The Official Assignee of Madras v. The Mercantile Bank Of India Ltd.
(1935) 37 BOMLR 130
The Official Assignee of Madras has been assigned with the property of the insolvents CK Nayaran and sons. The insolvents had a big business of groundnuts. They were purchased from up-country and transported through railways to the madras port. A godown in the port was leased to the insolvents, but the signboard had the respondents’ name(R). R financed the business by advancing money against a consignment of goods. The insolvents used to take loans against the consignments and R used to give them regularly; the railway companies knew about this arrangement, but were never specifically informed. The company was declared insolvent. After that some consignment reached the port but the port auth. was not willing to release them until their debts were paid off. The goods were then sold off by port auth. and the proceeds were kept.
ISSUE: Whether a railway receipt is a document of title and thus the pledge of railway receipts, the pledge of the goods?
Civil Court: [Plaintiff (official assignee) WON; Defendant (port trust) LOST]
High Court: [Appellant (port trust) WON; Respondent (official assignee) LOST]
PRIVY COUNCIL (Wright J.) [Respondent (port trust) WON; Appellant (official assignee) LOST]
- Railway receipt is a document of title and pledging such documents is same as pledging the goods themselves. This is backed up by S.178 of ICA, S.2 (4) of SOGA.
- The consideration that, no third party holding the goods or dealing with them without notice of the respondents’ lien, would be affected by that lien, is irrelevant to the equitable rights constituted as between the respondents and the insolvents. Even if the documents of title are regarded as merely tokens of an authority to receive possession, their transfer for value by way of security for advances must at least raise an equity as between transferor and transferee entitling the latter to restrain transferor from claiming delivery of the relative goods without producing the receipts. If so, the appellant must be subject to the same equity.
- (obiter) Application of Hypothecation, which is a right in equity, could also have helped R. Insolvents used to give letters of hypothecation to R, and it stated that the R had the right to sell off the pledged goods to recover their debt. Thus the letter crated an equitable right of R against the official assignee. (as the assignee was in the shoes of the insolvent and thus did not have any greater right than the insolvent).
In common law a mercantile agent can pledge the goods by pledging their documents of title but not the owner. This is an anomalous position. Indian law uses the term “person” and not “agent” to define who can pledge the goods. This includes both owners and agents of the said goods. The concept that the pledging of the documents of title is akin to pledging the goods has been established by the Indian Factors Act and can also be construed by sec. 178 of ICA.