IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.BHAVADASAN TUESDAY, THE 6TH APRIL 2010 / 16TH CHAITHRA 1932 SA.No. 674 of 1996() --------------------------- AS.17/1991 of SUB COURT, HOSDRUG OS.219/1989 of MUNSIFF COURT, HOSDRUG .................... APPELLANT(S): RESPONDENT/DEFENDANT ------------------------ SYNDICATE BANK, REP.BY ITS BRANCH MANAGER, PALLIKKARA BRANCH OFFICE, P.O. PALLIKKARA, HOSDURG TALUK, KASARAGOD DT. BY ADV. MR.K.V.SOHAN RESPONDENT(S): APPELLANT/PLAINTIFF -------------------------- C.H.MOHAMMED, S/O. ANDU ALIAS ABDULLA, MUSLIM, LANDHOLDER, CHITARI VILLAGE, HOSDURG TALUK, P.O. CHITTARI, KASARAGOD DT. BY ADVS.MR.D.KRISHNA PRASAD MR.M.HARISHARMA MR.JOJI VARGHESE MR.SATHEESHKUMAR THIS SECOND APPEAL HAVING BEEN FINALLY HEARD ON 19/03/2010, THE COURT ON 06/04/2010 DELIVERED THE FOLLOWING: tss P. BHAVADASAN, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - S.A. No. 674 of 1996 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 6th day of April, 2010. JUDGMENT The defendant in O.S. No.219 of 1989, who suffered a decree at the hands of the first appellate court is the appellant. The parties and facts are hereinafter referred to as they were available before the trial court. 2. The plaintiff alleged that he had pledged gold ornaments of five sovereigns on 11.11.1981 with the defendant Bank and borrowed a sum of Rs.2500/- on the security of those gold ornaments. The plaintiff paid Rs.1918.70 on 8.4.1985 towards the loan amount. The Bank issued a notice dated 4.2.1986 to the plaintiff recalling the loan and informing him that if he failed to discharge the debt, the ornaments would be sold in auction on 27.2.1986. The plaintiff claimed to have paid Rs.500/- in response to the notice and thereafter he expressed his willingness to discharge the balance S.A 674/1996. 2 amount. But the gold ornaments were not returned to him. A notice was issued by the plaintiff, which caused the defendant to send a reply containing false allegations. The defendant claimed to had sold the jewels. The plaintiff claims that it was unauthorised, illegal and contrary to law. Being an unauthorised sale, it is also stated that the Bank is not entitled to adjust the balance amount due from the sale proceeds. Claiming that he is entitled to return of the ornaments, he laid the suit, or in the alternative claiming Rs.12,000/-. 3. The defendant resisted the suit. The pledge was admitted. The defendant disputed that 5 sovereigns of gold were pledged and contended that 30.700 grams which was equal to three and three fourth sovereigns were pledged by the plaintiff. The valuation of jewellery was estimated at Rs.4500/- and a sum of Rs.2500/- was given as loan to the plaintiff on execution of a pronote also. The plaintiff was bound to discharge the debt within three years. He did not do so. In case the debt was not paid, the Bank S.A 674/1996. 3 was entitled to cause sale of the ornaments after notice to the plaintiff in compliance with the statutory requirements. The defendant issued notice dated 4.2.1986 informing the plaintiff to wipe off the debt as in case of default the ornaments pledged would be sold. After receiving notice, the plaintiff paid a sum of Rs.500/-. Thereafter he did not respond. Sale was published in Malayala Monorama daily dated 20.7.1986 and the ornaments were sold in public auction. There is no merit in the allegation that the sale was unauthorised and illegal. It was in accordance with law. The plaintiff was fully aware of the auction. They contended that the plaintiff is not entitled to any reliefs and the suit would be dismissed. 4. The trial court raised necessary issues. The plaintiff examined P.W.1 and had Exts.A1 and A2 marked. The defendant had examined D.W.1 and Exts. B1 to B9 marked. On a consideration of the materials before it, the trial court came to the conclusion that the sale was in S.A 674/1996. 4 accordance with law and the plaintiff is not entitled to any reliefs. Accordingly the suit was dismissed. 5. The plaintiff carried the matter in appeal as A.S. 17 of 1991 before the Sub Court, Hosdurg. The appellate court felt that the notice sent by the Bank which stipulated that the sale will be held on 27.2.1986 in case the plaintiff failed to discharge the debt, was bound to conduct the sale on the same day. Having not done so, the Bank was bound to issue another notice before the sale was effected. Holding so, the lower appellate court reversed the finding of the trial court and decreed the suit as follows: “In the result, the appeal is allowed, the judgment and decree of the lower court are set aside; and the suit is decreed for a sum of Rs.6,844/- (Rupees Six Thousand Eight Hundred and Forty Four only) with costs throughout. Time for payment is one month. The plaintiff/appellant is also entitled to get future interest from the date of plaint till realisation at the rate of 6% p.a..” The said judgment and decree are assailed in this appeal. S.A 674/1996. 5 6. The following substantial questions of law are raised in this Second Appeal for consideration: “i) A pawnor who gives notice of sale of pledged articles stipulating a date and the pawnee pays a portion of the debt without redeeming the pledge whether the pownee entitled to a subsequent notice of intended sale in case the pawner sells the pledged articles on a subsequent date? ii) Is not the notice of intended sale dt: 4.2.86 given to the plaintiff by the defendant valid notice under Section 176 of the Indian Contract Act? iii) Is not a publication of intended sale in local daily sufficient reasonable notice contemplated under section 176 of Indian Contract Act?” 7. The facts are almost admitted. There is no dispute regarding the fact that gold ornaments were pledged with the Bank and the plaintiff had availed a loan of Rs.2500/-. He had also executed a pronote. It is also not in dispute that a notice dated 4.2.1986 was issued by the Bank calling upon the pledger to discharge the debt and in case S.A 674/1996. 6 he failed to do so, the ornaments would be sold by the pledgee on 27.2.1986. It seems that the plaintiff paid a sum Rs.500/- and did not pay the balance amount due to the Bank. The Bank after publication in the Malayala Manorama daily sold the gold ornaments. The case of the plaintiff is that later when he went to the Bank and expressed his readiness to discharge the loan, and sought return of the ornaments, the Bank was not able to do so. 8. The main issue is regarding the notice issued by the Bank. While the trial court held that the notice issued and which is admitted to have been received by the plaintiff is sufficient in law, the appellate court thought otherwise. According to the appellate court, in the notice issued by the Bank they had indicated that if the loan is not discharged, the sale would be conducted on 27.2.1986. Admittedly no sale was conducted on 27.2.1986. It is also on record that a sum of Rs.500/- was paid by the plaintiff. The appellate court held that before conducting sale a fresh notice had to be issued to the plaintiff as the case on hand constitutes an S.A 674/1996. 7 exceptional circumstance as envisaged in law. The question is whether the view of the appellate court is correct. 9. It may be useful to refer to the relevant statutory provisions. Sections 176 and 177 of the Indian Contract Act reads as follows: “176. Pawnee's right where pawnor makes default.- If the pawnor makes default in payment of the debt, or performance ; at the stipulated time or the promise, in respect of which the good were pledged, the pawnee may bring a suit against the pawnor upon the debtor or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor. 177. Defaulting pawnor's right to redeem.- If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge S.A 674/1996. 8 is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them, but he must, in that case, pay, in addition, any expenses which have arisen from his default.” In case of possession of goods pledged with the pownee, Section 176 recognizes three rights in case of default by the pawnor. They are (i) he may bring upon a suit, (ii) he may retain it as a collateral security and (iii) he may sell it by giving the pawnor a reasonable notice of the sale. The right of the pawnor to have a reasonable notice is well recognized in law. If the pawnor commits default in payment of the debt within the stipulated period in respect of which the goods were pledged, the pawnee can either file a suit or to resort to sale of pledged goods by giving reasonable notice. Indian Contract Act does not prescribe any particular form of notice or any particulars the notice S.A 674/1996. 9 should contain. What is stated is only that the pawnor should be given a reasonable notice of the sale. 10. It was contended on behalf of the appellant that it is not necessary that the pledgee in his notice should specify the time, date and place of sale. All that is required by the section is that the pledger should be informed that if he does not wipe off the debt, the pledgee would be entitled to sell the articles. Even assuming a date is specified in the notice for the sale of the property and even if the sale is not conducted on that day, it does not mean that if sale is conducted later a fresh notice has to be issued. All that section 176 requires is that the plegee should exercise his option informing the pledger about the same. 11. Learned counsel appearing for the respondent on the other hand pointed out that having specified the date and having received Rs.500/- from the pledger, if the pledgee wanted to conduct the sale on a later date, they were bound to issue fresh notice. The pledger has a right to redeem the property and he could do so before the actual S.A 674/1996. 10 sale is effected. So it is absolutely necessary that the pledger is informed about the entire details regarding the sale. It was therefore contended that not only the pledgee should inform about his option, but he should also inform the time, date and place of sale. 12. It is well settled that the contract of pawn or pledge contains five classes of bailment. Pawn has been described as a security where by contract a deposit of goods is made a security for a debt and the right to the property vests in the pawnee so far as is necessary to secure the debt. 13. In Halsbury's Laws of England, Fourth Edition at page 77 it was held as follows: “128. Power of sale. The contract of pawn carries with it an implication that the security may be made available to satisfy the obligation. Under this implication a pawnee has a power of sale on default of payment if the time for payment has been fixed. If there is no stipulated time for payment, the pawnee may demand payment, and in default of payment may sell, on notice to the S.A 674/1996. 11 pawnor of his intention to do so. The pawnor retains his right to redeem at any moment up to sale, that is at any moment up to the time of the exercise by the pawnee of his power of sale by entering into a valid contract of sale.” At page 73 Note 120 reads as follows: “120. The right to redeem. A pawnor has an absolute common law right to redeem the thing pawned upon tender of the amount advanced, since the general property in it remains in him. In the absence of any agreement as to time for payment he may redeem at any time during his life, and upon the pawnee's death this right continues against the pawnee's personal representatives. The right to redeem necessarily depends upon tender of the debt by the pawnor to the pawnee, and it is lost if the pawnee has lawfully sold the subject of the pawn. The right to redeem a pawn is not barred by any statute of limitation during the pawnor's lifetime.” 14. Chitty on Contracts vole II, 29th Edition, at page 244 notes 33-128 mentions as follows: “Power of sale at common law. If the pledger makes default in payment at the S.A 674/1996. 12 stipulated time, the pledgee has the power at common law to sell the pledge, even although there is no express agreement to that effect; or he may sue the pledgor for his debt, retaining the pledge as a security. But if a time for payment has not been agreed upon, or if the time agreed upon has been extended indefinitely, the pledgee cannot sell the pledge until after demand for payment and notice of his intention to sell. the pledgee must take care that it is a provident sale. At common law, he sells by virtue of an implied authority from the pledgor and for the benefit of both parties; hence he must, after deducting his debt, account to the pledgor for any surplus of the proceeds of the sale. If, however, the proceeds of the sale do not satisfy the debt, the pledgor is still personally liable for the deficit.” The author also refers to the statutory rights of sale. The aspects regarding issuance of the notice and the contents of the notice have come up for consideration in a number of decisions. As far as this case is concerned, the matter is covered by Sections 176 and 177 of the Indian Contract Act. While Section 176 confers right of sale on the pledgee after S.A 674/1996. 13 issuing reasonable notice, Section 177 confers a power to the pledgee the right to redeem before the actual sale. In the decision reported in Santi Sahu v. Sheogulam Sahu (AIR 1958 Patna 174), it was held as follows: “(7) In my view, however, the court below was also right in relying upon the provisions of S.176 of the Contract Act for coming to the conclusion that, after reasonable notice had been given to the defendants, the plaintiffs as pawnees of the goods were entitled to sell the goods. Section 176 reads as follows: “If the pawnor makes default in payment of the debt, or performance ; at the stipulated time or the promise, in respect of which the good were pledged, the pawnee may bring a suit against the pawnor upon the debtor or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.” S.A 674/1996. 14 If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.” Mr. Sinha, on behalf of the appellants, contended that there was no question in this case of the application of the provisions of S.176 of the Contract Act inasmuch as the position of the plaintiffs was not the position of pawnees. Section 148 of the Contract Act is relevant in this connection, and the provisions of that section are as follows: “A bailment” is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the 'bailor'. The person to whom they ae delivered is called the 'bailee'. Explanation.- If a person already in possession of the goods of another contracts to hold them as a bailee, he thereby becomes the S.A 674/1996. 15 bailee, and the owner becomes the bailor, of such goods although they may not have been delivered by way of bailment”. Section 172 of the Contract Act says- “The bailment of goods as security for payment of a debt or performance of a promise is called 'pledge'. The bailor is in this case called the 'pawnor'. The bailee is called the 'pawnee' . In the present case, the Tisi belonged to the plaintiffs. The defendants bought the Tisi from the plaintiffs. The defendants bought the Tisi from the plaintiffs, and the price of it was advanced by the plaintiffs, and the price of it was advanced by the plaintiffs. The defendants, in their turn, by agreement with the plaintiffs arranged that the goods would remain with the plaintiffs, who were to be paid interest on the money advanced as also the arhat charges for keeping the goods of the defendants in the plaintiffs' arhat.” In this view of the arrangement between the parties, which is admitted it must be held that there was bailment within the definition of the words in S.148 of the Contract Act, and in the circumstances the law must presume that there was delivery of the goods by the defendants to the plaintiffs after the defendants had bought the goods from the plaintiffs; and, upon the S.A 674/1996. 16 defendants' own case,the goods were kept in the godown of the plaintiffs as security for payment of the debt advanced by the plaintiffs. In that view of the matter also, in my opinion, the plaintiffs, having given reasonable notice to the defendants, were entitled to sell the goods under S.176 of the Contract Act.” It was also observed in the above decision that Section 176 of the Indian Contract Act is the same as English law on the subject and refers to a decision to that effect in paragraph 8 of the judgment. 15. In the decision reported in Official Assignee v. Madholal Sindhu (AIR (34) 1947 Bombay 217) it was held as follows: “39. The terms of an instrument of pledge, such as there is in this case, giving an unqualified power of sale, are inconsistent with the provisions of S.176, Contract Act, and, therefore, by virtue of S. of that Act, must give place to the express provisions of the Act. 42. In my judgment, a notice must be given in all cases of pledge, even when the instrument S.A 674/1996. 17 of pledge itself contains an unconditional power of sale. This opinion is held by the three distinguished editors (Sir Federick Pollock, Sir Dinshah Mulla and Sir Maurice Gwyer) of Mulla's Indian Contract Act, Edn.7. It follows that even if it is possible to regard the contract of 23rd, 24th October,1941, as a sale by the bank as pledgee of Mr. Nissim, that sale is invalid as being in breach of S.176, unless it could be shown that before his insolvency Mr. Nizzim effectively waived the giving of notice so as to bind the Official Assignee. ............. There is no such saving clause in S.176, and in my opinion its provisions are mandatory, and it is not open to parties to contract themselves out of those provisions. The notice that is to be given to the pledger of the intended sale by the pledgee is a special protection which the statute has given to the pledger, and parties cannot agree that in the case of any pledge the pledgee may sell the pledged articles without notice to the pledger. The real point for determination in this case is whether the right of redemption given to the pledger by S.177, Contract Act has been put an end to by the sale to the plaintiff by defendant 2 S.A 674/1996. 18 bank. This right to redeem can be exercised right upto the time when the “actual sale” of the goods pledged takes place. The actual sale referred to in S.177 must be a sale in conformity with the provisions of S.176 which gives the pledgee the right to sell; and if the sale is not in conformity with those provisions, then the equity of redemption in the pledger is not extinguished.” 16. In the decision reported in Narasayyamma v. Andhra Bank (AIR 1960 Andhra Pradesh 272), it was held as follows: “The term 'pledge' is defined in Sec. 172 of the Indian Contract Act as ' the bailment of goods as security for payment f a debt or performance of a promise'. The bailer is called the pawnor, and the bailee is called the pawnee. Section 176 of the Act deals with the right of the pawnee or the pledgee in the case of default by the pledgor. The Section is in these terms: “If the pawnor makes default in payment of the debt, or performance ; at the stipulated time or the promise, in respect of which the good were pledged, the pawnee may bring a suit against the pawnor upon the debtor or promise, and retain the goods pledged as S.A 674/1996. 19 a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.” On a plain reading of the section it seems to us that before exercising the power of sale the pawnee should give to the pledger reasonable notice of the sale. The contention of the Advocate for the respondent, however, is that in Ext.B1 the pawnor had waived the right to receive such a notice and this found favour with the trial court. The learned counsel for the appellants has assailed the correctness of that finding on various grounds. There is considerable judicial authority in support of the above contention. In co-operative Hindustan Bank Ltd. v, Surendra Nath Dey, AIR 1932 Cal 524 at p.532, a Bench of the Calcutta High Court has held that Sec. 176 of the Contract Act unlike some other sections such as, 163, 171, 172 does not contain a saving clause in respect of the special contracts contrary to its express terms, S.A 674/1996. 20 and that in as much as Sec. 177 gives to the pawnor a right to redeem even after the stipulated time for payment but before the sale, in order that that provision should not be made nugatory the proper interpretation to put on Sec. 176 is tohold notwithstanding any contract to the contrary notice has to be given. In AIR 1947 Bom 217 at p.288 a Bench of the Bombay High Court consisting of Stone C.J. and Chagla