WRIT PETITION NO. 1602/2017

8th July 2022

Petitioner Counsel: Shri M. G. Bhangde, N. R. Saboo
Respondent Counsel: Shri S. V. Manohar, A. Sambre, Shri U. J. Deshpande
Act Name: Contract Act, 1872 Industrial Disputes Act, 1947 Bombay Warehouses Act, 1959 Maharashtra Co-operative Societies Act, 1960 Bombay Warehouses Rules, 1960 Constitution of India, 1950

HeadLine : Co-operative Societies – Co-operative bank loan – Warehousing Corporation, to which borrower pleged goods, against which loan disbursed by Co-operative bank, liable for payment of amount of loan in capacity of Surety of a member.

Section :
Section 126 Contract Act, 1872 Section 2(k) Industrial Disputes Act, 1947 Section 2(b) Bombay Warehouses Act, 1959 Section 17 Bombay Warehouses Act, 1959 Section 32 Bombay Warehouses Act, 1959 Section 43 Maharashtra Co-operative Societies Act, 1960 Section 44 Maharashtra Co-operative Societies Act, 1960 Section 45 Maharashtra Co-operative Societies Act, 1960 Section 73-G Maharashtra Co-operative Societies Act, 1960 Section 73-1C Maharashtra Co-operative Societies Act, 1960 Section 91 Maharashtra Co-operative Societies Act, 1960 Section 91(1)(b) Maharashtra Co-operative Societies Act, 1960 Section 91(1)(d) Maharashtra Co-operative Societies Act, 1960 Section 101(1) Maharashtra Co-operative Societies Act, 1960 Section 101(2) Maharashtra Co-operative Societies Act, 1960 Section 137(1) Maharashtra Co-operative Societies Act, 1960 Section 152 Maharashtra Co-operative Societies Act, 1960 Section 152A Maharashtra Co-operative Societies Act, 1960 Section 154 Maharashtra Co-operative Societies Act, 1960 Section 156(J) Maharashtra Co-operative Societies Act, 1960

Cases Cited :
Para 10: Deccan Merchants Co-operative Bank Ltd. Vs. M/s. Dalichand Jugraj Jain & others, reported in AIR 1969 SC 1320
Para 10: I. R. Hingorani Vs. Pravinchandra Kantilal Shah & ors. reported in (1973) 2 SCC 301
Para 10: Marine Times Publications Pvt. Ltd. Vs. Shriram Transport & Finance Co. Ltd. & another, reported in (1991) 1 SCC 469
Paras 10, 27: Phoenix Arc, Private Limited Vs. Ketulbai Ramubhai Patel, reported in (2021) 2 SCC 799
Paras 11, 16: S. Chattanatha Karayalar Vs. The Central Bank of India Ltd. & Ors. reported in AIR 1965 SC 1856
Paras 11, 17: Morvi Mercantile Bank Limited Vs. Union of India, reported in AIR 1965 SC 1954
Para 17: Ramdas Vithaldas Durbar Vs. S. Amerchand & Co. [(1916) LR 43 IA 164]
Para 17: Official Assignee of Madras Vs. Mercantile Bank of India, Ltd. [(1034) LR 61 AI 416, 432]

JUDGEMENT

1. RULE. Rule made returnable forthwith. Heard finally by consent of parties. For convenience, Writ Petition No. 1602/2017 is treated as the lead petition for delivering this judgment. Accordingly, the description of facts and submissions in the following judgment corresponds to this petition. Though broadly speaking, facts in all three petitions are similar except amounts mentioned in the dispute. Hence all three Writ Petitions are disposed of by common judgment.

2. By these Petitions under Articles 226 & 227 of the Constitution of India, the Petitioners are challenging the judgment and order passed by the Member, Maharashtra State Co-operative Appellate Court, Mumbai, Bench at Nagpur in Appeal filed by them holding the Petitioners liable for payment of the amount of loan in capacity of surety of a member.

3. A brief recapitulation of facts would bring the matter into proper perspective for better appreciation of the issues involved:-
Respondent No. 1 – Bank filed a dispute under Section 91 of the Maharashtra Co-operative Societies Act (hereinafter referred to as "the said Act") for recovery of the amount against Respondent Nos. 2 to 4. Respondent No. 1 granted a loan to Respondent No. 2, for which Respondent Nos. 3 and 4 were the Guarantors. According to Respondent No. 1, Respondent No.2 stored the goods in the warehouse of the Petitioners. Petitioner No. 1 issued a receipt accepting the lien/charge of Respondent No.1 Bank over the said goods. Respondent No.1 disbursed the loan on the basis of the receipt issued by Petitioner No. 1. It is contended that on 15/01/2007, the news was published in the Dainik Lokmat stating that Manager of the Petitioner No. 1 committed a large scam. Therefore, the Manager of Respondent No.1 – Bank called upon Petitioner No. 1 about the information of the receipts pledged with Respondent No.1 – Bank. Inspite of several reminders issued by the Bank, there was no response from Petitioner No. 1. It was communicated to the Bank that the Manager of the Petitioner No. 1 had committed fraud and misappropriated the amount. Therefore the First Information Report came to be lodged with Police Station Pusad. It was informed that no stock or goods were lying with the warehouse under receipts mentioned at Serial Nos. 1 to 8 pertaining to Respondent No. 2 – Borrower. It is therefore contended that the Petitioners are liable for the acts, commission and omission done by their servants and therefore liable to make good the loss caused to the Bank. It is averred that the Petitioners are joined as necessary parties and proper parties to the dispute. Therefore the Co-operative Court has jurisdiction to decide the same against the Petitioners.

4. Respondent No. 2 – Borrower resisted the dispute by filing a written statement. He denied the entire claim of Respondent No.1 – Bank and prayed for dismissal of the dispute. The Respondent Nos. 3 and 4 appeared in the said dispute but failed to file the written statement, and therefore the dispute proceeded ex-parte against them.

5. The Petitioners contested the dispute by filing a written statement. According to them, the dispute under Section 91 of the said Act is not maintainable against them as they are not the Members. In Paragraph 3 of the written statement, the Petitioners raised the defence that Respondent No.1 – Bank has not pleaded or stated how the Petitioners can be made parties under Section 91 and how they are liable for the amount prayed in the dispute. In the absence of statutory pleadings against the Petitioners, the dispute against them is not maintainable and therefore is liable to be dismissed. According to them, the goods as contended by the Bank were not deposited with the Petitioners, and only fraudulent warehouse receipts obtained from the then Manager were deposited with Respondent No.1 – Bank. According to them, on the basis of such fraudulent receipts, the Petitioners are not liable. At the most, the then Manager is personally liable. They denied that the Bank Manager of the Disputant had never visited the warehouse where the goods under alleged receipts were stored. It is contended that Respondent Nos. 2 to 4, in collusion with the then Manager, with an intention to obtain a loan from the Disputant – Bank, prepared bogus receipts. They denied that the Petitioners are liable for the acts of their Manager.

6. The learned Co-operative Court, after framing the issues, permitted both the parties to lead evidence. Respondent No. 1 – Bank examined its witness. Respondent No. 2 examined himself. The Petitioners did not adduce any evidence. The learned Co-operative Court, after considering the evidence on record and after hearing the parties, partly allowed Dispute No. 292/2008, directing Respondent Nos. 2 to 4 to pay the amount of loan along with interest to Respondent No. 1 – Bank. The learned Co-operative Court dismissed the dispute against the Petitioners.

7. Respondent No. 1 – Bank, aggrieved by the judgment and order dated 30/09/2015 dismissing the dispute against the Petitioners, filed Appeal No. 76/2015. After hearing both sides, the learned Member, Co-operative Appellate Court, allowed Appeal No. 76/2015, holding the Petitioners jointly and severally liable to pay the loan amount along with interest. The Co-operative Appellate Court also held Respondent Nos. 2 to 4 jointly and severally liable to pay the amount of Respondent No. 1 along with the Petitioners. The Petitioners have therefore filed the present Writ Petition.

8. I have heard learned Senior Advocates for both sides.

9. Mr. Bhangde learned Senior Advocate for the Petitioners submitted that Respondent No.1 – Bank failed to plead the jurisdictional facts on how the dispute against the Petitioners is maintainable before the Co-operative Court under Section 91 of the said Act. According to him, if Respondent No.1 wanted to base its claim under Section 91(1)(b) or Section 91(1)(d), the pleadings to that effect must have been incorporated in the dispute itself. It was necessary for Respondent No.1 to plead as to whether the dispute against the Petitioners was under Section 91(1)(b) or Section 91(1)(d). He invited my attention to the dispute and submitted that the tenor of the dispute against the Petitioners is to the effect that the Petitioners are made parties to the dispute as they are vicariously liable for the acts of their Manager. They are necessary parties in the dispute. He submitted that assuming there is pleading regarding the jurisdictional facts, the Petitioners are not claiming through Member of Co-operative Society and therefore, the ingredients of Section 91(1)(b) of the said Act are not fulfilled. He submitted that the transaction entered into by Respondent No. 2 – Borrower with the Petitioners was not in the capacity as a Member of the Co-operative Society but as the owner of the goods. Therefore the dispute is not maintainable under Section 91(1)(b) of the said Act. Insofar as Section 91(1)(d) of the said Act is concerned, he relied on Section 126 of the Contracts Act to urge that Petitioners are not the surety within the meaning of the Contract Act. He invited my attention to the loan documents to urge that Respondent No. 3 is shown as Guarantor in the loan documents. He submitted that considering the documents on record executed by Respondent No. 3 in favour of Respondent No. 2, it is Respondent No. 3 who can be termed as surety within the meaning of Section 91(1)(d) of the said Act. He submitted that there are two independent contracts executed by Respondent No. 2 – Borrower. The first contract is executed by Respondent No. 2 – Borrower in favour of the Respondent No. 1, and the second contract is independently executed by Respondent No. 2 – Borrower in favour of Petitioner No. 1. Therefore, in the absence and privity of the contract between the Petitioners and the Respondent No. 1, no liability could have been saddled on the Petitioners. Respondent No. 2, while pledging goods with Petitioner No.1, was not acting as a Member of the Society but as the owner of the goods.

10. He submitted that Section 17 of the Bombay Warehouses Act, 1959 (hereinafter referred to as “the Act of 1959”) requires the depositor to surrender the receipt and pay the charges. He submitted that from the cross-examination of the witness of Respondent No. 1, it is clear that original receipts were with the Petitioners, which shows that the receipts were not surrendered to the Petitioners and, therefore, the provisions of the Act would not be applicable. He submitted that the period mentioned in the receipt dated 30/09/2006 was only from 19/04/2006 to 18/07/2006, and thereafter it was not renewed. He submitted that the contents of the warehouse receipt disclose that Petitioner No. 1 was not Mercantile Agent but only bailee. He invited my attention to the letter dated 20/04/2006 to urge that Respondent No. 1 was aware of the expiry of the period and therefore called upon the Respondent No. 2 to renew the said receipt. He placed reliance on the following judgments:-
“(a) Deccan Merchants Co-operative Bank Ltd. vs. M/s Dalichand Jugraj Jain & others reported in AIR 1969 SC 1320;
(b) I.R. Hingorani vs. Pravinchandra Kantilal Shah & ors. reported in (1973) 2 SCC 301;
(c) Marine Times Publications Pvt. Ltd. vs. Shriram Transport & Finance Co. Ltd. & another reported in (1991) 1 SCC 469; and
(d) Phoenix Arc, Private Limited vs. Ketulbai Ramubhai Patel reported in (2021) 2 SCC 799.”

11. Per contra, Mr. S.V. Manohar learned Senior Advocate invited my attention to the provisions of Sections 17 and 32 of the Act of 1959 and Rules 26, 27 and 28, 33 and 35 of the Bombay Warehouses Rules, 1960 (hereinafter referred to as “the Rules of 1960”) to urge that the status of the Petitioners is that of surety. Since Respondent No. 1 – Bank is the depositor within the meaning of Section 2(b) of the Act of 1959, it is the duty of the Petitioners to deliver the goods in the warehouse to Respondent No. 1 on demand. He submitted that the date of sanction of loan, verification of stock as per the warehouse receipt by the Branch Manager, Letter by Branch Manager to create a charge on receipt, Confirmation of charges by Warehousing Corporation by taking note of the transfer of receipt to Respondent No. 1, Letter by Branch Manager sanctioning the loan and Letter of Continuity, Promissory Note and Agreement took place on the same day. Therefore even if the transaction is contained in more than one document between the same parties, they must be read and interpreted together. They have the same legal effect for all purposes as they are one document. He submitted that Respondent No. 1 had confirmed the creation of charge by Warehousing Corporation by taking note of the transfer of receipt. Therefore, the status of the Petitioners is that of surety. He submitted that the Petitioners' defence before the Co-operative Court was that the warehouse receipts were bogus and no goods were pledged with the Petitioners. Therefore it was not necessary for the Petitioners to surrender the receipt and pay all the charges as contemplated under Section 17 of the Act of 1959. He submitted that the Petitioners had not challenged the evidence of the Bank's witness by cross-examining him. The Petitioners lead no evidence in supporting their defence. He submitted that the basic facts to draw legal inference about the fulfilment of the ingredients of Section 91 are pleaded. It is unnecessary to plead the exact words of the provision conferring jurisdiction on the Court. He submitted that the value of goods pledged in favour of the Petitioners is more than the loan amount; therefore, the guarantee of the Petitioners for the value of goods would include the amount of loan. In support of his submissions, he placed reliance upon the judgment of the Hon'ble Apex Court in the case of S. Chattanatha Karayalar vs. The Central Bank of India Ltd. & Ors. reported in AIR 1965 SC 1856 and Morvi Mercantile Bank Limited vs. Union of India reported in AIR 1965 SC 1954.

12. The main thrust of Mr. Bhangde learned Senior Advocate's arguments revolves around the Co-operative Court's jurisdiction to entertain the dispute against the Petitioners. For a proper appreciation of the question involved, it is necessary to reproduce Section 91 of the said Act, which reads as under:-
“91. Disputes:- (1) Notwithstanding anything contained in any other law for the time being in force, any dispute touching the constitution, elections of the committee or its officers other than elections of committees of the specified societies including its officer, conduct of general meetings, management or business of a society shall be referred by any of the parties to the dispute, or by a federal society to which the society is affiliated or by a creditor of the society, to the co-operative Court if both the parties thereto are one or other of the following:-
(a) a society, its committee, any past committee, any past or present officer, any past or present agent, any past or present servant or nominee, heir or legal representative of any deceased officer, deceased agent or deceased servant of the society, or the Liquidator of the society or the official Assignee of a de-registered society.
(b) a member, past member of a person claiming through a member, past member of a deceased member of society, or a society which is a member of the society or a person who claims to be a member of the society;
(c) a person other than a member of the society, with whom the society, has any transactions in respect of which any restrictions or regulations have been imposed, made or prescribed under sections 43, 44 or 45, and any person claiming through such person;
(d) a surety of a member, past member or deceased member, or surety of a person other than a member with whom the society has any transactions in respect of which restrictions have been prescribed under section 45, whether such surety or person is or is not a member of the society;
(e) any other society, or the Liquidator of such a society or-de-registered society or the official Assignee of such a deregistered society.
Provided that, an industrial dispute as denned in clause (k) of section 2 of the Industrial Disputes Act, 1947, or rejection of nomination paper at the election to a committee of any society other than a notified society under section 73-1C or a society specified by or under section 73-G, or refusal of admission to membership by a society to any person qualified therefore or any proceeding for the recovery of the amount as arrear of land revenue on a certificate granted by the Registrar under sub-section (1) or (2) of section 101 or sub-section (1) of section 137 or the recovery proceeding of the Registrar or any officer sub ordinate to hi m or an officer of society notified by the State Government, who is empowered by the Registrar under sub-section (J) of section 156, or any orders, decisions, awards and actions of the Registrar against which an appeal under section 152 or 152A and revision under section 154 of the Act have been provided shall not be deemed to be a dispute for the purposes of this section.”

13. The language of Section 91 makes it clear that the Co-operative Court shall have jurisdiction in relation to the nature of disputes mentioned in Sub-Section (1) if both parties are one or the other of those mentioned in Sub-Sections (1)(a) to (1)(e). It is not in dispute that Respondent No. 1 is a cooperative society registered under the provisions of the said Act. The only bone of contention is the Petitioners' status with the Society. According to Respondent No. 1, Petitioners would fall within the "a person claiming through a member" and under the expression "a surety of a member".

14. Considering the submissions made on behalf of both sides and on going through the provisions of the Rules of 1960 and the evidence on record, I am of the opinion that the Petitioners' status would fall within the expression "a surety of a member". The reasons for holding the Petitioners "a surety of a member" are as under:-
“(i) A warehouse receipt issued according to the provision Bombay Warehouses Act, 1959 and Rules of 1960, is having the status of the Negotiable Instruments in favour of Respondent – Bank;
(ii) The status of the Petitioners mentioned in the said receipt as Mercantile Agent.;
(iii) The confirmation of the creation of charge by the Petitioners by taking note of the transfer of receipt in favour of the Bank had taken place on the same day when the loan amount was sanctioned to the borrower, and other documents in the form of Letter of Continuity, Promissory Note and Loan Agreement are executed resulting into the part of one transaction, having effect for all purposes as one document.”

15. At this stage, it is necessary to reproduce Sections 2(b), 17, and 32 of Bombay Warehouses Act, 1959 and Rules 26, 27, 28, 33 and 35 of the Rules of 1960 read as under:-
“2. In this Act, unless the context otherwise requires,—
(b) "depositor" means a person who deposits goods with a warehouse for storing in his warehouse and includes any person who lawfully holds the receipt issued by the warehouseman in respect of the goods and derives title thereto by endorsement or transfer from the depositor or his lawful transferee;
17. Every warehouseman in the absence of any reasonable or lawful excuse, shall, without unnecessary delay, deliver the goods stored in his warehouse to the depositor on demand made by him and on surrender of the receipt duly discharged and on payment of all the charges due to the warehouseman. Subject to any agreement between the warehouseman and the depositor, the depositor may make partial delivery of the goods stored in the warehouse.
32. A receipt issued by a warehouseman shall, unless otherwise specified on the receipt, be transferable by endorsement and shall entitle its lawful holder to receive the goods specified in it on the same terms and conditions on which the person who originally deposited the goods would have been entitled to receive them.
Rules:
26. Duty to Deliver:-
Subject to the conditions laid down in section. 17. every warehouseman shall deliver the goods stored in his warehouse
(a) Where the goods are covered by a negotiable receipt, to the bearer, and
(b) Where the goods are covered by a non-negotiable receipt, to the depositor.
27. Part delivery of goods:-
If a warehouseman delivers part of the goods for which a negotiable receipt has been issued, he shall on such receipts, make a statement giving particulars of the goods which have been so delivered. On his failure to make such statement the warehouseman shall be liable for failure to deliver all the goods specified in the receipt to any one who purchases the receipt in good faith and for valuable consideration whether the purchaser acquired title to the receipt before or after the delivery of any portion of the goods.
28. Warehouseman not to release goods pledged by depositor:-
If the goods covered by a negotiable receipt are pledged by the depositor with a bank, thereby creating a lien in favour of the bank on such goods, the warehouseman shall,
(i) on receipt of a written notice from the bank intimating the lien, acknowledge the notice in writing; and
(ii) shall not release the goods without the consent of or due notice to the bank.
33. Effect of sale:-
Where goods have been lawfully sold to satisfy a warehouseman's lien, or have been lawfully sold or disposed of pursuant to the provisions of rule 32, the warehouseman shall not be liable for failure to deliver goods to the holder of the receipt.
35. Removal of transfer of goods by warehouseman:-
Except in the event of an emergency or genuine necessity on account of which immediate removal or transfer of goods becomes necessary, no warehouseman shall remove any goods stored in his warehouse or transfer them to another warehouse without first obtaining the receipt in respect thereof, cancelling the same after issuing a new receipt.”

16. A conjoint reading of Section 2(b) with Section 17, Section 32 and Rule 26, in my opinion, it can be safely concluded that the Petitioners' status is that of "a surety of a member". This finding derives support from the judgment of the Hon’ble Apex Court in the case of S. Chattanatha Karayalar (supra). The Hon'ble Apex Court in the said case was interpreting the dispute arising out of similar facts where similar documents were executed in favour of the Bank on a single day. The contract of guarantee executed in favour of the Plaintiff – Bank was contemporaneous with the Promissory Note. The Bank was party to the Contract of Hypothecation executed by the borrower as a security for the loan. The Hon'ble Apex Court, in the context of the aforesaid facts, observed as under:-
“3. The first question presented for determination in this case is whether the status of the 3rd defendant in regard to the transaction of overdraft account is that of a surety or of a co-obligant. It was argued by Mr. Desai on behalf of the appellant that the High Court has misconstrued the contents of Exs. A and B in holding that the 3rd defendant has undertaken the liability as a co-obligant. It was submitted that there was an integrated transaction constituted by the various documents---Exs. A, B and G executed between the parties on the same day and the legal effect of the documents was to confer on the 3rd defendant the status of a surety and not of a co-obligant. In our opinion, the argument put forward on behalf of the appellant is well-rounded and must be accepted as correct. It is true that in the promissory note--Ex. B all the three defendants have "jointly and severally promised to pay the Central Bank of India Ltd. or order a sum of Rs. 4 lakhs only together with interest on such sum from this date", but the transaction between the parties is contained not merely in the promissory note--Ex. B--but also in the letter of continuity dated November 26, 1946--Ex. A which was sent by the defendants to the plaintiff bank along with promissory note-- Ex. B on the same date. There is another document executed by defendant No. 1 on November 26, 1946---Ex. G-Hypothecation agreement. The principle is well- established that if the transaction is contained in more than one document between the same parties, they must be read and interpreted together and they have the same legal effect for all purposes as if they are one document.
4. …..It is true that s. 126 of the Contract Act requires that the creditor must be a party to the contract of guarantee. It is also true that under S.132 of the Contract Act the creditor is not bound by any contract between the codebtors that one of them shall be liable only on the default of 'the other even though the creditor may have been aware of the existence of the contract between the two co-debtors. In the present case, however, the legal position is different, because the plaintiff- bank was a party to the contract of guarantee--Ex. A which is contemporaneous with the promissory note--Ex. B. The plaintiff-bank was also a party to the contract of hypothecation executed by defendant No. 1 in which it is stated that the plaintiff-bank had agreed to open a Cash Credit Account to the extent of Rs. 4 lakhs in favour of defendant No. 1. It is manifest, therefore, in the present case that the requirements of S.126 of the Contract Act are satisfied and defendant No. 3 has the status of a surety and not of a coobligant”

17. The aforesaid finding derives further support from the judgment of the Hon’ble Apex Court in the case of Morvi Mercantile Bank Limited (supra), wherein the Hon'ble Apex Court, while dealing with a Suit for restoring the value of goods, was called upon to interpret the scope of requirements to constitute a pledge. In that context, the Hon'ble Apex Court, in Paragraphs 11 and 14, observed as under:-
“11. The law on the subject, as we conceive it, may be stated thus: An owner of goods can make a valid pledge of them by transferring the railway receipt representing the said goods. The general rule is expressed by the maxim Nemo dat quod non habet, i.e., no one can convey a better title than what he had. To this maxim, to facilitate mercantile transactions, the Indian law has grafted some exceptions, in favour bona fide pledges by transfer of documents of title from persons, whether owners of goods or their mercantile agents who do not possess the full bundle of rights of ownership at the time the pledges are made. To confer a right to effect a valid pledge by transfer of documents of title relating to goods on owners of the goods with defects in title and mercantile agents and to deny it to the full owners thereof is to introduce an incongruity into the Act by construction. On the other hand, the real intention of the Legislature will be carried out if the said right is conceded to the full owner of goods and extended by construction to owners with defects in title or their mercantile agents.
14. The last question is whether the Bank was the pledgee of the goods or was only the pledgee of the documents of title whereunder they could only keep the documents against payment by the consignee as contended on behalf of the Railway. The firm borrowed a sum of Rs. 20,000/- from the Bank and executed a promissory note, Ex. 104, dated October 6, 1949, in its favour. It also endorsed the railway receipts Nos. 233/27, 233/35 and 233/36 in favour of the Bank. The Accountant of the Bank deposed that the railway receipts were endorsed in favour of the Bank, which had advanced the said amount to the firm on the security of the said railway receipts. The evidence of this witness was not challenged in the High Court. The Bank advanced a large amount of money to the firm. The three transactions, namely the advancing of loan the execution of the promissory note and the endorsement of the railway receipts, together form one transaction. Their combined effect is that the Bank would be in control of the goods till the debt was discharged. This is a well known practice followed by Banks. The Judicial Committee both in .(Ramdas Vithaldas Durbar v. S. Amerchand & Co.[(1916) LR 43 IA 164] , and Official Assignee of Madras v. Mercantile Bank of India, Ltd.[(1034) LR 61 AI 416, 432] held that such a transaction was a pledge. We, therefore, hold on the facts of this case that the firm by endorsing the railway receipts in favour of the Bank for consideration pledged the goods covered by the said receipts to the Bank.”

18. It is submitted on behalf of the Petitioners that the period of warehouses receipt was from 19/04/2006 to 18/07/2006. In my opinion, in the absence of consequence of non-renewal stated in the said Act or Rules, the relationship of creditor or surety of member would not be affected by the expiry of the period in the receipt.

19. Therefore, in my opinion, the Respondent – Bank has successfully established that the Petitioners are “a surety of a member” within the meaning of Clause 1(d) of Section 91 of the said Act.

20. Another important point raised on behalf of the Petitioners is the absence of pleading of jurisdictional fact regarding the Petitioners' status. According to the Petitioners, it was necessary for the Respondent – Bank to specifically plead whether the Petitioners are the “person claiming through a member” or “a surety of a member” or fulfil the description of any other ingredients of Section 91 of the said Act.

21. To consider the Petitioners' submission regarding the absence of the pleading, it is necessary to consider the object of the pleading. The whole object of the pleading is to bring the parties to definite issues, diminish the expenses, and prevent the element of surprise at hearing of a Suit. A party to the litigation is entitled to understand the exact cause of his opponent so that he can meet the specific case. The sole object of the pleading is to ascertain the exact dispute between the parties to narrow the disputed area of conflict and to prevent the element of surprise by the Opponents. The object of the pleading is to make the parties to litigation alive to the question so that they have the opportunity to bring on record the evidence in support of their case.

22. It is well-settled that pleadings must state the facts and not a law. The facts stated should be material facts. The pleadings don't need to state the evidence. However, the facts must be stated in a concise form.

23. In light of the objection to the absence of pleading of jurisdictional fact, it is well-settled that the legal consequences that flow from the facts need not be stated in the pleading. The party must set out the facts and not inferences drawn from facts. The inferences of law to be drawn from the pleaded facts need not be stated in the pleading. The Court must consider the legal result of the pleaded facts, although the said legal result may not have been stated in the pleading. The Court must apply the correct law even if the party pleads with the incorrect law.

24. The laws of procedure are based on the principle that as far as possible, no Proceedings in a Court of law should be allowed to be defeated on mere technicalities. After all, procedural technicalities cannot be permitted to frustrate justice. In the light of the legal position, as stated above, it is necessary to scrutinize the pleadings in the dispute to ascertain whether the necessary facts to draw the legal inference that the Petitioners are “a surety of a member” is pleaded or not. The Disputant – Bank, in Paragraph 2, has pleaded as under:-
“2. …..It is submitted that as per the provisions of Bombay Wear Houses Act, 1959 and also under the provisions of Negotiable Instruments Act, such a receipt of Wear Housing Corporation is “Negotiable” and can be pledged with a Co-operative Bank of obtaining the loan.
…..It is submitted that the opponent No. 1 had accordingly submitted an application dated 20-4-2006 duly filled and signed by him and on receiving the same the Branch Manager of the disputant bank of Main Branch Pusad had then visited the Wear House at Pusad where the goods were stored under the said receipt and on verifying the stock the Branch Manager of the Main Branch Pusad gave a letter dated 20-4-2006 to the opponent No. 5 thereby calling him to create a charge on the goods stored under the receipts by the opponent No. 1. On receiving the letter the opponent No. 5 issued a receipt of having accepted the lien/charge over the said goods of the disputant bank dated 20-4-2006.
…..On execution of all these documents and on the basis of receipt issued by the opponent No. 5, the disputant bank allowed the opponent No. 1 to avail the loan facility and accordingly the amount was disbursed to him.”

25. Having carefully scrutinized the aforesaid pleading, in my opinion, the foundational facts to raise a legal inference that the status of the Petitioners is that of “surety of a member” are pleaded by the Bank. It is true that in the ordinary course, the jurisdictional facts need to be pleaded. But in the present dispute, in my opinion, the pleading referred above is sufficient to draw an inference that the Petitioners are “a surety of a member”.

26. The effect of recording a finding that the Petitioners' status would be that of "a surety of a member" creates liability in favour of Respondent No. 1 – Bank by the Petitioners to the extent of the value of goods. It is a proven fact that in relation to all loans, the value of goods on the date of the loan was much more than the value of the loan. For example, in Writ Petition No. 1602/2017, the loan amount on the date of sanction was Rs. 38,59,000/- and the value of stocks as per the proved warehouse receipt was Rs. 55,14,300/-. In Writ Petition No. 2083/2017, the amount of loan on the date of sanction was Rs. 54,35,000/- and the value of stocks as per the proved warehouse receipt was Rs. 77,81,400/- and in Writ Petition No. 4424/2017, the amount of loan on the date of sanction was Rs. 26,90,000/- and value of stocks as per the proved warehouse receipt was Rs. 38,55,025/-.

27. Insofar the judgment in the case of Phoenix Arc, Private Limited (supra) is concerned, in the facts of the said case, the Appellant therein was not a party to the promise given by Corporate Debtor to repay the debt recoverable from the Borrower, and therefore the said judgment would not be applicable to the facts of the present case. Additionally, in the present case, the Respondent – Bank has proved the warehouse receipt issued under the provisions of the Act of 1959, creating an obligation on the part of the Petitioners to deliver the goods which the Petitioners have failed to deliver. Finally, insofar the other judgments relied upon by the Petitioners are concerned, the said judgments would be relevant if the Petitioners would be held to be covered under Section 91(1)(b) of the said Act, but since the Petitioners are held to be covered under Section 91(1) (d) of the said Act, the said judgments relied upon by the Petitioners are not attracted.

28. Therefore, in my opinion, Respondent No. 1 – Bank has proved that the Petitioners stood surety to the extent of the value of goods which was much less than the amount of loan. Respondent No. 1 – Bank has proved the documents such as the warehouse receipt, Application for grant of loan, Application for hypothecation of goods, warehousing stocks as per the warehouse receipt by the Branch Manager, Letter by the Bank Manager to create the charge of the warehouse receipt, Confirmation of charge by the Petitioners taking note of transfer of warehouse receipt in favour of the Respondent – Bank, Letter by the Bank Manager sanctioning the loan, Letter of Continuity, Promissory Note and Agreement between the Borrower by examining its witness. The Petitioners have failed to cross-examine the Bank’s witness. The Petitioners have also failed to lead oral evidence supporting its defence. Therefore, in the absence of challenge to the testimony of the witness of Respondent No. 1 – Bank, the evidence of Respondent No. 1 – Bank is sufficient to prove the amount of disbursement of loan in favour of the Borrower and the Petitioners having stood the surety to the said loan to the extent of the value of goods pledged. Therefore, in my opinion, the Co-operative Appellate Court was justified in allowing the Appeal.

29. There is no merit in the Writ Petitions, and the same are therefore dismissed. Rule is discharged. Pending Application(s), if any, stand(s) disposed of.