Case: Bank Of Bihar Vs. State Of Bihar &amp; Ors

or performance of the promise but also for the interest of the debt etc. Section 176 is in the following terms:"If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt 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." Section 180 is to the effect that if a third person wrongfully deprives the bailee of the use of the possession of the goods bailed or does him any injury the bailee is entitled to use such remedies as the owner might have used in the like case it no bailment had been made and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury. According to Section 181 whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and bailee, be dealt with according to their respective interests. Relying on the above two sections the High Court came to the conclusion that a pawnee has merely the possession of the goods coupled with a power to sell them on default by the pawnor but the latter retains the ownership subject to a lien to the extent of the debt enforceable by exercise the power of sale. In the present case the sugar had been seized and then sold. The sale proceeds would have been available to defendants 2 to 5 subject to the claim of the plaintiff against them but it ceased to have any lien on the pledged property or the sale proceeds against any third party including the State as soon as it was legally deprived of the possession of the pledged goods.6. According to the Statement m Halsburys Laws of England "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 pledgee so far as is necessary to secure the debt: in this sense it is intermediate between a simple lien and a mortgage which wholly passed the property in the thing conveyed"*. "The pawnee has a special property or special interest in the thing pledged, while the general property therein continues in the owner. That special property or interest exists so that the pawnee can compel payment of the debt or can sell the goods when the right to do so arise. This special property or interest is to be distinguished from the mere right of detention which the holder of a lien posseses in that it is transferable in the sense that a pawnee may assign or pledge his special property or interest in the goods"**. "Where judgment has been obtained against the power of goods and execution has issued thereon the sheriff cannot seize the goods pawned unless he satisfied the claim of the pawne." (based mainly on Rogers v. Kennay. (1846) 9 QB 592): "On the bankruptcy of the pawnor the pawnee is a secured creditor in the bankruptcy with respect to firings pledged before the date of the receiving order and without notice of a prior available act of bankruptcy"***. It has not been shown how the law in India is in any way different from the English law relating to the fights of the pawnee vis a-vis other unsecured creditors of the pawnor.*3 rd Edn. Vol. 29., Page 211.*Halsburys Laws of England 3rd Ed. Vol. 29., pp. 218-219.**Halsburys Laws of England 3rd Ed. Vol. 29., p. 222."7. In our judgment the High Court is in error in considering that the rights of the pawnee who had parted with money in favour of the pawnor on the security of the goods can be defeated by the goods being lawfully seized by the Government and the money beging made available to other creditors of the pawnor without the claim of the pawnee being fully satisfied. The pawnee has special property and a lien which is not of ordinary nature on the goods and so long as his clam is not satisfied no other creditor of the pawnor has any right to take away the goods or its price. After the goods had been seized by the Government it was bound to pay the amount due to the plaintiff and the balance could have been made available to satisfy the claim of other creditors of the pawnor. But by a mere act of lawful seizure the Government could not deprive the plaintiff at the amount which was secured by the pledge of the goods to it. As the act of the Government resulted in deprivation of the amount to which the plaintiff was entitled it was bound to reimburse the plaintiff for such amount which the plaintiff in ordinary course would have realized by sale of the goods pledged with it on the pawnor making a default inn payment of debt.8. The approach of the trial Court was unexceptionable. The Plaintiffs right as a pawnee could not be extinguished by the seizure of the goods in its possession inasmuch as the pledge of the goods was not meant to replace the liability under the cash credit agreement. It was intended to give the plaintiff a primary right to sell the goods in satisfaction of the liability of the pawnor. The Cane Commissioner who was an unsecured creditor could not have any higher rights than the pawnor and was entitled only to the surplus money after satisfaction of the plaintiffs dues.

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

Explanation:
1[ds]7. In our judgment the High Court is in error in considering that the rights of the pawnee who had parted with money in favour of the pawnor on the security of the goods can be defeated by the goods being lawfully seized by the Government and the money beging made available to other creditors of the pawnor without the claim of the pawnee being fully satisfied. The pawnee has special property and a lien which is not of ordinary nature on the goods and so long as his clam is not satisfied no other creditor of the pawnor has any right to take away the goods or its price. After the goods had been seized by the Government it was bound to pay the amount due to the plaintiff and the balance could have been made available to satisfy the claim of other creditors of the pawnor. But by a mere act of lawful seizure the Government could not deprive the plaintiff at the amount which was secured by the pledge of the goods to it. As the act of the Government resulted in deprivation of the amount to which the plaintiff was entitled it was bound to reimburse the plaintiff for such amount which the plaintiff in ordinary course would have realized by sale of the goods pledged with it on the pawnor making a default inn payment of debt.8. The approach of the trial Court was unexceptionable. The Plaintiffs right as a pawnee could not be extinguished by the seizure of the goods in its possession inasmuch as the pledge of the goods was not meant to replace the liability under the cash credit agreement. It was intended to give the plaintiff a primary right to sell the goods in satisfaction of the liability of the pawnor. The Cane Commissioner who was an unsecured creditor could not have any higher rights than the pawnor and was entitled only to the surplus money after satisfaction of the plaintiffsthe 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." Section 180 is to the effect that if a third person wrongfully deprives the bailee of the use of the possession of the goods bailed or does him any injury the bailee is entitled to use such remedies as the owner might have used in the like case it no bailment had been made and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury. According to Section 181 whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and bailee, be dealt with according to their respective interests. Relying on the above two sections the High Court came to the conclusion that a pawnee has merely the possession of the goods coupled with a power to sell them on default by the pawnor but the latter retains the ownership subject to a lien to the extent of the debt enforceable by exercise the power of sale. In the present case the sugar had been seized and then sold. The sale proceeds would have been available to defendants 2 to 5 subject to the claim of the plaintiff against them but it ceased to have any lien on the pledged property or the sale proceeds against any third party including the State as soon as it was legally deprived of the possession of the pledged goods.