S.176 Contract Act| Notice Of Sale By Pawnee Must Contain A Positive Assertion Disclosing Intention To Sell: Calcutta HC

The Calcutta High Court on Wednesday observed that a notice of sale by a pawnee under Section 176 of the Indian Contract Act, 1872 (Act) must contain a 'positive assertion' indicating the intention of the pawnee to dispose of the security. 

A pledge is a bailment of goods as security for payment of debt or performance of a promise. Section 176 of the Act permits the pawnee to sell the goods pledged if the pawnor makes default in payment of the debt by first giving the pawnor a reasonable notice of the sale.

Justice Shekhar B. Saraf observed while enumerating on the requirements of such a notice of sale under Section 176 of the Act, 

"A notice of the character contemplated by Sec. 176 cannot be implied. Such notice has to be clear and specific in language indicating the intention of the pawnee to dispose of the security. What is contemplated by Sec. 176 is not merely a notice but a 'reasonable' notice, meaning thereby a notice of intended sale of the security by the creditor within a certain date so as to afford an opportunity to the debtor to pay up the amount within the time mentioned in the notice."

The Court further underscored that Section 176 of the Act only requires an intimation of the intention to sell and not that, a sale should be arranged beforehand and due notice of all details of the time, date and place of sale be given to the pawnor.

It was further held that the provision of Section 176 of the Act is mandatory and is not subject to the contract between the parties. That is, even if the contract between the parties states that no notice is required to be given under Section 176 of the Act, such part of the agreement would be void ab initio and the pawnee would be required to give notice under Section 176.

"The provisions of Section 176 of the Act are mandatory. The applicability and sweep of Section 176 unlike several other provisions on the same subject is not eclipsed by the phrase "in the absence of a contract to the contrary." The notice that is to be given to the pledgor of the intended sale by the pledgee is a special protection which statute has given to the pledgor and, parties cannot agree that in the case of any pledge, the pledgee may sale the pledged articles without notice to the pledgor", the Court opined further. 

In the instant case, a notice period of 15 days was given to the petitioner to pay a particular sum of money post which the defendant would have the right of sale. In the concerned notices issued by the respondent bank, it was stated that they 'shall have the right to enforce the pledge', however no specific statement had been made stating that the shares pledged would be sold. 

Opining on the nature of statements envisaged in the notices of sale, the Court further observed,

"It is noticeable that in both of the clauses, the respondent bank states that they shall have the right to enforce the pledge. However, I don't find an unequivocal statement stating that the shares shall be sold. In my view, there is a clear distinction between having a right of sale and intention to sell. The very philosophy of Section 176 and 177 is that a protection is given to the pawnor with regard to having an opportunity to redeem the shares upon a proper and reasonable notice being given to him."

The Court further held that a notice of sale must contain a 'positive assertion' that in default the sale would take place. It was stated that the statements used in the notices are 'ambiguous, fraught with too many technical words and creates a cloud over what exactly is the intention of the pawnee'. 

It was further noted that a notice of sale need not specify the date, time and place of the sale but the notice must specify unambiguously that the pawnee intends to carry out the sale. It was further stated that merely stating that the pawnee shall have the right of sale is not enough to fulfil the requirements under Section 176 of the Act. 

Reliance was also placed on the Calcutta High Court judgment in Co-operative Hindusthan Bank Ltd. v. Surendra-nath De wherein the statement "Failing which (that is, the payment by the 7th) we shall arrange for sale of the hypothecated stock" was held to be a mere intimation that arrangements will be made for a sale but not a notice of the same. Justice Saraf also referred to the Calcutta High Court judgment in Haridas Mundra v. National and Grind-Lays Bank Ltd wherein it was held that a mere intention with giving specific particulars will not be enough and such notice will be unreasonable.

Further opining on the phrase "shall have the right to enforce the pledge" used in the instant notices of sale, the Court further elucidated, 

"Indicating to the pawnor that the pawnee shall have the right of sale does not amount to a notice of sale of the pledged goods. One may argue that the distinction being drawn between the words "right of sale" and "shares would be sold" is just a play on words and mere semantic in nature. At first blush, one would agree with the above contention. However, it has to be kept in mind that Section 176 has to be read along with Section 177 that provides for a right of redemption to the pawnor. Such right of redemption would become otiose if a crystal clear and unambiguous reasonable notice of sale is not given to the pawnor."

The Court further rejected the argument that the phrase "in accordance with Section 176 of the Indian Contract Act, 1872" used in the notice of sale discloses the intention that in the event of default sale would take place. It was held that  merely referring to Section 176 is not enough and that a reasonable notice of the sale should be evident from the words used in the notice.

Furthermore, the Court also dismissed the argument that the notices were clearly understood by the petitioner as a notice under Section 176 as the petitioner immediately filed a suit seeking injunction of the notices. The Court underscored that the petitioner cannot be faulted on the ground that the petitioner was vigilant of his rights and apprehending an illegal action by the defendant bank, the petitioner took steps to prevent the same.

Thus, it was held that the words used in the notices dated July 17, 2021 do not communicate a clear intention of sale. 

Case Title: Manav Investment and Trading Co. Ltd v. DBS Bank India Ltd 

Case Citation: 2022 LiveLaw (Cal) 47

Click Here To Read/Download Order