MERCANTILE LAW

Avtar Singh*

I. CARRIERS

I T IS AN established principle of law that a earner, subject only to

some exceptions, carries gcods a t his own peril. 1 I n India, however, this
general principle has been considerably modified by legislation. For
example, the Indian Carriers Act, 1865, a n d the Railways Act, 1890,
enable the carriers to reduce their liability by special contracts. T h e
question as to w h a t law governs t h e liability of inland carriers by air 2
came u p before the Calcutta H i g h Court in Indian Airlines v. Madhuri
Chowdhuri3 T h e plaintiff's (respondent's) husband was killed when a
dakota aeroplane crashed soon after it took off from N a g p u r for M a d r a s .
T h e plaintiff brought a n action against the Corporation for damages
for t h e benefit of the representatives of the deceased. She h a d to face
the following wide a n d sweeping exemption clause contained in the
passenger's air t i c k e t :

The carrier shall be under no liability whatsoever to the passenger, his/her

heirs, legal representatives or dependants or their respective assignees for
death, injury or delay to the passenger, or loss, damage, detention or delay
to his baggage or personal property arising out of the carriage or any other
services or operations of the Carrier whether or not caused or occasioned
by the act, neglect or negligence or default of the carrier or of pilot, flying,
operational or other staff or employees or agents of the Carrier or other-
wise howsoever

Desperate efforts were m a d e on her behalf to get over this clause.

It was contended t h a t the clause being opposed to public policy was u n -
enforceable under section 23 of t h e I n d i a n Contract Act; that there was
negligence in piloting the plane a n d t h e Corporation could not, there-
fore, claim the benefit of the exemption clause; t h a t t h e term which ex-
cluded liability for "neglect, negligence or default" was unreasonable
T h e trial j u d g e held the exemption clause illegal, invalid a n d void a n d
also t h a t there was negligence making t h e Corporation liable. But
this j u d g m e n t was reversed by the Calcutta H i g h Court. Relying on
the decision of the Privy Council in Irrawadi Flotilla Co. v. Bugwandass,4,

* B. Com., LL.M.; Lecturer in Law, Lucknow University, Lucknow.

1. Carver, Carriage By Sea Chap. 1 (tlth ed. 1963-Third volume of the series of
British Shipping Laws).
2. This is now the monopoly of the Indian Airlines Corporation.
3. A.I.R. 1965 Cal. 252.
' . 1 8 LA. 121 (P.C.).

www.ili.ac.in The Indian Law Institute

154 ANNTUAL SURVEY OF INDIAN LAW

Mukherji, J . , laid down that:

the obligation imposed by law on common carriage in India is not found-

ed upon contract, but on the exercise of public employment for reward...
it is not affected by the Indian Contract Act 1872. Therefore, no question
of testing the validity of this exemption clause with reference to section 23
of the Indian Contract Act can at all arise.5

T h e learned J u d g e further observed that the Indian Carriage by

Air Act 1934, which incorporates the provisions of the Warsaw Con-
vention of 1929 is not applicable to internal carriers by air as it has not
been so extended. Nor was the Carriers Act, 1865, applicable because
t h e Act dealt only with carriage of gocds a n d that too not by air. Thus
in t h e absence of any statutory provision, Mukherji, J . , held that the
relationship with a common carrier like the Indian Airlines Corpora-
tion has to be governed by the common law of England relating to car-
riers w h i c h permits common carriers to contract themselves cut of lia-
bility for loss or d a m a g e of goods. I t may, however, be pointed out
t h a t the common law of England, which is purported to be followed by
this decision, has become out of d a t e in that country since the English
Carriage by Air Act, 1932, incorporated the Warsaw Convention of
1929, 6
This privileged position of the Corporation should be contrasted
w i t h t h e responsibility undertaken by carriers by land. H e r e the prin-
ciple is " t h a t the duties a n d obligations of a common carrier are gover-
n e d by the English common law as modified by the provisions of the
I n d i a n Carriers A c t . " 7 U n d e r sections 8 a n d 9 of this Act, the carrier
cannot exclude his liability for negligence nor need the consig-
nor prove negligence on t h e p a r t of the carrier. T h e decision of the
Rajasthan H i g h Court in Vidya Rattan v. Kota Transport Co.8 is an illus-
tration in point. Some cotton was consigned to be carried on a truck.
T h e truck caught fire a n d consequently only a p a r t of the cargo could
b e salvaged a n d delivered. T h e carrier was held liable for the unde-
livered cotton although the risk should have been appreciated by
t h e consignor a n d it was also pointed out to him. Singh, J . , held that
normally the liability was absolute a n d in order to escape it, the carrier
h a d to show t h a t there was a special contract m a d e by the owner of the
goods.
Railways as carriers have proved to be a prolific source of litigation.
This m a y b e d u e to the fact t h a t t h e railways are still the leading carriers
a n d also because t h e provisions relating to liability in the Railways Act,
1890 before its a m e n d m e n t in 1961, were quite complicated. Most

5. Supra note 3, at 259.

6. Charlesworth, Mercantile Law 318 (10th ed. 1963).
7. Sukul Bros. v. H.K. Kavarana, A.I.R. 1958 Cal. 730.
8. A.I.R. 1965 Raj. 200-

www.ili.ac.in The Indian Law Institute

 MERCANTILE LAW 155

of the cases decided this year involved points of law which are, as a result
of the amendment, already out of d a t e . Some points of general impor-
tance emerging from t h e m may, however, be mentioned. A frequent
source of controversy has been the question as to who has the right to
sue for t h e loss of a consignment. This was the problem before the
Madras High Court in Tacob Rowther Sons v. Union of India.9
A quantity of perishable goods was consigned by t h e seller tc the buyei
under circumstances which showed t h a t the property in the gccds h a d
already passed to the latter. T h e consignment having been damaged,
the question arose whether the seller could sue for the loss. Iyer, C.J.,
held that the consignor h a d no right of action since the property h a d
already passed from him. As such, they could have sustained no loss
by the non-delivery of the goods. I n contrast to it, the Andhra Pradesh
High Court in Krishna Reddy v. Union of India10 allowed the consignor
to sue. Since the consignor makes the contract of carriage, it is only
reasonable t h a t ordinarily he should have the right to sue for its breach.
T h e right of the consignor to sue has b e e n upheld in the past by several
High Courts. 1 1
T h e r e are several reported decisions on t h e m e a n i n g of the word
" m i s c o n d u c t " as it was used in various kinds of risk notes provided in
the Railways Act before its a m e n d m e n t in 1961. T h e observations of
the Supreme Court in one of these cases will continue to be important
as the word " m i s c o n d u c t " has been retained in defining the liability of
the administration under sections 74 and 75 of the a m e n d e d Act. I n
Shiv JVath v. Union of India,12 a consignment having b e e n lost in commu-
nal disturbances, the question was w h e t h e r there was any misconduct
on the part of the railway servants. M u d h o l k a r , J . , referred to the sharp
conflict of opinion 1 3 among the various High Courts upon the m e a n i n g
of the word " m i s c o n d u c t " and a d d e d :

It will not serve any purpose for us to resolve the conflict...because there is
no provision in the Act as amended for the execution of a risk note like
the one in form B. We would, therefore, proceed in this case on the
assumption that despite the execution of the risk note the railway ad-
ministration was bound to take as much care of the consignment as it would
have of its own goods.*4

9. A.I.R. 1965 Mad. 162.

10. A.I.R. 1965 A.P. 263.
11. See, for example, Shamji Bhanji & Co. v. North Western Ry. Co., A.I.R. 1947
Bom. 169; Chhangamalv. The Dominion of India, AJ.R. 1957 Bom. 276; Union of India
v. Gangaji Kalyanji, A.I.R. 1959 M.P. 222.
12. A.I.R. 1965 S.C. 1667.
13. The three views which have been taken are set out in the judgment of Venka-
taraman Rao, J., in Roshan XJmar v. M.& SM. Ry. Co., A.I.R. 1936 Mad. 508.
14. Supra note 12, at 1669. The other cases are: Union of India v. Mahadeolal,
A1.RA965 S.C. 1755; Unionoflndiav. ShewBux, A.I.R. 1965 CaL636; Jugal Kishore
v. Union of India, A.I.R. 1965 Pat. 196.

www.ili.ac.in The Indian Law Institute

156 ANNUAL SURVEY OP INDIAN LAW

This is a significant observation as it charges the railway company

with the duty of reasonable care even where it is expressly provided that
liability is only for misconduct.

II. PARTNERSHIP

The decision of the Supreme Court in J. Chandra Gupta v. Kajaria

Traders {India) ltd.15 has beendescribed as "an illuminative judicial inter-
pretation" 16 of section 69 of the Indian Partnership Act. The decision
has the merit of demonstrating the effectiveness of the provisions in the
Act requiring registration of partnership firms. Although registration of
firms is not compulsory, yet registration becomes necessary at one time
or the other because section 69 seriously cuts short the capacity of an
unregistered firm and its partners to sue. The facts of the case were
that the respondent company entered into a partnership agreement with
the appellant. A clause in the agreement provided that in case of
dispute the matter will be referred for arbitration in accordance
with the Arbitration Act. The company alleged that the appellant had
failed to carry out his part of the agreement. Accordingly, they wrote
to the appellant that they had appointed an arbitrator and asked him
either to agree to their nominee as the sole arbitrator or to appoint their
own arbitrator. There was no response from the appellant within the
specified time and consequently the company confirmed the appoint-
ment. The appellant disputed this and the company, therefore, filed
an application for appointment of the company's nominee or any other
person as arbitrator. The appellant disputed the maintainability of
the application on the ground that the firm was not registered.
According to section 69, the partners of an unregistered firm can-
not sue the firm or a co-partner for the enforcement of any right, either
arising from a contract or conferred by the Act. Sub-section (2) provides
that an unregistered firm cannot sue an outsider for enforcing any cont-
ract made with him by the firm. And then comes sub-section (3) which
provides that "sub-sections (1) and (2) shall apply also to a claim of set
off or other proceeding to enforce a right arising from a contract." The
appellant contended that the words "other proceeding" were wide
enough to cover the proceeding the company had launched against him.
A Division Bench of the Bombay High Court consisting of Mudholkar,
J., and Naik, J., failed to give an agreed opinion. The matter was then
referred to Desai, J., who agreed with the opinion of Naik, J., and held
that the application was not barred by section 69 of the Partnership Act.
The case came before the Supreme Court with two basic questions.
The first question was whether the proceeding was one to enforce a right

15. (1965) 1 S.C.J. 249.

16. K.G. Srivastava "An Illuminative Judicial Interpretation" (1965) 1 S.C.J. 15
(Journal).

www.ili.ac.in The Indian Law Institute

 MERCANTILE LAW 1 57

arising from the contract of the parties. Referring to this, H i d a y a t u l l a h ,

J., s a i d :

The proceeding under the eighth section of the Arbitration Act has its
genesis in the arbitration clause, because without an agreement to refer
the matter to arbitration that section cannot possibly be invoked. Since
the arbitration clause is a part of the agreement constituting the partner-
ship, it is obvious that the proceeding which is before the court is to en-
force a right which arises from a contract.. .it is impossible to think that the
right to proceed to arbitration is not one of the rights which are founded on
the agreement of the parties. The words of section 69(3) "aright arising
from a contract" are... sufficient to cover the present matter.1?

T h e other question before the court was " w h e t h e r by reason of the fact
that the words 'other proceeding 5 stand opposed to the words ( a claim
of set off' any limitation in their m e a n i n g was c o n t e m p l a t e d . " 1 8 T h e
respondent urged t h e Court to apply t h e principle of ejusdem generis
and thereby give a limited m e a n i n g to the words " o t h e r p r o c e e d i n g . "
While rejecting this contention, H i d a y a t u l l a h , J . , m a d e certain obser-
vations which are as significant for the point at issue as for the general
rule of ejusdem generis. H e s a i d :

Interpretation ejusdem generis.. .need not always be made when words

showing particular classes are followed by general words. Before general
words can be so interpreted there must be a genus constituted or a category
disclosed with reference to which the general words can and are intended
to be restricted. Here the expression "claim of set off" does not disclose
a category or a genus.19

Applying this principle to the facts of the present case, Hidayatullah,

J . , concluded t h a t the words " o t h e r p r o c e e d i n g " must receive their full
meaning untrammelled by the words " a claim of set off" which neither
intend nor can be construed to cut down the generality of the words
" o t h e r proceeding." 2 0 Accordingly5 t h e suit was held not m a i n t a i n a b l e .
T h e r e is no doubt t h a t this is a welcome decision. If the applica-
tion was allowed, the right to enforce the arbitrator's award will also
have to be conceded. Unregistered firms would, by providing for
arbitration in the partnership deed, thus be able to escape the disability
contained in the section. T h a t would defeat the very policy b e h i n d
the provision.

III. SALE OF G O O D S

T h e elusive problem of what constitutes a sale continued to present

cases before the courts. T h e essence of a sale being the transfer of the

17. Supra note 15, at 251.

18. Ibid.
19. Mat252.
20. Id. at 253.

www.ili.ac.in The Indian Law Institute

 158 ANNUAL SURVEY OF INDIAN LAW

property in a thing from one person to another, it follows that the seller
a n d the buyer must be different persons. Ordinarily, if a person pur-
chases his own property, there is no sale. 2 1 A problem of this kind arose
before the Gujarat High Court in State of Gujarat v. Mjs. Ramanlal S.
& Co.22 A partnership firm was dissolved and, after paying off its
liabilities, the residue of the property including some goods was di-
vided among t h e partners in specie. Could this b e included in the t u r n
over of sales of the firm? Bhagwati, J . , rejected the contention of the
State t h a t this was a sale of goods by the firm to the partners. They
were themselves the j o i n t owners of the goods and they could not be
b o t h sellers a n d buyers. Moreover, as the learned J u d g e observed, no
money consideration was promised or paid by any partner to the firm
as consideration for goods allotted to him.
Again, a contract of sale has to be distinguished from a contract
of work a n d material. T h e dividing line between the two is not often
clear. T h e only conclusion t h a t can be drawn from English authori-
ties on the subject is t h a t every case must be j u d g e d of by itself. 23 A
review of the cases decided this year in I n d i a also leads one to the
same conclusion. I n A.E. Industries (India) v. Commr I. Officer2^
t h e petitioner company contracted to supply seme generators and
other electrical m a c h i n e r y to the Punjab Government and also to
supply, u n d e r extra payment, the services of competent engineers to
supervise the erection work. T h e price was to be paid partly on deli-
very a n d partly after completion of the a c c e p t a n c e tests and the commis-
sioning of the plant. T h e whole material was imported by the company
in t h e n a m e of the Punjab Government under a licence which made the
goods to b e the property of the licence holder. T h e company sought
to avoid the liability to pay sales tax on the ground that this was not
a sale, b u t a contract for erecting the plant. Basu, J . , rejected the con-
tention a n d h e l d t h e transaction to be a sale. It is manifest that the
m a i n purpose of the contract was to supply the equipment a n d the res-
ponsibility to supervise t h e erection was undertaken by the company
only as a n incidental obligation.
A more problematic case was before the Supreme Court in Patnaik
& Co. v. State of Orissa.^ T h e appellant company h a d agreed to cons-
truct bus bodies on the chassis supplied by the Government. T h e work
was tc b e done according to prescribed specifications. T h e company
g u a r a n t e e d the durability of the bodies for a period of two years and
undertook to rectify the defects appearing during that period. T h e

21. See Chalmer, Sale of Goods 4 (13th ed. 1957).

22. A.I.R. 1965 Guj, 60.
23. See, for example, Lee v. Griffin, (1861) 30 LJ. Q.B. 252; and Robinson v.
Graves, (1935) 1 K.B. 579.
24. A.I.R. 1965 Cal. 236.
15. A.LR, 1965 S.C, 1655.

www.ili.ac.in The Indian Law Institute

 MERCANTILE LAW 159

contention of t h e State was that there was sale of the material used in
the construction of the bus bodies a n d the transaction was, therefcre,
liable to be taxed under the sales tax law. Sikri, J . , speaking for the
majority, held t h a t there was a sale of the material. H e did nol agree
with the contention that whenever a contract provides for the fixing
of one chattel to another, it is not a sale. H e observed:

A few simple illustrations will show that this cannot be the law. A wants
new motor tyres. He goes to a dealer and asks that these may be supp-
lied fitted on the car It was in essence a contract for sale of goods. A
wants a luggage carrier to be fixed to his car. The carrier which B has
needs to be altered a little. The contract is that he will alter it and fix it
to the car. Has there been a sale of the carrier or not ? The answer
obviously is *yes\2<5

In his dissenting j u d g m e n t , Shah, J . , said:

The question must be decided on a true interpretation of the terms of the

contract in the light of the surrounding circumstances. If, on a review of
all the terms of the contract, it appears that the intention of the parties
was that the appellants were to sell "bus bodies'* to the State of Orissa,
the contract would clearly be one for sale and consideration paid would
be taxable under the Orissa Sales Tax Act. If, however, the contract is
one for securing a certain result, namely, the building of a body on the
chassis supplied by the State with the material belonging to the appellant,
the contract would be one for work done and not liable to sales tax.27

I t is submitted with respect t h a t the opinion of Shah, J . , appears to b e

more consistent with t h e well-established concept of sale a n d also with
English authorities on the subject. 2 8 T h e illustrations given by Sikri,
J . , in support of his opinion are clearly distinguishable from the facts
of the present case. I t both the illustrations, there is a buyer who orders
for a specific thing, namely, a tyre or a carrier. T h e mere fact t h a t the
seller has to fit the chattel to the car cannot change the c h a r a c t e r of the
transaction which is in essence a sale. But in the present case the State
did not place a n order to buy a specific thing. T h e r e is a p l a i n a n d
simple order for construction of bus bodies, t h a t is, a work to be done
according to specifications Sikri, J . , also relied u p o n the fact that at
the time of delivery of a bus to t h e State, w h a t passed was composite
bus body, which is a movable property a n d which was until then the
property of the contractor. 2 9 It is again submitted that this m a y
not help us to maintain t h e distinction in all the cases. For even in the
most obvious contract of work a n d labour, there is something t h a t ulti-

26. Id. at 1662.

27. Id. at 1659.
28. See Anglo-Egyptian Navigation Co. v. Rennie, (1875) 10 C.P. 271; Lee v. Griffin,
(1861) 30 LJ. Q.B. 252; R. v. Wood-Green Profiteering Committee, (1919) 36
T.L.R. 47; Robinson v. Graves, (1935) 1 K.B. 579; Clay v. Yates, (1856) H. & N. 73,
29. Supra notQ 25, at 1661.

www.ili.ac.in The Indian Law Institute

 160 ANNUAL SURVEY OF INDIAN LAW

mately passes from one p a r t y to the other a n d of which u p to that time

t h e p a r t y carrying on t h e work was t h e owner. T h u s , for example,
in the English case of Robinson v. Graves,30 a n artist agreed to paint a
portrait, the canvas a n d other material to be supplied by him. T h e
property 5n the portrait passed only when it was delivered. But this
fact did not alter t h e character of the contract wbich was held to be
one for work a n d labour.
T h e Supreme Court h a d the opportunity in K.L. Johar & Co.
v. Dy. Commr. Tax Officer^1 to d e t e r m i n e t h e test for distinguishing a
sale from a n agreement of hire purchase. T h e chief distinguishing
feature of hire p u r c h a s e agreement, which has been emphasised by the
English courts 3 2 a n d followed in I n d i a , is the option on the p a r t of the
hirer to buy or to r e t u r n . T h e facts in the K.L. Johar case were that
the appellant company, a financing firm, carried on the business of
advancing money by entering into hire purchase agreements with those
willing to buy motor vehicles. T h e appellant p a i d the price to the
dealer a n d the car was h a n d e d over to the hirer. T h e hirer p a i d the
price by monthly instalments. H e h a d the option to determine the
agreement at any time by paying rent up-to-date a n d returning the
fnachine. T h e M a d r a s H i g h Court held t h a t the transaction amounted
to a n immediate sale. But on a p p e a l before the Supreme Court,
W a n c h o o , J . , held t h a t the transaction would a m o u n t to sale only when
t h e option is exercised. T h e following passage from his j u d g m e n t ex-
plains w i t h remarkable clarity the distinction between a sale and a
hire p u r c h a s e :
The essence of a sale is that the property is transferred from the seller
to the buyer for a price, whether paid at once or paid later in instalments.
On the other hand, a hire purchase agreement, as its very nature implies,
has two aspects. There is first an aspect of bailment of goods subjected
to the hire purchase agreement, and there is next, an element of sale
which fructifies when the option to purchase, which is usually a term
of hire purchase agreements, is exercised by the intending purchaser.
Thus the intending purchaser is known as the hirer so long as the option
to purchase is not exercised, and the hire purchase essence of agreement
so called is that the property in the goods does not pass at the time of
the agreement but remains in the intending seller, and only passes later
when the option is exercised by the intending purchaser.33

Another effect of hire purchase has been worked out by the Patna
H i g h Court in Enayatullah v. Jalan T. Co. 34 U n d e r the terms of a
hire purchase agreement, a car was transferred by t h e owner to the

30. Supra note 28.

31. A.LR. 1965 S.C. 1082.
32. See, for example, Lee v. Butler, (1893) 2 Q.B. 318, C.A.; Helby v. Mathews,
(1895) A.C.471.
33. Supra note 31, at 1088.
34. A.I.R. 1965 Pat. 214.

www.ili.ac.in The Indian Law Institute

 MERCANTILE LAW 161

hirer. The hirer failed to pay the due instalments and the car was,
consequently, seized by the owner. The owner resold the car at an
attractive price and also sued the hirer for the instalments which had
become due upto the date of the seizure. The defendant contended
that this would give double benefit to the owner. Rejecting the conten-
tion, Ahmad, J., said:

When the car was seized on account of the default, the defendant had no
claim left in it. The machine became the company's property to be dis-
posed of by them as they wished and it has no bearing on the arrears which
are arrears for the hire and not instalments of the purchase moneys

Yet another principle has been established by the Madras High

Court in D.E. Kasisah v. JV.T. Engineer.^ The Court laid down that
a hire purchase agreement confers two distinct sets of rights en the
hirer, namely, the right to use the goods and the option to purchase.
Both the rights are capable of joint as well as separate assignments.
The hirer may be prohibited from selling away the goods but he cannot
be prchibited from assigning his rights. The assignee of such a right
becomes a trustee cf the goods for the hirer. Accordingly, it is his
duty to protect the goods a r d if he allows the owne; to wrongfully seize
the goods and buys them himself from the owner, he is liable to the hirer
for his loss.

IV. PLEDGE

The Supreme Gourt has laid down once for all that the pledge of
a railway receipt amounts to pledge of the goods it represents. The
case which provided the opportunity to establish this principle of far-
reaching importance is Morvi Mercantile Bank v. Union of India.37 The
common notion of pledge as defined in section 172 of the Indian Cont-
ract Act is that a person delivers to another certain gcods as a security
for the payment of a debt or performance of a promise. The delivery
of possession, which is essential, may be either actual or constructive.
The question in this case was whether the delivery of the railway receipts
amounted to a delivery of the goods so as to create an effective pledge.
The facts were that certain goods were consigned with the Indian
Railways to "self" from Bombay for transit to Okhla. The
consignor endorsed the railway receipts to the appellant Bank against
an advance of Rs. 20,000/-. The goods having been lost in transit,
the Bank as the endorsee of the railway receipt and pledgee of
the goods sued the railways for the loss amounting to Rs. 35,500/-,
The Civil Judge rejected the action on the ground that an

35. Id. at 216.

36. A.LR. 1965 Mad. 257.
37. A.I.R. 1965 S.C, 1954.

www.ili.ac.in The Indian Law Institute

162 ANNUAL SURVEY OF INDIAN LAW

endorsee of a railway receipt cannot sue for t h e loss of t h e consignment.

T h e Bombay H i g h Court, however, allowed recovery upto Rs. 20,000/-
being t h e a m o u n t of the real loss suffered by the Bank. T h e r e were
cross appeals against this decision. T h e Supreme Court was called upon
to decide w h e t h e r a railway receipt could be equated with the goods
covered by t h e m for the purpose of constituting delivery of goods.
S u b b a R a o , J . , observed that in the Sale of Goods Act, 1930, the legis-
lature expressly included railway receipt in the definition of documents
of title to goods which indicates the legislative intention to accept the
mercantile usage found by the J u d i c i a l Cornrnittee to be in force in India. 3 8
H e also refuted t h e contention t h a t by the a m e n d m e n t tc section 178
of the C o n t r a c t A c t in 1930, the legislature h a d taken away the right of
a n owner of goods to pledge the same by the transfer of documents of
title. Referring to the argument t h a t only a mercantile agent was per-
mitted to pledge the goods by the transfer of documents of title, Subba
R a o , J . , said t h a t :

This argument. ..if accepted, will lead to anomalous results. It means an

owner of goods cannot pledge the goods by transferring the documents
of title, whereas his agent can do so., .it is impossible to justify a restriction
on the owner's power to pledge when there is no such restriction
placed on the like powers of a mercantile agent.3^
T h e following passage from the j u d g m e n t makes it clear that apart
from the legalistic considerations, the learned J u d g e h a d the peculiar
I n d i a n conditions in m i n d :
To accept the contention of the respondents to the contrary would be a
retrograde step and would paralyse the entire mechanism of finance of our
internal trade. In this vast country where goods are carried by railways
over long distances and remain in transit for long periods of time, the
railway receipt is regarded as the symbol of the goods for all purposes for
which a bill of lading is so regarded in England.40
Referring to t h e question w h e t h e r t h e Bank could recover the value of
the consignment or only the a m o u n t of advance, Subba R a o , J . , s a i d :
A pledge being a bailment of goods as security for payment of a debt, the
pledgee will have the same remedies as the owner of the goods would have
against a third person for deprivation of the said goods or injury to them.
If so, it follows that the Bank, being the pledgee, can maintain the present
suit for the recovery of the full value of the consignment amounting to Rs.
35,400/-. 41
R a m a s w a m i , J . , delivered the dissenting j u d g m e n t for himself and
M u d h o l k a r , J . T h e y were of the view t h a t in all cases of pledge

38. Ramdas Vithaldas Durbar v. Amerchand& Co., A.LR. 1916P.C. 7: Off. Assn.
ofMadras v. Mercantile Bank, A.LR. 1934 P.C. 246.
39. Supra note 37, at 1959.
40. Id. at 1960.
41. Id. at 1960-61.

www.ili.ac.in The Indian Law Institute

 MERCANTILE LAW 163

an effective change of possession is absolutely necessary. T h e only

exception could be in favour of a bill cf lading. If the pledger has
actual goods in his physical possession, h e should effect the pledge by
actual delivery. If, however, the goods are in the physical possession
of a third person, pledge should be effected by a notification to t h e cus-
todian who should acknowledge to hold t h e goods for t h e bailee. T h e r e
would thus be a change of possession a n d a constructive delivery. Accor-
ding to Ramaswami, J . , a mere endorsee of a railway receipt could not
sue t h e railway company in this own n a m e for t h e loss of t h e consign-
ment.

V. NEGOTIABLE INSTRUMENTS

W h a t is the duty of a collecting banker towards his customer?

T h e question came u p before the Supreme Court in Kesharichand v.
S. Banking Corpn.42, T h e appellant p a i d into his a c c o u n t with the res-
pondent Bank two cheques for collection. T h e Bank gave immediate
credit to the customer for the a m o u n t of the cheques a n d t h e n sent the
same for collection. T h e drawee Bank, instead of paying cash, gave
a cheque on a third Bank. T h e respondent a c c e p t e d t h e cheque without
consulting the customer. T h e cheque was dishonoured. T h e respon-
dent then informed the customer and, on his instruction, the c h e q u e
was represented. I t was again dishonoured. T h e customer was again
informed and, on his instruction, the respondent accepted a d e m a n d
draft from t h e drawee Bank which was repeatedly dishonoured. Ulti-
mately both t h e drawee a n d the respondent Bank closed business. T h e
liquidator of the respondent Bank preferred a claim in the winding u p of
the drawee Bank a n d also sued the customer for t h e overdrawn a m o u n t ,
the credit entries in his favour having been reversed. T h e customer
resisted the claim on the ground t h a t in accepting the cheque instead
of cash, the respondent Bank h a d acted on its own risk a n d responsi-
bility, and not as a n agent of the customer. T h e Supreme Court b y
a majority rejected the contention. T h e C o u r t found t h a t t h e appellant
instead of disowning the acts of the respondent in respect of the collec-
tion of the cheques, h a d ratified them. I t was not, therefore, open to
the appellant now to say t h a t the respondent a c c e p t e d the cheque on
its own responsibility a n d not as agent of the appellant. T h e fact t h a t
the appellant's account was credited with the a m o u n t of the two cheques
did not show t h a t the respondent ceased to b e a n agent for collection
of the cheques. Explaining the duty of the collecting banker, Bachawat,
J . , speaking for the majority, s a i d :

A banker entrusted by its customer with the collection of a cheque is bound

to act according to the directions given by the customer, and in the absence
of such directions according to the usages prevailing at the place. The

42. A.I.R, 1965 S.C. 1711,

www.ili.ac.in The Indian Law Institute

164 ANNUAL SURVEY OF INDIAN LAW

banker is also bound to use reasonable skill and diligence in presenting

and securing payment of the cheques and placing the proceeds to his
customer's account and in taking such other steps as may be proper to
secure the customer's interests. In the instant case, it is not shown that
the respondent acted negligently or in breach of its duties or contrary to
any instructions. ..or any lawful usages.43

M u d h o l k a r , J . , dissented from the majority view. T h e basic

question, according to him, was w h e t h e r in collecting the cheques,
the banker was acting on his own account as a holder of the cheques
or whether h e was acting as a n agent for the customer. T h e question
is one of fact in each case a n d , according to him, the facts of the present
case clearly showed t h a t the banker was all the time acting as the holder
of the cheques.
T h e Supreme Court in Ramlal 0. Firm v. M.J.R. & A. Millsu
emphasised the duty of t h e collecting banker to send his customer's
cheques for collection within a reasonable time. I n this case, a custo-
mer paid into his account a cheque for collection, T h e banker, instead
of obtaining cash, a c c e p t e d a draft drawn by the drawee bank on its
head office. T h e collecting banker sent the draft to its own h e a d cffice
for collection but the head office neither presented the draft for payment
nor m a d e any a t t e m p t to collect t h e a m o u n t . I n the meantime, the
drawee Bank was ordered to b e w o u n d u p . T h e customer's action
against the p a r t y who h a d given h i m t h e c h e q u e was dismissed. I t
was the duty of the customer a n d his agent, the banker, to encash the
draft within a reasonable time and their failure in this respect h a d altered
t h e position of the appellants for the worse and caused prejudice to them.
I n the circumstances, it was held t h a t the respondent must be regarded
as having kept t h e draft in absolute p a y m e n t of the cheque. T h e
customer's right to sue his banker for negligence was upheld b u t the
party who gave him the c h e q u e stood discharged from liability.

VI. INSURANCE

T h e j u d g m e n t of the M a d r a s High Court in Life Ins. Corpn. v.

Paravathavardhini^ shows t h e anxiety of t h e courts to ensure that the
monopoly enjoyed by the Life I n s u r a n c e Corporation does not work to
the detriment of the interests of the policyholders. T h e following
observations of R a m a m u r t y , J . , clearly bring this o u t :

The business of life insurance has been nationalised and in the matter of
its business activities, the Corporation has a great responsibility to the
public. Whenever claims are repudiated and disputes come to court
of law the Life Insurance Corporation should not put up fight on the
pattern of ordinary litigants. But it must be on a higher plane, so as to

43. Id. at 1714.

44. A.I.R. 1965 S.C. 1679.
- - 45. AXR, 1965 Mad. 357.

www.ili.ac.in The Indian Law Institute

 MERCANTILE LAW 165

inspire confidence in the public that claims should not be resisted

on frivolous pleas and reckless allegations. All the relevant material
gathered by the Corporation should be placed before the Court to enable
it to adjudge the truth.46

I n this case, t h e Corporation h a d a t t e m p t e d to r e p u d i a t e a life

policy on the ground of misrepresentation after it h a d become a claim.
Evidently with a view to protecting t h e interest of the policy-holder,
the Court insisted on a strict proof of misrepresentation. I n view of the
provision in section 45 of t h e Life I n s u r a n c e Corporation Act, t h e Court
required a proof that the fraudulent representation or suppression was in
relation to material facts a n d it was m a d e with full knowledge t h a t
the facts were material.
T h e same H i g h Court also laid down in Vasudeva v. Calendonian
Ins. Co47 t h a t a n insurer, who is subrogated to the rights of the assured,
cannot sue the third p a r t y in his own n a m e unless there is a n assignment
to him of t h e right to action. Such a n action could b e brought as
a rule only in the n a m e of the assured a n d any defence valid against the
assured would also b e available to the defendant in such proceedings.
I n this case, a motor insurer, having p a i d in full the owner of the damaged
car, h a d t h e n sued in his own n a m e the person whose negligence h a d
caused the accident. T h e Court, however, conceded t h a t a transfer
by an assured cf his rights and remedies to the insurer is not a n assignment
of a mere right to sue a n d a n action by such a n insurer is not
barred by section 6(a) of the Transfer of Property Act.

46, Id. at 360.

47. AJ.R. 1965 Mad. 159.

www.ili.ac.in The Indian Law Institute