Morvi Mercantile Bank Ltd. v.
Union of India
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Facts – A firm sent six boxes of
menthol crystals worth Rs 35,500/- from Thana (Maharashtra) to Okhla (New
Delhi) via Indian Railways. The boxes were marked with the name of the said
firm and were consigned to "self". The firm later endorsed the
railway receipts of the boxes in favour of Bank against an advance of Rs 20,000/-
made by the Bank to the firm. These boxes did not reach Okhla. Later Railways
offered to hand over few boxes to the Bank but the Bank refused delivery on
the ground that they were different from the boxes consigned to them.
Trial Court Holding:-
i.
Railways
had misplaced the original boxes
ii.
Boxes
offered by Railways to bank were different from the boxes firms had consigned
to the bank (They contained caustic soda instead of menthol crystals)
iii.
The
owner of the goods i.e. the firm had endorsed railway receipts in favour of the
bank
iv.
Bank
as endorsee of railways receipts was not entitled to sue the railways for the
loss of consignment
Bombay High Court Holding:-
i.
Affirmed
ruling i, ii, and iii of the Trial Court
ii.
Reversed
the iv ruling holing in effect that bank as endorsee of railways receipts is entitled
to sue the railways for the loss of consignment but only to the extent to the
loss of its security (Rs 20,000/- and not Rs 35,500/-)
Issue & Holding (Majority
Opinion - Subba Rao, Raghubar Dayal and Bachawat, JJ) –
i.
Whether
endorsement of railway receipt constitutes a pledge?
o
Yes , endorsement
of railway receipt constitutes a valid pledge. This is based on
§
Prior
decisions - Ramdas Vithaldas Durbar v. S. Amarchand & Co – Judicial
Committee held that the railway receipts were ‘instruments of title’
within the meaning of the Indian Contract Act, 1872
§
Parliament
while enacting Indian Sale of Goods Act, 1930, 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
§
The
same definition was incorporated by reference in the Explanation to Section 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 Section 137 of the Transfer of Property Act.
ii.
Whether
endorsement of a railway receipt for consideration constitutes a mere
pledge on the railway receipt or on the goods covered by it as well?
o
Court after
noticing all the relevant provisions of the Contract Act, the Transfer of
Property Act and the Sale of Goods Act held that railway receipts were documents
of title and the goods covered by the documents could be pledged by
transferring the documents. Court held that if it is not allowed then a reading
of Section 178 of the Contract Act would suggest that an owner of goods cannot
pledge the goods by transferring the documents of title, whereas his agent can
do so.
iii.
Whether
the person in whose favour railway receipts are endorsed has the right to sue
for loss of goods?
o
Court
held that as per Section 180 of the Contract Act, 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. Accordingly, he Bank, being
the pledgee, can maintain the present suit for the recovery of the full value
of the consignments amounting to Rs. 35,500/-.
iv.
Whether
Bank is the pledgee of the goods or is only the pledgee of the documents of
title and accordingly could only keep the documents against payment by the
firm?
o
The
Court held that on the basis of the facts of the case, 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.
v.
The
court did not answer the questions 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.
Holding (Dissenting Opinion - Mudholkar and Ramaswami JJ.) –
i.
After
the passing of the Indian Contract (Amendment) Act, 1930, the legal position
with regard to the pledge of railway receipts is that 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 pledgee. Therefore, there is no valid
pledge of consignments of goods between the Bank and the firm and Bank cannot
sue the railways for the loss of goods.
ii.
Bills
of lading are mere promises by the seller, being the issuer or transferor, to
deliver, or authorise the buyer to receive possession. Railway receipt has been
specified in Section 2(4) of the Sales of Goods Act and has been assimilated to
bills of lading for the purposes of the right of stoppage in transit but not for
all purposes.
iii.
There
are no rights created merely by the reason of the endorsement of a Railway
Receipt between the endorsee (bank) and the railway company which
has issued the railway receipt to the consignee (firm), the only remedy of the
endorsee being against the endorser (firm).
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