Under the Contract Act, delivery of goods by one person to another under a contract as security for payment of a debt is a pledge. Ordinarily delivery of tangible property is essential to a true pledge; but where the law recognizes that delivery of tangible symbol involves a transfer of possession of the property symbolized, such a symbolic possession takes the place of physical delivery.
The short but difficult question, therefore is whether the Indian law equates the railway receipts with the goods covered by them for the purpose of constituting delivery of goods within the meaning of the Contract Act.
Ramdas Vithaldas Durbar Case
Before the amendment of s. 178 of the Contract Act and the passing of the Sale of Goods Act, 1930, the scope of railway receipts vis-a-vis the goods covered by them came up for consideration before the Judicial Committee in Ramdas Vithaldas Durbar v. S.Amarchand & Co., C[1]). The head-note of that case succinctly gives the following facts:
Sellers of cotton consigned it to the buyer in Bombay, and forwarded to him receipts issued by the railway company which had undertaken the carriage. The receipts provided that they should be given up at the destination by the consignee, and that if he did not himself attend to take delivery he must endorse on the receipt a request for delivery to whom he wished it to be made. The evidence showed that similar receipts for cotton were used in the ordinary course of business in Bombay as proof of the possession and control of the goods therein referred to or as authorising the holder to receive or transfer the goods.
The consignee endorsed and delivered the receipts as security for advances made specifically upon them in good faith. The sellers sought to stop the cotton in transit. The Judicial Committee held that the railway receipts were instruments of title within the meaning of the Indian Contract Act, 1872, s.103, and that the sellers were therefore not entitled to stop the goods except upon payment or tender to the pledgees of the advances made by them.
This decision lays down 3 propositions, namely, (i) the railway receipts in question in that case were used in the ordinary course of business in Bombay as proof of possession and control of the goods therein referred to, or as authorising the holder to receive or transfer the goods;
(ii) such railway receipts were documents of title and a valid pledge of the goods covered by the receipts could be made under the Contract Act before it was amended in 1930 by endorsing and delivering the same as security for advances made to the owner of the goods.
It may be noticed at this stage that under the Contract Act before it was amended in 1930 there was no definition of the expression “documents of title”, but there was one in the Indian Factors Act (XX of 1844) which with certain modifications, made the provisions of the English Factors Act. 1842, applicable to British India.
The last mentioned Acts defined the expression “documents of title to goods as including any bill of lading, dock-warrant. ware-housekeeper certificate, whar- finger’s certificate, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods or authorising or purporting to authorise, either by endorsement or by delivery the possessor of the document to transfer or receive goods thereby represented’.
Railway receipt was so nominee not included in the definition. But the Privy Council, on the basis of the evidence adduced in that case, brought the railway receipts under that part of the definition describing generally the documents of title to goods. It may also be noticed that the Judicial Committee though its attention was called to the provisions of ss. 4 and 137 of the Transfer of Property Act, preferred to decide that case decors the said provisions.
In the Explanation to s. 137 of the Transfer of Property Act, 1882, which was introduced by the Amending Act 2 of 1900, the definition of the expression “mercantitle document” is practically the same as that found in the Indian Factors Act noticed by the Judicial Committee in the decision cited supra, with the difference that it expressly includes therein railway receipt.
Under s.4 thereof the Chapter and the sections of the Act shall be taken as part of the Indian Contract Act, 1872. In 1930 Parliament in enacting the Indian Sale of Goods Act, 1930, presumably borrowed the definition of “documents of title to goods” from the Indian Factors Act and the English Factors Act noticed by the Judicial Committee, but expressly included in the definition the railway receipt. This indicates the legislative intention to accept the mercantile usage found by the Judicial Committee in Ramdas Vithaldas Durbar v. S. Amerchand & Co..
Official Assignee of Madras v. Mercantile Bank of India. Ltd
The same definition was incorporated by reference in the Explanation to s.178 of the Contract Act as amended in the year 1930. This definition is also in accord with the definition of “mercantile document of title to goods” in the Explanation to s.137 of the Transfer of Property Act. The Judicial Committee had another occasion to consider the question of pledge of railway receipt in Official Assignee of Madras v. Mercantile Bank of India. Ltd.[2]
The facts in that case were as follows: The insolvents did a large business in groundnuts, which they purchased from the up- country growers; the nuts were then dispatched by rail and arrived in Madras by one or other of the two railways, the Madras & Southern Maharatta Railway or the South Indian Railway. Under an arrangement between the said Railways and the Madras Port Trust, the consignments of nuts when received were deposited in the go downs of the Madras Port Trust. The general course of business was for the insolvents to obtain from the railway companies in respect of each consignment or wagon had a railway receipt.
The insolvents obtained loans from the respondent Bank after sending to the said Bank the railway receipts duly endorsed in blank and also after executing a promissory note for the amount a letter of hypothecation. When the goods arrived at the port, delivery was taken from the Port Trust against the railway receipts. At the time the insolvents were adjudicated the bags of ground-nuts in question in that case were either in transit on the railway or in the transit sheds or godowns of the Port Trust. On those facts the main question was whether the pledge of the railway receipt was a pledge of the goods represented by them or merely a pledge of the actual documents. If there was a valid pledge before the insolvency, the Bank would be entitled to receive the amount realised by the sale of the goods; if not, the Official Assignee would be entitled to it. The Judicial Committee, after considering its earlier decision in Ramdas Vithaldas Durbar’s case and all the relevant provisions which we have noticed earlier, came to the conclusion that there was a valid pledge of the goods represented by the receipts.
It may be noticed that this decision also turned upon the relevant provisions of the Contract Act before its amendment in 1930, though at the time the decision was made the amendment came into force. On the question whether a pledge of a document is a pledge of the goods as distinct from the document, the Judicial Committee observed:
“Their Lordships likewise in the present case see no reason for giving a different meaning to the term (documents of title to goods) in s.178 from that given to the terms in ss. 102 and 103; in addition a railway receipt is specifically included’ in the definition of mercantile document of title to goods by s. 137 of the Transfer of Property Act, 1882, which, in virtue of s.4 of the Act, is to be taken as part of the Contract Act as being a section relating to contracts. A railway receipt is now included in the definition of documents of title to goods in s. 2, sub-s. 4, of the Indian Sale of Goods Act, 1930.”
On the construction of the expression “person” in s. 178 of the Contract Act, it was argued that the said expression took in only a mercantile agent and that the law in India was the same as in England. Rejecting that plea, the Judicial Committee remarked at p. 426 thus:
“Their Lordships did not in that case see any improbability in the Indian Legislature having taken the lead in a legal reform. It may well have seemed that it was impossible ‘to justify a restriction on the owner’s power to pledge which was not imposed on the like powers of the mercantile agent. The same observation may well be true m regard to the words now being considered. The reasonableness of any such change in the law is well illustrated by the facts of the present case, where it was clearly intended to pledge the goods, not merely the railway receipts, and the respondents have paid in cash the advances they made on that footing. In these circumstances, it would be indeed a hardship that they should lose their security.”
The Judicial Committee in this decision clearly laid down, after noticing all the relevant provisions of the Contract Act, the Transfer of Property Act and the Sale of Goods Act that railway receipts were documents of title and the goods covered by the documents could be pledged by transferring the documents.
Reference
The Morvi Mercantile Bank Limited v. Union of India (1965)
[1] 1910] T R. 45 T. A. 164
[2] (1934) L.R. 51 I.A. 416, 423