National Consumer Disputes Redressal
Canara Bank And Another vs C.D. Patel on 28 February, 2001
ORDER
1. M/s Suncrush Fruits P Ltd. approached the Canara Bank for an over draft facility. Canara Bank agreed to furnish the facility but required a security for the amount. C.D. Patel, the complainant, a Non Resident Indian, agreed to provide security by making a fixed deposit of 15,000 pounds with the Canara Bank. Fixed deposit was to be kept in a F.C.N.R. Fixed Deposit Account for a period of two years. On the strength of the fixed deposit, Canara Bank agreed to give Suncrush an over draft facility for an equal amount in Indian Rupees. On the maturity of the Fixed Deposit it was renewed at the request of the complainant C.D. Patel, the NRI along with the accrued interest.
2. The case of C.D.Patel, the complainant is that the had deposited 15,000 pounds as security for one loan i.e. Rs. 2 lakh and that was for a limited period of only 2 years, the period, The said amount was not offered as security for any other loan taken by the Company. The security was allowed to continue beyond two years without knowledge and consent of the complainant. The Bank woke up only after the financial condition of Suncrush becoming precarious and its factory was seized by the financial institutions.
3. The complainant has demanded return of the entire amount with accrued interest amount standing to this credit in the F.C.N.R. Fixed Deposit Account.
4. The first question is what is the relationship between the complainant, C.D. Patel and the and the Company Suncrush. Suncrush is a Private Company. C.D. Patel is a substantial shareholder in that company No shareholder stands security for a loan taken by the company unless he has a deep and abiding interest in the management of the company. This relationship has not come out in the open in the petition or in the affidavit filed before us. No affidavit has been filed before us on behalf of Suncrush. It is not known what is that status of the company now. Has the company been wound up or has any winding up action has been started against the company? It has been stated that financial institution have closed in and have seized the assets of the company. If the loan was initially given for a period of two years and the security was also for a period of two years only, if is strange that even after the F.C.N.R. Fixed Deposit materialised in 1986 no attempt was made by Patel to withdraw this amount and was kept renewed alongwith the interest and was allowed to be held as security for the company's loan/overdraft. It is only when the company's condition became precarious Patel decided to withdraw the said Deposit. Suncrush had applied for an overdraft/loan of Rs.2 lakh and in the printed form for such application, in column 7 it was stated -
"the consideration for which the : The name of C.D. patel has been overseas depositor has agreed shown as shareholder who has to pledge the fixed deposit as the Company to tide over problems collateral security for the loan/ during the first year of operation. overdraft,
5. It was also stated that Patel held 2000 shares of Rs.1000 each in the Company.
6. It is trite law that a shareholder is not liable for the debts of the Company. The company is clothed with a juristic personality which is quite different and separate from its shareholder. The shareholders cannot be made liable for the debts of the company.
7. There are however situations where for the sake of equity, corporate veil is pierced. Particularly, once winding up proceedings start, the company's corporate veil can be lifted to find out the reality. In the instant case, we are not aware of the status of the Company except that it is in financial straits. Its assets have been seized by the financial institution. Patel who had opened a Fixed Deposit Account and given its security for two years but had allowed it to continue for nearly eight years for the benefit of the company has now come with a complaint that the Fixed Deposit which was due to mature on 28.10.1994 should not be extended any further and must be returned with accrued interest.
9. The particulars of the nature and the degree of involvement of Patel in the affairs of the Company have not been disclosed. We shall not presume any equitable consideration in favour of the complainant while deciding the case strictly in accordance with law.
10. The question is can the Company withhold this amount to meet not only the loan for which this amount of fixed deposit was pledged but also for other dues of the bank. In other words, can a Bank exercise its power of general lien in respect of this amount? On behalf of the bank, out attention was invited to a decision of the Supreme Court in the case of Syndicate Bank v. Vijay Kumar (AIR 1981 SC 126). In that case M/s. Jullundur Body Builders were enjoyed various credit facilities from the Syndicate Bank for a number of years. They were also enjoyed overdraft facility upto the limit of Rs.1,00,000/-. Apart from these loan facilities, Syndicate Bank had furnished a Bank Guarantee for a sum of Rs.90,000/- in favour of Delhi High court in an execution case against the Jullundur Body Builders. The Bank furnished the guarantee for an amount of Rs.90,000 on condition that the debtor should deposit the entire amount as security with the Bank as guarantee. One of the partners of the judgment-debtor firm furnished the security by opening two Fixed Deposit accounts of Rs.65,000/- and Rs.25,000/-. The FDs were to mature on 17.12.1983 and 1.7.1985. In the usual recital of the agreement under which the deposits were made, it was stated that the deposits and renewals shall remain with the Bank "so long as any amount on any account is due to the Bank from them i.e. M/s Jullundur Body Builders."
11. The Bank guarantee was discharged on 27.10.1980 by a Division Bench of the High Court. The Bank however refused to pay the money on the allegation that Bank had a lien over the amount deposited with them and had a right to hold the security in respect of other loans which were due and owing to the Bank. The dispute went to Court and it was held by a single Judge that the two FDRs which were deposited with the Bank as security for the bank guarantee stood discharged when the bank guarantee was discharged and the bank did not have a general lien on the security given. It is only a case of particular lien against a particular loan and the Bank could not retain the amount in exercise of any general lien.
12. On appeal the Supreme Court referred to the terms of the agreement for furnishing the security. The relevant clause was:-
"The Bank is at liberty to adjust from the proceeds covered by the aforesaid Deposit Receipt/Certificate or form process of other receipts/certificates issued in renewal thereof at any time without any reference to us, to the said loan/OD account."
13. The Supreme Court after a long review of the case law and text books came to the conclusion that the High Court was not right in holding that the Bank had only a special lien on the two FDRs which was limited to the Bank Guarantee furnished. The Supreme Court held " as already noticed, the recital in the covering letter as extracted above clearly established that a general lien was created in favour of the Bank on the two FDRs. Merely because the two FDRs were also furnished as security for the issuance of the Bank guarantee, the general lien thus created cannot come to an end when the Bank guarantee is discharged. The words "Lien to BG 11/80" do not make any difference".
14. We shall now examine the nature of the security furnished to determine whether a general or special lien created in favour of the bank. Although it has been stated that the loan granted was for a period of two years and the security furnished was also for a period of 2 years' duration, in the Account Opening Form the complainant authorised the Bank to automatically renew the deposit on the due date for an identical period(s) unless the instructions to the contrary was given by the depositor before maturity.
15. Therefore, it clearly appear that even though the loan/overdraft was for 2 years, the security stood automatically renewed and the Fixed Deposits were allowed to remain with the Bank from 1986 to 1994. In the deed to pledge given by C.D. Patel to Canara Bank, it was stated that :-
"In consideration of your making advances by way of overdraft, discount of bills, loans or otherwise or having agreed to issue/issued guarantee/s upto a maximum amount of Rs.2,00,000/- (Rupees Two Lakhs only) on behalf of M/s Suncrush Fruits P Ltd. (hereinafter called the borrower) in favour of .....the beneficiaries to be name in writing by the Borrower from time to time, I/we hand you herewith:
1. Deposit Receipt described in the scheduled overleaf standing in my/our name/duly discharged;
2. xxx xxx xxx xxx
3. xxx xxx xxx xxx
4. xxx xxx xxx xxx Which and renewals whereof please hold as a continuing security for all loans, advances, overdrafts and Bank Guarantees issued/to be issued and all other credit facilities of whatsoever kind made/to be made to the borrower on whatsoever account from time to time.
You may hold the ..... as a continuing security for all sums due to you under the said overdraft/loan/guarantee limit or other liability from time to time and for all sums ultimately due in the account whether an account of guarantees or otherwise together with interest and all other amounts due to you, including all charges, commission, brokerage, cost of telegrams incidental expenses, as also the amount of dishonoured bills, promissory notes or cheques, notwithstanding that the overdraft or any liability due in the account may from time to time be reduced or extinguished or that the balance in the said account may be at credit or by drawings or debts to the accounts the said account is overdrawn beyond the limit.
You may hold the said..... as security with full right or enforcement or appropriation with prejudice to your remedies against the Borrower and right, over any other securities which may now or at an time hereafter be held by you from time to time in respect of any advances made to the Borrower or guarantee executed on his behalf.
xxx xxx xxx xxx xxx xxx xxx xxx
I/We agree that the security hereby created shall be available to you for all renewed guarantees and/or extensions thereof and such renewals/extension/s shall not require my/our consent.
You shall have authority at any time you think fit, to appropriate the balance in the deposit account hereby pledged, even though the deposit has not matured and even though the deposit in renewed or renumbered or altered in any manner; .. ... ... ... ... ... ... ... and to apply the net proceeds of the securities so realised to the indebtedness of the borrower as aforesaid.
This Agreement shall be irrevocable and shall remain in force until discharged by you in writing."
16. Although there are certain blanks in these columns, in the three page document, C.D. Patel has signed every page including the page which contains blank columns indirectly has agreed with terms and conditions mentioned in the printed form.
17. It may be noted that in the case before the Supreme Court, the two FDRs were deposited with the Bank as security for Bank Guarantee. The basis of which the Supreme Court came to the conclusion that a general lien was created was a claim in the printed form of the Bank"
"The Bank is at liberty to adjust from the proceeds covered by the aforesaid Deposit Receipt/Certificate or from proceeds of other receipts/certificate issued in renewal thereof at any time without any reference to us, the said loan/OD account.
We agree that the above deposit and renewals shall remain with the Bunk so long as any amount on any account is due to the Bank from us for the said M/s Jullundur Body Builders singly or jointly with others."
18. We did not found any fundamental difference between the terms & conditions under which the deposit was taken from M/s Jullundur Body Builders and the terms & conditions in the instant case. We are of the view having regard to the fact and circumstances of this case that a general lien in favour of the Bank was created. The security was available against "the said overdraft/loan guarantee limit or other liability from time to time....." There is another clause in the deed of pledge by which Patel made the security available for all credit facilities given to the company:
Which and renewals whereof please hold as a continuing security for all loans, advances, overdrafts and Bank Guarantee issued/to be issued and all other credit facilities of whatsoever kind made/to be made to the borrower on whatsoever account from time to time
19. The Bank is entitled to adjust the disputed fixed deposit amount against dues from the various loans/overdrafts taken by M/s Suncrush Fruits P Ltd.
20. The Order dated 31.10.96 under appeal is set aside. The complaint is dismissed. No order as to costs.
21. In view of the aforesaid, the cross appeal preferred by C.D. Patel is dismissed.