CENTRAL BANK OF INDIA versus SIRIGUPPA SUGARS & CHEMICALS LTD. & ORS.

Citation: [2007] 8 S.C.R. 898 · Decided: 07-08-2007 · Supreme Court of India · Bench: TARUN CHATTERJEE · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

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A 
CENTRAL BANK OF INDIA 
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v. 
,.. 
SIRIGUPPA SUGARS & CHEMICALS LTD. & ORS. 
AUGUST 7, 2007 
B 
[T ARUN CHATTERJEE AND P.K. BALASUBRAMANY AN, JJ.] 
Contract Act, I872-Sections 173 and 176-Rights of pawnee on sale 
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proceeds of pawned goods-Sugar Company obtained loan from Bank-pawnee 
c 
by pledging stocks of sugar and loan not repaid-Interim order by High 
Court directing disbursal of certain amounts realised on sale proceeds for 
satisfying claim of cane growers and employees of the Company-Interference 
with-Held: Pawnee has right to retain goods pledged for payment of debt 
including interest on debt and all necessary expenses incurred by it-Rights 
of the bank as pawnee over pawned sugar prevailed over the claims of cane 
D growers and workmen, who were only unsecured creditors since no liquidation 
of the Company had taken place-Thus, interim order set aside-Bank entitled 
to the amount in satisfaction of its debt and surplus, if any be disbursed to 
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unsecured creditors. 
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Interim order: Interim order by High Court-When final adjudication 
E to be made in writ appeal pending before it-Interim order resulting in 
serious prejudice to the parties-Propriety of-Held: Not proper. 
First respondent-company secured loan from the appellant-bank by 
pledging its stock of sugar with the appellant-bank. The Company did not pay 
F 
dues of the sugarcane growers who supplied them sugarcane and also of the 
workmen of the Company. Aggrieved, partiei initiated recovery proceedings. 
<( 
Labour Commissioner passed an order against the respondent company in 
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respect of dues to the workmen. Cane Commissioner passed orders against 
the respondent company in respect of dues to the sugarcane growers. 
Respondent company filed writ petition challenging the recovery proceedings. 
G The first respondent company had not repaid the loan amount to the appellant-
bank. During pendency of the writ petition, the Recovery Authority took 
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possession of stock of sugi.c lying pledged to the appellant-bank and under 
its control, forcibly and without reference to the appellant-bank. Taking into 
consideration that the sugar stock was liable to lose its value by being stored 
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H 
898 
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CENTRAL BANK OF !NOIA••. SIRIGUPPA SUGARS & CHEMICALS LTD . 
899 
indefinitely, the court directed sale of sugar. Out of the sale price fetched, A 
part of the sum was paid to~ards excise duty and the balance was held under 
the orders of court. Writ petition was dismissed. First respondent Company 
then filed an appeal. High Court passed an interim order directing 
disbursement of certain amounts realized on sale of stocks of sugar, owned 
by respondent company under pledge by appellant-bank, to the employees of 
the company, to the sugarcane cultivators and to the appl!llant-bank. Hence B 
the present appeal. 
Appellant-bank contended that the High Court erred in ignoring the 
rights of the appellant as a pawnee to the proceeds of the sale of the goods 
pledged to it to secure a debt due from the borrower; that the bank as pawnee C 
had the first charge on the stock of sugar over the debts due to other 
unsecured creditors and the charge crystalised when the stock of sugar 
pledged with it was sold; that in the absence of any winding up proceeding the 
workmen had no preferential rights and their status, was that of unsecured 
creditors; that neither the Cane growers nor the workmen were secured 
creditors; and that by passing such an interim order the Division Bench had D 
seriously prejudiced the rights of parties which remain to be determined in 
the writ appeal itself and such an interim order ought not to have been passed. 
Respondent-Company contended that the amounts due to the sugarcane 
growers and to the workmen had to be provided for and as such there is no 
reason to interfere with the interim order passed by the Division Bench of E 
the High Court. 
Allowing the appeals, the Court 
HELD: I.I. Under section 173 of the Contract Act, a pawnee has the 
right to retain the goods pledged for payment of the debt including interest F 
on the debt and all necessary expenses incurred by the pawnee in respect of 
the possession or for the preservation of the goods pledged. 
(Para 61 (903-C-DI 
1.2. The rights of the appellant-bank over the pawned sugar had G 
precedence over the claims of the Cane Commissioner and that of the 
workmen. Therefore, the High Court was in error in pas~:ng an interim order 
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to pay parts 

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