judgement:
ivil Appeals Nos.
929. 930 and 931 of 1963.
Appeals by special leave from the judgment and decree dated October 11, 1961 of the Punjab High Court in Regular First Appeals Nos. 136, 137 and 138 of 1959.
Hans Raj Sawhney and B.C. Misra, for the appellant (in all the appeals).
B.R.L. lyengar, S.K. Mehta and K.L. Mehta for the respondents (In C.A. No. 229 of 1963).
V.D. Mahajan, for the respondent.
(In C.A. No. 930 of 1963).
Kanwar Rajendra Singh and Vidya Sagar Nayyar, for the respondent (In C.A. No. 931 of 1963).
The Judgment of the Court was delivered by Subba Rao, J.
These appeals by special leave raise a question, of limitation.
The National Bank of Lahore Limited, hereinafter called the Bank, is a banking concern registered under the Indian Companies Act and having its registered office in Delhi and branches at different places in India.
Though its main business is banking, it carries on the incidental business of hiring out lockers out of cabinets in safe deposit vaults to constituents for safe custody of their jewels and other valuables.
It has one such safe deposit vault at its branch in Jullundur.
The respondents herein hired lockers on rental basis from the Bank at Jullundur through its Manager under different agreements on different dates during the year 1950.
in April 1951 the said lockers were tampered with and the valuables of the respondents kept therein were removed by the Manager of the Jullundur branch of the Bank.
In due course the said Manager was prosecuted before the Additional District Magistrate, Jullundur, and was convicted under sections 380 and 409 of the Indian Penal Code.
The respondents filed 3 suits in the Court of the Subordinate Judge, Jullundur, against the Bank for the recovery of different sums on account of the loss of the valuable contents of the lockers hired by them.
The Bank denied its liability on various grounds and also contended that the suits were barred by Iimitation.
The learned Subordinate Judge held that the Bank was liable to bear the loss incurred by the plaintiffs and that the suits were not barred by limitation.
On appeal, the High Court of Punjab accepted the findings of the learned Subordinate Judge on both the questions and dismissed the appeals.
The present appeals arise out of the said judgment of the High Court.
The only question raised in these appeals is one of limitation.
Before considering the question of limitation it is necessary 295 notice briefly the findings of fact arrived at by the High Court.
The High Court summarized its findings thus: (1) The whole object of a safe deposit vault in which customers of a Bank can rent lockers for placing their valuables is to ensure their safe custody.
The appellant Bank had issued instructions and laid down a detailed procedure for ensuring that safety but in actual practice the Manager alone had been made the custodian with full control over the keys of the strong room and a great deal of laxity had been observed in having no check whatsoever on him.
(2) The lockers had been rented out to the plaintiffs by the Manager Baldev Chand, who was entrusted with the duty of doing so.
It was he who had intentionally rented OUt such lockers to the plaintiffs which had been tampered with by him.
This constituted a fraud on his part there being an implied representation to the plaintiffs that the lockers were in a good and sound condition.
(3) Although the Bank authorities were not aware of what Baldev Chand was doing.
but the fraud, which he perpetrated, was facilitated and was the result of the gross laxity and negligence on the part of the Bank authorities.
(4) The lockers were indisputably being let out by the Manager to secure rent for the Bank.
Having found the said facts, the High Court held that the fraud was committed by the Manager acting within the scope of his authority and therefore, the Bank was liable for the loss incurred by the respondents.
Then it proceeded to consider the question of limitation from three aspects, namely.
(i) the loss was caused to the respondents.
as the Manager of the Bank committed fraud in the course of his employment; (ii) there was a breach of the implied condition of the contract.
namely, that only such lockers would be rented out which were safe and sound and which were capable of being operated in the manner set out in the contract; and (iii) there was a relationship of bailor and bailee between the respondents and the Bank, and therefore the Bank would be liable on the basis of the contract of bailment.
It held that from whatever aspect the question was approached article 36 of the First Schedule to the Limitation Act would be out of place and the respondents ' claims would be governed by either article 95 or some other article of the Limitation Act.
Learned counsel for the appellant accepted the findings of fact, but contended that on the facts found the suits were barred by limitation.
Elaborating the argument the learned counsel pointed out that the theft of the valuables by the Manager was a tort committed by him dehors the contracts entered into by the appellant with the respondents and.
therefore, article 36 of the First Schedule 296 to the Limitation Act was immediately attracted to the respondents ' claims.
The scope of article 36 of the First Schedule to the Limitation Act is fairly well settled.
The said article says that the period of limitation "for compensation for any malfeasance, misfeasance or nonfeasance independent of contract and not herein specifically provided for" is two years from the time when the malfeasance, misfeasance or nonfeasance takes place.
If this article applied, the suits having been filed more than 2 years after the loss of the articles deposited with the Bank, they would be dearly out of time.
Article 36 applied to acts or omissions commonly known as torts by English lawyers.
They are wrongs independent of contract.
Article.
e 36 applies to actions "ex delicto" whereas article 115 applies to actions "ex contractu".
"These torts are often considered as of three kinds, viz. non feasance or the omission of some act which a man is by law bound to do, misfeasance, being the improper performance of some lawful act, or malfeasance, being the commission of some act which is in itself unlawful".
But to attract article 36 these wrongs shall be independent of contract.
The meaning of the words "independent of contract" has been felicitously brought out by Greer, L.J. in Jarvis vs Moy, Davies, Smith, Vanderveil and Co.(1) thus: "The distinction in the modern view, for this purpose, between contract and tort may be put thus.
Where the breach of duty alleged arises out of a liability independently of the personal obligation undertaken by contract it is tort and it may be tort even though there may happen to be a contract between the parties, if the duty ' in fact arises independently of that contract.
Breach of contract occurs where that which is complained of is a breach of duty arising out of the obligations undertaken by the contract.
" If the suit claims are for compensation for breach of the terms of the contracts, this article has no application and the appropriate article is article 115, which provides a period of 3 years for compensation for the breach of any contract, express or implied, from the date when the contract is broken.
If the suit claims are based on a wrong committed by the Bank or its agent dehors the contract, article 36 will be attracted.
Let us now apply this legal position to the claims in question.
One of the contracts that was entered into between the plaintiffs and the Bank is dated February 5, 1951.
It is not disputed that the other two contracts, with which we are concerned, also are of the same pattern.
Under that contract the Bank, the appellant herein, and Sohanlal Sehgal, one of the respondents herein, agreed "to hire, subject to the conditions endorsed, the company 's safe No. 1651/ 405.
297 2203 Class lower for one year from this day at a rent of Rs. 40".
The relevant conditions read as follows: It is agreed that the connection of the renter of the safe and the Bank (and it has no connection) is that of a lessor and lessee for the within mentioned safe and not that of a banker and customer.
The liability of the company in respect of property deposited in the said safe is limited to ordinary care in the performance by employees and officers of company of their duties and shall consist only of (a) keeping the safe in vault where located when this rental contract is entered into or in one of equal specifications, the door to which safe shall be locked at all time except when an officer or an employee is present, (b) allowing no person access to said safe.
except hirer or authorised deputy, or attorney in fact having special power to act identification by signature being sufficient or his/her legal representative in the case of death, insolvency or other disability of Hirer, except as herein expressly stipulated.
An unauthorised opening shall be presumed or inferred from proof of partial or total loss of contents.
The company shall not be liable for any delay caused by the failure of the vault doors or locks to operate.
The company shall not be liable for any loss etc.
The only purpose of the contract was to ensure the safety of the articles deposited in the safe deposit vault.
It was implicit in the contract that the lockers supplied must necessarily be in a good condition to achieve that purpose and, therefore, that they should be in a reasonably perfect condition.
It was an implied term of such a contract.
Condition 15 imposed another obligation on the Bank to achieve the same purpose, namely, that the Bank should not allow access to any person to the safe except the hirer or his authorised agent or attorney.
If the articles deposited were lost because one or other of these two conditions was broken by the Bank, the renter would certainly be entitled to recover damages for the said breach.
Such a claim would be ex contractu and not ex delicto and for such a claim article 115 of the First Schedule to the Limitation Act applied and not article 36 thereof.
Learned counsel for the appellant contended that the suits were not based upon the breach of a contract committed by the Bank but only the theft committed by its agent dehors the terms of the contract.
This leads us to the consideration of the scope of the plaints presented by the respondents.
It would be enough if we take one of the plaints as an example, for others also run on the same lines.
Let us take the plaint in Civil Suit No. 141 of 1954, i.e., the suit flied by Sohanlal Sehgal and others against the Bank for the recovery of d sum of Rs. 26,500.
We have carefully gone through 298 the plaint, particularly paragraphs 8, 9 and 10 thereof.
It will be seen from the plaint that though it was not artistically drafted the relief was claimed mainly on two grounds, namely, (i) that it was an implied term of the contract that the locker rented was in a good condition, and (ii) the valuables were lost because the Manager, on account of the negligence of the Bank in not taking all the necessary precautions, committed theft of the articles in the course of his employment.
In the written statement the defendant denied its liability both under the terms of the contract and also on the basis that it was not liable for the agent 's fraud.
The High Court found that at the time when the lockers were rented out they were in a defective condition and that the Bank, in actual practice, made the Manager the sole custodian with full control over the keys of the strong,room and permitted a great deal of laxity in not having any check whatsoever on him.
In this state of the pleadings and the findings it is not possible to accept the contention of the learned counsel ' for the appellant that the plaintiffs did not base their claims on the branch of the conditions of the contracts.
This argument is in the teeth of the allegations made in the plaint, evidence adduced and the arguments advanced in the Courts below and the findings arrived at by them.
While we concede that the plaint could have been better drafted and couched in a clearer language, we cannot accede to the contention that the plaints were solely based upon the fraud of the Manager in the course of his employment.
We, therefore.
hold that there were clear allegations in the plaints that the defen dant committed breach of the contracts in not complying with some of the conditions thereof and that the defendant understood those allegations in that light and traversed them.
The suit claims, being ex contractu were clearly governed by article 115 of the First Schedule to the Limitation Act and not by article 36 thereof.
If article 115 applied, it is not disputed that the suits were within time.
Even if the claim was solely based on the fraud committed by the Manager during the course of his employment.
we do not see how such a claim fell under article 36 of the First Schedule to the Limitation Act.
To attract article 36.
the misfeasance shall be independent of contract.
The fraud of the Manager committed in the course of his employment is deemed to be a fraud of the principal, that is to say the Bank must be deemed to have permitted its manager to commit theft in violation of the terms of the contracts.
While under the contracts the Bank was under an obligation to give to the respondents good lockers ensuring safety and protection against theft, it .gave defective ones facilitating theft; while under the contracts it should not permit access to the safe to persons other than those mentioned in the contracts.
in violation of the terms thereof it gave access to its Manager and enabled him to commit theft.
In either case the wrong committed was not independent of the contract.
but it directly arose out of the breach of the contract.
299 1n such circumstances article 36 is out of place.
The competition between articles 115 and 120 to take its place need not be considered.
for neither of those Articles hits the claim, as the suits are within 3 years.
which is the shorter of the two periods of limitation prescribed under the said two Articles.
In this view it is not necessary to express our view on the question whether the contracts in question were of bailment.
In the result, the appeals fail and are dismissed with costs one hearing fee.
Appeals dismissed.

summary:
The respondents hired lockers in the safe deposit vaults from the appellant bank at Jullundur through its manager under different agreements on various dates during 1950.
In April 1951, the lockers were tampered with and the valuables of the respondents kept in them were removed by the Manager.
In due course the Manager was prosecuted and convicted for theft.
The respondents filed three suits against the bank for the recovery of different sums being the value of the contents of the lockers which had been removed.
The bank denied its liability on various grounds and also contended that the suits were, barred by limitation.
The trial court held that the Bank was liable to bear the loss incurred by the respondents and that the suits were not barred by limitation.
On appeal, the High Court accepted the findings of the trial court on both the questions and dismissed the appeals.
In the appeal before the Supreme Court, only the question of limitation was raised.
It was contended of behalf of the appellants on the facts found that the suit was barred by limitation as the theft of the valuables by the Manager was a tort committed by him dehors the contracts entered into by the appellant with the respondents and, therefore, Article 36 of the Limitation Act which required that a suit must be instituted within two years applied, and not article 115, which provided for a period of limitation of three years; that the suits were, not based on a breach of contract committed by the bank but only the theft committed by its agent dehors the terms of the contract.
HELD: The suit claims, being ex contractu, were clearly governed by Article 115 of the First Schedule to the Limitation Act and by Article 36.
[298F] There were clear allegations in the plaint that the appellant committed breach of contract in not complying with some of the contitions thereof and that the appellant understood those allegations in that light and traversed them.
[298 E] Even ii the respondents ' claim was solely based on the fraud committed by the manager during the course of his employment, such a claim could not fall under article 36.
To attract article 36, the misfeasance must be independent of contract.
The fraud of the manager committed in the course of his employment must be deemed to be a fraud of the principal, i.e. the Bank must be deemed to have permitted manager to commit theft in violation of the terms of the contracts.
While under the contracts the bank was under an obligation to provide good lockers and not to permit access to the safe except to persons mentioned in the contracts, in violation of these terms the bank gave defective lockers and gave access to the manager, thus facilitating the theft.
In either case the wrong committed was not independent of the contract but directly arose out of the breach of contract.
[298 G, H]


judgement:
vil Appeals Nos. 474 and 475 of 62.
Appeal from the judgment and decree dated January 10.
1958, of the Bombay High Court in Appeal No. 375 of 1953.
J.C. Bhatt, B.R.Agarwala and H.K. Puri, for 'the appellants (in C.A. No. 474 of 1962) and respondent (in C.A. No. 475 of 1962).
Niren De, Additional Solicitor General, N.D. Karkhanis, B.R.G.K. Achar, for R.N. Sachthey, for Respondent (in C.A. No. 474 of 1962) and appellant (in C.A. Nos. 475 of 1962).
The judgment of SUBBA RAO, DAYAL and BACHAWAT JJ. was delivered by SUBBA RAO, J. The dissenting Opinion of MUDHOLKAR and RAMASWAMI JJ.
was delivered by RAMASWAMI J. Subba Rao, J. On October 4.
1949, M/s. Harshadrai Mohanlal & 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.LP.
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 Devision.
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 consideration.
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 257 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 recepts, 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 1953.
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.
Learned Additional Solicitor General raised before us the following points: (1) In law the endorsement of a railway receipt does not constitute a pledge; (2) an endorsement of a railway receipt for consideration constitutes at the most a pledge of the railway receipt and not the goods covered by it.
and, therefore, in the present case the Bank acquired only a right to receive the goods covered by the relevant receipts from the railway; and (3) if the endorsement of the railway receipts does not constitute in law a pledge of the goods, the Bank has no right to sue for compensation, as, though the proprietary right in the goods was transferred to it, the right to sue trader the contracts did not pass to it.
The decision on the first point depends upon the scope of the legal requirements to constitute a pledge under the Indian law.
That calls for a careful scrutiny of all the relevant provisions of the Indian Contract Act, the Indian and the .
for their combined consideration yields the answer to the problem raised.
Under the Contract Act, delivery of goods by one person to another under a contract as security for payment of a debt is a pledge.
Ordinarily delivery of tangible property is essential to a true pledge; but where the law recognizes that delivery of tangible symbol involves a transfer of possession of the property symbolized, such a symbolic possession takes the place of physical delivery.
The short but difficult question, therefore.
is whether the Indian law equates the railway receipts with the goods covered by them for the purpose of constituting delivery of goods within the meaning 258 of the Contract Act.
Before the amendment of section 178 of the Contract Act and the passing of the , the scope of railway receipts vis a vis the goods covered by them came up for consideration before the Judicial Committee in Ramdas Vithaldas Durbar vs
S.Amarchand & Co., C).
The head note of that case succinctly gives the following facts: Sellers of cotton consigned it to the buyer in Bombay, and forwarded to him receipts issued by the railway company which had undertaken the carriage.
The receipts provided that they should be given up at the destination by the consignee, and that if he did not himself attend to take delivery he must endorse on the receipt a request for delivery to whom he wished it to be made.
The evidence showed that similar receipts for cotton were used in the ordinary course of business in Bombay as proof of the possession and control of the goods therein referred to or as authorising the holder to receive or transfer the goods.
The consignee endorsed and delivered the receipts as security for advances made specifically upon them in good faith.
The sellers sought to stop the cotton in transit.
The Judicial Committee held that the railway receipts were instruments of title within the meaning of the , s.103, and that the sellers were therefore not entitled to stop the goods except upon payment or tender to the pledgees of the advances made by them.
This decision lays down 3 propositions, namely, (i) the railway receipts in question in that case were used in the ordinary course of business in Bombay as proof of possession and control of the goods therein referred to, or as authorising the holder to receive or transfer the goods; (ii) such railway receipts were documents of title and a valid pledge of the goods covered by the receipts could be made under the Contract Act before it was amended in 1930.
by endorsing and delivering the same as security for advances made.
to the owner of the goods.
It may be noticed at this stage that under the Contract Act before it was amended in 1930 there was no definition of the expression "documents of title", but there.
was one in the Indian Factors Act (XX of 1844) which.
with certain modifications, made the provisions of the English Factors Act.
1842, applicable to British India.
The last mentioned Acts defined the expression "documents of title to goods as including any bill of lading, dock warrant.
ware housekeeper certificate, whar finger 's certificate.
warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods.
or authorising or purporting to authorise, either by endorsement or by delivery the possessor of the document to transfer or receive goods thereby represented '.
Railway receipt was so nominee not included in the detinition.
But the Privy Council, on the basis of the evidence adduced in that case, brought the railway receipts under that part of the definition describing generally the documents of title to goods.
It may also be noticed that the Judicial Committee.
though (1) T. A. 164.
259 its attention was called to the provisions of sections 4 and 137 of the , preferred to decide that case decors the said provisions.
In the Explanation to section 137 of the , which was introduced by the Amending Act 2 of 1900, the definition of the expression "mercantitle document" is practically the same as that found in the Indian Factors Act noticed by the Judicial Committee in the decision cited supra, with the difference that it expressly includes therein railway receipt.
Under s.4 thereof the Chapter and the sections of the Act shall be taken as part of the .
In 1930 Parliament in enacting the Indian , presumably borrowed the definition of "documents of title to goods" from the Indian Factors Act and the English Factors Act noticed by the Judicial Committee, but expressly included in the definition the railway receipt.
This indicates the legislative intention to accept the mercantile usage found by the Judicial Committee in Ramdas Vithaldas Durbar vs section Amerchand & Co.(1).
The same definition was incorporated by reference in the Explanation to s.178 of the Contract Act as amended in the year 1930.
This definition is also in accord with the definition of "mercantile document of title to goods" in the Explanation to s.137 of the .
The Judicial Committee had another occasion to consider the question of pledge of railway receipt in Official Assignee of Madras vs Mercantile Bank of India.
Ltd.(2).
The facts in that case were as follows: The insolvents did a large business in groundnuts, which they purchased from the up country growers; the nuts were then dispatched by rail and arrived in Madras by one or other of the two railways, the Madras & Southern Maharatta Railway or the South Indian Railway.
Under an arrangement between the said Railways and the Madras Port Trust, the consignments of nuts when received were deposited in the go downs of the Madras Port Trust.
The general course of business was for the insolvents to obtain from the railway companies in respect of each consignment or wagon had a railway receipt.
The insolvents obtained loans from the respondent Bank after sending to the said Bank the railway receipts duly endorsed in blank and also after executing a promissory note for the amount a letter of hypothecation.
When the goods arrived at the port, delivery was taken from the Port Trust against the railway receipts.
At the time the insolvents were adjudicated the bags of ground nuts in question in that case were either in transit on the railway or in the transit sheds or godowns of the Port Trust.
On those facts.
the main question was whether the pledge of the railway receipt was a pledge of the goods represented by them or merely a pledge of the actual documents.
If there was a valid pledge before the insolvency, the Bank would be entitled to receive the amount realised by the sale of the goods; if not, the Official Assignee would be entitled to it.
The Judicial Committee, after considering (1) (1) (1934) L.R. 51 I.A. 416, 423.
260 its earlier decision in Ramdas Vithaldas Durbar 's case (1) and all the relevant provisions which we have noticed earlier, came to the conclusion that there was a valid pledge of the goods represented by the receipts.
It may be noticed that this decision also turned upon the relevant provisions of the Contract Act before its amendment in 1930, though at the time the decision was made the amendment came into force.
On the question whether a pledge of a document is a pledge of the goods as distinct from the document, the Judicial Committee observed: "Their Lordships likewise in the present case see no reason for giving a different meaning to the term (documents of title to goods) in s.178 from that given to the terms in sections 102 and 103; in addition a railway receipt is specifically included ' in the definition of mercantile document of title to goods by section 137 of the , which, in virtue of s.4 of the Act, is to be taken as part of the Contract Act as being a section relating to contracts.
A railway receipt is now included in the definition of documents of title to goods in section 2, sub section 4, of the Indian .
" On the construction of the expression "person" in section 178 of the Contract Act, it was argued that the said expression took in only a mercantile agent and that the law in India was the same as in England.
Rejecting that plea, the Judicial Committee remarked at p. 426 thus: "Their Lordships did not in that case see any improbability in the Indian Legislature having taken the lead in a legal reform.
It may well have seemed that it was impossible 'to justify a restriction on the owner 's power to pledge which was not imposed on the like powers of the mercantile agent.
The same observation may well be true m regard to the words now being considered.
The reasonableness of any such change in the law is well illustrated by the facts of the present case, where it was clearly intended to pledge the goods, not merely the railway receipts, and the respondents have paid in cash the advances they made on that footing.
In these circumstances, it would be indeed a hardship that they should lose their security.
" These pregnant observations show that there is no justification to the distinction that is being maintained in England between pledge of a bill of lading and the pledge of documents of title of the than a bill of lading.
The Judicial Committee in this decision clearly laid down, after noticing all the relevant provisions of the Contract Act, the and the that railway receipts were documents of title and the goods cover (1)(1916) L.R. 43 I.A. 164.
ed by the documents could be pledged by transferring the documents.
This decision is in accord with the view expressed by us on a fair reading of the said provisions.
Even so, it is contended that by the amendment of section 178 of the Contract Act in 1930, the Legislature has taken away the right of an owner of goods to pledge the same by the transfer of documents of title to the said goods.
Under the old section "a person" who was in possession of any goods etc. might make a valid pledge of such goods, whereas under the present section "a mercantile agent", subject to the conditions mentioned therein, is authorized to make a pledge of the goods by transferring the documents of title.
Therefore, the argument proceeds, a person other than a mercantile agent cannot make a valid pledge of goods by transferring the documents representing the said goods.
This argument appears to be plausible and even attractive; but, if accepted, it will lead to anomalous results.
It means an owner of goods cannot pledge the goods by transferring the documents of title, whereas his agent can do so.
As the Privy Council pointed out it is impossible to justify a restriction on the owner 's power to pledge when there is no such restriction imposed on the like powers of a mercantile agent.
A careful scrutiny of section 178 of the Contract Act and the other relevant provision thereof indicates that the section assumes the power of an owner to pledge goods by transferring documents of title thereto and extends the power even to a mercantile agent.
A pledge is delivery of goods as security for payment of a debt.
If a railway receipt is a document of title to the goods covered by it, transfer of the said document for consideration effects a constructive delivery of the goods.
On that assumption if we look at section 178 of the Contract Act, the legal position is apparent.
The material part section 178 of the Contract Act reads: "Where a mercantile agent is, with the consent of the owner.
in possession of goods or the documents of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the Pawnee acts in good faith and has not at the time of the pledge notice that the pawner has not authority to pledge.
" The section emphasizes that a mercantile agent shall be in possession of documents of title with the consent of the owner thereof; if he is in such possession and pledges the goods by transferring the documents of title to the said goods, by fiction, he is deemed to have expressly authorized by the owner of the goods to make the same.
The condition of consent and the fiction of authorization indicate that he is doing what the owner could have done.
So too.
262 section 30 of the Indian discloses the legislative mind.
The relevant part of the said ' section reads: "Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same." This sub section shows that a person who sold the goods as well as a mercantile agent acting for him can make a valid pledge in the circumstances mentioned therein.
If an owner of goods or his mercantile agent after the owner has sold the goods, can make a valid pledge by transferring the documents of title to the goods, it would lead to an inconsistent position if we were to hold that an owner who has not sold the goods cannot pledge the goods by transferring the documents of title.
Sub section
(2) of section 30 of the Indian relevant to the present enquiry reads: "Where a person.
having bought or agreed to buy goods.
obtains, with the consent of the seller, possession of the goods or the documents of title to the goods.
the delivery or transfer by that person or by a mercantile agent acting for him.
of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist.
" This sub section clearly recognizes that a buyer or his mercantile agent can pledge goods by transferring the documents of title thereto: it protects a bona fide pledgee from the buyer against any claim by the original owner based on the lien or any other right still left in him.
If the owner the purchaser becomes the owner cannot pledge the goods at all by transfer of documents of title.
the protection given under sub section
(2) of section 30 of the to a bona fide purchaser is unnecessary.
The material part of section 53(1) of the reads: "Subject to the provisions of this Act, the unpaid seller 's right of lien or stoppage in transit is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented thereto: Provided that where a document of title to goods has been issued or lawfully transferred to any person as buyer or owner of the goods, and that person transfers the document to a person who takes the document in good faith 263 and for consideration, then, if such last mentioned transfer was by way of sale, the unpaid seller 's right of lien or stoppage in transit is defeated, and, if such last mentioned transfer was by way of pledge or other disposition for value, the unpaid seller 's right of lien or stoppage in transit can only be exercised subject to the rights of the transferee.
" This sub section protects a bona fide pledgee from an owner against any rights still subs sting in his predecessor in interest.
This assumes that the owner can pledge the goods by transfer of the relevant documents of title.
The said sections embody statutory exceptions to the general rule that a person cannot confer on another a higher title than he possesses.
The argument that section 178 of the Contract Act, as amended in 1930.
restricts the scope of the earlier section and confines it only to a mercantile agent was noticed by the Judicial Committee in Official Assignee of Madras vs Mercantile Bank of India, Ltd. (1) and it observed therein: "The Indian Legislature may well have appreciated in 1872 the exigencies of business, even though in 1930 they recanted.
Or perhaps they did not appreciate fully the effect of the actual words of the section.
" These observations indicate that the Judicial Committee did not express any final opinion on the construction of the amended section 178 of the Contract Act as the question in the appeal before it related to the unamended section.
Further, it did not notice the other sections referred to earlier which throw a flood of light on the true meaning of the terms of section 178 of the Contract Act, as it now stands.
This conclusion also accords with the view expressed by Bachawat.
J. in Commissioner for the Port Trust of Calcutta vs General Trading Corporation Ltd.(2).
The Indian decisions cited at the Bar do not deal with the question whether a valid pledge of goods can be effected by transfer of documents of title, such as a railway receipt, representing the goods; they were mainly concerned with the question whether an endorsee of a railway receipt for consideration could maintain an action on the basis of the contract embodied in the said receipt: see the firm of Dolatram Dwarakdas vs The Bombay Baroda and Central India Railway Co. C); Shah Muji Deoii vs Union of India(4) Commissioner for the Port Trust of Calcutta vs General Trading Corporation Ltd. (2); and Union of India vs Taherali (2).
These raise a larger question on which there is a conflict of opinion.
In the view we have taken on the question of pledge, it is not necessary to express our opinion thereon in these appeals.
(1) , 423.
A.I.R. 1964 cal.
(3) (1914) I.L.R,.
38 .Rom.
(4) A.I.R. 1957 Nag.
(5) (1956) 58 Born.
L.R. 650.
264 The law on the subject, as we conceive it, may be stated thus: An owner of goods can make a valid pledge of them by transferring the railway receipt representing the said goods.
The general rule is expressed by the maxim nemo dat quod non habet, i.e., no one can convey a better title than what he had.
To this maxim, to facilitate mercantile transactions, the Indian law has grafted some exceptions, in favour bona fide pledgees by transfer of documents .of title from persons, whether owners of goods or their mercantile agents who do not possess the full bundle of rights of ownership at the time the pledges are made.
To confer a right to effect a valid pledge by transfer of documents of title relating to goods on owners of the goods with defects in title and mercantile agents and to deny it to the full owners thereof is to introduce an incongruity into the Act by construction.
On the other hand, the real intention of the Legislature will be carried out if the said right is conceded to the full owner of goods and extended by construction to owners with defects in title or their mercantile agents.
We are glad that, on a reasonable construction of the material provisions of the relevant Acts, we have been able to reach this conclusion To accept the contentions of the respondents to the contrary would be a retrograde step and would paralyse the entire mechanism of finance of our internal trade.
In this vast country where goods are carried by railway over long distances and remain in transit for long periods of time, the railway receipt is regarded as a symbol of the goods for all purposes for which a bill of lading is so regarded in England.
The next question is whether the plaintiff would be entitled to recover the full value of the consignments amounting to Rs. 35,500/ or, as the High Court held, only the amount of Rs. 20,000/ with interest, i.e., the amount secured under the pledges.
The answer to this question depends upon the construction of section 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. 35,500/ .
265 The last question is whether the Bank was the pledgee of the goods or was only the pledgee of the documents of title whereunder they could only keep the documents against payment by the consignee as contended on behalf of the Railway.
The firm borrowed a sum of Rs. 20,000/ from the Bank and executed a promissory note, exhibit 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 alarge amount of money to the firm.
The three transactions, namely the advancing of loan the execution of the promissory note and the endorsement of 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 Ramdas Vithaldas Durbar vs section Amerchand & Co.(1), and the Official Assignee of Madras vs The Mercantile Bank of India, Ltd.(2) heId 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 Bank.
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.
No other question was raised.
In the result, Civil Appeal No. 474 of 1962 filed by the Bank is allowed; and Civil Appeal No. 475 of 1962 filed by the Railway is dimissed.
The plaintiff 's suit is decreed with costs throughout.
Ramaswami, J.
We regret we are unable to agree with the judgment pronounced by our learned brother Subba Rao J. On October 4, 1949, M/s. Harshadrai Mohanlal & Co., (hereinafter referred to as the firm) entrusted 4 boxes containing "menthol crystal" to the then G.I.P. Railway for carriage from Thana railway station to Okhla near Delhi.
On October 11, 1949, the firm consigned 2 more boxes also alleged to have contained "menthol crystal" to Okhla from Thana railway station.
The Railway Receipts issued were numbered 233/27, 233/35 and 233/36.
All the six boxes were consigned to "self".
It is alleged that the Rail way Receipts with regard to these six boxes were endorsed in favour of Morvi Mercantile Bank Ltd. (hereinafter referred to as the plaintiff bank) against an advance of Rs. 20,000 by the plaintiff bank on security of the Railway Receipts.
The G.I.P. Railway offered to deliver the boxes at Okhla rai1way station but the plaintiff bank declined to accept the same alleging that the boxes were not those (1) (1916) L.R. 43 I.A. 164.
(2) (1934) L.R. 61 I.A. 416, 423.
266 which were consigned from Thana station.
The plaintiff bank filed Civil, Suit No. 50 of 1950 in the Court of the Civil Judge, Senior Division, Thana, claiming a sum of Rs. 35,000 as damages for breach of contract.
The suit was contested by the defendants on the ground that identical boxes which were consigned by the firm at Thana were offered to the plaintiff bank who declined to accept the same and the Railway Administration had, not committed an breach of contract and, therefore, the Union of India was not liable to pay any damages.
The trial Judge held that the boxes Consigned by the firm contained "menthol crystals" and by the unlawful conduct of the employees of the railway administration the contents of the boxes were lost, but he took the view that the plaintiff bank.
as endorsee of the railway receipts, was not entitled to sue for compensation for loss of the consignments.
In taking that view the learned Civil Judge followed a decision of the Bombay High Court in Shamji Bhanji & Co. vs North western Railway Company(1).
The Civil Judge accordingly dismissed the suit by a judgment and decree dated January 15, 1953.
Against that decision the plaintiff bank preferred an appeal to the Bombay High Court which continued the findings of the Civil Judge that tile Railway failed ' to deliver the boxes at Okhla and the boxes contained "menthol crystals".
The High Court also held that the plaintiff bank assignees of the railway receipt was entitled to bring a suit for damages for breach of contract against the Union of India though the damages would be limited to the loss of its security.
In taking this view the Bombay High Court relied upon its previous decision in The Union of India vs Taherali Isaji(2).
The first question for determination in this case is whether there was a valid pledge of boxes of "menthol crystals" in favour of the plaintiff bank by endorsement on the railway receipts by the firm.
In English Law a pledge arises when goods are delivered by one person called the 'pledgor ' to another person called the 'pledgee" to be held as security for the payment of a debt or for discharge of some other obligation upon the express or implied understanding that the subject matter of the pledge is to be restored to the pledgor as soon as the debt or other obligation is discharged.
It is essential for the creation of a pledge that there should be a delivery of the goods comprised therein.
In other words, a pledge cannot be created except by delivery of the possession of the thing pledged, either actual or constructive.
It involved a bailment.
If 'the pledgor had actual goods in his physical possession, he could effect the pledge by actual delivery; but in other cases he could give possession by some symbolic act, such as handing over the key of the store in which they were.
however, the goods were in the actual physical possession of a third person, who held for the bailor so that in law his possession was that of the bailor, this pledge could ' be effected by a change of the character of the possession of the (1) A.I.R. 1947 Bomb.169.
(2)(1956)58 Bomb L.R. 650.
267 third party, that is by an order to him from the pledgor to hold for the pledgee, the change being perfected by the third party attorning to the pledgee, thus acknowledging that he thereupon held for ' the latter.
There was thus a change of possession and a constructive delivery; the goods in the hands of the third party came by this process constructively in the possession of the pledge.
But. where goods were represented by documents the transfer of the documents did not change the possession of the goods, save for ' one exception, unless the custodian (carrier, warehouseman or ' such) was notified of the transfer and agreed to hold in future as bailee for the piedgee.
The one exception was the case of bills of lading, the transfer of which by the law merchant operated as a transfer of the possession of, as well as the property in, the goods.
, This exception has been explained on the ground that the goodsbeing at sea the master could not be notified; the true explanation was perhaps that it was a rule of the law merchant, developed in order to facilitate mercantile transactions, whereas the process of pledging goods on land was regulated by the narrower rule of the common law.
The position in English Law, therefore, was that in the case of delivery of documents of title other than bills of lading, a pled of the documents is merely a page of the ipsa corpora of them, for the transfer of documents does not change the possession of the goods unless the custodian (carrier, warehouseman or such) was not filed of the transfer and agreed to hold in future as bailee for the pledgee.
In Inglis vs Robertson and Baxter(1).
It was held by the House of Lords that where goods are lodged in warehouses in Scotland a pledgee of the goods must, to make effective all real rights which depend on the constructive delivery of the goods, give notice of the pledge to the warehouse keeper.
The Factors Act 1889 enacts: "S.3.
A pledge of the documents of title to goods shall be deemed to be a pledge of the goods."; and section 1: 'For the purposes of this Act ' (sub section 5).
The expression 'pledge ' shall include any contract, pledging, or giving a lien or security on, goods, whether in consideration of an original advance or of any further or continuing advance or of any pecuniary liability '.
9 prescribes that the effect of delivery or transfer of the documents of title of the goods under any pledge &c., by a person who having bought the goods obtains with the consent of the seller possession of the goods or documents of title, shall have the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.
" Goods were stored by G, a domiciled Englishman, in a bonded warehouse in Glasgow, transferred into the name of G as owner; and the Warehouse keeper issued to G delivery orders showing that (1) ; 268 the goods were held to G 's order or assigns by endorsement 'hereon '.
G obtained a loan from I an English merchant, and delivered to him in England a letter of hypothecation stating that he deposited a part of the goods with him in security, with power of sale, and G endorsed and handed to I the delivery warrants.
I did not intimate or give notice of the right he had acquired to the warehouse keeper.
R. & B., claiming as personal creditors of G, .arrested the goods in the hands of the warehouse keeper and then raised an action against him in the Scottish Court claiming through the arrestment a preferable right thereto.
It was held by the House of Lords that section 3 of the Factors Act, 1889, was merely intended to define the full effect of the pledge of the documents of title made by a mercantile agent, and that it had no application to the case .of the pledge of the documents of title by one in the position of G, 'who was not a mercantile agent within the meaning of the Act; nor was G a pledgor within section 9 of the same Act.
At pages 625 to 627 Lord Watson states: I can see no reason to doubt that, by Scottish law as 'well as English, the endorsement and handing over of delivery orders in security of a loan, along with a letter professing to hypothecate the goods themselves, is sufficient in law, and according to mercantile practice, to constitute a pledge of the documents of title, whatever may be the value and effect of the right so constituted.
In my opinion, the right so created, whether in England or in Scotland, will give the pledgee a right to retain the ipso corpora of the documents of title until his advance is repaid.
The crucial question in this case is whether the right goes farther, and vests in the pledgee of the documents, not a jus ad rein merely, but a real interest in the goods to which these documents relates.
It was not disputed by the appellant 's counsel, and it is hardly necessary to repeat, that by the common law of Scotland the indorsation and hypothecation of delivery .orders, although it may give the pledgee a right to retain the documents, does not give him any real right in the goods which they represent.
He can only attain to that right by presenting the delivery orders to the custodier by whom they were granted, and obtaining delivery of the goods from him, or by making such intimation of his right to the custodier as will make it the legal duty of the latter to hold the goods for him.
His right, which in so far as it relates to the goods is in the nature of jus ad rem, will be defeated if, before he has either obtained delivery or given such intimation, the goods are validly attached in the hands of the custodier by a creditor of the person for whom the custodier holds them.
" 269 The principle is reiterated by the House of Lords in Dublin City Distillery Ltd. vs Doherty(1).
in which the plaintiff advanced moneys to a distillery company on the security of manufactured whisky of the company stored in a ware house.
Neither the company nor the excise officer could obtain access to the warehouse without the assistance of the other, and the whisky could only be delivered out on presentation to the excise officer of a special form of warrant supplied by the Crown.
On the occasion of each advance the company entered the name of the plaintiff in pencil in their stock book opposite the particulars of the whisky intended to be pledged and delivered to the plaintiff (1) an ordinary trade invoice and (2) a document called a warrant, which described the particulars of the whisky and stated that it was deliverable to the plaintiff or his assigns.
It was held by the House of Lords that the plaintiff was not entitled to a valid pledge on the whisky comprised in the warrants.
At pages 843 and 847 of the Report Lord Atkinson states the law on the point as follows: "As to the second question, it was not disputed that, according to the law of England, and indeed of Scotland.
a contract to pledge a specific chattel, even though money be advanced on the faith of it, is not in itself sufficient to pass any special property in the chattel to the pledgee.
Delivery is, in addition, absolutely necessary to complete the pledge; but of course it is enough if the delivery be constructive, or symbolical, as it is called, instead of actual.
The example of constructive delivery frequently given is the delivery of the key of the store or house in which the goods have been placed; but that is because, in the words of Lord Hardwicke, 'it is the way of coming at the possession, or to make use of the thing ', Ward vs Turner (1751) 2 Ves.
Sen. 431 at P. 443).
The giving by the owner of goods of a delivery order to the warehouse man does not, unless some positive act be done under it, operate as a constructive delivery of the goods to which it relates: Mc Ewan vs Smith ; And the delivery of a warrant such as those delivered to the respondent in the present case is, in the ordinary case, according to Parke B., no more than an acknowledgment by the warehouse man that the goods are deliverable to the person named therein or to any one he may appoint.
The warehouseman holds the goods as the agent of the owner until he has attorney in some way to this person, and agreed to hold the goods for him; then, and not till then, does the warehouseman.become a bailee for the latter; and then, and not till then, is there a constructive delivery of the goods.
The delivery and ' (1) 270 receipt of the warrant does not per se amount to a delivery and receipt of the goods: Farina vs Home ; ; Bentall vs Burn ((1824) ; In our opinion, the position in Indian Law is not different Section 172 of the Contract Act which defines a 'pledge ' affirms the English Common Law.
Section 172 states that "the bailment of goods as security for payment of a debt or performance of a promise" is called ' a "pledge".
The bailor is in this case called the "pawnor" and the bailee is called the "pawnee".
According to section |48 of the Contract Act "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 are delivered is called the 'bailee '.
Section 149 states that the delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf.
Reference should also be made to section 178 of the Contract Act, as it stood before the .
The original section 178 states: "A person who is in possession of any goods, or of any biII of lading, dock warrant, warehouse keeper 's certificate wharfinger 's certificate, or warrant or order for delivery, or any other document of title to goods, may make a valid pledge of such goods or documents: Provided that the pawnee acts in good faith and under circumstances which are not such as to raise a reasonable presumption that the pawnor is acting improper Provided also that such goods or documents have not been .obtained from the lawful owner, or from any person in lawful custody of them, by means of an offence or fraud.
" By the the section was repealed and the subject matter of that section is now spread over the present sections 178 and 178A of the Contract Act and section 30 of the Indian .
The new section 178 of the Contract Act states: "Where a mercantile agent is, with the consent of the owner, in possession of goods or the documents of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same; provided* that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has no authority to pledge.
Explanation in this section the expressions mercantile agent ' and 'documents of title shall have the meanings assigned to them in the Indian ." 271 Section 30 of the Indian provides as follows: "30(1) Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same Where a person, having bought or agreed to buy goods, obtains, with the consent of the seller.
possession cf the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him.
of the .goods or documents of title under any sale, pledge of ' other disposition the thereof to any person receiving the same in good faith and without notice of any/ten or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist." Section 178A of the Contract Act states: "178A.
When the pawnor has obtained possession of the goods pledged by him trader a contract voidable under section 19 or section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good ' title to the goods.
provided he acts in good faith and without notice of the pawnor 's defect of title." After the passing of the the legal position with regard to the pledge of railway receipts is exactly the same in Indian law as it is in English law and consequently the owner of the goods cannot, pledge the goods represented by the railway receipts in the present case unless the railway authorities are notified of the transfer and they agree to hold the goods as bailee for the piedgee.
On behalf of the appellants Mr. Bhatt placed strong reliance upon the decision of the Judicial Committee in Official Assignee of Madras vs Mercantile Bank of India, Limited (1) in which it was held that a railway receipt, providing that delivery of the consigned goods is to be made upon the receipt being given up by the consignee or by a person whom he names by endorsement thereon, is a document of title within the meaning of the , (section 178 for which a new section was substituted.
by the amending Act IV of 1930), and a pledge of a railway receipt operated under the repealed section as a pledge of the goods.
But this decision is not of much assistance to the appellants, because it was concerned with the interpretation and legal effect of section 178 of the Contract Act as it stood before the Indian Contract (Amending) (1) (1934) 61 I.A. 416.
272 Act (Amending Act IV of 1930).
It was held by the Judicial Committee in that case that under the repealed section 178 the owner of the goods could obtain a loan on security of a pledge of the goods by the pledge of the documents of title.
But it is significant to note that section 178 has been amended by the Amending Act, 1930 and under the present section statutory power to pledge goods or documents of title is expressly confined to mercantile agents while acting in the customary course of the business.
There are two other instances in which a person other than the owner of the goods may make a valid pledge of the goods and these two instances are dealt with in section 178A of the Contract Act and section 30 of the Indian .
The result, therefore, under the amended law is that a valid pledge can no longer be made by every person "in possession" of goods.
It can only be made by a mercantile agent as provided in the new section 178 of the Contract Act or by a person who has obtained possession of the goods under a contract voidable under section 19 or section 19A of the Contract Act as provided in section 178A, or by a seller or by a buyer in possession of goods after sale as provided in section 30 of the Indian .
Learned Counsel for the appellants also referred to the decision of the Judicial Committee in Ramdas Vithaldas Durbar vs
section Amerchand & Co.(1) in which the Judicial Committee explained the legal effect of section 103 of the Contract Act, as it originally stood.
It was held by Lord Parker that the railway receipts are instruments of title within the meaning of the , section 103, and that the sellers were therefore not entitled to stop the good 's in transit except upon payment or tender to the pledgees of the advances made by them.
It is manifest that the decision cannot afford assistance to the appellants.
because, in the first place, it related to the construction of old section 103 of the Contract Act in regard to the right of stoppage of goods in transit, and, in the second place, there has been a significant change in the law in view of the legislative amendment of section 178 of the Contract Act by the .
In the present case, therefore, our concluded opinion is that there is no valid pledge of the consignments of menthol crystals represented by the railway receipts in favour of the plaintiff bank and the finding of the High Court on this point is erroneous in law We shall next deal with the question whether the plaintiff can sue on the contract of bailment even though there is no valid pledge of the goods in favour of the plaintiff.
It was contended on behalf of the appellants that the plaintiff bank was the endorse of railway receipts and, therefore, it was entitled to sue the defendants for compensation for the loss of the goods.
We are unable to accept this argument as correct.
At Common law a bill of lading was not negotiable like a bill of exchange so as to enable the endorsee to maharaja an action upon it in his own name, the effect of the (1914) 43 I.A. 164.
273 of the endorsement being only to transfer the property in the goods but not the contract itself.
It was observed by Alderson, B. in Thompson vs Dominy (1) as follows: "This is another instance of the confusion, as Lord Ellenborough in Waring vs Cox expresses it, which 'has arisen from similitude reasoning upon this subject Because, in Lickbarrow vs Mason, a bill of lading was held to be negotiable, it has been contended that instrument possesses all the properties of a bill of exchange; but it would lead to absurdity to carry the doctrine to that length.
The word 'negotiable ' was not used in the sense in which it is used as applicable to a bill of exchange, but as passing the property in the goods only.
" Delivery orders, warrants, written engagements to deliver goods and similar documents are in the same position as the bills of lading were before the Bills of Lading Act, 1855 (18 & 19 Vic. c. 111 ).
They are mere promises by the seller, being the issuer or transferor, to deliver, or authorise the buyer to receive possession.
It is only by reason of the enactment of the Bills of Lading Act, 1855 (18 & 19 Vic. c. 111) that the issue or transfer of a bill of lading operates as a delivery to the buyer of the goods shipped, and the consignee of the bill of lading is entitled to sue upon the contract contained in the same.
The same provisions are contained in the Bills of Lading Act (Act IX) of 1856 in India.
It is true that the railway receipt and all other documents enumerated in section 2, sub section
(4), , are assimilated to bills of lading for the purposes of the right of stoppage in transit under section 103, Contract Act and a pledge under section 178, Contract Act as explained by the Judicial Committee in Ramdas Vithaldas vs section Amerchand& Co.(2) and Official assignee of Madras vs Mercantile Bank of India(1).
But the effect of these decisions is not to assimilate the railway receipt to a biIl of lading for all purposes whatsoever.
The legal position of the railway receipt is the same as it was in English law and that position is not affected at all by the enactment of section 2, sub.
section (4) of ' the , or the enactment of provisions analogous to sections 103 and 178 of the Contract Act.
As stated in Halsbury 'section Laws of England, Hailsham Edition, Vol. 29, at p. 143, article 179: "Such documents, although they may purport to be, or may commonly be treated as, transferable, are not negotiable instruments, unless there be a trade usage to that effect.
Accordingly, subject to the provisions of the Factors Act 1889, the owner cannot claim delivery of the goods except from the seller who is the issuer or immediate transferor of the document.
" It is manifest that there are no rights created merely by reason of the endorsement of a Railway Receipt between the endorsee and (1) ; (2) (1916) LIt.
43 I.A. 164.
(3) (1934) L.R. 61 I.A. 416, 423.
274 the railway company which has issued the railway receipt to the .consignee, the only remedy of the endorsee being against the endorser.
This was the position in English law, except in the case of .bills of lading the transfer of which by the Law Merchant operated as a transfer of the possession of as well as the property in 'the goods as observed by Lord Wright in Official Assignee of Madras vs Mercantile Bank of India, Limited(1) at page 422.
The endorsee may bring an action as an assignee of the contract of carriage but then the assignment has to be proved as in every other case.
It is true that by reason of section 137 of the , the provisions relating to the transfer of an actionable claim do not apply to a railway receipt, and the assignment need not be according to any particular form, but a railway receipt is not like d negotiable instrument (See Mercantile Bank of India Ltd. vs Centarl Bank of India Ltd.(2).
It is also apparent that subject to the exceptions mentioned in sections 30 and 53 of the Indian .
1930, and s 178 of the Contract Act, 1872.
its possessor cannot give a better title to the goods than he has.
The negotiation of the railway receipt may pass the property in the goods.
but it does not transfer the contract contained in the receipt or the statutory contract under section 74 E of the Indian Railways Act.
Negotiability is a creature of statute or mercantile usage, not of judicial decisions apart from either.
So, in the absence of any usage of trade or any statutory provision to that effect, d railway receipt cannot be accorded the benefits which flow from negotiability under the Negotiable Instruments Act.
so as 10 entitle the endorsee as the holder for the time being of the document of title to sue the carrier the railway authorities in his own name.
If file claim of the plaintiff is as an ordinary assignee of the contract of carriage, then the plaintiff has to prove the assignment 'in his favour.
In the present case the plaintiff bank has furnished no such proof of assignment in its favour.
In view of cl.
(3) of the notice printed at the back of the railway receipt it is clear that an endorsement made on the face of the railway receipt by the consignee is meant to indicate the person to whom the consignee wishes delivery of the goods to be made if he himself does not attend to take delivery.
An endorsement made by the consignee on the face of the railway receipt requesting the railway company to deliver the goods to the endorsee merely conveys to the railway company that the person in whose favour the endorsement is made by the consignee is constituted by him a person to whom he wishes that delivery of the goods should be made on his behalf.
Clause (3) of the notice printed at the back of the railway receipt states: "That the railway receipt given by the railway company for the articles delivered for conveyance, must be given up at destination by the consignee to the railway company, otherwise the railway may refuse to deliver and that the signature of the consignee or his agent in the delivery (1) (1934) L.R. 61 I ,A. 416. (2) (1937) 65 I.A. 75.
275 book at destination shall be evidence of complete delivery.
If the consignee does not himself attend to take delivery he must endorse on the receipt a request for delivery to the person to whom he wishes it made, and if the receipt is not produced, the delivery of the goods may, at the discretion of the railway company, be withheld until the person entitled in its opinion to receive them has given an indemnity to the satisfaction of the railway company.
" In the present case the plaintiff has not proved by proper evidence an assignment of the Contract of Carriage.
In our opinion, the law on the point has been correctly stated by Bhagwati, J. in Shamji Bhanji & Co. vs North Western Rly.
Co.(1).
It follows, therefore, that the plaintiff has no right to bring the present suit against the Union of India.
Counsel for appellant has referred to the practice of merchants in treating a railway receipt as a symbol of goods and in making pledge of goods by pledge of railway receipts, but no such practice or custom has been alleged or proved on behalf of the plaintiff in the present case.
In the absence of such allegation or proof it is not open to the Court to take any judicial notice of any such practice.
Counsel for appellant also referred to possible inconvenience and hardship to merchants if such a practice is not judicially recognised, but the argument from inconvenience and hardship is a dangerous one and is only admissible in construction where the meaning of the statute is obscure.
In Sutters vs Briggs(2).
Lord Birkenhead stated: "The consequences of this view of section 2 of the Gaming Act, 1835 will no doubt be extremely inconvenient to many persons.
But this is not a matter proper to influence the House unless in a doubtful case affording foothold for balanced speculation as to the probable intention of the legislature.
" In the present case the language of section 178 of the Contract Act is clear and explicit and if any hardship and ' inconvenience is felt it is for Parliament to take appropriate steps to amend the law and not for the courts to legislate under the guise of interpretation.
For the reasons expressed, we hold that Civil Appeal 474 of 1962 brought by the plaintiff bank should be dismissed and Civil Appeal 475 of 1962 brought by the Union of India through the General Manager, Central Railway should be allowed with costs and ' the suit of the plaintiff bank should be dismissed with costs throughout.
ORDER BY COURT In accordance with the majority Judgment.
Civil Appeal 474 of 1962 is allowed and Civil Appeal 475 of 1962 is dismissed,plaitiff 's suit is decreed with costs throughout.
(1) A.I.R. 1947 Bom. 169.
I.A.C. 1.
(2) [1922] I.A.C.1.

dataset_name: IN-Abs

summary:
A firm doing business in Bombay entrusted goods worth Rs. 35,500 the Railway for delivery in Delhi.
The goods were consigned to "self" and the firm endorsed the railway receipts to a Bank against an advance of Rs. 20,000 made by the Bank to the firm.
The firm also executed a promissory note in favour of the Bank for that amount.
When the goods reached the destination, the Bank refused to take delivery, on the ground that they were not the goods consigned by the firm.
The Bank, thereafter filed a suit for the recovery of the value of the goods.
The trial court dismissed the suit.
On appeal by the Bank, the High Court allowed the appeal and decreed the claim for Rs. 20,000 on the ground that as pledgee of the goods, the Bank suffered loss only to the extent of the loss of its security.
Both the Bank and the Railway appealed to this Court, and it was contended on behalf of the Railway that the endorsement of the railway receipt in favour of the Bank, did not constitute a pledge of the goods covered by the receipt and that the Bank had no right to sue for compensation.
HELD: (Per Subba Rao, Raghubar Dayal and Bachawat, J J): The firm by endorsing the railway receipts in favour of the Bank, for consideration.
pledged the goods covered by the said receipts, to the Bank, and the Bank being the pledgee could maintain the suit for the recovery of the full value of consignment amounting to Rs. 35,500.
[264 H; 265 D E] On a reasonable construction of section 178 of the Contract Act, 1872, sections 4 and 137 of the , and sections 30 and 53 of the Indian , an owner of goods, can make a valid pledge of them by transferring the railway receipt representing the said goods.
To the general rule expressed by the Maxim nemo dat quod non habet (no one can convey a better title than what he had), to facilitate mercantile transactions.
the Indian Law has grafted some exceptions, in favour of bonafide pledgees by transfer of documents of title from persons.
whether owners of goods who do not possess the full bundle of rights of ownership at the time the pledges are made, or their mercantile agents.
To confer a right to effect a valid pledge by transfer of document of title relating to goods on persons with defects in their title to the goods.
and on mercantile agents, and to deny it to the full owners thereof, is to introduce an incongruity into the Act.
On the other hand, the real intention of the legislature will be carried out if the said right is conceded to the Full owner of goods and extended by construction to persons with defects in their title to the goods or to mercantile agents.
A pledge being a bailment of goods under section 172 of the Contract Act, the pledgee, as a bailee.
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 under section 180 of the Act.
[264 A C, H] 255 Ramdas Vithaldas Durbar vs
section Amarchand and Co., (1916) L.R. 43 I.A. 164 and The Official Assignee of Madras vs The Mercantile Bank of India, Ltd. (1934) L.R. 61 I.A. 416, referred to.
Per Mudholkar and Ramaswami JJ.
(dissenting): There was no valid pledge of the consignments of goods represented by the railway receipt in favour of the Bank and the Bank was not entitled to sue the Railway for compensation for the loss of goods, relying upon the endorsements of the railway receipts in its favour.
[272 G H] After the passing of the , the legal position with regard to the pledge of railway receipts, is exactly the same in Indian Law as it is in English Law, and consequently, the owner of the goods cannot pledge the goods represented by a railway receipt, by endorsing the railway receipt, unless the railway Authorities were notified of the transfer, and they agreed to hold the goods as bailee of the pledgee.
Under the amended law a valid pledge can no longer be made by ever.v person "in possession" of goods.
It can only be made by a mercantile agent as provided in section 178 of the Contract Act (after amendment in 2930) or by a person who has obtained possession of goods under a contract voidable under section 19 or section 19A of the Contract Act, as provided by section 178 0 the Act.
or by a seller or buyer in possession of goods, after sale.
as provided in section 30 of the Indian .
[271 F G; 272 C D] Further, though a railway receipt and all other documents enumerated in section 2(4) of the are assimilated to bills of lading for the purpose of the right to stoppage in transit and a pledge under section 178 of the Contract Act, its legal position is the same as in English law, so that, no rights are created, merely by reason of the endorsement of a railway receipt by the consignee between the endorses and the railway company which had issued the receipt to the consignee the only remedy of the endorsee being against the endorser.
The negotiation of the receipt may pass the property m the goods, but it does not transfer the contract contained in the receipt or the statutory contract under section 74E of the Indian Railways Act.
Negotiability is a creature of a statute or mercantile usage, not of Judicial decisions apart from either.
So, in the absence of any usage of trade or any statutory provision to that effect, a railway receipt cannot be accorded the benefits which flow from negotiability under the Negotiable Instruments Act, so as to entitle the endorsee, as the holder for the time being of the document of title, to sue the carrier the railway authority in his own name.
If the claim of the Bank was as an ordinary assignee of the contract of carriage, then it had to prove the assignment.
In the absence of proof of such assignment, or of the existence of any practice of merchants treating a railway receipt as a symbol of goods making a pledge of the receipt a pledge of goods, and in view of cl.
(3) of the notice printed at the back of the receipt that an endorsement made on the face of the receipt by the consignee was only meant to indicate the person to whom the consignee wished delivery of goods to be made if he himself did not attend to take delivery, the Bank had no right to sue the Railway.
[273 E G; 274 D G] Since the language of section 178 of the Contract Act is clear and explicit, if any hardship and inconvenience is felt because such a practice of treating the receipt as a symbol of goods were not recognised.
it is for Parliament to take appropriate steps to amend the law and it is not for courts to legislate under the guise of interpretation.
[275 G] 256


judgement:
Appeal No. 69 of 1964.
Appeal by special leave from the judgment and decree dated October 10, 1961, of the Andhra Pradesh High Court in Second Appeal No. 872 of 1958.
A.V. Viswanatha Sastri, K. Rajendra Chaudhuri and K. R. Chaudhuri, for the appellants.
S.V. Gupte, Solicitor General, and T. Satyanarayana.
for respondent No. 1.
T.V.R. Tatachari and B.R.G.K. Achar, for respondent No. 2.
The Judgment of the Court was delivered by Subba Rao, J.
On November 22, 1927, the Government of Madras, in exercise of its powers under section 3(1) of the (IX of 1910), hereinafter called the Act, issued a licence to the Bezwada (now Vijayawada) Municipal Council for the supply of electric energy within the municipal limits of Bezwada at rates not exceeding the maximum charges given in 'the third annexure to the said licence.
The appellants, who are some of the consumers of electric energy for domestic and industrial purposes, entered into agreements with the licensee for the supply of electric energy to them for domestic, industrial and other purposes, agreeing to pay the current official scale of rates.
On December 13, 1940, the Municipality passed a resolution bringing into force new rates for the supply of electric energy from April 1, 1940.
The consumers paid the rates so fixed ' till the year 1956.
On April 30, 1956, the Municipal Council passed another resolution enhancing the rates from 1 4 1956.
The appellants filed a representative suit against the Vijayawada Municipality in the Court of the District Munsif, Vijayawada, for a declaration that the said resolution dated April 30, 1956, passed by the Municipal Council was illegal, invalid and unenforceable and for an injunction restraining the said Municipality from collecting charges from the consumers of electric energy in the licensee 's area at the new revised rates in pursuance of the impugned ' resolution.
The learned District Munsif held that the demand of enhanced rate was legal and valid and dismissed the suit.
On appeal, the learned Subordinate Judge held that the levy from the date of the said resolution was good, but it could ' not be given retrospective operation.
He further held that the claim for duty at half an anna per unit was invalid.
In the result he modified the decree of the District Munsif.
On a further appeal, a Division Bench of the Andhra Pradesh High Court confirmed the decree of the Subordinate Judge.
By special leave the present appeal has been filed in this Court.
Mr. A.V. Viswanatha Sastri, learned counsel for the appellants raised before us the following two contentions: (1) The rates agreed upon between the consumers and the Municipality cannot be unilaterally altered and increased by the Municipality to the prejudice of the consumers and, therefore, the said resolution dated 278 April 30, 1956, was invalid and unenforceable; and (2) as the said resolution was passed without obtaining the previous sanction of the State Government under section 21(2) of the Act, it was void for that reason also.
The first contention turns upon the relevant clauses of the agreement entered into between the Municipal Council and the consumers.
exhibit B 4 is one such agreement dated May 27, 1932, between the Municipality and one of the appellants herein.
The material clauses of the agreement read: Para, IV.
The consumer shall pay to the licensee for all electrical energy so supplied at the rates and in accordance with the terms, given in the licensee 's Current Official Scale of rates and ' the signing of this Agreement is held to imply concurrence in the terms of the said Scales of rates.
Provided that the minimum rates as specified therein shall be paid irrespective of whether energy to the extent has been consumed or not.
Para, V. A consumer under this Agreement is required to state (see Schedule) under which of the rates set out in the licensee 's Official Scale of energy Rates, he desires to be charged.
Para, X.
This Agreement shall be read and construed as subject in all respects to the provisions of the Bezwada Municipal Electric Licence, 1927, and to the provisions of the , and of any modification or re enactment thereof for the time being in force thereunder so far as the same respectively may be applicable.
The supply of electrical energy under this agreement is subject to following among other provisions of law, namely: The schedule above referred to.
(2) Purposes to which the supply is to be given, and in the case of domestic supply under which rate to be charged, as referred to in paragraph V: (a) (Supply) Domestic Purposes.
(b) (Rate) Rs. 0 6 0 per unit.
(3) Maximum electrical power required by the consumer:0 54 K.W. (4) Minimum monthly charge: Rs. 2 8 0 in accordance with (a) class rate in the Schedule of Rates.
The Schedule of Rates mentioned in this agreement presumably refers to scale of rates fixed by the resolution of the Municipality.
The conflicting arguments centre on the question whether the words "current official scale of rates" in para.
IV relate to the scale of rates current on the date when the agreement was entered into 279 or refer to the scale of rates current from time to time in accordance with the resolution passed by the Municipality.
The expression "current" means "vogue or prevalent"; and "current rate" may mean the rate obtaining at a particular time or at a future time or from time to time.
The term goes well with the present, future and recurrent.
It is capable of different meanings depending upon the context or setting in which it appears.
As the meaning of the word is ambiguous, it is legitimate, in order to ascertain its true meaning, not only to study the document as a whole but also to ascertain its meaning from the circumstances whereunder the said agreement came into existence.
Under para.
X of the agreement the said agreement shall be subject to the provisions of the licensee and the provision of the Indian Electricity Act, 1940, that is to say the said provisions are incorporated by reference into this agreement.
Under the licence the licensee is precluded from charging rates higher than those prescribed thereunder.
On April 1, 1940, the Electricity Department of the Vijayawada Municipality prepared a document styled as "Conditions and Rates of Supply".
It does not contain any statutory rules, but only administrative directions in regard to providing, inter alia.
for the method of entering into agreements and for charging rates for the energy supplied.
This embodies the administrative practice of the Municipality in the matter of charging rates for the energy supplied.
Paragraph is thereof, under the heading "Method of charging for current".
reads: "The price and method of charging for current supplied shall be such as may from time to time be fixed by the licensee in accordance with the provisions of the Act and of his licence, or such as may be made subject of Special agreement between the consumers and the licensee.
" This makes a distinction between the official rate and the contractual rate.
The official rate is that fixed by the licensee from time to time and the contractual rate is that fixed by special agreement between the parties.
It may be assumed that this dual method is followed by the Municipality in the matter of entering into agreements.
The form of application prescribed for the supply of electric energy contains the following clause: "I agree to pay for the said ' energy, service connection and other dues including the deposit of such security as may be demanded in accordance with the scale of rates and the rules of the licence.
" The scale of rates in the context means the official scale of rates that may be fixed by the Municipality.
When an application is filed an obligation is imposed trader s.22 of the Act on the licensee to supply energy, except in so far as is otherwise provided by the terms and ' conditions of the licence, on the same terms as those on which any other person i.n the same area is entitled in similar 280 circumstances to corresponding supply.
Section 23 of the Act says that a licensee shall not, in making any agreement for the supply of energy, show undue preference to any person.
The combined operation of these provisions is that the licensee cannot discriminate between the applicants in the matter, among others, of rates chargeable for the energy supplied.
Unless the Municipality enters into an agreement with a consumer enabling it to charge him at a rate fixed by it from time to time, it would be very difficult for the Municipality to maintain equality of treatment between the consumers in the matter of rates.
To illustrate, if under certain agreement a rate obtaining at a particular date is agreed upon and the rate is binding on the Municipality even if it is raised later on, the Municipality may be guilty of discrimination which it is asked to avoid by statute if it charges other consumers at a higher rate. 'this difficulty can be avoided if there is a term in the agreement executed by every consumer that he will pay the official rate fixed by the Municipality from time to time subject to the maximum fixed by the licence.
That apart, a public body like the Municipality in supplying energy to different consumers cannot run the risk of incurring loss by agreeing to fixed rates, for the Government may increase the licence fee, as it has done in the present case, or there may be a rise in the cost of distribution.
On the other hand, if the term in the agreement is flexible to meet the said ' eventualities, 'the maintenance of continuous supply of electric energy may be assured without any loss to the public body.
The circumstances obtaining at the time when the agreements between the consumers and the Municipality were entered into were these: The licensee had power to fix the rates subject to the maximum prescribed by the Government.
The administrative directions provided for charging for the current supplied at rates that may be fixed from time to time.
The Municipality was in practice fixing the rates from time to time having regard to the relevant circumstances.
The said rates fixed by the Municipality from time to time were the "Official Scale of Rates".
The consumers applied to the Municipality for supply of energy, agreeing to pay for the energy supplied at the scale of rates fixed by the Municipality.
With this background if we look at paragraphs IV and V of Ex.
B 4 the meaning of the expression "current official scale of rates" will be clear.
Paragraph IV speaks of "current official scale of rates" whereas para.
V mentions "official scale of energy rates".
These two paragraphs bring out the distinction between the official scale of rates and the official scale of energy rates: the former refers to the scale of rates maintained by the Municipality as modified from time to t;me by appropriate resolutions, and the latter refers to the different rates payable in respect of energy supplied for different purposes.
Under para.
IV the consumer specifically agreed to abide by the official scale of rates.
If the intention of the parties is that the consumer shall pay only the scale of energy rates obtaining at the time the agreement is entered into, there is no necessity for this 281 specific agreement, for para.
V serves that purpose.
On the other hand, the said express condition and the use of the word "current" make it clear that the consumer agrees to pay at the official scale of rates current from time to time.
The adjective "current" will become a surplusage, if the intention is to pay the rates obtaining at the time the agreement is entered into, for the agreement itself gives the existing rates.
The use of the adjective "current" emphasizes the fact that the official scale of rates is not the existing rates, but the scale of rates current from time to time.
We have.
therefore, on a reasonable construction of the ambiguous expression "current" having regard to the entire document and the surrounding circumstances, come to the conclusion that the words "current official scale of rates" in para.
IV of the agreement mean the official scale of rates current or prevalent from time to time during the currency of the agreement.
If so, it follows that the appellants were under a contractual liability to pay the enhanced rates covered by the impugned resolution.
The next question turns upon section 21(2) of the Act, which, as it then stood read: "Subject to the provisions of sub section (1), a licensee may, with the previous sanction of the State Government given after consulting the local authority, make conditions not inconsistent with this Act or with his licenee or with any rules made under this Act, to regulate his .relations with persons who are or intend to become consumers, and may with the like sanction given after the like consultation add to or alter or amend any such conditions; and any conditions made by a licensee without such sanction shall be null and void." Under this sub section the licensee cannot make conditions to regulate his relations with the consumers or amend any such conditions without the sanction of the State Government.
Mr. Viswanatha Sastri argued that to enhance the rates was to alter a condition within the meaning of sub section
(2) of section 21 of the Act and as admittedly the sanction of the State Government was not obtained before such alteration, the said resolution was void.
The learned Solicitor General contended that section 21 (2) of the Act was a general provision relating to conditions, whereas section 23 thereof was a specific provision in regard to fixing of rates and that section 23 would, therefore, prevail over section 21 and that section 23 did not prescribe the sanction of the Government as a condition precedent for fixing the rates, Mr. Tatachari, while supporting this argument, added that on the interpretation of para.
IV of the agreement suggested by the respondents there was no alteration in the conditions at a11 and ', therefore, there was no scope for invoking section 21 of the Act.
It is not necessary to express our opinion in this case on the question whether section 23 excludes the operation of section 21(2) of the Act in the matter of fixation of rates, for we are satisfied that there is no alteration of any condition of 282 the agreement within the meaning of section 21(2) thereof.
We have held that under para.
IV of the agreement that was entered into between the consumers and the licensee, the consumers agreed to pay the rates that were fixed by the Municipality from time to time.
If the said term was a condition within the meaning of section 21(2) of the Act, there was no change at all in that condition, for the change in the rates was not in derogation of the condition but in terms of it.
To state it differently, the same condition embodied in para.
IV of the agreement continued to operate between the parties even after the rates were enhanced under the impugned resolution.
Therefore, no sanction of the State Government was necessary for enhancing the rates.
No other point was raised before us.
In the result, the appeal fails and is dismissed with one set of costs.
Appeal dismissed.

summary:
The Government of Madras issued a licence to the respondentMunicipality, under s.3(1) of the , for the supply of electric energy within its municipal limits at rates not exceeding the maximum charges given in the licence.
The appellants, some consumers of the electric energy, entered into agreements with the Municipality for the supply and agreed to pay the "current official scale of rates".
The rates were increased by resolutions of the Municipality twice and on the second occasion the appellants filed a representative suit for a declaration that the later resolution was illegal, and for an injunction restraining the Municipality from collecting charges at the new rates.
The trial court dismissed the suit and the dismissal was confirmed on appeal by the High Court.
In appeal by special leave the appellants contended that (i) the rates agreed between the consumers and the Municipality could not be unilaterally altered and increased by the Municipality to the prejudice of the consumers and, therefore, the impugned resolution was invalid and unenforceable; and (ii) as the impugned resolution was passed without obtaining the previous sanction of the State Government under section 21(2) of the Act, it was void.
HELD: (i) The consumers were under a contractual liability to pay the enhanced rates covered by the impugned resolution.
Under sections 22 and 23 of the Act the Municipality cannot discriminate between consumers in the matter of rates chargeable for the energy supplied.
Unless the Municipality enters into agreement with the consumer enabling it to charge him at a rate fixed from time to time, it would be difficult for the Municipality to maintain equality of treatment between the consumers.
That difficulty can be avoided if there is a term in the agreement executed by every consumer that he will pay the official rate fixed by the Municipality from time to time subject to the maximum fixed by the licence.
Further, a public body in supplying electric energy to different consumers cannot run the risk of incurring loss by agreeing to fixed rates, for the Government may increase the licence fee as had been done in the instant case, or there may be a rise in the cost of distribution.
[280 A D] Therefore, having regard to the entire document and the surrounding circumstances, the words "current official scale of rates" in the agreement mean the official scale of rates current or prevalent from time to time during the currency of the agreement.
[281 C] (ii) No sanction of the State Government was necessary for enhancing the rates.
There was no alteration of any condition of the agreement within the meaning of section 21(2) of the Act.
The consumers had agreed to .pay the rates that would be fixed from time to time.
and if that term was a condition within the meaning of that section, there was no change at all in that condition, for the change in the rates was not in derogation of the condition but in terms of it.
[282 A B] 277