Banker right of lien
Deepak
(Querist) 19 January 2014
This query is : Resolved
Ques: A is having a Car loan account in bank in which his brother 'B' is guarantor giving only personal guaranty. 'B' brother of 'A' is also having an agricultural CC limit in same bank. Now he want to discharge his CC limit account in which he has deposited title deed. B is claiming title deed, Can bank exercise right of lien by holding title deed for recovering amount for car loan account of his brother A which is declared NPA. Plz reply with relevant Judgments?
Advocate. Arunagiri
(Expert) 19 January 2014
As the car loan is the secured loan, the bank can not attach any other property.
Deepak
(Querist) 19 January 2014
sir B who is having cc limit want his loan to be taken over by another bank and he is ready to dischage his CC loan full and want his title deed back. But since he is guarantor in car loan which is npa can bank put lien on title deed. In car loan he has only given personal security and car is hypothicated in favour of bank. Can bank exercise right under SEC171 contract act of lien?
Advocate. Arunagiri
(Expert) 19 January 2014
S.171 is the lien over the mortgaged property. (ie) if the mortgaged property is valued Rs.10 lakhs, the loan amount is Rs.2 lakhs. As per the S.171 the bank is having the lien on the entire property till the loan account is closed. no other person can retain the balance security.
The bank can not attach another account or even another property, for a loan, for which the security is provided.
Deepak
(Querist) 19 January 2014
Sir in this case only personal guarantee is given by B and no other security is there except hypothication.
Sir can you quote any judgment for reference
Advocate. Arunagiri
(Expert) 19 January 2014
It seems that you are a lawyer.
You have try on your own to get citation, which is relevant to you.
Advocate. Arunagiri
(Expert) 19 January 2014
If you are unable to search for a suitable citation, come back to me, i will help to find your suitable citation.
Deepak
(Querist) 19 January 2014
thx sir. I will try my best to have citation. But if you have any judgment in record kindly post it. I will be highly obliged and thankful to you.
Advocate. Arunagiri
(Expert) 19 January 2014
If you learn, that is good for your profession.
I will be happy if I can guide to get the relevant judgement, instead of providing you the same.
Even after your efforts, if you can not find on your own, I will provide the citation.
ajay sethi
(Expert) 19 January 2014
search in indian kanoon website for judgements .
Deepak
(Querist) 19 January 2014
sir i am getting judgments on general points of lien but i want judgment on similar lines. which have not got yet.
Advocate. Arunagiri
(Expert) 19 January 2014
You can contact me in my personal email id for further assistance. I want to know how far you have tried, I want to have those judgements you got , through your own efforts. I will guide you to get the suitable judgment.
Deepak
(Querist) 19 January 2014
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
NEW DELHI
INTERIM APPLICATION NO. 1 0F 2012 (FOR STAY)
IN
REVISION PETITION NO. 2119 OF 2012
(Against the order dated 17.05.2012 in Appeal No. 937 of 2011 of the Rajasthan State Consumer Disputes Redressal Commission, Jaipur)
BANK OF BARODA … Petitioner (s)
VAISHALI BRANCH, JAIPUR
AT JAGDAMDA TOWER, AMRAPALI CIRCLE,
VAISHALI NAGAR, JAIPUR THROUGH ITS CHIEF
MANANER
Versus
RANJEET SINGH … Respondent (s)
S/O NARAYAN SINGH,
PLOT NO. 85, SONA BARI, GOPALPURA BYEPASS,
JAIPUR
BEFORE :
HON’BLE MR. JUSTICE R.C. JAIN, PRESIDING MEMBER
HON’BLE MR.S.K.NAIK, MEMBER
For the Petitioner (s) … Mr. R.K. Salecha, Advocate
DATED: 13th September, 2012
ORDER
PER JUSTICE R.C.JAIN, PRESIDING MEMBER
Challenge in these proceedings is to the order dated 17.05.2012 passed by the Rajasthan State Consumer Disputes Redressal Commission Jaipur ( in short, ‘the State Commission’) in Appeal No. 937/2011. The appeal before the State Commission was also filed by the petitioner – Bank of Baroda against the order dated 07.04.2011 passed by the District Consumer Forum Jaipur on an application for interim relief made on behalf of the respondent – complainant under section 13(B) of the Consumer Protection Act, 1986 ( in short, ‘the Act’) in complaint case no. 860/2010. By that order, the District Forum had allowed the said application and directed the opposite party – bank to return all the documents pertaining to plot No.85, Sonabari, Gopalpura, Byepass, Jaipur, to the complainant within 10 days from the date of presentation of indemnity bond by the complainant in favour of the opposite party by undertaking that in case the outstanding amount of Deoli Branch of the opposite party Bank cannot be repaid by the sale of the mortgaged property, in that event, the other properties of the complainant shall be liable and the bank shall be entitled to recover the loan amount from the complainant and his other properties. Aggrieved by the said order, the petitioner – bank filed appeal before the State Commission but without success as the State Commission affirmed the order passed by the District Forum and dismissed the appeal. The petitioner – Bank aggrieved by the said order has approached this Commission under section 21 (b) of the Act with the prayer to set aside the said order.
2. Shorn off the unnecessary details, the material facts of the present case are that on 27.03.2006, the complainant had availed loan facility in the sum of Rs.28.00 Lakh from the petitioner – bank and to secure the repayment of the said loan, he had mortgaged his immovable property viz., plot No. 85, Sona Bari, Gopalpura, Byepass, Jaipur by depositing the title deeds, like original allotment letter, original certificate of allotment, original lease deed, all dated 23.05.2000 issued by the Jaipur Development Authority in the name of the complainant duly registered with Sub Registrar Jaipur – I. The complainant became irregular in repaying the loan amount and the authorities of the Bank started exerting pressure on the complainant and threatened to auction the mortgaged plot taking resort to the provisions of the SARFAESI Act, 2002. The complainant contacted the bank officials and informed them that he can repay the loan by selling the mortgaged property to which the bank officials had no objection and, therefore, the complainant in order to save his business and reputation agreed to sell the mortgaged property ( plot in question) to a certain Bhanu Pratap Singh r/o Beawar District Ajmer for a throw away price of Rs.25.00 lakh although the market value of the plot was claimed to be Rs.35.00 lakh. Complainant received various sums of money amounting to Rs.23,95000/- from the above named vendee between 25.10.2008 to 16.11.2009 and on receipt of the said amount, the complainant deposited the same with the petitioner – Bank in due discharge of his liability. Since the vendee was insisting for execution of the sale deed, complainant called upon the bank officials to release the title documents of the plot deposited by him with the bank. This triggered the controversy between the parties inasmuch as the bank declined to release the title deeds on the plea that the complainant was in arrears of another loan which the complainant had taken from Deoli Branch of the bank. The said branch of the the bank having furnished an irrevocable bank guarantee in favour of the Rajasthan Industrial Corporation which the bank had to honour on the complainant committing certain default. Not only that the bank declined to release the title deed to the complainant, bank filed an original petition under the Debt Recovery Act before the Debt Recovery Tribunal Jaipur in respect of the Deoli Branch loan and alongwith said petition also filed the original title deeds of the plot before the Debt Recovery Tribunal of the Jaipur Branch which were the subject matter of the loan. Complainant alleging deficiency in service filed the complaint seeking the following relief against the respondent – bank:
1. The opposite party be directed that the original documents relating to mortgaged property and NOC be given to the complainant.
2. That on account of non return of the original documents relating to the property, the complainant could not have the registry done in favour of the purchaser on account of which amount of Rs.1.05 Lac was not paid by the purchaser, therefore, the directions be given to the opposite bank to make payment of Rs.1.05 Lac alongwith interest @ 24% p.a. from 10.12.2009.
3. That on account of illegal threats given by officials of the opposite bank, the complainant was compelled to sell his property with value of Rs.35 Lac in Rs.25 lac and therefore, directions be given to the Bank for compensating the loss of Rs.10 Lac.
4. That on account of the said Act of the opposite party the complainant could not concentrate on his work he has to make several rounds of visit to the office of opposite party and has to waste his precious time and money and amount of Rs.1Lac be directed to be given as compensation for the same.
5. That the complainant on account of Act of the opposite party has suffered serious mental agony and the compensation of the same being Rs. 5 Lac be directed to be given by the opposite party.
6. That the cost of Rs.11000/- for complaint cost be directed to be paid by the opposite party to the complainant.
7. That the complainant had deposited Rs.23.95 Lac after taking the same from purchaser of the property on this amount the interest from 10.12.2009 @ 24% p.a. be directed to be paid.
3. The said complaint is being contested by the opposite party – Bank. It is not disputed that the complainant had created an equitable mortgage of the above referred plot in favour of the bank by depositing the title deeds. It is, however, explained that on the request of the complainant, bank guarantee was issued by the Deoli Branch of the Bank in the sum of Rs.36.84 lakh which was got encashed on a requisition made by the Assistant Mining Engineer Tonk, and balance sum of Rs.24,83,395/- alongwith interest has become due to the bank on that count which the complainant failed to clear and, therefore, original petition no. 103 of 2009 was filed against the complainant and six others before the Debt Recovery Tribunal, Jaipur seeking recovery of the said amount and alongwith the said petition, the original title deeds of the plot in question were also filed before the Debt Recovery Tribunal. It is not disputed that though the amount of Rs.23,95,000/- has been paid by the complainant in respect of the loan obtained from Jaipur Branch but since the petitioner and others have not clear the dues of the bank relating to Deoli Branch, the bank has a lien over the said plot and the title deeds pertaining thereto and is entitled to recover the payable amount from the said plot as well, besides the properties which were mortgaged by the petitioner and six other persons in respect of the bank guarantee facility given by the Deoli Branch of the opposite party – bank. The said original petition is being contested by the complainant and others. The interim application seeking return of the documents was also opposed on the same pleas.
4. In view of the above noted background, the crucial question which arises for consideration is as to whether District Forum was justified in allowing the interim application of the complainant seeking return of the documents and the State Commission in confirming the said order. Mr. Salecha, counsel for the petitioner would assail the impugned order on the following grounds:
(i) While passing the impugned order, the fora below have committed a serious error of law in disregarding the legal position that under section 171 of the Indian Contract Act, 1982 the bank had lien over the title deeds deposited by the complainant for realisation of the huge outstanding amount of Rs.25 lakh approximately with interest and therefore had the right to retain the documents;
(ii) The fora below have failed to appreciate that they had no jurisdiction to pass such an order, once it was brought to their notice that Debt Recovery Tribunal, Jaipur has already seized of the entire controversy on the filing of the original application, which application is being contested by the complainant – respondent;
(iii) The Debt Recovery Tribunal creates a Bar on any other Court or Tribunal to entertain any matter which is the subject matter of the original application before the Debt Recovery Tribunal;
(iv) The fora below have failed to consider that the interim relief granted by them i.e. direction to return the title deeds to the complainant was infact the main relief claimed by the respondent in his complaint and by granting the same in the garb of interim relief, the fora below have granted the main relief sought in the complaint.
5. In support of his above grounds / contentions, learned counsel for the petitioner – bank has relied upon the provisions of section 171 of the Indian Contract Act, 1872 as also a decision of the Supreme Court in the case of Syndicate Bank, Appellant V. Vijay Kumar & Ors. AIR 1992 SC 1066, we would like to extract the same herein below:
“Section 171: General lien of bankers, factors, wharfingers, attorneys and policy brokers -------- Bankers, factors, wharfingers, attorneys of a High Court and policy brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect”.
In para 6 and 7 of the said decision, the Supreme Court held as under:
“Lien is in its primary sense is a right in one man to retain that which is in his possession belonging to another until certain demands of the person in possession are satisfied. In this primary sense it is given by law and not by contract.
In Chalmers on Bills of Exchange, Thirteenth Edition Page 91 the meaning of "Banker's lien" is given as follows:
A banker's lien on negotiable securities has been judicially defined as "an implied pledge."A banker has, in the absence of agreement to the contrary, a lien on all bills received from a customer in the ordinary course of banking business in respect of any balance that may be due from such customer."
In Chitty on Contract, Twenty-sixth Edition, Page 389, Paragraph 3032 the Banker's lien is explained as under:
By mercantile custom the banker has a general lien over all forms of commercial paper deposited by or on behalf of a customer in the ordinary course of banking business. The custom does not extend to valuables lodged for the purpose of safe custody and may in any event be displaced by either an express contract or circumstances which show an implied agreement inconsistent with the lien.... The lien is applicable to negotiable instruments which are remitted to the banker from the customer for the purpose of collection. When collection has been made the proceeds may be used by the banker in reduction of the customer's debit balance unless otherwise earmarked.
(emphasis supplied)
In Paget's Law of Banking, Eighth Edition, Page 498 a passage reads as under;
THE BANKER'S LIEN
Apart from any specific security, the banker can lock to his general lien as a protection against loss on loan or overdraft or other credit facility. The general lien of bankers is part of law merchant and judicially recognised as such.
In Brandao v. Barnett, (1846)12 Cl. and Fin.787 it was staled as under:
Bankers most undoubtedly have a general lien on all securities deposited with them as bankers by a customer, unless there be an express contract, or circumstances that show an implied contract, inconsistent with lien.
The above passages go to show that by mercantile system the Bank has a general lien over all forms of securities or negotiable instruments deposited by or on behalf of the customer in the ordinary course of banking business and that the general lien is a valuable right of the banker judicially recognised and in the absence of an agreement to the contrary, a Banker has a general lien over such securities or bills received from a customer in the ordinary course of banking business and has a right to use the proceeds in respect of any balance that may be due from the customer by way of reduction of customer's debit balance. Such a lien is also applicable to negotiable instruments including FDRs which are remitted to the Bank by the customer for the purpose of collection. There is no gainsaying that such a lien extends to FDRs also which arc deposited by the customer.
Applying these principles to the case before us we are of the view that undoubtedly the appellant Bank has a lien over the two FDRs. In any event the two letters executed by the Judgment-debtor or 17.9.80 created a general lien in favour of the appellant Bank over the two FDRs. Even otherwise having regard to the mercantile custom as judicially recognised the Banker has such a general lien over all forms of deposits or securities made by or on behalf of the customer in the ordinary course of banking business. The recital in the two letters clearly creates a general lien without giving any room whatsoever for any controversy”.
6. Per contra, Mr. Rajesh Gupta, learned counsel for the respondent contented that the provisions of section 171 cannot be applied to the facts and circumstances of the case because in the present case the complainant had mortgaged a separate property in relation to the lien of the Deoli Branch and the bank, could therefore have lien only on those properties and not on the plot in question which was given as a collateral security for the loan taken from Jaipur Branch. In support of his contention he placed reliance on a decision of this Commission in the case of State Bank of India & Ors. Vs. Ananda Mohan Saha 1999 (2) CPR 18 (NC) where on the facts and circumstances of the said case this Commission took a view that if a separate and independent security was given in respect of the separate loan which was taken for different purpose and a different time and there was no mention of the security given as a security for the other loan, the bank was not entitled to exercise its lien on the security furnished for the other / separate loan by observing as under:
“On behalf of respondent it is urged that the finding recorded by the State Commission are correct and in accordance with law. On this point the State Commission recorded the following findings:
The main argument of the respondents seeking the propriety of their retaining the gold as security for another loan subsisting against the appellant is, however, the provisions of Section 171 of the Indian Contract Act. It is strongly argued on behalf of the appellant that the security of the gold was strictly for the loan taken for the amount of Rs.17000/- only termed as gold loan. It is argued that the banker’s lien is to be available only in respect of a security for a general balance of account and that in the instant case the subsequent advance taken by the Forum of the appellant cannot be tagged to the earlier security as the later loan was taken by a different person against a different account. As a matter of fact, the appellant had at one time proposed to tag the security of gold with loan against the Cash Credit Account but the same was not acceded to by the bank. So it is presumed that the gold loan was for a specific purpose and there was no agreement that it should be utilised for other loan also. Under section 174 of the Indian Contract Act, the pawnee shall not, in the absence of a contract to the effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged. It is, however, provided also in the said section that such contract in the absence of anything to the contrary shall be presumed in regard to subsequent advances made by the pawnee. But for the reasons discussed above it cannot be held that the subsequent advances made to the Firm of the appellant would be brought to a general balance of account. The two accounts in our opinion are for two different purposes taken at two different times and the appellant’s request to make a resultant balance by treating the former gold loan as repaid was not successful. Hence we are of the opinion that retaining the gold on the basis of Sections 171 and 174 is not lawful in this case. Moreover a separate and independent security was given by the appellant for the loan relating to his Cash Credit Account in this case. It is not stated that the said security has been rendered insufficient in any way. There is also no mention of the gold loan as collateral security to be available for the subsequent loan.
We have carefully examined the finding recorded by the State Commission. In our opinion, the State Commission correctly analysed the provisions of Section 171 and 174 of the Contract Act. The finding recorded by the State Commission is further fortified by the observations made by the Civil Court while disposing of the applications filed by the Bank under Order 39 Rules 1 and 2 of the CPC and under Order 38 Rule 5 of the CPC. The observations made by the Civil Court are reproduced below:
Thus is appears that the gold ornaments as it has been contended before me in connection with the gold account and already liquidated has no concern or connection with the cash credit account. The machineries and the products of the concern “M/s Mausomi Silk Scrin Printers” are hypothecated against that loan and more so, the deft. No. 2 is the guarantor. There is no stipulation between the parties that in any manner the gold ornaments can be treated as lien of the amount of cash credit loan although the gold account loan has already repaid and consequently liquidated. The gold ornaments was pledged with the plaintiff by the defendant no.1 has or have no reference with the term loan sanctioned to the defendants for the recovery of which the suit has been filed. The gold ornaments are not being subject matter of the suit”.
7. Having considered the matter, we are of the view that going by the provisions of section 171 as well as the law as laid down by the Supreme Court, there is no escape from the conclusion that bank can claim lien even on the title documents pertaining to the plot in question even for the loan of their different branch i.e.Deoli Branch.
8. Learned counsel for the petitioner then submitted that consumer fora had no jurisdiction to entertain the complaint in view of the pendency of the original application before the Debt Recovery Tribunal. counsel for the petitioner – bank has invited our attention to the provisions of Section 18 and 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 which is to the following effect:
18. Bar of Jurisdiction : On and from the appointed day, no Court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in Section 17.
34. Act to have over-riding effect - (1) Save as provided under sub- section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.
(2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948 ), the State Financial Corporations Act, 1951 (63 of 1951 ), the Unit Trust of India Act, 1963 (52 of 1963 ), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984 ), and the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986 ) and the Small Industries Development Bank of India Act, 1989 ( 39 of 1989)”
9. On the strength of the above provisions and the fact that original application seeking recovery of the debt in respect of the Deoli Branch outstanding dues was filed prior to the filing of the present complaint, learned counsel submits that the consumer fora had no jurisdiction to entertain the complaint raising the same controversy. He submits that original application is being defended by the respondent on the same plea on which the complaint was filed before the District Consumer Forum and if the complainant – respondent thought that the withholding of the title deeds by the petitioner – bank was illegal / unauthorised on the premise that bank had no lien over the same, the respondent – complainant could have sought release of the said documents from the said Tribunal. We find force in this contention because the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 leave no manner of doubt that the Legislature has clearly forbidden any other Court or Authority to exercise any jurisdictional power or authority except the Supreme Court and High Court exercising their jurisdiction under Article 226 and 227 of the Constitution in relation to matters specified in Section 17. The provision is enacted with the clear object that such matters should not be considered and decided by any other Court or authority except the Tribunal constituted under the above Act.
10. The third contention raised by the respondent – petitioner is that by granting the interim relief, the fora below have infact allowed the main relief sought by the complainant in his complaint. We see merits in this contention as well. The main relief claimed by the complainant alleging deficiency in service on the part of the petitioner – bank is for return of the title deeds of the plot in question. Once the documents have been ordered to be returned, it amounts to granting the relief prayed in the complaint.
11. Having considered the matter from different angles, there is no escape from the conclusion that order passed by the District Forum and affirmed by the State Commission are legally unsustainable and are liable to be set aside. For the above stated reasons, we allow the revision petition and set aside the impugned order passed by the fora below. However, it would be open for the complainant / respondent to make an application before the concerned Debt Recovery Tribunal for return of title deeds of the plot in question.
..………………..…………..
(R. C. JAIN, J.)
PRESIDING MEMBER
..…………………………….
(S.K. NAIK)
MEMBER
Deepak
(Querist) 19 January 2014
Delhi High Court
Delhi High Court
Smt. Sadhna Gupta & Ors. vs Sh. R.C.Gupta & Ors. on 10 August, 2009
Author: Aruna Suresh
* HIGH COURT OF DELHI AT NEW DELHI + IA NO. 8092/2001 in CS (OS) No.1731/2001 Date of
decision : August 10, 2009
# SMT. SADHNA GUPTA & ORS. ..... PLAINTIFFS ! Through : Mr. V.B. Andley, Sr. Advocate with Mr.
Rajinder Mathur, Adv.
Versus
$ SH. R.C. GUPTA & ORS. .....DEFENDANTS ^ Through : Mr. S.L. Gupta, Advocate for defendant No. 5.
%
CORAM:
HON'BLE MS. JUSTICE ARUNA SURESH
(1) Whether reporters of local paper may be allowed to see the judgment?
(2) To be referred to the reporter or not? Yes (3) Whether the judgment should be reported in the Digest ? Yes
ORDER
ARUNA SURESH, J.
1. Vide this order, I shall dispose of an application filed by the plaintiffs under Order 39 Rule 1 and 2 read
with Section 151 CPC seeking temporary injunction against defendant No.5 i.e. State Bank of India from
attaching before judgment or creating third party IA NO. 8092/2001 in CS (OS) No. 1731/2001 Page 1 of 23
right or interest in the suit property No. 221, Okhla Industrial Estate, Phase-III, New Delhi.
2. Plaintiff No.1 has claimed herself to be one of the members of the HUF defendant No.2 M/s. R.C. Gupta
and Brothers. Defendant No.1 is the Karta of the said HUF whereas defendants No. 3 and 4 are also members
of the HUF.
3. Case of the plaintiffs in brief is that, property in suit was allotted to defendant No.2 HUF by the Delhi
Government. Defendant No.1 obtained permission from the Director of Industries for mortgaging the property
in view of clause (a) and (b) of the lease deed. Defendant No.2 R.C. Gupta and Brothers HUF availed certain
financial loan/credit facilities for working capital of defendant No.2 from defendant No.5. At the time of
raising the loan, the title deeds of the suit property were deposited with the bank for purposes of creating a
mortgage on the said property to secure the repayment of the loan amount.
IA NO. 8092/2001 in CS (OS) No. 1731/2001 Page 2 of 23
4. Some disputes arose on the issue of repayment of loan. The bank filed OA No. 652/1996 before the Debt
Recovery Tribunal (DRT) against defendant No.2 for recovery of the amount of Rs.46,78,768.08paise. In
view of Reserve Bank of Indiaâs policy dated 27.7.2000 defendant No.1 settled the dispute with the bank
and defendant No.2 through defendant No.1 agreed to pay a sum of Rs.36,23,125.27paise on the condition
that on receipt of the said amount, the bank would release all the title deeds. Defendant No.2 accordingly
deposited the amount but, bank refused to return the title deeds of the property in suit claiming general lien on
the plea that defendant No.1 was liable to pay the dues of the bank in the account of M/s Bharat Strips Ltd.
Smt. Sadhna Gupta & Ors. vs Sh. R.C.Gupta & Ors. on 10 August, 2009
Indian Kanoon - http://indiankanoon.org/doc/263704/ 1
Rajendra K Goyal
(Expert) 19 January 2014
Bankers have lien on the property of the guarantor of another loan.
Deepak
(Querist) 19 January 2014
Rajindra quote judgements with regard to query and your point
Advocate. Arunagiri
(Expert) 19 January 2014
Mr.Deepak, the following judgement says, the bank has no rights over the funds of the guarantor, in case of the default by the borrower.
The judgement analysis the S.171 of the Contracts Act. Quotes various SC judgements.
I trust it suits your case.
If you feel this is not your opt citation, inform me how and I will try with another citation.
Ing Vysya Bank Ltd., Frazer Town ... vs Y.G. Sreeram Setty S/O. Late Shri ... on 31 January, 2006
Equivalent citations: I (2006) CPJ 182 NC
Bench: M Shah, R Rao
ORDER
1. The question requiring consideration in this revision is 'Whether a Banker in exercise of its lien under Section 171 of the Contract Act, straightway appropriate the money deposited by a guarantor in FDR without any bailment and without informing the guarantor'?
Obvious answer is - 'No'.
2. For this purpose we would refer to Section 171 of the Indian Contract Act, 1972 which provides for general lien of bankers, factors, wharfingers, attorneys and policy-brokers, which reads thus:
171. General lien of bankers, factors, wharfingers, attorneys, and policy-brokers.-Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect.
The afore-quoted Section, inter alia, provides that bankers may retain as security for a general balance of account, any goods bailed to them. However, this is subject to a contract to the contrary. Therefore, the aforesaid part of the Section can be divided in three parts: (i) bankers may retain a security for general balance of account; (ii) any goods; (iii) bailed to them.
3. The word 'goods' is defined in Section 2(7) of the Sale of Goods Act, 1930 which reads as under:
"goods" means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
4. This would mean that money is excluded from the word "goods".
5. The next part is bailed; whether money which is deposited in Fixed Deposits, can be considered to be goods for bailment with the Bank. Bailment is defined under Section 148 of the Contract Act, which reads thus:
A 'bailment' is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the 'bailor'. The person to whom they are delivered is called the 'bailee'.
6. This Section also requires delivery of goods, for some purpose, upon a contract, and that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. In the case of deposit of money with the Bank, it cannot be equated or construed as delivery of goods to the Bank. Secondly, it cannot be said that moneys were deposited upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the persons delivering them.
7. In this connection we would refer to some pronouncements by the Apex Court. While dealing with the Advocates lien on the case papers under Section 171 of the Indian Contract Act, Apex Court in R.D. Saxena v. Balram Prasad Sharma , has analyzed Section 171 and observed thus:
8. Files containing copies of the records (perhaps some original documents also) cannot be equated with the "goods" referred to in the section. The advocate keeping the files cannot amount to "goods bailed". The word "bailment" is defined in Section 148 of the Contract Act as the delivery of goods by one person to another for some purpose, upon a contract that they shall be returned or otherwise disposed of according to the directions of the person delivering them, when the purpose is accomplished. In the case of litigation papers in the hands of the advocate there is neither delivery of goods nor any contract that they shall be returned or otherwise disposed of. That apart, the word "goods" mentioned in Section 171 is to be understood in the sense in which that word is defined in the Sale of Goods Act. It must be remembered that Chapter VII of the Contract Act, comprising Sections 76 to 123, had been wholly replaced by the Sale of Goods Act, 1930.
8. Again, in the case of Board of Trustees of the Port of Bombay and Ors. v. Sriyanesh Knitters with regard to Section 171 it was observed:
This section is in two parts. The first part gives statutory right of lien to four categories only, namely, bankers, factors, wharfingers and attorneys of High Court and policy-brokers subject to their contracting out of Section 171. The second part of Section 171 applies to persons other than the aforesaid five categories and to them Section 171 does not give a statutory right of lien. It provides that they will have no right to retain as securities goods bailed to them unless there is an express contract to that effect. Whereas in respect of the first category of persons mentioned in Section 171 the section itself enables them to retain the goods as security in the absence of a contract to the contrary but in respect of any other person to whom goods are bailed the right of retaining them as securities can be exercised only if there is an express contract to that effect.
9. Therefore, it is apparent that in a case of bailment of goods, the banker can retain as a security for general balance of account any goods bailed to them. However, this would not mean that bank can straightway appropriate the amount due and payable under the FDRs for a general balance of account. In any case, no such power can be exercised with regard to guarantors FDR without calling upon the principal debtor to repay the loan amount and also the guarantor to repay in case loan is not paid by the principal debtor.
10. The learned counsel for the complainant relied upon the decision rendered by the Kerala High Court in Union Bank of India v. K.V. Venugopalan and Ors. wherein the Court held that the money put in fixed deposit constitutes a debt in the hands of the banker and a debt cannot be a suitable subject for lien. He also relied upon the decision of the Madhya Pradesh High Court in State Bank of India v. Madhya Pradesh Iron & Steel Works Pvt. Ltd. Raipur and Ors. wherein it has been held that Section 171 of the Contract Act, in terms did not apply to cases of deposit of money. In view of aforesaid discussion and the decisions rendered by the Apex Court, the aforesaid two decisions are not required to be discussed further.
Facts:
11. In this case, admittedly, the Respondent is a guarantor for an advance of Rs. 80,000/- made by the Respondent Bank of Jayanagar Branch to one M/s. Gautam Enterprises, Bangalore, during the year 1983-84. It is also admitted that the Complainant has deposited a sum of Rs. 20,000/- on 3.12.1986 and Rs. 30,000/- on 6.12.1986, under the Akshaya Deposit Certificate Scheme of the same Bank of Fraser Town Branch. The maturity dates for payment of the said deposits were 3.6.1993 and 16.6.1993 respectively. Under the scheme, on maturity the Bank was liable to pay a sum of Rs. 40,490/- and Rs. 60,735/- to the Complainant respectively. The Complainant sent the two fixed deposit receipts (FDRs) to the Opposite Party Bank for payment of the maturity value on 3.7.1993. The bank returned both the receipts as there was no amount lying in the deposits to the credit of the Complainant. Thereafter, the Complainant issued lawyer's notice to the Bank on 2.11.1993. The notice was not replied. Hence, the Complainant approached the District Forum, Bangalore, by filing complaint No. 341 of 1994 claiming the total sum of Rs. 1,01,225/- with interest and compensation. By judgment and order dated 29th March, 2004 relying upon Section 171 of the Contract Act, the District Forum dismissed the complaint with costs.
12. Against that order, the Complainant preferred Appeal No. 306 of 2005, before the State Consumer Disputes Redressal Commission, Karnataka at Bangalore. The State Commission by order dated 6.6.2003 allowed the appeal by holding that the FDRs held by the Bank were not pledged with the Bank. The Complainant had fixed deposits in Fraser Town branch, whereas the M/s. Gautam Enterpreses had obtained the loan from the Jayanagar Branch of the Bank. The State Commission has also held that the District Forum was not justified in holding that one branch of the bank has jurisdiction to exercise its powers on the other branch of the same bank under the provisions of Section 171 of the Contract Act to have general lien.
13. Against that order the bank has preferred this Revision Petition.
14. Learned Counsel for the Bank submitted that 'general lien of the banker' is to the effect that the bank can retain as security for general balance of accounts on any goods bailed to them. Section 171 specifically provides that in the absence of a contract to the contrary, the bank can retain as a security for general balance of accounts any goods bailed to them.
15. In our view, this submission is without any substance. The Complainant 'has not bailed any goods' to the bank. The FDRs were also not pledged with the Bank against the loan taken by M/s. Gautam Enterprises. The amount was deposited with the bank after more than one year of the loan given to M/s. Gautam Enterprises. The wording of the section are clear to the effect that the bankers would have general lien only on any goods bailed to them. If goods are not bailed, Bank cannot go and take away any goods, wherever they are lying into their custody and contend that they have lien over the same.
16. In support of his contention, the learned Counsel for the Petitioner relied upon the decision of the Apex Court in Syndicate Bank v. Vijay Kumar and Ors. (1992) 2 SCC 330 wherein the judgment debtor who was having two FDRs delivered to the Bank with specific letters. For this purpose, the Court noted in para 5 as under:
"The two FDRs were duly discharged by signing on the reverse of each of them by the Judgment-debtor and were handed over along with two covering letters on the Bank's usual printed forms on September 17, 1980 at the time of obtaining the guarantee. The relevant clause of the letter reads as under:
The Bank is at liberty to adjust from the proceeds covered by the aforesaid Deposit Receipt/Certificate or from proceeds of other receipts/certificates issued in renewal thereof at any time without any reference to us, to the said loan/OD account.
We agree that the above deposit and renewals shall remain with the Bank so long as any amount on any account is due to the Bank from us or the said M/s Jullundur Body Builders singly or jointly with others.
To the same effect is the other letter. The above recital in the letter clearly goes to show that a general lien is created in favour of the appellant Bank in respect of those two FDRs. The Bank is given the authority to retain the FDRs so long as any amount on any account is due from the Judgment-debtor. Thus the appellant Bank had a right to set-off in respect of these FDRs if there was a liability of the Judgment-debtor due to the Bank.
Thereafter, the Court referred to Halsburies Laws of England and others, and held as under:
Applying these principles to the case before us we are of the view that undoubtedly the appellant Bank has a lien over the two FDRs. In any event the two letters executed by the Judgment-debtor on September 17, 1980 created a general lien in favour of the appellant Bank over the two FDRs. Even otherwise having regard to the mercantile custom as judicially recognised the Banker has such a general lien over all forms of deposits or securities made by or on behalf of the customer in the ordinary course of banking business. The recital in the two letters clearly creates a general lien without giving any room whatsoever for any controversy.
17. In our view, the aforesaid judgment is based upon admitted fact that the two FDRs were delivered to the Bank with a specific contract that they shall remain with the Bank so long as any amount on any account was due to the bank, and, therefore, the general lien was created. In such a situation, the Court was not required to consider the effect of Section 171 of the Contract Act. In this case, there is no positive or implied act of bailment of the FDRs. In this view of the matter, other judgments relied upon by the parties are not required to be discussed.
18. In the result, this revision petition is dismissed. The order passed by the State Commission is confirmed. The petitioner shall pay costs of Rs. 5000/- to the complainant.
Advocate. Arunagiri
(Expert) 20 January 2014
Mr.Deepak,
Where are you? You have not even acknowledged / confirmed that you got the relevant judgment.
Deepak
(Querist) 21 January 2014
Thx sir for judgment
V R SHROFF
(Expert) 21 January 2014
CITAIONS : WE DO NO PROVIDE, ONE MUST SEARCH
indian kanoon & website + MANUPATRA ETC.
Rajendra K Goyal
(Expert) 21 January 2014
Citation not provided in this section.
Raj Kumar Makkad
(Expert) 22 January 2014
Thanks Arunagiri sir so such detailed and wise reply from your side.
Advocate. Arunagiri
(Expert) 22 January 2014
Mr.Rajkumar, I am happy to see your compliments after a long time.
