Harilal Kania, Kt. , C. J. - (1.)THIS is an appeal from a judgment of a division bench of the High Court at Bombay setting aside a decree of a single Judge of that Court. The material facts are these :
(2.)BY January 1940 Mr. Meyer Nissim (hereafter referred to as Nissim), defendant No.4, had borrowed from defendant No.2 bank Rs. 75,000 on the security of 26,000 shares of the first defendant company and passed two letters of hypothecation in the same terms in favour of the bank. The letter of hypothecation provided that all securities which may from time to time be held by the bank of Nissim's account shall be security for repayment of the outstanding general balance of all and every loan or account of his with the bank, including interest. It further provided as follows :-" With power to you (the bank) at your discretion to sell or a sufficient portion of such securities in the event of my not maintaining a margin of 40 per cent, on the market value of the securities for the time being or on my failing to repay the amount of any loan made by you to me on the due date of such loan," On these shares the company claimed a lien for Rs. 1,10,000. When Nissim pledged the shares with the bank, he had signed five transfer forms (Ex. A-S) in blank and had given them to the bank. Barring Nissim's signature as transferor, which was witnessed, the forms were blank. The name of the company, viz. the Assian Assurance Company Ltd. was however filled in.
Nissim was also a debtor to the bank in other accounts. He had underwritten the issue of new shares of the bank and Rs. 95,000 were due to the bank by Nissim on that account. The bank claimed a lien on those shares. Nissim had further guaranteed repayment to the bank of loans standing to the debit of Kuberdas Raghavji and Issac Mera.

Mr. Jamnadas Mehta (defendant No.3) was the Chairman of the Board of Directors of the company and also of the bank. He and Nissim were great friends and they had also money dealings. It appears that there arose a disagreement between Jamnadas and Nissim and on March 1, 1940, Nissim filed suit No.396 of 1940 in the High Court of Bombay against Jamnadas claiming Rs. 93,248 or accounts. Nissim alleged in his plaint that several loans that were taken from the bank in his name were to accommodate Jamnadas and they were really the debts of Jamnadas. Evidently, when this became known to Jamnadas, he got a resolution passed by the bank recalling the loans paid to Nissim against the company's shares "as they were repayable by March 1940. " In pursuance of this resolution a notice was sent by the bank to Nissim on April 12, 1940, requiring him to repay the loan. There is no document to show that there was an agreement or understanding under which Nissim had to repay the loan by the end of March 1940. In the last para of the bank's letter it is stated that the loan may be repaid, if possible, fully or at least some partial repayment of Rs. 25,000 or Rs. 30,000 at least may be made. Nissim did not repay anything and the bank did nothing thereafter.

(3.)THE evidence shows that Jamnadas had the complete controlling voice in the management of the bank and the managing director was practically under his thumb. Late in June 1940, when Nissim's very involved financial condition became known, it appears that there was some talk between Jamnadas representing himself, Jamnadas and some officers of the bank representing the bank, and Nissim, and it was then suggested that Jamnadas should take over, so far as the bank was concerned, all the liabilities and securities of Nissim. On July 6, 1940, Jamnadas wrote to Deshpande, the managing director of the bank, a letter in the following terms:-"with reference to our conversation last week about the disposal of Mr. Nissim's share in the Asian Assurance Company, Ltd. , I shall be glad to buy them myself for Rs. 73,000 only. Please place this offer of mine before our next Committee meeting. " THEre is no evidence to show that this letter was written with the knowledge or consent of Nissim. On July 10, 1940, Jamnadas wrote another letter to Deshpande in the following terms:- "i have consulted Dr. T. N. Kajiji and he has agreed to allow his name as the purchaser of Mr. Nissim's shares. In case of any difficulty arising you may take my assurance that I shall remain ultimately responsible, as already personally stated to you. " THE shares there referred to were the shares of the bank itself. Later in the day, on July 10, 1940, a meeting of the executive committee of the bank was held at which Mr. Jamnadas presided. Resolution No.7 was in these terms :-" Resolved that the offer of Mr. J. M. Mehta for buying the shares numbering 26,000 in all of the Asian Assurance Company Ltd. standing in the name of Meyer Nissim for a sum of Rs. 73,000 or thereabouts, as contained in his letter of the 6th instant, be and is hereby accepted and Mr. J. M. Mehta's account be debited with the purchase price. " Another resolution in respect of the bank shares was passed at the same meeting and was in these terms:-'"resolved that the transfer of the following shares as stated in a separte statement signed by the Chairman be and is hereby sanctioned. (ii) Transfer from underwriter Mr. Meyer Nissim 4373 shares. . . transferee Dr. T. M, Kajiji, Bar-at Law. and it is further resolved that Dr. T. M. Kajiji should be debited with the purchase price of the shares at par. " On the same day Jamnadas executed in favour of the a bank pro-note for Rs. 75,000 and also a letter of hypothecation in terms similar to those passed by Nissim. Deshpande made the following endorsement in red pencil on the overdraft account of Nissim with the bank : 1. Ledger clerk to note.
Mr. Meyer Nissim's O/d a/c is to be closed as Mr. Jamnadas Mehta has agreed to buy the 22,000 shares of the Asian Assurance Company pledged with the bank by Mr. Nissim. The Ex-Company approved the transaction as per resolution No.7 of July 10, 1940. Mr. J. M. Mehta's a/c is to be debited with the purchase price, but for final closing of the account and the adjustments the account be kept formally open the date of the balance sheet for the ratification of the transaction by the full Board. " According to that account, Rs. 76,194-13-0 were due by Nissim to the bank on that day. Deshpande drew two horizontal lines in red pencil below that debit balance, put down his initials and date July 10, 1940. Although Jamnadas had an account with the bank, no amount was debited to Jamnadas at all. In the security register an entry appears under date July 10, 1940, reciting that the shares were purchased by Jamnadas and pledged with the bank. It cannot be stated when that entry was made. In the remarks column against that entry it is stated "the amount to the debit of Mr. Meyer Nissim actually transferred to Mr. Jamnadas N. Mehta's account on 31-2-41 on being ratified by the Board. Sd/ M. C. Pranjpe. " In spite of Deshpande drawing lines in red pencil in the overdraft account of Nissim, on July 18, 1940, Rs. 2,132 were credited to that account by a transfer from Nissim's current account. On September 12, Rs. 165 were debited in that overdraft account by a transfer from Nissim's current account. The account was continued in Nissim's name and quarterly interest was debited therein on October 25 and December 31, 1940, and March 26, 1941. The account was closed as on March 31, 1941, in pursuance of a resolution of the directors passed at their meeting held on April 15, 1941, by crediting Rs. 76,986-5 to Nissim and debiting the same to Jamnadas's overdraft account. The evidence further shows that the debit entry in the name of Jamnadas was made in the suspense account and remained in that way in the bank's books till 1944.