Case: Bharat Nidhi Ltd Vs. Takhatmal &amp; Ors

assignee of the bill and that Takhatmal had no right to attach it. The Trial Court held that the appellant was the assignee of the bill and decreed the suit. Takhatmal filed an appeal against the decree. The High Court of Madhya Pradesh allowed the appeal and dismissed the suit. The present appeal has been filed by the plaintiff after obtaining a certificate from the High Court.2. The sole question in this appeal is whether the power of attorney dated July 13, 1946 coupled with the endorsement on the bill dated July 19, 1948 amounts to an equitable assignment of the monies due under the bill in favour of the appellant. There are many decisions on the question as to what constitutes an equitable assignment. The law on the subject admits of no doubt. In Palmer v. Carey, 1926 Ac 703 at p. 706 Lord Wrenbury said:"The law as to equitable assignment as stated in Rodick v. Gandell, (1852) 1 De G.M. and G. 763, (777,778) is this: The extent of the principle to be deduced is that an agreement between a debtor and a creditor that the debt owing shall be paid out of specific fund coming to the debtor, or an order given by a debtor to his creditor upon a person owing money or holding funds belonging to the giver of the order, directing such person to pay such funds to the creditor, will create a valid equitable charge upon such fund, in other words, will operate as an equitable assignment of the debts or fund to which the order refers."In construing the power of attorney it is necessary to bear in mind that the relationship of the two parties, Malhotra and the Bank was that of borrower and lender and that the document was brought into existence in connection with a proposed transaction of financing of Malhotras contracts. The loans were to be advanced by the Bank against Malhotras bills for supplies under the contracts. The obvious intention of the parties was to provide protection for the lender and to secure repayment of the loans. With that object in view the lender was authorised to receive payment of the bills and to appropriate the receipts towards repayment of the loans. As the lender had an interest in the funds the power of attorney was expressed to be irrevocable.On a proper construction of the document the conclusion is irresistible that there was an agreement between the lender and the borrower that the debt owing to the lender would be paid out of a specific fund of the borrower in the hands of the Government authorities. The power of attorney coupled with the endorsement on the bill dated July 19, 1948 was a clear engagement by Malhotra to pay the appellant Bank out of the monies receivable under the bill and amounted to an equitable assignment of the fund by way of security.3. The question whether a document amounts to an equitable assignment or not is primarily one of construction but we may mention a few decisions which throw light on the matter. In Jagabhai Lallubhai v. Rustamji Nauserwanji, (1885) ILR 9 Bom 311 the Bombay High Court held that an agreement to finance the borrower and a power of attorney of even date to receive the monies due to the borrower under certain contracts had the effect of an equitable assignment of the funds. In Loonkaran Sethiva v. State Bank of Jaipur, C. A. No. 644 of 1966, D/- 25-4-1968 = (AIR 1969 SC 73 ) this Court held that a power of attorney authorising a lender to execute a decree then pass in favour of the borrower or which might be passed in his favour in a pending appeal and to credit to the borrowers account the moines realised in execution of the decree amounted to an equitable assignment of the funds.4. In the last case the Court held that there was no transfer of the decree, or of the claim which was the subject-matter of the pending appeal as the borrower continued to be the owner and the lender was merely authorised to act as his agent, Nevertheless the Court held that the power of attorney amounted to a binding equitable assignment. An actionable claim may be transferred under S. 130 of the Transfer of Property Act. Where a document does not amount to a transfer within S. 130 it may apart from and independently of the section operate as an equitable assignment of the actionable claim.5. In the present case the power of attorney authorised the appellant to receive all monies due or to become due to Malhotra in respect of pending of future contracts with the government authorities. Counsel argued that there was no engagement to pay out of specific fund and therefore can be valid equitable assignment of future debts, see Tailby v. Official Receiver, (1888) 13 A. C. 523. As and when the debt comes into existence it passes to the assignee.6. As a matter of fact when the debt due to Malhotra came into existence, he specifically appropriated it for payment to the appellant. On July 19, 1948 he made out a bill for the monies then due to him and endorsed on it:"Please pay to Bharat Bank Ltd., Jabalpur."The bill with the endorsement was sent to and acknowledged by the military authorities. Counsel submitted that this document was a pay order.Now there is an essential distinction between a pay order and an assignment. A pay order is a revocable mandate. It gives the payee no interest in the fund. An assignment creates an interest in the fund and is not revocable. Read in the light of the power of attorney the endorsement on the bill dated July 19, 1948 created an interest in a specific fund and was irrevocable. There was thus a sufficient equitable assignment of a specific fund in favour of the appellant. The High Court was in error in holding that there was no equitable assignment.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]In construing the power of attorney it is necessary to bear in mind that the relationship of the two parties, Malhotra and the Bank was that of borrower and lender and that the document was brought into existence in connection with a proposed transaction of financing of Malhotras contracts. The loans were to be advanced by the Bank against Malhotras bills for supplies under the contracts. The obvious intention of the parties was to provide protection for the lender and to secure repayment of the loans. With that object in view the lender was authorised to receive payment of the bills and to appropriate the receipts towards repayment of the loans. As the lender had an interest in the funds the power of attorney was expressed to be irrevocable.On a proper construction of the document the conclusion is irresistible that there was an agreement between the lender and the borrower that the debt owing to the lender would be paid out of a specific fund of the borrower in the hands of the Government authorities. The power of attorney coupled with the endorsement on the bill dated July 19, 1948 was a clear engagement by Malhotra to pay the appellant Bank out of the monies receivable under the bill and amounted to an equitable assignment of the fund by way of security.As a matter of fact when the debt due to Malhotra came into existence, he specifically appropriated it for payment to the appellant. On July 19, 1948 he made out a bill for the monies then due to him and endorsed on it:"Please pay to Bharat Bank Ltd., Jabalpur."The bill with the endorsement was sent to and acknowledged by the military authorities. Counsel submitted that this document was a pay order.Now there is an essential distinction between a pay order and an assignment. A pay order is a revocable mandate. It gives the payee no interest in the fund. An assignment creates an interest in the fund and is not revocable. Read in the light of the power of attorney the endorsement on the bill dated July 19, 1948 created an interest in a specific fund and was irrevocable. There was thus a sufficient equitable assignment of a specific fund in favour of the appellant. The High Court was in error in holding that there was no equitable assignment.