BANK OF BIHAR versus STATE OF BIHAR & ORS.

Citation: [1971] SUPP. 1 S.C.R. 299 · Decided: 01-04-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Appeal(s) allowed

Judgment (excerpt)

BANK OF BIHAR 
v. 
STATE OF BIHAR & ORS. 
April 1, 1971 
(K. S. HEGDE AND A. N. GROVER, JJ,) 
Contract Act, 1872, ss. 172, 173, 176, 180 and 
ISi-Pledge-Special 
prope1ty of pawnor-Pawnee's rights whether can be extinguished by law-
ful seizure of pawned goods by Government to satisfy its claims against 
pawnor. 
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 pre-
sent 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 thd.t no decree could be granted against the State as the seizure Y.'as 
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 pa\\·nor 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 good< 
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 atnount 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 inas~ 
much 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 plaintiff's dues. [303G-304B] 
CIVIL APPELLATE JURISDICTION: Civil 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. 
29~ 
B 
c 
E 
F 
G 
ff; 
300 
A 
B 
c 
D 
F 
G 
H 
SUPREMB COURT RERORTS 
(1971] SUPP. s.c.R 
The Judgment of the Court was delivered by 
Grover, J.-This is an appeal by certifica.te 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. l, the 
other defendants being the Jagdishpur Zamindari Co. Ltd. (defen-
dant 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 the 
consituents 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 defen· 
dant 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. I the Rationing Officer and the District Magis-
trate, 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 plai

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