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LAWS(GJH)-1985-10-11

HIGH COURT OF GUJARAT

Coram : A.M.AHMADI, R.J.SHAH JJ.

Decided On : October 11, 1985

Appeal Type : FIRST APPEAL 1556 and

Final Verdict : Appeal allowed

Appellant(s) :

BANK OF BARODA

Respondent(s) :

RABARI BACHUBHAI HIRABHAI

Advocate(s) :

RAJNI H.MEHTA, RAMESH M.DESAI

Equivalent Citation :

LAWS(GJH)-1985-10-11, GLR-1986-1-144, ACJ-1986-0-137, AIR(GUJ)-1987-0-1,

GLHEL-1985-2-201343, ACC-1986-1-139, TAC-1985-2-233

Cited Judgement(s) :
- Tata Motors Limited (Tata Finance Ltd ) Vs. Kapilaben Wd/O Decd Pravin Bhai Keshurbhai
Chauhan, [LAWS(GJH)-2014-8-283] [Referred To]
- K V Kamath Vs. Pradip Kr Sureka, [LAWS(CAL)-2009-12-73] [Referred To]
- Lumbini Beverages Private Limited Vs. Commissioner Of Central Excise, [LAWS(PAT)-2001-1-
70] [Referred To]
- M G International Rep By Its Proprietor Vs. Syndicate Bank, [LAWS(MAD)-2018-4-387] [Referred
To]
- Dipika Rajeshkumar Patel Vs. Pravinsinh R. Vaghela, [LAWS(GJH)-2022-9-1805] [Referred To]
- Himmatnagar Nagrik Sahakari Bank Ltd Vs. Sureshkumar Jayantilal Thakkar, [LAWS(GJH)-2015-
12-178] [Referred To]
- General Manager Medak District Co Operative Central Bank Ltd Vs. Gottimukkala Venkateswara
Sharma, [LAWS(APH)-2010-7-137] [Referred To]
- Tara Rerolling Mills Vs. Punjab National Bank, [LAWS(MPH)-1996-12-56] [Referred]
- Sunil Sutradhar Vs. Kemkanta Talukdar, [LAWS(GAU)-2013-1-9] [Referred To]
- P.P. Tomas Vs. State Of M.P., [LAWS(MPH)-2020-1-151] [Referred To]
Headnote:
A. The bus GTZ 1806 was proceeding towards Morvi with a marriage party and while it was

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crossing the culvert the motor truck GRS 5069 came from the opposite direction and
simultaneously tried to cross the culvert in the process the two vehicles grazed each other
causing injuries to some of the passengers of the bus. - The Claims Tribunal came to the
conclusion that the drivers of both the vehicles involved in the accident were guilty of want of
care and caution and apportioned the liability at 25 per cent so far as the bus driver and 75
per cent so far as the truck driver were concerned. - The Claims Tribunal has opined that the
hypothecating Bank steps into the shoes of the owners and since the owners become
vicariously liable for the tortious act of their servant the hypothecating Bank must also be
held vicariously liable It may here be mentioned that the two owners of the vehicle have also
been held vicariously liable for the tortious act of their driver along with the hypothecating
Bank notwithstanding the fact that in the opinion of the Claims Tribunal the hypothecating
Bank had stepped into the shoes of the owners. - Hypothecation is a mode of creating a
security whereby not merely the ownership but also the possession of the thing remains with
the owner".Thomsons Dictionary of Banking (Twelfth Edition) at page 309 Observes: In
banking matters the term hypothecation is sometimes used to denote an agreement to give a
charge over goods or documents of title thereto without conferring possession but
undertaking to give a pledge when the goods or documents are to hand. - It is not necessary to
multiply by quoting from various other dictionaries or decided cases as it is sufficiently clear
from what we have stated earlier that when a property is hypothecated with a creditor it is
pledged as security or collateral for a debt without physical transfer thereof to the creditor. -
If the title to the property that is the vehicle remained with the owners and if the de jure as
well as de facto possession remained with them they had the absolute control of the vehicle
and at the relevant point of time when the accident occurred the vehicle was being driven by
the driver employed by them.
B. The question which therefore arises for consideration is whether the hypothecating Bank can
be held vicariously liable to pay damages to the injured for the negligent act of the driver of
the said vehicle. - The Claims Tribunal has opined that the hypothecating Bank steps into the
shoes of the owners and since the owners become vicariously liable for the tortious act of their
servant the hypothecating Bank must also be held vicariously liable It may here be mentioned
that the two owners of the vehicle have also been held vicariously liable for the tortious act of
their driver along with the hypothecating Bank notwithstanding the fact that in the opinion of
the Claims Tribunal the hypothecating Bank had stepped into the shoes of the owners. - In
order to determine whether the hypothecating Bank can be held vicariously liable for the
tortious act of the truck driver it is necessary to understand the exact relationship between
the Bank and the owners of the offending vehicle.
C. Hypothecation is a mode of creating a security whereby not merely the ownership but also the
possession of the thing remains with the owner".Thomsons Dictionary of Banking (Twelfth
Edition) at page 309 Observes: In banking matters the term hypothecation is sometimes used
to denote an agreement to give a charge over goods or documents of title thereto without
conferring possession but undertaking to give a pledge when the goods or documents are to

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hand. - If the title to the property that is the vehicle remained with the owners and if the de
jure as well as de facto possession remained with them they had the absolute control of the
vehicle and at the relevant point of time when the accident occurred the vehicle was being
driven by the driver employed by them. - We therefore allow these appeals and set aside the
order of the Claims Tribunal insofar as it holds the appellant-Bank vicariously liable to
answer judgment in the aforesaid Claims Applications.

Judgment :

A.M.AHMADI

(1.) It is distressing to find that the Motor Accident Claims Tribunal has foisted liability to pay
compensation on the appellant Bank by a one line statement to the effect that the hypothecating Bank
the Bank of Baroda Ahmedabad which also steps into the shoes of the owner is vicariously liable.
Except this statement found in paragraph 9 of the judgment we do not find any discussion in support
of the statement that the hypothecating Bank steps into the shoes of the owners of the vehicle by virtue
of the fact that the offending vehicle was hypothecated with the Bank. It is indeed surprising that the
learned Presiding Officer constituting the Tribunal did not think it necessary to examine the
relationship between the owners of the vehicle and the Bank arising out of the agreement of
hypothecation. Except the ipse dixit of the learned Presiding Officer that the hypothecating Bank steps
into the shoes of the owners of the offending vehicle there is nothing in the entire judgment to indicate
that the Presiding Officer made any effort to understand the jural relationship between the owners of
the offending vehicle and the hypothecating Bank. We will immediately point out that this averment of
the Tribunal is wholly unsustainable.

(2.) On 10/02/1981 at about 6.00 p.m. a passenger bus and a motor truck collided on the Morvi-Rajkot
State Highway near culvert No. 1/59 at a short distance from village Shanala. The bus GTZ 1806 was
proceeding towards Morvi with a marriage party and while it was crossing the culvert the motor truck
GRS 5069 came from the opposite direction and simultaneously tried to cross the culvert in the
process the two vehicles grazed each other causing injuries to some of the passengers of the bus. The
injured preferred separate Claim Applications which were heard and disposed of by a common
judgment.

(3.) The Claims Tribunal came to the conclusion that the drivers of both the vehicles involved in the
accident were guilty of want of care and caution and apportioned the liability at 25 per cent so far as
the bus driver and 75 per cent so far as the truck driver were concerned. Holding them both jointly and
severally liable for the accident the Claims Tribunal awarded compensation to the claimants. So far as
the question of negligence of the vehicle drivers and the quantum of compensation are concerned the
appellant does not dispute the same.

(4.) The appellant Bank had advanced a loan to original Respondents Nos. 4 and 6 for purchasing the
motor truck GRT 5069. The deed of hypothecation was executed by the owners respondents Nos. 4

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and 6 in favour of the Bank. Under that agreement the vehicle in question was pledged with the Bank
for due repayment of the loan advanced by the Bank. The vehicle remained in the possession of the
owners and was plied by original respondent No. 8 as the driver engaged by the owners on the date of
the accident. The question which therefore arises for consideration is whether the hypothecating Bank
can be held vicariously liable to pay damages to the injured for the negligent act of the driver of the
said vehicle. The Claims Tribunal has opined that the hypothecating Bank steps into the shoes of the
owners and since the owners become vicariously liable for the tortious act of their servant the
hypothecating Bank must also be held vicariously liable It may here be mentioned that the two owners
of the vehicle have also been held vicariously liable for the tortious act of their driver along with the
hypothecating Bank notwithstanding the fact that in the opinion of the Claims Tribunal the
hypothecating Bank had stepped into the shoes of the owners.

(5.) In order to determine whether the hypothecating Bank can be held vicariously liable for the
tortious act of the truck driver it is necessary to understand the exact relationship between the Bank
and the owners of the offending vehicle. The Bank had advanced a loan against the security of the
offending vehicle under a deed of hypothecation executed by and between the parties. By that
agreement the vehicle remained in the custody of the pawner and the possession thereof was never
transferred to the pawnee. Unlike in the case of a pledge where the possession of the thing pawned is
delivered to the pawnee in the case of hypothecation the possession of the chattel continues to remain
with the pawner. The jural relationship which comes into existence is therefore that of a creditor and a
debtor. The only right which the hypothecating Bank has under the arrangement is to have the chattel
sold for realising its dues. The title in the vehicle remains with the owners. The de jure and de facto
possession also remains with the owners and the only right that the creditor Bank has is to recover the
amount by the sale of the vehicle in the event of default. It is therefore difficult to understand how the
Claims Tribunal came to the conclusion that the hypothecating Bank stepped into the shoes of the
owners to foist the liability for payment of compensation on the Bank.

(6.) Hypothecation according to Corpus Juris Secundum (Volume XLII) means a contract of mortgage
or pledge in which the subject matter is not delivered into the possession of the pledgee or pawnee; or
conversely a right which a creditor has over a thing belonging to another and which consists in a
power to cause it to be sold in order to be paid his claim out of the proceeds. In paragraph 635 of
Halsburys Laws of England (Fourth Edition) at page 438 the expression hypothecation of the cargo
has been explained as a pledge of the cargo without immediate change of possession; it gives right to
the person making advances on the faith of it to have the possession of the goods if the advances are
not paid at the stipulated time; but it leaves to the owner of the goods hypothecated the power of
making the repayment and thereby freeing them from the obligation. Boubiers Dictionary (Reprint
1983) describes hypothecation as a right which a creditor has over a thing belonging to another and
which consists in a power to cause it to be sold in order to be paid his claim out of the proceeds.
Venkataramaiyas Law Lexicon (Fifth Edition) Volume I page 568 explains hypothecation as under:

"A pledge in which the pledgor retained possession of the thing pledged as security for a

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debt ... It differs from a mortgage in that there is no actual or executory conveyance or assurance of the
property hypothecated for payment of the debt or loan and from a pledge in that there is no actual or
constructive delivery of the properly. Hypothecation is a mode of creating a security whereby not
merely the ownership but also the possession of the thing remains with the owner".

Thomsons Dictionary of Banking (Twelfth Edition) at page 309 Observes: In banking matters the term
hypothecation is sometimes used to denote an agreement to give a charge over goods or documents of
title thereto without conferring possession but undertaking to give a pledge when the goods or
documents are to hand. It is not necessary to multiply by quoting from various other dictionaries or
decided cases as it is sufficiently clear from what we have stated earlier that when a property is
hypothecated with a creditor it is pledged as security or collateral for a debt without physical transfer
thereof to the creditor. The title to the property does not pass to the creditor but the creditor has merely
the right to sell the pawn upon default. In other words hypothecation is a transaction whereunder
goods are made available as security for a debt without actual transfer of either the property or the
possession thereof to the creditor. The owners are under an obligation to discharge the debt within the
stipulated time and if they fail to do so the creditor has the right of re-entry for the limited purpose of
re-payment of the loan. The title in the goods remains with the pledgor; the de jure and de facto
possession continues to remain with him and the pledgee/creditor has merely the right to recover his
dues if need be by the sale of the security that is the pawn. It is therefore difficult to understand how
the Claims Tribunal took the view that the hypothecating Bank stepped into the shoes of the owners of
the offending vehicle and was therefore vicariously liable to pay compensation to the victims of the
accident. If the title to the property that is the vehicle remained with the owners and if the de jure as
well as de facto possession remained with them they had the absolute control of the vehicle and at the
relevant point of time when the accident occurred the vehicle was being driven by the driver employed
by them. The hypothecating Bank a creditor had merely advanced a loan against the security of that
vehicle and had special right to recover its dues in the event of default by if need be the sale of the
vehicle. It had therefore no title over the vehicle. It was not even in constructive possession of the
vehicle but it had merely a right to recover its dues by the sale of that vehicle. So long as there was no
default in the payment of the loan amount it could not exercise that special right to sell the vehicle for
realisation of its dues. Under the circumstances we feel that the view taken by the Claims Tribunal is
contrary to law and ignores the elementary fact that under the agreement of hypothecation neither the
title in the property nor the possession thereof stands transferred to the creditor Bank. The Claims
Tribunal has betrayed total non-application of mind as regards the jural relationship which comes into
existence on the hypothecation of the vehicle for securing the debt. We are therefore of the opinion
that the Claims Tribunal committed a gross error in law in holding that the hypothecating Bank had
stepped into the shoes of the owners for having advanced a loan against the security of the vehicle in
question.

(7.) We therefore allow these appeals and set aside the order of the Claims Tribunal insofar as it holds
the appellant-Bank vicariously liable to answer judgment in the aforesaid Claims Applications. We
hold that the Bank is not liable to pay compensation to the victims of the. accident. We therefore direct

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that the Claim Applications against the Bank shall stand dismissed with no order as to costs
throughout. (RJS) Appeals allowed.

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