P L D 1961 (W (PLP)

Rs. a. p. (1) Mr. Rafi Butt 48,523 13 6 (2) Messrs Ghulam Nabi & Sons 12,811 3 9 (3) Messrs Hind Enamel Works 30,136 15 0

3. The liquidator stated further that the fixed deposit receipts had matured on the 15th of April 1950, when their value had risen to Rs. 93,553‑1‑9 with the addition of interest: Mr. Rafi Butt's overdraft account was immediately adjusted against this money and against the balance the other two accounts were adjusted with the prior permission of the Liquidation Judge, thus leaving a balance of Rs. 2,081‑1‑6, for which Mst. Zaitun Begum's claim had been accepted.

4. The appellants thereupon filed the application under section 183 (5) of the Companies Act, already mentioned.

5. Before adverting to the application, we should reproduce here the substance of certain correspondence which had passed between Mst. Zaitun Begum and the Central Exchange Bank after the death of Mr. Rafi Butt in 1948 and before the Bank went into liquidation. On the 2nd January 1949, Maulvi Siraj‑ud‑Din Ahmad, Advocate for the appellants, wrote to the Central Exchange Bank a letter (Exh. D. 1) in the form of a notice which we reproduce here so far as it is relevant :‑ "My client's deceased husband Mr. Rafi Butt deposited with you fixed deposit receipts as additional security for your satisfac tion against overdraft accounts of Messrs Ghulam Nabi Corporation, Hind Enamel Works and Ghulam Nabi & Sons; Lahore. Your charge is on the goods of the said corporation etc. which are in your possession and you are to realise your debt out of the sale proceeds of those goods‑ It is therefore requested that the said F. D. Receipts may kindly be returned to my client." The Bank replied on the 12th of January 1949 (Exh. P. 1) that in the absence of any particulars of the fixed deposits in question it was difficult to trace out those deposits, but that "as admitted by you in your notice," since they had been deposited as additional security against the three over‑draft accounts, they could not be returned until the accounts had been adjusted.

6. In reply (Exh. D. 2), Maulvi Siraj‑ud‑Din Ahmad, on the 22nd of January 1949, gave a list of seventeen receipts, including five of the six receipts in question, and warning the Bank that the additional security is to be touched only if the pledged goods are found to be insufficient to pay off the loan standing against them." He added that "it has been brought to my client's notice that some goods have been removed from your custody without cash payment. If it is a fact, you shall be responsible for any deficit caused by such removal and you shall not be entitled to make up any such deficit out of the fixed deposit receipts under reference."

7. If the Bank sent any reply to this letter, it is not on our record.

8. The list of the goods "pledged with the Bank" appears in Exh. R. W. 1/4 (page 71). These are pipes, tubes, brass sheets, syringes etc., of the value of Rs. 1,63,500 and are shown in Exh. R. W. 1/4, a list prepared by the Bank itself, on the 15th of October 1949, to have been received by Mr. Taqi Butt as a trustee on behalf of the Bank". Mr. Taqi Butt is younger brother of the late Mr. Rafi Butt and a partner in the concerns aforesaid.

9. On the 26th of April 1955, long before the present applica tion had been lodged, the official liquidator sought orders of the Liquidation Judge on the following matters (Exh. R. W. 1/1, p. 51). The Bank informed the Court that Mr. Raft Butt, who was one of the directors of the Central Exchange Bank, had been maintaining with the bank the following four accounts: --‑ (1) M. Rafi Butt, (2) Messrs Ghulam Nabi & Sons, (3) Messrs Hind Enamel Works, and (4) Messrs Ghulam Nabi Corporation Ltd. The account in his personal name at No. 1 had been adjusted by the Bank itself "by transferring the credit balance of his fixed deposit account", while account No. 4 had been transferred by Mr. Rafi Butt himself to Malik Fateh Muhammad Khan Tiwana against whom a regular suit had been filed for the debts owing from him. There now remained the two other concerns, namely, Messrs Ghulam Nabi & Sons and Messrs Hind Enamel Works, which were indebted to the bank to the extent of Rs. 11,392/14/3 and Rs: 26,682‑11‑0, respectively, apart from interest from the 1st of January 1952. Demand notices had been issued to these firms but had no effect on them. There were now two types of securities covering these debts :‑ "One is that of hypothecation of goods worth approximately Rs. 1,26,000 "(this apparently overlooked the amount of Rs. 37,500 in Exh. R. W. .1/4 at which 'the pipes had been valued)" by Mr. Taqi Butt, a partner in both the firms and a younger brother of Mr. Rafi Butt. As those goods were not pledged, Mr. Taqi Butt had accepted the position of a trustee. When called upon to clarify his, position, Mr. Taqi Butt contended that those goods were hypothecated by him only as a temporary arrangement in the absence abroad of his brother and that after his brother returned from Europe and pledged other goods and fixed deposit receipts, all the goods of Mr. Taqi Butt were presumed to have been automatically released, but the record shows that the contention of Mr. Taqi Butt is not correct. That the second security is that of ten fixed deposit receipts valuing Rs. 90,748‑8‑0 in favour of sundry parties and pledged with the Bank as additional security by Mr. Rafi Butt. Out of this, an amount of Rs. 48,523‑I3‑6 was re‑transferred to the personal amount of Rafi Butt as stated earlier. An amount of Rs. 45,029‑4‑3 being the undisbursed balance was transferred to sunday creditors account pending adjustment. That the official liquidator had some time back been approached by Mst. Zaitun Begum to admit her claim as a creditor for Rs. 63,648 being the amount of fixed deposit receipts in her name. Her request could not, however, be acceded to in view of the substantial amount owned by Rafi Butt to the Bank. The official liquidator therefore suggests that the amount outstanding may be adjusted out of the balance of fixed deposit receipts and the balance paid to Mst. Zaitun Begum."

10. After discussing the matter with the official liquidator, the Liquidation Judge accepted the suggestion, with the result that only Rs. 2,081‑1.6 were left for Mst. Zaitun Begum.

11. We now advert to the application under section 183 (5) which purports to be a petition by Mst. Zaitun Begum on her own behalf and on behalf of her minor daughter, Yasmin. In paragraph 1 she states that "she deposited through her deceased husband, M, Rafi Butt, six fixed deposit receipts in the Central Exchange Bank (Anarkali Branch) Lahore without stating the purpose for which the receipts themselves were deposited. Then, after giving the history of the case, she pleads that "the liquidator has no authority to adjust the petitioner's fixed deposit ` receipts' amount in any other account without her permission which was never obtained. Moreover it may be submitted that the Bank had goods pledged against those accounts as security and the out standing amounts of those accounts could be realised by the sale of those pledged goods."

12. In reply, the Bank also related the history of the case and how it had obtained the permission of the Liquidation Judge to adjust the overdraft accounts against the fixed deposits. As regards the goods pledged with the Bank, the liquidator pleaded that they had remained in trust with Mr. Taqi Butt, the partner of Ghulam Nabi & Sons and other allied concerns promoted by Mr. Rafi Butt deceased, and have not been forthcoming since then and that the Bank was legally entitled to proceed against the securities of the fixed deposit receipts." The learned Liquidation Judge struck the following four issues, the fourth appearing here in its modified form :‑ (1) Whether the fixed deposit receipts in question were not pledged as security for repayment of loans owing from late Mr. Rafi Butt, Ghulam Nabi & Sons, Hind Enamel Works and Ghulam Nabi Corporation Ltd. by the applicant? (2) Whether the amount of these fixed deposit receipts could not have been adjusted rn the aforementioned accounts even if issue No. 1 is answered against the applicant? (3) Whether the fixed deposit receipts in the name of Mst. Yasmin (minor) could have been lawfully pledged for repayment of loans mentioned in issue No. 1? (4) Did the Central Exchange Bank release, part with or lose the goods hypothecated or pledged by Messrs Ghulam Nabi & Sons and Hind Enamel Works as security for repayment of loans in respect of which the petitioners are claimed to have pledged the fixed deposit receipts in question? What was the value of those goods and if the issue be answered in affirmative, what is its effect on the case? On the first issue, the finding was that the appellants had failed to show that the fixed deposit receipts in question had not been pledged as security for the repayment of loans owing from the four firms aforesaid. On issue No. 3, the finding was that Mr. Rafi Butt could lawfully pledge the receipts in the name of his minor daughter Yasmin, for the repayment of his loans. The remaining two issues were taken together and it was found that the fixed deposit receipts had been dealt with by Mr. Rafi Butt as if they were his personal property, that in fact they were his personal property although in the name of his wife and daughter, that Mst. Zaitun Begum had authorised her husband to operate on this receipts, that she had accepted the position that the receipts had been pledged by her husband to cover his debts, and that section 141, Contract Act, which gave the surety the benefit of earlier securities was inapplicable because Mst. Zaitun Begum was not in the position of a surety.

13. Contrary to the volume of evidence on the file, Maulvi [Sira‑ud‑Din Ahmad again contended for the appellants that the receipts had been deposited with the Bank by the appellants themselves, not by Mr. Rafi Butt, and he further contended that if Mr. Rafi Butt deposited the receipts then he did so without authority from his wife. In a way he repudiated even his own letter Exh. D. 1 dated the 2nd of January 1949, by which he based Mst. Zaitun Begum's claim on the fact that "my client's deceased husband Mr. Rafi Butt deposited with you fixed deposit receipts as additional security for your satisfaction against over draft accounts" etc. In doing so he relied on Mst. Zaitun Begum's statement before the Liquidation Judge that she had given these receipts to her husband "for renewal and not for pledging them as security". She tried to explain away the statement in Exh. D. .1 in the following manner :‑ "After the death of my husband I visited the Bank and was told by Sardar Muhammad Shafi that these securities were pledged by my husband as additional security for repayment of certain loans. On the basis of this information I instructed my counsel to issue the notice dated the 22nd of January 1949, Exh. D.

1. Apparently the reference is to the notice of the 2nd of January, not the 22nd.

14. A ‑letter (Exh. P. W. 1/1, page 49) purporting to be dated the 20th of November 1944 and to be signed by Mst. Zaitun Begum was produced from the records of the Bank to show that Mst. Zaitun Begum had authorised her husband to operate on her fixed deposit account. The letter is to the following effect :‑ "Re : My Fixed Deposit Account.‑Kindly note that my above account will hence‑forth be operated upon by my husband Mr. M. Rafi Butt." Mst. Zaitun Begum denied her signature on this letter, and the handwriting expert, whom the official liquidator produced to compare her signature, supported her statement that the signature on the letter did not belong to her. The learned Liquidation. Judge has not accepted the opinion of the expert and the statement of Mst. Zaitun Begum and has held that by this letter she had authorised her husband to operate on her account. Sheikh Zahur Ahmad, appearing for the official liquidator, however, has informed us without any persuasion that the letter in question has not been proved to have been signed by Mst. Zaitun Begum. It will not be necessary for us, in view of other material on the file, to give a decision on this matter.

15. Until her statement before the Liquidation Judge on the 27th of April 1959, it had never been Mst. Zaitun Begum's case that she had given these receipts to her husband for renewal. If, "however, it is true that she had given them for renewal, then after having been informed by Sardar Muhammad Shafi, Manager of the Bank that "these securities were pledged by my husband as additional security for repayment of certain loans" she would have naturally protested that this was not the purpose for which she had entrusted the receipts to her husband, and instead of instruct ing her counsel to issue that notice Exh. D. 1 on the basis of the information given to her by Sardar Muhammad Shafi, she would have instructed her counsel to protest that Sardar Muhammad Shafiq information was incorrect.

17. Maulvi Siraj‑ud‑Din Ahmad tried to take advantage .of the fact that the original fixed deposit receipts had been mis‑laid in the records of the Bank after the records had been transferred on liquidation to the State Bank of Pakistan, and suggested that if those receipts had been produced they would have shown that they had not been pledged as securities. This argument, however; is repudiated by a document on which Maulvi Siraj‑ud‑Din Ahmad himself relied for proving that certain oilier goods, namely pipes; tubes and brass sheets etc., mentioned in Exh. R. W. 1/4 (page 71) had been "pledged with the, Bank." This document, as already stated, was prepared by the Central Exchange Bank on the 15th of October 1949, before it went into liquidation and the third item in it shows a "list of F.. D. Receipts pledged with the bank." These are ten in number, including the receipts in question, and are for a total amount of Rs. 90,784‑8‑

0. The original of Exh. R. W. 1/4‑was also produced by, the banking officer of the State Bank of Pakistan, Mr. Muhammad Nazir Hasan, when his statement was recorded on the 1st of June 1959. He was parti cularly examined on this occasion because ~ by that time certain documents had been discovered in the Bank records.

18. We, therefore, assume, without any hesitation, that the fixed deposit receipts in question had been pledged as securities by Mr. Rafi Butt with the permission of Mst. Zaitun Begum. We do not, however, hold as the learned Liquidation Judge has held, that the receipts were treated by Mr. Rafi Butt as his personal property and that, in fact they were his personal property. This inference he based on the fact that Mst. Zaitun Begum "did not know any material particular of the fixed deposit receipts * * * * * For instance, she does not know the amount, the date of their maturity, and not even this much as to how many fixed deposit receipts stood in her own name and how many in the name of her minor daughter. We have already shown that in Exh. D./2 (page 47) she gave through her counsel, Maulvi Siraj‑ud‑Din Ahmad, details of seventeen fixed deposit receipts. But even if she did not know these details from memory when she appeared before the Liquidation Judge, the worst that can be assumed against her is that her husband had deposited these monies in her name or in the name of her minor daughter, and since this is one of the recognised modes of making A a gift to a wife or a daughter, it cannot be presumed that because the money belonged to the husband or father, the purchase was benami. The learned Liquidation Judge realised that "no specific issue had been framed‑on this point," but he "assumed" that they must have been invested by Mr. Rafi Butt himself. Here it should be remembered that it was never the case for the official liquidator that Mr. Raft Butt being himself the opposite the appellants could not prefer any claim to the receipts. It was‑ in fact on the assumption that the appellants were the depositor that a balance of Rs. 2,081‑1‑6 was allowed to them.

19. It was on this basis that the learned Liquidation Judge held that section 141 of the Contract Act was not applicable, for in his opinion it applied "to a case where a third person furnishes security for repayment of a loan by the principal debtor whereas in this case Mr. Rafi Butt had himself pledged the fixed deposit receipts as security for repayment of loans * * * * *" If, however, Mst. Zaituu Begum is held to be the owner of the receipts and her husband pledges them with her consent, then while her husband is the principal debtor, she assumes the position of a surety. Under section 126, Contract Act, a contract of ‑guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. The deposit of goods or receipts obviously constitutes such a guarantee. The person who gives the guarantee is called the surety; the person in respect of whose default the guarantee is given is called the principal debtor; and the person to whom the guarantee is given is called the creditor.

20. Section 141 is as follows :‑ "A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into, whether the surety knows of the existence of such security or not ; and, if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security."

21. This means that if the Central Exchange Bank held any goods in security against the overdraft accounts of Mr. Rafi Butt at the time when the fixed deposit receipts in question were deposited as additional security, then the depositor of additional security is entitled to the benefit of those goods, and if the Bank has lost those goods by its own conduct, the burden of the depositor of additional security is discharged to the extent of the value of those goods. Now let us examine the nature of the earlier security.

22. According to the official liquidator's report dated the 26th of April 1955 (Exh. R. W. 1/1) to the Court, goods worth approximately Rs. 1,26,000 had been "hypothecated" by Mr. Taqi Butt as those goods were not "pledged", Mr. Taqi Butt had accepted the position of a trustee. Mr. Taqi Butt's contention that the effect of the pledging of "other goods and fixed deposit receipts" was that his goods were "automatically released" was not accepted by the official liquidator because the "record shows that the contention of Mr. Taqi Butt is not correct". The official liquidator's statement here, that the goods were hypothecated and not pledged, is repudiated by the records of the Bank as shown in Exh. R. W. 1/1, which showed these goods in the "list of goods pledged with the Bank" with an additional note that these goods had been received by Mr. Taqi Butt as a trustee on behalf of the Bank.

23. The banking officer, Mr. Muhammad Nazir Hasan, himself stated‑before the Liquidation Judge on the 23rd of Novem ber 1959 that "Mr. Taqi Butt, younger brother of Mr. Rafi Butt, and one of the partners in these concerns, pledged certain goods as security for repayment of the loan", but added that "the goods remained in the custody of Mr. Taqi Butt and were never physi cally taken into possession by the Bank." He further stated in cross‑examination that "there is an endorsement on Exh. R. W. 1/8 to the effect that Mr. Rafi Butt had taken into possession goods pledged by him with the Central Exchange Bank as a trustee on his behalf", that "there is a similar endorsement in the case of goods pledged by Mr. Taqi Butt also" and that "goods pledged with a bank are always given into its possession." It was therefore the Bank's own fault that although the goods were pledged with it by Mr. Taqi Butt possession of them was not taken and the Bank preferred to leave them with Mr. Taqi Butt as a trustee. There is no doubt that whatever remedies are open against trustee are open to the Bank against Mr. Taqi Butt. It cannot however, be argued either that the goods were not pledged with the Bank or that since the Bank was not in possession thereof B it could not proceed against them. If the Bank was cognizant of the legal position, it certainly showed preference for Mr. Taqi Butt in suggesting to the Liquidation Judge that the overdraft accounts of Mr. Rafi Butt should be satisfied against the additional security furnished by the fixed deposit receipts. We have no doubt that section 141, Contract Act, is fully applicable and that since the earlier security easily exceeded the overdraft accounts, the fixed deposit receipts belonging to Mst. Zaitun Begum and her minor daughter should not have been adjusted against those accounts.

24. It now remains to decide, whether the fixed deposit receipts in the name of the minor daughter, Yasmin, could have been lawfully pledged by her father. The learned Liquidation Judge has stated that although "in paragraph 362 of the Principles of Muhammadan Law" by Mullah, it is stated that a father of a minor child is not competent to dispose of the ward's property," this was contrary to the provisions of Muslim Law, and he has referred to Fatwa‑e‑Alamgiri, Volume 9, 1932 Edition, translated by Syed Amir Ali, (this is a different person from the late Mr. Justice Amir Ali), pages 222‑223.

25. We find the following proposition stated in paragraph 366 of Mulla's "Principles of Muhammadan Law" (13th Edition):

A legal guardian of the property of a minor has power to sell C or pledge the goods and chattels of the minor for the minor's imperative necessities, such as food, clothing, or nursing. This has reference in the foot‑note to Imambandi v. Mutsaddi ((1918) 45 1 A 73) corresponding to I L R 45 Cal. 878, pages 895‑

896. The impres sion one gets from the statement in Mulla's hand‑book is that the legal guardian, that is to say, a father, can sell or pledge goods of the minor only for the minor's imperative necessities and not otherwise. Now, Imambandi's case related to the power of a mother, who is not a legal guardian, but who was de facto guardian in that case, to sell or pledge her ward's property. It was observed at page 895 of the Calcutta Report that the Hadaya Classifies the Acts that may have to be done for an infant under three heads, and the second head is to the following effect : ‑ "Acts arising from the wants of an infant, such as buying or selling for him on occasions of need, or hiring a nurse for him, or the like, which power belongs to the maintainer of the infant, whether he be the brother, uncle or (in the case of a foundling) the mooltakit, or taker‑up, or the mother, provided she be the maintainer of the infant, and as these are empowered with respect to such acts, the walee, or natural guardian, is also empowered with respect to them in a still superior degree."

26. At page 896 the following passage occurs :‑ "The examples given under the second head indicate the class of cases in which the acts of an unauthorised person who happens to have charge of a child are held to be binding on the infant's property. They also help to explain and illustrate the extent of such de facto guardian's powers. The permissibility of these acts depends on the emergency which gives rise to the imperative necessity for incurring liabilities without which the life of the child or his perishable goods and chattels may run the risk of destruction. For instance, he may stand in imme diate need of aliment, clothing or nursing; these wants must be supplied forthwith."

27. The words "imperative necessities", "clothing" an "nursing" occurring in paragraph 366 of Miilla's hand‑book have apparently been borrowed from this passage. But the commentator has lost sight of the fact that these observations were mad in relation to the powers of a de facto guardian and not of legal guardian, as a father is. Paragraph 366 is, therefore, mis leading and the correct position is stated in Fatawa‑a Alamgiri to which the learned Liquidation Judge has referred. To this book a reference has been made in the Privy Council case also at page 903 of the Calcutta Report. Fatawa‑e‑Alamgiri, at page 222 of Syed Amir Ali's translation, 1932 Edition, states as follows :‑ "If the father has pledged his minor child's property for such debt as he has incurred either for himself or for his minor child, then it is lawful (for him)." We have now to consider the position whether, when Mr Rafi But pledged the property of his minor daughter, since h had power to pledge it, the daughter could be regarded as surety within the meaning of section 141, Contract Act. It can b reasonably argued that if the father had power to pledge the property, then he pledged it as the principal‑debtor, and not as an agent oz guardian of his minor children. Section 141 would not, therefore, be applicable to the case of the minors.

29. We accept this appeal with proportionate costs through out and direct that the official liquidator should regard Mst. Zaitun Begum, but not her daughter, Yasmin, to be entitled to the amount represented by her share of the fixed deposit receipts, in question and to the dividend payable on this amount.

30. Shamim Akhter's deposits will be treated similarly with those of Yasmin. In the absence of any indication of shares, receipt which are in the joint names of two persons will be deemed to entitle each person to one‑half of the amount stated therein. A. H. Order accordingly.