# THE MORVI MERCANTILE BANK LTD. AND ANR v. 1UNION OF INDIA, THROUGH THE GENERAL MANAGER, CENTRAL RAILWAY, BOMBAY March 3, I 965

- **Citation:** [1965] 3 S.C.R. 254
- **Court:** Supreme Court of India
- **Decided:** 1965
- **Bench:** K. Subba Rao, Raghubar Dayal, J. R. Mudholkar, R. S. Bachawat, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-morvi-mercantile-bank-ltd-and-anr-v-1union-of-india-through-the-general-3477
- **Pages:** 22

## Headnote

Indian Contract Act (9 of 1872), s. 178, Transfer'of Property Act
(4 of 1882). ss. 4 and 137 and Indian Sale of Goods Act (3 of 1930), 8s.
30 and 53-Endorsel of Railway receipt-If pleduee of goods covered
by receipt.
,
A firm doing business in Bombay entrusted goods worth Rs. 35,500
to the Railway for delivery in Delhi. The good" were consigned to
"self" and the firm endorsed the railway receipts to a Bank against
an advance of Rs. 20,0-00 made by the Bank to the firm. The firm also
executed a promissory note in favour of the Bank for that amount.
When the goods reached the destination, the Ba.nk refused to take
delivery, on the ground that they were not the goods consigned by
the firm. The Bank, thereafter filed a suit for the recovery of the
value of the goods. The trial court dismissed the suit. On appeal by
the Bank, the High Court allowed the appeal and decreed the claim
for Rs. 2(),000 on the grounJ that as pledgee of the goods, the Bank
suffered loss only to the extent of the loss of its security, Both the
Bank and the Railway appealed to this Court, and it was contended
on behalf of the Railway that the endorsement of the railway
reoeipt in favour of the Bank, did not constitute a pledge of the
goods covered by the receipt and that the Bank had no right to sue
for compensation.
HELD: (Per Subba Rao, Raghubar Dayal and Bachawat, JJ): The
firm by endorsing the railway receipts in favour of the Bank, for
con°ideration, pledged the goods covered by the said. receipts, to the
Bank, and the Bank being the pledgee could maintain the suit for
·the recovery of the full value of consignment amounting to Rs. 35,500.
[264 H; 265 D-E]
.
On a reasonable construction of s. 178 of the Contract Act, 1872,
8S. 4 and 137 of the Transfer of Property Act, 1882, and ss. 30 and 53
of the Indian Sale of Goods Act, 1930, an owner of goods, can make
a valid pledge of them by transferring the railway receipt representing the said goods. To the general rule expressed by the Maxim
nemo dat quod non habet (no one can convey a better title than what
he had), to facilitate mercantile transactions, the Indian Law has
i:rafted some exceptions, in favour of bonafide pledgees by transfer
of documents of title from persons. whether owners of goods who
<lo not possess the full bundle of rights of ownership at the time the
pledges are made, or their mercantile agents. To confer a right to
pffect a valid pledge by transfer of. document of title relating to goods
on persons with defects in their title to the goods. and on mercantile
agents, and to deny it to the .full owners thereof, is to introduce an
incongruity into the Act. On the other hand, the real intention of the
legi•lature will be carried out if the said right is conceded to the
full owner of goods and extended by construction to persons with
defects in their title to the goods or to mercantile agents. A pledge
being a bailment of goods under s. 172 of the Contract Act, the pled-
·gee. as a bailee. will have the same remedies as the owner of the
goo:'s would have agaimt a third person for deprivation of the said
goods or injury to them under s. 180 of the Act. [264 A-C, HJ
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MORVI BANK V. UNION OF INDiA
255
RCtmdas Vithaldas Durbar v. S. Amarchand and Co., (1916) L. R.
43 I. A. 164 and The Official Assignee of Madras v. The Mercantile
Bank of India, Ltd. (1934) L. R. 61 I. A. 416, referred to.
Per Mudholkar and Ramaswami JJ. (dissenting): There was no
valid pledge of the consignments of goods represented by the railway· receipt in favour of the Bank and the Bank was not entitled to
sue the Railway for compensation for the loss of goods. relying upon
the endorsements of the railway receipts in }ts favour. [272 G-HJ
After the passing of the Indian Contract (Amendment) Act, 1930,
the legal position with regard to the pledge of railway receipts, is
exactly the same in Indian Law as it is in English Law, and consequently, the owner of the goods cannot pledge the goods repr

## Text

_Characters 0–39,996 of 66,357. This is a partial read: ask again with offset=39996 for what follows._

254
THE MORVI MERCANTILE BANK LTD. AND ANR.
v.
1UNION OF INDIA, THROUGH THE GENERAL MANAGER,
CENTRAL RAILWAY, BOMBAY
March 3, I 965
[K. SUBBA RAO, RAGHUBAR DAYAL, J. R. MUDHOLKAR,
R. S. BACHAWAT AND V. RAMASWAMI, JJ.J
Indian Contract Act (9 of 1872), s. 178, Transfer'of Property Act
(4 of 1882). ss. 4 and 137 and Indian Sale of Goods Act (3 of 1930), 8s.
30 and 53-Endorsel of Railway receipt-If pleduee of goods covered
by receipt.
,
A firm doing business in Bombay entrusted goods worth Rs. 35,500
to the Railway for delivery in Delhi. The good" were consigned to
"self" and the firm endorsed the railway receipts to a Bank against
an advance of Rs. 20,0-00 made by the Bank to the firm. The firm also
executed a promissory note in favour of the Bank for that amount.
When the goods reached the destination, the Ba.nk refused to take
delivery, on the ground that they were not the goods consigned by
the firm. The Bank, thereafter filed a suit for the recovery of the
value of the goods. The trial court dismissed the suit. On appeal by
the Bank, the High Court allowed the appeal and decreed the claim
for Rs. 2(),000 on the grounJ that as pledgee of the goods, the Bank
suffered loss only to the extent of the loss of its security, Both the
Bank and the Railway appealed to this Court, and it was contended
on behalf of the Railway that the endorsement of the railway
reoeipt in favour of the Bank, did not constitute a pledge of the
goods covered by the receipt and that the Bank had no right to sue
for compensation.
HELD: (Per Subba Rao, Raghubar Dayal and Bachawat, JJ): The
firm by endorsing the railway receipts in favour of the Bank, for
con°ideration, pledged the goods covered by the said. receipts, to the
Bank, and the Bank being the pledgee could maintain the suit for
·the recovery of the full value of consignment amounting to Rs. 35,500.
[264 H; 265 D-E]
.
On a reasonable construction of s. 178 of the Contract Act, 1872,
8S. 4 and 137 of the Transfer of Property Act, 1882, and ss. 30 and 53
of the Indian Sale of Goods Act, 1930, an owner of goods, can make
a valid pledge of them by transferring the railway receipt representing the said goods. To the general rule expressed by the Maxim
nemo dat quod non habet (no one can convey a better title than what
he had), to facilitate mercantile transactions, the Indian Law has
i:rafted some exceptions, in favour of bonafide pledgees by transfer
of documents of title from persons. whether owners of goods who
<lo not possess the full bundle of rights of ownership at the time the
pledges are made, or their mercantile agents. To confer a right to
pffect a valid pledge by transfer of. document of title relating to goods
on persons with defects in their title to the goods. and on mercantile
agents, and to deny it to the .full owners thereof, is to introduce an
incongruity into the Act. On the other hand, the real intention of the
legi•lature will be carried out if the said right is conceded to the
full owner of goods and extended by construction to persons with
defects in their title to the goods or to mercantile agents. A pledge
being a bailment of goods under s. 172 of the Contract Act, the pled-
·gee. as a bailee. will have the same remedies as the owner of the
goo:'s would have agaimt a third person for deprivation of the said
goods or injury to them under s. 180 of the Act. [264 A-C, HJ
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MORVI BANK V. UNION OF INDiA
255
RCtmdas Vithaldas Durbar v. S. Amarchand and Co., (1916) L. R.
43 I. A. 164 and The Official Assignee of Madras v. The Mercantile
Bank of India, Ltd. (1934) L. R. 61 I. A. 416, referred to.
Per Mudholkar and Ramaswami JJ. (dissenting): There was no
valid pledge of the consignments of goods represented by the railway· receipt in favour of the Bank and the Bank was not entitled to
sue the Railway for compensation for the loss of goods. relying upon
the endorsements of the railway receipts in }ts favour. [272 G-HJ
After the passing of the Indian Contract (Amendment) Act, 1930,
the legal position with regard to the pledge of railway receipts, is
exactly the same in Indian Law as it is in English Law, and consequently, the owner of the goods cannot pledge the goods represented
by a railway receipt, by endorsing the railway receipt, unless the
railway Authorities were notified of the transfer, and they agreed
to hold the goods as bailee of the pledgee_ Under the amended law
a valid pledge can no longer be made by every person "in possession"
of goods. It can only be made by a mercantile agent as provided. in
s. 178 of the Contract Act (after amendment in 1930) or by a person
who has obtained possession of goods under a contract voidable under
s. 19 or s. 19A of the Contract Act, as provided by s. 178 of the Act.
or by a seller or buyer in possession of goods. after sale. as provided
in s. 30 of the Indian Sale of Goods Act. ~271 F-G; 272 C-D)
Further, though a railway
receipt and all
other documents.
enumerated ins. 2(4) of the Sale of Goods Act are assimilated to bills.
;if lading for the purpose of the right to stoppage in transit and a
pledge under s. 178 of the Contract Act, its legal position is the same
as in Enitlish law, so that, no rights are created, merely by reason
of the endorsement of ·a railway receipt by the consignee between
the endorsee and the railway company which had issued the rece1nt
to the consirmee. the only remedy of the endorsee being against the
endorser. The negotiation of the receipt may pass the property m
the goods, but it does not tvansfer the contract contained in the receipt
or the statutory contract under s. 74E of the Indian Railways Act.
Negotiability is a creature of a statute or mercantile usage, not of
judicial decisions apart from either. So, in the absence of any usage
of trade or any statutory provision to that effect, a railway receipt
cannot be accorded the benefits which fiow from negotiability under
the Negotiable Instruments Act, so as to entitle the endorsee, as the
holder for the time being of the document of title, to sue the carrier
-the railway authority-in his own name. If the claim of the Bank
was as an ordinary assignee of the contract of carriage, then it had
to prove the assignment. In the absence of proof of such assignment,
or of the existence of any practice of merchants treating a railway
receipt as a symbol of goods making a pledge of the receipt a pledge
of goods, and in view of cl. (3) of the notice printed at the back of
the receipt that an endorsement made on the face of the receipt ty
the consignee was only meant to indicate_ the person to whom the
consignee wished delivery of goods to be made if he himself did
not attend to take delivery, the Bank had no right to sue the
Railway. [273 E-G; 274 D-G]
Since the language of s. 178 of the Contract Act is clear and
explicit, if any hardship and inconvenience is felt because such a
practice of treating the receipt as a symbol ?f goods were not recognised, it is for Parliament to take appropriate steps to amend the
law and it is not for courts to legislate under the guise of interpretation. [275 G]
256
•
COURT
REPORTS
(1965] 3 s.c.R.
SUPREME
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 474 and
A
475 of 62.
Appeal from the judgment and decree dated January 10, 1958,
.of the Bombay High Court in Appeal No. 375 of 1953.
J. C. Bhatt, B. R. Agarwala and H. K. Puri, for the appellants (in C.A. No. 474 of 1962) and· respondent (in C.A. No. 475
B
of 1962).
Niren De,
Additional Solicitor-General, N. D. Karkhanis,
B.R.G.K. Achar, for R. N. Sachthey, for Respondent (in C.A. No.
474 of 1962) and appellant (in C.A. Nos. 475 of 1962).
The. Judgment of SUBBA RAO, DAYAL and BACHAWAT JJ. was
delivered by SUBBA RAO, J. The dissenting Opinion of MUDHOLKAR
and RAMASWAMI JJ. was delivered by RAMASWAMI J.
Sobba Rao, J. On October 4. 1949, Mis. Harshadrai Mohanlal
& Co., a firm doing business at Thana, Bombay, hereinafter called
the firm, entrusted 4 boxes alleged to have contained menthol
crystals to the then G.LP. RaHway for carriage from Thana to
Okhla near Delhi under a railway receipt bearing No. 233/27. On
October II, 1949, the firm consigned 2 more such boxes to Okhla
from Thana under 2 r1ilway receipts bearing Nos. 233 I 35 and
233 I 36. All the said 6 boxes were marked with the name of the
said firm and were consigned to "self". The said firm endorsed the
relevant railway r~ceipts in favour of Mo;vi Mercantile Bank Ltd ..
hereinafter called the Bank, against an advance of Rs. 20,000 made
by the Bank to the firm. The sa;d consignments did not reach Okhla.
The railway company offered to deliver certain parcels to the
Bank, but the Bank· refused to take delivery of the same on the
ground that they were not the goods consigned by the firm. As the
railway failed to deliver the boxes, the Bank, as the endorsee of the
said railway receipts for valuable consideration, filed Civil Suit No
50 of 1950 in the Court of the Civil Judge, Senior Devision. Thana,
against the Union of India through the General Manager, Central
Railway, Bombay, for the recovery of Rs. 35,500, being the value
of the goods contained in the said consignments as damages. The
defendant in the written-statement averred that on
February I,
1950, the railway company offered to deliver all the consignments
to the Bank, but the latter wrongfully refused to take delivery of
the same on the ground that the consignments were not identical
to the ones consigned from Thana; it put the plaintiff to strict proof
of the allegation that the consignments contained menthol crystals
as alleged or that the aggregate value of the· said consignments was
Rs. 35,500. or that the railway receipts were endorsed in favour of
the plaintiff for valuable consideration.
The learned Civil Judge found as follows: (1) The boxes consigned by the firm contained menthol crystals and by the wrongful
conduct of the employees of the railway administration the contents
of the boxes were lost; (2) the said consignments were not offered
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HORVI llANK V. UNION (Subba Rao, J.)
2li7
for delivery to the Bank, but what was offered were different consignments containing caustic soda; (3) the relevant railway receipts
were endorsed by the firm in favour of the Bank for valuable consideration; and (4) the Bank, as endorsee of the railway rece.;pts,
was not entitled to sue the railway company on the railway receipts
for loss of the consignments. On those findings the suit filed by the
Bank was dismissed with costs. The Bank preferred an appeal to
the High Court against the decision of the learned Civil Judge,
being First Appeal No. 375 of 1953.
The appeal was heard by a Division Bench of the Bombay
High Court, consisting of J. C. Shah and Gokhale, JJ. The learned
Judges agreed with the learned Civil Judge on the first 3 findings;
but on the 4th finding they took a different view. They held that
the Bank, as endorsee of the said railway receipts, was entitled to
sue for compensation for the loss suffered by it by reason of the
loss of the cons'gnments, but, as pledgees of the goods, it suffered
the loss only to the extent of the loss of its security. On that view,
the learned Judges gave a decree to the Bank for a su~ of Rs. 20,000
advanced by it with interest and proportionate costs in both the
Courts. The plaintiff as well as the defendant preferred, by certificate, cross appeals to this Court.
Learned Additional Solicitor General raised before us the
following points: (I) In law the endosement of a railway receipt
does not constitute a pledge; (2) an endorsement of a railway receipt
for consideration constitutes at the most a pledge of the railway
receipt and not the goods covered by it, and, therefore, in the present case the Bank acquired only a right to receive the goods covered by the relevant receipts from the railway; and (3) if the endorsement of the railway receipts does not constitute in law a pledge of
the goods, the Bank has no right to sue for compensation, as,
though the proprietary right in the goods was transferred to it, the
right to sue under the contracts did not pass to it. .
The decision on the first point depends upon the scope of the
legal requirements to constitute a pledge under the Indian law.
That calls for a careful scrutiny of all the relevant provisions of
the Indian Contract Act, the Indian Sale of Goods Act and the
Transfer of Property Act. for their combined consideration yields
the answer to the problem raised.
Under the Contract Act, delivery of goods by one person to
another under a contract as security for payment of a debt is a
pledge. Ordinarily delivery of tangible property is essential to a true
pledge; but where the law recognizes that delivery of tangible symbol involves .a transfer of possession of the property symboliz.ed,
such a symbolic possession takes the place of physical delivery. The
short but difficult question, therefore, is whether the Indian law
equates the railway receipts with the goods covered by them for
the purpose of constituting delivery of goods within the meaning
258
SUPREME COURT REPORTS
[1965) 3 S.C,R.
of the Contract Act. Before the amendment of s. 178 of the Con-·
A
tract Act and the passing of the Sale .of Goods Act, 1930, the scope
of ndway receipts vis-a-vis the goods covered by them came up for
'
consideration before the Judicial Committee in Ramdas Vithaldas
Durbar v. S. Amarchand & Co., ('). The head-note of that case
succinctly gives the following facts: Sellers of cotton consigned it
to the buyer in Bombay, and forwarded to him receipts issued by
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the railway company which had undertaken the cardage. The
· receipts provided that they should be given up at the destination by
the consignee, and that if he did not himself attend to take delivery
he must endorse on the receipt a request for delivery to whom he
wished ino be made. The evidence showed that similar receipts
for cotton were used in the ordinary course of business in Bombay
0
as proof of the possession and control of the goods therein referred
to, or as authorising the holder to rece;ve or transfer the goods. The
consignee endorsed and delivered the receipts as security for advances made specifically upon them in good faith. The sellers sought
to stop the cotton in transit. The Judicial Committee held that the
railway receipts were instruments of title within the meaning of the
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Indian Contract Act, 1872, s.103, and that the sellers were therefore not entitled to stop the goods except upon payment or tender
to the pledgees of the advances made by them. This decision lays
down 3 propos;tions, namely; (i) the railway receipts in question in
that case were used in the ordinary course of business in Bombay
as proof of possession and control of the goods therein referred to,
E
or as authorising the holder to receive or transfer the goods; (ii)
such railway receipts were documents of title and a valid pledge of
the goods covered by the receipts could be made under the Contract
Act, before it was amended in 1930, by endors;ng and delivering
the same as security for advances made to the owner of the goods.
It may be noticed at this stage that under the Contract Act before
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it was amended in 1930 there was no definition of the expression
"documents of title", but there was one in the Indian Factors Act
(XX of 1844) which, with certain modifications, made the provisions of the English Factors Act, 1842, applicable to British India.
The last mentioned Acts defined the expression "documents of title
to goods" as including· any bill of lading, dock-warrant, ware-houseG
keeper's cert;ficate, whar-finger's certificate, warrant or order for
the delivery of goods and any other document used in the ordinary
course of business as proof of the possession or control of goods, or
authorising or purporting to authorise, either by endorsement or by
delivery. the possessor of the document to transfer or re~eive goods.
thereby represented. Railway receipt was eo nomine not included
H
in the definition. But the Privy Council, on the basis of the evidence
adduced in that case, brought the railway receipts under that part
of the definition describing generally the documents of title to
goods. It may also be noticed that the Judicial Committee, though
(') [19lC] L. R. 4a I. A. 134.
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llOBVI BANK.V. UNION (Sub/Ja Jlao, J.)
'.il59
its attention was called ·to the provisions of ss. 4 and 137 of the
Transfer of Property Act, preferred to decide that case dehors the
said provisions. In the Explanation to s.137 of the Transfer of Property Act, 1882, which was introduced by the Amending Act 2 of
I 900, the definition of the expression "mercantitle document" i!
practically the same as that found in the Indian Factors Act noticed by the Judicial Committee in the decision cited supra, with the
difference that it expressly includes therein railway receipt. Under
s.4 thereof,. the Chapter and the sections of the Act shall be takem
as part of the Indian Contract Act, 1872. In 1930 Parliament in
enacting the Indian Sale of Goods Act, 1930, presumably borrowed the definition of "documents of title to goods" from the Indian
Factors Act and the Engl.'sh Factors Act noticed by the Judicial
Committee, but expressly included in the definition the railway
receipt. This indicates the legislative intention to accept the mercantile asage found by the Judicial Committee ·in Ramdas Vithaldas
Durbar v. S. Amerchand & Co.('). The same definition was incorporated by reference in the · Explanation to s.178 of the Contract
Act as amended in the year 1930. This definition is also in accord
with the definition of "mercantile document of title to goods" in
the Explanation to s.137 of the Transfer of Property: Act. The Judicial Committee had another occasion to consider the question of
pledge of railway receipt in Official Assignee of Madras v. Mercantile Bank of India, Ltd.('). The facts in that case were as follows:
The insolvents" did a large business in groundnuts, which they purchased from the up-country growers; the nuts were then despatched
by rail and arrived in Madras by one or other of the two railways,
the Madras & Southern Maharatta Railway or the South Indian
Railway. Under an arrangement between the said Railways and
the Madras Port Trust, the consignments of nuts when received
were deposited in the godowns of the. Madras Port Trust. The general course of business was for the insolvents to obtain from the
railway companies in respect of each consignment or wagon load a
railway receipt. The insolv~nts obtained loans from the respondentBank after sending to ihe said Bank the railway receipts duly endorsed in blank and also after executing a promissory note for the
amount a letter of hypothecation., When the goods arrived at the
port, delivery was taken from the Port Trust. against the railway
receipts. At the time the insolvents were adjudicated the bags of
ground-nuts in question in that case were either in transit on the
railway or in the transit sheds or godowns of the Port Trust. On
those facts, the main question was whether the pledge of the railway receipt was a pledge of the goods represented by them or merely a pledge of the actual documents. If there was a valid pledge
before the insolvency, the Bank would be entitled to receive the
amount realised by the sale of the goods; if not, the Official Assignee
would be entitled to it. The Judieial C.Orrui:J.ittee, after considering
(') (1916) L.R. 43 I.A. 164.
(1) (1934) L.R. 51 I.A. '16, 421.
J.(B(N)3SJl-4,
260
SUPREME COURT REPORTS
(1965] 3 S.C.R.
its earlier decision in Ramdas Vithaldas Durbar's case (') and all the
relevant provisions which we have noticed eadier, came to the conclusion that there was a valid pledge of the goods r~presented by
the receipts. It may be noticed that this decision also turned upon
the relevant provisions of the Contract Act before its amendment
in 1930, though at the time the decision was made the amendment
came into force. On the question whether a pledge of a document is
a pledge of the g::iods as distinct from the document, the Judicial
Committee observed:
"Their Lordsh:ps likewise in the present case see no
reason for giving a different meaning to the term (documents of title to goods) in s.178 from that given to the
tel'!lls in ss. 102 and 103; in addition a railway receipt is
specifically included· in the definition of mercantile document of title to goods by s. 137 of the Transfer of Prope~ty Act, 1882, which, in virtue of s.4 of the Act, is to be
taken as part of the Contract Act as being a section relating to contracts. A railway receipt is now included in the
definition of documents of title to goods in s. 2, sub-1>. 4,
of the Indian Sale of Goods Act, 1930."
On the construction of the expression "person" in s. 178 of the
Contract Act, it was argued that the said expression took in only a
mercantile agent and that the law in India was the same as in
England. Rejecting that plea, the Judicial Committee remarked at
p. 426 thus:
"Their Lordships did not in that case see any improbability in the Indian Legislature having taken the lead in a
legal reform.
It
may well have seemed that it was impossible to
justify a restriction on the owner's power to pledge
which was not imposed on the like powers of the mercantile agent. The same observation may well be true in regard to the words now being considered. The reasonableness of any such change in the law is well illustrated by
the facts of the present case, where it was clearly intended
to pledge the goods, not merely the railway receipts, and
the respondents have paid i~ cash the adv~nces they ma?e
on that footing. In these c1rcumstances, 1t would be mde.ed a hardship that they should lose their security."
These pregnant observations show that there is no justification for
the distinction that is being maintained in England between a
pledge of a bill o! lading and ~~ pledge ~f d<><:Jlllle~ts of. t!tle other
than a bill of ladmg. The Jud1c1al Committee m this decJSJon clearly laid down, after noticing all the relevant provisions of th!l Contract Act, the Transfer of Property Act and the Sale of Goods Act,
that railway receipts were documents of title and the goods cover-
(1)(1916) L.R. 43 l.A. 164•
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ll[ORVI BANK v. UNION (Subba Rao, J.)
261
ed by the- documents could be pledged by transferring the documents. This decision is in accord with the view expressed by us on
a fair reading of the said provisions.
Even so, it is contended that by the amendment of s. 178 of
the Contract Act in 1930, the Legislature has "taken away the right
'Jf an owner of goods to pledge the same by the transfer of document~ of title to the said goods. Under the old section "a person"
wlto was in possession of any goods etc. might make a valid pledge
of such goods, whereas under the present section "a mercantile
agent'', subject to the conditions mentioned therein, is authorized
to make a pledge of the goods by transferring the documents of
title. Therefore, the argument proceeds, a person other than a
mercar.tile agent qnnot make a valid pledge of goods by transferring the documents representing the said goods. This argument appears to be plausible and even attractive; but, if accepted, it will
lead to anomalous results, It means an owner of goods cannot
pledge the goods by transferring the documents of title, whereas
his agent can do so. As the Privy Council pointed out it is impossible to justify a restriction on the owner's power to pledge when there
is no such restriction imposed on the like powers of a mercantile
agent. A carefull scrutiny of s. 178 of the Contract Act and the other
relevant provision thereof indicates that the section assumes the
power of an owner to pledge goods by transferring documents of title
thereto and extends the power even to a mercantile agent. A pledge
is delivery of goods as security for payment of a debt. If a railway
receipt is a document of title to the goods covered by it, transfer
of the said document for consideration effects a constructive delivery of the goods. On that assumption if we look at s. 178 of the
Contract Act. the legal position is apparent. The material part of
s. 178 of the Contract Act reads:
"Where a mercantile agent is, with the consent of the
owner, in possession of goods or the documents of title to
goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as
valid as if he were expressly authorised by the owner of
the goods to make the same; provided that the pawnee
acts in good faith and has not at the time of the pledge
notice that the pawnor has not authority to pledge."
The section emphasizes that a mercantile agent shall be in possession of documents of title with the consent of the owner thereof; if
he is in such possession and pledges the goods by transferring the
documents of title to the said goods, by fiction, he is deemed to
have expressly authorized by the owner of the goods to make the
.same. The condition of consent and the fiction of authorization
indicate that he 1s doing what the owner could have done. So too,
~62
SUPREME OOURT REPORTS
(1965] 3 S.C.R.
1. 30 of the Indian Sale of Goods Act discloses the legislative mind.
The relevant part of the said section reads :
"Where a person, having sold goods, continues or is in
possession of the goods or of the documents of title to the
goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of
title under any sale, pledge or other disposition thereof to
any person receiving the same in good faith and without
· notice of the previous sale shall have the same effect as if
the person making the delivery or transfer were expressly
authorised by the owner of the goods to make the same!'
This sub-section shows that a person who sold the goods as well
as a mercantile agent acting for him can make a valid pledge in
the circumstances mentioned therein. If an owner of good~ or his
mercantile agent, after the owner has sold the goods, can make a
valid pledge by transferring the documents of title to the goods, it
would lead to an inconsistent position if we were to hold that an
owner who has not sold the goods cannot pledge the goods by
transferring the documents of title. Sub-s. (2) of s. 30 of the Indian
Sale of Goods Act relevant to the present enquiry reads:
"Where a person, having bought or agreed to buy goods,
obtains, with the consent of the seller, possession of the
goods or the documents of title to the goods, the delivery
or transfer by that person or by a mercantile agent acting
for him, of the ,goods or documents of title under any sale,
pledge or other disposition thereof to any person receiv•
ing the same in good faith and without notice of any lien
or other right of the original seller in respect of the goods
shall have effect as if such lien or right did not exist."
This sub-section clearly recognizes that a buyer or his mercantile
agent can pledge goods by transferring the documents of title
thereto: it protects a bona fide pledgee from the buyer against any
• claim by the original owner based on the lien or any other right
still left in him. If the owner-the purchaser becomes the ownercannot pledge the goods at all by transfer of documents of title,
the protection given under sub-s. (2) of s. 30 of the Sale of Goods
Act to a bona fide purchaser is unnecessary. The material part of
s. 53(1) of the Sale of Goods Act reads:
·
.
"Subject to the provisions of this Act, the unpaid seller's right of lien or stoppage in transit is not affected by
any sale or other disposition ·of the goods which the buyer
may have made, unless the seller has assented thereto:
Provided that where a document of title to goods has
been issued or lawfully transferred to any person as buyer
or owner of the goods, and that person transfers the ·document to a person who takes the.,document in good faith
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MORVI BANK v. UNION (Subba Rae, J.)
and for consideration, then, if such last mentioned transfer was by way of sale, the unpaid seller's right of lien or
stoppage in transit is defeated, and, if such last mentioned
transfer was by way of pledge or other _disposition for
value, the unpaid seller's right of lien or stoppage in trap.
sit can only be exercised subject to the rights of the transferee."
263
This sub-section protects a bona fide pledgee from an owner against
any rights ·still subs'sting in his predecessor-in-interest. This assumes that the owner can pledge the goods by transfer of the relevant documents of title. The said sections embody· statutory exceptions to the general rule that a person cannot confer on another
a higher title than he possesses.
The argument that s. 178 of the Contract Act, as amended in
1930, restricts the scope of the earlier section and confines it only
to a mercantile agent was noticed by the Judicial Committee in
Official Assignee of Madras v. Mercantile Bank of India, Ltd.(')
and it observed· therein:
"The Indian Legislature may well have appreciated in
1872 the exigencies of business, even though in 1930 they
recanted. Or perhaps they did not appreciate fully th~
effect of the actual words of the section."
These observations· indicate that the Judicial Committee did not
express any final opinion on the construction of the amended s. 178
of the Contract Act as the question in the appeal before it related
to the unamended section. Further, it did not notice the other sections referred to earlier which throw a flood of light on the true
meaning of the terms of s. 178 of the Contract Act, as it now stands.
This conclusion also accords with the view expressed by Bachawat.
J., in Commissioner for the Port Trust of Calcutta v. General Trading Corporation Ltd.('),
The Indian decisions cited at the Bar do not deal with the
question whether a valid pledge of goods can be effected by transfer of documents of title, such as a railway receipt, representing
the goods; they were mainly concerned with the question whether
an endorsee of a railway receipt for consideration could maintain
an action on the basis of the contract embodied in the said receipt:
see The firm of Dolatram.·Dwarakdas v. The Bombay Baroda and
Central India Railway Co. (');Shah Mulji Deoji v. Union of India(')
Commissioner for the Port Trust of Calcutta v. General Trading
Corporation Ltd.('); and Union of India v. Taherali ('). These
raise a larger question on which there is a conflict of opinion. In
the view we have taken on the question of pledge, it is not necessary to express our opinion thereon in these appeals.
t') {1934) L.R. 61 I.A. 416, 423.
{') A.l.R. 1964 cal. 29r.
(') (191') J,L.R. 38.Bom. 659.
(') A.I.R, 1957 Nsg. 31.
(1) (1956) 58 Born. L.l\. 6!50.
~64
SUPil,EME
COURT
REPORTS
(1965] 3 S.C.R.
The law on the subject, as we conceive it, may be stated thus:
An owner of goods can make a valid pledge of them by transferring
the railway receipt representing the said goods. The general rulr.
'
is expressed by 'the maxim nemo dat quad non habet, i.e., no one
<:an convey, a better title than what he had. To this maxim, to facilitate mercantile transactions, the Indian law has grafted some ex-
<:eptions. in favour bona fide pledgees by transfer of documents
·Of title from persons, whether owners of goods or their mercantile
:agents who do not possess the full bundle of rights of ownership
:at the time the pledges are made. To confer a right to effect a valid
pledge by transfer of documents of title relating to goods on owners
·of the goods with defects in title and mercantile agents and to deny
it to the full owners thereof is to introduce an incongruity into the
Act by construction. On the other hand, the real intention of the
Legislature will be carried out if the said right is conceded to the
-full owner of goot!ls and extended by construction to owners with
.defects in title or their mercantile agents,
We are glad that, on a reasonable construction of the material
provisions of the relevant Acts, we have been able to reach this
·conclusion. To accept the contentions of the respondents to the
-contrary would be a retrograde step and would paralyse the entire
mechanism of finance of. our internal trade. In this vast country
where goods are carried by railway over long distances and remain
:fu transit for long periods of time, the railway receipt is regarded
as a symbol of the,goods for all purposes for which a bill of lading
iR so regarded in England.
The next question is whether the plaintiff would be entitled
to recover the full value of the consignments amounting to
Rs. 35,500 /- or, as the High Court held, only the amount of
Rs. 20,000 /- with inte:est, i.e., the amount secured under the pied"
ges. The answer to this question depends upon the construction of
s. 180 of the Contract Act, it reads:
"If a third person wrongfully deprives the bailee of the
?S~ or possess.ion ?f th~ goods bailed, or does them any
miury, the badee 1s entitled to use such remedies as the
QWner might have used in the nke ca~e if no bailment had
been. mad~; and eit.Jier the -bailor or the bailee may bring
a suit agamst a thrrd person for such deprivation or injury."
Under this section, a pledge being a bailment of goods as security
for payment of a debt, the pledgee will have the same remedies aJ
the owner of the goods would have against a third person for
deprivation of the. said goods or injury to them. If so, it follows
that the Bank, being the pledgee, can maintain the present suit for
the recovery of the full value of the consignments amounting! to
Rs. 35,500 /-.
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MORVI BANK v. UNION (Ramaswami, J.)
26~
The last question is whether the Bank was the pledgee of the
goods or was only the pledgee of the documents of title whereunder they could only keep the documents against payment by the
consignee as contended on behalf of the Railway. The firm borrowed a sum of Rs. 20,000 /- from the Bank and executed a promissory note, Ex. 104, dated October 6, 1949, in its favour. It also
endorsed the railway receipts Nos. 233/27, 233/35 and 233/36 in
favour of the Bank. The Accountant of the Bank deposed that the
railway receipt~ were endorsed in favour of the Bank, which had
advanced the sa;d amount to the firm on the security of the said
railway receipts. The evidence of this witness was not challenged
in the High Court. The Bank advanced a large amount of money
to the firm. The three transactions, namely the advancing of loan,
the execution of the promissory note and the endorsement of the
railway receipts, together form one transaction. Their combined
effect is that the Bank would be in control of the goods till the debt
was discharged. This is a well known practice followed by Banks.
The Judicial Committee both in Ramdas Vithaldas Durbar v.
S. Amerchand & Co.('), and the Official Assignee of Madras v. The
Mercantile Bank of India, Ltd.(') held that such a transaction was
a pledge. We, therefore, hold on the facts of this case that the firm
by endorsing the railway receipts in favour of the Bank for consideration pledged the goods covered by the said receipts to the
Bank.
·
In th;s view it is not necessary to express our opinion on the
question whether if the transaction was not a pledge of the goods,
the Bank would be entitled to sue on the basis of the contract entered into between the firm and the Railway.
No other question was raised. In the result, Civil Appeal No.
474 of 1962 filed by the Bank is allowed; and Civil Appeal No. 475
of I 962 filed by the Railway is dimissed. The plaintiff's suit is
decreed with costs throughout.
Ramaswami, J.
We regret we are unable to agree with the
judgment pronounced by our learned brother Subba Rao J.
On October 4, 1949, Mis. Harshadrai Mohanlal & Co., (hereinafter referred to as the firm) entrusted 4 boxes containing "menthol crystal" to the then G.I.P. Railway for carriage from Thana
railway station to Okhla near Delhi. On October 11, 1949, the
firm consigned 2 more boxes also alleged to have contained "menthol crystal" to Okhla from Thana railway station. The Railway
Receipts issued were numbered 233/27, 233/35 and 233/36. All
the six boxes were consigned to "self". It is alleged that the Railway Receipts with regard to these six boxes were endor~ed in favour
of Morvi Mercantile Bank Ltd. (hereinafter referred to as the plaintiff-bank) against an advance of Rs. 20,000 by the plaintiff-bank
on security of the Railway Receipts. The G.l.P. Railway offered
to deliver the boxes at Okhla ra;lway station but the plaintiff-bank
declined to accept the same alleging that the boxes were not those
('l (1916) L.R. 43 I.A. 164.
--
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(') (1934) L.R. 61 I.A. 416, 423.
266
SUPREME COURT REPORTS
(1965) 3 S.C.R.
which were consigned from Thana station. The plaintiff-bank filed
P,
Civil Suit No. 50 of 1950 in the Court of the Civil Judge, Senior ·
Division, Thafla, claiming a sum of Rs.
35,000 as damages for
breach of contract. The suit was contested by the defendants on
the ground that identical boxes which were consigned by the firm
at Thana were offered to the plaintiff-bank who declined to accept
the same and the Railway Administration had nor committed ar
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breach of contract and, therefore, the Union of India was not liable
to pay any damages. The trial Judge held that the boxes consign- ,
ed by the firm contained "menthol crystals" and by the unlawful
conduct of the employees of the railway administration the contents of the boxes were lost, but he took the view that the plaintiffbank, as endorsee of the railway receipts, was not entitled to sue
C
for compensation for loss of the consignments. In taking that view
the learned Civil Judge followed a decision of ,.the Bombay High
Court in Shamji Bhanji & Co. v. North Western Railway Company('). The Civil Judge accordingly dismissed the suit by a judgment and decree dated January 15, 1953. Against that decision the
plaintiff-bank preferred an appeal to the Bombay High Court which
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confirmed the findings of the Civil Judge that the Railway failed to
deliver the boxes at Okhla and the boxes contained "menthol
crystals". The High Court also held that the plaintiff-bank assignees of the railway receipt was entitled to bring a suit for damages
for breach of contract against the Union of India though the damages would be limited to the loss of its security. In taking this view
E
the Bombay High Court relied upon its previous decision in The
Union of India v. Taherali Isaji(').
The first question for determination in this case is whether
there was a valid pledge of boxes of "menthol crystals" in. favour
of the plaintiff-bank by endorsement on the railway receipts by the
firm.
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In English Law a pledge arises when goods are delivered by
one person called· the 'pledgor' to another person called the 'piedgee' to be held as security for the payment of a debt or for discharge of some other obligation upon the express or implied understanding that the subject-matter of the pledge is to be restored
to the pledgor as soon as the debt or other obligation is discharged.
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It is essential for the creation of a pledge that there should be a
delivery of the goods comprised therein. In other words, a pledge
cannot be created except by delivery of the possession of the thing
pledged, either actual or 'constructive. It involved a bailment. If the
pledgor had actual goods in his physical possession, he could effect
the pledge by actual delivery; but in other cases he could give posB
session by some symbolic act, such as handing over the key of the
store in which they were. If, however, the goods were in the actual
physical possession of a third person, who held for the bailor so
that in law his possession was that of the bailor, this pledge could
be effected by a change of the character of the possession of the
(') A.LR. 1947 Romb. 169.
(') (1956) 58 Ilomb. L.R. 650.
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MOBVI BANK v.