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LAWS(KAR)-1985-5-10

HIGH COURT OF KARNATAKA

Coram : MURLIDHER RAO J.

Decided On : May 27, 1985

Appeal Type : W.P. 2666 of 1982

Final Verdict : Order accordingly

Appellant(s) :

T.S.KOTAGI

Respondent(s) :

TAHSILDAR, GADAG

Advocate(s) :

W.K.JOSHI, GHOTKHINDI, B.R.NANJUNDAIAH

Equivalent Citation :

AIR(KAR)-1985-0-265, LAWS(KAR)-1985-5-10, ARBLR-1986-1-125

Referred Judgement(s) :
- Curwen V. Milburn, [1889 42 ChD 424] [Referred To]
- Ellis And Co's Trustee V. Dixon Johnson, [1925 0 AC 489] [Referred To]
- Official Assignee,Bombay V. Madholal Sindhu, [AIR 1947 Bom 217] [Referred To]
- Fisher V. Ardeshir, [AIR 1935 Bom 213] [Referred To]
- Bombay Dyeing And Manufacturing Company Limited Vs. State Of Bombay, [AIR 1958 SC 328]
[Referred To]
- Lallan Prasad Vs. Rahmat All, [AIR 1967 SC 1322] [Referred To]
- Khadi Gram Udyog Trust Vs. Ram Chandraji Virajman Mandir Sarasiya Ghat Kanpur, [AIR 1978
SC 287] [Referred To]
- Balkrishan Gupta Vs. Swadeshi Polytex Limited, [AIR 1985 SC 520] [Referred To]
- Sebastin Antony Vs. Ramananda Bhatt, [AIR 1982 Kar 73] [Referred To]
Cited Judgement(s) :
- Npr Finance Limited Vs. Deepak Jhunjhunwala, [LAWS(CAL)-2016-4-7] [Referred To]
Referred Act(s) :
- Contract Act, 1872, S.176, S.25
- Karnataka Debt Relief Act, 1976, S.7, S.4(F)
- Karnataka Debt Relief Act, 1980, S.6, S.15

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Headnote:
A. CONTRACT ACT, 1872 - S.176, S.25 - Agreement void, if made without consideration,
KARNATAKA DEBT RELIEF ACT, 1976 - S.7 - Burden of proof, S.4(F) - Relief from
indebtedness, KARNATAKA DEBT RELIEF ACT, 1980 - S.6 - Burden of proof, etc, S.15 -
Savings - While the pledgee can recover his 'debt' on the promise, and bring a suit for sale of
pledged articles or sell them himself, after notice to pledger (debtor), the latter can bring a
suit for recovering the pledged articles by tendering the amount. - The dictionary meaning of
'discharge' is -"to free from or relieve of a charge of any kind (burden, explosive, electricity,
liability, accusation etc) : to be free : to acquit : to dismiss : to fire (as a gun): to take the
superin-cumbent weight from : to set down or send forth: to eject: to pour out: to emit or let
out : to perform : to pay : to give account for : to distribute (as weight) : (obs).
B. the act of discharging : release from a charge of any kind : unloading : liberation : acquittal :
dismissal : outflow : rate of flow : emission : release of tension : payment : performance : that
which is discharged - ns. - a certification of release or payment (produced his - as evidence) :
the state or fact of being discharged or relieved (as of a debt, obligation, or accusation) :
acquittal, exoneration (received a full - from responsibility for the incident) : the act of
discharging : removal of a load : unloading (the - of a ship) (the - of a cargo) : legal release
from confinement: liberation (ordering a conditional - of the alien on habeas corpus : a firing
off: expulsion of a charge : expulsion (a - of arrows) (an artillery)...."
C. S.15 of the Act permits the 'debtor' to take benefit of that Act and claim relief, as held by this
Court in Sebastian Antony's case referred to above. - The matter remitted to respondent 1 to
determine the question regarding claimant's status as 'debtor' after affording reasonable
opportunity to the parties and pass fresh orders, in accordance with law and in the light of
the observations contained in this order.No costs.

Judgment :

(1.) Petitioner challenges the order dated 7-12-1981, passed by respondent-1, marked as Annex. 'D'.

(2.) In retrospect, the facts are as follows : On 8-8-1962, second respondent (hereinafter referred to as
'pledger') pledged gold ornaments with Canara Bank, Gadag and obtained loan of Rs. 1900/-. On 21-
12-1962, pledger authorised respondent-3 to discharge the loan and take release of pledged articles.
'According to petitioner's application dated 3-12-1976 (An. 'B') it was third respondent-Shivappa
Basappa Mugali, who discharged the loan and took delivery of pledged articles; this is reaffirmed in
his statement (Annex. 'E') before the Tahsildar. The petitioner is pledger's wife's uncle. During the
enquiry, it transpired that petitioner (not respondent-3) took delivery of the pledged articles and he has
signed the receipt, in the Bank; the said receipt is not produced. The Magistrate passed an order
against the petitioner to return the articles; this order was challenged by the petitioner in W. P. No.
6473 of 1977, on the ground that petitioner was not a party to the proceedings and there was no privity

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of contract between him and pledger. The said writ petition was allowed, after setting aside the order,
the case was remanded; the copy of the order dated 7-2-1980, in W. P. No. 6473 of 1977 is filed as
Annexure 'C. The Court held that relationship of 'pledger' and 'pledgee' came to be created between the
2nd respondent and the petitioner and as such proceedings, under Karnataka Debt Relief Act were
maintainable against the petitioner. There was no appeal, against this order and it has become final.

(3.) After remand, no further evidence was adduced, by the second respondent. The petitioner had
given his statement on 14-2-1977. In view of findings, recorded in W. P. No. 6473 of 1977, the
following findings become unassailable :-

1) There is a relationship of 'pledger' and 'pledgee'; 2) The petitioner is in possession of the

gold ornaments, belonging to the pledger.

(4.) The Tahsildar, holding that the second respondent is a 'debtor' has passed the impugned order.

(5.) Mr. W. K. Joshi, learned counsel for the petitioner (pledgee) urged the following contentions :-

1) The 'debt' having become time barred and irrecoverable by him, it ceases to exist, on the
date the Act came into force; 2) There cannot be a 'discharge' of time barred debt; 3) Since an order of
discharge cannot be passed, consequential order of return of ornaments also cannot be passed; and
lastly 4) the finding that second respondent is a 'debtor' is erroneous,

(6.) Mr. Gothkhindi argued that even if the petitioner's remedy to realize the debt is barred by
limitation, the debt is not extinguished, it survives; it stands statutorily discharged, under K. D. R. Act.
Hence the consequential order of return of ornaments is legal and unassailable. On the question of
finding regarding respondent's position as 'debtor', he contended that it is a question of fact and cannot
be interfered with. He also submitted that matter is already remanded once before, the object of law
will be defeated if it is to be remanded again.

(7.) So far as the relationship of the parties is concerned, it stands concluded by the order in W. P.
6473 of 1977 (An. 'C'). Therefore, to appreciate the contentions of Mr. Joshi, it becomes necessary to
find out rights and remedies, available to the pledger and pledgee under Ss.172 to 177 of the Contract
Act and the relevant provisions of Limitation Act.

(8.) S.172, defines the word 'pledge' and pawner (otherwise called as pledger) and pawnee (otherwise
called as pledgee). Under S.173, the pledgee or pawnee has a right to retain the goods pledged not only
for payment of 'debt' or the performance of promise, but for interest also. S.176 creates two rights in
the pawnee (pledgee).

1) To bring a suit against the pawnor, upon the 'debt' or promise; 2) Sell the thing pledged
on giving the pledger reasonable notice of sale.

If he chooses to file the suit on the 'debt' or promise, he can retain the pledged articles as collateral
security. The right to sue, on the debt, assumes that he is in a position to redeliver the goods on
payment of debt. The section does not contemplate any notice prior to the institution of the suit. The

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pledgee can also bring a suit to sell the goods pledged. However a suit to recover the debt, by sale of
pledged articles must be preceded by notice. Similarly if 'pledgee' wants to sell articles, without the
intervention of the Court, he can do so, only after issuing a notice of sale to the pledger. Sale without
notice is void and a vendee without notice of the pledge, takes only the limited rights or interest of
pledgee, in other words, he steps into the shoes of pledgee. These being the rights and remedies of
pledgee, question is what is the period of limitation to bring these actions. Art.120 of the old Act i.e.
Art.113 of the Limitation Act (1963) governs such suits and the period, for both types of suits to be
brought by pledgee is six years, from the date of pledging. In Fisher v. Ardeshir, AIR 1935 Bom 213,
Wadia, J., observed thus :

"....The right which the plaintiff asserts in this suit is the right given to him under S.176 to
sell the pledged property. That right accrued to him on default of payment of his debt, and the debt
being payable on demand and in fact not having been paid, there is an infringement of his right to sell,
and the right to sue therefore accrued to him on default. There cannot, in my opinion, be one terminus
a quo or starting point of limitation for the right to sue on the debt and another for the right to sell the
pledged property. The personal remedy of the pawnee on the loan and his right against the pledged
property are distinct but concurrent, and even if the personal security is barred, the right to enforce the
security against the property still remains....."

(9.) In the instant case, the articles are taken by the petitioner on 24-12-1962; therefore his remedy to
recover 'debt' or to bring the pledged articles for sale, expired on 24-12-1968, i.e. long before the
coming into force of the Karnataka Debt Relief Act, 1976, which came into force on 21-10-1975. The
contention of Sri Joshi is that the 'debt' ceased to exist on the date the Act came into force; in other
words, according to the learned counsel, time barred 'debt' is no 'debt' at all, in the eye of law; this
proposition needs examination.

(10.) In the Law of Contract, by Cheshire and Fifoot's (9th Edition) the authors, at page 625, the legal
position is summed up thus : "If the statutory period expires before action brought, the plaintiff's right
is not extinguished. He is merely deprived of his two remedies of action and set-off. The statute is
procedural not substantive. A statute-barred debt is still payable despite the fact that its payment
cannot be enforced by action, and if there is any other method by which the creditor can obtain
satisfaction it is at his disposal. Thus if a debtor pays money on account of debts, some of which are
statute-barred and some not, and does not expressly indicate that the payment is made in respect of
those which are still actionable, the creditor may appropriate the money to those that are statute-
barred. Again if a party is entitled to a lien on goods for a general balance, and he gets possession of
the goods of his debtor, he may hold them until his whole demand is satisfied notwithstanding that it is
barred by the Limitation Act. (emphasis supplied)

(11.) In Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay, AIR 1958 SC 328, their
Lordships held thus :

"......And if the law requires that a debtor should get a discharge before he can be compelled
to pay, that requirement is not satisfied if he is merely told that in the normal course he is not likely to

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be exposed to action by the creditor"

(12.) An off quoted statement of Cotton LJ in Curwen v. Milburn (1889) 42 Ch D 424, states: "Statute
barred debts are dues, though payment of them cannot be enforced by action." The above passage is
approved by the Supreme Court in Khadi Gram Udyog Trust v. Shri Ram Chandraji Virajman Mandir,
AIR 1978 SC 287. Therefore the legal position is that notwithstanding the fact that the creditor's right
to realise the 'debt' is barred by limitation, the 'debt' survives. This logic gains support from the fact a
time barred 'debt' would constitute a valid consideration for a new contract. But, Mr. Joshi argued, that
when 'debt' is irrecoverable being time-barred, there cannot be a 'discharge' under the statute. To
appreciate this argument, it has to be remembered that, in the instant case, the rights are reciprocal.
While the pledgee can recover his 'debt' on the promise, and bring a suit for sale of pledged articles or
sell them himself, after notice to pledger (debtor), the latter can bring a suit for recovering the pledged
articles by tendering the amount. This position gains support from the statement made by Justice
Chagla, as he then was, in Official Assignee, Bombay v. Madholal Sindhu, AIR 1947 Bom 217, thus :

"......that although the pledgee may sell the goods unauthorisedly or unlawfully, the contract
of pledge is not put an end to and the pledger does not become entitled to the possession of the goods
pledged without tendering the amount due on the pledgee or in other words, without seeking to redeem
the pledge and; that without a proper tender of the amount due on the pledge, the only right of the
pledger in respect of an unlawful or unauthorised sale is in tort for damages actually sustained by
him."

With respect there cannot be a better enunciation. The rights of pledger and pledgee, under the
contract, are stated thus by Supreme Court in Lallan Prasad v. Rahmat Ali, AIR 1967 SC 1322:

"A contract of pawn thus carries with it an implication that the security is available to
satisfy the debt and under this implication the pawnee has the power of sale on default in payment
where time is fixed for payment and where there is no such stipulated time on demand for payment
and on notice of his intention to sell after default. The pawner however has a right to redeem the
property pledged until the sale. If the pawnee sells, he must appropriate the proceeds of the sale
towards the pawner's debt, for, the sale proceeds are the pawner's monies to be so applied and the
pawnee must pay to the pawner any surplus after satisfying the debt. The pawnee's right of sale is
derived from an implied authority from the pawner and such a sale is for the benefit of both the
parties. He has a right of action for his debt notwithstanding possession by him of the goods pledged.
But if the pawner tenders payment of the debt the pawnee has to return the property pledged. If by his
default the pawnee is unable to return the security against payment of the debt, the pawner has a good
defence to the action. This being the position under the common law, it was observed in Trustees of
the Property of Ellis and Co. v. Dixon Johnson, 1925 AC 489, that if a creditor holding security sues
for the debt, he is under an obligation on payment of the debt to hand over the security, and that if,
having improperly made away with the security he is unable to return it to the debtor he cannot have
judgment for the debt"

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. As held by Supreme Court in Balkrishna v. Swadeshi Poly-tex Ltd., AIR 1985 SC 520, the legal title
of the goods pledged would not vest in the pawnee. The pawner has only a special property; a pawnee
has no right of foreclosure since he never had the absolute ownership at law and his equitable title
cannot exceed what is specifically granted by law.

(13.) Suit for recovery of pledged articles is governed by Art.70 of the Limitation Act, which
prescribes a period of three years from the "date of refusal after demand". This right of the 'pledger' to
recover his articles, by a separate suit, is an incident of the contract of pledge and can be exercised
after tendering the amount. The obligation to tender the amount and claim the pledged articles is what
is done away with, by the K. D. R. Act. The 'discharge' of debt in this context has the effect of wiping
out the debt. The dictionary meaning of 'discharge' is -

"to free from or relieve of a charge of any kind (burden, explosive, electricity, liability,
accusation etc) : to be free : to acquit : to dismiss : to fire (as a gun): to take the superin-cumbent
weight from : to set down or send forth: to eject: to pour out: to emit or let out : to perform : to pay : to
give account for : to distribute (as weight) : (obs). to forbid. - v. i. to unload : to become released from
a charged state : to allow escape of contents : to flow away or out. - n. the act of discharging : release
from a charge of any kind : unloading : liberation : acquittal : dismissal : outflow : rate of flow :
emission : release of tension : payment : performance : that which is discharged - ns. discharger, one
who discharges......."

(14.) In Webster's dictionary, 'discharge' means-

"the act of relieving of something that oppresses (as an obligation, accusation, penalty) :
Acquittance, dismissal, release (ask for the - of a debtor) : something that discharges or releases (as
from imprisonment, an obligation, or a liability); esp. a certification of release or payment (produced
his - as evidence) : the state or fact of being discharged or relieved (as of a debt, obligation, or
accusation) : acquittal, exoneration (received a full - from responsibility for the incident) : the act of
discharging : removal of a load : unloading (the - of a ship) (the - of a cargo) : legal release from
confinement: liberation (ordering a conditional - of the alien on habeas corpus : a firing off: expulsion
of a charge : expulsion (a - of arrows) (an artillery)...."

(15.) In the normal course, the debt is discharged by payment of the entire amount by the 'debtor' or
by realisation through the court, by means known to law. In either of these cases, the debtor is required
to make payment; but if it is 'discharged' statutorily, the liability to pay gets washed off and any article
pledged as security becomes returnable. It is to achieve this object, S.4(f) is enacted in the Karnataka
Debt Relief Act. Therefore, even in cases of time barred 'debts', the order of 'discharge' would be an
efficacious order, so as to enable the Magistrate to pass the consequential order for returning or
restoring the pledged articles. Indeed with the discharge of debt, the debt gets extinguished. If the
Karnataka Debt Relief Act had not provided for the return of pledged articles by the authority, under
S.4(f), in the normal course, it is only on the discharge of 'debt', by payment or otherwise the pledger
could issue notice and bring a suit for the recovery of pledged articles. The same object is achieved by
the K. D. R. Act by dispensing with the obligation to pay the debt. Hence the petition filed by the 2nd

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respondent was maintainable and the Magistrate had the jurisdiction to grant relief under S.4 of the K.
D. R. Act.

(16.) This takes me to the merits of the matter. The second respondent, in his petition dated 3-12-
1976, did not state as to what type of 'debtor' he was. He only stated that he is a poor man. This aspect
had not been considered in the previous writ petition. In his statement, copy of which is filed as An. 'E'
he stated thus :

(17.) Under the Debt Relief Act, there are three classes of debtors, namely -

1. landless agricultural labourer; 2. Small farmer; and 3. Man belonging to weaker section
of people.

The Tahsildar has treated him as a person belonging to 'weaker section of people', the term as defined
in the Act requires 'weaker sections of the people means persons not being small farmers or landless
agricultural labourers, whose annual income from all sources does not exceed two thousand and four
hundred rupees.

(18.) Under S.7 of the K. D. R. Act, 1976, the burden of establishing that a person is a 'debtor' is
initially on the claimant, as held by this Court in Sebastian Antony v. Ramanand Bhatt (1981) 2 Kant
LJ 409. The second respondent has stated that on the date he filed his application, he was employed in
Janata Bazaar and was getting Rs. 208/- per month, that means Rs. 2496/- per annum, which is more
than what is prescribed in the Act namely, Rs. 2400/-. But during the pendency of the proceedings, the
1980 Act has come into force. S.15 of the Act permits the 'debtor' to take benefit of that Act and claim
relief, as held by this Court in Sebastian Antony's case referred to above.

(19.) The determination in this regard needs examination. Parties have to adduce evidence, keeping in
view the provisions of K. D. R. Act 1976 as also 1980 Act. Hence I make the following order:

1. Rule made absolute; 2. W. P. allowed; An. 'D' dated 30-11-1981/7-12-1981 is quashed;

3. The matter remitted to respondent 1 to determine the question regarding claimant's status as 'debtor'
after affording reasonable opportunity to the parties and pass fresh orders, in accordance with law and
in the light of the observations contained in this order.

No costs. Order accordingly.

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