Mr. Shekharan sells 100 bags of cement to Mr. Raghwan for cash and consigns goods to him through railways. He also sends the railway receipt to Mr. Raghwan. When the goods were in transit, Mr. Raghwan becomes insolvent and Mr. Raghwan sells the said goods to Mr. Ravi by assigning the railway receipt to Mr. Ravi who has no idea about the insolvency of Mr. Raghwan. Mr. Shekharan who is being unpaid seller wants to exercise his right to stoppage in transit. \n(a) State with reason, can Mr. Shekharan do so under the Sale of Goods Act, 1930? \n(b) Whether your answer would be same if Mr. Ravi have knowledge of Mr. Raghwan’s insolvency at the time of buying the goods?

According to Section 50 to 52 of the Sale of Goods Act, 1930, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit and he may resume possession of the goods as long as they are in the course of transit and may retain them until payment or tender of the price. However right of stoppage in transit is available only in the following conditions: \n(i) The seller must be an unpaid seller. \n(ii) When the buyer becomes insolvent; and \n(iii) When the goods are in transit. \nThis right of stoppage in transit is lost if buyer makes sub – sale of such goods during in transit and that buyer purchased in good faith. \n(a) On the basis of above provisions and facts, it can be said that even Mr. Shekharan is an unpaid seller, he cannot apply his right of stoppage in transit as goods has been taken by Mr. Ravi in good faith. \n(b) Further, if Mr. Ravi has knowledge of Mr. Raghwan’s insolvency at the time of buying the goods, Mr. Ravi has not bought the goods in good faith. Hence, Mr. Shekharan can exercise his right of stoppage in transit.