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PETITIONER: BHARAT NIDHI LTD.

       Vs.

RESPONDENT: TAKHATMAL & ORS.

DATE OF JUDGMENT: 07/08/1968

BENCH: BACHAWAT, R.S. BENCH: BACHAWAT, R.S. SIKRI, S.M. HEGDE, K.S.

CITATION:  1969 AIR  313            1969 SCR  (1) 595

ACT: Debtor   and  Creditor--Power  of  attorney  coupled    with endorsement    on    bill   by   debtor   in    favour    of creditor--Equitable  assignment of future debt--If valid.

HEADNOTE:     The  appellant-Bank,  agreed to  finance  the  contracts undertaken by M. and to advance monies against his bills for supplies  under the contracts. For the purpose  of  carrying out  this  arrangement M executed an  irrevocable  power  of attorney in favour of the appellant authorising the   latter to  receive all monies due or to become due to M in  respect of pending or future contracts.  M made a bill, endorsed  it in  favour of  the  appellant for collection, and handed  it over to the appellant for collection.  Before the  appellant received the payment, the amount under the bill was attached by  the  first  respondent in execution of  a  money  decree obtained by him against M.  The appellant filed a suit for a declaration  that  he was the assignee of the bill  and  the first  respondent  had no right to attach it. The  suit  was decreed,  but in appeal, the High Court dismissed the  suit. In appeal, on certificate, this Court: HELD: The appeal must be allowed.     The  power of attorney coupled with the  endorsement  on the  bill was a clear engagement by M to pay the  appellant- Bank  out  of  the  monies receivable  under  the  bill  and amounted  to an equitable assignment of the fund by  way  of security.   The  obvious  intention of the  parties  was  to provide protection for the lender and to secure repayment of the  loans.  With  that  object  in  view  the  lender   was authorised to  receive  payment of the loans.  As the lender had  an  interest  in the funds the power  of  attorney  was expressed to be irrevocable. [597 D, H]     There  can  be a valid equitable assignment  of  future. debts.   A  pay order is revocable mandate.   It  gives  the payee  no  interest in the fund. An  assignment  creates  an interest  in  the fund and is not revocable.   Read  in  the light  of the power of attorney the endorsement on the  bill created an interest in a specific fund and was  irrevocable. There  was  thus  a sufficient  equitable  assignment  of  a specific  fund in favour of the appellant-Bank. [598 H;  599

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B]     Loonkaran  Sethiya  v. State Bank of Jaipur,   [1969]  1 S.C.R.  122 followed.    Palmer v. Carey [1926] A.C. 703  at 706;  Tailby  v.  Official Receiver,  [1888]  13  A.C.  523, applied,      Jagabhai  Lallubhai v.  Rustamji  Nauserwanji, [1885] I.L.R. 9 Bom. 311, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION:  Civil Appeal No. 133 of 1965.     Appeal from the judgment and decree dated  February  17, 1962 of the Madhya Pradesh High Court in First Appeal No. 89 of 1959. LI 3 Sup. CI/68--7 596 S.N. Anand, for the appellant. S.S. Shukla, for legal representatives for respondent No. 1. B.C. Misra and M.V. Goswami, for respondent No. 2. The Judgment of the Court was delivered by     Bachawat, J.  M.R. Malhotra was working as a  contractor to the military and other authorities.  He needed funds  for the execution of his contracts.  The appellant-Bank formerly known  as  the  Bharat  Bank Ltd.,  agreed  to  finance  the contracts  and  to advance monies to  Malhotra  against  his bills for supplies  under the contracts.  For the purpose of carrying   out   this  arrangement  Malhotra   executed   an irrevocable power of attorney in favour of the appellant  on July  13, 1946.  The power of attorney recited: "Whereas  we are working as contractors to the Government in its  various departments and have entered into certain contracts and will in  future  enter  into  other  contracts  and  whereas   an agreement  dated 13-7-1946 has been made between us and  the Bharat  Bank Ltd., in pursuance of which the attorneys  have agreed to finance contracts and to advance us sums of money, against supply bills for payments to be received by us under the   contracts   issued  by  the  Government   in   various departments on conditions mentioned therein; and whereas we, for  the  purpose  of carrying out the  terms  of  the  said arrangement  more effectively and to secure the interest  of the  attorneys  are desirous of appointing the  Bharat  Bank Ltd., as our lawful attorneys in all matters relating to the receipt  of all payments under the contracts made or  to  be made hereafter." The document appointed the appellant to  be the  attorneys  of Malhotra "to present  and  submit  supply bills  regarding our contracts to the proper officer  and/or authority of the Government Departments concerned; to obtain cheques for sums payable to us under  the contracts directly in  their own name or in our names in payment of such  bills or  other  amounts and to cash and  to   receive-the  amount thereof  and  appropriate  such  receipts  towards  and   in repayment  of the advances made or to be made hereafter  and all other monies due from us to the attorneys in any account what  soever."    The appellant was also authorised  to  sue for,  recover and receive the monies due in connection  with the contracts with the approval of MaLhotra, to conduct  and defend  proceedings  in consultation with him  and  to  take steps in his name and on his behalf.  Malhotra promised  and declared  that "all powers hereby granted are and  shall  be irrevocable as long as any claims of the attorneys  against, us  whether  for  principle,  interest,  costs,  charges  or otherwise remain outstanding and unpaid." Intimation of  the power of attorney was given by the appellant to the military authorifles.   On July 19, 1948 Malhotra made out a bill  on the military authorities for Rs. 49,633/8/7- then due to him

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in respect of his supplies under the contracts during  1945- 46 and handed over 597 the  bill  to the appeLlant for collection.   On  the  bill, Malhotra  made,  the following endorsement: "Please  pay  to Bharat   Bank  Ltd.,Jabalpur."  The appeLlant sent the  bill to  the  military  authorities  for  payment.   Before   the appellant  received the  payment,  the amount due under  the bill  was  attached  by Takhatmal in execution  of  a  money decree  obtained  by him against  Malhotra.   The  appeLlant filed objections in the execution proceedings.  On September 11,  1952  the objections were dismissed.  On  December  12, 1952  the  appellant filed a suit in the court  of  the  1st Additional  District Judge, Jabalpur, against  Malhotra  and Takhatmal asking for a declaration that the appellant was an assignee  of  the biLl and that Takhatmal had  no  right  to attach  it. The Trial Court held that the appellant was  the assignee of the bill and decreed the suit.  Takhatmal  filed an  appeal  against the decree.   The High Court  of  Madhya Pradesh  allowed  the appeal and dismissed  the  suit.   The present  appeal  has  been  filed  by  the  plaintiff  after obtaining a certificate from the High Court.     The sole question in this appeal is whether the power of attorney dated July 13, 1946 coupled with the endorsement on the  bill  dated  July  19, 1948  amounts  to  an  equitable assignment of the monies due under the bill in favour of the appellant.   There are many decisions on the question as  to what  constitutes  an equitable  assignment.  The law on the subject   admits  of  no doubt.  In Palmer v. Carey(1)  Lord Wrenbury said :--                     "The law as to equitable assignment,  as               stated in Rodick v. Candell (1 D.M. & G.  763,               777, 778) is that: The extent of the principle               to be deduced  is that an agreement between  a               debtor  and  a creditor that  the  debt  owing               shall be paid out of a specific fund coming to               the  debtor, or an order given by a debtor  to               his  creditor  upon a person  owing  money  or               holding  funds belonging to the giver  of  the               order, directing such person to pay such funds               to the creditor, will create a valid equitable               charge  upon such fund, in other  words,  wfll               operate  as  an equitable  assignment  of  the               debts or fund to which the order refers." In construing the power of attorney it is necessary, to bear in  mind that the relationship of the two parties,  Malhotra and  the Bank was that of borrower and lender and that   the document   was brought into existence in connection  with  a proposed  transaction of financing of Malhotra’s  contracts. The loans were to be advanced by the Bank against Malhotra’s bills  for  supplies  under  the  contracts.   The   obvious intention of the parties was to  provide protection for  the lender  and  to  secure repayment of the  loans.  With  that object in view the lender was authorised to receive pay- (1) [1926] A.C. 703 at 706. 598 ment  of the bills and to appropriate the  receipts  towards repayment of the loans. As the lender had an interest in the fundS the power of attorney was expressed to be irrevocable. On a proper construction of the document the conclusion   is irresistible  that there was an agreement between the lender and the borrower that the debt owing to the lender would  be paid out of a specific fund of the borrower in the hands  of the  Government authorities.  The power of attorney  coupled with  the endorsement on the bill dated July 19, 1948 was  a

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clear  engagement by Malhotra to pay the appellant Bank  out of  the monies receivable under the bill and amounted to  an equitable assignmen of the  fund  by  way  of security.     The   question  whether  a  document  amounts    to   an equitable assignment or not is primarily one of construction but  we may mention a few decisions  which throw  light   on the  matter. Jagabhai Lallubhai v.  Rustamji  Nauserwanji(x) the Bombay High Court held that an agreement to finance  the borrower and a power of attorney of even date to receive the monies  due to the borrower under certain contracts had  the effect  of  an  equitable  assignment  of  the  funds.    In Loonkaran Sethiya v. State Bank of Jaipur(2) this Court held that  a power of attorney authorizing a lender to execute  a decree then passed in favour of the borrower or which  might be passed in his favour in a pending appeal and to credit to the  borrower’s account the monies realised in execution  of the decree amounted to an equitable assignment of the funds.     In  the  last  case the Court held  that  there  was  no transfer  of  the  decree, or of the  claim  which  was  the subject-matter   of   the  pending appeal  as  the  borrower continued  to  be  the  owner  and  the  lender  was  merely authorised to act as his agent. Nevertheless the Court  held that  the power Of attorney amounted to a binding  equitable assignment.   An actionable claim may be  transferred  under s.  130 of the Transfer of Property Act.  Where  a  document does  not  amount to a transfer within s. 130 it  may  apart from  and  independently  of  the  section  operate  as   an equitable assignment of the actionable claim.     In the present case the power of attorney authorised the appellant  to  receive all monies due or to  become  due  to Malhotra in respect of pending or future contracts with  the government  authorities.  Counsel argued that there  was  no engagement  to pay out of specific fund and therefore  there was no assignment.  We find no substance in the  contention. There  can be a valid equitable assignment of future  debts, see  Tailby  v. Official Receiver(3). As and when  the  debt comes into existence it passes to the assignee, (1) [1885] I.L.R. 9 Born. 311. (2) [1969] 1 S.C.R. 122. (3) [1888] 13 A.C. 523. 599       As a matter of fact when the debt due to Malhotra came into existence, he specifically appropriated it for  payment to  the appellant.  On July 19, 1948 he made out a bill  for the  monies then due to him and endorsed on it: "Please  pay to   Bharat  Bank  Ltd.,  Jabalpur."   The  bill  with   the endorsement was  sent  to  and acknowledged by the  military authorities.  Counsel submitted that this document was a pay order.  Now there is an essential distinction between a  pay order  and  an  assignment.   A pay  order  is  a  revocable mandate.   It  gives the payee no interest in the  fund.  An assignment  creates  an  interest in the  fund  and  is  not revocable.  Read in the light of the power of  attorney  the endorsement  on  the  bill dated July 19,  1948  created  an interest in a specific fund and was irrevocable.  There  was thus a sufficient  equitable  assignment of a specific  fund in  favour of the appellant.   The  High Court was in  error in holding that there was no equitable assignment. In  the result, the appeal is allowed, the decree passed  by the High Court is set aside and the decree passed by the 1st Additional  District  Judge,  Jabalpur,  is  restored.   The respondents  who are the legal representatives of  Takhatmal shall  pay out  of  his assets in their hands the  costs  of this appeal as also the costs in the courts below. Y.P.                                      Appeal allowed.

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