Calcutta High Court
Star Battery Limited & Anr vs State Bank Of India & Ors on 28 February, 2019
Equivalent citations: AIR 2020 (NOC) 351 (CAL), AIRONLINE 2019 CAL 567, (2019) 2 CAL HN 750, (2019) 3 CAL LJ 203
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W.P. No. 524 of 2017
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Original Side
Star Battery Limited & Anr.
Vs.
State Bank of India & Ors.
For the Petitioner : Mrs. Noelle Banerjee, Advocate
Mr. Dipanjon Dey, Advocate
For the Respondent : Mr. Krishnendu Bhattacharya, Advocate
Mr. Saibal Guha Roy, Advocate
Mr. Somsuvra Mukherjee, Advocate
Hearing concluded on : February 18, 2019
Judgment on : February 28, 2019
DEBANGSU BASAK, J.:-
The petitioner has sought a direction upon State Bank of
India to release a fixed deposit lying in the name of the first petitioner
being STDR No. 30681865193 for the principal amount of
Rs. 18,52,000/- along with all accrued interest thereon.
Learned Advocate appearing for the petitioner has submitted
that, the first petitioner enjoyed credit facilities from the bank. Such
credit facilities were secured by deposit of title deeds and pledge of
fixed deposits. The account of the first petitioner became a Non
Performing Asset (NPA). Thereafter, the petitioners approached bank
for settlement. The proposal for settlement was accepted. The
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petitioners discharged all their liabilities owed to the bank, to the full
satisfaction of the bank. The bank issued a 'no due' certificate.
Consequent upon the petitioners settling the claim of the bank, the
petitioners became entitled to return of all securities including the
fixed deposits. There were several deposits of the first petitioner lying
with the bank. The bank released all such fixed deposits save and
except one fixed deposit for the amount of Rs. 18,52,000/-. According
to her, the contention of the bank that, the bank has exercised
bankers' lien on such fixed deposit is not available to the bank in the
facts and circumstances of the case. She has drawn the attention of
the Court to the fact that, the bank had issued the 'no due' certificate.
Subsequent to the issuance of the 'no due' certificate, the bank
cannot contend that, there is any amount outstanding on account of
the petitioners for the bank to exercise bankers' lien. She has
submitted that, the contention that, the bank had exercised bankers'
lien over such fixed deposit for outstanding amount on account of a
different company is without any basis. The claim of the bank is
against a different legal entity. The petitioners cannot be made liable
for such claim of the bank against a different legal entity. Corporate
veil cannot be pierced in the facts of this case. In support of her
contentions, learned Advocate for the petitioners has relied upon
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1984 Volume 3 Supreme Court Cases page 96 (Gurbax Rai &
Ors. v. Punjab National Bank, New Delhi), All India Report 2004
Orissa page 142 (Alekha Sahoo v. Puri Urban Co-operative Bank
Ltd. & Ors.), All India Report 2006 Punjab & Haryana page 73
(M/s. Jay Kay Synthetics v. Punjab Financial Corporation,
Chandigarh & Anr.), 2014 Volume 9 Supreme Court Cases page
407 (Balwant Rai Saluja & Anr. v. Air India Ltd. & Ors.) and All
India Report 2016 Calcutta page 172 (Md. Nayabuddin v. Union
of India & Ors.). Referring to Md. Nayabuddin (supra), learned
Advocate for the petitioner has submitted that, even if the ratio laid
down in Md. Nayabuddin (supra) are attracted then also, the bank
cannot exercise bankers' lien over the fixed deposit of the petitioner
for a claim of the bank against a different legal entity. She has
submitted that, the bank should be directed to return the proceeds of
the fixed deposit along with accrued interest therein.
Learned Advocate appearing for the bank has submitted that,
the account of the petitioner became NPA and that, there was a
settlement between the bank and the petitioner. There was a
settlement between the bank and a separate legal entity. However, the
persons in control are same. The father of the petitioner is the person
in control of such entity. In all likelihood, the petitioner also has a say
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in the affairs of such entity. Upon the bank finding that a sum of
Rs. 18 lakhs and odd not being adjusted in respect of a bill
discounting facility, enjoyed by such separate legal entity, the bank
exercised bankers lien under Section 171 of the Indian Contract Act,
1872 over the concerned fixed deposit. The bank is entitled to do so.
He has relied upon 1992 Volume 2 Supreme Court Cases page 330
(Syndicate Bank Ltd. v. Vijay Kumar) in support of his contentions.
The first petitioner enjoyed credit facilities from the bank.
Such credit facilities became a NPA. The bank had initiated
proceedings under the provisions of the Securitisation and
Reconstruction of Financial Assets & Enforcement of Security Interest
Act, 2002 for recovery of its loan. The petitioners proposed a
compromise at a sum of Rs. 10.06 crores in respect of the
outstanding in such loan account. The bank had accepted such
proposal. The petitioners had paid the entire amount under the
compromise. Upon the petitioners paying the entire compromise
amount, the bank had issued a 'no due' certificate in favour of the
petitioners. It had also issued instructions for release of all mortgaged
and hypothecated assets. The bank, in fact, had released the same
excepting a fixed deposit lying with it. The petitioners had requested
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the bank to release such fixed deposit to which, the bank did not do
so.
Kali Pigment Pvt. Ltd. is a company which had enjoyed credit
facilities from the bank. According to the bank, Kali Pigment Pvt. Ltd.
and the first petitioner are associate companies. The father of the
second petitioner was the Director of both Kali Pigment Pvt. Ltd. and
the first petitioner. The addresses of both the companies are same.
Kali Pigment Pvt. Ltd. had enjoyed Bill discounting limit facility with
the bank. Kali Pigment Pvt. Ltd. was discounting bills drawn on the
first petitioner upon such bills being placed before the bank by Kali
Pigment Pvt. Ltd. for discounting. Bank used to pay the amount to
Kali Pigment Pvt. Ltd. by credit to the current account of Kali Pigment
Pvt. Ltd. debiting the bill discounting account of Kali Pigment Pvt.
Ltd. On receipt of payment on the due date of the bill from the first
petitioner, the bank used to credit the bill discounting account of Kali
Pigment Pvt. Ltd. Thus, the debit and the credit transactions in the
bill discounting account were being reconciled. On July 21, 2005 the
bank had received a cheque for a sum of Rs, 7,10,000/- on account of
inward clearing. Such cheque was drawn on by Kali Pigment Pvt. Ltd.
from its current account maintained with the Bank. The payee of
such cheque was UCO Bank, Kolkata Main Branch account Kali
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Pigment Pvt. Ltd. Inadvertently, such cheque was posted in the bill
discounting account of Kali Pigment Pvt. Ltd. instead of the current
account. Kali Pigment Pvt. Ltd. thereafter closed their current account
with the bank on January 24, 2011. Subsequently, during
reconciliation of the bill discounting amount, the error was detected.
However, when such error was detected in 2013, such error should
not be rectified as Kali Pigment Pvt. Ltd. closed their account with the
bank. Bank brought the matter to the notice of the first petitioner and
Kali Pigment Pvt. Ltd. through several letters for repayment of
outstanding amount. Both the companies did not respond to such
demands. The demands were made in 2013. Thereafter, the
compromise between the bank and the first petitioner was entered
into in 2015-2016.
Section 171 of the Contract Act, 1872 is as follows :-
"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 failed to them, unless
there is an express contract to that effect."
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Md. Nayabuddin (supra) has held as follows:-
"8. Section 171 of the Contract Act, 1872 has two
parts. In the first part it recognises that bankers,
factors, wharfingers, attorneys of a High Court and
policy-brokers have a right of general lien over goods
coming into their possession in the usual course of their
business for amounts outstanding to them. This right of
general lien exists in favour of these five categories of
persons unless there is an express contract to the
contrary entered into between the bailor and those five
categories of bailee. The second part of Section 171 of
the Contract Act, 1872 provides that apart from the five
categories of persons named therein any other bailee
may have the right of general lien once such right is
conferred upon the bailee by an express contract."
Balwant Rai Saluja & Anr. (supra) has considered a
labour dispute and in such context, explained the doctrine of piercing
of the corporate veil. It has held as follows:-
"71. In recent times, the law has been crystallized
around the six principles formulated by Munby, J. in Ben
Hashem v. Ali Shayif. The six principles, as found at
paragraphs 159- 64 of the case are as follows:
(i) Ownership and control of a company were not
enough to justify piercing the corporate veil;
(ii) The Court cannot pierce the corporate veil, even in
the absence of third-party interests in the company, merely
because it is thought to be necessary in the interests of
justice; 3
(iii) The corporate veil can be pierced only if there is
some impropriety;
(iv) The impropriety in question must be linked to the
use of the company structure to avoid or conceal liability;
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(v) To justify piercing the corporate veil, there must be
both control of the company by the wrongdoer(s) and
impropriety, that is use or misuse of the company by them
as a device or facade to conceal their wrongdoing; and
(vi) The company may be a "façade" even though it was
not originally incorporated with any deceptive intent,
provided that it is being used for the purpose of deception at
the time of the relevant transactions. The Court would,
however, pierce the corporate veil only so far as it was
necessary in order to provide a remedy for the particular
wrong which those controlling the company had done.
......................
74. Thus, on relying upon the aforesaid decisions, the doctrine of piercing the veil allows the Court to disregard the separate legal personality of a company and impose liability upon the persons exercising real control over the said company. However, this principle has been and should be applied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere camouflage or sham deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case." Gurbax Rai & Ors. (supra) has considered a suit for rendition of accounts. In such suit, it has held after appreciating the facts of that case that, the bank was not entitled to exercise bankers' lien in respect of the properties coming into its hands belonging to the 9 individual partners for dues of the partnership firm. M/s. Jay Kay Synthetics (supra) has considered the refusal of a State Financial Corporation in handing over the original title deeds of the land. It has found in the facts of that case, that the borrower cleared the entire liability of the Financial Corporation. Alekha Sahoo (supra) has held in the facts of that case, the right of lien was exercised incorrectly. Vijay Kumar (supra) has considered the concept of bankers' lien. It has held as follows:-
"6. 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 10 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 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 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." 11
In the facts of the present case, whether the exercise of bankers' lien over the fixed deposit, standing in the name of the first petitioner is correct or not, is the issue that has fallen for consideration.
There are sufficient materials available on record to establish nexus between the petitioners and Kali Pigment Pvt. Ltd. No doubt the first petitioner and Kali Pigment Pvt. Ltd. are separate legal entities. They are corporate entities. They are to be treated as separate and distinct entities as that of the individuals who are shareholders and directors of such legal entities. However, such a concept is not absolute in the sense that, corporate veil can be pierced in given circumstances. One of the circumstance when a corporate veil can be pierced is when the corporate veil is used for an improper purpose. In the facts of the present case, the father of the second petitioner was a director of the first petitioner as well as Kali Pigment Pvt. Ltd. Kali Pigment Pvt. Ltd. and the first petitioner entered into transactions with the bank. There are outstandings on account of Kali Pigment Pvt. Ltd. Therefore, the inference that, the corporate entity has been used for the purpose of an improper purpose of not discharging the liability of Kali Pigment Pvt. Ltd. vis-à- vis the bank, is not unfounded. The materials placed before the Court 12 in the present writ petition does not establish that, Kali Pigment Pvt. Ltd. is a separate legal entity with the petitioners not having any connections therewith. On the contrary, the connections as noted above are deep and pervasive. If the corporate veil is lifted then it would be found that, the same person is in control and management of both the legal entities. Such a natural person cannot be permitted to misutilize the corporate veil in order to defeat a just claim of the bank. The petitioners had a choice of filing a suit for rendition of accounts. The petitioner chose not to do so.
On the materials made available to the Court, in the facts of the present case, it cannot be said that, the lien exercised by the bank over the fixed deposit in the name of the first petitioner is incorrect.
In view of the discussion above, W.P. No. 524 of 2017 is dismissed. No order as to costs.
[DEBANGSU BASAK, J.]