CENTRAL BANK OF INDIA v. SIRIGUPPA SUGARS & CHEMICALS LTD. & ORS

Citation: [2007] 8 S.C.R. 898

Court: Supreme Court of India

Bench: TARUN CHATTERJEE, P.K. BALASUBRAMANYAN

Case summary

CENTRAL BANK OF INDIA v. SIRIGUPPA SUGARS & CHEMICALS LTD. & ORS.pdf

Judgment text

• CENTRAL BANK OF INDIA >v. ,.. SIRIGUPPA SUGARS & CHEMICALS LTD. & ORS. AUGUST 7, 2007 [TARUN CHATTERJEE AND P. K. BALASUBRAMANYAN, JJ. ] Contract Act, I872-Sections 173 and 176-Rights ofpawnee on sale . -;;f proceeds ofpawned goods-Sugar Company obtained loan from Bank-pawnee by pledging stocks of sugar and loan not repaid-Interim order by High Court directing disbursal of certain amounts realised on sale proceeds for satisfying claim ofcane growers and employees ofthe Company-Interference with-Held: Pawnee has right to retain goods pledged for payment of debt including interest on debt and all necessary expenses incurred by it-Rights ofthe bank as pawnee over pawned sugar prevailed over the claims ofcane growers and workmen, who were only unsecured creditors since no liquidation ofthe Company had taken place-Thus, interim order set aside-Bank entitled to the amount in satisfaction of its debt and surplus, if any be disbursed to " unsecured creditors.

\ Interim order: Interim order by High Court-When final adjudication to be made in writ appeal pending before it-Interim order resulting in serious prejudice to the parties-Propriety of-Held: Not proper. First respondent-company secured loan from the appellant-bank by pledging its stock ofsugar with the appellant-bank. The Company did not pay dues of the sugarcane growers who supplied them sugarcane and also of the workmen of the Company. Aggrieved, partiei initiated recovery proceedings. payment of debt. The approach of the trial court was unexceptionable. The plaintiffs right as a pawnee could not be extinguished by the seizure of the goods in its possession inasmuch as the pledge of the goods was not meant to replace the liability under the cash credit agreement. It was intended to . give the plaintiff a primary right to sell the goods in satisfaction of the liability of the pawnor.

The Cane Commissioner who was an unsecured creditor could not have any higher rights than the pawnor and was entitled only to the surplus money after satisfaction of the plaintiffs dues. " (emphasis supplied) 8. It has to be noticed that the Cane Commissioner was held to be an unsecured creditor, he could not have any higher right than the pawnor and was entitled only to the surplus money after satisfaction of the pawnee's dues. 9. In Karnataka Pawnbroker's Association and Ors. v. State of Karnataka and Ors. , [1998] 7 sec 707 this Court summed up the position as -~ under: "It cannot be and it is not disputed that the pawnbroker has special property rights in. the goods pledged, a right higher than a mere right of detention of goods but a right lesser than general property right in . the goods. To put it differently, the pawnor at the time of the pledge not only transfers to .

the pawnee, the special right in the pledge but also passes on his right to transfer the general property right in the pledge in the event of the pledge remaining unredeemed resulting in the sale of the pledge by public auction through an approved auctioneer. The position being what is stated above, the natural consequence will be that it is the pawnee who holds not only the absolute special property right in the pledge but also the conditional general property interest in the pledge, the condition being that he can pass on that general property only in the event of the pledge being broughtto sale by public auction in accordance with the Act and the Rules framed thereunder. " I0. The Act there referred was the Karnataka Sales Tax Act and the question that fell for decision was whether the pawnee, the pawnbroker, on sale could be considered to be a dealer, liable to pay sales tax under the Sales Tax Act. . . > ~ I I. In Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Ors. , A.

[2000] 5 sec 694 the position was reiterated in the following words: "However, the Crown's preferential right to recovery of debt over other creditors is confined to ordinary or unsecured creditors. The common law ofEngland or the principles ofequity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a • secured creditor. It is only in cases where the Crown's right and that :-{ of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, -' nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v.

Grover, (I832 ( 131) ER 563 : 9 Bing 128) it has been held that the Crown has no precedence over a pledgee of goods. In Bank ofBihar v. State of Bihar (supra) the principle has been recognised by this Court holding that the rights of the pawnee who has parted with ,r tmoney in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgages (Tagore Law Lectures, 7th Edn. P. 386) - "It seems a government debt in India is not entitled to precedence over a prior secured debt. " 12. It may be noted that even the Crown's preferential right or a Crown debt was held to be subservient to the rights of a pawnee. 13. In 0. Konavalov v. Commander, Coast Guard Region and Ors.

, [2006] 4 SCC 620 this Court held that the lien of a pawnee traceable to Sections 172, 173 and 176 ofthe Contract Act is capable of satisfaction from property in the hands of the Government obtained even by lawful seizure. This Court followed the views expressed in the decision in Bank of Bihar v. State of Bihar, (supra). 14. In Workers ofMis Rohtas industries ltd. v. Mis Rohtas Industries Ltd. , [I987] 2 sec 588 adirection was made for payment of the workers dues by stating that such dues will have priority over other banks and financial institutions. On going through the facts, it is seen that it was a case where CENTRAL BANKOF INDIA v. SIRJGUPPASUGARS & CHEMICALS LTD. [BALASUBRAMANYAN, !. ] 907 proceeding for liquidation of the company was going on and obviously -( Section 529 ofthe Companies Act was attracted. Moreover, it is not seen that the rights ofa pawnee vis-a-vis the rights ofthe workmen is discussed.

Since a liquidation had intervened there, which is not the case here, the said decision cannot be of any assistance to support the order passed by the High Court. In fact, in Workers of Mis Rohtas Industries Ltd. v. Mis Rohtas Industries Ltd. , [l987] Suppl. SCC 462 rendered while clarifying the earlier order, it was stated that the earlier order of the Court was made under peculiar circumstances obtaining in the case and was not to be taken as a precedent. Hence, even apart from the distinction, no value as a precedent can be attached to that decision. 15. In State ofMP. v. Jaura Sugar Mills Ltd. And Ors. , (supra) dealing with the Madhya Pradesh Sugar Cane (Regulation and Supply) Act, it was only held that the Cane Commissioner having power to compel the cane growers to supply cane to the factory, has incidental power and is duty bound to ensure payment of the price of the sugarcane supplied by the sugarcane growers.

With respect, this decision does not enable us to adjudge the rights of a pawnee on the sale of the pawned goods or alter the status of the Cane Commissioner or the cane grower from only that ofan unsecured creditor as recognised in Bank of Bihar (supra). 16. The decision in Textile Labour Association and Anr. v. Official Liquidator and Anr. , [2004] 9 SCC 74 l was a case of liquidation and was a case to which Section 529 and 529A of the Companies Act were attracted. The said decision is also of no help in the case on hand since a liquidation has not intervened in the present case. 17. The decision in Rajasthan State Financial Corporation and Anr. V. Official Liquidator and Anr. , [2005] 8 sec 190 is also of no help since that was also a case where the question was the effect of Section 529 and 529A ofthe Companies Act on the power of the Debt Recovery Tribunal to sell the asset:; of the entity under winding up. 18.

Thus, going by the principles governing the matter, propounded by this Court there cannot be any doubt that the rights of the appellant-bank over the paw .. ed sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant bank for securing a loan of the first· respondent and the loan had not been repaid. The goods were forcibly taken possession · of at the instance of the revenue recovery authority from the custody of the . pawnee, the appellant-bank.

In view of the fact that the goods were validly, pawned to the appellant bank, the rights of the appellant-bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalfof the workmen. Both the Cane. Commissioner and the workmen in the absence of a liquidation; stand only as unsecured creditors and their . rights cannot prevail over the rights of the pawnee of the goods. 19. We are also of the view that pending the writ appeals, the High Court ought not to have passed such an interim order of consequence especially in the light of the legal principles settled by this Court. The order of the High Court, therefore, cannot be sustained and calls for interference. 20. We, therefore, allow these appeals and set aside the impugned order of the High Court, directing payment out of parts of the sale proceeds to the Labour Commissioner and to the Cane Commissioner.

We hold that the appellant as the pawnee, is entitled to the amount in satisfaction of its debt to secure which, the goods had been pawned and to appropriate the sale proceeds towards the debt due and only if there is surplus, to make it available for disbursal to the Cane ·Commissioner and to the Labour Commissioner. In the circumstances, we direct the parties to suffer thefr respective costs. N. J. Appeals allowed.