovery of anzount front pawner.
The appellant advanced Rs. 20,000 to the first respondent against a
promissory note and a receipt. The first respondent executed an agree·
ment whereby he agreed to pledge as security for the debt certain goods,
to deliver them to the !.ppellant, and to keep them in the appellant's.
custody. The appellant filed a suit on the promissory note claiming that. ·4
the first respondent failed to deliver the goods, that the agreement t1!er•··
fore did not ripen into a p!edge, and that consequently, he was entitled
to recover the amount advanced by him. It \Vas found on the evidence~,
that the goods were delivered to the appellant, and that he wa; a ;>ledgee
thereof.
On the question whether the appellant was entitled to a decree in
view. of his denial of the pledge and his taeure 'to offer to redeliver the
good~.
HELD : The appellant would not be entitled· to a decree on the
promissory note and also retain the goods found to have been deliverec;.
to him and to be in his custody. [240 F.G]
·
Section 176 of the Indian Contract Act, 1872. deals with the rights
of a pawnee and provides that in. case of .default by tho pawner the·
pawnec has (I) the right to sue upon the debt and to retain the goods
as collateral security, and (2) the right to sell the goods after reasonable
notice of the intended sale to the pawner.
So Jong, however. as theSi!le docs not take place, the pawner is entilted to redeem the goods
on payment of the deht.
Therefore, the right to sue on the debt
assumes th~t he is in ~ position to redeliver the goods on payment of t'1e
debt, and. 1f by denying the pledge or otherwise, he has put himself
1n 11 pos1tton whereby he 1s not ·able to redeliver the goolls, he cailnot
obtain a decree. [240 A-CJ
CIVIL APPELLATE JURISDICTTON : Civil Appeal No. 776 of°
1964.
.
Appeal from the judgment and decree dated September 15,
G
1961 of the Allahabad High Court in First Appeal No. 280 of
1952.
H
0. P. Rana, for the appellant.
J. P. Goyal, for respondent No. I.
The Judgment of the Court was delivered by
Shela!, J. This appeal by certificate is directed against the·
judg,ment and de.cree passed by the High Court of Allahabad. re-.
versmg the Judgment and decree passed by the Civil Judge, All#tfa •.
234
SUPREME COURT
REPORTS
[1967) 2 S.C.R.
bad, directing the rcsp•)lldents to pay to the appellant Rs. 18,142/-
and costs.
Two questions arise in this appeal: ri= .• (1) whether the first
respondent pledged certain quantity of aeroscraps purchased by
him from military authorities at Bamrauli Depot, Allahahad and
delivered possession thereof to the appellant under an agreement of
pledge entered into between them and (2) whether the appellant
was entitled to any relief when his case was that the first respondent
never delivered to him the said goods and the said agreement never
ripened into a pledge.
On January JO, 1946 the appellant advanced Rs. 20,000/- to
the first respondent against a promissory note and a receipt. The
first respondent also executed an agreement whereby he agreed to
pledge as security for the debt the said aeroscraps and to deliver
·them at the appeliant"s house and keep them there in his custody,
The appellant's case, however, was that the first respondent failed to
deliver the said goods to him, stored them in a plot adjacent to the
aerodrome at Allahabad and therefore the said agreement did not
ripen into a pledge. Consequently, he was entitled to recover the
amount advanced by him in the suit based on the said promissory
note and the said receipt.
In his written statement the first respondent admitted the said loan but alleged that in pursuance of the said
agreement he delivered 147 tons of aeroscraps of the value of Rs.
35,000/- to the appellant.
He claimed that the appellant ;was not
entitled to obtain a d~-cree unless· he was ready and willing to redeliver the said goods pledged with him.
In the Trial rourt the appellant besides examining hi1melf also
led the evidence of other witnesses. The respondenl~ in their turn
led both documenta.ry and oral evidence and relied in particular on
certain notices served upon them by the appellant as also certain
receipts issued by the appellant in respect of payments made to the
appellant against sales by him of part of the said goods.
The Trial Judge, however, rejected the respondent's case and
held that there was no completed contra~t of pledge as the first
respondent had failed to deliver the said goods, that the second
resp'.lndent had agreed to become a surety for repayment of the
said loan and that thereupon the appellant did not insist on possessim. of the said goods being given to him and that therefore he was
ent.
j to maintain the suit and recover the said monies. On an
appt~i by the respondents, the High Court disagreed·\,ith the said
findings and set aside the said decree. The High Court held that the
said goods were delivered to the appellant, that tl1e said agrccmem
-Oid not rest at a mere agreement to pledge but ripened into a pledge
and that the appellant was not entitled to any relief in view of his
stand that the said goods were never pledged with him and were
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LALLAN PRASAD v; RAHMAT AL! (Shelat, J.)
235
therefore not ir. his possession. In the result, the High Court dismissed the appellant's suit with costs.
Mr. Rana, for the appellant, challenged both the findinf?s of
the High Court and contended (I) that the Hig~ Court was ~ot Justified in finding that the first respondent had <lehve~ed the said goods
to the appellant and the said goods therefore remamed 111 his custody
and (2) that even if the goods were delivered to the appellant the
appellant could under section 176 of the Contract Act still maintain
his suit on the said promissory note and recover the amount due
thereunder.
As the High Court'~judgment is one of reversal Mr. Rana took
us through the relevant portions of the evidence and submitted that
on the evidence the findings of the High Court cannot be sustained.
The first question is whether the first respondent after obtaining
the aeroscraps from the military authorities delivered them to the
appellant. Before however we !Jroceed to consider this question
we may first set out certain undisputed facts. There is no dispute
t·hat the appellant advanced Rs. 20,000/- to the first respondent.
There is also no dispute that the first respondent executed the said
agreement agreeing to pledge the said goods. There is further no
dispute that the said goods were stored in a plot nea~ the aerodrome.
The dispute between the parties lies therefore within a short compass, viz., whether the custody of the said goods after they were
stored at the aforesaid place was with the appellant or with the first
respondent.
·
The first broad fact that inevitably strikes one is that though
the first respondent had agreed to hand over the said goods to the
appellant and though he failed to do so, the appellant did not at
any time protest or call upon him to deliver the goods.
Since .he
had advanced a fairly large amount it would be somewhat unusual, if the said goods were not placed in his possession, not to
call upon the first :espondent to forthwith deliver the goods.
Since
a large .amount was advanced by him the appellant also would not
ordmanly be content merely with a promissory note from the first
respondent. The appellant's case, however, was that since he had
obtained a guarantee from the second respondent, the father of the
first respondent, he did not worry even .if the said transaction remained at the stage of an agreement to pledge. But the Jetter under
~h1ch the 2nd responde1>t agreed to he the surety was obtained under
different c1rcumstances. Under the said agreement the appellant
was to permit the first respondent to remove and sell part of the
said goods provided he paid to the appellant 3/4th of the nlc proceeds. This by itself would presuppose that the goods were under
the control and custody ofthe appellant, for otherwise no question
of any permission from the appellant would arise. The letter of
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SUPREME COURT REPORTS
[1967] 2 S.C.lt.
surety from the second respondent itself states that the good! were
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pledged with the appellant, that the appellant was not allowing the
first respondent to remove them for sale and that with a view to
assure the appellant that his monies were not in danger the second
respondent agreed to make himself responsible for payment of the
said loan. This again presupposes that the goods were under the
control of the appellant.
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Apart from these broad facts there were also other facts on
record on the strength of which the High Court arrived at its a foresaid findings.
Since as a pledgee the appellant was entitled to recover from the
first respondent such expenses as might be incurred by him .for the
preservation and safety of the said goods he had appointed certain
watchmen whose salaries he claimed in the suit. According to the
appellant. he had employed these watchmen in the hope that the
goods would be placed in his custody and would require to be
watched for their safety. His ~ase further was that as the first respondent did not deliver them and stored them near the Aerodrome;
he placed, on a request by the respondents. the services of tho
watchmen at their disposal. But he could not explain as to why
he continued to pay the salaries of the watchmen, though their
services were no longer required by him. The explanation given by
him in this regard did not impress the High Court and in our view
rightly. If the goods were not delivered to the appellant and were
never in his custody there was no reason why he should contimre to
pay the watchmen's salaries. Even assuming that he had engaged
the watchmen in the first instance in the hope that the goods would
be placed in his possession. he would have discharged them on the
first respondent failing to hand over the goods to him. The only
explanation that appears to be acceptable in these circumstances is
that he continued to employ those watchmen as the goods were in
his possession and required to be safely kept as security.
The evidence shows that on or about August 18, 1946 the first
respondent removed part of the said goods but he did so after paying to the appellant Rs. 1,000/- towards :he principal and Rs. 200/-
towards interest. The removal of these goods and the said payment
were simultaneously made. That fact would indicate that the first
respondent had removed the said goods with the appellant's consent
which again envisages that the goods were at that time in the appellant's charge. Jn November 1947, JOO maunds of the said aeroscraps were sold to one Amrit Lal for Rs. 1,400/--. It is significant
that Amrit Lal paid Rs. 200/- by cheque out of the said Rs. 1,400/-
directly to the appellant. The receipt Ex. D in respect of this
ll.l'l\O\lnt indicates that the appellant was concerned with the sale.
If the goods were not in his possession and they were sold by the first
respondent without the appellant being concerned with the sale,
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LALLAN PRASAD v. P.AHMAT ALI (She/at, J.)
237
Amrit Lal would not have directly given the cheque to the appellant.
That the appellant was concerned with the said sale becomes also
apparent from the fact that in the notice Ex. P given by him to
the first respondent he had intimated that he intended to sell 100
maunds out of the goods.
Two notices given by the appellant to the first respondent dated
August 4, 1947 and September II, 1947 furnish clear indications
that the appellant was in possession of the said goods. Jn the first
notice he reminded the first respondent that "the aeroscraps purchased from the Bamrauli Depot were pawned in lieu of the amount
due"', that the first respondent had continued to remove part of the
said goods and dispose them of contrary to the said agreement,
that "accordingly my client engaged servants there for safety of the
goods and you are liable for payment of their salaries also in accordance with the tem1s of the agreement." By this notice the appellant
intimated to the first respondent that unless the latter made up the
account and paid the remaining balance including interest and the
salaries of the said watchmen within a week from the date of the
service of the notice he would dispose of "the entire goods pawned
and realise his entire dues on account of principal, and interest"
etc. The second notice was in the same vein again informing the
first respondent that the appellant would settle with some customer
and dispose of the said aeroscraps, that he had arranged a customer for 100 maunds, that the said 100 maunds would be sold on the
12th of September 1947 and that the first rnspondent could remain
present at the time of the sale if he so desired. These two notices
were followed by a telegram Ex. C which also gave a similar intimation to ihe first respondent. It cannot be disputed that through
these notices the appellant was informing the first respondent that he
intended to exercise his right to sell the said goods pledged with
him.
These notices are clearly inconsistent with the position adopted by him that the goods were never delivered to him or
that they were not pledged with him or that the transaction of pawn
had not materialised. His explanation that these notices were sent
at the instance of the first respondent to compel the second respondent to pay up the said debt is without any foundation and was
rightly rejected by the High Court.
Apart from this documentary evidence which satisfactorily
established that the said goods were in his possession, there was also
oral evidence, which if accepted, would prove that the said goods
were handed over to the appellant and remained in his control.
The most important part of the oral evidence was that of Manmohan Banerjee, the Commissioner appointed by the Court in a suit
filed by the Calcutta National Bank against the respondents. In
that suit th~ Court had passed an order of attachment before judgment of the goods belonging to the first respondent. The evidence
238
SUPREME COURT REPORTS
(1967] 2 S.C.R.
of Banerjee was that when he went to attach the aeroscraps belonging to the first respondent he was informed that part of the said
goods wrre in possession of the appclbnt and that thereupon he
refrained from attaching those goods. This evidence shows that at
that time it was a well known fact that the acroscraps in question
were in possession of the appellant.
There were two items of evidence, how~\·cr, on which the appellant relied to establish that the goods were never in his possession.
The first was the evidence of Kedar Nath. the owner of the plot
where the said goods were stored. His evidence was that the first
respondent had t~ken the said plot on rent from him in October 1946
and that he was paying the rent therefor. The evidence of Kedar
Nath, was, however, rejected by the High Court on the ground that
he wa~ not in a position to give the exact date on which the said plot
was leased to the first respondent and also on the ground that his
evidence was not satisfactory to show that the said goods were not
stored before October 1946. The second fact relied on by the appellant was that the suit filed by the Calcutta 1'ational Bank ultimately
failed, that the goods attached by the Bank were thereafter released
and some of the goods were thereafter removed by the respondents
and the rest by some other persons.
le \\as therefore alleged
that the respondents could not have removed those goods if in fact
they had been pledged with the appellant.
But there WuS no satisfactory evidence to show that the goods attached by the said Bank
were the very goods which had been pledged with the appellant. The
evidence of Banerjee on the other hand shO\vs the contrary. The
fact therefore that the goods attached by the Bank were subsequently
released and removed by the respondents would not assist the
appellant.
In view of these facts we arc of the view that the Higl:
Court wa~ right in its findings that the said goods were delivered to
the appellant, that he was a plcdgec thereof and that the said agreement did not rest at the stage of a mere agreement to pledge.
The second question would then be whether the appellant was
entitled to recover the balance of the said loan in view of his denial
of the pledge and his failure to offer to redeliver th~ goods. Under
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the Common Law a pawn or a pledge is a bailment of personal property as a security for some debt or engagement. A pawner is one
who being liable to an engagement gives to the person to whom he
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is liable a thing to be held as security for payment of his debt or the
fulfilment of his liability. The two ingredients of a pawn or a
pledge arc : ( 1 ) that it is essential to the contract of pawn that the
property pledged should be actually or constructively delivered to
the pawnce and (2) a pawnec has only a special property in the
pledge but the general property therein remains in the pawner and
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wholly reverts to him on discharge of the debt. A pawn therefore
is a security, where, by contract a deposit of goods is made as
security for a debt. The right to property vests in the pledgee only
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so far as is necessary to secure the debt. In this sense a pawn or
pledge is au intermediate between a simple lien and a mortgage
which wholly
passes the property in the thing conveyed. (See
Halliday v. Ho/ygate.(')
A contract to pawn a chattel even though
money is advanced on the faith of it is not sufficient in itself to pass
special property in the chattel to the pawnee. Delivery of the chattel pawned is a necessary element in the making of a pawn. But
delivery and advance need not be simultaneous and a pledge may be
perfected by delivery after the advance is made. Satisfaction of the
debt or engagement extinguishes the pawn and the pawnee on such
satisfaction is bound to redeliver the property. The pawner has an
absolute right to redeem the property pledged upon tender of the·
amount advanced but that right would be lost if the pawnee has in
the meantime lawfully sold the property pledged. A contract of
pawn thus carries with it an implication that the security is available·
to satisfy the debt and under this implication the pawnee has the
power of sale on default in payment where time is fixed for payment
and where there is no such stipulated time on demand for payment
and on notice of his intention to sell after default. The pawner
however has a right to redeem the property pledged until the sale.
If the pa wnee sells, he must appropriate the proceeds of the sa.etowards the pawner's debt, for, the sale proceeds are the pawner's.
monies to be so applied and the pawnee must pay to the pawner any
surplus after. satisfying the debt. The pawnee's right of sale is derived from an implied authority from the pawner and such a sale is.
for the benefit of both the parties. He has a right of action for his.
debt notwithstanding possession by him of the goods pledged. But
if the pawner tenders payment of the debt the pawnee has to return
the property pledged. If by his default the pawnee is unable to·
return the security against payment of the debt, the pawner has a
good defence to the action.(2) This being the position under the
common law, it was observed in Trustees of the Property of Ellis' &
Co. v. Dixon-Johnson(3) that if a creditor holding security sues for
the debt, he is under an obligation on payment of the debt to hand:
over the security, and that if, having improperly made away with the·
security he is unable to return it to the debtor he cannot have judgment for the debt.
There is no difference between the common law of England,
and the law with regard to pledge as codified in sections 172 to 176
of the Contract Act. Under section 172 a pledge is a bailment of
the goods as security for paymer.t of a debt or per: Jrmance of a
promise. Section 173 entitles a pawnee to retain the goods pledged
as security for payment of a debt and under section 175 be is entitled to receive from the pawner any extraordinary expenses he incurs.
(I) [18681 L.R. 3 Ex. 299.
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(2) Halsbury's Laws of England, 3rd ed. Vol. 29 page 221.
(3) (19251 A.C. 489.
·240
SUPREME COURT REPORTS
[1967] 2 S.C.R.
for the preservation of the goods pledged with him. Sec1ion 176
deals with the rights of a pawnee and provides that in case of default
by the pawner the pawnee has (I) the right to sue upon the debt and
to retain the goods as collateral security and (2) to sell the goods
after reasonable notice of the intended sale to the pawner. Cncc
the pawnee by virtue of his right under section 176 sells the goods the
right of the pawner to redeem them is of course extinguished. But
as aforesaid the pawnee is bound to apply the sale proceeds 1owards
satisfaction of the debt and pay the surplus, if any, to the pawner.
So long, however, as the sale does not take place the pawner is entitled to redeem the goods on payment of the debt. It follows therefore
llhat where a pawnee files a suit for recovery of debt, though he is
entitled to retain the goods he is bound to return them on payment
of the debt. The right to sue on the debt assumes that he is in a
position (o redeliver the goods on payment of the debt and therefore
if he has put himself in a position where he is not able lo redeliver
the goods he c-.mnot obtain a decree.
If it were otherwi!.e, the result
would be that he \\·ould recover the debt and also re1ain the coods
pledged and the pawner in such a case would be placed in a position
where he incurs a greater liahility than he bargained for under the
contract of pledge. The pawnee therefore can sue on the debt
retaining the pledged goods as collateral security.
If the debt
is ordered to be paid he has to return the goods or if the
_goods are sold with or without the assistance of the court
appropriate the sale proceeds to .vards the debt.
But if he
sues on the debt denying the pledge, and it is found that he was
given possession of the goods pledged •. nd had retained the same,
the pawner has the right to redeem the goods so pledged by payment of the debt. If the pawnee is not in a pos;tion to redeliver
the goods he cannot have both the payment of the debt and also the
goods. Where the value of the pledged property is less than the
debt and in a suit for recovery of debt by the pledgee, the pledgee
denies the pledge or is otherwise not in a position to return the
-pledged goods he has to give credit for the value of the goods and
would be entitled then to recover ~nly the balance. That being the
position the appellant would not be entitled to a decree against the
said promissory note and also retain the said goods found to have
been delivered to him and therefore in his custody.
For, if it were
othern;ise the first respondent as the pawner would be compelled
not only to pay the amount due under the promissory note but lose
the pledged goods as well. That certainly is not the etTect of section 176.
The contentions urged by Mr. Rana therefore must be
rejected.
The appe:il fails und is dismissed with costs.
V.P.S.
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