STATE BANK OF INDIA v.

GHAMANDI RAM (DEAD) THROUGH SHRI GURBAX RAI

February 13, 1969

[I. C. SHAH, V. RAMASWAMI AND A. N. GROVER, II.]

Hindu Law-Joim Hindu family firm-I/ ·rsol( or 'body of individuaJs not incorporated'.

Private International Law-Priority between voluntary and involur.- tary assignments of debts.

The respondent was the karta of a joint Hindu family firm carrying on business, before the partition of India, in area now forming part ot Pakistan. The firm had a cash credit account with the Imperial Bank (now State Bank of India) in that area and had pledged its goods with the Bank as security for repayment of the advances. After the partition, the family and its members came away to India and became evacuees in relation to Pakistan. The Bank sold the pledged goods in 1948, and after adjusting the amounts due to it credited the surplus amount in the account of the firm. The Pakistan (Administration of Evacuee Property) Ordinan.ce,

1949, was promulgated on October IS, 1949 and was amended by the Pakistan (Administration of Evacuee Property) Amendment Act, 1951.

Under s. 6( I) of the Ordinance all evacuee property shall vest and shall be deemed to have vested in the Custodian in Pakistan from March I,

1947. By a notification dated February 19, 1952 the Pakistan Government exempted, 'from the operation of tho provision of the Ordinance 'cash deposits made in Banks by persons other than companies or associations or bodies of individuals whether incorporated or not'.

The respondent applied under s. 13 of the Displaced Persons (Debts Adjustments) Act, 1951 (Indian Act) before the Tribunal constituted under the Act, claiming the amount in the Bank credited in the account of the family.

The Tribunal dismissed the application.

In revision, the High Court allowed the claim on the ground that the amount was a 'cash deposit made by an individual' in terms of the Pakistan Notification dated February 19, 1952.

In appeal to this Court,

HELD: (I) Having regard to the juristic nature of the Hindu Joint family under the Mitakshara Law, the family firm could not be treated as a 'person' within the meaning lit the Pakistan notification. The firm was 'a body of individuals not incorporated' and hence the amount in the Bank was evacuee property and had become vested in the Custodian of Evacuee Property, Pakistan, with effect from March I, 1947. (687 E-F]

Sundar•anam Maistri v. Nara.rimhulu Maistri, I.L.R. 15 Mad. 149, 154, referred to.

(2) The rule of Private International Law i& that where an involuntary usignment occurs after a voluntary assignment has already been made, the question whether the righb of the voluntary assignee have been postponed or def~ WO!Jld be govern~ by tho. kx situs lit the debt. In. the piaent case, smce \he mvoluntary us1gnment 10 favour of tho eu.todian in Pakistan occurred in 1949, when the Ordinance was promulaated after the voluntarf •ssillD'llent by the Bank in favour of the ftrm In 1948 and the lftus of

the debt was Pakistan (the Bank having gamishable assets of the respon- A dent in Pakistan which could be attached by the Custodian in Pakistan). the question of priority would be governed by the law in Palilitan, namely, the provisions of the Ordinance; and under the Ordinance, the amount vested in the Custodian in Pakistan with effect from March I, 1947. Therefore, the liability of the Bank to the firm must be deemed to have been extinguished.

[687 H; 688 G; 689 F] Re: Queensland Mercantile and Agency Co. [1891] 1 Ch. 536 and B Arab Bank Ltd. v. Barclays Bank (Dominion, Colonial and Overseas) [1954] AC. 495, applied.

Dicey, Conflict of Laws, 8th Edn. p. 780, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 449 of 196.6.

Appeal by special leave from the judgment a!Dd order dated C September 12, 1963 of the Punjab High Court Circuit Bench at Delhi in Civil Revision No. 104-D of 1958.

Niren De, Attorney-General, S. V. Gupte, H. L. Anand and K. B. Mehta, for the appellant.

Bishambar Lal, M. R. Garg, H. K. Puri and Radha Kishan Makhija, for the respondent.

The Judgment of the Court was delivered by Ramaswami, J. Mis. Ghamandi Ram Gurbax Rai, a iomt Hindu family firm consisting of Ghamandi Ram, since deceased, Gurbax Rai, Chaman Lal and Jagan Nath, used to carry on business in Bhawalpur State now forming part of West Pakistan, be

fore the partition of India. Shri Ghamandi Ram was the manager and karta of the said joint Hindu family firm during the mate

rial period. Before the partition of India, the joint Hindu family firm had a cash credit account in its name in the then Imperial Bank of J, ndia, Bhawalpur State now within Pakistan territory.

The said firm had pledged goods as security for the repayment of the advances made in the said account. On the partition of India, the joint Hindu family and its members admittedly became evacuees and the then Imperial Bank of India, Blrawalpur State, sold the pledged goods in the year 1948 for the realisation of its dues 1n the said cash credit account and credited a sum of Rs. 2,541/ 11/- left as surplus balance after the adjustment of the dues of the Imperial Bank of India in the said account.

On October 15, 1949, the Pakistan Government promulgated Pakistan (Administration of Evacuee property) Ordinance, 1949 (Ordinance No. XV oi 1949) whereby all property in Pakistan in which an evacuee had any right or interest vested in lhe Custodian of Evacuee Property with retrospective effect from March 1, 194 7. The expression 'evacuee property' was defin.ed by s. 2 sub-s. ( 3) of the Ordinance to include any right or interest in joint Hindu family property. 'Ca5h deposits in Banks' were how-

A ever excepted from the definition oi. the term 'property' by s. 2(5) of the Ordinance.

The Ordinance was amended in 1951 by the Pakistan (Administration of Evacuee Property) Amendment Act, 1951 (Act No. VI of 1951) whereby s. 2(5) of the Ori nance was amended so as to brimg cash deposits in Banks withm the definition of the term 'property'.

By a notification dated B February 19, 1952, the Pakistan Government exempted from the operation of the provisions of the said Ordinance 'cash deposits made at Banks by persons other than compamies or associations or bodies of individuals whether incorporated or not'.

c On May 9, 1953, Shri Ghamandi Ram (now deceased) as manager and karta of the joint Hindu family firm filed an application lljllder s. 13 of the Displaced Persons (Debts Adjustments) Act, 1951 (Act No. 70 of 1951) before the Tribunal constituted under the said Act at Delhi claiming Rs. 3,165/11/- including Rs. 2,341/11/- on account of the said principal and interest at 6% per annum on , the ground that the said amount had not be- D come evacuee property and the liability of the Imperial Bank of India had not therefore ceased. During the pendency of the proceedings before the Tribunal the appellant Bank was constituted Ujll.der the provisions of the State Bank of India Act, 1955 (Act No. 23 of 1955) and succeeded to the entire rights and liabilities of the Imperial Bank of India.

The appellant was accordingly E substituted in the said proceedings for the Imperial Bank of India.

By its order dated November 1, 1956, the Tribunal dismissed the application of the respondent on the ground that m terms of the law enforced in Pakistan the deposit in the Bank in the account of the firm had become an evacuee property and would be deemed to have vested in the Custodian with effect from March I, 194 7 and by virtue of the said vesting the liability of the Bank had F ceased. The Tribunal fUrther held that the only property in the pledged goods, which belonged to the firm, was the equity of redemption and that had vested in the Custodiain being a 'property' within the meanin~ of the said Ordinance. The respondent took the matter in revis10n before the Punjab High Court being Civil Revision No. 104-D of 1958. The application was allowed by Mr. Justice D. K. Mahajan by his judgment dated 12th September, 1963 on the ground that the amount claimed by the res- G

pondent was cash deposit made by an individual in terms of the notification dated February 19, 1952 and was thus beyond the purview of the provisioni; of the Ordinance. The learned Judge

accordigly set aside the order oi. the Tribunal and granted a decree m favour of the respondent for the amount claimed. This

ppeal. is brought by special leave from the judgment of the Pun- 1ab High Court dated 12th September, 1963 in Civil Revision No. 104-D of 1958.

Section 2 sub-section ( 3) of the Pakistan (Administration of Evacuee Property) Ordinance, 1949 (Ordinance No. 15 of 1949) defiines the term 'evacuee property' as meaning any property in which an evacuee has any right or interest, or which is held by or for him in trust, and includes-

(a) any right or interest in joint Hindu family pr~ perty which would accrue to the evacuee up0n the partition of the ame, or

(b) property obtained from an evacuee after the twentyeighth day of February, 194 7, until confirmed by the Custodian,

but does not include-

(i) any movable property in the immediate physical possession of any evacuee, or

(ii) any property belonging to a joint stock company the head office of \l(hich was situated, before the fifteenth day of August, 1947, in any place in the territories now comprising Indta, and continues to be so situated after the said date".

Section 2 sub-section (5) defines the term 'property' as follows:-

" 'property' means property of any kind, and includes ainy right or interest in such property and any debt or actionable claim, but does not include a mere right to sue or a cash deposit in a bank",

Section 2(5) of the Ordinance was amended by Pakistan (Administration of Evacuee Property) Amendment Act, 1951 (Act ; No.

VI of 1951) in the following mall(ller:

"2(b) in clause (5) the words 'or a cash deposit in Bank' shall be omitted".

Section 6 of the Ordinance states :

"6 ( 1) All evacuee property shall vest and shall be deemed always to have vested in the Custodian with

effect from the first day of March, 1947.

" The notification of February 19, 1952 issued by the Pakistan Government in exercise of the powers conferred by section 45 of the Ordinance is in the following terms :

"In exercise of the powers conferred by section 45 of the Pakistan (Administration of Evacuee Property) Ordinance XV of 1949, the Central Government in

A supersession of its Ministry's notification F. 22(1)51-P dated the 9th May, 1951 is pleased to exempt from the operation of the provisions of the said Ordinance cash deposits made at Banks by persons other than companies or associatiQnS or bodies of individuals whether incorporated or not".

B Section 7 of the Ordinance states :

"7. ( 1) Every person who is, or has at any time after the twentyeighth day of February, 1947, been in possession, supervision or management of any evacuee property, shall be deemed to hold or to have held, as the case may be, such property on behalf of the Custo- C dian,

( 2) Every person who is in possession, supervision or management of any evacuee property or property which he knows or has reason to believe is evacuee property shall, as soon as may be but not later than sixty days from the commencement of this Ordinance, iintimate to the Custodian in writing his willingness to surrender such property to the Custodian or to any person authorised by the Custodian in this behalf upon receipt of a notice from the Custodian that the property is evacuee property, and shall surrender the same if called upon by the Custodian or any person authorised as aforesaid. ( 3) The provisions of sub-section ( 2) shall t apply to any person who is in possession, supervision or management of any evacuee property by virtue of an allotment made by a Rehabilitation Authority".

Section 7 of the Ordinance was amended i(Jl 19 51 in the follow- F ing terms :-

"5. In sub-section (2) of section 7 of the Ordinance, for the words 'sixty days from the commencement of this Ordinance' the words 'such date as may be notified by the Central Government i.n the Official Gaz.ette' shall be substituted, a!Jd the words 'upon receipt of a notice from the Custodian that the property is evacuee property' shall be omitted".

Section 11 of the Ordinance states :

"11. ( 1) Any amount due to any evacuee or payable in respect of any evacuee property, shall' be paid to the Custodian by the person Hable to pay the same.

(2) Any person who makes a payment under subsection ( 1) shall be discharged from further !iability to pay to the extent o( the payment made.

LIOSup./69-9

(3) Without prejudice to any penalty to which he may be liable under section 29, any person who makes or has made any payment otherwise than in accordance with suli-section ( 1) or any law for the time bei(ng in force requiring payment of any such amount as is mentioned in sub-section ( 1) to be made to the Custodian shall not be discharged from his obligation to pay the amount due, and the right of the Custodian to enforce such obligati~ against such person shall remain unaffected".

The first question involved in this appeal is whether upon a correct interpretation of the notification of the Pakistan Government dated February 19, 1952, the joint Hindu family firm

"Ghamandi Ram Gurbax Rai" was 'a body of individuals' within the meani.ng of the notification and whether the amount in dispute had accordingly become vested in the Custodian of Evacuee Propeny, Pakistan with effect from March 1, 1947 by virtue of the provisions of the Ordinance thereby divesting the said joint Hindu family firm of its interest therein.

According to the Mitakshara School of Hindu Law all the propeny of a Hindu joint family is held in collective ownership by all the coparceners in a quasi-corporate capacity.

The textual authority of the Mitakshara lays . down in express terms that the joint family property is held in trust for the joint family members then living and thereafter to be born (See Mitakshara, Ch. 1. 1-27). The incidents of co-parcenership under the Mitakshara - law are : first, the lineal male descendants of a person up to the third generation, acquire on birth ownership in the ancestral properties is common; fifthly, that no aiienation of the propeny any time work out their rights by asking for partitiom; thirdly, that till partition each member has got ownership extending over the entire propeny, conjointly with the rest; fourthly, that as a result of such co-ownership the possession and enjoyment of the properties is common; fifthly, that no alienatiQa of the property is possible unless it be for necessity, without the concurrence of the coparceners, and sixthly, that the interest of a deceased meml"r lapses on his . death to the survivors.

A coparcenary under the M1takshara School is a creature of law and cannot arise by !let of parties except in so tar that on adoption the adopted son becomes a co-parcener with his adoptive father as regards the ancestral properties of the latter. In Sundarsanam Maistri v.

Narasimhulu Maistri an/i Anr.( 1) Mr. Justice Bhashyam Ayyangar stated the legal position thus :- ·

"The Mitakshara doctrine of joint family propcny is founded upon the existence of an undivided family, all

(I) I.L.R. 25 Mad, 149, 154.

a corporate body [Gan Savant Bal Savant v. Narayan Dhond Savant(') and Mayne's 'Hindu Law and Usage',

6th edition paragraph 270] and the possession ot property by suh coipor'.lte body. The t reqite therefore is the family urut; and the possess10n by 1t of property is the second requisie. For the present putp?se, female members of the family may be left out of consideration 8jDd the conception_ of a Hindu family is a common male ancestor with his lineal descendants in the male line, and so long as that family is in its normal condition viz., the undivided state-it forms a corporate body. Such corporate body, with its heritage; is purely a creature of law and cannot be created by act of parties, save in so far that, by adoption, a stranger may be affiliated as a member of that corporate family".

Adverting to the nature of the property owned by such a family the learned Judge proceeded to state :

"As regards the property of such family, the 'un obstructed heritage' devolving on such family, with its accretions, is owned by the family as a corporate body, and one or more branches of that family, each forming a corporate body within a larger corporate body, m'1y possess separate 'unobstructed heritage' which, with its accretions, may be exclusively owned by such branch as a corporate body".

Having regard to the juristic nature of the Hindu joint family, according to the doctrine of_ Mitakshara, we are of the opinion that the Hindu joi, nt family firm of Ghamandi Ram Gurbax Rai cannot be treated as an 'individual' within the meaning of the notification of the Pakistan Government dated 19th February, 1952, but the said firm must be treated as 'a body of i, ndividuals F whether incorporated or not' within the meaning of that notification.

We proceed to consider the next question arising in this appeal viz., whether the liability of the appellant to the respondent in India would be deemed to be extiµguished in view of the opera- G lion of the Pakistan Evacuee Property Ordinance and in view of our finding that the amount in dispute had become vested in the Custodian of Evacuee Property, Pakistan with effect from March 1, 194 7 by virtue of the provisions of the Ordinance. It is oot disputed that the appellant had got gamishabk assets in Pakistan out of which the Pakistan Government could realise the amount by attachment of the property of the appellant. The question is : H what is the rule of Pnvate International Law iln such a case of involuntary assignment of debts ?

The question has arisen in

(I) l.L.R. 7 Born. 467.

English Courts with regard to the legislation passe4 during or after a war by which the contractual rights of the enemies vested in the public authorities such as custodians or admWiistrators of enemy property.

It was held in English Courts tl:iat in such a case the question whether a given contractual right, e.g., a W:bt, is transferred under such legislation and whether therefore payment to a custodian or administrator has the effect of discharging the debtor, depends on the situs of that right and not oo much on the proper law of the contract from which the right arises. (See Dicey Conflict of Laws, 8th Ed. p. 780). For example in Arab Bank Ltd. v.

Barclays Bank (Dominion, Colonial and Overseas) (1), the appellant Bank had a credit balance on the current account with the respondent bank's branch in Jerusalem. The British Mandate over Palestine expired at midnight on May 14, 1948, and thereupon the Provisional Council of State and the Provisional Government of the State of Israel were constituted. War broke out between Israel and the Arab States, which rendered the further performance of the contract of current account impossible. From the date of the termination of the Mandate the appellant B.ank's premises were situate in Arab controlled territory and the resJ;>C!ndent Bank's premises were situate in Israel territory. By legislation the State of Israel vested in an official c'alled the 'Custodiap of the Property of Absentees', the property in the State of Israel belonging to a class of persons and corporations which included the Arab Bank.

The respondents paid the appellants' credit balances, amount'1g to some £ 5,83,000 to the custodian. In

1950 the appellants sued the respondents for this sum.

It was held that the right to be paid the credit balance survived the outbreak of wm:, remaining in existence subject to the suspension of the appellant bank's right to recover it.

Being locally situate in Israel, it became subject to the legislation of that State vested in the custodian, and was not recoverable by the appellant bank from the respondent bank.

The key to the problem lies in distinguishing between ( 1) questions of assignability, which are governed by tlie proper law of the debt, aipd (2) questions of attachment or garnishment (involuntary assigmnent) governed by the lex situs of the debt. If, for example, an involuntaty assignment occurs after a voluntary assignment has already beein made, the lex situs determines whether the rights of the voluntaty assignee have been postponed or defeated.

If the voluntary assignment occurs first, the lex situs determines what rights, if any, the voluntary assignee has acquired.

A question of priorities. arose in the case of Re : Queenlrland Mercantile and Agency

Co.( 2), the facts of which were as follows :-

"The Union Bank of Australia held debentures issued by the Queensland Company charging the shares

(I) [19541 A.C. 495.

(2) [1891] 1 Ch. 536.

in that compll\ll'y that were not fully paid up. The Bank was domiciled in England and the company in Queensland. After the capital had been called up, but before it was paid by the shareholders, who thus became debtors of the company, the X Company domiciled in Scotland, began an action for rregligence in Scotland against the Queensland Company, and immediately issued the Scottish process of arrestment against numerous shareholders who were domiciled in Scotland.

The effect of this process according to Scottish law was to prevent the shareholders, pendiJng a decision in the action of negligence, from paying the cails to the company".

The question that fell to be decided was whether the Union Bank, as debenture-holders, were entitled to be paid first out of the unpaid shares, according to the Jaw of England llllid of Queensland; or whether the X Company in accordance with the law of Scotland, had a prior right over the snares to the extent of the damages D that they might be awarded in the action of negligence.

A question of priorities betweetr two assignees was thus raised.

The Union Baink contended that the. question fell to be decided by the law of Queensland, since the Queerol>tand Company was a creditor in respect of the u, npaid shares and any assignment by it must be teSted bv the law of its domicil.

North, J., however, applied 'I Scottish Jaw. His reasoning was that since the debtors were residf\D't in Scotland and therefore the unpaid calls which formed the subject-matter of the assignments were situated in that country, the assignment must rank in the order prescribed by Scottish law.

He assimilated choses in action to tangi'ble movables, assertini! that 'an assignment of the latter class of nroperty was .governed by the lex situs.

In our opiinion the same legal position r prevails in India and therefore the liability of the appellant in this case to the respondent in India must be deemed to have been extinguished.

For these reasons we hold that this apJieal should be allowed, the iudgment of the Punjab High Court dated 12th September. 1963 in Civil RevisiQn No. 104-D of 1958 should be set aside and the iudii; ment of the Tribunal under the Displaced Person<

(Debt Adjustment) Act in case No. 74./11/13 of 1956/1952 should be restored dismissine: the claim of the respondent. There will be no order with regard to costs in the High Court. But as directed by this Court on 30th October 1964, while grantine: spechil leave, appelfant will pay the cost of respQlldents in this Court.

V, P, S, Appeal al/owed,