BAILMENT

STATE

OF

MAHARASHTRA V. BRITANNIA BISCUIT CO. LTD.

Facts
The respondents manufactured and sold biscuits in tins. In respect to the biscuits sold in Bombay
and its suburbs, the assessee (respondents) charged only for the price of the biscuits. With
regards to the tins, the respondents took a refundable deposit (which was 20% more than the
actual cost of the tin), with the stipulation that if the tins were returned within a period of three
months and in a good condition, the refundable amount would be returned. The assessee
however, did not adhere to this, in practice, and accepted tins even after three months. As per its
accounting practice the assessee wrote off 50% of the outstanding unrefunded deposit for the
assessment year 1967-68 and treated 20% of the deposit amount as profit. The Assessing auth.
treated this amount as sale price of unreturned tins and included the same in the taxable turnover
of the assessee.
Issues:1. Whether there was an obligation upon the purchaser to return the tins or was it a case
where the return or non-return of the tins lay within the discretion of the purchaser?
JUDGEMENT
HISTORY (FAVOURED TAX AUTH.)
The assessees appeal was dismissed by the First Appellate Authority and the Tribunal.
HIGH COURT (FAVOURED ASSESSEE)
1. The HC held that the manner in which accounts are maintained or entries are made in the
account is not conclusive of the matter and the true nature of the transaction has to be
determined on the basis of the precise arrangement between the parties.
2. The arrangement between assessee and purchaser was one of bailment and not of sale
because of an obligation on the assessee to accept the tins returned and a corresponding
obligation on the customer to return the tins.
SUPREME COURT
CONTENTIONS
APPELLANT

1. No such obligation (as observed by HC) can be inferred from the endorsement on the
price list and invoice of the assessee.
2. The return of the tin lay within the discretion of the purchaser as even the time-limit was
not strictly observed in practice and hence the arrangement was one of sale and not
bailment.
RESPONDENT
1. The tins supplied to the purchasers continued to be the property of the respondents and
they were shown as the stock of the respondents in their account books. Therefore, it was
a case of bailment and not sale.
2. The amount written off can be treated at the most as compensation or damages for breach
of the obligation lying on the purchaser to return the tins.
3. There is a difference of approach adopted by Assessing and the First Appellate Auth. and
the approach adopted by the tribunal. While the former held that the sale of tins took
place when the respondent made the entries in its accounts at the end of the accounting
year writing off half the outstanding balance amount, the tribunal understood it as sale of
tins along with the biscuits and held that when the tins were returned and the deposit were
refunded by the respondent, it was the case of purchase of tins by the respondent.
4. For constituting the sale price as defined by SOGA, there must be a specific sale of
goods to a specific buyer and that on the approach adopted by the assessing Auth. and the
First Appellate Auth. no such specificity is identifiable and on such ground sale-price
cant be ascertained.
B.P. JEEVAN REDDY
1. (w.r.t. 1st observation of the HC) SC concurred to this point and said that court should not
be led away by the manner in which the assessee has made entries in its own account but
must look to the substance of the transaction and decide what in truth it amounts to.
2. (w.r.t 1st issue and 2nd observation of the HC) Neither the endorsement on the price list
nor the endorsement on the invoice can be said to create an obligation to return. Also, the
time limit was not strictly adhered to.
3. (w.r.t 1st & 2nd contention of the respondent) Once it is held that there was no obligation to
return the tins the theory of bailment falls to the ground and the said trading receipt cant
be anything but sale price.
4. (w.r.t the 3rd contention of the respondent) Question which was referred by the tribunal
for the opinion of the HC reflect the approach adopted by the Assessing and the First
Appellate Auth. rather than the approach adopted by the tribunal.
5. (w.r.t 4th contention of the respondent) It is unacceptable in the light of the facts that each
customer had an account with the respondent and when a particular no. of tins were
supplied to a customer, an entry was made to the effect in that customers account in the
account books of the respondents besides making an entry in the other relevant account
books of the respondent.

The transaction relates to s, 24 of the Sale of Goods Act as per which the position of the
purchaser, until he returns the good within the prescribed period, is that of a bailee and on
the expiry of the said period he becomes a purchaser.

State of Maharashtra v Britannia Biscuits Co

Facts:
Britannia sold biscuits in Bombay and other states in tins. They sold these
biscuits under two types of agreements: one for Bombay and one for other
states. For other states, they sold the biscuits along with the tins. But for
Bombay, they offered to sell the biscuits in tins which could be returned by
the customers and price of the tins would be refunded back to the
consumers. But this return must be within 3 months of the sale of biscuits
and not after that. Now, certain facts that will help us determine the outcome
of this case:
1. Different types of sale for Bombay and other states.
2. The invoices made when the biscuits were sold, mentioned sale of the
biscuits.
3. The company mentioned that the customers may or may not return the
tins after 3 months and this was totally on the discretion of the customers.
4. The a/c drawn by the company was divided into two parts: one for
returned tins and another for tins which were sold off; this indicated that the
company contemplated that some of the tins could be sold off
5. The 3 month time for return was not strictly adhered to; thus showing the
level of seriousness of the company
Issue:
1. Was there sale or bailment in the present case?
2. What was the actual nature of the transaction?

Ratio:
It was held that there was sale of the tins in the present case. The court
stressed mainly on the intention of the company while selling the biscuits.
Moreover, the court laid stress on the apprehension and intention of the
buyers when they bought the biscuits.
The court primarily said that this was a case of sale because the company
never seriously intended a bailment in this regard. The offer of returnable
tins was intended to lure the buyers into buying the biscuits and there was
no intended bailment. Thus, there was no obligation on the buyers to return
the goods.
The invoices prepared by the company, the management and entries into
the a/c of the company and the fact that the 3 months policy was not strictly
adhered to, all point to the fact that the company never intended to bail the
goods. Also, the policy of the company of different types of sales and also
the fact that the return of the tins was on discretion of the buyers, all these
factors contribute to the fact that there was indeed a sale rather than
bailment.
The buyers also apprehended and intended the transaction to be one of sale
and the clause w.r.t. the return of the goods was just an incidental
promotional offer and nothing more.
Moreover, the presence of dual a/c indicates that there was a contemplation
that the goods would be sold in half the cases.
NATURE OF THE TRANSACTION
The court treated this as a composite transaction. They held that the tins
were first entrusted with the buyers and those who returned, it could be
treated as a return of trust and those who didnt return, it can be treated as a
sale of those goods.
Thus, it can be understood that first there was a sale of goods. Then, for
those who returned, it can be said that the goods were resold by the buyers
back to the seller.

Appealant; The Trustees of the Port of Bombay

v.

Respondant: The Premier Automobiles Ltd.

Facts:- the respondents had imported some machinery, which upon its landing on the Bombay
port was taken charge of by the Board (Appellants). While being transported by the Board's
employees on a four-wheeler trolly to one of the sheds in the docks the case fell down and the
machinery was badly damaged. After carrying out a survey of the damage caused to the
machinery, the respondents gave notice to the Board claiming a large sum as damages. Invoking
the provisions of section 87 of the Bombay Port Trust Act(which provided that the Board will not
be responsible for any misfeasance, malfeasance and nonfeasance of any employee appointed
under this Act) ,the Board denied all liability for the damage caused to the machinery.
High Court held that the Board was a bailee.
Issues:- whether the liability of the Board was that of a bailee?
Decision:- It is well settled that the essence of bailment is possession. It is equally well settled
that a bailment may arise, as in this case, even when the owner of the goods has not consented to
their possession by the bailee at all. The Board was considered as a bailee, and under common
law it would be responsible as a bailee. However, in the instant case, the presence of S. 87 and S.
61B of the Bombay port Trust Act(The responsibility of the Board for the loss, destruction or
deterioration of goods of which it has taken charge shall, subject to the other provisions of this
Act and subject also in the case of goods received for carriage by railways to the provisions of
the Indian Railways Act, 1890, be that of a bailee under sections 151, 152 and 161 of the Indian
Contract Act, 1872, omitting the words `in the absence of any special contract' in section 152 of
the last mentioned Act." ) , the liability was waived.

Trustees of the Port of Bombay v Premier Automobiles Limited

(HC and SC Judgments)

Issues:
1. Whether s 87 of the Bombay Port Trusts Act is relevant for the purpose of s 61B of the
same and whether both of them can be read in conjunction with one another.

2. If yes, can the Bombay Port Trust be held responsible for the acts of its employees
employed under the act?

Rule:
1. S 61B of BPT Act: "The responsibility of the Board for the loss, destruction or
deterioration of goods of which it has taken charge shall, subject to the other
provisions of this Act............be that of a bailee under Sections 151, 152 and 161 of the
Indian Contract Act, 1872, omitting the words "in the absence of any special contract" in
S. 152 of the last-mentioned Act.
2. S 87 of BPT Act: No suit or other proceeding shall be commenced against any person for
anything done, or purporting to have been done, in pursuance of this Act, without giving
to such person one month's previous notice in writing of the intended suit or other
proceeding, and of the cause thereof, nor after six months from the accrual of the cause of
such suit or other proceeding.
The Board shall not be responsible for any misfeasance, malfeasance or nonfeasance of any employee appointed under this Act."
Analysis
1. Unlike what was claimed by Premier Automobiles held by the HC, the SC held that s 87
was relevant for the purposes of s 61B and the two sections were not unrelated and hence
in applicable to one another as held by the HC.1
2. To establish this argument, the SC relies on a number of authorities and holds that in
absence of a contract, bailment is essentially a tortious obligation and since the primary
contention of Premier is that BPT is liable in the capacity of a bailee, the distinction
between the liability under s 61B and s 87 (see footnote 1) is non-existent and hence s 87
can be applied to s 61B.
3. If s 87 can be applied to s 61B, then the liability of the BPT is expunged by the virtue of
the provision in s 87(2) and the fact that the employees of the BPT who were negligent
were employees appointed under the act.
1 The HC held that despite the provision in s 61B that the liability of the Port Trust was subject to other

provisions of the act, the exemption in s 87 was not applicable as s 61B and s 87 dealt with
fundamentally different matter. While s 87 dealt with a tortious liability, s 61b dealt with a statutory
liability.

4. The SC also rubbishes out the Bombay HC arguments which hold that s 87 does not
modify the common law relating to vicarious liability (whereby a master was held to be
responsible for the torts of his servant committed in the course of employment) which the
HC seeks to establish by utilizing several principles of statutory interpretations under
which a modification to the common law cannot be presumed unless there is an express
legislative stipulation to that effect.
5. Thus finally the SC reverses the judgment of the HC and the trial court and expunges the
liability of the BPT.
Significance of the Case:
1. The case makes a significant point about the nature of bailment. It emphasizes that bailment
can arise in absence of a contract and when the bailment is non-contractual, it is essentially a
tortious relationship.2

Name Trustees of the Port of Bombay v Premier Automobiles

Limited
Year 1980
Court Supreme Court Of India
No. Of judges 1
Topic
Facts
Respondent imported some cases from Italy which contained some
machinery and which was to be landed on the Bombay port.
The board was in charge to receiving all the consignments there and so
they received the consignment and reported that it is damaged when it
landed on the port during the journey.
While shifting the case to a shed, it slipped off the trolley and was
severely damaged. There were many employees of the board who were
there at the spot.
Respondent asked appellant for the damages which has caused to him
because of their negligence.
But board denied their liability stating that it was already damaged
2See para 13 of SC judgment for more.

when it was landed on the port and due to that it slipped off the trolley
and they are not liable in any case.
Trail court decreed in favour of the respondent and the same was
confirmed by the high court.
Because of the above reason, the present appeal has arisen.
Issues
Whether there is relationship of bailee and bailor between respondent
and the appellant.
Whether the board is liable for the acts done by their employees.
Whether the plaintiffs in fact, or in substance, founded their claim on
the alleged breach of the statutory duty under section 61B and, if so,
what is its bearing on the suit.
Rationale
In so far as the "responsibility" of the Board for the loss, destruction or
deterioration of the goods of which it had taken charge was concerned,
it was clearly that of a bailee.
It is well settled that the essence of bailment is possession. It is equally
well settled that a bailment may arise, as in this case, even when the
owner of the goods has not consented to their possession by the bailee
at all.
It is sufficient if that possession is within the knowledge of the person
concerned. It follows that a bailment may very well exist without the
creation of a contract between the parties and it essentially gives rise
to remedies which, in truth and substance, cannot be said to be
contractual.
When the action was by way of tort, and was, at any rate, rested on
sect ion 61B, it was necessary for the High Court to give full meaning
to what that section provided and to give effect to paragraph 2 of
section 87 if it had a bearing on that section as was canvassed at
length all through the litigation.
The protection which the Board enjoys is thus confined to the tortious
acts of the employees appointed under the Act, while the Board is
answerable for any such act committed by the vast majority of its
lesser employees who do the main work of actually handling, loading,
transporting, storing etc. of the goods handled on behalf of the Board
in the exercise of its statutory powers.
What the High Court did not properly appreciate was that such a
liability or responsibility of the master could not possibly arise in a case
where the statute intervenes, and provides, in express terms, that the

master shall not be responsible for any act of misfeasance,

malfeasance or non-feasance committed by a special class of its
employees.
The liability of the Board is no more than that of a bailee under
sections 151, 152 and 161 of the Contract Act. As we have pointed out,
bailment is a concept correlated to possession, and w hen that is
admittedly not contradicted in this case, it is really a liability in tort and
the so- called liability under section 61B of the Act means no more and
no less than this.
We should not therefore be taken to have expressed any opinion
about the validity of the bye-laws in question. It will be sufficient for
us to say that the decision here or below will not be conclusive of
their validity or invalidity for purposes of the present case or like
controversy.
Result In the result, the appeal succeeds and is allowed. The judgment
and decree of the High Court are set aside and the suit is dismissed. In
the circumstances of the case, the parties shall pay and bear their own
costs throughout.
Bombay High Court judgment
Issues
Whether the Port Trust is at all liable. Unfortunately Issue No. 1
poses the question thus "whether the defendants are not liable to
the plaintiffs by reason of the provisions of Section 87 of the
Bombay Port Trust Act as alleged in para 1 of the Written
Statement."
Whether Section 87 was inconsistent with Article 14 and/or Article
19 (1) (b) of the Constitution and therefore void.
Section 61-B in terms says that it is "subject to the other provisions
of this Act" and therefore it is subject also to S. 87 para 2 and if the
defendants are exonerated under para 2 of Section 87, they would
equally be exonerated under Section 61-B
Rationale
The law had to provide that during the period of the statutory
possession the goods should be safeguarded and also prescribe the
limits of the Boards duty to safeguard. That is why Section 61-B was
brought into force.
Section 161 of the Contract Act lays down the bailee's responsibility
when goods are not duly returned and it says that if, by the fault of
the bailee the goods are not returned, delivered or tendered at the
proper time, he is responsible to the bailor for any loss, destruction
or deterioration of the goods from that time.

 Section 61-B does not say they shall be deemed to be bailees or

that they are bailees but only that their responsibility shall be that
of a bailee as described in the stated sections of the Contract Act.
Therefore at the most all that can be said of their responsibility or
duty towards the goods or the owner of the goods is that they are
under a statutory duty imposed by Section 61B and nothing more.
The expression "subject to the other provisions of this Act" must
necessarily imply that it is subject to such other provisions of the
Act as are relevant for consideration and applicable having regard
to the subject-matter of Section 61-B. The provisions of Section 87,
para 2 are upon a totally different subject with which Section 61-B is
not at all concerned.
From the statement in para 2 of Section 87 it does not follow by
"necessary implication" nor is there an expression of intention with
"irresistible clearness" that it was the intention to nullify the
principles of common law till then operative and to exonerate the
Port Trust from all torts committed by its employees even though
they may be acting in the discharge of their duties and for the
benefit of the Trust.
If liability under Section 61-B is as we have said separate and
distinct and the Port Trust can be sued, we do not see much point in
providing that they shall not be liable for torts, under the normal
law
. The learned Judge held that the provision of the bye-law that the
Board will not be answerable or liable for any losses or deficiencies
in the goods unless they are acknowledged by the Docks Manager
is inconsistent with the provisions of Section 61B and therefore
invalid.
No bye-law made under an Act can claim to nullify or modify any
provisions of an Act unless the Act itself so provides and there is no
such provision in the Bombay Port Trust Act nor was any other
provision pointed out.
Section 61-B is concerned it includes the responsibility both of the
Board as well as of its employees and there is nothing to compel us
to make the distinction between the employer and his servants or
agents so far as Section 61-B is concerned.
Result These were all the contentions raised in this appeal and in our
opinion the contentions fail. The appeal is dismissed with costs

United Breweries v State of Andhra Pradesh

10

Facts:
In this case, UB sold two types of beers to the customers. Now, we have to
consider how the sale was made. UB sold the bottles/crates to the selling
agents who would then sell to the customers. The selling agents were
supposed to deposit certain amount with UB while buying beer, for the
bottles/crates which were returned as soon as the bottle/crates were
returned. (Bottles/crates will now be referred to as goods and beer as beer
only).
Now, the sales tax officer, claiming the sale to be one of goods as well,
wants to impose tax.
Certain facts which need to be considered:
1. UB took a deposit of 4-5 rupees from selling agents which was actually
very less than the real value of the goods.
2. UB maintained a very proficient system of delivery of beer to the selling
agents whereby the drivers of the trucks carrying the beer bottles would
have to take receipts of each and every good that was returned and
depending on that record, the deposits were returned.
3. The customers had to pay deposits and had to mandatorily return the
bottles.
4. UB followed this practice uniformly throughout India and maintained one
type of a/c.
Issue:
Was there sale or bailment in this case?
Ratio:
It was held that there was bailment of bottles in the present case. What has
to be mainly seen is that intention of the parties. In the present case, UB
intended the goods to be strictly returned after the sale. Also, the customers
also apprehended and intended this to be a bailment and not an out and out
sale.
All this is very well proven from the facts. The deposit was way less than the
actual value of bottles. Thus, had UB intended to sell off the bottles, it could
have charged way more.

11

Also, the customers also intended to return the bottles and crates after use
and get back their deposits.
The selling agents, through their system of receipts kept a check on the no of
bottles/crates being returned.
One major fact was that a fresh supply of beer was made to the dealers only
on return of the goods and not before that.
Finally, it could be shown that a substantial amount of goods were returned
which pointed to the seriousness of the bailment system followed.
Thus, it was held that there was bailment in this case and not an out and out
sale.

Kalyani Breweries v State of WB

Facts:
The applicant carries on the business of manufacturing and selling beer in
bottles. The applicant sells beers in bottles raising separate invoices--one for
the beer simpliciter and another for the deposit of the price of bottles with a
stipulation for return of such containers or bottles to the applicant within a
period of four months from the date of supply. In the event of purchasers
failing to return the empty bottles, the deposit with the petitioner stands
forfeited. If and when such empty bottles are returned, the corresponding
value thereof kept as security is forthwith refunded. There was never any
agreement or contract or any transaction of sale or purchase of such
container/bottles which the customers were obliged to hold in possession for
a limited time as a mere bailee without any right or title or interest therein.
Issue:
Was there a bailment or sale?

12

Ratio:
It was held that there was an out and out sale of the goods and not a mere
bailment.
This was decided mainly because of the facts w.r.t. the a/c maintained. It
proved that there was no intention on part of Kalyani to take back the
bottles. The company automatically forfeited the deposits, if the customers
failed to return the bottles only after 4 months. The customers were required
to deposit for the beer bottles a rate which was exactly equal to the cost of
the bottles. This suggests a sale more strongly than the intention to get them
back upon bailment.
Also, the consumers were not informed of the fact that they were supposed
to seriously return the goods and that in the absence of such notice to the
bailees, there can be no such bailment.

State of Bombay v Memon Mohammed Haji Hasan Facts:

The customs authority of the state seized two trucks, station wagon and
other goods of the respondent on charges of smuggling. Later on, the
revenue tribunal set aside the charges thereby ordering the return of the
seized property. Now, the government sold off the said property by a public
auction and gave the sale proceeds to the creditor of the respondent. The
respondent wants to sue the government for wrongful conversion of goods
which it held as a bailment b/w the time the property was seized and the
revenue tribunals order was passed.
Issue:
1. did this amount to bailment i.e. whether a bailment is strictly contractual
or can be sui generis as well?
2. What is the duty of care imposed on a bailee towards the goods bailed?
Ratio:

13

1. It was held that bailment is not restricted to a contractual relationship but

is a legal concept which is sui generis and can arise in any relationship where
the goods are kept in the custody/possession of another with or w/o any
contract.
In the present case, the custom authority was acting as a bailee from the
time the trucks were seized to the time the revenue tribunals order was
passed. This relationship arose out of a general understanding on part of the
government to take reasonable care of the confiscated goods.
2. It was held that as bailees, the government was supposed to take
reasonable care of the goods bailed and ensure that there is no wrongful
conversion of the goods which causes a loss to the bailor. The government
mustve ensured that the goods are duly returned and are not lost before
they are returned. The government failed to exercise such care and thus was
liable to make good the loss to the bailor.

Case Name: Hyman v Nye & Sons

Court: Queens Bench division
Facts: The plaintiff hired from the defendant, a jobmaster, for a specified
journey, a carriage, a pair of horses, and a driver. During the journey a bolt in
the carriage broke, the splinter bar became displaced, the horses started off,
the carriage was upset, and the plaintiff injured. It was noted that the
defendant had no reason to believe there were any defect with the carriage
or the bolts.
Procedural History: The learned judge at the trial told the jury that the
plaintiff was bound to prove that the injury which he had sustained was
caused by the negligence of the defendant; and if in their opinion the
defendant took all reasonable care to provide a fit and proper carriage their
verdict ought to be for him. With that direction, the jury found the verdict for
the defendant. Plaintiff appealed against the direction of the judge.
Issues: Whether the direction of the jury was too much in favour of
defendant? (as the judge did not sufficiently explain the required degree of
care and led the jury to believe the defendant was not liable for defects of
which he knew nothing.)
Rule of law: The defendant in this case can be considered an insurer
against all defects which care and skill can guard against. He has to show

14

that the break down was in the proper sense of the word an accident not
preventable by any care or skill.
Analysis: The hirer trusts the lender to supply a fit and proper carriage; the
lender has it in his power not only to see that it is in a proper state, and to
keep it so, and thus protect himself from risk, but also to charge his
customers enough to cover his expenses.
In a case like the present, a carriage has to be reasonably fit and proper. It
must be as fit and proper as care and skill can make it for use in a
reasonable and proper manner
It is not at all unreasonable to exact such vigilance from a person who makes
it his business to let out carriages for hire.
The defendant had to show in this case that the accident was not
preventable by him by exercise of any skill. He did not show the same in the
initial trial.
Conclusion: It follows that the direction given to the jury did not go far
enough, and that it was not sufficient, in order to exonerate the defendant
from liability for him to prove that he did not know of any defect in the bolt.
New trail should be initiated.

Coggs v. Bernard
[1558-1774] All ER Rep 1
Court of Queens Bench

Facts:
Plaintiff (C) declared that defendant (B) agreed to take several hogsheads of brandy from a
cellar in D on 10-nov-1701, and transfer them safe and secure in another cellar in Water Lane, in
London. But B, his servants and agents, were negligent, causing one of the casks to be staved,
spilling a lot of brandy. B pled not guilty, but the lower court passed a judgment in Cs favour.
There arose a motion in arrest of judgment that the declaration did not allege that B was a
common porter and did not state any form of consideration as reward. So B is not chargeable by
his trade and a private person cannot be charged in an action without a reward.
Gould, J.:
Any man undertaking to carry goods is liable to an action, if through his neglect the goods
are lost or harmed, whether or not he was receiving any consideration for his services. The

15

reason for this action is that a particular trust was placed in B, in the execution of which, he was
negligent. The bailee should protect the goods as he would his own. But if a man takes upon
himself expressly to do the work safely and securely, and goods are stolen or damaged, the
person shall be held liable as he had the goods committed to his custody due to his own
assurance.
Powell, J.:

Question: whether an action will lie against a man who carries as a friend, when no particular
neglect is shown.

Holds: Action will lie. Following three justifications:

1.

Authorities are in favour: Various cases cited are all in point and the action is
adjudged to lie upon the undertaking, and thus the undertaking is held to be the matter
traversable.

2.

Reasons: The gist of the above cases is the undertaking. The bailees special
assumption and undertaking puts him under an obligation to do the task such that the
bailor comes to no harm by his neglect.

3.

The bailee in such a case would be liable even if damage occurs due to
accident, except when accident occurs due to Act of God [as per Williams v. Lloyd]. In
such cases, a charge lies against the bailee also because the bailee usually has a remedy
against the wrongdoer, such as a case of robbery, etc. In case he doesnt, no charge shall
lie against him.

4.

Another objection is that there is no consideration to ground the action upon.

The difference lies between being obliged to do the thing, and answering for something
that one has taken into ones own custody as an undertaking.

5.

An action cannot lie if sufficient care is not taken for want of adequate
consideration; however, if bailee takes goods into custody, he is answerable for them as
taking goods into custody is his own act. Bailor trusts bailee with goods based on a
warranty provided by the bailee which forms the basis of the trust, without which the
bailor would not have entrusted the bailee with the goods. This warranty may be without
any consideration. So if bailor reposes a trust in the bailee based on the bailees
undertaking, and suffers, the bailor must have an action [as per Countess of Salop v.
Crompton].

6.

Southcotes Case: It is a strong authority as it takes general bailment to be an

undertaking to deliver goods at all events, so judgment is founded upon the undertaking.

16

General bailment, however, cannot be said to be a special undertaking to keep the goods
safely against all events. But if a person does undertake specially to keep goods safely,
that is give the bailor a warranty, then the bailee is obliged to take care and in case of a
folly, bailor shall have an action against him.
Sir John Holt, C.J.:

6 types of bailment:
1. depositum: delivery of goods from bailor to bailee, to keep for use of bailor.
2. commodatum: goods that are useful are lent to a friend gratis to be used by him. The
thing is to be restored in species.
3. locatio et conductio: goods are left with bailee to be used by him for hire.
4. vadium (pawn or pledge): when goods are delivered to another as a pawn, to be a security
for him for money borrowed of him by the bailor.
5. When goods are delivered to be carried or something is to be done about them for a
reward to be paid by the person who delivers them to the bailee who is to do the thing
about them.
6. When there is a delivery of goods to somebody who is to carry them or do something
about them gratis, without any reward (as in the present case).

As in depositum, the bailee should not be held responsible for loss or damage, unless there is
some gross neglect on his part. A great authority Southcotes case, says otherwise. But, as
stated above, there is no justice is in such a case of general bailment where the bailee has no
reward, keeps goods merely for the bailors use, yet is made responsible for anothers default.
A number of authorities support this view. A bailee should not be charged, other than when
there is gross neglect on his part. Also, bailee should be a capable person, else the its the
bailors fault for trusting an incapable person, bailee in such a case should not be charged.

As to commodatum, borrower is bound to strictest care and diligence to preserve and restore
goods as good as they were received as bailee has the benefit of use of these goods. The
bailee should be chargeable for the least neglect. Bailee must use utmost care, but yet shall
not be chargeable where the cause of loss or damage is outside his control.

As to locatio et conductio, bailee is required to take utmost care, and return goods when time
of hiring has expired. If goods are let out for reward, bailee is bound to utmost diligence; but
shall not be liable if loss or damage is due to unforeseeable events such as robbery.

17

As to vadium, it depends on what property the pawnee has in the pawn, and also for what
neglects he shall make satisfaction. If the goods pawned are such that can be used by the
pawnee, the pawnee must do so at his own peril. But if the pawnee has kept them locked, and
they are stolen after the lock is broken, the pawnee shall not be charged. But if he is using
them, and is robbed, he shall be charged. This is because a pawn is in the nature of a deposit,
and not liable for use as such. The law requires nothing extraordinary of the pawnee, but that
he takes a reasonable degree of care.

As to the 5th type, it can either be delivery to a public entity or a private person. In the first
case, the common carrier, getting a reward, is bound to answer at all events except for acts of
God or the enemies of the King. The law is so founded to ensure the safety of persons dealing
with such common carriers. In the second case, the bailee, even if he is getting a reward, is
only expected to do the best he can. He is expected to exercise reasonable care and shall not
be answerable if goods are stolen after he has kept them locked.

As to the 6th type, if damage is due to an unforeseen event, such as a drunken man coming
and piercing the cask in this case, the baile is not chargeable. If, however, damage is due to
the bailees neglect, it is called mandatum, and the bailee is certainly answerable. An
undertaking of this sort obliges the undertaker to a diligent management.
This reasoning sounds just because:
1. In such a case, neglect is a form of deceit. When bailor instructs bailee to be careful upon
his undertaking, his being negligent implies a fraud on his part wherein the pretence is of
his level of care towards the bailors goods which induced the bailor to trust him.
2. To the objection of no consideration, the bailors trust in the bailee to take care of his
goods is consideration enough. As the undertaking was by the bailee, it implies an
assurance of the bailors trust by the bailee, now if the bailee defies this trust, he should
be held chargeable.

Held: Judgment for Plaintiff (C).

Name K.H. Enterprise v. Pioneer Container

Year 1994
Court Privy Council

18

No. Of Judges 5
Topic Relationship of bailor and bailee through sub bailment
Facts
Appellants were the owners of the cargo which was present in the ship
belonging to the respondent.
During the voyage, the ship was collided with the fog and sank with the
cargos belonging the plaintiff.
Thereafter, plaintiff brought a case against the respondent for the damages
which have been caused to them due to the incident.
The ship was arrested but was released due to some protection and
indemnity of some amount.
The ship-owners submitted a motion in the high court of Hong Kong stating
that the exclusive jurisdiction to try this case vests with the Taipei court and
are to be governed by the Chinese law as agreed under the contract.
Justice Sears initially considered the defence of the respondent that the
exclusive jurisdiction to try this case vests with the Taipei Court but later
decided that plaintiff is in fact right in contending that he cannot claim the
suit in Taipei as it has been barred by time there.
The appeal was made by the respondent at the Court of Appeal Of Hongkong
and the it decreed it favour of the respondent due to which the present
appeal has arisen.
Plaintiffs Contention
The claim should not be proceeded in Taipei because the suit has become
time barred there.
On ordinary principles of law, there was no contractual relationship between
them and the shipowners; and accordingly these two classes of plaintiff have
claimed that the exclusive jurisdiction clause, cl. 26, is not binding upon
them.
since none of their claims are contractual in nature, they do not fall within cl.
26. Here they rely not only on the fact that there is no contractual
relationship between the Hanjin and Scandutch plaintiffs on the one hand,
and the shipowners as sub-bailees on the other;
Issue
Whether the shipowners can rely, as against the Scandutch and Hanjin
plaintiffs, on the exclusive jurisdiction clause (cl. 26) in the feeder bills of
lading to which these plaintiffs were not parties.

19

Rationale
If the bailee of a thing sub-bails it by authority, there may be a difference
according as it is intended that the bailee's bailment is to determine and the
third person is to hold as the immediate bailee of the owner, in which case
the third person really becomes a first bailee directly from the owner and the
case passes back into a simple case of bailment.
On the authority of the case of Gilchrist Watt, their Lordships have no
difficulty in concluding that, in the present case, the shipowners became on
receipt of the relevant goods the bailees of the goods of both the Hanjin
plaintiffs and the Scandutch plaintiffs.
To the extent that the terms of the sub-bailment are consented to by the
owner, it can properly be said that the owner has authorised the bailee so to
regulate the duties of the sub-bailee in respect of the goods entrusted to him,
not only towards the bailee but also towards the owner.
A sub-bailee under an unauthorised sub-bailment which he knew to be
unauthorised would likewise be able to invoke all such terms against the
owner who sought to hold him responsible as bailee.
A sub-bailee can only be said for these purposes to have voluntarily taken
into his possession the goods of another if he has sufficient notice that a
person other than the bailee is interested in the goods so that it can properly
be said that (in addition to his duties to the bailee) he has, by taking the
goods into his custody, assumed towards that other person the responsibility
for the goods which is characteristic of a bailee.
The mere fact that Himalaya clause is applicable cannot in their Lordships'
opinion, be effective to oust the sub-bailee's right to rely on the terms of the
sub-bailment as against the owner of the goods.
Their Lordships do not consider that it can possibly be said that the
incorporation of such a clause in a bill of lading is per se unreasonable.
They consider that the incorporation of the relevant clause in the subbailment would be in accordance with the reasonable commercial
expectations of those who engage in this type of trade.
The truth of the matter was that the plaintiffs had deliberately and advisedly
allowed the time-limit to expire in Taiwan. As to security, there was no
evidence that the defendants would not be able to satisfy any judgment
given against them in Taiwan.
When the Court of Appeal came to exercise their own discretion in place of
that of the judge, they were faced with the simple fact that the plaintiffs had
deliberately allowed the time bar to elapse in Taiwan.
Result The appeal should be dismissed. The appellants must pay the
respondents' costs before their Lordships' board.

20

Morris v C. W. Martin & Sons Ltd.

Morris v CW Martin & Sons Ltd [1966] 1 QB 716 is an English tort law case,
establishing that sub-bailees are liable for the theft or negligence of their
staff. Both Lord Denning and Lord Diplock rejected the idea that
a contract need exist for a relationship of bailor and baileeto be found.
Accordingly, it established an authority in vicarious liability, that employers
are fully liable for the thefts - by employees - of goods that they have a duty
to take care of.[1]
Mrs Morris, the owner of a mink stole, sent her coat to a furrier in London,
named Solomon Mark Beder.[3] In a telephone exchange, Mr Beder stated that
he did not do any cleaning himself, and that it was sub contracted to the
defendant firm, CW Martins & Sons Ltd. They themselves were 'well-known',
'reputable' cleaners,[3] and it was agreed that the fur coat would be sent to
them. Upon collecting the fur coat, the defendant company did so under the
terms of "The Fur Dressers and Dyers Conditions of Trading, 1955"; while it
was in their possession, it was lost. Mrs Morris sued CW Martins & Sons Ltd,
claiming that they had not exercised reasonable care in maintaining the coat;
this argument was turned down by the first trial judge, who believed that the
defendants took reasonable care to safeguard the coat. [4] Additionally, he
stated that the acts of the defendant's employee, in stealing the coat, were
not committed in the course of his employment, and thus the employer could
not be liable for them.
Lord Denning established that the key question to creating liability was
whether Mrs Morris could sue the cleaning firm for the theft of their
employee:
"Mr. Beder could clearly himself sue the cleaners. But can the plaintiff sue
the cleaners direct for the misappropriation by their servant?"[5]
Denning argued that she could, stating that a duty of care was owed by the
sub-bailees to take reasonable care of the fur coat. This duty was nondelegable, in that they themselves were personally liable for
the conversion of their employee, in stealing the coat:

From all these instances we may deduce the general proposition th

21

also if the servant or agent himself steals them or makes away wit

This judgment had several effects. Denning was explicit in overruling the
previous authority of Cheshire v Bailey,[6] and creating a general duty of subbailees to take due care in the possession of goods. In doing so, both
Denning and Diplock LJ rejected the trial judge's emphasis on contract
theory; it is clear there was no contract between Mrs Morris and the eventual
cleaners. However, the relationship of bailor and bailee of a chattel can exist
outside of a contract,[7] it was the existence of this relationship that gave rise
to a duty in Diplock's view.

Case Name: Lakshmi Narayan Baijnath v Secretary of State

for India
Court: Calcutta High Court
Facts: The plaintiff alleged that he contracted to sell jute to the National
Jute Mills, and made over sixty-eight bales of jute to the Eastern Bengal
Railway at the Khalubali Station for carriage to the jute mills at Rajgunj and
that in the course of transit the jute got damaged. The goods after arrival at
Chitpur Ghat were transshipped into a boat of the Calcutta Shipping &
Landing Company by 10 A.M., on the 20th September, 1916 and the boat
was detained at the ghat for the day. On the night on the 21st September,

22

there was a severe cyclone and the boat sprang leaks as it bumped against
the other boats and the jetty to which it was securely fastened during the
cyclone and damaged the goods. As a consequence of which the jute mills
refused to take the same and the plaintiff had to sell it (after notice to the
Railway Administration) at a loss. The defendant did not deny that the goods
were damaged but the defence shortly stated was that they were damaged
by an act of God in a severe cyclone during transit and that he was
consequently not liable for damages.
Procedural History: The Court of first instance decreed the suit holding
that the defendant did not take proper care of the goods during transit, and
that the consequences of the act of God would have been avoided had
proper care been taken. On appeal that decree was reversed, and the
Plaintiff has appealed to this Court.
Issues: Did the defendant, in sending the bales of jute in a leaky boat from
the Chitpur Ghat to Rajgunj did, act as a man of ordinary prudence would
have done under similar circumstances with his own goods?
Rule of Law: Section 151 of the Contract Act lays down that in all cases of
bailment, the bailee is bound to take as much care of the goods, bailed, to
him as a man of ordinary prudence would under similar circumstances, take
of his own goods of the same bulk, quality and value as the goods bailed.
Analysis: The question in this case is a question of interpretation of facts in
the case and not a question of law.

It is found that the boat while fastened to the jetty at Chitpur Ghat
during the cyclone had bumped against the jetty and, other boats and
had sprung 20 to 30 leaks of 1 or 1 1/2 inches in length.
The degree of the care required of a carrier in dealing with goods
depends upon and varies with the nature and condition of the thing
carried. Had the goods been of such a nature that they would not have
been damaged even if carried in a leaky boat, and left in the hold of
the boat for thirty hours, the pumping out of the water would be
sufficient to show that reasonable care was exercised.
Bales of jute would be wet and damaged by water entering the boat;
the defendant's agent must have been perfectly aware of the same.
Therefore, a man of ordinary prudence would not have sent the bales
of jute in boat with 20 to 30 leaks of 1 or 1 1/2 inches inlength.

23

Conclusion: The Defendant as a bailee was bound to use all reasonable

care, skill and diligence to avoid the consequences of an act of God. By
allowing the jute to remain in the hold of the boat for 30 hours did not take
as much care of the goods as a man of ordinary prudence would under
similar circumstances take of his own goods of the same bulk, quality and
value.
The decree of the lower Appellate Court is set aside and that of the Court of
first instance restored.

Coastal Oil Mills v Andhra Pradesh Industrial Development

Corp and others
(Third party in bailment)

Facts: Plaintiff (bailor) sent a quantity of tobacco seed oil to the 3 rd

defendant (bailee) for refining. The bailee receives financial
assistance from the 1st defendant and had an agreement to
hypothecate all of his goods to 1st defendant. Bailee processed
about half of it before the 1st defendant --AP Ind. Dev. Corp (3rd
party) seized the bailees factory due to default by the bailee in
their inter-se payment schedule. The bailee tried to get the 3 rd
party to release the bailors stock of oil but the 3 rd party refused.
Bailor tried to make representation of his title to the 3 rd party but
the 3rd party refused and was toldto sell off the stock by auction
after the 2nd defendant (another bank transacting with the
defendants) filed a petition. By this time most of the stock
perished and became unfit for its intended purpose. Bailor filed a
case in HC for declaration of his title and recovery of the value of
the goods + interest (about 12 lakhs).
Issues:
Whether the bailor is entitled to declaration of his right, title
and interest in the goods

24

 Whether the bailor can recover the cost of the goods and
interest
Whether the 3rd party (and 2nd defendant) are necessary
parties to the suit
Trial court declared that the bailor does indeed have title over the
goods but said the amount payable is only about 9 lakhs. Bailor
was not satisfied by the amount and appealed again.
3rd party contended that since trial court has established title, the
plaintiff must accept the trial courts valuation as well and said it
was not liable for non-delivery for the goods as the 2 nd
defendants petition decreed it to sell off the stock.
Relevant sections:
S160 ICA- bailees duty to return goods when purpose of bailment
is accomplished.
S161- If bailees doesnt return goods due to some default by him
he is responsible for any loss
S167- if an 3rd party claims the bailed goods he may apply to the
court to stop delivery and decide the title
S171- general lien of banker
Final decision:Court held 2nd defendant liable to pay a revised
amount to plaintiff as it was on the 2nd defendants instance that
the stocks were wrongfully withheld and partly auctioned away
and that the 2nd defendant failed to establish lien over the goods.
Bailee is held not liable, neither is the 1st defendant.
Messrs KalloomalTapeshwari Prasad vs Messrs Rastriya Chemicals and Feritilizers
(Particular lien of bailee)
Facts: Bailor (respondant) had agreed with bailee (appellant) to send 5000 metric
tonnes of fertilizers fro storage in baileesgodown. Bailor ended up dispatching a lot
more than 5000 and as a result the bailee had to make alternative arrangements at
a higher rate and bear huge additional costs. Bailee refused to return the goods

25

until the bailor paid these extra costs pursuant of his rights under S170 of the ICA.
Bailor tried forcibly removing his goods and bailee filed a suit for permanent
injunction to restraint the bailor from removing the goods until he pays the
outstanding dues
Issue: Was the bailee entitled to lien over the goods?
Section 170: Bailee' s particular line.- Where the bailee has, in accordance with the
purpose of the bailment, rendered any service involving the exercise of labour or
skill in respect of the goods bailed, he has, in the absence of a contract to
the contrary, a right to retain such goods until he receives due remuneration for
the services he has rendered in respect of them.
Decision: S170 applies only to situations where labour and skill have been applied
to the goods bailed so as to improve the goods bailed. The bailee was only required
to transport and store the goods and hence it was decided that no labour, skill or
improvement in the goods to entitle him enforce the lien. Also, there was a clause in
their bailment contract than prevented any exercise of lien by the bailee, and hence
the bailees suit fails on this ground as well. Held that he has right to recover the
extra charges by separate suit but his lien is unenforceable.

Kalloo Mal v Rashtriya Chemicals and Fertilisers Ltd., AIR 1990 All 214:-

Facts:- Respondent was a PSU dealing with the manufacture and sale of Chemicals and
fertilizers. For the purpose of sale, the defendant company appointed buffer stockists in various
towns, the appellant being the buffer stockist for Kanpur. According to preamble of this
agreement, the appellant was appointed as Company's stockist for 'handling and storage of
fertilizers'. A clause in this agreement stated that"The stockist or their creditors shall have no right on Company's stocks of fertilizers and/or other
articles belonging to the Company, either by way of lien or otherwise, under any circumstances
whatsoever."

The controversy was that while the plaintiff was required to provide godown accommodation for
5000 metric tonnes of fertilizers, the respondent despatched much larger quantities thereof and
the appellant had to make alternative arrangement for the same at a higher rate. Since the
respondent failed to pay the same, a huge sum of money became outstanding against the
respondent and, therefore, the plaintiff asserted his bailor's right under Sec. 170 of the Contract
Act and refused delivery of goods on the directions of the defendant.

26

Issues:- Whether the appellant has the right of Bailees lien?

Decision:- the provisions of S. 170 of the Indian Contract Act are quite rigid, i.e. a right to
particular lien arises only when labour and skill has been used, and this has led to the
improvement of the goods bailed. Furthermore, there should not be an agreement to the contrary.
In the instant case, due to the above mentioned clause, a contract to the contrary had been
brought into effect and thus S. 170 could not be invoked. Secondly, the appellant as stockists is
not required under the contract of bailment to render any service to spend his labour and 'skill in
respect of the goods bailed. Therefore, there is no right of lien under S. 170.
EH Parakh v McKenzie
Pertinent facts according to trial court:
(1) That as a result of a settlement arrived at between the parties, the Willys-Knight Car
which belonged to Mr.Parakh, was sold to Messrs. Mackenzie & Co., and the property in
the car passed to them on 1st April 1929;
(2) that Messrs. Mackenzie & Co., refused to take delivery of the car though Mr.Parakh
was always ready to deliver the same;
(3) that there was a breach oE contract on the part of Messrs. Mackenzie & Co., when
they refused to take delivery of the car; and
(4) that a sum of Es. 4, 630-7-0, was due to Mr.Parakh from Messrs. Mackenzie & Co.,
on account of the price of the car, Es. 707, on account of garage and other charges,
total Rs. 5, 337-7-0. It was also found that Es. 3, 047-11-0, were due by Mr.Parakh to
Messrs. Mackenzie & Co. Thus Mr.Parakh was given a decree for the balance which
amounted to Rs. 2, 289-12-0. The result of this judgment coupled with the events which
have followed was this:
(1) From 1st April 1929 the property in the car passed to Messrs.Maokenzie& Co.; (2)
they did not pay to Mr.Parakh the amount due to him till 12th October 1931; and (3) on
payment of the amount due under the aforesaid decree, Messrs. Mackenzie & Co.,
became entitled to take delivery of the car.
Issues: Did the bailee have lien over the goods for the period he claims? (the only
pertinent issue for our exam)
Decision: The bailee did not do anything to improve the goods by exercise of labour or
skill but only stored it, hence no lien under S170 of ICA

27

RD SaxenavsBalram Prasad Sharma

Appellant is an advocate and had been representing the respondent- a bank
through its managing director- in cases for about 3 years. Bank decided to
terminate this relationship and told the advocate to return all the case files
he had in his possession. Advocate refused and instead sent a bill for his
balance/dues owed to him by the bank and claimed lien over the case files

Arguments:
In this appeal learned counsel for the appellant contended that the failure
of the Bar Council of India to consider the singular defence set up by the
appellant, i.e., he has a lien over the files for his unpaid fees due to him,
has resulted in miscarriage of justice.
The bank contended that there was no fee payable to the appellant and the
amount shown by him was on account of inflating the fees. Alternatively,
the respondent contended that an advocate cannot retain the files after the
client terminated his engagement and that there is no lien on such files.
Decision:We would first examine whether an advocate has lien on the files
entrusted to him by the client. Learned counsel for the appellant
endeavoured to base his contention on section 171 of the Indian Contract
Act which reads thus :
"Bankers, factors, wharfingers, attorneys of a High Court and policybrokers may, in the absence of a contract to the contrary, retain, as a
security for a general balance of account, any goods bailed to them; but
no other persons have a right to retain, as a security for such balance,
goods bailed to them, unless there is an express contract to that effect."
Files containing copies of the records (perhaps some original documents
also) cannot be equated with the "goods" referred to in the
section.The advocate keeping the files cannot amount to "goods
bailed". The word "bailment" is defined in section 148 of the Indian
Contract Act as the delivery of goods by one person to another for some
purpose, upon a contract that they shall be returned or otherwise disposed
of according to the directions of the person delivering them, when the
purpose is accomplished. In the case of litigation papers in the hands

28

of the advocate there is neither delivery of goods nor any contract

that they shall be returned or otherwise disposed of. That apart, the
word "goods" mentioned in section 171 is to be understood in the sense in
which that word is defined in the Sale of Goods Act. It must be
remembered that Chapter VII of the Indian Contract Act, comprising
sections 76 to 123, had been wholly replaced by the Sale of Goods Act,
1930. The word "goods" is defined in section 2(7) of the Sale of Goods Act
as "every kind of movable property other than actionable claims and
money; and includes stock and shares, growing crops, grass, and things
attached to or forming part of the land which are agreed to be severed
before sale or under the contract of sale"
Thus understood "goods" to fall within the purview of section 171
of the Indian Contract Act should have marketability and the
person to whom it is bailed should be in a position to dispose it of
in consideration of money. In other words the goods referred to in
section 171 of the Indian Contract Act are saleable goods. There is
no scope for converting the case files into money, nor can they be
sold to any third party. Hence, the reliance placed on section 171 of
the Indian Contract Act has no merit.

RD SaxenavsBalram Prasad Sharma

Appellant is an advocate and had been representing the respondent- a bank
through its managing director- in cases for about 3 years. Bank decided to terminate
this relationship and told the advocate to return all the case files he had in his
possession. Advocate refused and instead sent a bill for his balance/dues owed to
him by the bank and claimed lien over the case files

Arguments:
In this appeal learned counsel for the appellant contended that the failure of the Bar
Council of India to consider the singular defence set up by the appellant, i.e., he has a
lien over the files for his unpaid fees due to him, has resulted in miscarriage of justice.
The bank contended that there was no fee payable to the appellant and the amount
shown by him was on account of inflating the fees. Alternatively, the respondent
contended that an advocate cannot retain the files after the client terminated his
engagement and that there is no lien on such files.
Decision:We would first examine whether an advocate has lien on the files entrusted to
him by the client. Learned counsel for the appellant endeavoured to base his contention

29

on section 171 of the Indian Contract Act which reads thus :

"Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the
absence of a contract to the contrary, retain, as a security for a general balance of
account, any goods bailed to them; but no other persons have a right to retain, as a
security for such balance, goods bailed to them, unless there is an express contract to
that effect."
Files containing copies of the records (perhaps some original documents also) cannot be
equated with the "goods" referred to in the section.The advocate keeping the
files cannot amount to "goods bailed". The word "bailment" is defined in section 148
of the Indian Contract Act as the delivery of goods by one person to another for some
purpose, upon a contract that they shall be returned or otherwise disposed of according to
the directions of the person delivering them, when the purpose is accomplished. In the
case of litigation papers in the hands of the advocate there is neither delivery of
goods nor any contract that they shall be returned or otherwise disposed of. That
apart, the word "goods" mentioned in section 171 is to be understood in the sense in
which that word is defined in the Sale of Goods Act. It must be remembered that Chapter
VII of the Indian Contract Act, comprising sections 76 to 123, had been wholly replaced
by the Sale of Goods Act, 1930. The word "goods" is defined in section 2(7) of the Sale of
Goods Act as "every kind of movable property other than actionable claims and money;
and includes stock and shares, growing crops, grass, and things attached to or forming
part of the land which are agreed to be severed before sale or under the contract of sale"
Thus understood "goods" to fall within the purview of section 171 of the Indian
Contract Act should have marketability and the person to whom it is bailed
should be in a position to dispose it of in consideration of money. In other words
the goods referred to in section 171 of the Indian Contract Act are saleable
goods. There is no scope for converting the case files into money, nor can they
be sold to any third party. Hence, the reliance placed on section 171 of the
Indian Contract Act has no merit.

Board of Trustees of The Port of Bombay v Sriyanesh Knitters

Facts: Respondent imports certain goods into the Port of Bombay. There was
a dispute between the respondents and customs authorities over import duty
and while this dispute was being settled, the goods were kept in the Port of
Bombay (appellants) docks. After the customs dispute was settled, the
appellant claimed demurrage charges from the respondents for holding the
goods during that period, and when the respondents refused, the appellants
did not hand over the goods claiming general lien under S171
Arguments:The respondents filed a writ petition to the Bombay HC and
claimed that the appellants had no right to lien under S171 ICA as there was
no contract for bailment between them. Appellants claim lien as wharfinger
(as provided for in S171 ICA)

30

S171: General lien of bankers, factors, wharfingers, attorneys, and policybrokers. - Bankers, factors, wharfingers, attorneys of a High Court and
policy-brokers may, in the absence of a contract to the contrary, retain as a
security for a general balance of account, any goods bailed to them; but no
other persons have a right to retain as a security for such balance, goods
bailed to them, unless there is an express contract to that effect.
Decision:This section is in two parts. The first part gives statutory right of
lien to four categories only, namely, bankers, factors, wharfingers and
attorneys of High Court and policy-brokers, subject to their contracting out
of Section 171. The second part of Section 171 applies to persons other than
aforesaid five categories and to them Section 171 does not give a statutory
right of lien. It provides that they will have no right to retain as securities
bailed to them unless there is an express contract to that effect. Whereas in
respect of the first category of person mentioned in Section 171 section itself
enables them to retain the goods as security in the absence of a contract to
the contrary but in respect of any other person to whom goods are bailed
the right of retaining them as securities can be exercised only if there is an
express contract to that effect.
Essentially, if the appellants were any of the 5 categories mentioned in the
first part of S170, they would not need an express contract to establish that
they were bailees. If they did not fall under these categories, then they
would need an express contract.
Court, based on a question of fact and law under Major Port Trusts Act, 1963
goes onto establish that the appellants were indeed wharfingers and thus did
not need an express contract to allow them to act as bailees and be entitled
to a bailees rights. Hence, the appellants were entitled to receive wharfage
charges from the respondent and hence their right to lien was valid.

1) Karnataka Pawnbrokers' Association and Others v State of Karnataka and Others

(IMP)

The issue was whether the pawnbroker has to pay sales tax . Who is the seller ? Who should pay
the sales tax?

31

Arguments of pawnbroker
It is the auctioneer who is conducting the sale and not them .
They were also part of the bidding process, if they are owners they cannot sell the goods to
themselves. They are the bailee hence they cannot sell the goods.
Since the ownership is with the bailor, they cannot sell the goods.
To sell you need the rights of ownership. The pledger has to be called the seller.
If a sale takes place it is incidental to the main transaction of pawn broking.
All these points were rejected by all the courts including the Supreme Court.
To conduct a sale you need not be the owner of the goods. When you create a pledge you
authorize the pledgee to sell the goods in case of default.
What makes this case correctly decided?
if the pledger has all the rights of the goods then the purpose of pledge is defeated. The pawner
can redeem the goods before actual sale. The pawnee can sell the goods because during the act of
pledge the pawnee gets the special interest of property. Surplus has to be returned to the pawnor.
During the bidding the pawnee was acting in his different capacity.

/
Karnataka Pawn Brokers Assn. & Ors. Etc. (KP) v State of Karnataka & Ors. etc.
Facts
The Sales Tax Authorities of Karnataka and Tamil Nadu deemed the sale of unredeemed articles
at the instance of the pawnbrokers by an auction and levied taxes on the pawnbrokers contending
that auctioneer cannot be treated as seller of goods for the purpose of levying sales tax.
Issue
Whether a Pawn-broker is a dealer and carries on business within the meaning of the State
General Sales Tax Act read with the State Pawnbrokers Act and Rules when he causes the sales
of unredeemed articles/goods, occasioned by the default of the Pawner through (statutory)
Auctioneer.
Contention(s)
Appellant (KP)

32

1)The auctioneer must be treated as the seller and the liability to pay the sales tax will be only on
the auctioneer.
Why?
Cos pawnbrokers are bailees (cannot sell prop)
He has right to bid at sale, so he cant be seller.
2)The pawnbrokers are not engaged in a business of buying &/or selling of goods; on pledge of
articles, a relationship of bailor and bailee comes into existence and the bailee has no right to
sell the property contrary to the contract or other statutory provisions regulating their
relationship. Also, as the pawnbroker has the right to bid at the sale, he cannot be seller of his
own goods. They are not dealer as per the concerned acts[1].
3)The right of the pawnbroker to dispose of the pawned articles by way of sale through an
auctioneer does not in any way amount to transferring or passing on of the general property right
in goods by the pawnbroker to the purchaser. If it is so, it would be contrary to the concept of
sale as contained in the SOGA as the law does not recognise such a transaction as a sale.
Respondent (State)
1)The right to bring the articles for sale through public auction in the event of default, vest with
the pawnbroker and the same is incidental to the business of the pawnbroker.
2)The concept of business includes the business of pawnbroker with the incidental right to
redeem the goods.
Judgement
Karnataka High Court (Favoured State)
1)Pawnbroker has special property right in the pledge and that special property right is to be
distinguished from the mere right of detention which the holder in Lien possesses. The
pawnbroker has authority under the statute to bring the pawned articles for sale and the pawnor
losses all his rights in the article sold through the auctioneer at the instance of the pawnbroker.
2)The sale of unredeemable goods takes place at the instance of the pawnbroker & such sale held
through the approved auctioneer results in the passing on the general right in the goods to the
purchaser.
3)Pawnbrokers (As per the Pawnbrokers Act) are Dealers under the Karnataka General
Sales Tax Act.
4)Pawnbroker carried on Business,[2] since they had an implied authority to sell & such
activity of sale which is incidental/ancillary to the business of pawnbroker.[3] The auctioneer
cannot be made liable for Sales tax because he is not the agent of the pawnbroker but appointed
under relevant statute.
Madras High Court (favoured State)
Neither can pawnor be held liable:
5)The pawner along with possession of pledged goods also parts with the right to sell the good
pledged in case of a default and the pawnbrokers action and decision occasions the sale.
6)The auctioneer cannot be made liable for the tax since the purpose of auctioneer is to prevent
abuse of right to sell the unredeemed article to the detriment of the pawner and also his task is of
a broker who brings about sale.
7)The pawner cannot be made liable because he has no role in the actual sale.

33

8)Pawnbroker satisfies the definition of dealer as well as the activities of his can be
categorised as business.
Supreme Court (K.Vankataswami, J; S.P.Bharucha)
1)The pawnbroker have the statutory right to sell the goods pledged in the instance the pawner
defaults and the goods get unredeemable; and thereby transfer the possession permanently to the
purchaser.
2)The pawner cannot be subjected to sale tax, because he had played no role in the sale of the
goods, the only thing he could have done was to redeem the goods.
3)The auctioneer on the other hand cannot be subjected to tax on the sale proceeds because the
auctioneer does not act under the control of the pawnbroker but acts under the control of the
statutory authorities that had appointed him for that purpose. The definition given under the rules
makes it necessary to transfer the property from one person to the other in return of some
valuable consideration, cash or deferred payment. The auctioneer merely served the role of
bringing the bidder and the pawnbroker and conduct the auction in the public but its the
pawnbroker who ultimately delivers the possession.
4)The contention that since the pawnbroker also acts as a bidder, he cannot be said to be the
seller. This argument is misconceived because in such circumstances he plays a dual role, one as
a pawn broker and the other as a buyer.
5)The act incidental and ancillary to the main business will also come under the definition of
business under the sale tax Act. The contention of the appellant that the sale of pledged goods
were incidental to the business and therefore will not be subjected to the sale tax cannot be
accepted.
Law Points
Pawn brokers are required to get a license and maintain account books registers and records.
In case of failure to repay, the pawnbroker may redeem the amount by selling off the goods
pledged to him in public through a registeredauctioneer.

Lallan Prasad v. Rahmat Ali and Anr.

(AIR1967SC1322)
Judges: J.M. Shelat and R.S. Bachawat, JJ.

Facts:

34

In January 1946, the appellant-plaintiff advanced Rs. 20,000/- to the

first respondent against a promissory note and a receipt. The first
respondent also executed and agreement whereby he agreed to pledge
as security for the debt the said aeroscraps and to deliver them at the
appellant's house and keep them there in his custody.

The appellant's case, however, was that the first respondent failed to
deliver the said goods to him, and instead, stored them in a plot
adjacent to the aerodrome at Allahabad and therefore the said
agreement did not ripen into a pledge. Consequently, he was entitled
to recover the amount advanced by him in the suit based on the said
promissory note and the said receipt.

The first respondent admitted the said loan but alleged that in
pursuance of the said agreement he delivered aeroscraps of the value
of Rs. 35,000/- to the appellant and thus claimed that the appellant
was not entitled to obtain a decree.

Case History:

The trial court Judge rejected the respondent's case and held that there
was no completed contract of pledge as the first respondent had failed
to deliver the said goods, and that the appellant did not insist on
possession of the said goods only because the second respondent had
agreed to become a surety for repayment of the said loan and that
therefore he was entitled to maintain the suit and recover the said
monies.

On appeal by the respondents, the High Court held that the said goods
were delivered to the appellant, and that the agreement had ripened
into a pledge and that the appellant was not entitled to any relief.
Thus, the appellants suit was dismissed with costs.

35

Issues:
1. Whether the High Court was justified in finding that the first
respondent had delivered the said goods to the appellant and the said
goods therefore remained in his custody
2. Whether the appellant was entitled to any relief when his case was that the first
respondent never delivered to him the said goods and the said agreement never ripened
into a pledge.
3. Counsel for the appellants also contended that even if the goods were delivered to the
appellant, the appellant could, under s.176 of the Contract Act, still maintain his suit on
the said promissory note and recover the amount due thereunder.
Judgement:
Shelat

The first question is whether the first respondent after obtaining the
aeroscraps from the military authorities delivered them to the
appellant. The dispute between the parties lies in whether the custody
of the said goods after they were stored at the aforesaid place was
with the appellant or with the first respondent. Even though the first
respondent failed to deliver the goods to his custody, the appellant did
not protest or call upon him to deliver the goods and was content
merely with a promissory note. The appellant's case, however, was
that since he had obtained a guarantee from the second respondent,
the father of the first respondent, he did not worry even if the said
transaction remained at the stage of an agreement to pledge.
However, in the letter whereby the 2 nd respondent agreed to be surety,
the appellant permitted the respondent to sell part of the goods.
Moreover, the appellant was paying for the salaries of the watchmen
hired for the safety of the goods. This presupposes that the goods were
under the control of the appellant.

36

Under the Common Law a pawn or a pledge is a bailment of personal

property as a security for some debt or engagement. There is no
difference between the common law of England and the law with
regard to pledge as codified in sections 172 to 176 of the Contract Act.
A pledge is only a special kind of bailment, and the chief basis for this
distinction is the object of the contract. Where the object of the
delivery of goods is to provide a security for a loan or for the fulf\ilment
of an obligation, that kind of bailment is called pledge. A pawn or a
pledge is a bailment of personal property as a security for some debt
or engagement. A pawner is one who being liable to an engagement
gives to the person to whom he is liable a thing to be held as security
for payment of his debt or the fulfilment of his liability.

Now, the appellant would not be entitled to a decree against the said
promissory note and also retain the said goods found to have been
delivered to him and therefore in his custody. For, if it were otherwise
the first respondent as the pawner would be compelled not only to pay
the amount due under the promissory note but lose the pledged goods
as well.

Thus, the appeal failed and was dismissed with costs.

Lallan Prasad v Rahmat Ali

Facts
TheappellantadvancedRs.20,000/tothefirstrespondent,apromissorynoteand
areceipt.Firstrespondentalsoexecutedanagreementwherebyheagreedtopledge
assecurityforthedebtthesaidaeroscapesandtodeliverthemattheappellant's
houseandkeepthemthereinhiscustody.
AppellantsCase:Therespondentfailedtodeliverthesaidgoodstohim.Thesaid
agreementdidnotripenintoapledge.Consequently,hewasentitledtorecoverthe
amountadvancedbyhiminthesuitbasedonthesaidpromissorynoteandthesaid
receipt.
RespondentsCase:Thefirstrespondentadmittedthesaidloanbutallegedthatin
pursuanceofthesaidagreementhedelivered147tonsofaeroscapesofthevalueof
Rs. 35,000/ tothe appellant. He claimedthat theappellant was not entitled to

37

obtainadecreeunlesshewasreadyandwillingtoredeliverthesaidgoodspledged
withhim.
TrialCourt:Favouredtheappellants
HighCourt:Favouredtherespondents
Issues
Whethertherespondentdeliveredpossessiontotheappellanti.e.whether
thereisavalidpledge.
Whethertheappellantwasentitledtoanyreliefifthepledgewasinvalid,as
heclaimed.
Judgement
Onthefirstissue,thecourtheldthattherewassufficientevidencetosuggestthat
therespondenthaddeliveredpossession
(a)Theappellanthadappointedawatchmantotakecareofthegoods.
(b)Thedebtortookthepermissionoftheappellantwhenhewantedtosellapartof
thegoodsthisindicatedthatthedebtordidnothaveactualpossession.
(c) Thecreditordidnotpesterthedebtorforrepaymentoftheloan.Thiswas
indicativethattheloanwassecured.
Onthesecondissue,thecourtheldthattheappellantcouldnotobtainadecreeon
thepromissorynote,askingforrepayment,becausehewasnolongerinaposition
toreturnthepledgedgoods(havingalreadysoldthem).
Thus,itwasheldthatthepledgewasvalidandtheappellant'sclaimfailed.

The Official Assignee Of Madras vs The Mercantile Bank Of

India Ltd.
Facts
The Official Assignee of Madras has been assigned with the property of the insolvents CK
Nayaran and sons. The insolvents had a big business of groundnuts. They were purchased from
up-country and transported through railways to the madras port. A godown in the port was leased
to the insolvents, but the signboard had the respondents name(R). R financed the business by
advancing money against a consignment of goods. The insolvents used to take loans against the
consignments and R used to give them regularly; the railway companies knew about this

38

arrangement, but were never specifically informed. The company was declared insolvent. After
that some consignment reached the port but the port auth. was not willing to release them until
their debts were paid off. The goods were then sold off by port auth. and the proceeds were kept.
Issue: Whether a railway receipt is a document of title and thus the pledge of railway receipts,
the pledge of the goods?
Judgement
CIVIL COURT: [Plaintiff (official assignee) WON; Defendant (port trust) LOST]
HIGH COURT: [Appellant (port trust) WON; Respondent (official assignee) LOST]
PRIVY COUNCIL (Wright J.) [Respondent (port trust) WON; Appellant (official assignee)
LOST]
1)Railway receipt is a document of title and pledging such documents is same as pledging the
goods themselves. This is backed up by S.178 of ICA, S.2 (4) of SOGA.
2)The consideration that, no third party holding the goods or dealing with them without notice of
the respondents lien, would be affected by that lien, is irrelevant to the equitable rights
constituted as between the respondents and the insolvents. Even if the documents of title are
regarded as merely tokens of an authority to receive possession, their transfer for value by way
of security for advances must at least raise an equity as between transferor and transferee
entitling the latter to restrain transferor from claiming delivery of the relative goods without
producing the receipts. If so, the appellant must be subject to the same equity.
3)(obiter) Application of Hypothecation, which is a right in equity, could also have helped R.
Insolvents used to give letters of hypothecation to R, and it stated that the R had the right to sell
off the pledged goods to recover their debt. Thus the letter crated an equitable right of R against
the official assignee. (as the assignee was in the shoes of the insolvent and thus did not have any
greater right than the insolvent).
Law Points
In common law a mercantile agent can pledge the goods by pledging their documents of title but
not the owner. This is an anomalous position. Indian law uses the term person and not agent
to define who can pledge the goods. This includes both owners and agents of the said goods. The
concept that the pledging of the documents of title is akin to pledging the goods has been
established by the Indian Factors Act and can also be construed by sec. 178 of ICA.

The official assignee of madras v The Mercentile Bank of India

39

The insolvents are the owner of the goods and therefore the railway refused to deliver the goods.
They used to pledge the goods to the bank by handing over the railway receipts. They had the
right to receive possession the goods or the possession of goods is the question. Whether the
railway is liable to hand over the goods. Whether they are title of goods of just documents of
goods. In England only bill of lading was considered. English law the mere handing over the
documents will not create a pledge. The bailee should consent to keep the goods for the bank
then the consent is called atonement of the bailee. In bill of lading you don't need atonement.
Atonement is the consent of the third party(bailee).
According to railway it is just the right of possession not the actual possession.
The railway contends that they have not atonement to the transaction.
In India the railway receipt is in the position of the bill of lading. In India any person including
the owner can pledge with the title of the document. Under equity the railway has the right of
particular lien but the privy council said sec 178 gives the right to the bailor.

Morvi Mercantile Bank Limited v Union of India

Facts
The Official Assignee of Madras had been assigned with the property of the
insolventsCKNayaranandsons.Theinsolventshadabigbusinessofgroundnuts.
They were purchased from upcountry and transported through railways to the
madrasport.Agodownintheportwasleasedtotheinsolvents,butthesignboard
hadtherespondentsname(R).Rfinancedthebusinessbyadvancingmoneyagainst
aconsignmentofgoods.Theinsolventsusedtotakeloansagainsttheconsignments
andRusedtogivethistothemregularly;therailwaycompaniesknewaboutthis
arrangement, but were never specifically informed. The company was declared
insolvent.Afterthat,someconsignmentreachedtheportbuttheportauthorities
werenotwillingtoreleasethemuntiltheirdebtswerepaidoff.Thegoodswerethen
soldoffbyportauthoritiesandtheproceedswerekept.
TrialCourt:Dismissedthesuitofbank.
HighCourt:AllowedtheappealanddecreedtheclaimforRs.20,000ontheground
thataspledgeeofthegoods,theBanksufferedlossonlytotheextentofthelossof
itssecurity.

40

Issues
Whetherarailwayreceiptisadocumentoftitleandthusthepledgeofrailway
receipts,thepledgeofthegoods?

Judgement(Majorityopinion)

Anownerofgoodscanmakeavalidpledgeofthembytransferringtherailway
receiptrepresentingthesaidgoods.[3]Thefirmbyendorsingtherailwayreceipts
infavouroftheBank,forconsideration,pledgedthegoodscoveredbythesaid
receipts,totheBank,andtheBankbeingthepledgeecouldmaintainthesuitfor
therecoveryofthefullvalueofconsignmentamountingtoRs.35,500.
Apledgebeingabailmentofgoodsunders.172oftheContractAct,thepledgee,
asabailee,willhavethesameremediesastheownerofthegoodswouldhave
againstathirdpersonfordeprivationofthesaidgoodsorinjurytothemunders.
180oftheAct.
DissentingOpinion
Therewasnovalidpledgeoftheconsignmentsofgoodsrepresentedbythe
railwayreceiptinfavouroftheBankandtheBankwasnotentitledtosuethe
Railwayforcompensationforthelossofgoods,relyingupontheendorsementsof
therailwayreceiptsinitsfavour.
AfterthepassingoftheIndianContract(Amendment)Act,1930,thelegal
positionwithregardtothepledgeofrailwayreceipts,isexactlythesamein
IndianLawasitisinEnglishLaw,andconsequently,theownerofthegoods
cannotpledgethegoodsrepresentedbyarailwayreceipt,byendorsingthe
railwayreceipt,unlesstherailwayAuthoritieswerenotifiedofthetransfer,and
theyagreedtoholdthegoodsasbaileeofthepledgee.Undertheamendedlaw,a
validpledgecannolongerbemadebyeverypersoninpossessionofgoods.It
canonlybemadebyamercantileagentasprovidedins.178oftheContractAct
(afteramendment)orbyapersonwhohasobtainedpossessionofgoodsundera
contractvoidableunders.19ors.19AoftheContractAct,asprovidedbys.178
oftheActorbyasellerorbuyerinpossessionofgoods,aftersaleasprovidedins.
30oftheIndianSaleofGoodsAct.
Negotiabilityofsuchreceiptisacreatureofastatuteormercantileusage,notof
Judicialdecisionsapartfromeither.So,intheabsenceofanyusageoftradeor
anystatutoryprovisiontothateffect,arailwayreceiptcannotbeaccordedthe
benefitswhichflowfromnegotiabilityundertheNegotiableInstrumentsAct,so
astoentitletheendorsee,astheholderforthetimebeingofthedocumentof

41

title,tosuethecarriertherailwayauthorityinhisownname.Inviewofcl.(3)of
thenoticeprintedatthebackofthereceiptthatanendorsementmadeonthe
faceofthereceiptbytheconsigneewasonlymeanttoindicatethepersonto
whomtheconsigneewisheddeliveryofgoodstobemadeifhehimselfdidnot
attendtotakedelivery,theBankhadnorighttosuetheRailway.
Sincethelanguageofs.178oftheContractActisclearandexplicit,ifanyhardship
andinconvenienceisfeltbecauseof,suchpracticeoftreatingthereceiptasa
symbolofgoodsasnotrecognized,itisforParliamenttotakeappropriatestepsto
amendthelawanditisnotforcourtstolegislateundertheguiseofinterpretation.

2) Morvi Mercantile Bank Ltd. and Anr v. Union of India (UOI)

Judges: J.R. Mudholkar, K. Subba Rao, R.S. Bachawat, Raghuvar Dayal and V. Ramaswami, JJ.
Facts:

Certain goods were consigned to self from Bombay for transit to Okhla. The consignor
endorsed the railway receipts to the appellant bank against an advance of Rs. 20,000.The
goods were lost in transit and the consignment never reached Okhla.

Consequently, the bank as an endorsee of the railway receipts and pledgee of the goods
sued the Railways for the loss of the goods which were worth Rs. 35,500.

Case History:

The trial court rejected the action.

The appeal was heard by a Division Bench of the Bombay High Court. The learned judges
agreed with all the findings of the trial court but one: 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.

There were cross-appeals against this decision.

Issues:
(1) Whether the endorsement of a railway receipt constitutes as pledge in law.

42

(2) 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, even if the endorsement of a
railway receipt for consideration does constitute a pledge.
(3) 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.
Judgement:
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 Ramasmami, J.

The majority opinion held that delivery of railway receipts was the same thing as the
delivery of goods and the pledge was, therefore, valid and the pledge was entitled to sue
for the loss. Interpreting s. 180 of the Contract Act, the Court also held that the pledge
was entitled to recover the full value of the goods lost and merely the amount of the
security or advance.

The dissenting judges were of the view that in all cases of pledge an effective change of
possession is absolutely necessary. The only exception could be in the bill of lading. If
the pledger has goods in his physical possession he could effect the pledge by actual
delivery. If, however, the goods are in the physical possession of a third person, pledge

The Morvi Mercantile Bank Ltd. And Anr. v Union of India

Facts
A firm doing business in Bombay entrusted goods worth Rs.35500 with 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 against the
Railway.
Issue
Can an owner of goods make a valid pledge of them by transferring the railway receipt
representing the said goods? What value such a document carry for this purpose?
Judgement
Trial Court: Dismissed the suit of bank.

43

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.
1)Both the Bank[1] and the Railway appealed to SC.
Supreme Court
Contention (Railway): The endorsement of the railway receipt in favour of the Bank did not
constitute a pledge of the goods covered by the receipt and the Bank had no right to sue for
compensation.
Held
Subba Rao[2], Raghubar Dayal and Bachawat, J J
1)An owner of goods can make a valid pledge of them by transferring the railway receipt
representing the said goods.[3]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.
2)A pledge being a bailment of goods under s. 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 s. 180 of the Act.- so full 35000
Mudholkar & Ramaswami JJ. (Dissenting)
1)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.
2)After the passing of the Indian Contract (Amendment) Act, 1930, 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 every person in possession of goods. It can only be made by a
mercantile agent as provided in s. 178 of the Contract Act (after amendment) or by a person who
has obtained possession of goods under a contract voidable under s. 19[4] or s. 19A of the
Contract Act, as provided by s. 178 of the Act or by a seller or buyer in possession of goods, after
sale as provided in s. 30[5] of the Indian Sale of Goods Act.
3)Negotiability of such receipt 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. 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.
Since the language of s. 178[6]of the Contract Act is clear and explicit, if any hardship and
inconvenience is felt because of, such practice of treating the receipt as a symbol of goods as not
recognized, 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.

44

[1] Wanted fullrecovery of Rs.35500

[2] Main Judge
[3] On a reasonable construction of s. 178 of the Contract Act, 1872, ss. 4 and 137 of the
Transfer of Property Act, 1882, and ss. 30 and 53 of the Indian Sale of Goods Act, 1930.
[4] When consent to an agreement is caused by coercion {The words undue influence were
rep.by Act 6 of 1899, s 3} fraud or misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused.
[5] 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. (2) 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.
[6] Where a mercantile agent is, with the consent of the owner, in possession of goods or the
document 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 not authority to pledge.

Morvi Mercantile Bank Limited and Another v Union of India, Through The General
Manager, Central Railway, Bombay

The bank sues the railway company for the loss of goods. The railway is saying that the bank had
the right to receive not the actual possession. According to the railway the bank should sue the
owner.
Can the owner pledge the goods by documents of the goods?
The act is an addition to the right which exits with the owner. It just reiterates the right of the
mercantile agents. The owner already had the right it is the mercantile agent that needed special
mention. Ramaswami Iyer referred to the English law and hence dissented. His position was that
there if there was a hardship for the owners then it is the parliament's problem not the judge's .
The railway receipts are not negotiable per se and therefore it has the right to possession. The
railway receipts are not documents of title.

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But the majority of the SC says that the railway receipts is a document of title. There is no
difference between the pre amended and the post amended sec 178.

Document of title gives the possession of goods.

Can the goods taken on hire pledged ?
Sec 179, no because the pledge is only valid for the hired purposes.

Difference between 178 A and sec 179 ?

178A original contract between the parties valid if there is good faith and consent. But sec 179
talks about part interest. In hire the sub pledgee can retain the goods only if he pays the entire
amount to the pledgee or the hirer. Rights of the sub pledgee is limited to the interest of the
pledgee. Sec 179 is used in case of sub pledgees.

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