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First Appeal No. 2 of 1952, decided on 15th August 1956.
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Contract by widow‑Not binding on minors.
A Muhammadan widow as such is not competent to enter into a contract binding her minor children.
Imambandi and others v. Mutsaddi and others 45 I A 73 rel.
Hypothecation of share of money in assets of firm‑Lawful.
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Act under, challenged as being excess Proof.
"Where an act purporting to be done under a power of attorney is challenged as being in excess of the authority conferred by the power, it is necessary to show that on a fair construction of the whole instrument the authority in question is to be found within the four corners of the instrument either in express terms or by necessary implication.
Kazi Abdul Ali v. Muhammad Nurul Amin and another 7 D L R 406 ; Paboodan Goolabchand v. Miller and another A I R 1938 Mad. 966 and Bank of Bengal v. Ramanathan Chetty I L R 43 Cal. 527 (540) (P C) rel.
Ss. 29 & 45‑Issue of demand notice becomes debt due to Government‑Attachment or sale for Government debt would not affect a mortgage created prior to attachment or sale
When demand is made under sections 29 and 45 of the Income‑tax Act it becomes debt due to Government.
The attachment or sale for a Government debt would not affect a mortgage which had been created prior to the attachment or sale.
Ramchandra v. Pitchaikanni I L R 7' Mad. 434 ; Ibrahim Ahsan Sahib v. Rangasami Naicker and others I L R 28 Mad. 420 ; Bank of Upper India v.‑ The Administrator‑General of Bengal I L R 45 Cal 653 ; Cjomma Achi v. Chena Muna Saithakkath Rowther and others A I R 1935 Mad. 882 and Ragho Prasad and others v. Mewalal and another I L R 34 All. 223 (P C) ref.
A. F. M. Mesbahuddin, Ruhul Islam for Appellant.
Ranjit Kumar Bose for Respondent No. 1.
Bank B. A. Siddiky for Respondent No. 9.
Defendant No. 2S Federation of Pakistan (here inafter referred to as Government), is the appellant. The suit out of which this appeal arises was brought by Pioneer Bank, Ltd. (hereinafter referred to as the Bank) under the following circum stances :‑
One Saleh Muhammad carried on 'business of a contractor under the name and style of Messrs Saleh Muhammad & Co. at No. 2, English Road, Dacca (hereinafter referred to as the Firm). On his death in June 1944, his son, Yar Muhammad defendant No. 4), widow Rahima Khatun (defendant No. 5), widow Pari Banu Bibi (defendant No. 6) and daughters Sakina Khatun (defendant No. 7) and minor Rashida Khatun (defendant No. 8) inherited the said business. On the 19th July 1944 Rahima Khatun, Sakina Khatun, and Pari Banu Bibi for self and for her minor daughter Rashida Khatun executed a general power‑of‑attorney in favour of Yar Muhammad empowering him to do various works in con nection with the contract business. As the firm needed money for executing certain military contracts, Yar Muhammad made an arrangement with the plaintiff Bank by which the Bank‑was to advance him to the maximum limit of R s. 60,OOU on overdraft account on the security of all outstanding bills and the amounts payable to the firm by the M. E. S. Department at Dacca, Chittagong and Comilla . In pursuance of the aforesaid arrangement, on 12‑10‑44. Yar Muhammad, on behalf of the firm, executed a deed of hypothecation. By the said deed, he hypothecated all the amounts due on the outstanding bills or any amount payable to the firm by M. E. S. Department. On the same date, he also executed a promissory note for Rs. 60,000. The Bank on that day also took a letter of lien from him in respect of securities pledged with the Bank. On the 20th October 1944, Yar Muhammad also executed an irrevocable power‑of‑attorney authorising the Bank to receive all payments from M. E. S. Departments. Thereafter the Bank advanced Rs. 60,000 to the firm.
2. In 1945 and in subsequent years the Collector of Dacca, on behalf of the Income‑Tax Department, issued three certificates for Rs. 22,643‑4‑3, Rs. 18,723‑15‑0 and Rs. 3,526‑5‑0 respectively and attached the following amounts due to the firm from the M. E. S: Department:‑
(1) Security deposit amounting to Rs. 18,752,
(2) Amount due under various bills Rs. 38,289.
The Bank preferred an objection to the attachment. The objection was however, disallowed. The Bank then instituted a suit out of which this appeal arises for a declaration that they had a preferential right to the amount of Rs. 48,000 due to the firm, from M. E. S. Departments.
3. The suit was resisted by defendant No. 2, the Federation of Pakistan. They disputed all the allegations and also challenged the validity of the deed of hypothecation. They also pleaded that, in any event, Yar Muhammad had no authority to bind defendants Nos. 5 to 8, namely, the heirs of Saleh Muhammad, by the said deed of hypothecation. It was also pleaded that out of the money attached, Rs. 18,752 which represented the security deposit was not covered by the alleged deed of hypothecation. Lastly, they contended that the income‑tax dues, being a first charge over the assessee's properties, should have priority over all claims against the estate of the assessee.
4. The learned Subordinate Judge found (1) that Yar Muhammad, on the strength of the general power‑of‑attorney executed by the heirs of Saleh Muhammad, was entitled to carry on the business of the firm and to enter into an arrangement with the Bank for financing the business of the firm ; (2) that the deed of hypothecation entitled the Bank to claim the security deposit as well as the outstanding bills; and (3) that on the strength of the deed of hypothecation the Bank was entitled to get priority over the claims of the Income‑Tax Department. In this view of the matter, he decreed the suit of the Bank and ordered that the attachment levied by the Collector be released and the Bank do get the amount lying with the M. E. S. Departments. Hence this appeal by the Federation of Pakistan, defendant No. 2.
5. Mr. Mesbahuddin, the learned Advocate for the appellant, has contended that the general power executed on 19‑7‑44 in favour of Yar Muhammad by the heirs of Saleh Muhammad was not valid and binding so far as minor Rashida Khatun was concerned Mr. Siddique, the learned Advocate for the respondent‑Bank, could not seriously support the finding of the learned Subordinate Judge on this point. We are also unable to agree with the learned Subordinate Judge in his findings that the power‑of attorney constituted a valid contract so far as the minor Rashida Khatun was concerned. It is made quite clear by the decision of their Lordships of the Privy Council in Imambandi and others v. Mustaddi and others (45 I A 73) that a Muhammadan widow as such is not competent to enter into contract binding her minor children, and, therefore, in this case, the power‑of‑attorney could not bind the minor Rashida Khatun.
6. Mr. Siddique, the learned Advocate for the respondent Bank, next contended that the minor Rashida was admitted to the benefits of tile partnership, and hence, in view of section 247 of the Contract Act, her share of the property of the firm was liable for the debt of the firm. We are unable to accept this contention. The mother, who was not qualified to contract on her behalf, could not bind the minor. The necessary conditions, which might have made liable the share of the minor in the firm were not present in this case, and, therefore, the general rule as laid down in section 11 of the Contract Act, applies fully to this case. In these circumstances, we hold that Yar Muhammad was not entitled to hypothecate the minor's share in the assets of the firm.
7. The next question is : Are the shares of Rahima Khatun, Pari Banu Bibi and Sakina Khatun liable for the debts incurred by Yar Muhammad on behalf of the, firm. Mr. Mesbahuddin, the learned Advocate for the appellant, has contended that Yar Muhammad had no authority to borrow and that there was no necessity of borrowing. Mr. Siddique has, however; argued that under clause (1) of the general power‑of‑attorney, Yar Muhammad had the power to borrow money for the business.
8. This point involves examination of the general power of‑attorney executed by the ladies. Clause (1) of the said power reads as follows :‑
"We have got a business in the name and style of Messrs Saleh Muhammad & Co., having its place of business at 2, English Road, Dacca, and having extensive military and other contracting works here at Dacca and many other places in the Province of Bengal. We do hereby authorise our said attorney to do all works viz., to receive payments, to cash cheques, to sign bills and tender forms and to contract agreements, etc., in connection with the said business on our behalf and to with draw any deposit from any bank, office or any other place of business".
According to Mr. Siddique, the words "to do all works, to receive payments, to cash cheques, to sign bills and tender forms and to contract agreements, etc., in connection with the said business" may be taken as meaning that the attorney Yar Muhammad was given power also to borrow money for the business: We are unable to accept this interpretation of Mr. Siddique. The words "to do all works" are followed by the sentence, "to receive payments to cash cheques, to sign bills and tender forms and to contract agreements etc., in connection with the said business". This shoves that Yar Muhammad was entitled to do all such things as are Mentioned in the power. It is, therefore, clear that no express authority was given to him to borrow money. On a true construction of the power‑of‑attorney, we hold that Yar Muhammad had no power to borrow.
9. Mr. Siddique has next contended that such power must be implied in the case of a person who is entrusted to conduct a business. In support of his contention, he has relied on the decision in Paboodan Goolabchand v. Miller and another (A I R 1938 Mad. 966). In the above case, the Court, while construing the relevant power- of‑attorney, relied on the following observations of the Privy Council in Bank of Bengal v. Ramanathan Chetty (I L R 43 Cal. 527 (540) P C) with approval:
"Where an act purporting to be done under a power‑of- attorney is challenged as being in excess of the authority conferred by the power, it is necessary to show that on a fair construction of the whole instrument the authority in question is to be found within the four corners of the instrument either in express terms or by necessary implication".
Mr. Siddique, therefore, attempted to justify the borrowing on the ground of necessity or with reference to the usual course of business. No such case was however made out in the plaint ; nor any evidence was led on this point. Only one witness was examined on behalf of the Bank. He was called to prove the various documents, namely, the deed of hypothecation, power -of‑attorney, etc. He has not attempted to show that the amount advanced by the Bank has been applied for the purpose of business and that the firm had no fund of its own. In short, the evidence in this case does not justify the borrowing on the ground of necessity or with reference to usual course of business. It was for the plaintiff Bank to make out its case ; but they have failed to do so. We are, therefore, of opinion that Rahima Khatun, Pari Banu Bibi and Sakina Khatun cannot be made liable by the terms of section 188 of the Contract Act. In this view of the matter, we. hold that Yar Muhammad had no power to borrow money for the firm by pledging the shares of defendants, Rahima Khatun, Pari Banu Bibi, Sakina Khatun and Rashida Khatun in the assets of the firm.
10. Mr. Mesbahuddin, the learned Advocate for the Government, has not challenged Yar Muhammad's right to take a loan by hypothecating his own 0‑7‑0 annas share in the assets of the firm, which, in this case, was the outstanding bills and other money payable by the M. E. S. Department. Such hypothecation of money to become payable under bills in respect of work to be done by a contractor is valid in law : See Kazi Abdul Ali v. Muhammad Nurul Amin and another (7 D L R 406). The plaintiff‑Bank has proved the hypothecation bond and the irrevocable power which were executed by Yar Muhammad. In these circumstances, the right of the Bank to collect 0‑7‑0 annas share out of the amount lying with M. E. S. Department to the credit of Messrs Saleh Muhammad & Co. has not been challenged by Mr. Mesbahuddin and we must say that, on the evidence adduced in this case, it cannot be challenged.
11. We may further observe that it has not been seriously disputed that the outstanding bills, the future bills and the security deposit of the firm were hypothecated with the Bank. The following sentence in the hypothecation bond clearly indicates that it was so
"the 1st party Bank shall have power to realise all the amounts due on all outstanding bills or any amount payable to the 2nd party by the aforesaid M. E. S. Department at Dacca and other places".
12. It now remains to consider whether the Government debt takes precedence over the hypothecation debt. We have already found that the Bank is a secured creditor in respect of Yar Muhammad's 0‑7‑0 annas share in the money lying with the M. E. S. Department. The Government has not led any evidence to show that demand was made in accordance with section 29 of the Income‑tax Act. We find that the three certificates, namely, 2 I T Case of 45‑46, 3 1 T Case of 45‑46 and 1 I T Case of 46‑47 for Rs. 22,643‑4‑3 Rs. 18,723‑15‑0 and Rs. 3,526‑5‑0 were issued after 1945. It is well settled that only when demand is made under sections 29 and 45 of the Income‑Tax Act, it , becomes a debt due to the Government : See (1945) 13 I T R) 285 (P C). It is, therefore, clear that in 1944, when the hypothecation deed was executed in favour of the Bank, no debt was due to the Government, and that the Government's lien to the attached money commenced from 1945.
13. It is argued on behalf of the Government that the Government debt is entitled to precedence over every kind of debt, whether secured or unsecured. No doubt, this contention finds support from the decision in the Collector of Moradabad v. Muhammad Daim Khan (I L R 2 All. 196) but the above decision has been expressly overruled by the Full Bench of that Court : See Dost Muhammad Khan v. Man Ram and another (I L R 29 All. 537). Since then, the different High Courts m India have held that the attachment or sale for a Government debt would not affect a mortgage which had been created prior to the attachment or sale. See Ramchandra v. Pitchaikanni (I L R 7 Mad. 434) ; Ibrahim Ahsan Sahib v. Rangasami Naicker and others (I L R 28 Mad. 420) ; Bank of Upper India v. The Administrator‑General of Bengal (I L R 45 Cal. 653) ; Cjomma Achi v. Chena Muna Saithakkathi Rowther and others (A I R 1935 Mad. 882) and Ragho Prasad and others v. Mewalal and another (I L R 34 All. 223 (P C)).
14. On the face of these overwhelming decisions of the different High Courts. Mr. Mesbahuddin, the learned Advocate for the Government, has found it difficult to contend that the Government debt should have precedence over secured debt. We, therefore, hold that the plaintiff‑Bank is entitled to get priority over the claims of the Government in respect of 0‑7‑0 annas share of the money attached by the Collector. In this view of the matter, we allow the appeal in part and modify the decision of the learned Subordinate Judge as follows :‑
The plaintiff's title to the extent of seven annas is declared in the amounts payable to Messrs Saleh Muhammad & Co. by M. E. S. Department, Dacca, and which has been attached by the Collector in connection with the Income‑Tax case. The plaintiff‑Bank will get precedence 'over the claim of the Income -Tax Department in respect of the said seven annas' share and the said seven annas' share will be released from the attachment.
15. As the plaintiff has succeeded in part, we order that each party do bear its own costs throughout.
I agree.
A. M. C. Appeal partly accepted.
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