THE MORVI MERCANTILE BANK LTD. AND ANR. versus UNION OF INDIA, THROUGH THE GENERAL MANAGER, CENTRAL RAILWAY, BOMBAY

Citation: [1965] 3 S.C.R. 254 · Decided: 03-03-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Case Partly allowed

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Judgment (excerpt)

254 
THE MORVI MERCANTILE BANK LTD. AND ANR. 
v. 
1UNION OF INDIA, THROUGH THE GENERAL MANAGER, 
CENTRAL RAILWAY, BOMBAY 
March 3, I 965 
[K. SUBBA RAO, RAGHUBAR DAYAL, J. R. MUDHOLKAR, 
R. S. BACHAWAT AND V. RAMASWAMI, JJ.J 
Indian Contract Act (9 of 1872), s. 178, Transfer'of Property Act 
(4 of 1882). ss. 4 and 137 and Indian Sale of Goods Act (3 of 1930), 8s. 
30 and 53-Endorsel of Railway receipt-If pleduee of goods covered 
by receipt. 
, 
A firm doing business in Bombay entrusted goods worth Rs. 35,500 
to the Railway for delivery in Delhi. The good" were consigned to 
"self" and the firm endorsed the railway receipts to a Bank against 
an advance of Rs. 20,0-00 made by the Bank to the firm. The firm also 
executed a promissory note in favour of the Bank for that amount. 
When the goods reached the destination, the Ba.nk refused to take 
delivery, on the ground that they were not the goods consigned by 
the firm. The Bank, thereafter filed a suit for the recovery of the 
value of the goods. The trial court dismissed the suit. On appeal by 
the Bank, the High Court allowed the appeal and decreed the claim 
for Rs. 2(),000 on the grounJ that as pledgee of the goods, the Bank 
suffered loss only to the extent of the loss of its security, Both the 
Bank and the Railway appealed to this Court, and it was contended 
on behalf of the Railway that the endorsement of the railway 
reoeipt in favour of the Bank, did not constitute a pledge of the 
goods covered by the receipt and that the Bank had no right to sue 
for compensation. 
HELD: (Per Subba Rao, Raghubar Dayal and Bachawat, JJ): The 
firm by endorsing the railway receipts in favour of the Bank, for 
con°ideration, pledged the goods covered by the said. receipts, to the 
Bank, and the Bank being the pledgee could maintain the suit for 
·the recovery of the full value of consignment amounting to Rs. 35,500. 
[264 H; 265 D-E] 
. 
On a reasonable construction of s. 178 of the Contract Act, 1872, 
8S. 4 and 137 of the Transfer of Property Act, 1882, and ss. 30 and 53 
of the Indian Sale of Goods Act, 1930, an owner of goods, can make 
a valid pledge of them by transferring the railway receipt represent-
ing the said goods. To the general rule expressed by the Maxim 
nemo dat quod non habet (no one can convey a better title than what 
he had), to facilitate mercantile transactions, the Indian Law has 
i:rafted some exceptions, in favour of bonafide pledgees by transfer 
of documents of title from persons. whether owners of goods who 
<lo not possess the full bundle of rights of ownership at the time the 
pledges are made, or their mercantile agents. To confer a right to 
pffect a valid pledge by transfer of. document of title relating to goods 
on persons with defects in their title to the goods. and on mercantile 
agents, and to deny it to the .full owners thereof, is to introduce an 
incongruity into the Act. On the other hand, the real intention of the 
legi•lature will be carried out if the said right is conceded to the 
full owner of goods and extended by construction to persons with 
defects in their title to the goods or to mercantile agents. A pledge 
being a bailment of goods under s. 172 of the Contract Act, the pled-
·gee. as a bailee. will have the same remedies as the owner of the 
goo:'s would have agaimt a third person for deprivation of the said 
goods or injury to them under s. 180 of the Act. [264 A-C, HJ 
A 
B 
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D 
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F 
G 
B 
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B 
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G 
n 
MORVI BANK V. UNION OF INDiA 
255 
RCtmdas Vithaldas Durbar v. S. Amarchand and Co., (1916) L. R. 
43 I. A. 164 and The Official Assignee of Madras v. The Mercantile 
Bank of India, Ltd. (1934) L. R. 61 I. A. 416, referred to. 
Per Mudholkar and Ramaswami JJ. (dissenting): There was no 
valid pledge of the consignments of goods represented by the rail-
way· receipt in favour of the Bank and the Bank was not entitled to 
sue the Railway for compensation for the loss of goods. relying upon 
the endorsements of the railway receipts in }ts favour. [272 G-HJ 
After the passing of the Indian Contract (Amendment) Act, 1930, 
the legal position with regard to the pledge of railway receipts, is 
exactly the same in Indian Law as it is in English Law, and conse-
quently, the owner of the goods cannot pledge the goods represented 
by a railway receipt, by endorsing the railway receipt, unless the 
railway Authorities were notified of the transfer, and they agreed 
to hold the goods as bailee of the pledgee_ Unde

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