CASE COMMENT

ON

Morvi Mercantile Bank v. Union of India

[COURSE CODE: 305]

COURSE TITLE: SPECIAL CONTRACT

SUBMITTED BY

DARSHANA CHETRY

UID

SF0121017

B.A.LL. B’26

FACULTY IN-CHARGE

MS. MONMI GOHAIN

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 CASE COMMENT

CASE: Morvi Mercantile Bank v. Union of India

“AIR 1965 SC 1954”

INTRODUCTION:

The central question in the dispute between Morvi Mercantile Bank v. Union of India is whether
railway receipts can be considered goods under Section 178 of the Indian Contract Act of 1872.
Prior to the interpretation of various case laws, Section 178 was not all-inclusive and only covered
specific definitions. The case is a significant one.

FACTS:

1. A company used Indian Railway to ship six boxes of menthol crystals from Thana,
Maharashtra, to Okhla, New Delhi, for a total cost of Rs 35,500. The boxes were addressed
to "self" and labelled with the name of the aforementioned company.
2. In exchange for a bank loan of Rs 20,000/-, the company afterwards endorsed the railway
receipts of the boxes in the bank's favour. Additionally, the business signed a promissory
note for that sum in favour of the Bank. The Bank declined to accept delivery of the
products when they arrived at their destination on the grounds that they were not those that
the firm had consigned. The Bank then filed a lawsuit against the Railway to collect the
value of the items.
3. The case was dismissed by the trial court. The High Court upheld the Bank's appeal and
decreed the claim for Rs. 20,000 on the grounds that, as the products' pledgee, the Bank
only suffered loss in proportion to the loss of its security.
4. The Bank and the Railway both filed an appeal with the Supreme Court.

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ISSUES RAISED AND HOLDING (MAJORITY OPINION):

1. Whether endorsing a railway receipt count as a pledge?

It was decided that an endorsement on a railroad receipt qualifies as a legitimate pledge. This is
based on

 In earlier rulings, the Judicial Committee determined that the railway receipts were
"instruments of title" as defined by the Indian Contract Act, 1872, in Ramdas Vithaldas
Durbar v. S. Amarchand & Co.
 As noted by the Judicial Committee, Parliament likely took the concept of "documents
of title to goods" when it passed the Indian Sale of Goods Act in 1930 from the Indian
Factors Act and the English Factors Act, but specifically included the railway receipt in
the term.
 The Explanation to Section 178 of the Contract Act, as amended in 1930, adopted the
same term by reference. This concept is also consistent with the Explanation to Section
137 of the Transfer of Property Act's definition of "mercantile document of title to goods."

2. Whether endorsing a railway receipt for money just make the receipt itself a pledge, or
does it also make the items it covers a pledge as well?

The court determined that railway receipts were papers of title and that the goods covered by the
documents might be pledged by transferring the documents after taking into account the pertinent
sections of the Contract Act, the Transfer of Property Act, and the Sale of Goods Act. the owner
of the goods cannot pledge the commodities by transferring the documents of title, whereas his
agent may do so, according to an interpretation of Section 178 of the Contract Act, the court found.

3. Whether the individual whose name is endorsed on a railway receipt have the right to file
a claim for lost goods?

According to the court, under Section 180 of the Contract Act, a pledge—a bailment of goods as
security for the repayment of a debt—gives the pledgee the same legal rights that the owner of the
goods would have in the event that those things are taken from them or are damaged—against a
third party. In light of this, the Bank, as the pledgee, may continue the current lawsuit in an effort
to recover the full value of the consignments, which comes to Rs. 35,500.

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 4. Is the Bank the pledgee of the items or just the documents of title, in which case it could
only retain the documents in exchange for payment from the company?

According to the facts of the case, the firm promised the products covered by the abovementioned
receipts to the Bank by approving the railway receipts in its favour for payment, the court said.1

HOLDING (DISSENTING OPINION):

i) Following the enactment of the Indian Contract (Amendment) Act, 1930, the owner of
the goods cannot pledge the goods represented by the railway receipts in the current
instance unless the railway authorities are notified of the transfer and they agree to hold
the goods as bailee for the pledgee. The Bank cannot sue the railways for the loss of
the commodities since there is no legitimate commitment of consignments of goods
between the Bank and the enterprise.
ii) Bills of lading are only promises made by the seller, who is the issuer or transferor, that
they would deliver the goods or give the buyer permission to take possession. In Section
2(4) of the Sales of Goods Act, railway receipts are mentioned and assimilated to bills
of lading for the right of stoppage in transit, but not for all other purposes.
iii) No rights are created between the endorsee (bank) and the railroad company that issued
the railway receipt to the consignee (business) as a result of the endorsement of a
railway receipt; the endorsee's only legal recourse is against the endorser (firm).

CONTENTION:

We feel that there is no need for clarification given the plain language of the judgements, taking
into consideration the facts that the parties have submitted, the court's decisions, and the arguments
made by the parties. Furthermore, the Bank had no right to claim for damages because the
endorsement of the railway receipt in its favour did not amount to a pledge of the items covered
by the receipt.2

1
TECHNOLAWGY, http://technolawgyx.blogspot.com/2012/07/morvi-mercantile-bank-ltd-v-union-of.html (last
accessed Dec, 2, 2022)
2
INDIAN CASE LAW, https://indiancaselaw.in/the-morvi-mercantile-bank-ltd-and-anr-v-union-of-india/ (last
accessed Dec. 2, 2022)

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REFERENCES:

1. Ramdas Vithaldas Durbar v. S. Amarchand & Co., (1913) 15 BOMLR 890

2. TECHNOLAWGY, http://technolawgyx.blogspot.com/2012/07/morvi-mercantile-bank-
ltd-v-union-of.html (last accessed Dec, 2, 2022)
3. INDIAN CASE LAW, https://indiancaselaw.in/the-morvi-mercantile-bank-ltd-and-anr-v-
union-of-india/ (last accessed Dec. 2, 2022)