Case: The Morvi Mercantile Bank Ltd. And Anr Vs. Union Of India, Through The General Manager,Central Railwa

1. On October 4, 1949, M/s. Harshadrai Mohanlal and 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.I.P. Railway for carriage from Thana to Okhla near Delhi under a railway receipt bearing No. 233/27. On October 11, 1949, the firm consigned 2 more such boxes to Okhla from Thana under 2 railway receipts bearing Nos. 233/35 and 233/36. 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 receipts in favour of Morvi Mercantile Bank Ltd., hereinafter called the Bank, against an advance of Rs. 20,000 made by the Bank to the firm. The said 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 Division, 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 1, 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 consideration2. 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 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 receipts, 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 19533. 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 consignments, 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 sum 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.

Reasoning:
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 use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if 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."Under this section, a pledge being a bailment of goods as security for payment of a debt, the pledgee will have the same remedies as 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. 35,500The 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 receipts were endorsed in favour of the Bank, which had advanced the said 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 if 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 43 Ind App 164 : (AIR 1916 PC 7), and 61 Ind App 416 : (AIR 1934 PC 246  ) 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 Bank15. In this 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.