Input:
Civil Appeal No. 1058 of 1970.
From the Judgment and Decree dated 25 4 1969 of the Gujarat High Court in Appeal No. 22/61.
section N. Kackar, K. J. John and Sri Narain for the Appellant.
section T. Desai, H. section Parihar and I. N. Shroff for the Respondents.
The Judgment of the Court was delivered by DESAI, J.
This appeal by certificate under Article 133(1) (a) of the Constitution is by the original plaintiff State Bank of Saurashtra ( 'the Bank ' for short) whose suit for recovery of Rs. 76,368 04 P. from the legal representative of the deceased principal debtor Harilal Parmanaddas Adatia and his surety original defendant 2 Chitranjan Rangnath Raja.
( 'Surety ' for short) was decreed by the trial court both against the legal representative of the principal debtor and the surety but on appeal by the surety, was dismissed by the High Court only against the surety.
Harilal Parmananddas Adatia, hereinafter referred to as 'principal debtor ', approached the Manager of the Bagasra Branch of State Bank of Saurashtra seeking facility for cash credit upto Rs. 75,000/ .
He submitted proposal form Ext.
66 on September 10,1957, offering to give security for the cash credit by pledge of groundnut oil tins as also a personal guarantee of defendant 2 Chitranjan Rangnath Raja.
919 After obtaining the approval of the General Manager of the Bank cash credit facility to the extent of Rs. 75,000/ was sanctioned against the pledge of approved goods under the lock and key of the Bank and on personal guarantee of the surety.
The principal debtor executed a demand promissory note, Ext.
81 in favour of the Bank on September 16, 1957, and on the same day the principal debtor also executed a demand promissory note, Ext. 30, in favour of the surety which the surety endorsed in favour of the Bank. 'Along with the two demand promissory notes, simultaneously the surety executed a letter of guarantee Ext.
31 in favour of the Bankand ' the principal debtor executed a bond Ext.
83 in favour of the Bank.
The principal debtor also passed letter of continuity of the bond and the promissory note Ext.
Thereafter the principal debtor enjoyed the cash credit facility by borrowing various amounts.
By the end of February 1959 the principal debtor owed Rs. 76,368.04 P. in this account to the Bank.
Principal debtor died in November 1957.
The Bank wrote to the surety letter Ext.32 dated December 24,1957, calling upon him to pay the outstanding balance of Rs. 70,879/ in cash credit account of principal debtor as in the circumstances mentioned in the letter the balance was required to be recovered from the surety.
Some correspondence ensued thereafter between the Bank and the surety and ultimately the Bank filed the suit for recovery of Rs. 76,368.04 P. against defendant 1, the legal representative of principal debtor and defendant 2, the surety.
Defendant 1 contested the suit, inter alia, contending that the court had no jurisdiction to hear the suit and he had no knowledge about the suit transaction.
The allegation of fraud made against him in the plaint was denied.
He also denied his liability for the claim of the Bank as heir and legal representative of deceased principal debtor.
Defendant 2, the surety, contested the suit as per written statement Ext.
7, inter alia, contending that the Bank had agreed to grant cash credit facility to deceased principal debtor on the security of goods by way of pledge and that though the goods were to be kept in the godown in the compound of Vijay Oil Mills Pvt. Ltd., but the godown was to be kept under the lock and key of the Bank.
It was also contended that the principal debtor would provide such quantity of goods as would provide full cover to the outstanding balance in the cash credit account and the Bank was to be responsible for the safe custody and keeping of the pledged goods.
It was also contended that the principal debtor had all throughout pledged sufficient quantity of goods to provide full cover for the Bank 's claim but the Bank either wrongfully lost the goods or was negligent in retaining the goods within 920 its custody or the Bank wrongfully parted with the goods without the consent of the surety and, therefore, the surety was discharged.
The trial Court found that there was negligence on the part of the Bank with regard to the safe custody of the pledged oil tins but as the contract of guarantee entered into by the surety with the Bank was independent of the pledge of goods given by the principal debtor, the surety is not discharged from his liability under the guarantee.
So observing the trial court decreed the suit.
On appeal by the surety, the High Court held that the two promissory notes, one executed by the principal debtor in favour of the Bank, Ext. 81, and another by the principal debtor in favour of the surety and endorsed by the surety to the Bank, Ext.30, and the letter of guarantee Ext. 31 executed by surety in favour of the Bank as also the bond executed by the principal debtor in favour of the Bank Ext.
83 and the letter of continuity Ext.
82 executed by the principal debtor in favour of the Bank, all on September 16, 1957, constituted one composite transaction and they evidence that the principal debtor had offered two securities, one the pledge of oil tins and another personal guarantee of the surety.
The High Court further held that the Bank was utterly negligent and had not exercised such care as a prudent man would in the circumstances of the case which resulted in the loss of security, namely, pledged oil tins and, therefore, in view of combined operation of sections 139 and 141 of the Indian Contract Act, ( 'Act ' for short), the surety is discharged.
Accordingly, the appeal of the surety was allowed and the suit against him was dismissed.
Hence this appeal by the plaintiff Bank.
Uncontroverted facts concurrently found and not sought to be reviewed in this appeal are that the principal debtor as per his application Ext.
65 sought cash credit facility to the extent of Rs. 75,000/ pursuant to which the Bagasra Branch of the Bank submitted a proposal Ext.
66 seeking permission of the General manager of the Bank to extend the facility.
The General Manager of the Bank sanctioned advance, inter alia, on the following terms: "A cash credit limit of Rs.75,000/ (Rupees Seventy five thousand only) is hereby sanctioned against pledge of approved goods under Bank 's lock and key and on the personal guarantee of Shri C. R. Raja, Junagadh.
Noted that the Bank 's godown keeper already posted at Amrali would look after the goods pledged by the above party also.
921 All other terms as proposed." (underlining ours).
Accordingly, on the strength of two pronotes Exts. 30 and 81 and on the strength of letter of guarantee Ext.31 and the bond Ext.83 cash credit facility was extended to the principal debtor.
The pledged goods were kept in the godown in the compound of Vijay oil Mills under the lock and key of the Bank and the Bank had appointed a Godown keeper to look after the goods pledged by the principal debtor.
Two promissory notes Exts.
30 and 81 and letter of guarantee Ext.
31 and the bond executed by the principal debtor Ext.
83 all of September 16, 1957, constituted one transaction.
The High Court held that the surety had agreed to become surety, on the principal debtor pledging oil tins as and by way of security for the advance and, therefore, two securities were offered, namely, pledge of goods and the personal guarantee of the surety.
The High Court also found that 5,000 tins of oil had come to be transferred by Vijay oil Mills in the name of the deceased principal debtor and they were treated as pledged with the Bank as security for cash credit facility.
It is concurrently found that the Bank was utterly negligent with regard to the safe keeping and handling of pledged oil tins and the security of pledged oil tins was lost on account of the negligence of the Bank.
Disagreeing with the trial court the High Court held that the pledge and the personal guarantee were not two independent transactions but they formed part and parcel of one composite transaction.
The High Court, therefore, held that the creditor having lost one security, namely, the pledged goods, the surety was discharged to the extent of the value of security and that as in this case the entire security was lost, the surety was wholly discharged.
Only contention canvassed in this appeal is that in view of clauses 5,7 and 13 of letter of guarantee Ext.31 even if it is found as a fact that negligence of the creditor Bank was responsible for the loss of security of pledged oil tins, yet the surety would not be discharged.
Before we refer to clauses 5, 7 and 13, it is necessary to notice section 141 of the Indian Contract Act under which the surety claims the relief of discharge.
Section 141 reads as under: "141.A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.
" 922 In order to attract section 141 it must be shown that the creditor had taken more than one security from the principal debtor at the time when the contract of guarantee was entered into and irrespective of the fact whether the surety knew of such other security offered by the principal debtor, if the creditor loses or without the consent of the surety parts with the other security the surety would be discharged to the extent of the value of the security.
In the instant case as found by the High Court and not controverted, the principal debtor had offered two securities, (i) the pledge of goods, (ii) personal guarantee of the surety.
Verily, the General Manager of the Bank accepted the proposal for cash credit facility on the specific condition that the principal debtor shall offer two securities, one the pledge of goods to be kept under the lock and key of the Bank to be supervised by the Bank 's employee, and secondly, the personal guarantee of the surety.
The surety himself agreed to give personal guarantee on the specific understanding and with the full knowledge of the Bank that the principal debtor was offering another security, namely, pledge of goods.
The surety contracted on the good faith of the principal contract when entering into contract of guarantee in which case he is deemed so to contract that both the securities would be available to the creditor (see Sanderson vs Aston) If the two promissory notes Exts.
81 and 30 coupled with the letter of guarantee Ext.
31 executed by the surety and the bond Ext.
83 executed by the principal debtor at one sitting on September 16, 1957, evidence one composite transaction, it is an inescapable conclusion that the principal debtor offered two securities, one the pledge of goods and the other the personal guarantee of the surety.
The surety in good faith contracted to offer personal guarantee on the clear understanding that the principal debtor has offered security by way of pledge of goods and the goods were to be in the custody of the creditor Bank.
On this conclusion section 141 of the Act will be indubitably attracted.
Section 141 comprehends a situation where the debtor has offered more than one security one of which is the personal guarantee of the surety.
Even if the surety of personal guarantee is not aware of any other security offered by the principal debtor yet once the right of the surety against the principal debtor is impaired by any action or inaction, which implies negligence appearing from lack of supervision undertaken in the contract, the surety would be discharged under the combined operation of sections 139 and 141 of the Act.
In any event, if the creditor loses or without the consent of the surety parts with the security, the surety is discharged to the extent of the security lost as provided by section 141.
923 In Halsbury 's Laws of England, 4th Edn., Vol. 20, para 280, p. 52, the statement of law bearing on this point reads as under: "280.Effect of loss of securities.
On paying the guaranteed debt the surety is entitled to have all securities held by the creditor for the debt handed over to him by the creditor in exactly the same state and condition in which they were originally provided whether they were in existence at the date of the contract of suretyship or came into existence subsequently.
Consequently, any act of the creditor interfering with or impairing that right will, to the extent, at all events, of any loss inflicted, relieve the surety from liability, and, if it has the effect of altering or purporting to alter the contract of suretyship, discharge him altogether.
Thus, where there is a mortgage security given in respect of a debt which is subsequently guaranteed, the creditor must hold the security for the benefit of surety, so that, on paying the debt, the surety may obtain a transfer of mortgage in its original unimpaired condition.
If the creditor does not fulfil his duty in this respect the surety is discharged.
" This statement of law is reflected in ss.140 and 141 of the Act.
In State of Madhya Pradesh vs Kaluram the facts were that one Kaluram had executed a surety bond undertaking to discharge the liability arising out of any act or omission or negligence or default of a forest contractor whose bid was accepted at an auction held for sale of felled trees and who was required to pay the bid amount in four instalments.
The forest contract rules provided for preventing the contractor from removing the forest goods in case he made default in payment of the instalments due.
The authorities responsible for supervising the contract allowed the contractor to remove the felled trees without making the subsequent payments.
Subsequently the State of Madhya Pradesh initiated proceedings to recover the balance of the amount through surety Kaluram.
The surety Kaluram contended before this Court that because the State had lost or parted with the security, namely, forest produce, he stood discharged.
Upholding this contention this Court quoted Wulff and Billing vs Jay, wherein Hannen, J., stated the law as under: ".
I take it to be established that the defendant became surety upon the faith of there being some real and substantial 924 security pledged, as well as his own credit, to the plaintiff, and he was entitled, therefore, to the benefit of that real and substantial security in the event of his being called on to fulfil his duty as a surety, and to pay the debt for which he had so become surety.
He will, however, be discharged from his liability as surety if the creditors have put it out of their power to hand over to the surety the means of recouping himself by the security given by the principal.
That doctrine is very clearly expressed in the note in kees vs Barrington 2 White & Tudor 's L.C. 4th Edn.
at p. 1002 As a surety on payment of the debt, is entitled to all the securities of the creditor, whether he is aware of their existence or not, even though they were given after the contract of suretyship, if the creditor who has had, or ought to have had, them in his full possession or power, loses them or permits them to get into the possession of the debtor, or does not make them effectual by giving proper notice, the surety to the extent of such security will be discharged.
A surety, moreover, will be released if the creditor, by reason of what he has done, cannot, on payment by the surety, give him the securities in exactly the same condition as they formerly stood in his hands.
" This Court concluded that subject to certain variations section 141 of the Indian Contract Act incorporates the English law relating to discharge from liability of a surety where the creditor parts with or losses to security held by it.
Mr. Kackar, however, contended that in view of clauses 5, 7 and 13 of the letter of guarantee, Ext. 31, even if it is held proved that security of pledged goods was lost on account of the negligence of the creditor Bank, yet the surety would not be discharged from the obligation undertaken under the letter of guarantee.
Clauses 5, 7 and 13 may be extracted: "5.
You shall in any case, be at liberty and without my/our further assent or knowledge, at any time, to grant to the customer or any person liable with or for his, whether as guarantor or otherwise, any time or indulgence and to determine, enlarge or vary its credit and to vary exchange or take other securities or release any other securities held or to be held by you for or on account of the moneys intended to be hereby secured or any part thereof or to renew any bills, notes or other negotiable security and to compound or make any other arrangements with the customer or any 925 person so liable with or for the customer as you may think fit without discharging or in any manner affecting my/our liability under this guarantee." "7.
To the extent that you may obtain satisfaction of the whole of your claim against the customer, I/we agree that you may enforce and recover upon this guarantee the full amount hereby guaranteed and interest thereon notwithstanding any such proof or composition as aforesaid, and notwithstanding any other guarantee, security or remedy, guarantees, securities or remedies which you may hold or be entitled to in respect of the sum intended to be hereby secured or any part thereof, and notwithstanding any charges or interest which may be debited in your account current with the customer, or in any other account upon which the customer may be liable." "13.
Should the customer be a limited company, corporate or an incorporate body, committee, firm, partnership, trustees or debtors on a joint account, the provisions hereinbefore contained shall be construed and take effect where necessary as if the words importing the singular number included also the plural number.
This my/our guarantee shall then remain effective notwithstanding any death, retirement, change, accession or addition as fully as if the person or persons constituting or trading or acting as, such body, committee, firm, partnership, trustees, or debtors on joint account, at the date of the customer 's default or at and time previously, was or were the same as the date hereof.
And further you may recover against me/us to the extent here in before mentioned notwithstanding that any security given or to be given to you may be void, defective, or informal, or notwithstanding that the customer being a limited company, corporate or unincorporated body or committee, may exceed its borrowing powers or that the borrowing from you may have been ultra vires.
" Clause 5 confers right upon the creditor Bank to grant any time or indulgence in payment of the debt or to determine, enlarge or vary its credit and to vary, exchange or take other securities or release any other securities held by the Bank but such an act on the part of the Bank would not have the effect of discharging the surety or in any manner affecting his liability under the letter of guarantee.
We fail to see how 926 clause 5 can help the creditor Bank in any manner.
It is not a case of granting time or indulgence to the principal debtor or variation of the credit or taking one set of security in substitution of some other security or release of any security.
Release of security implies a volitional act on the part of the Bank.
Loss on account of negligence cannot be equated with release.
Therefore, clause 5 would not assist the Bank in this case.
Clause 7 provides for non discharge of surety even if the creditor Bank enters into a composition with the principal debtor and that the surety would nonetheless be liable even if the Bank has guarantee, security or remedy, guarantees, securities or remedies from the principal debtor.
Upon a true construction of clause 7, the expression 'any other guarantee, security or remedy ' therein mentioned must be security other than the pledged goods.
In an almost identical situation with regard to an identical clauses in Amrit Lal Goverdhan Lalan vs State Bank of Travancore and Ors, this Court after referring to clause 5 in the letter of guarantee which is in pari materia with clause 7 of the letter of guarantee under discussion, held as under: "On behalf of the respondent Bank reference was made to cl. 5 of exhibit P 4 which has already been quoted.
It was contended that on account of this clause in exhibit P 4 the appellant has opted out of the benefit of section 141 of the Indian Contract Act.
We are unable to accept the argument put forward by the Attorney General on behalf of the respondent Bank.
In our opinion, the expression "any security" in cl. 5 of exhibit P 4 should be properly construed as "any security other than the pledge of goods mentioned in the primary agreement, exhibit P 1 between the Bank and the firm.
" We consider that there is nothing in cl. 5 of Ex.
P 4 to indicate that the appellant is not entitled to invoke the provisions of section 141 of the Indian Contract Act.
" Therefore, cl. 7 is of no assistance to the Bank.
A bare perusal of clause 13 would show that it provides for continuing the guarantee where the principal debtor is an association of persons and for continuance of the guarantee in the event of death, retirement, etc.
of one of such association of persons or the guarantee remaining intact and effective and legally enforceable irrespective of some defect arising from the internal management of such association of person.
We fail to see how it can render any assistance to the Bank.
927 First security, namely, the pledged goods are lost to the Bank and the concurrent finding again incontrovertible is that the pledged goods were lost on account of the negligence of the creditor Bank.
Whole of the security was lost and, therefore the surety would be discharged in entirety because it is crystal clear that the principal debtor had agreed and had in fact pledged 5,000 tins of oil which even if sold at the then current market price would have satisfied the Bank 's entire claim.
Accordingly, the surety would be discharged in entirety.
It is difficult to entertain a contention that section 141 would not be attracted and the surety would not be discharged even if it is found that a creditor has taken more than one security on the basis of which advance was made and the surety gave personal guarantee on the good faith of other security being offered by the principal debtor which itself may be a consideration for the surety offering his personal guarantee and the creditor by its own negligence lost one of the securities.
Acceptance of such a contention would tantamount to putting a premium on the negligence of the creditor to the detriment of the surety who is usually described as a preferred debtor.
Should a Court by its construction of such letter of guarantee enable the creditor to act negligently and yet be not in any manner accountable ? Was the guarantee a guarantee against proper performance of the contract evidencing advance of loan and methods of its repayment, or a guarantee covering Bank 's utter disregard of its responsibility or to use the words of the High Court, the Bank 's utter negligence in failing to exercise the care of a prudent man which one would expect in management of one 's own affairs ? The appeal accordingly fails and is dismissed with costs.
The respondent surety has made an application that in compliance with the decree made by the trial court he had paid the entire amount and he should not be exposed to second round of litigation for restitution of the amount and that this Court should give a direction to the Bank as part of this judgment that the amount be returned with interest at current rate to the respondent surety.
By section 144 of the Code of Civil Procedure, 1908 as it stood prior to amendment by the Code of Civil Procedure (Amendment) Act, 1976, the jurisdiction to grant restitution was conferred upon the 'Court of first instance '.
Since the amendment the expression the Court of first instance ' has been substituted by 'the Court which passed the decree or order '.
An explanation has been added to section 144 by the 928 Amendment Act of 1976, the relevant portion of which reads as under: "Explanation For the purposes of sub section (1) the expression "Court which passed the decree or order" shall be deemed to include (a) where the decree or order has been varied or reversed in exercise of appellate or revisional jurisdiction, the Court of first instance.
" In the instant case the appellant was the plaintiff and its suit was decreed by the trial court, i.e. the Court of Civil Judge, Senior Division, Gondal, on November 18, 1960.
The present appellant by its letter dated February 14, 1961, demanded from the surety a sum of Rs. 84,828.07P. inclusive of costs and interest on the principal amount decreed.
The surety respondent I in this Court paid the appellant Rs. 84,828.07P. on April 3, 1961.
In the appeal by the surety the High Court reversed the decree and dismissed the suit against the surety.
Accordingly, the surety is entitled to restitution.
The limited question is whether this Court can grant restitution.
Prior to Amendment Act, 1976, an application for restitution under section 144 in all cases had to be made to the Court of first instance.
Ever since the amendment the substituted expression 'the Court which passed the decree or order ' would as per clause(a) of the explanation, mean the Court of first instance because the expression 'the Court which passed the decree or order ' has been deemed to include where the decree or order has been varied or reversed in exercise of appellate or revisional jurisdiction, the Court of first instance.
The present one is the simplest case where the suit in favour of the appellant and against the surety was decreed by the trial court, i.e. the Court of first instance, and this decree has been reversed by the High Court in exercise of its appellate jurisdiction.
In such a situation clause (a) of the explanation would be attracted and an application for restitution will have to be made to the Court of first instance, i.e. the Court of Civil Judge, Senior Division, Gondal.
It is nowhere suggested that such a Court does not exist.
Therefore, it would not be proper for this Court to direct restitution.
However, there will be no justification for the appellant Bank to withhold the amount which was collected from the surety on a mere demand.
Therefore, an application for restitution made by the surety would not lie to this Court and it would stand disposed of accordingly.
S.R. Appeal dismissed.

Output:
The appellant bank allowed a cash credit facility limited to Rs. 75,000/ to the principal debtor Harilal Parmananddas Adatia on his pledging 5,000 tins of groundnut oil under the lock and key of the Bank and on personal guarantee of the surety, respondent No. 2.
The principal debtor executed a demand promissory note Ext.
81 in favour of the Bank on September 16, 1957, and on the same day the principal debtor also executed a demand promissory note, Ext, 30, in favour of the surety which the surety endorsed in favour of the Bank.
Along with the two demand promissory notes, simultaneously the surety executed a letter of guarantee Ext.
31 in favour of the Bank and the principal debtor executed a bond Ext.
83 in favour of the Bank.
The principal debtor also passed letter of continuity of the bond and the promissory note Ext.
Thereafter the principal debtor enjoyed the cash credit facility by borrowing various amounts.
By the end of February 1959 the principal debtor owed Rs. 76,368.04 P in this account to the Bank.
Principal debtor died in November 1959.
The Bank wrote to the surety letter Ext.
32 dated December 24, 1959, calling upon him to pay the outstanding balance of Rs. 70,879/ in cash credit account of principal debtor as in the circumstances mentioned in the letter the balance was required to be recovered from the surety.
Some correspondence ensued thereafter between the Bank and the surety and ultimately the Bank filed the suit for recovery of Rs. 76,368.04 P. against defendant 1, the legal representative of principal debtor and defendant 2, the surety.
The trial court round that there was negligence on the part of the Bank with regard to the safe custody of the pledged oil tins but as the contract of guarantee entered into by the surety with the Bank was independent of the pledge of goods given by the principal debtor, the surety is not discharged from his liability under the guarantee.
So observing the trial court decreed the suit.
The surety paid the entire amount demanded and appealed to the High Court.
The High Court held that the two promissory notes, one executed by the principal debtor in favour of the Bank Ext.
81, and another by the principal debtor in favour of the surety and endorsed by the surety to the Bank, Ext. 30, and the letter of guarantee Ext.
31 executed by the surety in favour of the Bank as also the bond executed by the principal debtor in favour of the Bank Ext.
83 916 and the letter of continuity Ext.
82 executed by the principal debtor in favour of the Bank, all on September 16, 1957, constituted one composite transaction and they evidenced that the principal debtor had offered two securities, one the pledge of oil tins and another personal guarantee of the surety.
The High Court further held that the Bank was utterly negligent and had not exercised such care as a prudent man would in the circumstances of the case which resulted in the loss of security, namely, pledged oil tins and, therefore, in view of combined operation of sections 139 and 141 of the Indian Contract Act, the surety is discharged.
Accordingly, the appeal of the surety was allowed and the suit against him was dismissed.
Hence this appeal by plaintiff Bank.
Dismissing the appeal by certificate, the Court, ^ HELD: 1.
In order to attract section 141 of the Contract Act, it must be shown that the creditor had taken more than one security from the principal debtor at the time when the contract of guarantee was entered into and irrespective of the fact whether the surety knew of such other security offered by the principal debtor, if the creditor loses or without the consent of the surety parts with the other security the surety would be discharged to the extent of the value of the security.
In the instant case as found by the High Court and not controverted, the principal debtor had offered two securities, (i) the pledge of goods, (ii) personal guarantee of the surety.
Verily, the General Manager of the Bank accepted the proposal for cash credit facility on the specific condition that the principal debtor shall offer two securities, one the pledge of goods to be kept under the lock and key of the Bank to be supervised by the Bank 's employee, and secondly, the personal guarantee of the surety.
The surety himself agreed to give personal guarantee of the specific understanding and with the full knowledge of the Bank that the principal debtor was offering another security, namely, pledge of goods.
The surety contracted on the good faith of the principal contract when entering into contract of guarantee in which case he is deemed so to contract that both the securities would be available to the creditor.
If the two promissory notes Exts.
81 and 30 coupled with the letter of guarantee Ext.
31 executed by the surety and the bond Ext.
83 executed by the principal debtor at one sitting on September 16, 1957, evidence one composite transaction, it is an inescapable conclusion that the principal debtor offered two securities, one the pledge of goods and the other the personal guarantee of the surety.
The surety in good faith contracted to offer personal guarantee on the clear understanding that the principal debtor has offered security by way of pledge of goods and the goods were to be in the custody of the creditor Bank.
On this conclusion section 141 of the Act will be indubitably attracted.
[922 A F] Sanderson vs Aston, [1873] L R. at 76, quoted with approval.
Section 141 comprehends a situation where the debtor has offered more than one security one of which is the personal guarantee of the surety.
Even if the surety of personal guarantee is not aware of any other security offered by the principal debtor yet once the right of the surety against the principal debtor is impaired by any action or inaction, which implies negligence appearing from lack of supervision undertaken in the contract, the surety would be discharged under the combined operation of sections 139 and 141 of the Act.
In any event, if the creditor loses or without the consent of the surety parts with the security, the surety is discharged to the extent of the security lost as provided by section 141.
[922 F H] State of Madhya Pradesh vs Kaluram, ; , followed.
917 Wulff and Billing vs Jay, , quoted with approval.
In the instant case, clauses 5, 7 and 13 of the letter of guarantee, Ext.
31 would be of no assistance to the Bank.
[926 B, G, H] (a) Clause 5 confers right upon the creditor Bank to grant any time or indulgence in payment of the debt or to determine, enlarge or vary its credit and to vary, exchange or take other securities or release any other securities held by the Bank but such an act on the part of the Bank would not have the effect of discharging the surety or in any manner affecting his liability under the letter of guarantee.
It is not a case of granting time or indulgence to the principal debtor or variation of the credit or taking one set of security in substitution of some other security or release of any security.
Release of security implies a volitional act on the part of the Bank.
Loss on account of negligence cannot be equated with release.
[925 G H. 926 A B] (b) Clause 7 provides for non discharge of surety even if the creditor Bank enters into a composition with the principal debtor and that the surety would nonetheless be liable even if the Bank has other guarantee, security or remedy guarantees, securities or remedies from the principal debtor.
Upon a true construction of clause 7, the expression 'any other guarantee, security or remedy ' therein mentioned must be security other than the pledged goods.
[926 B C] Amrit Lal Goverdhan Lal and ors.
vs State Bank of Travancore and ors.
; , @ 731, followed.
(c) Clause 13 provides for continuing the guarantee where the principal debtor is an association of persons and for continuance of the guarantee in the event of death, retirement etc.
of one of such association of persons or the guarantee remaining intact and effective and legally enforceable irrespective of some defect arising from the internal management of such association of persons.
First Security, namely, the pledged goods are lost to the Bank and the concurrent finding again incontrovertible is that the pledged goods were lost on account of the negligence of the creditor Bank.
Whole of the security was lost and, therefore, the surety would be discharge in entirety because it is crystal clear that the principal debtor had agreed and had in fact pledged 5,000 tins of oil which even if sold at the then current market price would have satisfied the Bank 's entire claim.
Accordingly, the surety would be discharged in entirety.
[926 G H, 927 A B] 4.
Accepting a contention that section 141 would not be attracted and the surety would not be discharged even if it is found that a creditor has taken more than one security on the basis of which advance was made and the surety gave personal guarantee on the good faith of other security being offered by the principal debtor which itself may be a consideration for the surety offering his personal guarantee and the creditor by its own negligence lost one of the securities, would tantamount to putting a premium on the negligence of the creditor to the detriment of the surety who is usually described as a 'preferred debtor '.
A Court should not by its construction of such letter of guarantee enable the creditor to act negligently and yet be not in any manner accountable.
[927 B E] 5.
By section 144 of Civil Procedure Code 1908, as amended by the Amendment Act, 1976, the jurisdiction to grant restitution is conferred upon "the Court which passed the decree or order".
By an explanation added to section 144 by the Amendment Act of 1976, the expression "Court which passed the decree or 918 order" shall be deemed to include where the decree or order has been varied or reversed in exercise of appellate or revisional jurisdiction, the Court of first instance.
[927 G H, 928 A] In the instant case (i) the appellant was the plaintiff and its suit was decreed by the trial Court, i.e. the Court of Civil Judge, Senior Division, Gondal, on November 18, 1960.
The present appellant by its letter dated February 14, 1961, demanded from the surety a sum of Rs. 84,828.07 P. inclusive of costs and interests on the principal amount decreed.
The surety respondent 1 in this Court paid the appellant Rs. 84,828.07 P.
On April 3, 1961.
In the appeal by the surety the High Court reversed the decree and dismissed the suit against the surety.
Accordingly, the surety is entitled to restitution; and (ii) the present one is the simplest case where the suit in favour of the appellant and against the surety was decreed by the trial court, i.e. the Court of first instance, and this decree has been reversed by the trial Court in exercise of its appellate jurisdiction.
In such a situation clause (a) of the explanation would be attracted and an application for restitution will have to be made to the Court of first instance, i.e. the Court of Civil Judge, Senior Division, Gondal.
It is nowhere suggested that such a Court does not exist.
Therefore, it would not be proper for this Court to direct restitution.
However, there will be no justification for the appellant Bank to withhold the amount which was collected from the surety on a mere demand.
Therefore, an application for restitution made by the surety would not lie to this Court [928 B D, F H].


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Appeal No. 1942 of 1966.
Appeal from the Judgment and decree dated April 23, 1963 of the Patna High Court in First Appeal No. 420 of 1955.
Sarjoo Prasad and R. C. Prasad, for the appellant.
U. P. Singh, for respondent No. 8.
300 The Judgment of the Court was delivered by Grover, J.
This is an appeal by certificate from a decree of the Patna High Court in a suit instituted by the appellant against the State of Bihar which was impleaded as defendant No. 1, the other defendants being the Jagdishpur Zamindari Co. Ltd. (defendant No. 2) and some of its directors defendants 3 to 5.
According to the allegations in the plaint one of the methods of making advances followed by the plaintiff Bank was that the constituents pledged their merchandise on a cash credit system with the Bank and took advances on the pledged goods.
The Bank held the goods as security for the advances made and , 'be constituents either provided the Bank with godown or the Bank kept the pledged goods in godowns of its own and charged rents from the constituents.
The defendant No. 2 entered into a cash credit system agreement with the plaintiff 's Arrah Branch, the arrangement being that the sugar would be pledged under the cash credit system.
On December 16, 1946 the advance made to defendant No. 2 stood at Rs. 3,20,486 2 0 and the Bank held 6239 bags of different varieties of sugar as security.
These bags were kept in godowns provided by defendant No. 2.
The key of the lock of each godown was in the custody of the Bank.
It was alleged that in December 1949 under cover of an illegal seizure order issued by defendant No. 1 the Rationing Officer and the District Magistrate, Patna, got the locks of the godown broken open and forcibly and illegally removed 1818 bags of 27D quality of sugar.
They total quantity removed weighed about 5,000 maunds.
No payment was made to the plaintiff Bank which held the bags of sugar as pledgee under the cash credit agreement.
It is unnecessary to refer to other facts stated in the plaint except to mention that according to the plaintiff it was entitled to recover the sugar which had been seized illegally or to recover the price of that sugar as per schedule 2 of the plaint which the plaintiff would have got if the quantity of sugar which had been seized had been sold in the market on the material day.
The plaintiff prayed for a decree for the return of 1818 bags of 27D quality sugar and, alternatively for re covery of Rs. 1,81,700 9 3 with interest by way of damages for illegal removal and detention of sugar or.
price thereof.
Alternatively a decree for Rs. 93,910 10 9 was claimed against defendant No. 2 and the other defendants.
The suit was resisted by defendant No. 1 on the ground that the seizure had been effected pursuant to lawful orders which had been made and that the sale proceeds of about 5000 mds. of sugar were included in the sum of Rs. 1,50,039 10 9 which was deposited in the treasury but which was later on attached under the orders of Certificate Officer, Patna, under the Public Demands 301 Recovery Act on account of arrears of sugar cess amounting to Rs. 2 lakhs due from the Bhita Sugar Factory with which defendant No. 2 had entered into an arrangement pursuant to which the entire quantity of sugar including 5000 maunds which had been seized had come into possession of defendant No. 2.
The other defendant also resisted the suit on various grounds.
A number of issues were framed on the pleadings of the parties.
We may only mention issue No. 6(a) which will be material for determination of the points which we have been called upon to decide "Was the sugar seized by the government in possession of the Bank as a pledgee at the time of the seizure and have the rights of the Bank as such pledgee been determined by the seizure in question?" The trial court held that the order of seizure in respect of the stock of sugar was valid.
It was further held that the plaintiff 's right as a pledgee could not be extinguished by seizure of the sugar in its possession and though the attachment order of the Certificate Officer was legal and binding on defendant No. 2 it was not binding on the Bank (plaintiff) and it could be effective only in respect of that portion of the price which was not necessary for the liquidation of the dues of the plaintiff from defendant No. 2.
A decree was passed in favour of the plaintiff against defendant No. 1 only for Rs. 93,910 10 9 with interest at 6% per annum from the date of the suit till realisation.
Defendant No. 1 (State of Bihar) filed an appeal to the High Court.
The High Court was of the view that in the presence of the finding that the plaintiff had not been wrongfully deprived of the sugar on account of the lawful seizure or its price owing to the certificate proceedings started by the Cane Commissioner the plaintiff was not entitled to any decree against the State.
But it was entitled to a decree against defendant No. 2 and the other defendants.
Consequently a decree against defendant No. 1 was set aside and instead of decree was granted against the other defendants.
Now it is common ground that the plaintiff (which is the appellant before us) held the sugar which was seized from its custody as security for payment of the debts or advances made to defendant No. 2 in its cash credit account.
There were arrears of certain cess due from defendant No. 2.
As stated before, the Cane Commissioner took proceedings under the Public Demands Recovery Act and attached the price of the sugar which had been deposited by the appropriate authorities in the Government Treasury instead of being paid to the plaintiff.
The Cane Commissioner indisputably did not have any right of priority over the other creditors of defendant No. 2 and, in particular, the secured creditors.
Section 172 of the Contract Act defines a pledge to mean the bailment of goods as security for payment of debt or 302 performance of a promise.
The bailor is called the "pawnor" and the bailee is called the "pawnee".
Section 173 of that Act provides that the pawnee may retain the goods pledged not only for the payment of the debt or performance of the promise but also for the interest of the debt etc.
Section 176 is in the following terms : "If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawner upon the debt or promise, and retain the goods pledged as a collateral security ; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.
" If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance.
If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.
" Section 180 is to the effect that if a third person wrongfully deprives the bailee of the use of the possession of the goods bailed or does him any injury the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.
According to Section 181 whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and bailee.
be dealt with according to their respective interests.
Relying on the above two sections the High Court came to the conclusion that a pawnee has merely the possession of the goods coupled with a power to sell them on default by the pawnor but the latter retains the ownership subject to a lien to the extent of the debt enforceable by exercise of the power of sale.
In the present case the sugar had been seized and then sold.
The sale proceeds would have been available to defendants 2 to 5 subject to the claim of the plaintiff against them but it ceased to have any lien on the pledged property or the sale proceeds against any third party including the State as soon as it was legally deprived of the possession of the pledged goods.
According to the Statement in Halsbury 's Laws of England "Pawn" has been described as a security where by contract a deposit of goods is made a security for a debt and the right to the property vests in the pledgee so far as is necessary to secure the debt; in this sense it is intermediate between a simple lien and a 303 mortgage which wholy passed the property in the thing conveyed(1).
"The Pawnee hag a special property or special interest in the thing pledged, while the general property therein continues in the owner.
That special property or interest exists so that the Pawnee can compel payment of the debt or can sell the goods when the right to do so arises.
This special property or interest is to be distinguished from the mere right of detention which the holder of a lien possesses, in that it is transferable in the sense that a Pawnee may assign or pledge his special property or interest in the goods (2) "where judgment has been obtained against the pawnor of goods and execution has issued thereon, the sheriff cannotseize the goods pawned unless he satisfied the claim of the pawnee".
(based mainly on Rogers vs Kennay(3).
"On the bankruptcy of the pawnor the Pawnee is a secured creditor in the bankruptcy with respect to things pledged before the date of the receiving order and without notice of a prior available act of bankruptcy.
(4) It has not been shown how the law in India is in any way different from the English law relating to the rights of the Pawnee vis a vis other unsecured creditors of the pawnor.
In our judgment the High Court is in error in considering that the rights of the Pawnee who had parted with money in favour of the pawnor on the security of the goods can be defeated by the goods being lawfully seized by the Government and the money being made available to other creditors of the pawnor without the claim of the Pawnee being fully satisfied.
The Pawnee has special property and a lien which is not of ordinary nature on the goods and so long as his claim is not satisfied no other creditor of the pawnor has any right to take away the goods or its price.
After the goods had been seized by the Government it was bound to pay the amount due to the plaintiff and the balance could have been made available to satisfy the claim of other creditors of the pawner.
But by a mere act of lawful seizure the Government could not deprive the plaintiff of the amount which was secured by the pledge of the goods to it.
As the act of the Government resulted in deprivation of the amount to which the plaintiff was entitled it was bound to reimburse the plaintiff for such amount which the plaintiff in ordinary course would have realized by sale of the goods pledged with it on the pawnor making a default in payment of debt.
The approach of the trial court was unexceptionable.
The plaintiff 's right as a Pawnee could not be extinguished by the seizure of the goods in its possession inasmuch as the pledge of the (1) 3rd Edn.
29 page 211.
(2) Halsbury 's Laws of England 3rd Ed.
29 p. 218 219.
(3) (4) Halsbury 's Laws of England 3rd Ed.
29 p. 222.
304 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 plaintiff 's dues.
Defendants 3 to 5 did not file any appeal against the judgment of the High Court.
The decree passed by the High Court against them would, therefore, stand.
In the view that we have taken the appeal is allowed, the judgment and decree of the High Court dismissing the suit against the State, of Bihar is hereby set aside and a decree is granted against the State of Bihar in the same terms as was granted by the trial court.
The appellant will be entitled to costs throughout.
G.C. Appeal allowed.

Output:
Certain sugar was pledged with the plaintiff bank (appellant herein) by Defendant No. 2 under a cash credit agreement.
Part of the said sugar was seized under the Public Demands Recovery Act in connection with a demand of sugar cess by the Cane Commissioner.
The sugar was sold and the sale proceeds were attached towards the payment of cess.
No payment was made to the plaintiff bank, which thereupon filed the present suit to enforce its claim.
The trial court granted a decree against the State of Bihar for the price of the sugar.
The High Court however held that no decree could be granted against the State as the seizure was lawful.
HELD:The pawnee had special property and a lien which was not of ordinary nature on the goods and so long as his claim was not satisfied no other creditor of the pawnor had any right to take away the goods or its price.
After the, goods had been seized by the Government it was bound to pay the amount due to the plaintiff and the balance could have been made available to satisfy the claim of other creditor of the pawnor.
But by a mere act of lawful seizure the Government could not deprive the plaintiff of the amount which was secured by the pledge of the goods to it.
As the act of the Government resulted in deprivation of the amount to which the plaintiff was entitled it was bound to reimburse the plaintiff for such amount which the plaintiff in ordinary course would have realized by sale of the goods pledged with it on the pawnor making a default in the payment of debt.
[303E G] The trial court was right in holding that the plaintiff 's 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.
[303G 304B]


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Civil Appeal No. 20 of 1955.
Appeal from the Judgment and Order dated the ' 29th day of September 1954 of the High Court of Judicature at Madras in Original Side Appeal No. 113 of 1954 arising out of the order dated the 9th day of August 1954 of the said High Court in its Ordinary Original Civil Jurisdiction in Application No. 3542 of 1954.
376 C. K. Daphtary, Solicitor General for India (H. J. Umrigar, Mohan Kumaramangalam and Rajinder Narain, with him) for the appellants.
B. H. Dhebar and P. G. Gokhale for respondent No. 1.
Samarendra Nath Mukherjee and B. N. Ghose for respondent No. 2.
N. P. Engineer, (B. Moropant and V.J. Taraporewala, with him) for respondent No. 3. 1955.
April 20.
The Judgment of the Court was delivered by BHAGWATI J.
This appeal with a certificate under article 133 (1) (c) of the Constitution is directed against the judgment of the High Court of Judicature at Madras dismissing the appeal of the Appellants and refusing to set aside a sale effected by Respondent 2 of certain properties belonging to the Madras Electric Tramways (1904) Ltd. hereinafter called the Company, above the ground at Vepery, Madras and Mylapore, including the machinery cars, etc.
and buildings as scrap to Respondent 3 in his capacity as the Receiver of the trustees of the debenture holders of the Company.
The Appellants are the Secretary and President respectively of the Madras Tramways Workers Association (Registered No. 1253) a Trade Union registered under the Trade Unions Act.
The workmen employed by the Company are entitled under the award of the Special Industrial Tribunal, Madras in I. D. No. 9 of 1953 published in the Fort St. George Gazette, dated the 8th July, 1953 being G. 0.
Ms. No. 3024/53 to a payment of nearly Rs. 7,00,000 out of which the workers belonging to the Madras Tramways Workers Association alone would be entitled nearly to a sum of Rs. 4,35,000 and are thus the major creditors of the Company.
The Company was incorporated in England with its principal office situated at No. 1, Rundalls Road, Vepery, Madras 7 and was running the Tramway Service in Madras with licence issued to it by the Government under the Tramways Act.
It had issued 377 1300 First Debentures of CIOO each and the debenture holders had appointed the Beawer Trust Ltd., England as trustees.
By an Indenture made in England on the 13th October 1924 the Company charged by way of first charge in favour of the trustees all its undertaking properties and assets for the time being both present and future including its uncalled capital with the payment of all moneys for the time being owing on the security of the debentures and such charge was to rank as a floating charge.
By two subsequent deeds made at Madras dated the 26th March, 1925 and 6th July, 1950 certain immovable properties belonging to the company were mortgaged in favour of the said trustees.
The said Trustees appointed Respondent 2, the Managing Director of the Company and day to day management of the Tramway Service and of the business of the Compay, as their Receiver.
He took possession as such Receiver,, from the midnight of 11th April, 1953 of all the assets of the Company including moneys in the bank to the credit of the Company and after that date the Tramways Service was suspended and still remains suspended.
One J. B. Beardsell, one of the Directors of the Company filed O. P. No. 419 of 1953 as the duly constituted Attorney of the Company for winding up the Company on the ground that it was unable to pay its debts and that it bad ceased to carry on its business.
An order for the winding up of the Company was made by the Court on the 20th January, 1954 and the Official Receiver, High Court, Madras, was appointed the Official Liquidator.
Since all the assets including the moneys of the Company were in possession of Respondent 2, the Official Receiver was unable to take charge of anything except the records of the Company.
Soon after the order for winding up the Respondent 2 advertised in the newspapers on the 23rd January, 1954 for the sale of the properties and assets of the Company.
At the end of the conditions of sale he stated in paragraph 7 that "the sales are for the time being subject to the approval of the High Court 378 at Madras and it will be for the undersigned to obtain such approval for accepted offers free of all costs to the purchaser".
At the time of the order of winding up, two suits were pending in the High Court, C.S. No. 191 of 1952 filed by the Company against the State of Madras for Rs. 1,33,204 9 0 and interest thereon being electric charges alleged to have been collected by the State of Madras in excess of those payable by the Company and paid by the company under protest and C.S. No. 368 of 1953 filed by the State of Madras against the Company for the recovery of Rs. 9,26,123 2 3 with interest thereon, being the difference alleged to be due in respect of the electric charges under the old rates and the revised rates applicable to the Company.
During the pendency of the said suits Respondent 2 gave an undertaking in Application No. 4533 of 1953 in Civil Suit No. 368 of 1953 that he would not without the orders of the High Court dispose of any of the assets of the Company which were in his possession till the disposal of the suit C.S. No. 368 of 1953.
The two suits aforesaid were tried together and were disposed of by a common judgment on the 16th March 1954.
On the 16th July 1954 Respondent 2 agreed to sell and Respondent 3 agreed to buy the movable properties of the Company the particulars of which were set out in the agreement entered into on that date, for a price of Rs. 4,01,658 of which half was paid on the signing of the agreement and the other half was agreed to be paid out of the proceeds of sale to be made by the purchasers of the assets as scrap.
On the 23rd July 1954 the Official Receiver, High Court, Madras (Respondent 5 herein) filed an application No. 3542 of 1954 for setting aside the said sale of the assets of the Company on the grounds, inter alia, that it was prejudicial to the interests of the General body of unsecured creditors, that the same had been concluded with undue haste and without adequate publicity and in violation of Respondent 2 's said undertaking to the Court.
It also asked for an injunction restraining the Respondent 2 from 379 handing over and the Respondent 3 from either taking over or breaking up the assets purchased by him pending, the disposal of the said application.
This application was based on a report of the Official Receiver in which after setting out the relevant facts he submitted that even though under section 229 of the Indian Companies Act the Company which was admittedly insolvent was governed by rules prevailing with regard to the respective rights of the secured and unsecured creditors and to debts provable and valuation of annuities governing the administration in insolvency and secured creditors generally stood outside the liquidation and were entitled to have the remedy of realising the security and proving before him for the deficiency, if the properties of the Company could be sold for a price higher than the amount due to the Trustees of the debenture holders there was a possibility of a surplus coming into his bands for the benefit of the unsecured creditors.
If the Respondent 2 proved before him for any deficiency due to the secured creditors, it would certainly affect the rights of unsecured creditors, and moreover though the secured creditors might realise the security, it will be in the interests of the unsecured creditors to see that a fair and proper price was obtained.
He therefore submitted that in the interests of the unsecured creditors it was just and necessary to have a fair valuation ascertained and an enquiry held to ascertain whether the sale by the Respondent 2 in favour of Respondent 3 was bona fide and for a proper price.
Respondent 2 filed an affidavit in reply in August 1954 contending inter alia, (1) that the offer by the Respondent 3 was the highest, that he had received and that this had been accepted bona fide, (2) that in the advertisement the condition as to the previous sanction of the Court was inserted because of the undertaking that be had given to the Court in C.S. No. 368 of 1953 and that this undertaking lapsed with the dismissal of the said suit on the 16th March 1954, (3) that he had been advised by the Solicitors in England for the debenture trustees that it was unnecessary for him to obtain 380 the sanction of the Court and that he had been instructed not to apply for such sanction and (4) that the sale was bona fide and he had secured as good a price as could be obtained.
By its judgment and order dated the 9th August 1954 Mr. Justice Balakrishna Ayyar (in Chambers) dismissed the said application with costs.
The learned Judge held that the question whether Respondent 2 had violated the undertaking given by him was not germane to the application before him, that undoubtedly the Respondent 2 did give wide publicity of his intention to sell the assets of the Company, that it could not be said that the sale was sub rosa on the ground of want of wide publicity to the intended sale of the Company 's assets and that the Respondent 3 's offer was the best offer received by the Respondent 2 looking both to the abstract of offers appended to the affidavit of the Respondent 2 in the said application, and looking to the other offers pointed out to him by Respondent 5.
The learned Judge further referred to the offer of the Corporation of Madras and said that the said Corporation had not made any firm offer at all and that the offer of one A. Chettiar of Rs. 4,25,000 made on 5th August 1954 during the hearing of the application was an offer made by a person who did not appear to him to be of a man of sound financial status.
The learned Judge in his judgment also recorded the fact that during the hearing of the application the Respondent 3 offered to sell to the Madras Municipal Corporation the entire assets he had purchased at the same price which he paid for it but the Corporation were not prepared to accept the offer.
The Respondent 5 accepted the said judgment and decision and did not prefer any appeal against the same.
But the Appellants who were not parties to the proceedings applied for and obtained from the High Court leave to appeal from the said decision.
This appeal also was dismissed by the High Court with costs on the 24th September 1954.
The High Court differed from the finding of the Trial Court and held that due publicity had not been given to the 381 intended sale and observed that if the matter rested merely on a decision of that point they would have allowed the appeal and set aside the sale.
They how ' ever held that in the absence of fraud or want of bona fides on the part of the seller along with that of the buyer the sale in favour of the Respondent 3 could not be set aside.
The High Court further considered the question whether the said sale was void as being without the leave of the Court in view of section 232 of the Indian Companies Act and answered that question in the negative.
The High Court further held that a secured creditor had a right to realise his security without seeking the assistance of the court and remaining outside the winding up.
Being aggrieved by the said judgment and decree of the High Court the Appellants applied for leave to appeal to this Court and such leave was granted by the High Court on the 24th September 1954.
The bona fides of the Respondent 2 in the matter of the sale were not challenged either in the Courts below or before us and there were concurrent findings of fact that the price obtained by Respondent 2 was the best price available under the circumstances.
It was however urged by the learned Solicitor General for the Appellants: (I) that the High Court, having found that due publicity had not been given to the intended sale, ought not to have allowed the Respondent 3 at that stage to raise the question as to whether the Court had any power or jurisdiction to set aside the sale except on the ground that it was vitiated by fraud or for want of bona fides and (2) that the sale by Respondent 2 being a sale held without leave of the winding up Court was void under section 232(1) of the Indian Companies Act.
The High Court bad allowed the Respondent 3 to raise the question even at that late stage inasmuch as it was a pure question of law and the learned Solicitor General therefore rightly did not press the first contention before us.
The main argument centered round the second contention, viz., whether the sale effected by the Respondent 2 without leave of the winding up Court was void and hence liable to be set aside.
382 The decision of this question turns upon the true construction of section 232 of the Indian Companies 'Act, which runs as under: "(I) Where any company is being wound up by or subject to the supervision of the Court, any attachment, distress or execution put in force without leave of the Court against the estate or effects or any sale held without leave of the Court of any of the properties of the company after the commencement of the winding up shall be void.
(2) Nothing in this section applies to proceedings by the Government".
It may be noted that the words "or any sale held without leave of the Court of any of the properties" underlined above were inserted by Act XXII of 1936.
Before this amendment section 232(1) was almost in identical terms with section 228(1) of the English Companies Act of 1948.
Two other sections of the Indian Companies Act may be noted in this context, viz. section 171:"When a winding up order has been made or a provisional liquidator has been appointed no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court, and subject to such terms as the Court may impose." and Section 229: "In the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable and to the valuation of annuities and future and contingent liabilities as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent; and all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company may come in under the winding up, and make such claims against the company as they respectively are entitled to by virtue of this section;" which correspond respectively to sections 231 and 317 of the English Companies Act of 1948.
383 The position of a secured creditor in the winding up of a company has been thus stated by Lord Wrenbury in Food Controller vs Cork(1): "The phrase 'outside the winding up ' is an intelligible phrase if used, as it often is, with reference to a secured creditor, say a mortgagee.
The mortgagee of a company in liquidation is in a position to say "the mortgaged property is to the extent of the mortgage my property.
It is immaterial to me whether my mortgage is in winding up or not.
I remain outside the winding up ' and shall enforce my rights as mortgagee".
This is to be contrasted with the case in which such a creditor prefers to assert his right, not as a mortgagee, but as a creditor.
He may say 'I will prove in respect of my debt '.
If so, he comes into the winding up".
It is also summarised in Palmer 's Company Precedents Vol.
II, page 415: "Sometimes the mortgagee sells, with or without the concurrence of the liquidator, in exercise of a power of sale vested in him by the mortgage.
It is not necessary to obtain liberty to exercise the power of sale, although orders giving such liberty have sometimes been made".
The secured creditor is thus outside the winding up and can realise his security without the leave of the winding up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under section 231 (corresponding with section 171 of the Indian Companies Act) to obtain the leave of, the winding up Court before he can do so although such leave would almost automatically be granted.
Section 231 has been read together with section 228(1) and the attachment, sequestration, distress or execution referred to in the latter have reference to proceedings taken through the Court and if the creditor has resort to those proceedings he cannot put them in force against the estate or effects of the Company after the commencement of the winding up without the leave of the winding up Court.
The (1) 1923 Appeal Cases 647.
49 384 provisions in section 317 are also supplementary to the provisions of section 231 and emphasise the position of the secured creditor as one outside the winding up, the secured creditor being, in regard to the exercise of those rights and privileges, in the same position as he would be under the Bankruptcy Act.
The corresponding provisions of the Indian Companies Act have been almost bodily incorporated from those of the English Companies Act and if there was nothing more, the position of the secured creditor here also would be the same as that obtaining in England and he would also be outside the winding up and a sale by him without the intervention of the Court would be valid and could not be challenged as void under section 232(1) of the Indian Companies Act.
It was however urged that the addition of the words "or any sale held without leave of the Court of any of the properties" had changed the position of the secured creditor and even though the secured creditor realised the security without the intervention of the Court such sale, if effected by him without the leave of the winding up Court, was void.
It was pointed out that these words did not find their place in the corresponding section 228(1) of the English Companies Act and therefore even though any attachment, distress or execution put in force without leave of the Court against the estate or effects of the company after the commencement of the winding up was void under the terms of the section 232(1) as it originally stood, the words "or any sale held without leave of the Court of any of the properties" of the company were wide enough to include not only a sale held through the intervention of the Court but also a sale effected by the secured creditor without the intervention of the Court whether the sale was by private treaty or by public auction.
It was contended on the other hand on behalf of the contesting Respondent, Respondent 3, that the amendment was made in order to get over the decision of the Allahabad High Court in Kayastha Trading and Banking Corporation Ltd. vs 385 Sat Narain Singh(1) and that in any event on a true construction of section 232(1) as amended the words "any sale held" had reference in the context only to sales held by or effected through the intervention of the Court and not sales effected by the secured creditor without the intervention of the Court.
The decision of the Allahabad High Court above referred to had held on a construction of section 232(1) as it then stood, that an execution was not put in force merely when the property of the judgment debtor was sold in pursuance thereof, but it was put in force when the property was attached and hence where the property of an insolvent company was attached prior to the date of the commencement of the winding up but was actually sold subsequent to such date, the sale was not void and could be upheld.
There was an earlier decision of the Patna High Court in Baldeo Narain Singh vs The, United India Bank Ltd.(1) in which a contrary decision had been reached exactly under similar circumstances.
It is well known that this conflict was resolved and the decision of the Allahabad High Court was got over by inserting this amendment by Act XXII of 1936.
The statement of objects and reasons is certainly not admissible as an aid to the construction of a statute.
But it can be referred to for the limited purpose of ascertaining the conditions prevailing at the time which actuated the sponsor of the Bill to introduce the same and the extent and urgency of the evil which he sought to remedy.
State of West Bengal vs Subodh Gopal Bose and Others(3).
The amendment of section 232(1) inserted by Act XXII of 1936 was designed to prevent such sales as were upheld by the decision of the Allahabad High Court in Kayastha Trading and Banking Corporation Ltd. vs Sat Narain Singh(1) and it would be permissible to refer to that portion of the statement of objects and reasons for the purpose of ascertaining the extent and urgency of the evil which was sought to be remedied by introducing the amendment.
It follows therefore that the (1) Allahabad 433 (2) [1915] 38 Indian Cases 91.
(3) ; , 628.
386 amendment could not have been intended to bring within the sweep of the general words "or any sale held without the leave of the Court of any of the properties" sales effected by the secured creditor outside the winding up.
Even apart from this intendment there are certain canons of construction which also tend to support the same conclusion.
Prior to the amendment the law was well settled both in England and in India that the secured creditor was outside the winding up and he could realise his security without the intervention of the Court by effecting a sale of the mortgaged premises by private treaty or by public auction.
It was only when the intervention of the Court was sought either by putting in force any attachment, distress or execution within the meaning of section 232(1) as it stood before the amendment or proceeding with or commencing a suit or other legal proceedings against the company within the meaning of section 171 that leave of the Court was necessary and if no such leave was obtained the remedy could not be availed of by the secured creditor.
The sale of the mortgaged premises was also brought by the amendment on a par with the attachment, distress or execution put in force at the instance of the secured creditor and having regard to the context such sale could only be construed to be a sale held through the intervention of the Court and not one effected by the secured creditor outside the winding up and without the intervention of the Court.
It is a well recognised rule of construction that "when two or more words which are susceptible of analogous meaning are coupled together noscunter a sociis, they are understood to be used in their cognate sense.
They take, as it were, their colour from each other.
, that is.
, the more general is restricted to a sense analogous to the less general.
(Maxwell on Interpretation of Statutes, Tenth Edition, p. 332).
The Judicial Committee of the Privy Council also expressed itself in similar terms in Angus Robertson & Others vs George Day(1): (1) , 69. 387 "It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them".
Having regard therefore to the context in which these words "any sale held without leave of the Court of any of the properties" have been used in juxtaposition with "any attachment, distress or execution put into force without leave of the Court against the estate or effects" it would be a legitimate construction to be put upon them that they refer only to sales held through the intervention of the Court and not to sales effected by the secured creditor outside the winding up and without the intervention of the Court.
There is also a presumption against implicit alteration of law and that is enunciated by Maxwell on Interpretation of Statutes, 10th Edition, at page 81 in the following terms: "One of these presumptions is that the legislature does not intend to make any substantial alteration in the law beyond what it explicitly declares, either in express terms or by clear implication, or, in other words, beyond the immediate scope and object of the statute.
In all general matters outside those limits the law remains undisturbed.
It is in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness. . . . .
This passage from Maxwell was approved of by Their Lordships of the Privy Council in Murugian, P. vs Jainudeen, C. L.(1) and Their Lordships agreed that the law was correctly stated in the passage just cited.
To the same effect are also the observations of the Court of Appeal in National Assistance Board vs Wilkinson(1) where it was held that the Statute is not to be taken as affecting a fundamental alteration in the general law unless it uses words pointing unmistakably to that conclusion.
In that case at page 658 Lord Goddard, C.J. observed: (1) [1954] 3 Weekly Law Reports 682, 687, (2) 388 "But it may be presumed that the legislature does not intend to make a substantial alteration in the law beyond what it expressly declares.
In Minet vs Leman(1), Sir John Romilly, M. R. stated as a principle of construction which could not be disputed that 'the general words of the Act are not to be so construed as to alter the previous policy of the law, unless no sense or meaning can be applied to those words consistently with the intention of preserving the existing policy untouched ' ".
If the construction sought to be put upon the words "or any sale held without leave of the Court of any of the properties" by the Appellants were accepted it would effect a fundamental alteration in the law as it stood before the amendment was inserted in section 232(1) by Act XXII of 1936.
Whereas before the amendment the secured creditor stood outside the winding up and could if the mortgage deed so provided, realise his security without the intervention of the Court by effecting a sale either by private treaty or by public auction, no such sale could be effected by him after the amendment and that was certainly a fundamental alteration in the law which could not be effected unless one found words used which pointed unmistakably to that conclusion or unless such intention was expressed with irresistible clearness.
Having regard to the circumstances under which the amendment was inserted in section 232(1) by Act XXII of 1936 and also having regard to the context we are not prepared to hold that the Legislature in inserting that amendment intended to effect a fundamental alteration in law with irresistible clearness.
Such a great and sudden change of policy could not be attributed to the Legislature and it would be legitimate therefore to adopt the narrower interpretation of those words of the amendment rather than an interpretation which would have the contrary effect.
(Vide the observations of the Privy Council in Vasudeva Mudaliar & Others vs Srinivasa Pillai & another(1).
(1) ; (2) (19O7) I.L.R. 30 Madras 426, 433, 389 It may be observed in this connection that section 171 enacts a general provision with regard to suits or other legal proceedings to be proceeded with or commenced against the company after a winding up order has been made and lays down that no suit or other legal proceedings shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court may impose.
This general provision is supplemented by the supplemental provisions to be found respectively in sections 229 and 232(1) of the Act.
Section 229 speaks of the application of insolvency rules in winding up of insolvent companies and section 232(1) speaks of the avoidance of certain attachments, executions, etc., put into force without the leave of the Court against the estate and effects of the company and also of any sale held without the leave of the Court of any of the properties of the company after the commencement of the winding up.
Section 229 recognises the position of the secured creditor generally as outside the winding up but enables him in the event of his desiring to take the benefit of the winding up proceedings to prove his debt, to value the same and share in the distribution pro rata of the assets of the company just in the same way as he would be able to do in the case of insolvency under the Presidency Towns Insolvency Act or the Provincial Insolvency Act.
Section 232(1) also has reference to legal proceedings in much the same way as legal proceedings envisaged by section 171 of the Act and the attachment, distress or execution put in force or the sale held are all of them legal proceedings which can only be resorted to through the intervention of the Court.
The word "held" in connection with the sales contemplated within the terms of the amended section also lends support to this conclusion and this conclusion is further fortified by the terms of section 232(2) which says that nothing in this section applies to proceedings by the Government, thus in effect indicating that what are referred to in section 232(1) are proceedings within the meaning of that term as used in section 171 of the Act.
390 The Federal Court also put a similar construction on the provisions of section 171 read with section 232(1) of the Act in The Governor General in Council vs Shiromani Sugar Mills Ltd. (In Liquidation)(1) "Section 171 must, in our judgment, be construed with reference to other sections of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act.
In particular, we would refer to section 232.
Section 232 appears to us to be supplementary to section 171 by providing that any creditor (other than Government) who goes ahead, notwithstanding a winding up order or in ignorance of it, with any attachment, distress, execution or sale, without the previous leave of the Court, will find that such steps are void.
The ref erence to "distress" indicates that leave of the Court is required for more than the initiation of original proceedings in the nature of a suit in an ordinary Court of law.
Moreover, the scheme of the application of the company 's property in the pari passu satisfaction of its liabilities, envisaged in section 211 and other sections of the Act, cannot be made to work in co ordination, unless all creditors (except such secured creditors as are "outside the winding up" in the sense indicated by Lord Wrenbury in his speech in Food Controller V. Cork(1) at page 671) are subjected as to their actions against the property of the company to the control of the Court.
Accordingly, in our judgment, no narrow construction should be placed upon the words "or other legal proceeding" in section 171. 'In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary Courts.
In our view, such proceedings are other legal proceedings against the company, as contrasted with ordinary suits against the company".
We are therefore of the opinion that the sale effected by Respondent 2 as the Receiver of the Trustees of the debenture holders on the 16th July 1954 was valid and binding on all parties concerned and could not be challenged as it was sought to be done by the (1) , 55.
(2) 391 Official Receiver.
The position was rightly summed up by the High Court as under: "We thus reach the position that no leave of Court was needed before the Receiver appointed by the mortgagee debenture holders exercised the power of sale and that as there is no allegation of want of bona fides or recklessness or fraud against the Receiver in exercising such a power, it would follow that the sale held by the Receiver is valid and effectual to convey title to the purchaser and that such a sale cannot be avoided on the ground either of want of due notice given by the Receiver before effecting the sale or on the ground of undervalue".
The result therefore is that the appeal fails and must be dismissed with costs of the contesting Respondent 3.
The other Respondents who have appeared before us will bear and pay their own costs of the appeal.

Output:
The secured creditor is outside the winding up and can realism his security without the leave of the winding up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under section 171 of the Indian Companies Act to obtain the leave of the winding up Court before he can do so although such leave would almost automatically be granted.
375 It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them.
It is also a well recognized rule of construction that the legislature does not intend to make a substantial alteration in the law beyond what it explicitly declares either in express words or by clear implication and that the general words of the Act are not to be so construed as to alter the previous policy of the law, unless no sense or meaning can be applied to those words consistently with the intention of preserving the existing policy untouched.
Held therefore that having regard to the context in which the words "any sale held without leave of the Court of any of the properties" added in section 232(1) by the amending Act XXII of 1936 have been used in juxtaposition with "any attachment, distress or execution put into force without leave of the Court against the estate or effects" it would be a legitimate construction to be put upon them that they refer only to sales held through the intervention of the Court and not to sales effected by the secured creditor outside the winding up and without the intervention of the Court, and that the amendment was not intended to bring within the sweep of the general words sales effected by the secured creditor outside the winding up.
Held accordingly that in the present case the sale effected by respondent No. 2 as the receiver of the trustees of the debenture holders in July 1954 was valid and binding on all parties concerned and could not be challenged as it was sought to be done by the Official Receiver.
Food Controller vs Cork(1923 A.C. 647), Kayastha Trading and Banking Corporation Ltd. vs Sat Narain Singh ([1921] I.L.R. 43 All. 433), Baldeo Narain Singh vs The United India Bank Ltd. ([1915] , State of West Bengal vs Subodh Gopal Bose and others ; , Angus Robertson and others vs George Day , Murugian, P. vs Jainudeen, C. L. ([1954] 3 W.L.R. 682), National Assistance Board vs Wilkinson ([1952] 2 Q.B. 648), Vasudeva Mudaliar and others vs Srinivasa Pillai and another ([1907] I.L.R. and The Governor General in Council vs Shiromoni Sugar Mills Ltd. (In Liquidation) (1946 F.C.R. 40), referred to.


Input:
ivil Appeal No. 2245 to 2249 of 1985.
212 From the Judgment and Order dated 8.11.
1984 of the Patna High Court in C.W.J. Case No. 2812 of 1982.
V.M. Tarkunde and M.P. Jha for the Appellants.
S.N. Kacker and L.R. Singh for the Respondents.
Vijay Hansaria for Respondent in C.A. No. 2248/85.
The Judgment of the Court was delivered by KHALID, J.
In these appeals, by special leave, the short question that falls for decision is as to how Explanation to Section 2(P)(i) inserted by the Bihar Agricultural Produce Markets (Amendment) Act, 1982, should be read with the Explanation to Section 27 also inserted by the same Act.
Before the High Court, the vires of Explanation to Section 2(P)(i) was challenged on the ground that it encroached upon Entry 42 of list I of the Seventh Schedule.
The Division Bench of the High Court after considering the various au thorities dealing with the concept of sale, refrained from declaring the Explanation bad but read it down and held that it should be read in harmony with the Explanation to Section 27 and directed the marketing committee concerned to make assessment of fees after giving the petitioners an opportu nity as provided in the Explanation to Section 27.
In this Judgment, we do not propose to go into the question whether sale as explained in the Explanation to Section 2(P)(i)) would include interstate trade etc.
and on that reasoning strike down the Explanation.
We propose to consider the scope of the two Explanations to see whether they can co exist.
The Original Act was called the Bihar Agricultural Produce Markets Act, 1960, (for short the Act).
This Act was enacted to regulate the buying and selling of crops by providing suitable and regulated markets, to eliminate middlemen and to help the cultivators and the buyers in the disposal of the commodities.
The Act enabled the marketing committee to levy a fee for transactions talking place in the market area.
To get at persons who manage to escape the levy of market fee by ingenious transactions, the Act was amended by inserting a new definition Section 2(P)(i) along with an Explanation and also adding an Explanation to Sec tion 27.
What we have to decide in this case is as to how these two Explanations have to be construed.
In other words whether one Explanation excludes the other or whether one is the compliment of the other.
213 It is necessary first to quote the two provisions under consideration.
Section 2(P)(i) along with the Explanation reads as follows: "2(P)(i) 'Sale ' means any transfer of proper ty in goods for cash or deferred payment or other valuable consideration and shall include transfer or acquisition of goods on hire purchase or under any other system in which payment of valuable consideration is made by installment notwithstanding the fact that the seller retains title in goods as valuable security of payment of consideration or for any other person.
Explanation Notwithstanding any thing contained in any law for the time being in force sale shall be deemed to have taken place for the purpose of this Act within a market area when the goods are transferred from the Principal to his selling agent or to the Arhatia within the market area or outside the market area.
" Section 27 is the charging section.
It reads as follows along with the Explanation: "Section 27 Power to levy fees (1) The market committee shall levy and collect market fees on the agricultural produce brought or sold in the market area, at the rate of rupee one per Rs. 100 worth of agricultural produce.
Explanation: All notified agricultural produce leaving a market area, shall unless the con trary is proved be presumed to have been bought or sold in such area.
" In fiscal laws due importance has to be given to the phraseology used in the charging section.
Section 27 gives to the market committee the power to levy and collect market fees on the agricultural produce bought or sold in the market area at the rate given therein.
The Explanation raises a presumption and that is that all notified agricul tural produce leaving a market area shall be presumed to have been bought or sold in such an area.
But this presump tion is rebuttable because the Explanation gives the affect ed party an opportunity to satisfy the assessing authorities that there was neither buying nor selling in a given case.
This Section with its Explanation thus creates no difficul ty.
It is 214 when we come to the definition section, extracted above, that the difficulty arises. 'Sale ' is defined in Section 2(P)(i).
If the definition had stopped there, there would have been no difficulty in construing Section 27 and its Explanation.
In all transactions the parties get an opportu nity to satisfy the assessing authorities whether such transactions are sales or not.
But the Explanation to Sec tion 2(P)(i) introduces complications.
This Explanation states by a deeming fiction, that when goods are transferred from the principal to his selling agent or Arhatia within a market area or outside the market area a sale takes place.
This Explanation encompasses within its sweep, sales of all kinds within the market area or outside or within the State or outside.
That is the reason why its validity was chal lenged by the respondents before the High Court.
The learned counsel for the appellants contended that the Explanation to Section 2(P)(i) could stand independent of the Explanation to Section 27 since they have different fields of operation.
According to him, if this Explanation is made subject to the Explanation to Section 27, this Explanation would be rendered redundant and futile.
The learned counsel for the respondents, on the other hand pleaded that since both the Explanations were brought on the Statute Book by the same amendment, they must be read harmo niously and the Explanation to the definition section should be read subject to the Explanation to the charging section.
We have considered the rival contentions carefully.
We feel that the Explanation to Section 2(P)(i) has not been well worded nor properly placed.
We are steering clear of the contention that the Explanation is in excess of the powers of the State Legislature since we feel that the dispute can be resolved better by allowing the two Explana tions to co exist by reading them harmoniously.
In doing so, it is necessary to read down the Explanation to Section 2(P)(i) and give full effect to the Explanation to the charging section.
The Explanation to Section 27 gives an opportunity to the affected persons to satisfy the assessing authorities that the transaction in question is not a sale.
This Explanation should be deemed to take in all sales including those mentioned in the Explanation to Section 2(P)(i).
In other words, even transactions coming within the ambit of Explanation to Section 2(P)(i) have to be governed by the Explanation to Section 27.
In construing the two Explanations we have give preference to the Explanation to the charging section over the Explanations to the definition section consistent with the rules of interpretation of such provisions.
If that be so, the Judgment of the High Court has to be upheld and these 215 appeals have to be dismissed.
We do so.
As directed by the High Court the marketing committee concerned can make as sessment of fees only after giving the respondents an oppor tunity to show cause as laid down in the Explanation to Section 27.
If the Government wants a stricter control over the transactions in the market area it is for them to suit ably amend the Explanation in question by excluding its operation from the Explanation to Section 27.
In the circumstances of the case, there will be no order as to costs.
M.L.A. Appeal dis missed.

Output:
Section 2(P)(i) of the Bihar Agricultural Produce Mar kets Act, 1960 defines 'sale ' to mean any transfer of property in goods for cash or deferred payment or other valuable consideration.
The Explanation to section 2(P)(i) inserted by the Bihar Agricultural Produce (Markets) amend ment Act, 1982 provides that notwithstanding anything con tained in any law for the time being in force, 'sale ' shall be deemed to have taken place for the purpose of this Act within a market area when the goods are transferred form the Principal to his selling agent or to the Arhatia within the market area or outside.
The amending Act also added an Explanation to the charging section, section 27 providing that all notified agricultural produce leaving a market area shall, unless the contrary is proved, be presumed to have been bought or sold in such area.
The respondents challenged before the High Court the vires of the Explanation to section 2(P)(i) on the ground that it encroached upon Entry 42 of List I Seventh Schedule to the Constitution.
The High Court refrained from declaring the Explanation bad but read it down and held that it should be read in harmony with the Explanation to Section 27 and directed the marketing committee concerned to make assess ment of fees after giving the petitioners an opportunity as provided in the Explanation to Section 27.
Dismissing the Appeal, this Court, HELD: 1.
In construing the two Explanations preference has to 211 be given to the Explanation to the charging section over the Explanation to the definition section consistent with the rules of interpretations of such provisions.
[214G H] 2.1 In fiscal laws due importance has to be given to the phraseology used in the charging section.
Section 27 gives to the market committee the power to levy and collect market fees on the agricultural produce bought or sold in the market area at the rate given therein.
The Explanation raises a presumption that all notified agricultural produce leaving a market area shall be presumed to have been bought or sold in such an area.
But this presumption is rebuttable because the Explanation gives the affected party an opportu nity to satisfy the assessing authorities that there was neither buying nor selling in a given case.
[213F H] 2.2 In all transactions, the parties get an opportunity to satisfy the assessing authorities whether such transac tions are sales or not.
But the Explanation to Section 2(P)(i) introduces complications.
This Explanation states by a deeming fiction that when goods are transferred from the principal to his selling agent or Arhatia within a market area or outside the market area, a sale takes place.
This Explanation encompasses within its sweep, sales of all kinds within the market area or outside or within the State or outside.
[214A C] 2.3 The Explanation to Section 2(P)(i) has not been well worded nor properly placed.
The Explanation is in excess of the powers of the State Legislature since the dispute can be resolved better by allowing the two Explanations to co exist by reading them harmoniously.
In doing so, it is necessary to read down the Explanation to Section 2(P)(i) and give full effect to the Explanation to the charging section.
The Explanation to Section 27 gives an opportunity to the af fected persons to satisfy the assessing authorities that the transaction in question is not a sale.
This Explanation should be deemed to take in all sales including those men tioned in the Explanation in Section 4(P)(i).
In other words, even transactions coming within the ambit of Explana tion to Section 2(P)(i) have to be governed by the Explana tions to Section 27.
[214E G] 3.
If the Government wants a stricter control over the transactions in the market area it is for them to suitably amend the Explanation in question by excluding its operation from the Explanation to Section 27.
[215B]