In the matter of P.K. Pattabhiraman

Ramalingam, J.—The first two applications have been filed by the learned Official Assignee, against the respondent Canara Bank, T. Nagar,

Branch, Madras under the following circumstances. In these two applications, the prayer of the Official Assignee is for vesting the machineries and

stock detailed in Schedule A to the report of the Official Assignee, free from any hypothecation in favour of the respondent by virtue of Section

52(2)(c) of the Presidency Towns Insolvency Act. Appln. No. 309 of 1986 is by the Canara Bank, third party, for directing the Official Assignee

to hand over the machineries, electrical equipments, furnitures and fixtures, office equipments, tools, stocks including finished and semi finished

goods either found specifically in the security document like hypothecation agreement or not and further permit the Bank to sell, and appropriate

the net sale proceeds after defraying the expenses of the sale towards the liability due by the insolvents, P. K. Pattabiraman and Mrs. P. Kantha to

the Bank, who were adjudicated as insolvents on 19-8-1986.

In Appln. No. 293 of 1986, the properties relate to the debtor Mrs. P. Kantha, proprietrix of ''Quality Metal Products''. The properties referred

to in Appln. No. 294 of 1986 belong to P. K. Pattabiraman, Proprietor of ''Sree Prosperity Industries''. Mr. Pattabiraman is the sole proprietor of

''Sree Prosperity Industries'' at plot No. 3, G. N. Industrial estate, Alapakkam, Madras. Mrs. Kantha is the proprietrix of ''Quality Metal

Products'' in the same premises. Both the businesses were looked after and managed by the insolvent viz., Pattathiraman, the husband of Insolvent

viz. Mrs. P. Kantha the second wife of Mr. P. K. Pattabiramaa The insolvents have not filed their schedule of affairs till 6th November, 1986 the

date of the report of the Official Assignee. However, the insolvents in their application for adjudication have disclosed their over-all joint liability at

Rs. 1,34,59,539.36. They include immovable properties belonging to the insolvents separately as well as machinery and stock-in-trade available in

the business premises for both the businesses. Oh their adjudication; the business premises were sealed immediately and the learned Official

Assignee has taken over charge of them. Thereafter, the landlord of the business premises filed an application for direction to the Official Assignee

to hand over the business premises. Those applications arc still pending.

While so, a letter was received from the counsel for Canara Bank No. 132 Usman'' Road, T. Nagar, Madras setting forth details ''of the credit

facilities granted to ''Sree Prosperity Industries'' belonging to Pattabiraman as well as the facilities granted to ''Quality Metal Products'' belonging to

Mrs. P. Kantha. In that letter, the contention of the Bank is that credit facilities have been granted on the security of the fixed assets belonging to

the two firms and that necessary open cash credit agreement and hypothecation agreement were executed. As such, the Bank claimed a charge

over (he machinery and stock-in-trade. Copies of the hypothecation deed executed by the Insolvents were also filed A detailed inventory was

taken in the presence of a representative of the Bank by the staff of the Official Assignee on 27-9-1986. The staff of the Official Assignee found no

display of any board as to indicate thai the machineries have been hypothecated to the Canara Bank, nor any one of the machineries carry any

mark or writing to indicate that they have been hypothecated to the Canara Bank. Schedule 1 to the reports contains all the items found in (he

premises of ''Quality Metal Products'' and in the office room as well as in ''Sri Prosperity Industries respectively. Schedule B of the reports of the

Official Assignee filed in Appln. No. 293 of 1986 mentions list of machineries hypothecated to the Canara Bank by ''Quality Products''. Schedule

C of the aforesaid report mentions the list of goods and commodities referred to in the agreement.

Schedule B in Appln. No. 294 of 1986 describes the machineries belonging to ''Sri Prosperity Industries''. Schedule C mentions list of goods

and commodities, viz. M. S. Plates, M. S. Sheets, M. S. Rods, semi finished and finished goods and all other goods belonging to Sri Prosperity

Industries. The additional reports filed by the Official Assignee correlates the machineries specifically mentioned in the hypothecation deeds

executed by the insolvents with those of the machineries found in the first two reports.

The applicant examined the insolvent Patlabiraman the husband of the second insolvent Mrs. P. Kantha and marked Exs. B1 to B-6.

The question that now arises for consideration in these three applications is whether the goods found by the Official Assignee while taking the

inventory were in the possession, order or disposition of the insolvents in their trade or business, at the commencement of the insolvency by the

consent or permission of the true owner, and under such circumstances, the insolvents were the ''reputed owners'' thereof?

According to the learned Official Assignee, unless there b something to indicate that the Canara Bank is the true owner, the insolvents cannot be

treated as ''reputed owners"" as provided u/s 52(2)(c) of the Presidency Towns Insolvency Act Whereas the contention of the applicant Bank is

that the insolvents are not involved in any trade or business, but they are only manufacturers. As such, the Canara Bank can lay claim by virtue of

the hypothecation deed with reference to the machineries that have been hypothecated to them under the deeds of hypothecation, since the

machineries are not connected with any trade or business of the insolvents, as the insolvents are only manufacturers.''

Aperusal of the oral and documentary evidence clearly proves that the contention of the learned counsel for the applicant Bank in Appln. No.

309 of 1986 has no substance. It is not the case of the insolvent, who has been examined as a Court witness, that he stopped his business long

prior to his petition for insolvency. In fact, the statements of accounts of the Bank. (Exs. P-5 and P-6) show that the insolvents were active in thetr

business till 12th Aug., 1986. Even P.W. 1 the first insolvent has not stated that he stopped his business long prior to the filing of the insolvency

petition. As such, the contention of the learned counsel for the Canara Bank that all goods that have been hypothecated to the Canara Bank were

in the insolvents trade or business by consent and permission of the Canara Bank and under such circumstance the insolvents are the reputed

owners thereof, has no subtance. In that view of the matter, the decision reported in The Official Assignee of Madras Vs. Suresh Electric

Company, , will not apply to the facts of this case. The learned Judges have stated that the record in that case showed that the insolvent had by the

time of adjudication stopped running the trade or business long prior to his petition for insolvency.

Yet another contention of the learned counsel for the Canara Bank is that the insolvent is not engaged in trade or business but only in

manufacture I find the word ''business'' in the Presidency Towns Insolvency Act should be seen in a wider Content than the word ''trade''. The

trend of judicial decisions has been in favour of -the enlargement rather than the restriction of the connotation of the term trade and business''. Exs.

P-2 and P-4 hypothecation deeds show that credit facility was availed by Insolvents for expansion of business and to improve the methods of

manufacture. These two exhibits show that the goods were intended for manufacturing business also. ''Business'' always involves continuous

exercise of activity. So long as the liabilities incurred in the course of a business remain'' undischarged, the business activity should be deemed to be

continued. If authority is needed for this proposition, it is available in B.C. Munirathinam Naidu Vs. Meena Financiers, Madras and Another, .

Now coming to the contention of the learned Official Assignee, I find that in order to claim the right of ''reputed ownership'', the true owner

should have taken such precaution that the insolvents did not obtain false credit either by putting a board on the premises or by giving notice to the

public fay any other adequate means that the insolvents were not absolutely entitled to all the goods which were under their control. It is not the

case of the Bank that the insolvents have erased the steps taken by them to indicate that they are the reputed owners. The Canara Bank, having

failed to take any such precaution, the goods pledged even if they have not been parted with try the insolvents, should vest in the Official Assignee.

The doctrine of ''reputed ownership'' incorporated in Section 52 of the Presidency Towns Insolvency Act has been part of the Bankruptcy Law of

England, from the time of James I. Its object is to prevent deceipt by a trader from the visible possession of properly, which he is not entitled to.

Where a Banker allows a businessman possession of goods pledged to the Bank so as to enable the businessman to obtain false credit, then, the

owner of the goods, namely, the Banker who has permitted the insolvent to obtain that false credit has to suffer the penalty of losing his goods for

the benefit of those who have given the credit. It is well settled that when property possessed by the bankrupt in his character as trustee has

become so amalgamated with his general property, the representative of the trust has no other remedy but to come in as a general creditor and

prove for the amount of the loss (Lewin on Trusts Edn. 12, page 27; Ex parte Wingfield (1879) 10 CD 591 ; Chartered Bank of India Vs.

Imperial Bank of India, , Ghulamali T. Mandviwalla v. Official Assignee AIR 1937 Sind 37.

For these reasons, I hold that the remedy of the applicant Bank in Appln. No. 309 of 1986 is to prove its claim before the Official Assignee as

an ""unsecured creditor''.

In the result, Appln. No. 309 of 1986 is dismissed, and Appln. Nos. 293 and 294 of are allowed.