Andhra HC (Pre-Telangana)
Bank Of Baroda vs D. Radha Krishna Reddy (Died) By Lrs. on 18 July, 2007
Equivalent citations: 2007(6)ALD824, AIR 2008 (NOC) 110 (A.P.), 2008 (1) AKAR (NOC) 158 (A.P.), 2008 (1) AKAR (NOC) 93 (A. P.), 2008 AIHC (NOC) 451 (A.P.)
JUDGMENT P.S. Narayana, J.
1. On 25.9.1998 this Court made the following Order:
Admit. The following substantial questions of law arise for consideration in the second appeal:
(1) Whether consent of the debtor is required to appropriate the amounts of the debtor in the hands of the creditor towards a time barred debt?
(2) Whether on the facts and in the circumstances of the case, the legal principle decided by the Supreme Court of India in Bombay Dying and Manufacturing Co. v. State of Bombay is applicable to the facts of the case?
2. This Court in CMP No. 15879 of 1998 on 25.9.1998 made the following Order:
Interim stay subject to the condition that in case the appellant fails, the amount shall be refunded with interest at 12 per cent per annum from the date of the decree.
Notice.
3. The Counsel on record made elaborate submissions and placed reliance on certain decisions to substantiate their respective stands.
4. As can be seen from the submissions made by the Counsel on record, the only point to be answered in the second appeal is whether the appellant herein-defendant in O.S. No. 685/1986 on the file of VII Assistant Judge, City Civil Court at Hyderabad - M/s. Bank of Baroda, Hyderabad Main Branch has general lien and the said lien can be exercised against a time barred debt. The substantial questions of law, on the strength of which the second appeal was admitted, already had been specified supra. For the purpose of convenience, the parties hereinafter would be referred to as plaintiffs and defendant as shown in O.S. No. 685/86 on the file of VII Assistant Judge, City Civil Court at Hyderabad.
5. The first plaintiff instituted the suit for recovery of Rs. 13,000/- and also for the relief of perpetual injunction. Since, the first plaintiff died, the legal representatives were brought on record. It was averred in the plaint as hereunder:
The plaintiff and some other partners have constituted a partnership firm under the name and style of M/s. Telex Corporation. The office of the said firm continued upto 1967. The said firm had the key cash credit facility with the defendant bank. The partnership firm had delivered possession of certain radia components etc., worth about Rs. 4 '/2 lakhs under the lock and key under the defendant bank as security against the key cash credit facility of Rs. 2,00,000/-. The defendant bank should have taken steps to sell the said goods pledged with the defendant bank and should have realize the amounts payable into the said loan account. The defendant bank by realized the amount of Rs. 51,467.60 ps., who had credited the same into the Key Cash Credit Loan. The plaintiff is having compulsory deposit account No. 53/74 with the defendant bank as per the provisions of Income Tax Rules and Regulations. The defendant had refused to pay the amounts payable to the plaintiff by 11.6.1983 under the said account. The defendant bank had given reply dated 14.12.1983 to the plaintiff informing that the amounts have been adjusted towards the loan account of M/s. Telex Corporation of which plaintiff was one of the partners. The defendant had no right to withhold the amount payable to him and adjust the same into the loan account of M/s. Telex Corporation as the said loan was time barred. It is submitted that in the compulsory deposit account No. 53/74 amounts will be accruing payable to the plaintiff. The plaintiff apprehends that the defendant may withhold those amounts also without any injunction to the plaintiff. The plaintiff, therefore, seeks die relief of perpetual injunction against the defendant from withholding and adjusting said amount to the cash credit account of M/s. Telex Corporation. The suit is filed for recovery of the amount of Rs. 13,000/- and for perpetual injunction against defendant from withholding amounts payable to the plaintiff in the compulsory deposit account No. 53/74.
6. The appellant herein/the defendant in the said suit - M/s. Bank of Baroda, Hyderabad main branch, resisted the same by filing a written statement with the following averments:
It is true that M/s. Telex Corporation had been given credit facility by the defendant bank. It is denied that goods worth Rs. 4,50,000/- are handed over to the defendant by the said firm. All the business members of the said firm are not relevant in the suit. It is denied that the defendant had lost its right to claim outstanding amounts in the loan account M/s. Telex Corporation. It is stated that beyond the period of limitation the remedy will only be lost but the outstandings do not wipe out and the liability per se does not liquidated or extinguished. The defendant has every right to refuse the refund of the amount payable to the plaintiff. The defendant had general lien and exercised that lien against the amounts payable to plaintiff. It is further stated that the loan can also be exercised against the time barred debt.
7. On the strength of the respective stands taken by the parties, the following issues were settled before the Court of first instance:
(1) Whether M/s. Telex Corporation handed over goods worth Rs. 4 1/2 lakhs to the defendant bank?
(2) Whether the defendant had no right to withhold the amount payable as against the same to the credit of this suit?
(3) Whether the defendant lost its right to claim the outstanding amount in M/s. Telex Corporation?
(4) Whether the defendant had general lien or it can be incurred against time barred debt?
(5) Whether the plaintiff is entitled for permanent injunction as prayed for the suit claim?
(6) To what relief?
8. On behalf of the plaintiffs P.W.1 was examined and on behalf of the defendant D.W.1 was examined and Ex.A.l to Ex.A.6 and Ex.B.1 were marked. The Court of first instance referred the decisions in Bombay Dyeing and Manfg. Co. v. State of Bombay ; First National Bank v. Sant Lal ; and Gurbax Rai v. Punjab National Bank , and on appreciation of the oral and documentary evidence on record, the Court of first instance came to the conclusion that such deduction or adjustment of the amount of a time barred debt cannot be made by the Bank and accordingly decreed the suit for Rs. 13,000/- with 6% interest from the date of suit till the date of realization with costs. Aggrieved by the same, the matter was carried by way of appeal A.S. No. 60/92 on the file of Additional Special Judge for SPE & ACB Cases-cum-V Additional Chief Judge, Hyderabad, and the appellate Court framed the following point for consideration at Para 9:
Whether the appellant bank is entitled to appropriate amounts lying in the CD account of the plaintiff to the amount due by M/s. Telex Corporation in the key cash credit facility time barred account?
9. The appellate Court further proceeded to discuss with the point, referring to certain provisions of the Indian Contract Act, commencing from Paras 11 to 16 and ultimately dismissed the appeal with costs confirming the Decree and Judgment of the Court of first instance. Hence, the present second appeal.
10. The representative pleadings of the parties, the issues settled, the evidence available on record and the findings recorded by the Court of first instance, as confirmed by the appellate Court, in brief, already had been specified supra. The question which had been argued in elaboration is that even in the case of time barred debt, the Bank has a right of lien or set off by adjustment of the same. The principal contention which had been advanced is that the provisions of the Limitation Act deal with the prescribing the period of limitation and regulate the remedies thereto and by that it cannot be said that the liability as such is extinguished. The debt subsists, though the same may be a time barred debt and the time barred debt is a valid consideration, recognized under Section 25(3) of the Indian Contract Court (hereinafter in short referred to as 'Act' for the purpose of convenience). Strong reliance was placed on the language of Sections 60 and 171 of the Act aforesaid. The facts are simple and clear and there is no serious controversy between the parties on the factual aspects. One of the employees of the plaintiffs was examined as P.W.1 and the Manager of the defendant Bank, during the relevant point of time, was examined as D.W.1. Ex.A.1 is the letter dated 11.6.1983; Ex.A.2 is the reply to Ex.A.1; Ex.A.3 is the copy of the letter dated 24.6.1984; Ex.A.4 is the reply to Ex.A.3; Ex.A.5 is the office copy of the letter and Ex.A.6 is the reply to Ex.A.5. Ex.B.1 is the letter dated 19.2.1975 which was marked by consent. The loan transaction of M/s. Telex Corporation had not been operated from 1966 onwards. This was admitted by D.W.1. The loan transaction of M/s. Telex Corporation was on hypothecation of goods and the key of the premises, where hypothecated goods were kept, was with the Bank at the relevant point of time. It is also not in serious controversy that the said loan by that time was time barred. Hence, the question to be decided is that in the light of the defence taken by the appellant-defendant Bank whether in the facts and circumstances the adjustment of amounts payable to the plaintiffs on the account C.D. Account No. 53/74 into the loan account of M/s. Telex Corporation by way of set off be permitted. Section 25 of the Act deals with agreement without consideration void, unless it is in writing and registered. Section 25(3) specifies an agreement made without consideration is void, unless, or is a promise to pay a debt barred by limitation law - it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. In any of these cases, such an agreement is a contract. Illustration (e) also may be looked into for the present purpose:
A owes B Rs. 1,000/-, but the debt is barred by the Limitation Act. A signs a written promise to pay B Rs. 500/- on account of the debt. This is a contract.
Section 60 of the Act dealing with application of payment where debt to be discharged is not indicated reads as hereunder:
Where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits.
Section 171 of the Act dealing with general lien of bankers, factors, wharfingers, attorneys and policy-brokers reads as hereunder:
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 Gurbax Rai v. Punjab National Bank, New Delhi AIR 1984 SC 1012, it was held that where a firm pledged its goods against cash credit facility extended to it by the Bank and the Bank on destruction of part of goods by fire received certain amount on account of destruction of the goods from the insurer, the Bank was liable to give credit of the same in the cash credit account of the same. It was not open to the Bank to adjust the amount recovered for the pledged goods for wiping out separate dues of the individual partners. Certain submissions were made distinguishing the said decision, that on facts the same is not applicable to the present case. The question which was decided in the said decision was that is it open to the Bank to adjust the amount recovered for the pledged goods for wiping out separate dues of the individual partners. In Bombay Dyeing and Manufacturing Company Limited v. State of Bombay , the Apex Court at Paras 14 and 15 observed:
It will be observed that the definition of "unpaid accumulations" takes in only payments due to the employees remaining unpaid within a period of three years after they become due. The intention of the Legislature obviously was that claims of the employees which are within time should be left to be enforced by them in the ordinary course of law, and that it is only when they become time-barred and useless to them that the State should step in and take them over. On this, the question arises for consideration whether a debt which is time-barred can be the subject of transfer, and if it can be, how it can benefit the Board to take it over if it cannot be realised by process of law. Now, it is the settled law of this country that the statute of Limitation only bars the remedy but does not extinguish the debt. Section 28 of the Limitation Act provides that when the period limited to a person for instituting a suit for possession of any property has expired, his right to such property is extinguished. And the authorities have held - and rightly, that when the property, is incapable of possession, as for example, a debt, the section has no application, and lapse of time does not extinguish the right of a person thereto. Under Section 25(3) of the Contract Act, a barred debt is good consideration for a fresh promise to pay the amount. When a debtor makes a payment without any direction as to how it is to be appropriated, the creditor has the right to appropriate it towards a barred debt. (Vide Section 60 of the Contract Act). It has also been held that a creditor is entitled to recover the debt from the surety, even though a suit on it is barred against the principal debtor. Vide Mahant Singh v. U Ba Yi 66 Ind App 198 : AIR 1939 PC 110 (F); Subramania Aiyar v. Gopala Aiyar ILR 33 Mad 30 (G) and Dil Muhammad v. Sain Das AIR 1927 Lah 396 (H). And when a creditor has a lien over goods by way of security for a loan, he can enforce the lien for obtaining satisfaction of the debt, even though an action thereon would be time-barred. Vide Narendra Lal Khan v. Tarubala Dasi ILR 48 Cal 817 at p. 823 : AIR 1921 Cal 67 at p. 68. (I). That is also the law in England. Vide Halsbury's Laws of England (Hailsham's Edition), Vol. 20, Page 602, Para 756 and the observations of Lindley L.. in Carter v. White (1883) 25 Ch D 666 at p. 672(J) and of Cotton L. in Curwen v. Milburn (1889) 42 Ch D 424 at p.434 (K). In American Jurisprudence Vol. 34, Page 314, the law is thus stated, "a majority of the Courts adhere to the view that a statute of limitations as distinguished from a statute which prescribes conditions precedent to a right of action, does not go to the substance of a right, but only to the remedy. It does not extinguish the debt or preclude its enforcement, unless the debtor chooses to avail himself of the defence and specially pleads it. An indebtedness does not lose its character as such merely because it is barred; it still affords sufficient consideration to support a promise to pay, and gives a creditor an insurable interest, "in Corpus Juris Secundum, Vol.53, Page 922, we have the following statement of the law:" the general rule, at least with respect to debts or money demands, is that a statute of limitation bars, or runs "against, the remedy and does not discharge the debt or extinguish or impair the right, obligation, or cause of action.
11. The position then is that under the law a debt subsists notwithstanding that its recovery is barred by limitation, and no argument has been addressed to us by the appellant that the transfer of such a debt is invalid; and indeed it could not be, in view of the provisions in the impugned Act, which release the debts due to the employees from the bar of limitation. Section 3(1) provides that payment shall be made of the amounts specified in Sub-clause (2) "notwithstanding anything contained in any other law for the time being in force". A similar provision is again enacted in the second proviso to Sub-section (2) of Section 5 that "unpaid accumulations" and fines shall be paid to the Board "notwithstanding anything contained in the Payment of Wages Act, 1936, or any other law for the time being in force". One of those laws is the law of limitation, and the effect of these provisions is to suspend limitation in respect of the claims to which Section 3(2) relates. To dispel any doubt as to whether it was competent to the Legislature of the Bombay State to modify the provisions of the Limitation Act, it should be stated that limitation is a topic enumerated in the Concurrent List, being Entry 13 in List III in Seventh Schedule to the Constitution, and under Article 254(2), the Stage Legislature can enact a law modifying the Central Act, provided it is reserved for consideration by the President and assented to by him, and that has been done in the present case. Coming to the impugned Act, there is one other provision therein to which reference must be made, Section 17 provides that without prejudice to other modes of recovery, the sums payable to the fund under Section 3 may be recovered as arrears of land revenue. This is a provision which is generally made when amounts are due and payable to the State, and Mr. Kolah concedes, that if the impugned law is otherwise valid, it cannot be said to be bad by reason of this section. On the above analysis, there cannot be any doubt that the effect of the relevant provisions of the Act is to transfer to the Board the debts due by the appellant to its employees free from the bar of limitation."
In Punjab National Bank v. Surendra Prasad Sinha , the Apex Court at Para 4 observed:
Admittedly, as the principal debtor did not repay the debt. The bank as creditor adjusted at maturity of the F.D.R., the outstanding debt due to the bank in terms of the contract and the balance sum was credited to the Saving Banks Account of the respondent. The rules of limitation are not meant to destroy the rights of the parties. Section 3 of the Limitation Act 36 of 1963, for short "the Act" only bars the remedy, but does not destroy the right which the remedy relates to. The right to the debt continues to exist notwithstanding the remedy is barred by the limitation. Only exception in which the remedy also becomes barred by limitation if the right is destroyed. For example under Section 27 of the Act a suit for possession of any property becoming barred by limitation if the right to property itself is destroyed. Except in such cases which are specially provided under the right to which remedy relates in other case the right subsists. Though the right to enforce the debt by judicial process is barred under Section 3 read with the relevant Article in the Schedule, the right to debt remains. The time barred debt does not cease to exist by reason of Section 3. That right can be exercised in any other manner than by means of a suit. The debt is not extinguished, but the remedy to V enforce the liability is destroyed. What Section 3 refers is only to the remedy but not to the right of the creditors. Such debt continues to subsist so long as it is not paid. It is not obligatory to file a suit to recover the debt. It is settled law that the creditor would be entitled to adjust, from the payment of a sum by a debtor, towards the time barred debt. It is also equally settled law that the creditor when he is in possession of an adequate security, the debt due could be adjusted from the security in his possession and custody. Undoubtedly the respondent principal and his wife stood guarantors to the debtor, jointly executed the security bond and entrusted the F.D.R. as security to adjust the outstanding debt from it at maturity. Therefore, though the remedy to recover the debt from the principal debtor is barred by limitation, the liability still subsists. In terms of the contract the bank is entitled to appropriate the debt due and credit the balance amount to the saving bank account of the respondent. Thereby the appellant did not act in violation of any law, nor converted the amount entrusted to them dishonestly for any purpose. Action in terms of the contract express or implied is a negation of criminal breach of trust defined in Section 405 and punishable under Section 409, Indian Penal Code. It is neither dishonest, nor misappropriation. The bank had in its possession the fixed deposit receipt as guarantee for due payment of the debt and the bank appropriated the amount towards the debt due and payable by the principal debtor. Further, the F.D.R. was not entrusted during the course of the business of the first appellant as a Banker of the respondent but in the capacity as guarantor. The complaint does not make out any case much less prima facie case, a condition precedent to set criminal law in motion. The Magistrate without adverting whether the allegation in the complaint prima facie makes out an offence charged for, obviously, in a mechanical manner, issued the process against all the appellants. The High Court committed grave error in declining to quash the complaint on the finding that the bank acted prima facie high handedly.
12. It is no doubt true that this decision relates to a criminal proceedings but however the Apex Court had specifically observed that though the remedy is barred by limitation, the liability subsists and the principle laid down in this decision was strongly relied upon by the learned Counsel representing appellant. The Counsel also strongly relied upon Syndicate Bank v. Vijay Kumar , to explain what may be the meaning of a Banker's lien in legal terminology and how it is to be understood and how it is to be exercised in the banking system. Strong reliance was placed on Para 6 of the said judgment whereunder the Apex Court observed as hereunder:
In Halsbury's Laws of England, Vol. 20, 2nd Edn. p.552, Para 695, lien is defined as follows:" 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 process 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 LIENAPART from any specific security, the banker can look 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 stated 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 the Bank by the customer for the purpose of collection. There is no gainsaying that such a lien extends to FDRs also which are deposited by the customer.
Further strong reliance was placed on S. Vasupalaiah v. Vysya Bank, Kodagenahalli Branch, Madhugiri Taluk 2001-ILR (Kar) 5015, wherein the learned Judge of Karnataka High Court held at Paras 8 to 13 as hereunder:
The Supreme Court in the case of Syndicate Bank v. Vijay Kumar and Ors. referred to some passages in the textbooks on the scope and meaning of the expression 'banker's lien' which are extracted as hereunder: "6. In halsbury's laws of England, Vol.20, 2nd Edn., p.552, Para 695, lien is defined as follows: "lien 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 process may be used by the banker in reduction of the customer's debit balance unless otherwise earmarked". 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 look 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 recognized as such". In Brandao v. Barriett, it was stated 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.
13. After considering the aforesaid meaning given to the expression "banker's lien", the Supreme Court held as under: "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 recognized 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 debt 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 are deposited by the customer. 7. Applying there 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 17.9.1980 created a general lien in favour of the appellant-bank over the two fdrs. Even otherwise having regard to the mercantile custom as judicially recognized 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".
14. In fact the banker's lien fids a statutory recognition under Section 171 of the Indian Contract Act which reads as under: "171. General lien of bankers, factors, wharfingers, attorneys and policy-brokers. Bankers, factors, wharfinges, 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 fact in the case of C.R. Narasimha Setty v. Canara Bank and Anr. this Court has held that the provisions of Section 171 apply only in the absence of an express contract to the contrary. An express contract between the parties creating a lien or security would exclude operation of the statutory general lien under Section 171 of the Contract Act.
Again the Supreme Court in the case of Punjab National Bank and Ors. v. Surendra Prasad Sinha, dealing with adjustment of fixed deposit receipts deposited by guarantor being adjusted towards debt barred by limitation has held as under:
4. Admittedly, as the principal debtor did not repay the debt, the bank as creditor adjusted at maturity of the fdr, the outstanding debt due to the bank in terms of the contract and the balance sum was credited to the savings bank account of the respondent. The rules of limitation are not meant to destroy the rights of the parties. Section 3 of the Limitation Act (36 of 1963) for short "the act" only bars the remedy, but does not destroy the right which the remedy relates to. The right to the debt continues to exist notwithstanding the remedy is barred by the limitation. Only exception in which the remedy also becomes barred by limitation if the right is destroyed. For example under Section 27 of the act a suit for possession of any property becoming barred by limitation, the right to property itself is destroyed. Except in such cases which are specially provided under the right to which remedy relates in other case the right subsists. Though the right to enforce the debt by judicial process is barred under Section 3 read with the relevant article in the schedule, the right to debt remains. The time barred debt does not cease to exist by reason of Section 3. That right can be exercised in any other manner than by means of a suit. The debt is not extinguished, but the remedy to enforce the liability is destroyed. What Section 3 refers is only to the remedy but not to the right of the creditors. Such debt continues to subsist so long as it is not paid. It is not obligatory to file a suit to recover the debt. It is settled law that the creditor would be entitled to adjust, from the payment of a sum by a debtor, towards the time barred debt. It is also equally settled law that the creditor when he is in possession of an adequate security, the debt due could be adjusted from the security in his possession and custody. Undoubtedly, the respondent and his wife stood guarantors to the principal debtor, jointly executed the security bond and entrusted the fdr as security to adjust the outstanding debt from it at maturity. Therefore, though the remedy to recover the debt from the principal debtor is barred by limitation, the liability still subsists. In terms of the contract the bank is entitled to appropriate the debt due....
From the aforesaid decisions it is amply clear that though the remedy to recover the debt from the principal debtor is barred by limitation, the liability still subsists and the bank is entitled to appropriate the debt due from the amounts which are in its possession either belonging to the principal debtor or the surety, as it is settled law that the liability of the surety is co-extensive with that of the principal debtor. 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 to the banker judiciously recognized and in the absence of agreement to contrary by virtue of statutory provision under Section 171 of the contract act the banker has a general lien over such securities and amounts in its possession. He has the right to use the proceeds towards adjustment of the debt due to him from the customer. Such a lien is also applicable to negotiable instruments including fdrs of the customer which are lying with the bank. Merely because the said fixed deposit was created subsequent to the loan transaction it would not make any difference. The bank has a right to adjust all the amounts which are in their possession and which belong to the customer on the date they adjust the said amount irrespective of the date on which the transaction which gave raise to the said claim took place.
15. In the light of Section 25(3) and Sections 60 and 171 of the Act specified supra and also in the light of the views expressed by the Apex Court in Bombay Dyeing's case (supra) and Punjab National Bank's case (supra), in particular, this Court is of the considered opinion that the concurrent findings recorded by both the Court of first instance and also the appellate Court cannot be sustained since the banker's lien and the right of a banker to make suitable deductions or to make adjustments by way of set off to be upheld positively even if otherwise it may be time barred and in view of the same, the appellant-defendant is bound to succeed and accordingly the second appeal is hereby allowed. But however since on the ground of banker's lien, the appellant bank is succeeding, the parties to the litigation to bear their own costs.