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Report No. 144

9.4.2. Question for consideration.-

The question has, nevertheless, arisen whether the Order applies also to mortgage of movable property or hypothecation thereof. There is a conflict of views on the subject amongst the High Courts.

9.4.3. The High Court of Punjab has held that Order 34 does not apply1 to such transactions. This is also the Bombay view.2 The Bombay judgment traces the history of the law, as under:-

"But in construing this rule we must have regard to the context in which it appears, and I think also to its historical origin. Order 34 was incorporated in the Civil P.C. in 1908, and the provisions of the order were taken from the Transfer of Properly Act. Rule 14 was section 99, T.P. Act, and that section appears in Chapter 4 of the Act which is headed "Of Mortgages of Immovable Property and Charges". "Charge" is defined in section 100 of the Act and applies only to charges of immovable property.

So that Order 34, was substituted for sections in the Transfer of Property Act which dealt only with mortgages of immovable property and I think a presumption arises that in taking these provisions out of an Act relating to property and incorporating them in an Act relating to procedure the legislature did not intend to extend the scope of the provisions, although, no doubt, that presumption would be rebutted if the legislature had used language to show that it did intend extend the scope of the provisions. Now not only is there no reference in Order 34 movable property but the order is headed "Suits relating to mortgages of immovable property'.

Then, the substitutive provisions of the order use such words as "mortgages" "mortgage security" and "mortgage property" without any distinction being drawn between mortgages of movable and immovable property, and it seems to me that in those circumstances we must read the heading as in effect defining those general words and limiting their operation to mortgages on immovable property.

We referred to a certain number of cases as to the effect of headings in an Act of Parliament, and Mr. Coltman contends, relying particularly on the case of Flectcher v. Birkenhead Corporation (1) that the Court can only look at a heading in order to assist in the construction of some word or phrase which is doubtful or ambiguous, and he says that the word of Order 34 "mortgage", "mortgage security" and so forth are not ambiguous, but it seems to me that that is putting the case on too narrow a ground and that we are entitled to look at the heading in order to confine the generality of the language used in the body of the order.

Reading Order 34 in the light of the heading, and having regard to the history of the order, we must in my judgment construe it as confined entirely to mortgages of immovable property. That being so, I think that the counter-claim of defendant 6 necessarily fails."

1. New Citizen v. Burnel & Co., AIR 1954 Punj 180 (181), para 2 (Bhandari, J.).

2. Official Assignee v. Chimmiram, AIR 1933 Born 51 (54, 55), (Beaumont, C.J. and Blackwell, J.).

9.4.4. But the Gujarat High Court has regarded Order 34 as inapplicable to the hypothecation of machinery.1 There is also a dictum, to the same effect, in a Calcutta case. The dictum is, "The mortgage, no doubt, was in respect of movables, but the rules of Order 34 of the Code are based on well-settled rules of equity which, in the absence of any statutory previsions to the contrary, should be applied in suits on mortgages of movables as well".2

1. G.S.F.U. v. Jayshree Industries, AIR 1986 Guj 29 (31, 32), paras. 2-3 (J.P. Desai, J.).

2. Co-operative Hindustan Bank v. Surendra Nath, AIR 1932 Cal 524 (533) (M.N. Mukherjee & S.N. Guha, JJ.).

9.4.5. In a Calcutta case1 relating to the hypothecation of movables, the bank was held entitled to a decree for sale (the borrower having defaulted), and it was held that the trial court ought not to have allowed instalments. This view is apparently based on the assumption that Order 34 applies to movables and therefore the provision of the Code (Order 20, rule 11, C.P.C.) which applies to a decree for money and allows the award of instalments, does not apply.

1. United Bank of India v. New Glencoe Tea Co. Ltd., (1987) 62 Comp Cas 762 (Cal): AIR 1987 Cal 143.

9.4.6. In the Calcutta case of 1987,1 the'position was staled as under:-

"We may well agree with Mr. Bose that under the Indian law, there can be valid mortgage of movables, though such a mortgage may be different from such mortgage at common law or under Bills of Sale Act. Such mortgage, when not accompanied by delivery of possessions, is still operative save and except against bona fide purchasers without notice. See Misrilal v. Mosahar Hossain, 1886 ILR 13 Cal 262; Venkatachalam v. Venkatarami Reddy, AIR 1940 Mad 929.

This position appears now to be well recognised. But still the question remains as to whether a suit for enforcement of such a mortgage shall be governed by a procedure similar to the one prescribed by Order 34 of the Code. Though Mr. Bose has contended that it should be so governed the judicial opinion on the point is not uniform. Indeed a Division Bench of this court in the case of Co-operative Hindustan Bank v. Surendra Nath Das, 36 CWN 263: AIR 1932 Cal 524 observed:

"The mortgage no doubt was in respect of movables but rules of Order 34 of the Code are based on well-settled rules of equity which in the absence of any statutory provision to the contrary should be applied in suits on mortgages of movables as well."

This observation supports the stand taken by Mr. Bose. But this observation has not been approved but distinguished by other High Courts vide New Citizen Bank v. K.B. Burnel, AIR 1954 Punj 180. In the case of Official Assignee of Bombay v. Chimniram Motilal, AIR 1933 Born 51 a Division Bench of the Bombay High Court on more persuasive reasons has held that Order 34 of the Code is applicable to suits on mortgages in respect of immovable properties only, and not to suits on mortgages in respect of movables. On very careful consideration of the legal position we could prefer to follow the Bombay decision as above rather than the obiter observations of this court.

Though we may not accept the contention of Mr. Bose that the principles underlying Order 34 of the Code will govern the suit out of which the present appeal arises, yet we are left to consider two important issues, viz. (1) whether in such a suit there could be order for payment on instalment, and (2) whether and how far the court in decreeing the interim interest or interest on judgment can deduce it from the contractual rate. We propose to consider the two issues separately."

1. United Bank of India v. New Glencoe Tea Co. Ltd., AIR 1987 Cal 143 (145), paras. 6, 7 (DB).

9.4.7. It may be mentioned that mortgages and other securities for money charged on movable property are recognised in Indian law. Section 66(3), Sale of Goods Act, 1930, lays down that the provisions of the Sale of Goods Act do not apply to any transaction in the form of a contract of sale which is intended to operate by way of mortgage, pledge, charge or other security. Although this section does not expressly mention "hypothecation", a transaction of hypothecation has been recognised in India.1-2

1. Bank of Baroda v. Mari Bachubhai Hirabhai, AIR 1987 Guj, para. 8.

2. Yellamma Cotton Mills (in re:), AIR 1969 Mys 280 (287), paras. 36 (37) (N. Narayan Pai, J.).

9.4.8. Unlike a pledge, hypothecation of movables can be effected without delivery of possession to the creditor.1

1. State Bank of India v. Victory Export Import Syndicate, AIR 1978 J&K 76 (77), para. 3 (Kotwal, J.).

9.4.9. In this context, the High Court of Mysore has observed1 as under:-

"In the case of hypothecation or pledges of movable goods, there is no doubt about the creditors' right to take possession, to sell the goods directly without the intervention of court for the purpose of recovering his dues. The position in the case of regular pledge completed by possession is undoubted and set out in the relevant sections of the Contract Act. Hypothecation is only extended idea of a pledge, the creditor permitting the debtor to retain possession either on behalf of or in trust for himself (the creditor). Hence, so far as the movables actually covered by the hypothecation deeds are concerned, there can be no doubt that the Bank is entitled to retain possession and to exercise the right of private sale."

1. Yellamma Cotton Mills (in re:), AIR 1969 Mys 280 (287), paras. 36, 37 (A Narayan Pai, J.).

9.4.10. The High Court of Jammu and Kashmir1 has dealt with the matter thus:-

"One of the ingredients of a valid pledge is the delivery of goods by the pawnor to the pawnee. Unless, therefore, a contract or a transaction at the time of its inception is accompanied by delivery of the goods pledged, it would not come within the definition of a pledge. A deed of an agreement not falling within the definition of a pawn or pledge would not be covered by Article 6(2) of Schedule I to the Stamp Act and consequently the stamp payable on such a document would not be governed by the schedule provided therein.

The crucial question which, therefore, falls for the determination is whether or not in the instant case delivery of possession of the goods hypothecated had also passed on to the Bank at the time of agreement dated 18-5-1970 came to be executed. On this score there is no dispute between the parties, and rightly so, because even on a plain reading of Clause 6 of the agreement it transpires that the possession of the goods hypothecated was to remain with the debtor itself. That being so, this deed cannot be held to be a deed of pawn or pledge so as to attract the mischief of Article 6(2) of Schedule 1 to the Stamp Act.

A transaction of hypothecation and a transaction of pledge have a common ingredient inasmuch as both of them create a security in the goods hypothecated or pledged for the repayment of the loan; the ownership in the goods remaining with the person hypothecating or pledging the same. Nevertheless, there is a distinction between these two transactions because unlike a pledge where the possession of the goods pledged must pass on to the pawnee, no such possession passes on to the creditor in case of hypothecation."

1. State Bank of India v. Victory Export Import Syndicate, AIR 1978 J&K 76 (77), para. 3 (I.K. Kotwal, J.).

9.4.11. This being the legal position, the controversy as to the applicability of Order 34 of the Code to the hypothecation of movables is of practical importance, because, if a decree passed on hypothecation of movables is regarded as a mortgage decree, then the provisions of the Code of Civil Procedure relating to money decrees would not apply. This means, inter alia, that there can be no order for instalments in such a suit.1 Order 34 of the Code does not envisage instalments, in contrast with suits for money not secured by a mortgage. For suits in the latter category. Order 20, rule 11 of the Code provides for instalments.

1. Basanta Kumar v. Chotanagpur Banking Assn., AIR 1948 Pat 18 (25) (Sheare: and Reubeff, JJ.); Nishantilal v. A. Saffkara Subba, AIR 1979 Mad 13 (14), para. 1 (Suryamurthy, J.).

Conflicting Judicial Decisions pertaining to the Code of Civil Procedure Back

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