Madhya Pradesh High Court
Balbir Sound vs Indian Bank And Ors. on 8 January, 1996
Equivalent citations: 1996(0)MPLJ853
ORDER T.S. Doabia, J.
1. The petitioner seeks a direction that the respondent Bank be directed to make payment which is payable toward the fixed deposit receipts taken by her along with her husband. The photostat copies of these have been placed on record as Annexures P/l to P/10. The particulars of these are as under :
Sr. No. Dates FDR Number Amount - Rs.
1 2 3 4
(A) 30-11-1985 044103/278/15 10,237.50
(B) 30-11-1985 044104/279/15 14,206.50
(C) 4-6-1986 005150/16/123 25,000.00
(D) 4-6-1986 005151/16/124 25,000.00
(E) 4-6-1986 005152/16/125 25,000.00
(F) 4-6-1986 005153/16/126 25,000.00
(G) 4-6-1986 005154/16/127 25,000.00
(H) 4-6-1986 005155/16/128 25,000.00
(I) 4-6-1986 005156/16/129 25,000.00
(J) 25-11-1986 044099/273/15 61,419.00
2. It be seen that these FDRs, are in the name of Sri Bhagat Singh Sound and the present petitioner.
3. The payment of this amount is not being made on the ground that the Bank has filed Civil Suit for the recovery of a sum of Rs. 11,46,467/-. This suit is pending in a Civil Court at Gwalior. The parties to this Civil Suit be also noticed. There are four defendants. The husband of the petitioner figure as defendant No. 3. It is on the basis of the above suit, it is contended that the Bank has exercised its right to adjust loan and it is submitted that it is not obliged to make the payment. Before dealing with this position, it would be apt to notice the assertion made in the plaint. The learned counsel for the petitioner placed reliance on para 8 of the plaint whereas the learned counsel appearing for the Bank placed his reliance on para 4 of this very plaint.
4. It be seen that originally the loan appears to be to the extent of Rs. 4 lakhs. For this Bank placed his reliance on para 4, of this very plaint. Later on, the cash-credit limit was increased. It was fixed at seven lakhs. When fresh documents were executed, the husband of the petitioner was not signatory to the continued guarantee. This becomes apparent from perusal of para 8 of the plaint. For facility of reference, this be noticed. This reads as under :
"8. That in consideration of the plaintiff having at their request agreed to grant to defendant No. 1, the said advance, defendants Nos. 2 and 4 executed in favour of and delivered to the plaintiff on 2-9-1988 a letter of continuing guarantee whereby they guaranteed jointly and severally in their personal capacity the due payment to the plaintiff after demand of all advances whether made before or after the date thereof to defendant No. 1 in the open cash credit account and also interest thereon and all costs, charges and expenses." The learned counsel for the petitioner submits that the claim of the respondent Bank which is based on guarantee for repayment of Bank's loan and further based on concept of Banker's lien would not be available. It has been indicated that prima facie husband of the petitioner is not a guarantor and this is apparent from the plaint, reading of the averments contained in para 8 of the plaint. Thus, it is stressed that the husband of the petitioner is not a guarantor for payment against the promissory note. If this be a situation, then prima facie, it cannot be said that the" husband of the petitioner is bound by the continuing guarantee said to have been given on 2-9-1988. Faced with this difficulty, the learned counsel for the Bank argued that the husband of the petitioner would at least be bound for the commitment made by him and this commitment is said to be to the extent of Rs. 4 lakhs. This argument is sought to be countered by placing reliance on Section 134 of the Contract Act. It is argued that the Bank of its own gave up the husband of the petitioner and he is no longer treated as a guarantor. The sum of Rs. 4 lakhs which was initially given as loan is now part of second demand promissory note. The original payment of promissory note of 4 lakhs cannot be said to be in existence. The demand is now being made for a sum of Rs. 7 lakhs. As such, the Bank is prima facie not within its right claim the amount in the exercise of right known as Banker's lien.
5. The learned counsel for the respondent has placed reliance upon a decision given by the Supreme Court of India, which is to the effect that the Bank can exercise its right known an Banker's lien. Reliance is being placed on the decision reported as Syndicate Bank v. Vijay Kumar, AIR 1992 SC 1066 :
The concept of Banker's lien be now examined.
6. In Halsbury's Laws of England, 3rd Edition, Vol. 28 at page 221, (paragraphs 501-502) the concept of 'lien' is defined as under :
"The concept of lien in the simple sense of a legal right to keep possession of property until a claim has been met has been extended to cover a number of analogous rights. Liens are now variously described as Legal, non-possessory, equitable, general, particular, statutory, contractual, judicial and subrogatory. Some of these may exist concurrently. In its primary or legal sense "lien" means a right at common law in one man to retain that which is rightfully and continuously in his possession belonging to another until the present and accrued claims of the person in possession are satisfied. In this primary sense it is given by law and not by contract".
7. The other authors who have dealt with the same subject may be noticed.
8. In Grants Law of Banking, Seventh Edition, the law is stated to be:
"Bankers have no lien on the deposit of a partner, on his separate account, for a balance due to the bank from the firm."
In the case of Brandao v. Barnett, (1846) 12C1 and Fin 787 it was stated therein :
"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."
8A. This concept stands elaborated in two cases, Watts v. Christie, 1849(11) Beav 546 and Wolstenholme v. Sheffield Union Banking Co. Limited, 1886 (54) L.T. 746. In Wolstenholme's case one Wingh had an account with the Bank and later on he opened another account in the name of the firm of which he was a partner. The firm account was allowed to be overdrawn to the extent of dollar 2000 and Wingh's private account to the extent of dollar 3000. As a sum of dollar 5000, was required over and above the amounts already drawn, Wingh deposited a leasehold worth dollar 5000 for this temporary overdraft. Some time later the firm's account was closed and the leasehold was sold and the trustees in bankruptcy sued to recover the surplus of the proceeds of the sale after settlement of overdraft on Wingh's private account. The bank pleaded that the lease was deposited with them in order to secure advances made on both the accounts, i.e., of Wingh and of the partnership and they claimed to retain the proceeds of the sale for the purpose of repaying both such advances. It was held that the lease was deposited by Wingh merely for the purpose of securing to the bankers the repayment of the particular overdraft of dollar 5000 and that the bankers had no general lien on the proceeds so as to entitle them to retain the surplus in respect of the firm's overdrawn account.
Mathew J., who heard the case in the first instance, held that upon true construction of the documents the lease was deposited to secure the particular overdraft of dollar 5000 and the attempt of the bank's counsel that there was a bargain by which the lien was applicable to the entire account was not sustained. The matter was taken in appeal and Lord Esher M. R. during the course of arguments observed :
"They have a general lien, but they have no right to take a security given for one purpose and apply it to another."
The judgment of Mathew J. was affirmed by the Court of Appeal, Lindley L. J. said :
"Prima facie a separate debt cannot be set off against a joint debt either at law, in equity, or under the mutual credit clauses of the Bankruptcy Act."
And then he went on to say that there is no authority for the bankers having a general lien in a case such as the one that was before them, and he carefully pointed out that the correspondence made it clear that Wingh had deposited the lease to secure the one particular advance and no more, and therefore this case is an authority for saying that a security given for a particular advance excludes a general lien, though this is doubted in a later case decided by Buckley, J. In Re London and Globe Finance Corporation, 1902(2) Ch. 416 and in Coats v. Union Bank of Scotland, 1929 SC (HL) 114, it was held that where securities are jointly deposited to cover a joint liability, one of the depositors on paying his share of the liability is not entitled to the return of a proportionate amount of the securities and again in Jones v. Peppercorne, 1858 (70) E.R. 490, Vice-Chancellor, Sir W. Page Wood, held that a general lien is not excluded by a special contract" unless the special contract be inconsistent with the general lien.
9. When moneys are held in one account, and the payer in respect of those moneys owes debts to the bank on another account, the banker's lien gives the bank a charge on all the moneys in their hands belonging to this particular customer so that they can be transferred into whatever account they choose to set off or liquidate the debt which is in existence. There is well-known authority for this contention, the banker's right being based on the law merchant, see C.F. Jones v. Peppercorne, 1859(1) Joh. 430 and Re. London and Globe Finance Corporation, 1902 (2) Ch. 416.
10. In the case of Ex Parte Kingston, In re Gross, 1871 (6) Ch. 632, it was held that the National and Provincial Bank were not entitled to set off the money in a police account against a debt in a private account even though these two accounts were opened by the same person. This decision never seems to have been questioned, indeed it was referred to with approval by Lord Davey in the Privy Council case of Bank of New South Wales v. Goulburn Valley Butler Co., 1902 AC 543.
11. In Re London and Globe Finance Corporation, 1902 (2) Ch. 416, the efficacy of a broker's general lien was considered. Certain shares were held by stock brokers to secure a specific advance even after this amount was repaid the documents remained with the brokers and subsequently there was a loss. It was held that although the specific purpose of this deposit had a general lien on the shares for the amount due in respect of the Stock Exchange transactions. Buckley J., relied on Jones v. Peppercorne, (1958) 70 E.R. 490, and observed that this case has been regarded as well settling the law ever since 1858 to the effect that brokers and bankers have a general lien on securities in their hands, as between themselves and the customer, for the balance due from the customer, to the broker. The following passage from Buckley, J.'s judgment requires particular notice :
"The transactions as between the customer and the broker resulted in a sum owing by the customer to the broker, and there were in a possession of the broker securities which had come into his hands in the course of his business as brokers of the customer. It is a well established principle that the broker has as against the customer the right to hold those securities for the amount due."
In Jones v. Peppercorne, (1858) 70 E.R. 490, it was held that in such a case there is not only a special lien in respect of such loans but also a general lien in respect of whatever else may be due to the stock brokers from the bankers on account of their general business transactions. The rule in such cases being that the general lien is not excluded by a special contract unless the special contract be inconsistent with it. However in Wilkinson v. London and County Banking Co., (1886) 33 Ch. D. 586, held an agreement that a policy of insurance was to be security for dollar 2,000, only inconsistent with a general lien for a further balance of dollar 1,000 but in regard to monies which come into the hands of the banker after sale of securities the learned Judge said at p. 588 :
"It was not suggested that the sale was wrong in any way and it may well be that bankers who have a power of selling securities deposited when hands after satisfying the charge, may be entitled to say they will set off that money against further sums due to them; but that seems to me a totally different case from the present where the security is of a wholly different nature, and the bank had no power of sale."
The above case makes a distinction between cases where securities are sold and there is cash in the hands of a banker and where securities are lodged and the banker has no power of sale.
12. Buckley J. In Re London and Globe Finance Corporation, (1902) 2 Ch. 416, held that securities deposited as cover for specified advances remaining after discharge in the Banker's hands are liable to general lien.
13. In Wolstonhom v. Sheffield Union Banking Co. Ltd., (1886) 54 L.T. 746, a different view seems to have been taken. In order to obviate the difficulties arising from this conflict of opinion bankers have letters of security in which there are special terms of charge.
14. The Patna High Court in Radha Raman v. Chota Nagpur Banking Association Ltd., AIR 1944 Pat. 368 held that bankers have a right to combine one or more accounts of the same customer but cannot combine an account which belonged to either to another or to himself alone with another account which is the joint account with another and third person.
15. The Supreme Court in Syndicate Bank v. Vijay Kumar and Ors., 1992 (1) RRR 19(SC) AIR 1992 SC 1066, observed that "the banks do have a general lien on the fixed deposit receipts.
16. The decision given by the Punjab and Haryana High Court in the case of State Bank of India v. Hardip Singh, (1994) 14 Legal Reports and Statutes 344 also deals with this concept. It was held that the banker can enforce its lien.
17. The concept of banker's lien would have applied, had the petitioner's husband alone was the account holder. This is not the case. The petitioner is equally the owner and the deposit with Bank is not covered by the concept of banker's lien. Apart from this the bank has not entered into fresh arrangement with the husband of the petitioner. It is clear that Bank while executing fresh documents gave up its claim against the husband of the petitioner.
18. It is an established principle of law that if there is variation in the terms of the contract without the consent of the surety, then the original contract would cease to be there. A surety is discharged forthwith on the contract being altered without his consent. See : Seth Pratap Singh Mohalalbhai v. Keshavlal Harilal Sitalwad, AIR 1935 PC. 21. It is again settled that variation of conditions require the consensus of all the principal parties, Mathra Das v. Shambhunath and Ors., AIR 1929 Lahore 203. It is more so, where the alteration is to the disadvantage of the surety. In M.S. Anirudhan v. Thomco's Bank, AIR 1963 SC 742, it was held that a document jointly executed by two persons creating a liability equal for both may not be regarded as materially altered, if liability is reduced equally for both but if the alteration is made only by one of them, then such alteration must be regarded as substantial. In such a case, even if no prejudice is caused the surety is discharged. See also : Keshavlal Harilal Sitalwad v. Seth Pratap Singh Mohalalbhai, AIR 1932 Bombay 168, and S. Perumal Reddiar v. Bank of Baroda and Ors., AIR 1981 Madras 180, where surety was held to have been absolved of his obligation where rate of interest and date was altered without his consent. In this regard, reference be made to the decision in Indian Bank, Madras v. Krishna Swami and Ors., AIR 1990 Madras 115. The surety was held to have been discharged when there was variation in the terms, it was observed :
"In Amrit Lal v. State Bank of Travancore, AIR 1968 SC 1432, where a creditor lost part of security due to its negligence or for some other reasons, it was held that the surety was discharged to that extent. In our view, the respondents were discharged by virtue of the fresh agreement between the appellant bank and the principal debtor represented by Union of India to which the respondents sureties were neither parties nor were they made aware thereof."
"It is well settled that under Section 62 of the Contract Act, if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. In Commercial Bank of Tasmania v. Jones, (1893) AC 313, the principle is set out succinctly.
"Where a creditor released his principal debtor and accepted a third party as full debtor in his stand, and the surety for the former debtor agreed to give a guarantee for the latter, and to continue his former guarantee until he did so, and then died without having given it :-
Held, in an action by the creditor against his executors, that, the former debt having been extinguished by the release, the remedy against the deceased was gone.
Novation of debt operates as a complete release of the original debtor, and cannot be construed as a mere covenant not to sue him."
Under Section 153 of the Contract Act, any variance, made without the surety's consent in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. (See : Pollock and Mulla on Contract, 10th Edition at page 1040)."
Where creditor enters into correspondence with the debtor and grants time without consent of surety, the surety was held to have been discharged. T.N. and Company v. Official Assignee, Madras, AIR 1944 Madras 396. In the present case, a fresh agreement has been entered into and the husband of the petitioner has been left out. This is apparent from reading of para 8 of the plaint. For this reason, the Bank cannot invoke the aid of the concept of 'Banker's Lien'.
19. The petitioner would, thus, be entitled to the amounts represented by the fixed deposits. This be handed over to the petitioner with interest at the same rate as she would have got. had the amount remained deposited for fixed term. The respondent bank is held not entitled to claim 'Banker's Lien' as it had abandoned its claim by entering into fresh agreements, with individuals other than husband of the petitioner.
20. This petition is allowed. There would be no order as to costs. Security, if deposited, be refunded to the petitioner.