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Contract Act (IX of 1872)‑‑

‑‑‑S. 176‑‑Pledgee of chattel with power of sale exercisable under certain conditions selling chattel without performing conditions and guilty of wrongful conversion‑‑Measure of damages in such case is value of chattel at time of conversion less amount for which it was pledged‑‑Auto parts dealer in order to secure loan pledging with Bank auto‑parts and giving a list containing details of spare parts with their price to the Bank‑‑Some of the spare parts found missing‑ Litigation between Bank for recovery of loan and auto dealer for damages for conversion of pledged goods‑‑Controversy over value of missing spare parts‑‑Held: value of missing auto‑parts to be assessed according to rates given in the list given to Bank containing details of pledged spare parts with their prices and not according to the market value prevailing at time of passing decree in suit filed by pawnor‑‑In view of years of litigation value of missing auto‑parts enhanced and decree passed accordingly.

S.L. Ramaswamy Chetty and another v. M.S.A. P.L. Palaniappa Chettiar A I R 1930 Mad. 364 not applicable.

Moti Lal v. Lakhmi Chand A I R 1943 Nag. 162 and Neck Ram Dobay v. The Bank of Bengal I L R 19 Cal. 322 ref.

Ayaz Hassan and Imtiaz Ahmad for Appellant. Mian Nisar Ahmad for Respondents. Date of hearing: 11th May, 1987.

QURBAN SADIQ IKRAM, J.‑‑In brief the facts of the case are stated below:‑

In the year 1972 M/s. Deena Autos, opened Account No. 1 with Commerce Bank Ltd. Badami Bagh Branch, Lahore. They were allowed cash credit facility to the extent of Rs.7,00,000. This limit was enhanced to Rs.25,00,000 on 31‑7‑1973. It was agreed that there will be 30 per cent margin against the pledge of the goods. M/s. Deena Autos was a registered partnership firm. Mian Muhammad Salahuddin defendant No.2 and Mian Muhammad Allauddin defendant No.3 were its partners. M/s. Deena Autos, as per list Ex. (P.2), supplied by them, pledged spare parts which were placed in the physical possession of plaintiff bank. According to this list the total value of the spare parts pledged by the defendant No.l with the plaintiff bank was Rs.34,20,285/60. The defendant No.l also duely executed several documents to secure the over‑draft facility allowed by the plaintiff bank.

Commerce Bank Ltd. , after nationalization of Banks amalgamated in the United Bank Ltd., who was, therefore, substituted as plaintiff in the suit.

After some time it transpired that there was only cash withdrawals from the account of defendant No.l and that no amount was deposited in the said account. The plaintiff bank, considering that defendants have misused the facility, asked the defendants to pay back the amount received by them. They did not honour their promises to pay back the debt on account of which Commerce Bank Limited on 2‑1‑1974 filed suit against the defendants for recovery of Rs.25,12,806 in the Court of Senior Civil Judge, Lahore.

2. M/s. Deena Autos., on 18‑9‑1974 filed a suit against United Bank Limited in the Court of Senior Civil Judge, Lahore for 'possession of Auto spare parts and/or redemption of auto spare parts and possession of the same, market value of auto spare parts and rendition of accounts'.

There was an amendment in law on account of which both the suits were transferred to the Court of Special Judge Banking who vide order dated 28‑7‑1980 consolidated both the suits with consent of the parties. The following issues were framed:‑

(1) Whether Rs.25,12,806 are due from the defendants M/s. Deena Autos to the plaintiff bank till 23‑10‑1973 OPP.

(2) Whether the goods mentioned in the list appended with the plaint in suit No.201/1 (copy of which is Annexure 'A' of the written atatement)which are with the plaintiff bank are intact, if not what is the market value of the goods damaged, missing and rendered unfit for use OPP.

(3) Whether the goods mentioned in lists 'B' and 'C' appended with the written statement of Deena Autos are pledged with the plaintiff bank, if so what is the market value of those goods

(4) Relief.

3. The learned Special Judge Banking, Lahore decided issues No.l and 3 against M/s. Deena Autos. Issue No.2 was decided in their favour. In consequence of this vide the impugned judgment and decree dated 18‑1‑1983 the suit of United Bank Ltd., was decreed in the sum of Rs.25,12,806 and the suit of M/s. Deen Autos was decreed in the sum of Rs.84,17,389. After adjustment the bank was directed to pay a sum of Rs.59,04,583 to M/s. Deen Autos who in their suit were allowed costs and interest at the stipulated rate or 2 per cent above the bank rate whichever is higher from the date of decree of the suit till the entire payment by the bank. The learned Special Judge concluded by observing that the suit of plaintiff bank stands fully satisfied and as such no decree was called for.

United Bank Ltd. filed R.F.A. No.27 of 1983 against the impugned judgment and decree, dated 18‑1‑1983 with prayers firstly, that interest pendente lite be allowed to the bank at the contracted rate of 14 per cent per annum with quarterly rests. Secondly, post decretal interest at the contracted rate of 14 per cent per annum with quarterly rests be allowed to the bank till realisation of the amount. Thirdly, the entire decretal amount plus interest as aforesaid be made payable by the respondents to the appellant immediately and fourthly, the Bank claimed costs of this appeal.

United Bank Limited filed R.F.A. No.26 of 1983 to challenge the decree dated 18‑1‑1983 in the sum of Rs.84,17,389 by learned Special Judge Banking in favour of M/s. Deen Autos.

M/s. Deen Autos etc., respondents filed cross objections on 5‑3‑1983 challenging the finding of the lower Court under issue No.3.

All the above matters will be decided together by this judgment.

4. We have carefully gone through the evidence on record and have heard the learned counsel appearing for the parties at length.

In support of its case the bank examined PW 1 Kh. Ghulam Mustafa who at the time of filing of suit was manager of Badami Bagh Branch of the bank. He tendered in evidence list of pledged goods Ex.P.2 supplied by M/s. Deen Autos to the bank; cash credit agreement for pledge of goods dated 31‑7‑1973 Ex. P.3; demand promissory note dated 31‑7‑1973 in the sum of Rs.25,00,000 Ex. P.4; D.P. Note delivery letter Ex. P.5; letter of continuity executed by M/s. Deen Autos Ex. P.6 and a letter of authority in favour of the Bank charging penal interest at the rate of 2 per cent over and above 12 per cent prevailing rate of interest Ex. P.7. He also produced pledge letter Ex. P.8/1 and letter of physical possession of Godown Ex. P.8/2. Mr. Ghulam Mustafa Butt PW 1 tendered in evidence certified and attested copy of statement of accounts Ex. P.9 according to which the outstanding amount towards M/s. Deen Autos on 25‑12‑1973 was Rs.25,14,020/16. The telegrams Ex. P.10 and P.11 from the bank required M/s. Deen Autos to adjust their outstanding liabilities immediately, being notices for clearance of loan respectively dated 25‑9‑1973 and 28‑9‑1973.

In rebuttal and also in support of their claim, M/s. Deen Autos etc., defendants examined DW.1 Shahzad Aziz and DW.2 Muhammad Tariq besides Salahuddin defendant No.2 as DW 3. They also produced in evidence a letter Ex. D.1 dated 4‑5‑1974 from the bank wherein it was stated that a bid of Rs.30,00,000 from one M/s. Imran Agency of Karachi for purchase of pledged goods has been received. Ex. DW 1/1 is a purchase offer dated 14‑1‑1982 from Imran Agency Karachi for purchase of various missing spare parts. Similarly Ex. DW.2/2 is an offer dated 14‑4‑1982 from Muslim Autos, Naqi Road Lahore for purchase of various missing parts Ex.D.3. (on the file of halt by Deen Autos) in stock statement dated 30‑3‑1973 according to which the value of 65 items of spare parts has been given as Rs.11,68,345. Ex. D4 (on the file of suit by Deen Autos) is another stock statement of M/s. Deen Autos according to which the total price of 94 items was Rs.24 37,167. Ex. D.6 and D.8 indicate payment of Rs.40,00,000 and Rs,50,062 respectively. The bank was informed of these payments respectively vide the letters Ex. D.5 dated 9‑10‑1973 and Ex. D.7 dated 11‑12‑1973.

No other evidence was produced by the parties during consolidated hearing of the two suits.

5. M/s. Deen Autos etc. , defendants did not deny their liability to pay Rs.25,12,806 to the Bank. Muhammad Salahuddin DW 3 (defendant No.2) stated in his statement that they will pay the entire debt and demand of the bank if they are delivered back their pledged goods. The learned Special Judge banking, therefore, decided issue No.l in favour of the plaintiff bank and against M/s. Deen Autos etc., defendants. The learned counsel for the appellant bank in support of R.F.A. No.27 of 1983 contended that the bank should have been allowed interest pendente lite and also the interest from the date of decree till the final realisation of the decreed amount. As there was a counter claim by M/s. Deen Autos and also in view of the fact that part of the pledged goods were missing from the custody of the bank, in our view the bank was rightly not allowed the interest as claimed above.

6. In order to challenge the finding under issue No.2 it was contended on behalf of the appellant firstly that there was no evidence on record that the market value/market rate of missing pledged goods was Rs.84,17,389 and as such finding under this issue be reversed.

Secondly, that the relevant date for assessment of the value of the missing pledged goods would be the date when the spare parts were delivered to the plaintiff bank and not the date of filing of the suit or decree and lastly that the assessment should have been made on the market value and not on the basis of market rates as has been done by the lower Court. It was, therefore, argued that the suit of M/s. Deen Autos be dismissed.

The learned counsel for M/s. Deen Autos controverted the above contentions and argued that there was sufficient evidence in support of the price of the missing pledged goods as assessed by the lower Court and that the relevant date for assessment of the price was the decree and not the time when the articles were pledged with the bank. He did not question decree of Rs.25,12,806 in favour of bank and against M/s. Deen Autos.

In support of his cross objections the learned counsel contended that M/s. Deen Autos should have been allowed to recover the spare parts given in detail in lists 'B' a 'C' and pledged with the bank. It was however, conceded by the learned counsel that there is no evidence on record of this case to show that auto parts mentioned in lists 'B' & 'C' were in fact pledged with the plaintiff bank.

7. We have carefully examined the above contentions on behalf of the parties. Two points arise for determination:‑ one: what amount M/s. Deen Autos were entitled to recover from the bank; two: if so on what footing.

The learned counsel for the appellant bank argued that the spare parts are imported items. These were imported in the year 1973 or prior to that and that the vehicles for which the spare parts could be used had gone off the Road by passeage of time. It was, therefore, contended that the value of spare parts had depreciated and not appreciated in the circumstances. Secondly, that the bank was liable to pay price of the missing spare parts which was assessed by the defendants themselves in their list Ex.P.2, submitted by them to the bank at the time of pledge. It was finally contended that there was no law or judgment to support the view that the bank was liable to pay the market value of the spare parts at the time of passing of the decree as has been done by the lower Court. The learned counsel stated at the bar that there was no case law in support of his above assertions.

The learned counsel for the respondents controverted the above contentions and argued that the spare parts pledged with the bank were new and in good condition and by passage of time their value appreciated. As such the defendants were entitled to the market value which prevailed at the time of passing of the decreed. The learned counsel placed reliance on the judgment in S.L. Ramaswamy Chetty and another v. M.S.A.P.L. Palaniappa Chettiar (A I R 1930 Mad. 364). It was, therefore, argued that the price of missing spare parts assessed by the trial Court be upheld.

It may be observed that M/s. Deen Autos did not file any appeal or cross objections to challenge the findings under issue No.l or the decree in the sum of Rs.25,12,806 passed against them.

We have carefully considered the respective contentions. The question involved is not free from difficulty. The pledge of goods was made with the bank on 30‑7‑1973. The loan facility, as stated in the written statement was cancelled on 25‑9‑1973 i.e. within 2 months of pledge of goods. The bank filed present suit on 2‑1‑1974 i.e. after about 5 months of pledge. M/s. Deen Autos filed written statement on 12‑9‑1975. It was stated by them in para. 6 of the written statement that "from time to time on different dates the plaintiff without the authority and without given proper notice to the defendants, wrongfully sold part of the auto spare parts mentioned in schedule". It was further pleaded that "plaintiffs and its agents also misappropriated, damaged, mishandled, rendered unservicable and destroyed intentionally (for the reasons given above) a reasonable portion of auto parts mentioned in schedule." M/s. Deen Autos on 18‑9‑1974 i.e. after about one year and 1i months of pledge filed a counter suit against the bank pleading therein (para. 6 of plaint) that over‑draft facility was cancelled on 25‑9‑1973 and that from time to time on different dates defendants without the authority and without giving proper notice to the plaintiffs, wrongfully sold part of the auto spare parts mentioned in schedule. It was further pleaded by M/s. Deen Autos in the plaint of their suit that defendant also misappropriated, damaged, mishandled, rendered unservicable and destroyed intentionally a reasonable portion of the auto parts. It can be gathered from the pleadings of the parties that the overdraft facility was cancelled within two months, secondly, that the bank sold some auto parts before 18‑9‑1974 i.e. the day when M/s. Deen Autos filed their suit, thirdly, the date of sale of auto parts by the bank is not known and fourthly, that M/s. Deen Autos did not claim damages for the alleged unauthorised sale of auto parts in their suit. It can, therefore, be reasonably inferred that the auto parts were sold by the bank before institution of its suit. There is no evidence on record that the bank misappropriated damaged, mishandled, rendered unservicable or intentionally destroyed any part of the pledged auto parts. There is also no evidence before us to show that M/s. Deen Autos sustained any special damage by the conduct of the bank. The auto parts were admittedly pledged with the bank in July, 1973. These could be used for vehicles of 1973 model or models prior to that. At the time of passing of decree the vehicles of those models had gone off the road making the spare parts unsalable. These facts would reduce the market value/price of the spare parts. The judgment in the case of S.L. Ramaswamy Chetty' is not applicable to facts of instant case because in the said case jewels had been pledged which have always been considered as precious and prestigious commodities. Their prices level always indicate upward trend, which was not the case with obsolete auto parts. The learned trial Judge was, therefore, not correct to assess the market value of the missing auto parts, which prevailed at the time of passing of the impugned decree. It was held in Moti Lal v. Lakhmi Chand (A I R 1943 Nag. 162) that "in case of wrongful conversion of goods the measure of damages normally is the value of the goods on the date of the conversion at the then market price". In another judgment Neck Ram Dobay v. The Bank of Bengal (ILR 19 Cal. 322) it was held by Privy Council that "the measure of damages is the value of the chattel at the time of conversion". The facts of this judgment were that Neck Ram Dobay in order to secure loan had pledged Government Securities with the bank. These were sold by the bank without notice to the pledgor who, therefore, brought an action for damages. The learned Civil Judge who tried the suit, made a decree declaring that the sales by the bank to itself were null and void against the plaintiff and that the plaintiff was entitled to recover the value of Government Promissory Notes so sold at the market rate when the suit was instituted or at the

option of the plaintiff on the date of the hearing". The bank appealed and the High Court in its appellate jurisdiction allowed the appeal and dismissed the suit. It was held by their Lordships in High Court that the sale by the bank to itself, though unauthorised, did not put an end to the contract of pledge so as to entitle the plaintiff to have back the Government notes without payment of the loan for which they were security. It was further held that the plaintiff did not sustain any damage by the sale to the bank of the notes. Their Lordships of Privy Council upheld the judgment by High Court and dismissed the appeal by Neck Ram Dobay with a finding firstly that "even if wrongful conversion had taken place, the proof of damage to the plaintiff was altogether wanting" and secondly, that "where the pledgee of chattel with a power of sale which can only be exercised under certain conditions sells the chattels without performing the condition he is guilty of wrongful conversion and the measure of damages is the value of the chattels at the time of conversion less the amount for which it was pledged". In our view both the above cited judgments are on all fours applicable to facts of the present case. It is Deep Autos own case in their plaint that the pledged auto parts were sold by the bank before institution of their suit. The record indicates that the bank sent telegrams Ex. P.10 and P.11 respectively on 25‑9‑1973 and 28‑9‑1973 i.e. immediately after cancellation of the loan facility. This means that the bank did not sell the pledged auto parts without notice required under section 176 of the Contract Act. There is no evidence as to at what precise time the bank sold part of the pledged auto parts. It is, however, clear from the pleadings of Deen Autos that these were sold before 18‑9‑1974, the date when Deen Autos filed counter suit. There is no evidence that the price of the auto parts appreciated or was more than the one mentioned in the list Ex.P.2. There is also no evidence on record that the bank sold part of the pledged auto parts at price higher than the one mentioned in the list Ex.P.2.

The defendants at the time of pledge of the spare parts on; 31‑7‑1973 had given list Ex.P.2 giving details of the spare parts' with their price to the bank. According to this list the total price of the pledged spare parts was Rs.34,20,285/60. The learned counsel for the appellant keeping in view the list of missing spare parts prepared by the Local Commission stated at the bar that the value of the missing parts according to the list Ex.P.2 comes to Rs.22,38,373. The learned counsel for respondents was unable to controvert this calculation.

M/s. Deen Autos in support of their claim examined Shahzad Aziz DW 1 and Muhammad Tariq DW.2. These two witnesses furnished purchase offers Ex. DW 1/1 dated 14‑1‑1982 and Ex. DW2/2 dated 14‑4‑1982 respectively. These are just offers of an individual and not the market value of the missing pledged spare parts. Shahzad Aziz DW 1 did not give the address of his shop. It .is not evident from his statement as to where his business is located. It is also not clear as to whether he deals in spare parts of the kind involved in this case. He made the offer Ex.DW 1/1 at the instance of Salahuddin defendant. The offer Ex. DW 1/1 is not from him but from Imran Agency Karachi. This offer is signed by some one on behalf of Imran Agency who did not appear in Court during trial of the suit. Shahzad Aziz PW did not state that the offer Ex.DW 1/1 was signed by him. He did not claim to be owner or partner or in any way concerned with Imran Agency. He had said nothing about the market price of the missing spare parts in the year 1973 or 1974 or even in the year 1982 when he appeared in Court for evidence. Muhammad Tariq DW 2 placed ‑on record his purchase offer Ex.PW 2/2. This offer seems to have been signed by some one for Muslim Autos Lahore. It was stated in cross‑examination by Muhammad Tariq DW. that he was owner of Muslim Autos. He however, did not state that the offer Ex.DW 2/2 was prepared or singed by him. He further stated that the offer has been made by him on the correct market rate. We are not prepared to accept the evidence of these two witnesses firstly because they did not produce any invoice or price list or receipt which is always available with every shop‑keeper of spare parts. Secondly these two witnesses also did not state the market price of the missing spare parts. They only made offers to purchase the spare parts at particular price. An offer cannot be considered the market value of a commodity. The defendants or these witnesses also did not produce in evidence books of accounts of documents to prove the market value of the missing spare parts. The statement of Salahuddin DW 3 does not in any way improved his case. We, therefore, hold that the learned Special Judge wrongly decided issue No.2 in favour of M/s. Deen Autos. There was no evidence, as discussed above, on record that the value of the missing auto parts in the year 1974 or 1982 was Rs.84,17,389. We, therefore, set‑aside the findings of trial Court under issue No.2.

8. The learned counsel appearing on behalf of the appellant bank conceded that the auto parts, as per list prepared by the Local Commission were missing from their godown. It was stated by him at the bar that the market value of the missing auto parts according to the valuation given in the price list Ex.P.2 was Rs.22,38,373 which the bank was prepared to pay by way of adjustment in the decree in the sum of Rs.25,12,806 in favour of the bank. The learned counsel for the respondents controverted the above submissions and submitted that M/s. Deen Autos were entitled to receive Rs.84,17,389 from bank. This contention on behalf of respondents, as held above, is without any merits. The value of the missing auto‑parts is to be assessed according to the rates which prevailed in the year 1974, when the conversion by the bank allegedly took place. However, as the litigation between the parties remained pending for about 13 years, taking ecquitable view of the circumstances of this case, we enhance the price of the missing auto‑parts from Rs.22,38,373 to Rs.25,12,806. In this way both the decrees will stand adjusted against each other and no party will be required to pay anything to the other.

9. In view of the above conclusion R.F.A. No.27 of 1x83 is dismissed leaving the parties to bear their own costs.

R . F . A . No. 26 of 1983 is partly accepted. The decree passed by learned Special Judge Banking in favour of M/s. Deen Autos is reduced to Rs.25,12,806. The parties are left to ,bear their own costs of this appeal.

There being no evidence on issue No.3 the cross‑objections are dismissed.

K.B.A./U‑11/L Order accordingly.

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