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Case Number

P. C. Appeal No. 92 of 1922

Attorney(S)

Raikes
Tomlin Dunne
Parikh
De Gruyther

Judges

Ameer Ali
Sir John Edge
Atkinson
Dunedin
Justice Viscount Finlay

Acts

Section 69 of the Transfer of Pro perty Act
Section 102 of the Civil Procedure Act.
Sec tion 33 of the Registration Act.
SECTION 72 CONTRACT ACT

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Smart Summary

Summary of Opinion delivered by Lord Dunedin

Factual and Procedural Background

This action was brought by the appellant to recover Rs. 83,005 with interest, a sum he alleges was paid under coercion and therefore recoverable under Section 72 of the Indian Contract Act. The factual matrix, as set out in the opinion, is as follows:

A limited company called the Delhi Cotton Mills Company issued debentures in January 1891 and later obtained a cash credit facility from the respondents (National Bank of India). The bank had a lien on manufactured goods and raw materials.
After the bank enforced its lien and sold goods, the company still owed a substantial sum. The company entered into an agreement (21 August 1900) with the appellant whereby the appellant advanced large sums, became managing agent, and obtained a mortgage over immovable property plus a lien on stock and raw material; debentures were reissued and trustees (Lachhman Das and Rukma Nand) acted for the debenture-holders.
The bank sued the company and ultimately secured a declaration of lien on raw material and manufactured goods. Attachment proceedings followed; moveables were attached on 18 May but that attachment was set aside on 19 May.
Trustees (through a power of attorney to Mr. Clarence Kirkpatrick) entered into possession under the mortgage and, after advertisement, Mr. Kirkpatrick exposed the mills for sale on 25 June. The appellant purchased the mills for Rs. 502,000. After satisfying secured claims and expenses there remained about Rs. 10,000, which was sent to the company but was then attached by the respondents.
Subsequently, further attachment proceedings targeted the mills. On 27 August the appellant, as owner after the sale, petitioned for removal of attachment and paid the debt under protest to remove the attachment; the next day he filed the present suit seeking return of the money paid under protest under Section 72. A claim for damages was originally included.
The litigation was protracted. The District Judge found the plaint disclosed no cause of action as to recovery of the money (18 November 1902) and directed the action to proceed on damages; later procedural events led to dismissal under Section 102 of the Civil Procedure Act, and appeals followed up to His Majesty in Council, which remitted and directed consideration of the recovery claim on its merits.
The Subordinate Judge ultimately gave judgment for the appellant; on appeal the Chief Court reversed and dismissed the suit on the ground of equity (that it was not equitable to repay). The present opinion arises from an appeal from that appellate reversal to Their Lordships.

Legal Issues Presented

Whether the sum paid by the appellant to remove an attachment was a payment made under coercion within the meaning of Section 72 of the Contract Act and therefore recoverable.
Whether the appellate court could refuse restitution on equitable grounds (i.e., whether considerations of fairness between the parties could defeat the statutory right under Section 72).
Whether the sale of the mills (under the mortgage and by Mr. Kirkpatrick) and the appellant's purchase were valid — specifically:
- whether, in the Punjab, a mortgage can validly include a power of sale without recourse to the Court (given Section 69 of the Transfer of Property Act did not apply there at the relevant time); and
- whether a debenture-holder or fiduciary (or a person in a fiduciary relation) could purchase the property in such circumstances.
Whether alleged defects in registration (failure to show proper power of attorney and execution evidence) rendered the conveyance in favour of the appellant invalid.

Arguments of the Parties

Appellant's Arguments

The sum paid to remove the attachment was paid under coercion and is recoverable under Section 72 of the Contract Act.
The sale by Mr. Kirkpatrick was carried out with due authority and advertisement; the appellant became the owner by purchase and therefore the attachment on the mills targeted his property.
The conveyance and registration should be presumed valid because the deed was presented for registration by Mr. Kirkpatrick and the registration endorsement indicated a special power of attorney; statutory presumptions and the protection afforded by registration provisions apply.
The appellant relied on prior rulings (including a finding by Their Lordships on an earlier appeal) that the payment was made under coercion and created a statutory right to recover.

Respondents' Arguments

The appellate court argued it was not equitable to require repayment; on consideration of all circumstances repayment ought not be ordered (an equitable defence).
The respondents asserted the mills did not belong to the appellant, and if that were so the appellant could not complain of attachment.
They attacked the sale on two principal grounds:
- that in India (or the Punjab at the relevant time) a mortgage clause allowing sale without resort to the Court is impermissible (relying on authorities such as Bhuwanee Churn and Keshavraw Krishna), and
- that the appellant, being the debenture-holder (or otherwise in an interest position), was incapable of purchasing (a fiduciary cannot buy trust property).
They also contended that the conveyance/registration was defective because the registration did not show a proper power of attorney and did not afford proper evidence of execution by one signatory (Lachhman Das).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Moses v. McFarlane (2 Bur. 1005) and other English decisions	English authorities examining defences available to actions for money had and received (equitable and other defences).	Their Lordships held these decisions were beside the point because the right asserted was a statutory right under Section 72 of the Contract Act; to allow consideration of those defences would be to permit a counter-claim under another name, which is not admissible in the Punjab in this context.
Bhuwanee Churn v. Jykishen Mitra (1847) SDA 354; Keshavraw Krishna v. Bhawanji, 8 BHCR 143	Authorities relied upon to contest the validity of a mortgage clause allowing sale without recourse to the Court — protective decisions for certain classes of mortgagors.	The Lordships did not question these authorities but held they had no application to the case of a limited company issuing debentures secured by a mortgage in favour of trustees with power of sale; the policies underlying those cases were not applicable to such corporate debenture transactions.
York Buildings Company v. McKenzie, 3 Pat. 378	Principle that one in a fiduciary position cannot purchase trust property (a fiduciary cannot buy his own trust property or sell to himself).	Their Lordships accepted the general rule but found it inapplicable: Mr. Kirkpatrick sold on behalf of the company (not solely for the debenture-holder), and there was no merger of seller's and buyer's conflicting interests; therefore the rule did not invalidate the sale to the appellant.

Court's Reasoning and Analysis

The court's analysis proceeded by addressing the central statutory right and then the specific factual and legal objections raised by the respondents:

Statutory Right under Section 72: Their Lordships emphasized that the appellant's claim rests on a statutory right expressed in Section 72 of the Contract Act to recover sums paid under coercion. The Board had earlier concluded that the facts gave rise to that statutory right. Consequently, English authorities dealing with equitable defences to common-law actions for money had and received were held to be inapposite when a statutory right is invoked.
Equitable Defence/Counter-Claim: The court rejected the appellate court's approach of weighing the relation of the parties inter se (to deny restitution on equitable grounds). It treated such an approach as effectively allowing a counter-claim by another name, which the court said was not admissible in the Punjab context for this statutory remedy.
Ownership and Validity of Sale:
- The court found no ground to challenge the sale procedure: Mr. Kirkpatrick acted under a deed authorising him, adequate notice was given, and the sale procedure itself bore no fault.
- Regarding the argument that a clause permitting sale without recourse to Court was impermissible, the court observed that Section 69 of the Transfer of Property Act did not apply in the Punjab at the time. The older authorities cited (Bhuwanee Churn, Keshavraw Krishna) were directed to protecting certain vulnerable mortgagors and did not control the present case of a limited company issuing debentures with trustees and a power of sale.
- The fiduciary-purchase argument (that a person in a fiduciary position cannot buy) was acknowledged as a general principle (citing York Buildings Company v. McKenzie) but rejected on the facts: the seller (Mr. Kirkpatrick) sold on behalf of the company and not solely for the debenture-holder; the sale produced a balance for the company, so there was no single person in whom both conflicting interests (seller seeking highest price and buyer seeking lowest price) were merged.
Registration and Power of Attorney Objections:
- The respondents' objections to registration formalities were not taken in the courts below, and the Lordships would be reluctant to admit them on appeal; moreover, they found the objections unsustainable on their merits.
- The endorsement on registration indicated Mr. Kirkpatrick presented the deed and held a special power of attorney; therefore the presumption under Section 33 of the Registration Act applied that the power was proper.
- Execution by Lachhman Das was supported by witness evidence, and the duties of the registering officer (Sections 34 and 35) placed the onus on that officer; in any event, registration gives rise to the presumption omnia presumuntur rite et solenniter acta. Finally, Section 87 protects acts done in good faith by registering officers from being deemed invalid simply due to defects in appointment or procedure.
Conclusion of Reasoning: Taking the above together, Their Lordships concluded that none of the respondents' defences were sufficient to defeat the appellant's statutory right to recover the sum paid under coercion or to invalidate his title to the mills following the sale; the appellate court's equitable ground for denying restitution was therefore unsustainable.

Holding and Implications

Holding:

APPEAL ALLOWED. Their Lordships advised that the appeal should be allowed, that the decree of the Chief Court (which had reversed the Subordinate Judge) be set aside, and that the decree of the Subordinate Court (which had been in favour of the appellant) be restored. The respondents were ordered to pay the costs of the appeal.

Implications:

The direct effect is that the appellant's judgment in the Subordinate Court is restored and the respondents must bear the costs of the appeal.
The decision enforces the previously recognised statutory right under Section 72 of the Contract Act to recover sums paid under coercion; the court refused to allow equitable considerations or counter-claim framed under another name to defeat that statutory right in this context.
The court upheld the validity of the sale and the appellant's title on the facts presented, and refused to admit belated registration objections where registration presumptions and statutory protections applied.
The opinion does not purport to create a broad new rule beyond these conclusions; it applies statutory provisions and existing principles of registration and fiduciary duties to the facts before it and resolves the appeal in favour of the appellant.

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(Seth) Kanhaya Lal, Since Deceased (Now Represented By Seth Hanuman Parshad And Another) v. The National Bank Of India, Limited, Delhi

Lord Dunedin:-

The present action is to recover a sum of Rs, 83,005 with interest, being a sum paid, as alleged, under coercion and as such recoverable under Section 72 of the Contract Act. In order to make the matter intelligible it is necessary to give the history of the various transaction which have given rise to the claims.

A limited company called the Delhi Cotton Mills Company was established before 1891 and carried on business. In January, 1891, it issued debentures to the extent of two lacs of rupees in favour of a Mr. Anderson and others. The deben tures were secured by a mortgage of immoveable property of the company.

Later in the same year the company arranged for a cash credit with the res pondents - the National Bank of India - to the extent of two lacs. By a supplemen tary agreement of the 6th March, 1900, this was increased to three lacs. In security of the sums to be advanced under the cash credit, the company gave the bank a lien on all manufactured goods and on all raw materials hereafter belonging to the company. The company came to owe the bank large sums, and on the 30th June, 1900, the respondents put in force their lien and sold off the manufactured goods and stock of raw material of the company. After realisation of the effects sold, the com pany still owed Rs. 78,000 odd. The company being in need of money to continue business applied to the appellant, and on the 21st August, 1900, entered into an agreement with him.

In terms of this agreement the appel lant advanced to the company three sepa rate sums of Rs. 225,000 each, the first sums to be applied in paying off the deben tures issued in favour of Mr. Anderson and others; the other sums were to be used for the payment of debts and the provision of working capital. By the agreement, the company further agreed to give a mortgage on its whole immove able property and also to give a lien for its stock and raw material in the same manners as it had given lien to the res pondents.

By another term of the agreement the appellant was made managing agent of the company and given full and exclusive power as to the management of its business with certain provisions as to his remuneration. The appellant advanced the money, entered upon the management, and continued the business. He paid up the earlier debentures and a new mort gage was granted in favour of certain persons-Lachhman Das and Rukma Nand who were to act as trustees for the debentures which were now held by the appellant.

The provisions of this mortgage were the same as the provisions in the original mortgage to Mr. Anderson and others; and allowed the mortgagees, if any attach ment was put in force against the company's immoveable property, to enter into possession and effect a sale. On the 20th December, 1900, the respondents raised an action against the company for the sum of Rs. 79,000 odd still due to them. This action was unsuccessful before the first Judge, but on appeal judg ment was given as craved, and on the 21st April, 1902, it was declared that the bank had a lien on raw material and manufactured goods. On the 16th May, 1902, an application was made for attach ment of all the property-both moveable and immoveable of the Company. On the same day an order for an attachment was made, but the order only referred to attachment of the moveable property. Certain of the goods of the com pany were, on the 18th May, attached in virtue of this order. An objection was taken on the 19th May, and the attach ment was set aside on the same day.

A Mr. Clarence Kirkpatrick, who had obtained a power of attorney from Lachh man Das and Rukma Nand, entered into possession of the immoveable property in virtue of the mortgage. Notwithstanding the order of the 19th May, the respondent brought up the matter again and asked that the moveables attached should be sold. On the 31st May, the District Judge refused to give any such order in respect of his previous order of the 10th May.

Appeal was taken against this, and on the 20th June, the Chief Court set aside the orders of the 19th and the 31st May, and an interlocutory order was pronounced against the company dealing with the articles attached and a warning issued against the trustees (who had entered into possession of the premises) from inter fering with the articles attached.

On the 25th June, Mr. Clarence Kirk patrick, after all due advertisement, ex posed the mills for sale and they were, on that date, bought by the appellant for Rs. 502,000. After deducting the ex penses and paying the sum due to the appellant as debenture holder and as mortgagee there remained a sum of Rs. 10,000 odd which was sent by cheque to the company. This cheque was attached by the respondents and paid to them.

The proceedings as to the attach ment came up for final disposal on the 4th August, when the District Judge was directed to proceed on the basis of the attachment of the 18th May. Inasmuch, however, as the attachment was admitted ly only of movable property, the res pondents on the 15th August, put in a further application for attachment of the premises. Following up this the mills themselves were attached on the 20th August. On the 27th August the appellant, who, in virtue of the sale, had become the owner of the mills, put in a petition for removal of the attachment on the ground that it was his own property which was being attached for a debt of the company. To remove the attachment he paid the debt under protest.

The next day he raised the present suit to recover the money so paid under coercion in terms of Section 72 of the Contract Act. There was origi nally added a claim for damages. The suit has had a most unfortunate history and been protracted for a very long period, different claims having been already twice before the Board. What happened may be best stated in the words of Lord Moulton in the judgment of the Board upon the second appeal :-

"In his plaint the plaintiff states that he was the sole proprietor of such mills and of their contents. On thus being ousted from his property he took the course of paying under protest the sum claimed. Having thus freed his property from the attachment, he at once brought the present action claiming a return of the money so paid and damages for the alleged illegal acts of the defendants.

In reply to the above plaint, the res pondent bank filed certain preliminary pleas relating to the claim for the return of the money paid under protest of which it is only necessary to cite the first, which was that 'the suit as framed will not lie.' It is admitted that the plea is in substance identical with the more usual form of plea, viz., that the plaint discloses no cause of action.

The District Judge no doubt with the laudable intention of shortening the proceedings and thereby lessening the costs, heard an argument on these preliminary pleas before requiring any thing further to be done by the defen dants, and on the 18th November, 1902, he gave judgment to the effect that so far as the recovery of the money was con cerned, the plaint disclosed no cause of action. He therefore dismissed with costs the claim for the recovery of the money and directed that the action should proceed on the question of damages for illegal attachment.

The plaintiff, having, in vain, applied for the drawing up of an order embody ing this decision, decided not to proceed with that part of the case which related to damages and consequently did not appear on the further hearing, where upon the District Judge dismissed the whole case for default under Section 102 of the Civil Procedure Act. The plaintiff appealed to the Chief Court against this decision, and that Court dismissed the appeal on the ground that no appeal lay against an order dismissing a suit under Section 102.

From this decision the plaintiff appealed to His Majesty in Council, and their Lordships held that the order of the 18th November, 1902, was a final decision on the case as to the recovery of the money paid and that therefore it was not competent to the Judge to dismiss that part of the case under the powers of Section 102. They therefore remitted the case to the Chief Court in order that the appeal to that Court, so far as it related to the recovery of the money paid, might be heard and decided on its merits."

Their Lordships go on to find that the payment under the circumstances described was a payment under coer cion and remitted the case that the defences other than that rested on the words of the statute, might be disposed of.

The Subordinate Judge gave judg ment in favour of the appellant, but on appeal that judgment was reversed and the suit dismissed, and it is from that judgment that the present appeal lies. The judgment of the appeal Court proceeded on one ground alone - namely, that on consideration of the whole circumstances it was not equitable that the money should be paid back.

That view was supported before their Lordships by a very lengthy and careful argument examining all the English decisions, from Moses v. McFarlane, (2, Bur. 1005,) downwards, as to what defences were available to the action for money had and received. In their Lordships' opinion all these authorities are beside the question. The right here sought to be enforced is a statutory right expressed in terms of Section 72 of the Contract Act, and this Board has already held that the circumstances gave rise to that statu tory right.

To append a consideration (as the Court of Appeal has done) of the relation of parties inter se - apart from the actual circumstances which enforced the pay ment is simply to allow counter-claim under another name, and a counter-claim in the Punjab is not admissible.

While this disposes of the ground on which the appellate Court reversed the judgment of the Subordinate Judge it does not dispose of all the grounds of defence. The respondents assert that the mills did not belong to the appellant, and if that were so, then necessarily the ap pellant could not complain of the attach ment.

As regards the sale itself there is no ground of challenge. Mr. Kirkpatrick was duly authorised by the deed under which he acted, due notice was given of the sale, and no fault is found with the procedure at the sale itself. The res pondents attack the sale on other grounds. First they say that it is not possible in India to put a clause into a mortgage deed allowing of sale except through the medium of the Court, and second, they say as the appellant was the debenture holder in whose interests the sale was brought on, he was incapable of purchas ing. As to the first point there is no positive enactment prohibiting such a stipulation being annexed to a mortgage for Section 69 of the Transfer of Pro perty Act does not apply, the Act not having been extended, at least at the time of those transactions, to the Pun jab.

Their Lordships' attention was, how ever, directed to the cases of Bhuwanee Churn v. Jykishen Mitra (1847) SDA 354. Keshavraw Krishna v. Bhawanji 8 BHCR 143. Their Lord ships do not question these autho rities, but they consider they have no application to the case of a limited company issuing debentures and securing the de bentures by a mortgage in favour of trus tees with the power of sale. The whole reasoning which led to the judgments cited was the necessity of protecting persons who from their circumstances needed protection entering into transactions of loan, and the class of mortgages there dealt with did not include mortgages in the English form.

To say that a limited company - a creature of statute-requires protection or that the trustees for the debenture holders are the persons who might take advan tage of the scanty knowledge of the mortgaging company the kind of argu ment which led to the decision in those cases and which was applicable in terms to transactions between the persons afore said is really to consider the situation in a light almost absurd.

As regards the second point, there are numberless authorities to the effect that when anyone is in a fiduciary position he cannot sell to himself. Thus an ordinary trustee cannot buy trust property nor can an official appointed to conduct a sale for creditors be himself the pur chaser. See York Buildings Company v. McKenzie, 3 Pat., 378.

But no such position arose here. Mr. Kirkpatrick, who was the seller, sold not on behalf of the debenture-holder alone but on behalf of the company. It was his duty and interest to secure as high a price as possible so that, the balance after meeting secured debts-should go to the company. Such a balance was in fact received. The fact, therefore, that the buyer was himself a holder of the deben tures became irrelevant. There was no merging of the two positions which is what is prohibited - namely, that the in terest of the seller to get the highest price and of the buyer to get the lowest price, is centred in the same person. This point accordingly fails.

The only remaining point was this - the respondents urged that the convey ance in favour of the appellant was bad because the registration was not in order in respect that the registration does not bear that a proper power of attorney was possessed by the person asking for the registration and in respect that it does not afford proper evidence of the execution by Lachhman Das - one of the signatories to the deed of trans fer.

These points were admittedly not taken before the Courts below and their Lord, ships would be slow to admit their vali dity in such circumstances. But further they think they are unsustainable on their merits. The deed was presented by Mr. Kirkpatrick and the endorsement of the deed as registered bears that he held a special power of attorney authorising him to appear. It must therefore be pre sumed that the power of attorney was a proper power under the terms of Sec tion 33 of the Registration Act.

Then as regards the execution of Lachhnian Das - a witness was examined who deposed to the fact. Now, by Sec tion 34, the duty of requiring as to execu tion is put upon the registering officer, and by Section 35 it is provided that if he is satisfied as to various particulars he shall register the documents.

Here again, the presumption from registration of omnia presumuntur right at solenniter act would apply; but the matter is finally set at rest by Section 87, which provides that

"nothing done in good faith pursuant to the Act by any register ing officer shall be deemed invalid merely by reason of any defect in his appoint ment or procedure."

Their Lordships will therefore humbly advise His Majesty that this appeal should be allowed, the decree of the Chief Court set aside with costs and the decree of the Subordinate Court restored.

The respondents will pay the costs of the appeal.

Appeal allowed.

(Seth) Kanhaya Lal, ... v. The National Bank Of...