State Bank of India v. Ghamandi Ram

A joint Hindu family (a family held together by status, with a common male ancestor and his descendants) ran a firm at Bhawalpur, now in Pakistan. After the division of India the family came to India, and the question was whether the bank still owed it a surplus. The Supreme Court answered by describing what a Mitakshara family is in law, and by applying the law of the place where the debt lay.

Quick Revision

Parties

State Bank of India — appellant; the bank constituted under the State Bank of India Act, 1955. It succeeded to the rights and liabilities of the Imperial Bank of India and was substituted in the Tribunal proceedings.

Ghamandi Ram (dead) through Shri Gurbax Rai — respondent; manager and karta (the manager of a joint family) of the joint Hindu family firm M/s. Ghamandi Ram Gurbax Rai. He filed the claim and is since deceased. The appeal is through Gurbax Rai.

M/s. Ghamandi Ram Gurbax Rai — the joint Hindu family firm behind the claim. Its members were Ghamandi Ram (since deceased), Gurbax Rai, Chainan Lal and Jagan Nath.

Imperial Bank of India (Bhawalpur State) — the bank with which the firm held a cash credit account. It sold the pledged goods in 1948. The appellant took over its rights and liabilities.

Procedural History

1. 9 May 1953: Ghamandi Ram, as manager and karta, filed an application under section 13 of the Displaced Persons (Debts Adjustments) Act, 1951 (Act No. 70 of 1951) before the Tribunal at Delhi.
2. While the matter was before the Tribunal, the appellant Bank was constituted under the State Bank of India Act, 1955 (Act No. 23 of 1955). It succeeded to all rights and liabilities of the Imperial Bank and was substituted.
3. 1 November 1956: the Tribunal dismissed the application. It held that the deposit had become evacuee property that vested in the Custodian from 1 March 1947, so the Bank's liability had ceased. It also held that the firm's only property in the pledged goods was the equity of redemption, and that this too had vested in the Custodian.
4. The respondent filed Civil Revision No. 104-D of 1958 before the Punjab High Court.
5. 12 September 1963: Mr Justice D.K. Mahajan allowed the revision. He held that the amount was a cash deposit made by an individual under the notification of 19 February 1952 and fell outside the Ordinance. He set aside the Tribunal's order and granted a decree for the amount claimed.
6. The appellant came to the Supreme Court by special leave (permission the Supreme Court gives to appeal), as Civil Appeal No. 449 of 1966. The appeal is from the judgment of the Punjab High Court Circuit Bench at Delhi.
7. 30 October 1964: this Court granted special leave. It directed that the appellant pay the respondents' costs in this Court (as recorded in the final order).

Facts

1. Before the division of India, M/s. Ghamandi Ram Gurbax Rai, a joint Hindu family firm, carried on business in Bhawalpur State. That area is now in West Pakistan.
2. The members of the firm were Ghamandi Ram (since deceased), Gurbax Rai, Chainan Lal and Jagan Nath. Ghamandi Ram was the manager and karta during the material period.
3. The firm had a cash credit account in its name with the Imperial Bank of India, Bhawalpur State. It had pledged goods as security for the advances made in that account.
4. On the division of India, the joint family and its members admittedly became evacuees.
5. In 1948, the Imperial Bank sold the pledged goods to recover its dues in the cash credit account. It credited the surplus balance left after adjusting its dues. The source text prints the amount as Rs. 2,54,1/11/-.
6. On 15 October 1949, the Pakistan Government promulgated the Pakistan (Administration of Evacuee Property) Ordinance, 1949 (Ordinance No. XV of 1949). It vested all property in Pakistan in which an evacuee had any right or interest in the Custodian of Evacuee Property, with effect from 1 March 1947.
7. Section 2(3) of the Ordinance defined evacuee property to include any right or interest in joint Hindu family property. Section 2(5) excepted cash deposits in banks from the definition of property.
8. The Pakistan (Administration of Evacuee Property) Amendment Act, 1951 (Act No. VI of 1951) amended section 2(5). It brought cash deposits in banks within the definition of property.
9. By a notification of 19 February 1952, the Pakistan Government exempted cash deposits made at banks by persons other than companies, associations or bodies of individuals, whether incorporated or not.
10. On 9 May 1953, Ghamandi Ram filed his application before the Tribunal at Delhi. He claimed Rs. 3,165/11/-. This included Rs. 2,341/11/- as principal and interest at 6% per annum.
11. His ground was that the amount had become evacuee property, and that the liability of the Imperial Bank had therefore not ceased, as the judgment records it.
12. The Bank was constituted under the State Bank of India Act, 1955 while the proceedings were pending. It succeeded to the Imperial Bank's rights and liabilities and was substituted.
13. The Tribunal dismissed the application on 1 November 1956. The High Court allowed the respondent's revision on 12 September 1963. The Bank appealed (see Procedural History).
14. It was not disputed that the appellant had garnishable assets in Pakistan. The Pakistan Government could realise the amount by attaching those assets.

Issues Raised

1. On a correct reading of the Pakistan Government's notification of 19 February 1952, was the joint Hindu family firm Ghamandi Ram Gurbax Rai a body of individuals? Had the amount therefore vested in the Custodian of Evacuee Property, Pakistan, from 1 March 1947, so that the firm lost its interest in it?
2. Given that finding, would the appellant's liability to the respondent in India be deemed extinguished by the Pakistan Evacuee Property Ordinance?
3. What is the rule of private international law for an involuntary assignment of debts?

Arguments Contended

The reported judgment does not set out the arguments of counsel. Counsel are named only at the start of the report. The positions below are those of the parties and lower forums, as the judgment records them.

For the appellant (State Bank of India):

• The Tribunal's view, which the Bank defends: the deposit became evacuee property under the Pakistan Ordinance and vested in the Custodian from 1 March 1947. The Bank's liability therefore ceased.
• The Tribunal's further view: the firm's only property in the pledged goods was the equity of redemption, and that vested in the Custodian as property under the Ordinance.
• The Bank had garnishable assets in Pakistan from which the Pakistan Government could realise the amount (not disputed).

For the respondent (Ghamandi Ram, through Gurbax Rai):

• The firm's claim before the Tribunal was that the amount had become evacuee property and the Imperial Bank's liability had not ceased.
• The High Court accepted the respondent's case in revision. It treated the amount as a cash deposit made by an individual under the notification of 19 February 1952, and so outside the Ordinance.

Court's Reasoning

The judgment is a single opinion, delivered by Ramaswami, J. for the Court. It has no numbered paragraphs, so no paragraph numbers are cited. Each step follows the order of the judgment.

Ramaswami, J. (for the Court: Ramaswami, Shah and Grover, JJ.)

1. Noted: Section 2(3) of the Ordinance defines evacuee property as property in which an evacuee has any right or interest, or which is held by or for him in trust.
2. Noted: The definition includes any right or interest in joint Hindu family property that would accrue to the evacuee on partition. It includes property obtained from an evacuee after 28 February 1947, until the Custodian confirms it.
3. Noted: The definition excludes two things. One is movable property in an evacuee's immediate physical possession. The other is property of a joint stock company whose head office was in India before 15 August 1947 and stays there.
4. Noted: Section 2(5) defines property as property of any kind. It includes any right or interest in it and any debt or actionable claim. As first enacted, it excluded "a mere right to sue or a cash deposit in a bank".
5. Noted: The Amendment Act of 1951 omitted the words about a cash deposit in a bank from section 2(5).
6. Noted: Section 6(1) vests all evacuee property in the Custodian, and is deemed always to have vested, from 1 March 1947.
7. Noted: The notification of 19 February 1952 was issued under section 45. It superseded an earlier notification of 9 May 1951 and exempted cash deposits made at banks by persons other than companies, associations or bodies of individuals, whether incorporated or not.
8. Noted: Under section 7(1), a person in possession, supervision or management of evacuee property holds it on behalf of the Custodian. Under section 7(2), he must tell the Custodian in writing that he is willing to surrender it and must surrender it if called upon.
9. Noted: Section 7(3) exempts a person who holds evacuee property under an allotment by a Rehabilitation Authority. A 1951 amendment replaced the sixty-day period from the commencement of the Ordinance in section 7(2) with a date notified in the Official Gazette. It also omitted the words requiring a notice from the Custodian.
10. Noted: Under section 11(1), any amount due to an evacuee must be paid to the Custodian by the person liable. Under section 11(2), a person who pays the Custodian is discharged to the extent of the payment.
11. Noted: Under section 11(3), a person who pays otherwise than as section 11(1) requires is not discharged. The Custodian's right to enforce the obligation against him remains. This is without prejudice to any penalty under section 29.
12. Noted: The first question is whether the notification covers the firm. Was the joint Hindu family firm a body of individuals within the notification? Had the amount then vested in the Custodian from 1 March 1947, divesting the firm of its interest?
13. Noted: Under the Mitakshara school of Hindu law, all property of a Hindu joint family is held in collective ownership by all the coparceners in a quasi-corporate capacity.
14. Noted: The Mitakshara's textual authority says in express terms that joint family property is held in trust. The beneficiaries are the joint family members then living and those to be born. The judgment prints the reference as Mitakshara, Ch. 11-27.
15. Noted: There are six incidents of coparcenership under Mitakshara law. First, the lineal male descendants of a person, up to the third generation, acquire ownership of his ancestral properties on birth.
16. Noted: Second, such descendants can at any time work out their rights by asking for partition. The source text is garbled at this point, and this reading rests on its surviving words.
17. Noted: Third, until partition each member has ownership extending over the entire property, conjointly with the rest. Fourth, as a result of this co-ownership, possession and enjoyment of the properties is common.
18. Noted: Fifth, no alienation of the property is possible unless it is for necessity, without the concurrence of the coparceners. Sixth, the interest of a deceased member lapses on his death to the survivors.
19. Noted: A coparcenary under the Mitakshara school is "a creature of law" and cannot arise by act of parties. The one exception is adoption: an adopted son becomes a coparcener with his adoptive father as regards the father's ancestral properties.
20. Noted: The Court cites Sundarsanam Maistri v. Narasimhulu Maistri. Bhashyam Ayyangar, J. said there that the Mitakshara doctrine of joint family property rests on an undivided family as a corporate body. Possession of property by that body is the second requirement.
21. Noted: Bhashyam Ayyangar, J. said the first requirement is the family unit. For this purpose female members may be left out. A Hindu family is a common male ancestor with his lineal male descendants. While undivided, it forms a corporate body.
22. Noted: He said such a corporate body, with its heritage, "is purely a creature of law and cannot be created by act of parties". The one exception is that a stranger may be affiliated as a member by adoption.
23. Noted: He also said the unobstructed heritage devolving on the family, with its accretions, is owned by the family as a corporate body. One or more branches may each form a corporate body within the larger one and may own a separate unobstructed heritage exclusively.
24. Held: Because of the juristic nature of the Hindu joint family under the Mitakshara doctrine, the firm cannot be treated as an individual within the notification of 19 February 1952. Why: the Court gives the juristic nature of the family as its reason. The firm must be treated as a body of individuals, whether incorporated or not.
25. Noted: The next question is whether the appellant's liability to the respondent in India is deemed extinguished by the Ordinance. This follows the finding that the amount vested in the Custodian from 1 March 1947.
26. Noted: It is not disputed that the appellant had garnishable assets in Pakistan. The Pakistan Government could realise the amount by attaching them. The question is the rule of private international law for an involuntary assignment of debts.
27. Noted: The question arose in English courts over wartime and post-war legislation. That legislation vested enemies' contractual rights in public authorities such as custodians or administrators of enemy property.
28. Noted: English courts held that two questions depend on the situs of the right, for example a debt. One is whether the right is transferred. The other is whether payment to a custodian discharges the debtor. Both depend less on the proper law of the contract. The Court refers to Dicey, Conflict of Laws, 8th Edn., p. 780.
29. Noted: In Arab Bank Ltd. v. Barclays Bank (Dominion, Colonial and Overseas), the appellant Bank had a credit balance on a current account with the respondent's Jerusalem branch. The British Mandate over Palestine expired at midnight on 14 May 1948.
30. Noted: After the Mandate ended, the Provisional Council of State and Provisional Government of Israel were constituted. War broke out between Israel and the Arab States. The war made further performance of the current account contract impossible.
31. Noted: From the end of the Mandate, the appellant Bank's premises were in Arab-controlled territory. The respondent Bank's premises were in Israel territory. Israeli legislation vested in an official called the Custodian of the Property of Absentees the property in Israel of a class of persons and corporations that included the Arab Bank.
32. Noted: The respondents paid the appellants' credit balances to the custodian. The sum is printed as about 5,83,000 pounds. In 1950 the appellants sued the respondents for it.
33. Noted: Arab Bank held that the right to the credit balance survived the outbreak of war, subject to suspension of the right to recover it. It was situated in Israel, so it came under Israeli legislation and vested in the custodian. The appellant Bank could not recover it from the respondent Bank.
34. Noted: The key is to separate two questions. Assignability is governed by the proper law of the debt. Attachment or garnishment (involuntary assignment) is governed by the lex situs of the debt.
35. Noted: If an involuntary assignment occurs after a voluntary assignment, the lex situs determines whether the voluntary assignee's rights were postponed or defeated. If the voluntary assignment occurs first, the lex situs determines what rights, if any, the voluntary assignee acquired.
36. Noted: A question of priorities arose in Re Queensland Mercantile and Agency Co. The Union Bank of Australia held debentures issued by the Queensland Company. They charged the company's shares that were not fully paid up.
37. Noted: The Union Bank was domiciled in England and the company in Queensland. After the capital was called up, but before the shareholders paid, the shareholders became debtors of the company.
38. Noted: Then X Company, domiciled in Scotland, began an action for negligence in Scotland against the Queensland Company. It immediately issued the Scottish process of arrestment against many shareholders domiciled in Scotland. Under Scottish law this stopped the shareholders from paying the calls to the company until the negligence action was decided.
39. Noted: The question was whether the Union Bank, as debenture-holder, had the first right to the unpaid shares under the law of England and Queensland. Or did X Company have a prior right, under Scottish law, up to the damages it might win? This was a priority question between two assignees.
40. Noted: The Union Bank argued that Queensland law decided the question. The Queensland Company was the creditor on the unpaid shares, and any assignment by it had to be tested by the law of its domicile.
41. Noted: North, J. applied Scottish law. His reasoning was that the debtors lived in Scotland, so the unpaid calls were situated there. The assignment therefore ranked in the order Scottish law prescribes.
42. Noted: North, J. treated choses in action like tangible movables. He asserted that an assignment of tangible movables is governed by the lex situs.
43. Held: the Court says "the same legal position prevails in India". Therefore the appellant's liability to the respondent in India must be deemed to have been extinguished.

Authorities

• Sundarsanam Maistri v. Narasimhulu Maistri (footnote prints I.L.R. 25 Mad. 149, 154; the headnote prints I.L.R. 15 Mad. 149, 154): Bhashyam Ayyangar, J.'s statement on the undivided family as a corporate body, quoted at length for the nature of the family and its property. Relied on to hold the firm a body of individuals.
• Gan Savant Bal Savant v. Narayan Dhond Savant (I.L.R. 7 Bom. 467): cited inside Bhashyam Ayyangar, J.'s passage for the undivided family as a corporate body. It is cited together with Mayne, Hindu Law and Usage, 6th edition, paragraph 270.
• Dicey, Conflict of Laws, 8th Edn., p. 780: referred to for the English rule that a debt's transfer to a custodian depends on its situs rather than the proper law of the contract.
• Arab Bank Ltd. v. Barclays Bank (Dominion, Colonial and Overseas) ([1954] A.C. 495): the credit balance in Israel vested in the custodian under the lex situs. Applied by the Court.
• Re Queensland Mercantile and Agency Co. ([1891] 1 Ch. 536): North, J. applied the law of the debtors' place, Scotland, to the priority question. The Court treats the same position as prevailing in India. Applied.
• Mitakshara, Ch. 11-27 (as printed): the textual authority that joint family property is held in trust for members living and yet to be born.

Provisions mentioned

• Section 2(3), Pakistan (Administration of Evacuee Property) Ordinance, 1949: defines evacuee property, including a right in joint Hindu family property.
• Section 2(5) of the Ordinance: defines property, including debts and actionable claims. The 1951 Amendment Act (Act No. VI of 1951) removed the exception for cash deposits in banks.
• Section 6(1) of the Ordinance: vests evacuee property in the Custodian from 1 March 1947.
• Section 7 of the Ordinance: a holder of evacuee property holds it for the Custodian and must surrender it. Section 7(3) exempts holders under a Rehabilitation Authority allotment.
• Section 11 of the Ordinance: debts due to an evacuee must be paid to the Custodian. Payment discharges the payer, and other payment does not.
• Section 29 of the Ordinance: a penalty provision, mentioned in section 11(3).
• Section 45 of the Ordinance: the power under which the notification of 19 February 1952 was issued.
• Section 13, Displaced Persons (Debts Adjustments) Act, 1951 (Act No. 70 of 1951): the section under which the claim was made before the Tribunal.
• State Bank of India Act, 1955 (Act No. 23 of 1955): constituted the appellant Bank and transferred the Imperial Bank's rights and liabilities to it.

Law-report headnote (editors' summary; not part of the Court's reasons)

• The headnote says a joint Hindu family firm is not a person under the notification. It was a body of individuals not incorporated, so the amount became evacuee property vested in the Custodian in Pakistan from 1 March 1947.
• It states the private international law rule: where an involuntary assignment follows a voluntary one, the lex situs decides whether the voluntary assignee's rights are postponed or defeated.
• It adds that the involuntary assignment to the Custodian came in 1949, after the Bank's voluntary assignment to the firm in 1948. Pakistan was the situs because the Bank had garnishable assets there.
• It concludes that the Ordinance governed priority, the amount vested in the Custodian from 1 March 1947, and the Bank's liability to the firm was extinguished.
• It lists Sundarsanam Maistri as referred to, Re Queensland Mercantile and Agency Co. and Arab Bank as applied, and Dicey, Conflict of Laws, 8th Edn., p. 780 as referred to.

Judgement

1. The appeal is allowed.
2. The judgment of the Punjab High Court dated 12 September 1963 in Civil Revision No. 104-D of 1958 is set aside.
3. The judgment of the Tribunal under the Displaced Persons (Debt Adjustment) Act in case No. 74/11/13 of 1956/1952 is restored. It dismissed the respondent's claim.
4. There is no order about costs in the High Court.
5. As directed by this Court on 30 October 1964, when it granted special leave, the appellant pays the respondents' costs in this Court.

Legal Principle / Ratio

A Mitakshara joint Hindu family firm is not an individual. It is a body of individuals, whether incorporated or not. When a debt is taken by an involuntary assignment under the law of the place where it is situated, that law decides the effect on the debtor's liability.

Key holding: "the said firm must be treated as 'a body of individuals whether incorporated or not'".

Subsequent Treatment

One later Supreme Court judgment, supplied as a supplementary file, names this case.

Vineeta Sharma v. Rakesh Sharma — Civil Appeal (Diary No. 32601 of 2018); Supreme Court of India; Arun Mishra, S. Abdul Nazeer and M.R. Shah, JJ.; 11 August 2020.

• Counsel's reliance (para 11): the amicus curiae, Mr R. Venkataramani, cited State Bank of India v. Ghamandi Ram for the point that the joint family body is purely a creature of law and cannot be created by act of parties (submission (c)). He cited it together with G. Narasimulu v. P. Basava Sankaram, AIR 1925 Mad. 249.
• Reproduction (para 29): the Court says that in Ghamandi Ram the formation, concept and incidents of the coparcenary were discussed. It reproduces the passages on collective ownership, the six incidents, the creature-of-law statement and the extracts from Sundarsanam Maistri.
• Analysis (para 30): the Court says the essential characteristics of coparcenary from Ghamandi Ram were analysed in Controller of Estate Duty v. Alladi Kuppuswamy. It reproduces that analysis, which lists six essential characteristics of a Hindu coparcenary.
• Citation list: the report lists Ghamandi Ram among the decisions referred to, with the citation (1969) 2 SCC 33 : [1969] 3 SCR 681.
• Not dealt with: the extracts in Vineeta Sharma concern coparcenary only. They do not discuss the notification, the Ordinance or the lex situs holding.

No other later case that names this case was found in the scan of the project judgments.

Critical Analysis

Analysis based on the judgment text.

The "creature of law" point is quoted, not argued. The Court takes the corporate-body description from Sundarsanam Maistri and adopts it. It gives no other reasoning for treating the firm as a body of individuals.

The two parts of the judgment are linked only by the result. The Mitakshara discussion decides the meaning of the notification. The private international law discussion decides extinction of the debt. The judgment does not say that the coparcenary incidents matter beyond the notification.

Parts of the report are unclear. The source text is garbled where it lists the second incident and misprints the surplus amount. The footnote and the headnote give different volume numbers for Sundarsanam Maistri. The reasoning on the Bank's liability is short: the Court states that the same position prevails in India.

Significance

• The case lists the six incidents of a Mitakshara coparcenary and states that it is a creature of law. Later Supreme Court judgments reproduce these passages.
• It treats a joint Hindu family as a body, not as an individual, in applying a statutory notification.
• It applies the English rule that a debt's situs governs its attachment or vesting in a custodian, and extends it to India.

Exam-Important Points

• Facts in one line: a family firm had a cash credit account and pledged goods at Bhawalpur. The Bank credited a surplus in 1948. Pakistan's 1949 Ordinance vested evacuee property in its Custodian from 1 March 1947.
• Holding: the firm is a body of individuals, not an individual, under the 1952 notification. The Bank's liability was extinguished under the lex situs.
• Six incidents of coparcenary:
  1. Ownership by birth up to three generations.
  2. Right to ask for partition.
  3. Ownership of the whole property conjointly.
  4. Common possession and enjoyment.
  5. No alienation except for necessity or with the coparceners' concurrence.
  6. The interest of a deceased member lapses to the survivors.
• A coparcenary is a creature of law and cannot be created by agreement. The one exception is adoption of a son.
• Trap: do not stop at the incidents. The result of the appeal came from the notification and from the lex situs rule.
• Assignability is governed by the proper law of the debt. Attachment or garnishment (involuntary assignment) is governed by the lex situs.
• Citation trap: the SCR page is 681, not 51 as printed in the source header.

Prepared from the full text of the judgment. The judgment has no numbered paragraphs, so no paragraph numbers are cited.