OFFICIAL ASSIGNEE OF MADRAS Vs. SRMMRMVELLIAPPA CHETTY

JUDGEMENT

(1.) This is an appeal from the judgment of Kumaraswamy Sastri, J. who disallowed the application of the Official Assignee to treat a certain letter of charge given by the firm of Appachi Chetty & Sons (who were adjudicated on 15 January 1919) to certain Nattukottai Chetties as (1) a fraudulent preference under Section 56 of the Insolvency Act (2) within the order and disposition portion of Section 52 of the Insolvency Act; (3) as within Section 55 of the Insolvency Act as being without consideration. The learned judge found against the Official Assignee on all these points and he appeals. Certain bales were pledged in October 1918 by the Insolvent firm to Egappa Chetty to whom the former owed Rs. 1,35,000. These bales were deposited with the pledgee and the validity of this pledge is in no way questioned by the learned Advocate General who appeared for the Official Assignee. The question is as to the balance remaining after the pledgee has taken his debt out of the money realized by sale of the bales pledged to him. The insolvent purported to create a second charge in favour of two Nattukottai Chetties on the same bales by means of a certain letter set out in the judgment of the learned judge. This letter is dated 21 December 1918, and runs as follows :--"As we have given the bales belonging to us, that is the goods mentioned in the list herewith given as security for Rs. 1,35,000 which is the principal due up to this date on the account of debit and credit transactions already carried on with T. T. Egappa Chetty of this place and the interest thereon, we shall sell the goods mentioned therein according to the bazaar price and pay the entire amount and the interest to the aforesaid Egappa Chettiar and the goods which are likely to remain after fully discharging the amount due to him have been given by us as security for the balance of principal Rs. 12,800 and interest due by us to S. R. M. M. R. M. Valliappa Chettiar out of you and for the principal Rs. 13,750 and interest due after deducting the amount paid in respect of the Promissory-note for Rs. 15,000 executed and given by one M. R. Ry. Muthukumara Chetty to K. M. L. Kumarappa Chettiar. If the aforesaid bales are not sold and delay is caused we have given them to you as second security also. Until T. T. Egappa Chettiar's debt and your vagairas debt are discharged out of these bales we shall not take the money". It is not contended by the learned Advocate-General that this letter does not create a valid charge, but it is said that owing to the power of sale having been left in the insolvents (we are not told if Egappa Chetti knew or assented to this and we should think it extremely unlikely) by the letter of charge, the Nattukottai Chetties have allowed goods belonging to themselves to be in the possession, order or disposition of the insolvents, under such circumstances that the latter is the reputed owner thereof. In other words, the 2nd charge though the property of the Nattukottai Chetties is to be taken away from them and the value of it applied for the benefit of the general body of creditors.

(2.) The only point argued before us of the three set out above was (2). The first question therefore for decision is premising that what the insolvents only dealt with was left after their pledge to Egappa i. e. the equity of redemption, did the 2nd charge holders leave that equity of redemption at the disposal of the insolvents so as to incur forfeiture (for that is what it is) of their charge within the mischief of Section 52(1)(c). It was firstly contended by the Advocate-General that the matter might fall within Section 52(2)(a) also, as being property belonging to the insolvents but (a.) includes only what really is the insolvent's property, in this case the value of the goods minus the value of the two charges created on it, in other words the 2nd equity of redemption which is in effect valueless to the Official assignee, who for any practical advantage to acrue must bring the case under clause (c) and thus recover the benefit of the second charge. The learned Advocate-General being thus confined to clause (c) it was necessary for him to argue that the equity of redemption disposed of by the insolvents by way of second charge but left at their disposal by the owners thereof was goods within the meaning of that clause. In support of this contention he first relied on Section 76 of the Contract Act where in the chapter on "Sale of Goods" it is said "in this chapter the word goods means and includes every kind of movable property." Reference was also made to two cases Franklin V/s. Neate (1844) 13 M. & W. 481 where it was held that in spite of the pledge, pawnor still has a property in the goods pledged which property he can sell, subject of course to the special property (as it is called) vested in the pledgee. This is an undisputed proposition and does not carry the case further than to furnish legal authority for the insolvents to create a second charge on the pledged bales. The second case was Exparte Roy In re. Sillence (1877) 7 Ch-D. 70 where it was held that the bankrupt could not create a lien (as claimed by his creditor) over certain horses as the latter were not his. They were however in his order and disposition by consent of the true Owner.

(3.) In my opinion this case is totally different from the present. It is not contended that the goods or that the equity of redemption in the goods after they were pledged did not belong to the insolvents and they were not at perfect liberty to deal with those goods or that equity of redemption as they pleased subject to the pledgee's right. At most the case decides that the possession of a depositer claiming lien is for the purposes of this clause the. possession of the insolvents. On the other hand it has been held in Greening V/s. Clark (1825) 4 B. & C. 316 and Webb V/s. Whinney (1868) 18 L.T. 523 that the possession of a pawnee is not the possession of the insolvent pawnor. So also in The Lincoln Waggon and Engine Co V/s. Mumford (1879) 41. L.T. 655 it was said by Stephen ]". If one person deposits a chattel with another, and borrows money upon that chattel, it cannot be said that it is in the possession or apparent possession of the person creating such a charge upon it. So much for the question of the respective rights of the pledgor and pledgee in the goods pledged. I return to the question as to whether the equity of redemption in these goods pledged is itself included in the definition of goods in clause (c). Mr. Krishnaswamy Ayyar for the respondents points to the analogies in Section 41 of the Transfer of Property Act and Section 108 of the Contract Act. They are both instances of holding out by the true owner and he contends that the case under clause (c) is the same. There must in the sections cited be an express or implied representation by the true owner that the ostensible owner is authorized to deal with the land or goods as the case may be. It is said the same applies here. It must be goods actual, tangible concrete things-not intangibles such as an equity of redemption. It is clear that in the chapter (IX) on bailments in the Contract Act goods must have this significance. In this connection the proviso to the clause is important:--Provided that things in action other than debts due or growing due to the insolvent in the course of his trade or business shall not be deemed goods within the meaning of clause (c). Thus debts of the specified character are expressly excepted from things in action which are not to be deemed goods .