Bank of Bihar v State of Bihar

• Sugar was pledged with the appellant bank by a borrower under a cash credit agreement. Part of the sugar was seized by the Government, and its price was deposited in the treasury. The Cane Commissioner attached the price under the Public Demands Recovery Act for cess dues. The bank sued the State.

1. Whether the pawnee's rights in pledged goods are extinguished by a lawful seizure of the goods by the Government to satisfy its claims against the pawnor.

• A pawnee has a special property in the pledged goods and a lien that is not of an ordinary nature. So long as its claim is not satisfied, no other creditor of the pawnor can take away the goods or their price. A lawful seizure did not defeat the bank's rights. Since the Government's act deprived the bank of what it would have realised by sale on default, the State had to reimburse the bank, and other creditors could claim only the surplus.

A pawnee has a special property in the pledged goods. A lawful seizure by the State does not defeat that interest, and other creditors of the pawnor can reach only the surplus after the pawnee is paid. Where the State's act deprives the pawnee of what it would have realised by sale, the State must reimburse it.