Bank of Chittoor Ltd. Chittoor vs. P. Narasimhulu Naidu and others

This case analysis is written by Vanshika Arora, a first-year B.A.LLB student at Army Institute of Law, Mohali.

Case Number

233 of 1962

Equivalent Citation

AIR 1966 AP 163, (1965) 2 An WR 518

Bench

Hon’ble Justice Chandrasekhara Sastry, Hon’ble Justice Venkatesam JJ

Date of Judgement

April 16, 1965

Relevant Acts

Indian Contract Act, 1872, Sale of Goods Act, 1930

Relevant Sections

Section 149 and 148 of Indian Contract Act, 1872; Section 34 of Sale of Goods Act, 1930

Facts of the case

Appalaswamhy Naidu (defendant 1) along with defendant 2, borrowed a sum of Rs. 10,000 from the Bank of Chittor In 1949 for a family necessity. The loan was taken by the means of a promissory note, due with an interest of 9% per annum and collateral. The collateral given were cinema accessories and a projector belonging to Naidu and defendant 3. In respect of this borrowed amount, Naidu, defendant 1, and defendant 2 borrowed another loan of Rs 17,640 in 1956, payable at a quarterly interest of 9%. The same collateral security was offered by the defendants. The pledged Cinema projector and accessories were sold by the defendants to defendant 4. This was possible since the pledged machinery was kept by the bank with the defendants since it formed part of the running cinema. Defendant 4, bought the machinery in spite of his knowledge that they were pledged as bank security. Thereafter, the bank issued notices to defendants 1, 2, and 4, demanding payment. Only defendant 4 replied to the notice, falsely stating that he was a bona fide purchaser and was not aware of the bank security. The suit was therefore filed by the bank in order to sell the pledged goods, in the custody of defendant 4, and recover a payable amount of Rs. 21,555. Subsequently, an appeal was filed in the High Court, by defendant 4.

Issues

Is there a valid pledge of goods by the defendants since the goods were never in possession of the bank?

Ratio Decidendi

Defendant 4 contended that the bank had no valid pledge of the goods since it was never in possession of the goods. The court observed that in a letter dated 19.09.1949, defendant one sent a typed letter to the bank stating that “I request you to leave the Cinema projector and allied machinery pledged to the loan dated 19-9-1949 in my possession to run the shows. I will hold the same to the Bank in trust and will be prepared to give possession of the entire machinery to the Bank whenever so demanded. During the possession of the machinery, I will keep all the articles and the projector safe and I would be responsible for any loss or damage to the same.” From the contents of the letter, the court observed that this letter acknowledged the possession of the bank, since it renders the defendants as trustees of the bank, in possession of pledged goods, Moreover, under Section 149 of the India Contract Act and Section 34 of the Sale of Goods Act, the bank as a bailee, need not necessarily have physical possession of goods. In this case, the bailor (defendant), made constructive delivery of goods to the bailee.

Decision

The court rejected the contention of defendant 4 and held that the bank was in true possession of the goods as a bailee.

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