c BHARAT NIDID LTD. v. TAKHATMAL & ORS. August 7, 196,8 [S. M. SIKRI, R. S. BACHAWAT AND K. S. HEGDE, JJ.] Debtor and Creditor-Power of attorney coupled with endorsement on bill by debtor in favour of creditor-Equitable assignment of future debt-If valid.
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 caTrying out this arrangement M executed an irrevoc· able power of attorney in favo1<r of the appellant authorising the latter to re.ceive all monies due or to become due to M in respect of pending or future contracts. M made a bill, endorsed it in fayour 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 assigoee 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 attdrney 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. \Vith that object in view the lender was authorised to receive payment of the loans.
As the lender bad an interest in the funds the power of attorney was expressed to be irrevocable. [597 D, HJ There can be a valid equitable assignm.ent of future debts. A pay order is revocable mandate.
It gives the payee no interest in the fund. An assi211meat creates an interest in the fund and is not revocable. Read in the light of the power of attorney the endcirsement 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 appel- lant-Bank. [598 H; 599 BJ Loonkaran Sethiya v. State Bank of Jaipur, [1969J 1 S.C.R. 1'.)2
followed. Palmer v. Carey [1926J A.C, 703 at 706; Tai/by v. Official Receiver, [1888] 13 A.C. 523, applied. Jagabluii Lallubhai v, Rustamji Nauserwanji, [1885] I.L.R. 9 Born. 311, referred to.
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.
L13 Sup. Cl/68-7 [1969] J S.C.R. S. N. Anand, for the appellant. S.S. Shukla, for legal representatives for respondent No. I. B. C. Misra and M. V. Goswami, for n;spondent 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 contract,. The appellant-Bank formerly known
as the Bharat Bank Ltd., agreed to finance the contracts and to advance monies to Malhotra againS't 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 rcci1ed : "Whereas we arc working as contractors to the Government in its various department' 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 B~arat 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 arc 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 contract' to the proper officer and/ or authori1y of the Government Departments concerned; to obtain cheques for sums payable to us under the contracts directly in their own name or in ~ur names in payment of such bills or other amounts and to cash and to receive the amount thereof and appropriate such n;ccipts towards and in re- payment 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 w:ls 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 a' any claims of the attorneys against us whether for principle, interc;1, costs, charges or otherwise remain outstanding and unpaid." Intimation of the power of attorney was given by the appellant to the military autho- rities.
On July 19, 1948 Malhotra made out a bill on the mili· tary authorities for R,. 49,633/8/7- tl1en dUe to him in respect of his supplies under the contracts during 1945-46 and handed over ll
c _, c :: ~- BHARAT NIDHI v. TAKHATMAL (Bachawat, J.) 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 execu- tion of a money decree obtained by him against Malhotra. The appellant filed objections in the execution proceedings. On Sep- tember 11, 1952 the objections were dismissed. On December 12, 1952 the appellant filed a suit in the court of the Ist Addi- tional District Judge, Jabalpur, against Malhotra and Takhatmal asking for a declaration that the appellant was an assignee of the bill and that Takhatrnal 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 Pa/mer v. Carey(') 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, will 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 ad- vanced 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- (t) [!926] A.C. 703 at 706.
(1969) s.c.R. ment of the bills and to appropriate the receipts towards repay- ment 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 clear engagement by Malhotra to pay the appellant Bank out of the monies receivable under the bill and amounted to an equitable assignmeut 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 JigM on the matter.
In Jagabhai Lal/ubhai v. Rustamji Nauserwanji(') the Bombay High Coun 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(') this Coun 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 credi·: 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 Coun 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 continned to be the owner and the lender was merely authorised to act as his agent. Nevertheless c
the Coun 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 tho ;ippcl- lant to receive all monies due or to become due to Malhotra in respect of pending or future contracts with the government autho- rities. 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 conternion. There can be a valid equitable . assignment of future debts, see Tai/by v. Otficial Receiver('). As and when the debt comes into existence it passes to tl1e assignee. (I) [18851 1.1..R. 9 Rom. 31 I.
(2) ]196911 S.C.R. i22. (3) ]1888) 13 A.C. 523. II c BHARAT NIDHI v. TAKHATMAL (Bachawat, /.) As a matter of fact when the debt due to Malhotra came into existence, he specifically appropriated it for payment to the appel- lant. 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 distinc- tion between a pay order and an assignment.
A pay order is a revocable mandate. It gives the payee no interest in the fund. An assigmnent 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 assign- ment of a specific fund in favour of the appellant.
The High Court was in error in holding that there was no equitable assign- ment. In the result, the appeal is al!owed, the decree passed by the High Court is set aside ap.d the decree passed by the 1st Addi- tional 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 •