Gujarat High Court
Hdfc Bank Limited Thro' Regional Head vs Ashima Limited on 28 February, 2014
Author: S.G.Shah
Bench: S.G.Shah
C/AO/128/2005 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
APPEAL FROM ORDER NO. 128 of 2005
With
CIVIL APPLICATION NO. 2380 of 2005
In
APPEAL FROM ORDER NO. 128 of 2005
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE S.G.SHAH
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1 Whether Reporters of Local Papers may be allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the judgment ?
4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
============================================================ HDFC BANK LIMITED THRO' REGIONAL HEAD....Appellant(s) Versus ASHIMA LIMITED....Respondent(s) ============================================================ Appearance:
MR MIHIR THAKOR, SR. COUNSEL with MR ANIP A GANDHI, ADVOCATE for the Appellant(s) No. 1 MR SN SOPARKAR with MR AMAR N BHATT, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE S.G.SHAH Page 1 of 99 C/AO/128/2005 CAV JUDGMENT Date : 28/02/2014 CAV COMMON JUDGMENT The appellant is the original defendant, whereas the respondent is the original plaintiff before the City Civil Court, Ahmedabad, in Civil Suit No. 3213/2004. They are referred to in the same capacity in this judgment also.
2 The plaintiff is a public limited company, whereas the defendant is corporate bank.
The plaintiff has preferred the suit for several reliefs, but mainly for declaration regarding set off of certain amounts by the defendant bank between different accounts of the plaintiff with the defendant. The plaintiff has also prayed for declaration that action of the defendant is malafide, fraudulent and illegal in debiting various accounts of the plaintiff, with permanent injunction against the defendant to restrain them from dishonouring the cheques issued by the plaintiff on such account and also for mandatory order to restore the credit in its accounts which were debited by the defendant. So far as set off is concerned, the plaintiff has also contended that it amounts to misappropriation. To consider above reliefs, if we verify the factual details, following facts are relevant to decide present appeal.
Page 2 of 99 C/AO/128/2005 CAV JUDGMENT2.1 The plaintiff had opened one Current Account No. 0400492018 with Tulsiani Branch, Mumbai of defendant. Such account was changed to new Account No. 001033444210 with balance of Rs.64,49,044/- on 6/7/2002 [Mark 4/14].
2.2 The plaintiff has also opened Current Account No. 075511203 with Navrangpura branch of defendant at Ahmedabad.
2.3 The plaintiff has issued a post dated cheque no. 093856 dated 29/11/2002 [Mark 4/13] for an amount of Rs.7.5 crores [hereinafter referred to as 'the cheque in question'] in favour of the Bank of Bahrain and Kuwait [hereinafter referred to as 'BBK'], which is drawn on Tulsiani Branch of the defendant bank. Such cheque was issued in the month of December 2001, towards security against term loan granted by the BBK to the plaintiff [Mark 25/1].
2.4 However, the plaintiff has pleaded that instructions were given to BBK that such cheque should not be encashed since proposal to create second charge in favour of the BBK on the assets of the plaintiff as well as restructuring of the payment was under consideration and waiting approval of consortium of the bank.
Page 3 of 99 C/AO/128/2005 CAV JUDGMENT2.5 The plaintiff has also contended that by the letter dated 16/2/2002, copies of which were produced on record at mark 4/15 and 4/16, it was conveyed to both the branches of defendant bank that amount in credit of any account/branch shall not be transferred to other account/branch unless plaintiff drew cheques for transfer of such money.
2.6 On 28/5/2003, which is the last day of validity of the cheque in question, BBK had presented cheque in question for clearance and during the process, the defendant had cleared the cheque in question issued by the plaintiff in favour of BBK.
2.7. It is contended by the plaintiff that because of specific instructions and Court's order not to utilize the cheque, BBK was not supposed to present such cheque for clearance, but considering the date of cheque as 29/11/2002, when its validity is going to expire on 29/5/2003, BBK had, in violation of previous intimation and Court's order, presented the cheque for clearance just before two days of the validity of the cheque. It is further stated that it is not disputed that though cheque dated 29/11/2002 was available to BBK well in advance, they have not presented it for clearance till Page 4 of 99 C/AO/128/2005 CAV JUDGMENT 28/5/2003 i.e. almost for six months and, therefore, it proves that they have acted upon the instructions of not to encash such cheque for six months.
2.8 On 28/5/2003 when cheque in question was presented for clearance, the balance in plaintiff's account with Tulsiani branch of the defendant was only Rs.13,663-45 ps., and though such account was neither the over draft account nor cash credit account, but simply current account, the defendant had, without over draft concession and without any instruction by the plaintiff to honour such cheque, defendant cleared the payment of the cheque amount of Rs.7.5 crores by honouring the cheque in favour of the BBK.
2.9 Therefore, the plaintiff has contended that, on 27th and 28th May 2003, Tulsiani branch of the defendant was not entitled to clear or pass or approve the payment of cheque in question drawn in favour of the BBK by the plaintiff. However, it is further contended that, even after making payment of such huge amount based upon the cheque issued by the plaintiff, which was certainly beyond credit balance of the fund lying in the plaintiff's current account at the relevant time, the defendant bank has not debited Page 5 of 99 C/AO/128/2005 CAV JUDGMENT such amount in the account of the plaintiff.
2.10 Apprehending such action, on 27/5/2003, the plaintiff has filed Civil Suit No. 1360/2003 [Mark 4/17] before the City Civil Court at Ahmedabad and more particularly to face consequences for dishonour of the cheque that may be initiated by BBK and prayed for an interim injunction against BBK so as to restrain it from presenting the cheque in question for clearance.
2.11 The plaintiff has also prayed for interim relief to the same effect and City Civil Court, Ahmedabad, was pleased to grant ad-interim injunction in favour of the plaintiff restraining BBK from encashing the cheque in question.
2.12 Intimation of said order of injunction was sent to BBK on 27/5/2003 by fax twice i.e. at about 12.15 PM on 27/5/2003 and again on 28/5/2003 at about 10.15 AM by fax [Mark 4/18 to 4/20]. Injunction order was served upon the BBK at about 11.49 AM on 28/5/2003. However, BBK has disclosed that they have already presented the cheque for encashment.
2.13 As per the plaintiff, said cheque was presented after the service of ad-interim injunction granted on 27/5/2003 by the City Civil Page 6 of 99 C/AO/128/2005 CAV JUDGMENT Court against BBK. It is also contended that the plaintiff has conveyed the defendant on 28/5/2003 [Mark 20/1] not to treat the payment of Rs.7.5 crores as overdraft in their accounts.
2.14 Tulsiani branch of the defendant bank has, after honouring said cheque even without sufficient funds in the plaintiff's account, tried to reverse the transaction with BBK. However, BBK had not accepted such reverse entry. Such exercise was done by the defendant on 30/5/2003 and 4/6/2003 [Mark 4/21 to 4/23].
2.15 The defendant bank had on 30/5/2003 addressed a letter [Mark 4/21] to BBK that there was no balance in the account of the plaintiff and, therefore, cheque was honoured by mistake and hence asked the BBK to return the cheque to protect the interest of defendant bank. Again on 4/6/2003 [Mark 4/22] the defendant bank has in its letter admitted that the plaintiff has no borrowing relationship with the defendant and hence cheque should be treated as returned purely for want of funds. The defendant bank also asked BBK to refund the amount. However, BBK has refused to accept the cheque and to return the amount.
2.16 On 8/6/2003 Solicitors of the defendant Page 7 of 99 C/AO/128/2005 CAV JUDGMENT bank, addressed a letter [Mark 4/23] to BBK complaining that in view of above facts, BBK had misappropriated the amount and called upon BBK to refund the amount with 18% interest, confirming that failing which, the defendant bank would adopt civil and criminal proceedings against BBK and its officers.
2.17 The plaintiff has also contended that pursuant to three different notifications dated 11/11/2002, 20/10/2003 and 19/10/2004 [Mark 4/10 to 4/12] by the Government of Gujarat, the plaintiff has been declared as a relief undertaking unit under the Bombay Relief Undertaking [Special Provisions] Act, 1958 [hereinafter referred to as 'the BRU Act'] and pursuant to such notifications, the plaintiff company remained as relief undertaking unit from 11/11/2002 till 10/11/2005 i.e. continuously for three years. It is further contended that because of said notifications, all liabilities of the plaintiff other than liabilities of Government dues and dues towards employees has been suspended till 10/11/2005.
2.18 The plaintiff has produced notification issued by the State Government under the BRU Act, which also specifically confirms that the plaintiff is declared as relief undertaking unit Page 8 of 99 C/AO/128/2005 CAV JUDGMENT and any remedy for the enforcement thereof shall be suspended during one year commencing from 11/11/2002. Even if such declaration is extended from time to time, it simply suspends the remedy for the enforcement of rights, privileges, obligations, liabilities, etc., against such undertaking and thereby it does not restrict and take away all the rights of third party and cannot put an end to all the liabilities of such sick unit. Such notifications are at marks 4/10 to 4/12.
2.19 Thereafter, it is contended by the plaintiff that, there was mutual transactions between the plaintiff and the defendant bank so far as all current accounts in both the branches are concerned and there was no debt entry for Rs.7.5 crores in the account of the plaintiff with defendant bank from 28/5/2003 till 24/12/2004. However, on 25/12/2004 i.e. almost after 19 months, the defendant bank has all of a sudden debited the amount of Rs.7.5 crores in the plaintiff's account and an amount of around Rs.1.12 crores approximately was adjusted towards such debt and thereby though there was a credit balance of approximately Rs.1.12 crores, the defendant has dishonoured and returned different cheques of the plaintiff. It is further contended that such set off and adjustment was made between Page 9 of 99 C/AO/128/2005 CAV JUDGMENT two different branches of the bank i.e. Navrangpura branch of Ahmedabad and Tulsiani branch of Mumbai [Mark 4/1 to 4/9].
2.20 For making such debit entry, the defendant has issued memos dated 24/12/2004 to the plaintiff [Mark 20/3 to 20/11].
3 Based upon the above factual position on record, it is contended by the plaintiff that the act of debiting the amount of Rs.7.5 crores on 24/12/2004 and dishonouring and returning the cheque against such debit entry between two different branches of the defendant bank and that too even after specific written instructions in the month of February, 2002 that no amount shall be transferred from one account to another account and even after prohibitory order [Mark 4/17] by the City Civil Court, Ahmedabad, to pay such amount, when defendant had not debited the said amount of Rs.7.5 crores, when cheque in question was honoured on 28/5/2003 and when the defendant bank has neither claimed such amount from the plaintiff nor adjusted the amount in credit balance as set off till 23/12/2004, the action of the defendant bank to utilize the credit balance of aggregate amount of approximately Rs.1.12 crores from the plaintiff's different accounts at Navrangpura branch at Page 10 of 99 C/AO/128/2005 CAV JUDGMENT Ahmedabad and Tulsiani branch at Mumbai, is not only fraudulent and misappropriation of its amount, but it is absolutely illegal, without authority and result of gross negligence on the part of the defendant bank.
3.1 It is further contended that at the time of such arbitrary set off by the defendant bank, several cheques of the plaintiff had been returned and such dishonour of cheque may compel the plaintiff to face complaint/s under section 138 of the Negotiable Instrument Act, which would harm its image in the market and would cause tremendous injustice to it. It is further contended that the amount in credit of different accounts of the plaintiff aggregating to approximately Rs.1.12 crores was for the purpose of day-to-day activities and salary of the employees of the plaintiff company and dishonour of the cheques by the defendant, even though there was credit balance, would result into further difficulty to the persons in whose favour such cheques were issued and in turn it would reflect upon the plaintiff's business also, since cheques for goods supplied to the plaintiff may also dishonour, which would disturb the manufacturing operation of the plaintiff company, as further supply of goods would be stopped. Several other instances were pleaded in para 5 of Page 11 of 99 C/AO/128/2005 CAV JUDGMENT the plaint.
4 Based upon such factual details and allegations, the plaintiff filed the suit for the reliefs as referred in para 2 above with an application for interim relief in the form of mandatory directions against the defendant bank to reverse the debit entry dated 24/12/2004, debiting the plaintiff's account with Tulsiani branch, Mumbai and thereby to credit the said account with Rs.7.50 crores. Similarly, to reverse the debit entries made on 23/12/2004 in plaintiff's accounts described in Part-I of Annexure-A with such application, so far as different bank accounts are concerned, and to credit such accounts with the amounts debited as set off on or after 23/12/2004. It is further prayed as interim relief to restrain the defendant by way of temporary injunction from dishonouring the cheques already issued or issued thereafter by the plaintiff and drawn upon plaintiff's account described in Parts 1, 2 and 3 of Annexure-A and Annexure-B with such application to the extent of balance in credit as on 23/12/2004 and pursuant to such further amount that may be deposited thereafter. It is also prayed by the plaintiff to restrain the defendant bank from transferring or appropriating any amount that may be deposited in the said account.
Page 12 of 99 C/AO/128/2005 CAV JUDGMENT5 In addition to the pleadings as aforesaid, after filing of written statement by the defendant, plaintiff has also filed further pleadings and several documents. However, reproduction of such history has been avoided and relevant pleadings and evidence will be considered at the relevant time while discussing the issues involved in the appeal. However, to initiate discussion for determination of the appeal, basic facts and dispute between the parties as discussed above, are necessary.
6 In response to the facts and pleadings as above, the defendant has filed its reply. Sum and substance of its version may be summarized as under.
6.1 While denying its act of appropriation and set off of certain amounts amongst different branches as misappropriation and fraudulent, it is contended by the defendant that it being banking company, it is empowered to set off and appropriate the amount of same account holder amongst its different accounts, if amount is in credit in one of the accounts and if another account is in debt. To substantiate such set off and apportionment, defendant is mainly relying upon the English law on the subject and Page 13 of 99 C/AO/128/2005 CAV JUDGMENT provisions of sections 70 and 72 of the Indian Contracts Act 1872. In addition to such defence, it is pleaded by the defendant, while admitting that honouring the cheque in question of the plaintiff in favour of BBK was though by mistake, it was bonafide act on the part of the defendant to honour the cheque of a valued customer like the plaintiff since such benefit was always extended to such customers and as and when necessary, the amount in credit of one account was always been given set off and apportioned with different accounts so as to facilitate the customers and their requirement, irrespective of over draft account or credit facilities in their favour. It is further contended that notice of motion is misconceived, with ulterior motive and with malafide intention to harass the defendant and that the plaintiff has not come before the Court with clean hands and that the plaintiff is guilty of suppression of material facts and that plaintiff has alternate adequate remedy by way of damages if at all plaintiff succeeds in the suit. Moreover, it is also contended that the defendant has not transferred the amount unauthorizedly from plaintiff's one account to another account. It is also contended that it is plaintiff who has issued a cheque in question drawn upon the Tulsiani branch of the defendant and in favour of BBK towards repayment of loan taken by the Page 14 of 99 C/AO/128/2005 CAV JUDGMENT plaintiff from the BBK and that though the plaintiff has filed previous Suit No. 1360/2003 against BBK, present defendant was not joined as defendant in that suit. The defendant has also explained the manner in which transaction of such cheque has been carried out right from the presentation of cheque till amount in question was given set off by it. However, that procedural details about clearing of cheque are not material for the present except for the statement by the defendant that considering huge transactions for 33,534 cheques [Eh. 18], the activity by the defendant can never be said to be fraudulent and with any ulterior motive even if it is considered as a mistake or negligence on the part of the defendant and, therefore, there is no question of fraud or misappropriation of funds by the defendant.
7 In addition to first set of pleadings as quoted hereinabove, both the parties have produced several documents and filed several evidence to prove their rival claim. Details of all relevant documents and pleadings shall be taken care of while discussing the issues on hand for determination.
8 In the suit, when the interim injunction application was pressed on the date of filing of Page 15 of 99 C/AO/128/2005 CAV JUDGMENT the suit itself i.e. 29/12/2004, the Chamber Judge of the City Civil Court, Ahmedabad, vide his ex-parte ad-interim order dated 29/12/2004, passed below Notice of Motion Exh. 6 and 7 in the Civil Suit No. 3213/2004, granted ex-parte ad- interim prohibitory relief in terms of para 9 [C] of the application and issued notice for mandatory reliefs in terms of paras 9 [A] and 9 [B] of the application for interim relief. Such order has been confirmed by the impugned judgment and order dated 14/3/2005. Perusal of such ex- parte order dated 29/12/2004 makes it clear that on day one, the trial Court has relied upon the averments made by the plaintiff regarding admission of mistake by the defendant in honouring cheque in question for Rs.7.5 crores. It is observed that for the mistake of the defendant, the plaintiff should not be punished or suffered and, therefore, the defendant bank was restrained by way of temporary injunction from dishonouring the cheques already issued or that may be issued after such order, by the plaintiff to various persons/ parties and drawn upon the plaintiff's different accounts, which are described in Annexures - A and B with such notice of motion exh. 6 and 7. On perusal of such Annexures, it transpires that the plaintiff company has in-all 8 accounts with Navrangpura branch, Ahmedabad, of the defendant and one Page 16 of 99 C/AO/128/2005 CAV JUDGMENT account with Tulsiani branch at Mumbai. The annexure also shows that before set-off or apportionment by the defendant bank, there was consolidated credit amount of approximately Rs.1.12 crores in all accounts with Navrangpura branch; whereas balance as on 24/12/2004 in Tulsiani branch at Mumbai was in negative i.e. approximately minus Rs.6.38 crores. In Annexure- B, reference of two other accounts are also there wherein the amount in credit as on 24/12/2004 is in all approximately Rs.43 lacs. However, such accounts seem to be for repayment of fixed deposits and interest on fixed deposits. It seems that while setting off the debt, the defendant has not disturbed said amount and accounts.
9 Therefore, even according to the pleadings by the plaintiff itself, there was a debit balance of Rs.6.38 crores in Tulsiani branch and out of credit balance of Rs.1.12 crores in Ahmedabad branch, the defendant has given set off for Rs.1.11 crores and the defendant has not touched two accounts, details of which are disclosed in Annexure-B with the application.
10 In Annexure-B with the application, the plaintiff has shown the details of cheques issued by it, which are amounting to Rs.1.3 Page 17 of 99 C/AO/128/2005 CAV JUDGMENT crores. Whereas in Annexure-C, the plaintiff has given details of cheques which are dishonoured after set off and apportionment as discussed hereinabove. The total amount of such dishonoured cheques is approximately Rs.1.17 crores.
11 While allowing all the prayers in terms of para 9 [A], [B] and [C] of Notice of Motion by the impugned order dated 14/3/2005, Chamber Judge of City Civil Court, Ahmedabad has mainly relied upon the following facts in addition to facts stated hereinabove.
11.1 Payment by defendant bank was either illegal or voluntary, but at the most it is yet to be decided and, therefore, the defendant bank is to be blamed itself.
11.2 The defendant bank has no authority whatsoever to set off or appropriate the amount in different accounts of the plaintiff, but it was obligatory upon the defendant bank to inform the plaintiff prior to making any entry in the accounts.
11.3 The defendant has not claimed interest from 18/5/2003 till 24/12/2004 thereby defendant has agreed that they are at fault and not entitled to interest.
Page 18 of 99 C/AO/128/2005 CAV JUDGMENT11.4 Damages are forced upon the plaintiff and, therefore, provision of section 70 or 72 of the Contract Act would not be applicable.
11.5 Sections 70 and 72 cannot be pressed into operation when the payment is made to third party like BBK in the present case.
12 The trial Court has considered such apportionment and set-off as not only illegal, but in breach of trust, confirming that it can only be set at right by issuing injunction order. The trial Court has discussed all the arguments advanced by both the parties and also considered citations referred to by both the parties, but did not agree with the proposition of the defendant that even English law and Indian Contact Act confirm the right of the bank to set off the account and held that balance of convenience would strike in favour of the plaintiff only if mandatory relief is granted since the plaintiff is sick unit as declared under the BRU Act. The trial Court has also observed that attitude of the defendant remained superfluous and indifferent when it is observed that the defendant has in the very clandestine manner made false entries in the plaintiff's account behind the back of the plaintiff and that Page 19 of 99 C/AO/128/2005 CAV JUDGMENT the actions of the defendant are not so simple or innocuous, but it has been taken up with calculated manner so that it would not be compelled to file any litigation against BBK and, therefore, the act of the defendant is directly designed to make itself innocuous for long drawing battle against BBK.
13 In view of such discussion, the trial Court has held that the acts of the defendant are with ulterior motive and with a view to suppress its own mistake so as to get away from the negligence and careless action in paying huge amount without specific instructions of the plaintiff. Ultimately, observing that it becomes legal duty of the Court to protect financial interest of the plaintiff when it is sick unit as per the BRU Act, impugned order was passed in favour of plaintiff.
14 Thereby, by the impugned order, the trial Court has passed mandatory order directing the defendant to reverse the debit entry dated 24/12/2004 debiting plaintiff's account and thereby crediting such account with an amount of Rs.7.5 crores and also to reverse the debit entries in other accounts at Ahmedabad and to credit all such amounts, which are debited as set off and apportionment towards its so called debt.
Page 20 of 99 C/AO/128/2005 CAV JUDGMENTThus, the defendant has to give credit of approximately Rs.1.12 crores debited from different accounts of the plaintiff against their dues of Rs.7.5 crores from the plaintiff.
15 Reference to the initial order in this appeal is also relevant at this stage. When the impugned order was challenged in the present appeal, the appeal was admitted on 13/4/2005 and in Civil Application No. 2380/2005 for staying operation and implementation of the impugned order as aforesaid, this High Court has passed the following order on 13/4/2005 :
"Rule returnable on 10/05/2005. In the meantime, ad-interim relief in terms of para 9 [a], on condition that the appellant Bank shall deposit an amount of Rs.1.12 crore [Rupees One crore twelve lacs only] in Fixed Deposit in the name of the respondent. However, it is clarified that the said amount shall not be encashed without the prior permission of this Court.
The respondent shall press the contempt proceedings against Bank of Bahrain and Kuwait in the other pending suit."
Such interim order was thereafter confirmed by an order dated 8/7/2010.
16 Therefore, though above discussion is certainly making a picture clear, in nut-shell before discussing the rival submissions and Page 21 of 99 C/AO/128/2005 CAV JUDGMENT evidence so as to determine the issue on hand, in simple and minimum terms, it is to be recollected here that the plaintiff has obtained a loan from BBK. In security of such loan, the plaintiff has issued on cheque dated 29/11/2002 in favour of BBK. Such negotiable instrument was utilized by the BBK. The defendant has wrongly and by mistake even in absence of sufficient fund in the account of the plaintiff, honoured such cheque in favour of the BBK. The record and discussion will confirm that such amount has been credited by BBK in the plaintiff's account. When defendant could not get the amount which was wrongly paid by it, from BBK, it has debited the amount in the plaintiff's accounts and endorsed several entries to set off and appropriate the available balance in the plaintiff's account against such payment.
17 Based upon above factual details and history between the parties, the basic issues which require determination in this appeal, are to the effect that [1] whether the defendant bank is entitled to set off and apportionment the available balance without express contract to that effect? and [2] whether the plaintiff is entitled to mandatory relief as claimed for?
18 Ld. Senior counsel for both the parties have argued at length and referred several Page 22 of 99 C/AO/128/2005 CAV JUDGMENT documents. I have perused the voluminous record. Reproduction of all such submissions and reference to all such documents would make this order voluminous even at such interim stage when original suit is yet to be decided. It is settled legal proposition that at such interim stage, the appellate Court shall not deal with the matter as a mini trial as held by the Hon'ble Apex Court in the case between Anand Prasad Agarwalla v. Tarkeshwar Prasad, reported in AIR 2001 S.C. 2367. Therefore, when basic facts are already recorded hereinabove, I would like to deal with the submissions by both the parties and documents referred by them to arrive at final conclusion rather than narrating them before discussion.
19 So far as the plaintiff's case is concerned, though the plaintiff is right in submitting that the defendant bank has unilaterally debited and set off the amount of Rs.1.11 crores from its different accounts, if we peruse the letter dated 16/2/2002 issued by the plaintiff to the defendant, which is heavily relied upon by the plaintiff itself and whereby the plaintiff has put forward a case that it has specifically instructed and restrained the defendant from such set off and apportioning any amount, in any such manner, contents of such letters at mark 4/15 and 4/16 make it clear that Page 23 of 99 C/AO/128/2005 CAV JUDGMENT in fact, such set off and apportionment was in regular practice amongst the plaintiff and defendant at-least prior to such letters. Even in pleadings, the plaintiff has categorically admitted that its accounts are having at par facility at various places. Thereby, cheque issued by the plaintiff drawn upon one branch can be honoured by any other branch of the defendant. The perusal of such letter dated 16/2/2002 addressed to both the branches of the defendant i.e. Tulsiani branch, Mumbai and Navrangpura branch, Ahmedabad, makes it clear that in fact, it was agreed upon by the plaintiff to utilize and transfer balance from one account of the plaintiff to other account of the plaintiff company. It would be interesting to reproduce text of body of such letters hereunder.
"This is to inform you that we are operating above mentioned bank account number 0400492018 having at par facility at various places. As per our instructions/ understanding you are utilizing/ transferring balances from/ to other bank accounts of our company/ other divisions of our company or group/ associate companies from time to time. We thank you for your cooperation and assistance in this behalf.
We have now taken certain corporate policy decisions and therefore now instruct you not to do such transfer from the respective account holder unit/ company. You are also instructed that no balance in any other account of our Page 24 of 99 C/AO/128/2005 CAV JUDGMENT company/ associate company should be utilised for clearing any cheque of the above account unless a specific credit is given by cheque in that account."
20 Therefore, it can be said that practically this is unilateral instructions by the plaintiff company to the defendant bank and unless the defendant bank has agreed to such condition, considering the existing condition to allow the defendant to utilize and transfer the balance, would make the defendant bank entitled to utilize and transfer the balance from one account to another account. While dealing with the legal aspect, I will make it more clear that it is also permissible under law.
21 So far as non-utilization of cheque by the BBK is concerned, the plaintiff has, relied upon the interim relief granted by the City Civil Court, Ahmedabad, in Civil Suit No. 1360/2003. However, two basic points need consideration before implementing such interim order in favour of the plaintiff [1] the plaintiff has not joined present defendant as a party defendant in such previous suit and, therefore, there was no judicial order against the defendant bank for not to honour such cheque. The issue of actual time and date of passing such order in previous suit and activities by the defendant and BBK are under scrutiny in appropriate application for contempt Page 25 of 99 C/AO/128/2005 CAV JUDGMENT of Court's order by the plaintiff before the trial Court and, therefore, it would not be appropriate to discuss and determine such issue at this stage. [2] Though in ex-parte ad-interim relief in such previous suit, which might have been confirmed in absence of the defence by BBK, is not the subject matter of present appeal, it cannot be ignored that such relief was granted on the presumption that the plaintiff is not liable to make payment to BBK being a sick unit under BRU Act. Though such issue is not to be decided at present that whether the plaintiff is protected against entire world and for all its liabilities, under such local enactment, the basic fact remains that even under the provisions of BRU Act, the protection to the plaintiff is for a limited purpose and for limited statutes as listed in the Schedule to such Act, which in any case does not include the Contract Act and the Negotiable Instruments Act. Moreover, such restrictions are temporary and in any case it shall not exceed for more than 10 years. In the present case, it is not disputed that such relief expired from 10/11/2005. So it cannot be ignored that at-least at present plaintiff is not a sick unit under the BRU Act.
22 So far as the plaintiff's case regarding negligence either willful or by mistake of the Page 26 of 99 C/AO/128/2005 CAV JUDGMENT defendant in making payment by honouring cheque drawn upon the account wherein there was no balance is concerned, it is to be dealt with the legal submissions rather than factual details because factually there is no dispute and in fact admission by the defendant that the payment of honouring cheque of Rs.7.5 crores to BBK was by mistake. However, the case of the defendant cannot be ignored wherein it is pleaded that even if payment is made by mistake, the recipient is liable to refund or return the amount and in the present case, though the recipient is BBK, actual beneficiary of the amount is the plaintiff and, therefore, the plaintiff is liable to refund and repay such amount and in absence of payment by the plaintiff, as per past practice and agreed condition of transferring the funds between different accounts, they have right to set off and apportionment of amount which was available in balance in the plaintiff's account.
23 The plaintiff has also seriously contended that once defendant has not debited the amount immediately after honouring the cheque in the month of May, 2003 and when the defendant has thereafter issued legal notice to the BBK for recovery of such amount, which was paid by mistake and thereafter, when the defendant has filed Original Application [OA] before the Debt Page 27 of 99 C/AO/128/2005 CAV JUDGMENT Recovery Tribunal [for short 'DRT'] for recovering the said amount, the action of the defendant to set off the amount from the plaintiff's accounts is not legal. It is not disputed that the defendant bank has filed Original Application No. 110/2005 before the DRT, Mumbai against BBK and the plaintiff, wherein the stand of the plaintiff is much material when it was pleaded and claimed that there is no debt against them and, therefore, OA is not maintainable. However, DRT, Mumbai has rejected such preliminary issue and, therefore, the plaintiff has filed appeal before the Debt Recovery Appellate Tribunal at Mumbai [DRAT], which is pending.
24 There are several other documents and counter affidavits. However, at present what is material for consideration of present appeal is the fact that there was a negotiable instrument issued by the plaintiff in favour of BBK and drawn upon the defendant. The defendant has honoured such negotiable instrument under bonafide mistake and has pleaded and argued that under bonafide consideration they should not dishonour the cheque of the valued customer like the plaintiff and more particularly because there was an understanding and practice to utilize and transfer the balance amount from one account of Page 28 of 99 C/AO/128/2005 CAV JUDGMENT the plaintiff to another account when all accounts were at par facility. No-doubt that irrespective of all such pleadings, it was a mistake and amount was paid wrongly by the defendant to BBK by honouring a cheque in absence of available balance and approved overdraft or cash credit benefits in the plaintiff's account.
25 To that extent, so far as set off or apportionment of amount all of a sudden on 24/12/2004 is concerned, the plaintiff is right in complaining that dishonour of cheque as listed in Annexure-C with their application would result not only into civil and criminal liability of the plaintiff, but inconvenience, hardship and disturbance of day to day functioning of the company if payment of salary and raw material are not released, which are subject matter of such dishonoured cheque.
26 As against that, the sum and substance of the submission by the defendant is to the effect that considering the English law and provisions of sections 70 and 72 of the Contract Act and the facts which confirm that though payment is made to BBK by it, practically the plaintiff had been benefited with such amount, the plaintiff has to refund and repay such amount to the defendant and, therefore they are entitled Page 29 of 99 C/AO/128/2005 CAV JUDGMENT to set off. To prove such contention, the defendant had produced several documents to show that the amount in question has been shown in credit in the books of accounts of BBK in the name of the plaintiff. It is also contended that even the plaintiff has also disclosed in its counter affidavit that such amount has been credited in its account by BBK and, therefore, they are in debt for remaining amount only.
27 The defendant has heavily relied upon all such entries by the plaintiff as well as BBK and also on Original Application No. 278/2003 filed by the BBK against the plaintiff at DRT, Mumbai to recover the remaining amount only after giving credit of Rs.7.50 crores.
28 If we peruse copy of such Original Application No. 278/2003 filed before the DRT, Mumbai by the defendant, copy of which is produced on record at Mark 38/1, it becomes clear that in para 5 [C] of such application, BBK has categorically confirmed that at the request of the present plaintiff, a term loan of Rs.7.5 crores was sanctioned. In security to such term loan, the plaintiff has issued cheque in question of Rs.7.5 crores in favour of BBK drawn upon defendant. In para 5 [m] BBK has categorically stated that said sum of Rs.7.5 crores has already Page 30 of 99 C/AO/128/2005 CAV JUDGMENT been credited to the loan account. While making such statement, details of transaction, which is subject matter of Civil Suit No. 1630/2003 is described in detail. Thereby BBK has claimed approximately Rs.18 lacs as due and payable by the present plaintiff to it.
29 Therefore, when BBK has given credit of Rs.7.5 crores in the account of the plaintiff [Mark 38/2], there is no-doubt and thereby there is clarity that the plaintiff has been benefited with such mistake by the present defendant. If we refer the development in such Original Application No. 278/2003, the DRT, Mumbai [Mark 38/1] has on 13/1/2006 passed an order directing the present plaintiff to deposit within one month the amount claimed in such OA with interest and further directed to invest such amount in the FDR with automatic renewal clause and also endorsed that on deposit of such amount, OA shall stand stayed till decision of Suit No. 1360/2003 pending before the Ahmedabad City Civil Court. Such direction for stay is because of the interim relief to that effect in said civil suit. Pursuant to such order, present plaintiff has deposited an amount of approximately Rs.18 lacs being claim amount in the said OA with DRT-II, Mumbai. Therefore, the position is such that if cheque in question would not have been honoured Page 31 of 99 C/AO/128/2005 CAV JUDGMENT by the defendant i.e. if it was dishonoured, then the plaintiff would be in debt of Rs.7.5 crores plus Rs.18 lacs and OA by the BBK would be for such Rs.7.68 crores and in that case, order to deposit the amount by DRT, Mumbai would be for such Rs.7.68 crores and not only Rs.18 lacs. However, because of civil suits under reference filed by the plaintiff in City Civil Court at Ahmedabad, the plaintiff is at benefit inasmuch as at present he does not have to pay huge amount of Rs.7.5 crores either to the BBK or even to the present defendant.
30 Though the plaintiff has tried to explain that it has never credited the amount of Rs.7.5 crores in its account as paid to BBK by the defendant towards its debt of term loan account, the fact remains that the plaintiff has to pay such amount either on the date of cheque or at any reasonable time since it has obtained a secured loan from BBK and executed promissory note and cheques against security of such term loan and even if it was declared a sick unit under the BRU Act, such declaration simply suspends the liability, but does not put an end to or give absolute relief from any such liability and more particularly under the provisions of only certain statutes which are listed in Schedule to the Act. The provision of Page 32 of 99 C/AO/128/2005 CAV JUDGMENT section 4 [1][a][iv] and 4[1][b] makes the above position clear when it is stated that right, privileges, obligation or liability shall revive and be enforceable and the proceedings referred to therein shall be continued once notification ceased to have its force. It is also made clear that in such cases, while computing the period of limitation for enforcement of any such right, privilege or liability, the period of suspension shall be excluded notwithstanding anything contained in any law for the time being in force. It is not disputed that such relief was over from 10/11/2005 and now plaintiff is not a sick unit.
31 Therefore, though the impugned order is of the year 2004 and though we have to decide the propriety and legality of such order on the date when it was passed, such legal position cannot be ignored.
32 It is also evident from the record that while forwarding proposal for restructuring its financial requirements to IDBI Mark 28/1 to 28/3 & 31/2], the plaintiff has categorically disclosed that it is in debt of defendant for an amount of Rs.7.5 crores and it is also categorically stated that it is in debt of BBK for Rs.17.13 lacs only. At the cost of repetition, it is to be recollected that Page 33 of 99 C/AO/128/2005 CAV JUDGMENT therefore, BBK has filed OA before the DRT to recover only that amount of Rs.18 lacs. It cannot be ignored that irrespective of factual details and benefits that may be extended to the plaintiff because of its declaration as sick unit, the City Civil Court has passed order to stay further proceedings of OA filed by the BBK before the DRT, Mumbai to recover just Rs.18 lacs being difference of interest though BBK has given credit of Rs.7.5 crores to the plaintiff in such litigation. It is also to be recollected here that at-least for one decade, there is no further development in original suit by any of the authorities though there is no prohibitory order to proceed further in the suit, so as to decide it on its own merits irrespective of pending appeals.
33 In any case, irrespective of the rights and activity of the defendant to set off and apportion the amount amongst different accounts of the plaintiff, the plaintiff cannot run away from the hard reality that it is in debt of BBK and in turn BBK has received the amount from the cheque issued by the plaintiff, which is a negotiable instrument and at-least the plaintiff has neither conveyed the defendant either to stop payment of such cheque or to cancel the cheque before its validity.
Page 34 of 99 C/AO/128/2005 CAV JUDGMENT34 The defendant has also relied upon several other documents pertaining to disclosure of the accounts of the plaintiff, wherein the plaintiff has agreed that it has obtained loan of Rs.7.5 crores from BBK and that now its debt towards BBK is only for difference of interest on such amount which is between Rs.17 lacs to Rs.19 lacs. It is also clear from such documents that the plaintiff has given credit of Rs.7.5 crores in its account against loan by BBK i.e. the plaintiff has declared that amount of Rs.7.5 crores is paid to BBK, though plaintiff has never paid it.
35 There are some rival submissions so far as disclosure of such amount is concerned, inasmuch as it is plaintiff's case that in fact the defendant has never disclosed such amount as its debt in several accounts and, therefore, defendant is not entitled to recover such amount. There are some other documents regarding credit and debt balance of disputed amount. However, since all accounts are yet to be proved before the trial Court, I do not think it necessary to refer each and every document when it is now at- least clear from the facts that the defendant has paid an amount of Rs.7.5 crores to BBK which is credited in the account of the plaintiff and at-
Page 35 of 99 C/AO/128/2005 CAV JUDGMENTleast in some documents, the plaintiff has disclosed that now it has to pay only interest on such amount to BBK and when BBK has also filed OA only for interest amount and not for total amount of Rs.7.68 crores.
36 Interestingly this is not the only litigation by the plaintiff, but four different suits are filed by the plaintiff before the City Civil Court, Ahmadabad against different banks for the same relief and on the same ground that since it is declared as relief undertaking unit under the BRU Act, banks are debarred from prosecuting any remedy for the enforcement of its right against the company. Out of four such suits, in two suits company has lost protection of its so-called privilege till Apex Court, in one suit it has compromised the dispute with Bank and in the present suit plaintiff succeeded in getting benefit by impugned order. Details of all four suits by the plaintiff are as under:
S Defendant CS Order AO Decided SLP Decided Amount of r No Date No on No on Cheque(s) in N Rs.
o 1 Bank of 1360 29 7,50,00,000/-
Bahrain & of May
Kuwait 2003 2003
2 Greater 1449 18 244 31 Jul 1878 17 Oct 4,10,76,580/-
Bombay of Jul of 2003 7 of 2003
C0-Op 2003 2003 2003 2003
Bank Ltd.
3 Dombivli 167 28 253 11 Sep 2,87,91,469/-
Nagarik of Jul of 2003
Sahakari 2003 2003 2003
Bank Ltd.
Page 36 of 99
C/AO/128/2005 CAV JUDGMENT
4 Bharat 854 22 164 12 Apr 810 23 Aug 4,49,52,000/-
Oversea of Apr of 2004 of 2004
Bank 2003 2003 2003 2004
5 HDFC Bank 3213 14 128 7,50,00,000/-
of Mar of
2004 2005 2005
Suit at Sr No. 1 & 5 are for the same cheque and same amount on different grounds; 1st to 4th suit on the same ground of being sick unit under BRU Act of 1958 and 5th suit (present suit) against set off by defendant i.e. dispute relating to Bank's rights under Section 70 of the Contract Act.
36.1 The above table shows that in-all total Rs.18,98,20,049/- is involved in such litigation and by order of Courts, plaintiff was able to avoid payment of all such cheques for couple of months in other cases, whereas for more than a decade in the present case where amount is maximum. In cases at Sr No. 1 and 3 above i.e. of Greater Bombay Co-Op Bank and Bharat Overseas Bank, plaintiff had lost the battle even before Hon'ble Apex Court, since the Hon'ble Apex Court has already dismissed SLPs by the plaintiff company. Surprisingly though such dismissal was in October 2003 and August 2004, present suit was filed in December 2004, on the same grounds and for similar relief.
36.2 In 2nd, 3rd and 4th suit, different benches Page 37 of 99 C/AO/128/2005 CAV JUDGMENT of this Court has categorically held, with reference to the same notification dated 11/11/2002, which is also subject matter in the 1st and 5th suit, that plaintiff co. has no right to restrain the Bank from encashing the cheques deposited with the Bank and, therefore, plaintiff is not entitled to interim injunction, as prayed for. Therefore, though similar stay was granted in 1st suit, since Bank of Bahrain & Kuwait (BBK) has not bothered to defend such suit and hence did not challenge the order dated 29/5/2003 regarding cheque in question, in my opinion plaintiff company should have disclosed the out come of such other suits in all litigation of similar nature. However, trail courts are at liberty to decide any application for disobedience of courts order in accordance with law.
37 Though, at present real controversy is with reference to set off by the defendant, when plaintiff is relying upon the order in 1st suit being Suit no. 1360 of 2003, all these facts are necessary to recollect and refer here so as to realize the real issues and position.
In-all there are four different litigations because of the transactions in Page 38 of 99 C/AO/128/2005 CAV JUDGMENT
dispute due to cheque in question, viz;
(1) Civil Suit No. 1360 of 2003 before the City Civil Court, Ahmadabad by plaintiff to restrain the Bank of Bahrain and Kuwait, from whom plaintiff has obtain term loan, (BBK) to utilize the cheque in question for Rs. 7.5 crore drawn upon present defendant, where in Civil Court has granted stay against BBK, but present defendant was not made party in that suit by the present plaintiff, (2) Original Application No.278 of 2003 before Debt Recovery Tribunal at Mumbai by BBK against plaintiff to recover interest and balance amount of term loan account of approximately Rs.18 laks after crediting Rs.7.5. crore received pursuant to cheque in question from the present defendant during cheque clearance process. Though such proceedings are stayed by the order in Civil Suit No. 1360 of 2003, the DRT at Mumbai has directed the plaintiff to deposit the amount claimed by the BBK with further direction to deposit the same in F.D.R., before staying further proceedings and in compliance of such order plaintiff has already deposited the claim amount in OA before DRT, Mumbai.
(3) Civil Suit No. 3213 of 2004 by plaintiff (present appellant) against defendant (present respondent) for mandatory orders to credit the amount of Rs.7.5 crore (paid by defendant to BBk pursuant to cheque in question issued by the plaintiff against its term loan by BBK) debited and to reverse the entries of approximately Rs. 1.11 crore and there by to credit such amount which was set Page 39 of 99 C/AO/128/2005 CAV JUDGMENT off and apportionate by the defendant from different accounts of the plaintiff towards above payment of Rs.7.5 core, (4) Original Application No. 110 of 2005 before Debt Recovery Tribunal at Mumbai by defendant against BBK as well as plaintiff to recover Rs.7.5 crors being the amount of cheque in question which was drawn upon defendant by the plaintiff in favour of BBK for payment of term loan amount, which was honoured by mistake in absence of credit balance in plaintiff's account with defendant;
All above different litigations, because of the transactions in dispute due to cheque in question, are pending for last one decade wherein basic facts are common that the defendant has paid an amount of Rs.7.5 crore against cheque of plaintiff to BBK and now defendant is chasing to recover the amount either from plaintiff or from BBK, because ultimately the payment was against the Negotiable Instrument issued/drawn upon the defendant by the plaintiff in favour of the BBK, however, plaintiff wants and claims privilege that it is not liable to pay Rs.7.5 crore being the amount of term loan from BBK for which cheque in question was issued, because of the Notification dated 11/11/2002 (Mark 4/10 to 4/12) by the State Government under the BRU Act.
38 However, the notification dated Page 40 of 99 C/AO/128/2005 CAV JUDGMENT 11/11/2002 under the BRU Act by the State of Gujarat declaring plaintiff as a sick unit, which is produced at mark 4/10 was under consideration by this Court in another similar case initiated by the plaintiff before the City Civil Court, Ahmadabad i.e. Civil Suit No. 854 of 2003 wherein also plaintiff has prayed for and Civil Court has granted interim relief pursuant to declaration as a sick unit, restraining Bharat oversea Bank another creditor of the plaintiff, from recovery of the debt of the plaintiff and from enforcing any security or use of negotiable instruments including four post dated cheques aggregating to Rs, 4.5 crore drawn upon HDFC Bank, present appellant. However, it seems that present appellant was not in picture in that litigation because cheque was not presented to it, as the validity of same was continued by Court's order and ultimately plaintiff had compromised the issue when plaintiff lose his claim under the BRU Act in Supreme Court, when Bharat Overseas Bank has challenged the orders of the City Civil Court.
39 Above facts can be ascertained from the reported case between BHARAT OVERSEAS BANK LIMITED V/S ASHIMA LIMITED (the present respondent) reported in 2004 (2) GLH 456 = 2004 (2) GLR 1449 = 2004 (3) GCD 2332 = 2004 (6) GHJ 29; wherein this High Court has dealt with Page 41 of 99 C/AO/128/2005 CAV JUDGMENT provisions of Order 39 Rule 1, 2 of the Code of Civil Procedure, 1908; Section 4(1)(a)(iv) of the Bombay Relief Undertakings (Special Provisions) Act, 1958 as well as Sec 138, 142 Negotiable Instrument Act, 1981 with principals of Bill discounting facility as a security for the payment of liability. It is held that presentation of cheque in the Bank is more akin to make a demand from the debtor to repay the loan but it would not amount to enforcing repayment and that right of presentation of a cheque cannot be suspended under Sub - Clause
(iv) of Sec 4(1)(a) of the Act, even if the date on cheque falls subsequent to the date of Notification, its presentation cannot be restrained on ground that because of Bombay Relief Undertakings notification the remedy for enforcement of right is suspended. Thereby presentation of post-dated cheque on their due date would not affect the Company in either way as in case of their realization the Company's liabilities would be reduced and in case of bouncing of cheque, its Directors will have to face Criminal Proceedings. High Court has, after referring 18 citations, further held that there is neither prima facie case nor balance of Convention in favour of Company and that preventive appellant from exercising its legal right by an indirect method and with an oblique Page 42 of 99 C/AO/128/2005 CAV JUDGMENT motive to save Directors of the Company is certainly irreparable injury to the appellant Bank and thereby impugned order passed by trial Court was quashed and set aside and Appeal by the Bank was allowed. The Hon'ble Apex Court also dismissed SLP (C) No. 8107 of 2004 by plaintiff. Similar is the position in two other suits. Therefore now plaintiff is not entitled to any relief based upon such notification or order dated 29/5/2003 in Civil Suit no. 1360 of 2003.
40 Therefore, now both the issues referred to hereinabove are required to be dealt with on law point only, that [i] whether the defendant is entitled to set off and [ii] the plaintiff is entitled to mandatory order?
41 To substantiate its claim, the plaintiff has mainly relied upon the act of the defendant as a gross negligence and mistake claiming that for wrongful act of the defendant, its account should not be apportioned or set off since there is express instructions to that effect and that law does not permit the defendant to do so. To substantiate such argument, appellant bank/ original defendant has relied upon following citations in support of its claim:
[1] Chase Manhattan Bank N.A. v Israel- British Bank (London) Ltd. [1976 C. No. 7145] Page 43 of 99 C/AO/128/2005 CAV JUDGMENT Decided on 16 July 1979 by Chancery Division and reported in [1981] Ch. 105 This is an English trusts law case, concerning constructive trusts where in it was held that a trust arose to protect a payment made under a mistake, with the benefit of a proprietary remedy. This is seen important for the question of what response, personal or proprietary, may come from a claim in unjust enrichment.
Chase Manhattan was instructed to pay 1.46€m to the Israel-British Bank, but it paid the sum twice by mistake. The Israel-British Bank went insolvent, and Chase Manhattan wished to claim the money back, without waiting in the insolvency queue. The Israel-British bank had known about the mistake before it finally went into liquidation.
Goulding J held that Chase Manhattan could recover the full sum, because the money was held on trust from the moment it was received. A person who pays money to another under a factual mistake retains an equitable property in it and the conscience of that other is subjected to a fiduciary duty to respect his proprietary right.
Page 44 of 99 C/AO/128/2005 CAV JUDGMENT[2] S. Kotrabasappa v. The Indian Bank:
AIR 1987 KARNATAKA 236 While dealing with Section 72 of the Contract Act, 1872; the Division Bench of the High Court has held that after mistaken credit in account of a person by Bank when such credit was utilised the amount, such person is bound to repay or return that amount in view of S.72. He would also be liable to pay interest under Interest Act till the date of filing of suit and further to pay interest from date of suit till date of realisation under S.34(1) of Civil P.C. [3] Bank of Maharashtra v. United Construction Co.; AIR 1985 BOMBAY 432:
While dealing with similar issue, the Division Bench of High Court has, referring S.114 of the Evidence Act, 1872 and Money transactions held that if Account holder in bank, even without any express grant of over-draft facility overdrawing on his account and when cheque issued by such account holder honoured by bank, such transaction amounts to loan.Page 45 of 99 C/AO/128/2005 CAV JUDGMENT
[4] Mahabir Kishore v. State of M.P.AIR 1990 SUPREME COURT 313 While dealing with Section 72 of the Contract Act, 1872; and ingredients of Unjust enrichment, the Apex Court has held that; the principle of unjust enrichment requires: first, that the defendant has been 'enriched' by the receipt of a "benefit", secondly, that this enrichment is "at the expense of the plaintiff"; and thirdly; that the retention of the enrichment be unjust. This justifies restitution. Enrichment may take the form of direct advantage to the recipient's wealth such as by the receipt of money or indirect one for instance where inevitable expense has been saved. Suit by appellant was remanded back to trial Court for fresh adjudication of the suit since same was dismissed by both trial and appellate court on ground of limitation also, confirming that retaining the benefit results in to unjust enrichment and it requires restitution.
[5] Dhan Singh v. Badri Prasad; AIR 1963 RAJASTHAN 198 While dealing with Section 72 of the Contract Act, 1872; the High Court has held that applicability of S.72 not dependent on existence Page 46 of 99 C/AO/128/2005 CAV JUDGMENT of contract and who can enforce liability under section, when Postal employee making over payment by bona fide mistake of fact while discharging his duties and when such amount was recovered from salary of employee by postal department, it was held that employee is entitled to sue for recovery of such excess payment from payee.
It is held that the principle enunciated in S. 72 Contract act is applicable regardless of the fact whether a privity of contract does or does not exist between the parties. The doctrine embodied in this section has for its foundation the doctrine of aquity that whatever has been done under a mistake has to be repaired. Mistake of fact has the affect of destroying the very foundation of a contract. Therefore, the liability which arises under S. 72 is not dependent on the existence of a contract hut arises on account of an advantage taken by a person due to a mistake of or coercion on another.
It is further held that the liability to repay money under S. 72 can be enforced either by the person who paid the money or the person who is ultimately injured by the failure to discharge the liability under S. 72. Para 3 of S. 73 gives the liability arising under S. 72 label of a Page 47 of 99 C/AO/128/2005 CAV JUDGMENT contract when in point of fact it may not exist. The use of the expression "as if" in paragraph 3 of S. 73 justifies this conclusion. From this provision it seems that a party, who is ultimately injured on account of the failure to discharge a liability under S. 72, has a right to enforce that liability against a person who is guilty of a default in the performance of an obligation. AIR 1928 All 500, Ref. to. (Para 3) It is further held that where a postal employee made an excess payment to the holder of a postal cash-certificate under a bona fide mistake as to the date of maturity of the certificate, and the postal department being unable to recover back the amount from the payee, recovered the excess amount paid from the salary of the employee, the employee is entitled to bring a suit for recovery of the excess payment from the holder of the certificate by virtue of S. 72 read with S. 73 (3) of the Contract Act. AIR 1930 Lah 852 and AIR 1959 SC 135 and AIR 1946 Cal 245, Dist.(Para 4)
3. The first interesting question which arises for determination is whether the plaintiff-appellants had any locus standi to bring the present suit on account of overpayment made to the defendant.
Section 72 of the Indian Contract Act lays down that a person to whom money has been paid, or anything delivered by Page 48 of 99 C/AO/128/2005 CAV JUDGMENT mistake or under coercion, must repay or return it. The section does not say to whom the repayment or the return has to be made. The Senior Civil Judge seemed to think that the repayment must be made to the party who paid it and it is on that assumption that he had proceeded to hold that it was only the Union of India representing the Postal Department to whom repayment under the provisions of S. 72 had to be made and not its employees. The learned Civil Judge was right when he held that the principle enunciated in S. 72 of the Indian Contract Act was applicable regard less of the fact whether a privity of contract did or did not exist between the parties. There is ample authority for the proposition that the doctrine embodied in this section of the Indian Contract Act has for its foundation the doctrinal of equity that whatever has been done under a mistake has to be repaired. That being the position of law the only question is who has the right to claim the repayment or return of money of anything delivered by mistake or under coercion. Section 72 of the Indian Contract Act is located in Chapter V of the said Act, the title whereof is very significant, namely, "Of certain relation resembling those created by contract". For the various situations in which relations of this kind come into existence illustration (a) to S. 68 is an eloquent example. It reads: A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B's property. His liability arises notwithstanding the fact that B, who is a lunatic was incapable to contract. Even S. 72 itself says that payment made by mistake has to be repaid. Mistake of fact has the effect of destroying the very foundation of a Page 49 of 99 C/AO/128/2005 CAV JUDGMENT contract. A reference in this connection be made to S. 20 of the Indian Contract Act. Therefore, the liability which arises under S. 72 is not dependent on the existence of a contract but arises on account of an advantage taken by a person due to a mistake of or coercion on another. Both the Courts below have held that there has been an over-payment due to a mistake of fact and that the mistake was bona fide and excess payment therefore was recoverable under S. 72 of the Contract Act.
The only question which now remains to be determined is as to who can enforce this liability. Paragraph 3 of S. 73 of the Contract Act lays down that when an obligation resembling that created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. In the case before me an obligation resembling one created by contract was incurred by Badri Parsad which he neglected to discharge and the persons injured by the failure to discharge are Dhansingh Yadav and Ramdayal Sakarwal and, therefore, they are entitled to receive the same compensation from Badri Parsad who is in default as if Badri Parsad had contracted to discharge it and had broken his contract. The learned counsel for the respondent urged that there was no contract between Badri Parsad on the one hand and Dhansingh Yadav and Ramdayal Sakarwal on the other. Para 3 of S. 73 gives the liability arising under S. 72 the label of a contract when in point of Page 50 of 99 C/AO/128/2005 CAV JUDGMENT fact it may not exist. The use of the expression 'as if' in paragraph 3 of S. 73 justifies this conclusion. From this provision it seems to me that a party, who is ultimately injured on account of the failure to discharge a liability under S. 72, has a right to enforce that liability against a person who is guilty of a default in the performance of an obligation.
A decided case which comes very near to the one before me is Anrudh Kumar v.
Lachhmi Chand, 115 Ind Cas 114 : (AIR 1928 All 500). In this case one Anrudh Kumar received certain compensation in a land acquisition proceeding from the Land Acquisition Officer representing the estate of one Baldeo. The real heir of Baldeo claimed this amount from Anrudh Kumar and the learned Judges deciding the case held that Anrudh Kumar was bound to repay the compensation, which he had erroneously received, to the one who was entitled to receive it. It was held that a person to whom money due to another is paid by mistake is bound to refund the money with interest to the person who is really entitled to it. This liability was also spelt on account of the provisions of Ss. 72 and 73 of the Indian Contract Act.
[6] Sri Sri Shiba Prasad Singh vs Maharaja Srish Chandra Nandi on 18 July, 1949 The Privy Council has reproduced text of Act and thereafter discussed the case law and held as under;
Page 51 of 99 C/AO/128/2005 CAV JUDGMENT"Section 72 enacts:
"A person to whom money has been paid or anything delivered by mistake or under coercion must repay or return it." This section makes no distinction between mistakes of fact and mistakes of law, but it must of course be read together with the rest of the Act, and in particular withes. 21 and 22 which also deal with mistake. Section 21 enacts:
A contract is not voidable because it was caused by a mistake as to any law in force in British India, but a mistake as to a law not in force in British India has the same effect as a mistake of fact.
Section 22 enacts : "A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact."
x x x x x x x x x In Appavoo v. S.I. Ry. Co. [1919] A.I.R. Mad. 177, Ramesam and Jackson, JJ. say (p. 178):
"Though the word 'mistake' in Section 72 is not limited it must refer to the kind of mistake that can afford a ground for relief as laid down in Sections 20 and 21 of the Act ... Indian Law seems to be clear, namely, that a mistake, in the sense that it is pure mistake as to law in India resulting in the payment by one person to another and making it equitable that the payee should retain the money is no ground for relief."Page 52 of 99 C/AO/128/2005 CAV JUDGMENT
Their Lordships have found no case in which an opinion that "mistake" in Section 72 must be given a limited meaning has been based on any other ground. In their Lordships' opinion this reasoning is fallacious. If a mistake of law has led to the formation of a contract, Section 21 enacts that that contract is not for that reason voidable. If money is paid under that contract, it cannot be said that that money was paid under mistake of law: it was paid because it was due under a valid contract, and if it had not been paid, payment could have been enforced. Payment "by mistake" in Section 72 must refer to a payment which was not legally due and which could not have beer enforced: the "mistake" is thinking that the money paid was due when in fact it was not due. There is nothing inconsistent in enacting on the one hand that if parties enter into a contract under mistake in law, that contract must stand and is enforceable, but on the other hand that if one party acting under mistake of law pays to another party money which is not due by contract or otherwise, that money must be repaid. Moreover if the argument based on inconsistency with Section 21 were valid, a similar argument based on inconsistency with Section 22 would be valid and would lead to the conclusion that Section 72 does not even apply to mistake of fact. The argument submitted to their Lordships was that Section 72 only applies if there is no subsisting contract between the person making the payment and the payee, and that the Indian Contract Act does not deal with the case where there is a subsisting contract, but the payment was not due under it. But there appears to their Lordships to be no good reason for so limiting the scope of the Act. Once it Page 53 of 99 C/AO/128/2005 CAV JUDGMENT is established that the payment in question was not due, it appears to their Lordships to be irrelevant to consider whether or not there was a 'contract between the parties under which some other sum was due. Their Lordships do not find it necessary to examine in detajl the Indian authorities for the wider interpretation of "mistake" in Section
72. They would only refer to the latest of these authorities, Jagadish Prosad v. Produce Exchange Corporation [1946] A.I.R. Cal. 245 in which a carefully reasoned judgment was given by Sen, J. Their Lordships agree with this judgment. It may be well to add that their Lordships' judgment does not imply that every sum paid under mistake is recoverable no matter what the circumstances may be. There may in a particular case be circumstances which disentitle a plaintiff by estoppel or otherwise.
Therefore it was held that it is clear that there was no intention to pay money, which was not due. The money was paid under the belief that it was legally due. This belief was mistaken,that is sufficient to bring the case within Section
72. [7] Canara Bank v. Taraka Prabhu Publishers Pvt. Ltd.; AIR 1991 ANDHRA PRADESH 258 In the instant case the company have borrowed loan from the Bank which they have failed to repay and consequent upon which the Page 54 of 99 C/AO/128/2005 CAV JUDGMENT bank is trying to exercise the right of set-off in terms of the contractual obligations assumed by the petitioners by transferring the amounts deposited by them in the current account to the loan account. It would be extremely far fetched to say that having borrowed the loans the petitioners' current account cannot be interfered with for the discharge of the loans as it would result in the deprivation of the rights of the company guaranteed to them under Art. 19(1)(a) and Article 21 of the Constitution of India as they would be prevented from carrying out their profession. The correct way to look at the controversy arising in this case is not as to whether the company/ petitioners have given up their fundamental rights available to them under the Constitution by entering into a contract with the respondent-Banks but to see whether the respondent-Banks have right to claim set-off of the amounts deposited in the current account by transferring them to the loan account in order to realise the loans advanced to the petitioners which they have failed to discharge. The matter falls within the domain of the law of contract and the right of set-off claimed by the Banks cannot be denied on the pretext that the transfer of the amounts in the current account will result in the negation of the activities of the petitioners in publishing the newspapers, Page 55 of 99 C/AO/128/2005 CAV JUDGMENT weeklies etc. The enforcement of doctrine of set- off for the amounts to be realised by the bank cannot be said to be an action which is arbitrary or exercise in a mala fide manner.
The High Court has discussed as under:
9. xxx xxx xxx In Halesowen Presswork and Assemblies Ltd. v. Westminster Bank Ltd., (1970) 3 WLR 625, Lord Denning, M.R. took the view that the banker's lien is no true lien and suggested that in order to avoid confusion, the use of the word should be discarded and that one should speak simply of a banker's right to combine or so set off. The above view has been affirmed in National Westminster Bank Ltd. v. Halesowen Presswork and Assemblies Ltd., (1972) 1 All ER 641, by the House of Lords in which the principle of set off has been upheld in connection with the bankers' right to realise their debits from a particular debtor- whose money was received by the bankers in the course of business as such. xxx xxx xxx.
10. xxx xxx xxx In the instant case the petitioners have borrowed loan from the Bank which they have failed to repay and consequent upon which the bank is trying to exercise the right of set off in terms of the contractual obligations assumed by the petitioners by transferring the amounts deposited by them in the current account to the loan account. xxx xxx.Page 56 of 99 C/AO/128/2005 CAV JUDGMENT
[8] Govt. of U. S. of Tra.-co. v. Bank of Cochin Ltd.; AIR 1954 TRAVANCORE-COCHIN 243 The Hon'ble Apex Court has considered the question of set off and adjustment. However, it is with reference to Order 3 Rule 6 regarding plea of adjustment that any question of set off can arise only on the receipt of the dues which are outstanding and which has not already been adjusted. Thus, when amount of Rs.7.5 crores is outstanding, it is submitted by the defendant that they are entitled to set off such amount.
[9] Shivam Construction Co., M/s. v. Vijaya Bank, Ahmedabad; AIR 1997 GUJARAT 24:
While dealing with Section 171 of Contract Act, 1872 regarding Banker's lien it is held by the Division Bench of this High Court that when Overdraft facility given by bank to its customer on security of his Fixed Deposit Receipts on default in repayment of loan in spite of notices given by bank, Bank is competent under right of "set off" and also under general banker's lien for liquidation of Fixed Deposits and appropriation of amount towards over-draft account In view of the provisions of S. 171 of Page 57 of 99 C/AO/128/2005 CAV JUDGMENT the Contract Act, Bankers have general lien in the absence of contract to the contrary to retain security for general balance of accounts or any goods bailed to the bank. Apart from that, there is' also evolution of doctrine of "set-off"
tinder which the bank has a right of "set off".
Therefore, action of the bank in transferring the fixed deposit receipt amounts by liquidating for appropriation of the bank's dues in the current account of the defendants would not be said to be unauthorised, unjustified or illegal. (Para 28) The doctrine of "set-off" by the bank has been evolved since long. There is a definite purpose and philosophy behind it. It has long roots. ' (Para 31) [10] Punjab National Bank v. Arura Mal; AIR 1960 PUNJAB 632:
The High Court has observed and held that there is a distinction between a Banker's lien and the Bank's right to set off. A lien is confined to securities and property in Bank's custody. Set off is in relation to money and may arise from a contract or from mercantile usage or by operation of law, in following words;
14. The rule of English law that the Bank has a lien or more appropriately, a Page 58 of 99 C/AO/128/2005 CAV JUDGMENT right to set off against all monies of his customers in his hands has been accepted as the rule in India. According to this rule when monies are held by the Bank in one account and the depositor owes the Bank on another account, the Banker by virtue of his lien has a charge on all monies of the depositor in his hands and is at liberty to transfer the monies to whatever account, the banker may like with a view to set off or liquidate the debts : vide Llyods Bank Ltd. v. Administrator General of Burma, AIR 1934 Rang 66 and Devendrakumar Lalchandji v. Gulabsingh, AIR 1946 Nag.
114.
xxx xxx xxx xxx
18. The Bank of course would be entitled to appropriate monies belonging to a firm constituted by a certain set of partners for payment of an overdraft to another firm provided that firm is constituted by the same set of partners, vide Firm Jaikishen Dass Jinda Ram v. Central Bank of India, (1959) 61 Pun LR 842 : (AIR 1960 Punj 1). But this is not the case here there being no mutuality of obligation which is an essential element in the right to set-off.
[11] Amar Nath v. Produce Exchange Corpn.; AIR 1963 PUNJAB 479:
While dealing with the issue of set off amongst separate accounts between same parties, it was held that adjustment of amount against other account can be allowed. The fact can be Page 59 of 99 C/AO/128/2005 CAV JUDGMENT summarized thus: A was a supplier. B who owned two concerns X and Y had transactions with A. Transactions with X resulted in credit balance in favour of A. Transactions with Y resulted in a certain sum falling due from A to Y. In a suit brought by A against B to recover the amount found due to him in transaction with X, it was held that the two separate accounts being between the same parties in the same right could be set off or adjusted against each other. AIR 1960 Punj 1 and AIR 1960 Punj 632 were followed.
[12] Central Bank Of India vs Keshaorao Narayanrao Patil; 2004(6) BomCR 791 = II (2005) BC 259 = 2004 (4) MhLj 788:
Relying upon the decision of the Division Bench of Gujarat High Court in the case of M/s Shivam Construction Co. (supra) wherein it has been observed in para Nos. 31,32, 33, 34, 35 and 17 as under it is held that bank can enforce lien and set off its dues amongst different accounts of the same customer the even in absence of contract or consent :
"The doctrine of "set-off by the bank has been evolved since long. There, is a definite purpose and philosophy behind' it. It has long roots.Page 60 of 99 C/AO/128/2005 CAV JUDGMENT
In Roxburghe vs. Cox, (1881) 17 Ch D 520, the Court of Appeal had taken the view that even if it is taken for granted that bank's lien applied money paid to the account of the creditor still the proper doctrine of set off under which the bank is authorised to claim an amount for set off of the debts owed by the customers.
The aforesaid decision was again affirmed in another case reference Re-Moris Conveys vs. Moris, (1922) 1 1R 81, where a similar view has been taken with regard to set off for the money which is owed to them by retaining the money belonging to the debtor in a particular account.
The above view has also been affirmed in National Westminster Bank Ltd. vs. Halesowen Presswork and Assemblies Ltd., (1972) 1 All ER 641, by the House of Lords in which the principle of set-off has been expounded and upheld in connection with the bank's right to realise their debts from a particular debtor whose money was received by the banker in the course of business as such.
In the present case, it is beyond any doubt that the appellants who had enjoyed overdraft facilities on the securities of the FDRs, failed to discharge their duties and committed defaults, went on for over-drawls. Therefore, under the terms of loan as well as under the right of "set-off and also under the general banker's lien, the plaintiff bank was empowered and entitled to transfer and appropriate even by liquidation the FDs towards their over-draft account of the defendants. On all counts it cannot be said even for a moment that the action of Page 61 of 99 C/AO/128/2005 CAV JUDGMENT the plaintiff-bank in liquidating the FDRs for purpose of appropriation towards bank's dues was, in any way, unjust, improper or illegal".
42 As against that the respondent / original plaintiff, who is submitting that even if he has issued a cheque in question in favour of BBK and drawn upon HDFC Bank -
appellant/original defendant herein for security of loan amount received by it from BBK, and even though in its books of account it has accepted that now it is not in debt of BBK because of payment of such amount to BBK by HDFC Bank - appellant/original defendant herein, because it was a sick unit and because there was Courts order for not to utilize the cheque on the date of payment by HDFC to BBK, since HDFC has paid amount to BBK and not to it, provision of Section 70 or 72 of the Contract Act could not be invoked. For such arguments, respondent/plaintiff is relying upon following citations; so as to impress that HDFC Bank - appellant/original defendant cannot set-off its different accounts since it is not in debt of defendant Bank and it was not liable to make such payment when its cheque was honoured even in absence of balance in its accounts and in absence of specific arrangement to do so.
Page 62 of 99 C/AO/128/2005 CAV JUDGMENT[1] Hyderabad State Bank v. Ranganath; AIR 1958 ANDHRA PRADESH 605:
The case deals with the banker and
customer relationship Dispute amongst them was
explained in following manner with decision
thereon:
The customer had current account with
plaintiff Bank without any overdraft concession. His cheque drawn in favour of M and presented by M through his bankers was dishonoured but the Bank instead of returning the dishonoured cheque to the bankers returned it to the customer. When the mistake was discovered the plaintiff Bank got back the dishonoured cheque from the customer and sent it to the bankers. Meanwhile the bankers had paid M. They therefore refused to accept it. Plaintiff Bank then credited the amount to the bankers, debited the same to the customer and obtained from him a letter undertaking to make good the overdraft. In a suit to recover that amount from the customer, Held (i) that the letter was hit by S. 19, Contract Act. That apart, the alleged payment made by the plaintiff Bank was not at the desire of the customer within the meaning of S. 2 (d) of the Contract Act. If a payment is made in pursuance of some subsisting undertaking between the two banks to which the drawer is not a Page 63 of 99 C/AO/128/2005 CAV JUDGMENT party nor interested therein, it is not a legal consideration so far as he is concerned;
(ii) that S. 25 (2), Contract Act did not apply because the expression 'voluntarily done' in that section denotes something performed or done of one's own will, impulse and choice not constrained, prompted or suggested by another. The payment made by the plaintiff Bank was neither voluntary nor for the customer but was the inevitable consequence of the plaintiff's undertaking with the collecting bank. Further, although the letter contained an implied admission that the plaintiff Bank had paid the amount for him, the admission was obtained by misrepresentation and hence had no legal significance;(Para 4)
(iii) that Section 70 also had no application because in making payment to the collecting bank it could not be said that the plaintiff Bank had acted for the customer. Further, it is not only necessary that the act should be done for another but also the person for whom the act is done must enjoy the benefit of it. The benefit however must not be thrust upon him. He must be in a position to exercise the position whether or not to avail himself of the benefit. In the instant case the plaintiff Bank acted in their own account in order to discharge the liability occasioned by their mistake. Case Law reviewed. (Para 5) However it was confirmed that for the application of Section 70 of the Contract Act, 1872 i.e. to test requisites of 'Lawfully' and Page 64 of 99 C/AO/128/2005 CAV JUDGMENT interpretation of 'Done for another', four conditions must be satisfied : (i) the thing must be done lawfully; (ii) it must be done by a person not intending to act gratuitously; (iii) it must be done for another person; and (iv) the person for whom it is done must enjoy the benefit of it. The term 'lawfully' indicates that the man making the payment must have lawful interest in making it. Whether what is done by a person has been done for another within the meaning of section 70 always is a question of fact. The test is, whether the person who is acting holds such a position in relation to the other as to raise expressly or by reasonable implication an inference that by the act done for the other person he could be entitled to look for compensation for it to the person for whom it was done. He must be not only interested in doing the thing but must act in the place of the defendant and not merely on his own account. AIR 1916 Cal 497 and AIR 1928 Mad 320 Relied on. (Para 5) However, considering the decision by Constitutional Bench of Hon'ble Apex Court in State of W.B. (supra), Trilokchand Motichand (supra) and Division Bench in K.S. Satyanarayan (supra), such interpretation by High Court is now not much material.
Page 65 of 99 C/AO/128/2005 CAV JUDGMENT[2] Halesowen Presswork & Assemblies Ltd. v. Westminster Bank Ltd., [1970] 3 W.L.R. 625 Ld. Sr. counsel Mr. Soparkar for the plaintiff has read over certain observations made by Lord Denning M.R from the said judgment, wherein question was framed that suppose a customer has one account in credit and another in debit, whether banker has a right to combine two accounts? So that it can set off the debit against the credit and be liable only for the balance? What is relied upon is the condition in the answer to this question, when it is said that "yes, the banker has a right to combine two accounts whenever it pleases and to set off one against other, unless he has made some agreement express or implied, to keep them separate. Thus the saving clause, "unless he has made some agreement express or implied, to keep them separate" is material. To support such finding, Lord Denning has referred several other cases and thereafter, it was stated that in all the cases mentioned therein, there was no agreement to keep the account separate, therefore, they must be contrasted with other group of cases where the Court has found the agreement to keep the account separate. A good instance is explained that where bank opens two accounts for a customer, one loan account of which the customer is allowed to borrow a named sum and other is current account, Page 66 of 99 C/AO/128/2005 CAV JUDGMENT which the customer agrees to keep in credit. In such a case, there is usually an implied agreement that the bank will not combine two accounts or set off one with other without consent of the customer. For such conclusion, Lord Denning is relying upon the observations made in the case of W.P. Greenhalgh & Sons v. Union Bank of Manchester Ltd. [1924] 2 K.B. 153, wherein it is stated that if a banker agrees with a customer to open two or more accounts, he has, without assent of the customer, no right to remove either assets or liabilities from one account to other; the very basis of this agreement with its customer is that the two accounts shall be kept separate. Then again a question was posed by Lord Denning in the reported case as well as for the plaintiff herein that whether there was an agreement by the bank to keep two accounts separate in the present case also or not. Thereby Lord Denning has allowed the appeal against the bank which has adjusted the accounts of the company when there was clear evidence to the effect that there was an agreement by the bank to keep two accounts separate, because during such agreement, trading account of the company was shifted from Lloyds to Westminster Bank.
Ld. Counsel for the plaintiff has also Page 67 of 99 C/AO/128/2005 CAV JUDGMENT relied upon similar observations made by Lord Winn L.J., who has also relying upon some other cases, held against the bank's activity to set off the amount of the company, mainly because of the agreement to that effect. Thereby His Lordship was also in agreement with Lord Denning M.R. Hence paragraphs and discussion by Lord Winn are not reproduced herein.
However, Lord Buckly L.J. Has disagreed with the decision of majority and after interpreting the language and effect of the agreement in question, applying provision of section 31 of the Bankruptcy Act, 1940, it was opined that setting off account is permissible and, therefore, appeal should be dismissed.
Therefore, the basic concept even in this judgment cited by the plaintiff is to the effect that the general rule is in favour of the bank that bank can set off the different accounts if one is in debt and if there is credit in the another account of the same customer and there may be restriction on such privilege in case of express or implied contract to that effect.
Based upon such citation, the plaintiff has tried to convince the Court that since there is specific instructions by letters dated Page 68 of 99 C/AO/128/2005 CAV JUDGMENT 16/2/2003 [mark 4/15 and 16], the bank should not entitle to set off or adjust the account. As against that, the contents of said letters themselves specifically confirm that there was specific agreement which permits the bank to adjust and set off the amount between different accounts and such set off in past impliedly proves the agreement to that effect. There is no dispute so far as such position is concerned. Therefore, what is material at this stage is to consider that as to whether a letter by one party disclosing that they have taken corporate decision not to set off their accounts would bind the bank otherwise than their legal rights which were in force by express as well as implied contract.
I have taken pain to describe the above argument because the parties are fighting on every issue; otherwise the fact remains that the judgment of Lord Denning M R and Lord Winn, JJ dated 29/7/1970 and reported in 1970 3 W.L.R. 625 is practically overruled by the House of Lords in an appeal filed by the respondent therein. Such judgment is reported in [1972] 2 W.L.R. 455, which is between the same parties, namely National Westminster Bank Ltd. v. Halesowen Presswork & Assembalies Ltd. Though there is slight change in the name of the bank i.e. in the Page 69 of 99 C/AO/128/2005 CAV JUDGMENT judgment by the Court of Appeal reported in [1970] 3 W.L.R. 625 name of the bank is shown as "Westminster Bank Ltd." and in the judgment reported in [1972] 2 W.L.R. 455 name of the bank is disclosed as "National Westminster Bank Ltd.", on verification of the entire judgment, it becomes clear that the House of Lords in [1972] 2 W.L.R. 455 on 26/1/1972 had dealt with an appeal by the bank by leave of Court of Appeal from the decision of July 29, 1970, which is reported in [1970] 3 W.L.R. 625. I have verified the factual details and it is in confirmation that though name of the bank is disclosed differently, may be because of the bank might have changed its name, the judgment reported in [1972] 2 W.L.R. 455 is in sequence of the dispute arising between the parties wherein the judgment of Queen's Bench Division between the parties is reported in 1970 3 W.L.R. 755 and though appeal against such judgment is allowed by the Court of Appeal as reported in [1970] 3 W.L.R. 625, ultimately, by judgment and order dated 26/1/1972, House of Lords have overruled and set aside the judgment dated 1/7/1970 by Lord Denning M R and others and restored the judgment of Justice Roskill dated 5/11/1969 reported in [1970] 2 W.L.R. 755. There is no need to reproduce or to recall the reasonings and details of last judgment except to record that ultimately Page 70 of 99 C/AO/128/2005 CAV JUDGMENT the final result is to the effect that decision relied upon by the plaintiff is now not in force at all and, therefore, when four Judges of House of Lords have overruled the judgment of Lord Denning and others reported in [1970] 3 W.L.R. 625, there is nothing in favour of the plaintiff to plead and argue that bank has no right to set off and/or lien on the credit amount of other accounts when some account is in debt.
[3] The plaintiff has also relied upon a decision between Mohd. Mehtabkhan v. Khushnuma Ibrahim Khan reported in [2013] 9 S.C.C. 221, wherein the Hon'ble Apex Court has while dealing with the powers of the first appellate Court with reference to Order 43 Rule 1 [r] and Order 39 Rules 1 and 2 of the C.P.C., in para. 20, observed that the appellate Court could not have interfered with the exercise of discretion by the Ld. Trial Judge unless such exercise was found to be palpably incorrect or untenable and that appellate Court should not have substituted its views in the matter merely on the ground that in its opinion the facts of the case call for a different conclusion. It is further stated that such an exercise is not correct parameter for exercise of jurisdiction while hearing an appeal against a discretionary order. For such observation, the Hon'ble Apex Court, in para. 21, Page 71 of 99 C/AO/128/2005 CAV JUDGMENT relied upon its decision in the case of Wander Ltd. v. Antox India [P] Ltd. Reported in 1990 Suppl. 727. Similar view of this High Court in the case of Taraben, D/o. Nanubhai Kasanbhai Patel v. Navinkumar Patel reported in 2013 [3] G.L.R. 2448,is also relied upon.
43 While scrutinizing the validity of all above decisions (i.e. whether overruled or distinguished or explained or followed after its pronouncement); I came across following decisions which are worth to refer here:
[1] Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA Case No: A3/2012/1745(A) decided on 19 December 2013 by Court of Appeal (Civil Division) and reported in [2013] EWCA Civ 1679 = 2013 WL 6536679 Though the reasoning in decision of Goulding J in Chase Manhattan Bank NA v Israel-British Bank (London) Ltd. [1981] Ch 105 [supra] was not accepted, the ultimate decision is confirmed in following terms;
An analogy is sought to be made with the position of a recipient of money who has been Page 72 of 99 C/AO/128/2005 CAV JUDGMENT paid that money by reason of a mistake. It is suggested that such a recipient holds such money on constructive trust, at any rate from the point in time at which he learns of the mistake and ought to act on that knowledge.
Although the mere receipt of the monies, in ignorance of the mistake, gives rise to no trust, the retention of the monies after the recipient bank learned of the mistake may well have given rise to a constructive trust: see Snell's Equity p. 193: Pettit Equity and the Law of Trusts 7th edn. 168: Metall and Rohstoff v. Donaldson Inc. [1990] 1 Q.B. 391 at pp. 473-474.
It is also observed that in Westdeutsche Landesbank Girozentrale v Islingon Borough Council [1996] AC 669, at 715B, Lord Browne- Wilkinson had set out four fundamental requirements for the imposition of a constructive trust, which are as under :
a)Equity operates on the conscience of the owner of the legal interest and a constructive trust will be imposed on the recipient by reason of his unconscionable conduct;
b)The recipient will become a constructive trustee if and only if the recipient becomes aware of the factors which are alleged to affect his conscience;Page 73 of 99 C/AO/128/2005 CAV JUDGMENT
c)In order to establish a trust, there must be identifiable trust property; and
d)Once a trust is established, from the date of its establishment, the beneficiary has in equity a proprietary interest in the trust property.
Applying these principles to the facts of the case, it was held that when the persons in effective control of the company had knowledge that the moneys were paid by mistake before the winding-up resolution was passed. The moneys are an identifiable fund in a separate account that is not mixed with the other funds of the company then such fact puts it in a stronger position than the Chase Manhattan case where there was no finding that the money was not mixed by the time the mistake was notified to the defendant two days after the payment.
The issue before the Appellate court in this reported case was interest on such payment where knowledge of payment by mistake was considered both for liability to refund the amount as well as to pay interest on such amount. Similar is the view by Indian Court in the next Judgment where in case of Chase Manhattan Bank v. Israel British Bank, (1979) 3 All ER 1025 was relied upon.
Page 74 of 99 C/AO/128/2005 CAV JUDGMENT[2] State of W.B. v. M/s. B. K. Mondal and Sons; AIR 1962 SUPREME COURT 779 :
This judgment is by CONSTITUTION BENCH of the Hon'ble Apex Court and, therefore, there is no reason to decide such issues in any other manner than the decision in this judgment, where in while dealing with Section 70 of the Contract Act, 1872, it is held that lawful relationship arises not because some thing is done but because it is accepted. It is stated that between the person claiming compensation and person against whom it is claimed, some lawful relationship must subsist, for that is the implication of the use of the word "lawfully" in S. 70; but the said lawful relationship arises not because the party claiming compensation has done something for the party against whom the compensation is claimed, but because what has been done by the former has been accepted and enjoyed by the latter. Thus respondent's claim was upheld under Section 70 of the Contract Act and a decree for the amount claimed by it was accordingly passed in its favour. The question, which the appellant has raised for decision, falls to be considered in the light of the provisions of Section 70 and has to be answered on a fair and reasonable construction of the relevant terms of the said Section. On plain reading of Section 70, it is Page 75 of 99 C/AO/128/2005 CAV JUDGMENT clear that three conditions must be satisfied before this Section can be invoked. The first condition is that a person should lawfully do something for another person or deliver something to him. The second condition is that in doing the said thing or delivering the said thing he must not intend to act gratuitously; and the third is that the other person for whom something is done or to whom something is delivered must enjoy the benefit thereof. When these conditions are satisfied. Section 70 imposes upon the latter person the liability to make compensation to the former in respect of, or to restore, the thing so done or delivered. In appreciating the scope and effect of the provisions of this Section, it would be useful to illustrate how this Section would operate. If a person delivers something to another, it would be open to the latter person to refuse to accept the thing or to return it; in that case, Section 70 would not come into operation. Similarly, if a person does something for another, it would be open to the latter person not to accept what has been done by the former; in that case, again Section 70 would not apply. In other words, the person said to be made liable under Section 70 always has the option not to accept the thing or to return it. The liability under Section 70 arises only where beneficiary accepts the thing or enjoys the work Page 76 of 99 C/AO/128/2005 CAV JUDGMENT done. Taking the facts in the reported case, after the respondent constructed the warehouse, for instance, it was open to the, appellant to refuse to accept the said warehouse, and to have the benefit of it. It could have called upon the respondent to demolish the said warehouse and take away the materials used by it in constructing it; but, if the appellant accepted the said warehouse and used it and enjoyed its benefit, then different considerations come into play and Section 70 can be invoked. Section 70 occurs in Chapter V, which deals with certain relations resembling those created by contract. In other words, this chapter does not deal with the rights or liabilities accruing from the contract. It deals with the rights and liabilities accruing from relations, which resemble those created by contract. That being so, reverting to the facts of the present case once again, after the respondent constructed the warehouse it would not be open to the respondent to compel the appellant to accept it because what the respondent has done is not in pursuance of the norms of any valid contract and the respondent in making the construction took the risk of the rejection of the work by the appellant.
Therefore, in cases falling under Page 77 of 99 C/AO/128/2005 CAV JUDGMENT Section 70 the person doing something for another or delivering something to another cannot sue for the specific performance of the contract nor ask for damages for the breach of the contract for the simple reason that there is no contract between him and the other person for whom he does something or to whom he delivers something. All that Section 70 provides is that if the goods delivered are accepted or the work done is voluntarily enjoyed, then the liability to pay compensation for the enjoyment of the said goods or the acceptance of the said work arises. Thus, where a claim for compensation is made by one person against another under S. 70, it is not on the basis of any subsisting contract between the parties, it is on the basis of the fact that something was done by the party for another and the said work so done has been voluntarily accepted by the other party. That broadly stated is the effect of the conditions prescribed by S.
70. It is true that Section 70 requires that a person should lawfully do something or lawfully deliver something to another. The word "lawfully"
is not a surplusage and must be treated as an essential part of the requirement of S. 70. What then does the word "lawfully" in Section 70 denote? The word "lawfully" in Section 70 must be read in the light of S. 23 of the said Act; and he argues that a thing cannot be said to have Page 78 of 99 C/AO/128/2005 CAV JUDGMENT been done lawfully if the doing of it, is forbidden by law. However, even if this test is applied, it is not possible to hold that the delivery of a thing or a doing of a thing the acceptance and enjoyment of which gives rise to a claim for compensation under Section 70 is forbidden by S. 175(3) of the Act; and so the interpretation of the word "lawfully" does not show that Section 70 cannot be applied to the facts in the present case. All that the word "lawfully" in the context indicates is that after something is delivered or something is done by one person for another and that thing is accepted and enjoyed by the latter, a lawful relationship is born between the two which under the provisions of Section 70 gives rise to a claim for compensation.
There is no doubt that the thing delivered or done must not be delivered or done fraudulently or dishonestly nor must it be delivered or done gratuitously. Section 70 is not intended to entertain claims for compensation made by persons who officiously interfere with the affairs of another or who impose on others services not desired by them. Section 70 deals with cases where a person does a thing for another not intending to act gratuitously and the other enjoys it. It is thus clear that when a Page 79 of 99 C/AO/128/2005 CAV JUDGMENT thing is delivered or done by one person it must be open to the other person to reject it. Therefore, the acceptance and enjoyment of the thing delivered or done which is the basis for the claim for compensation under Section 70 must be voluntary. It would thus be noticed that this requirement affords sufficient and effective safeguard against spurious claims based on unauthorized acts. If the act done by the respondent was unauthorized and spurious, the appellant could have easily refused to accept the said act and then the respondent would not have been able to make a claim for compensation. It is unnecessary to repeat that in cases falling under Section 70, there is no scope for claims for specific performance or for damages for breach of contract. In the very nature of things, claims for compensation are based on the footing that there has been no contract and that the conduct of the parties in relation to what is delivered or done creates a relationship resembling that arising out of contract.
The terms of Section 70 are unquestionably wide, but applied with discretion they enable the Courts to do substantial justice in cases where it would be difficult to impute to the persons concerned relations actually created by contract. It is, however, especially incumbent Page 80 of 99 C/AO/128/2005 CAV JUDGMENT on final Courts of fact to be guarded and circumspect in their conclusions and not to countenance acts or payments that are really officious.
G. K. Mitter, J., who heard the suit in the first instance, observed in regard to Section 70 that, Ultimately the Apex Court has confirm that the requisites for entitling a person to compensation under Section 70 of the Contract Act for work done are : (i) that it should be lawfully done, (ii) that it should not be intended to be done gratuitously and (iii) that the person for whom the work is done should enjoy the benefit thereof.
[3] Tilokchand Motichand, M/s. v. H. B. Munshi, Commissioner of Sales Tax, Bombay; AIR 1970 SUPREME COURT 898:
The CONSTITUTION BENCH Apex Court has dealt with the provision of Section 72 of the Contract Cat, 1872 in following manner:
46. To establish that the payments totaling Rs. 26,563.50 made in the years 1959 and 1960 were under a mistake of law, the petitioners must satisfy the Court that they paid the money under a Page 81 of 99 C/AO/128/2005 CAV JUDGMENT genuine belief that the law allowed it but they later discovered that they were under no legal obligation to pay.
Repayment of money paid under a mistake is provided for by Section 72 of the Indian Contract Act occurring in Chapter V of the said Act which deals with certain relations resembling those created by a contract. It reads :
"A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it."
It was laid down by the Judicial Committee of the Privy Council in Sri Sri Shiba Prasad Singh, deceased now represented by Kali Prasad Singha v. Maharaja Srish Chandra Nandi, 76 Ind Ap 244 at p. 254 = (AIR 1949 PC 297 at p.
302 that "Payment "by mistake" in Section 72 must refer to a payment which was not legally due and which could not be enforced :
"the mistake" is in thinking that the money paid was due when in fact it was not due."
The above decision of the Judicial Committee was relied on by this Court in 1959 SCR 1350 at p. 1363 = (AIR 1959 SC 135 at p. 142) where it was said :
"The Privy Council decision has set the whole controversy at rest and if it is once established that the payment, even though it be of a tax has been made by the party labouring under a mistake of law the party is entitled to recover the Page 82 of 99 C/AO/128/2005 CAV JUDGMENT same and the party receiving the same is bound to repay or return it. No distinction can therefore be made in respect of a tax liability and any other liability on a plain reading of Section 72 of the Contract Act ......"
[4] K. S. Satyanarayana v. V. R. Narayana Rao; AIR 1999 SUPREME COURT 2544 = 1999 AIR SCW 2711:
While dealing with provision of Sections 70 and 72 of the Contract Act, 1872, and doctrines of undue enrichment, when agreement for sale of property through defendant No. 2 whom 1st defendant, the owner had authorized to enter into such agreement on his behalf, in case of payment of money by plaintiff to both defendants, as sale consideration, plea by defendant No. 1, the owner that there was no privity of contract between him and plaintiff, doctrine of undue enrichment would squarely apply as payment was not gratuitous. It could be payment under mistake also if defendant No. 1's case was accepted Plaintiff was entitled for restoration in any case.
In this connection Sections 70 and 72 of the Indian Contract Act, 1872 may be referred to, which are as under:-
"70. Obligation of person enjoying benefit of non-gratuitous act: - Where a Page 83 of 99 C/AO/128/2005 CAV JUDGMENT person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.
72. Liability of person to whom money is paid, or thing delivered, by mistake or under coercion: - A person to whom money has been paid, or any thing delivered, by mistake or under coercion, must repay or return it."
If the conditions imposed by Section 70 of the Indian Contract Act are satisfied, then the provisions of that section can be invoked by the aggrieved party to the void contract. The first condition is that a person should lawfully do something for another person or deliver something to him; the second condition is that in doing the said thing or delivering the said thing, he must not intend to act gratuitously; and the third condition is that the other person for whom something is done or to whom something is delivered must enjoy the benefit thereof. If these conditions are satisfied, Section 70 imposes upon the latter person the liability to make compensation to the former in respect of, or to restore, the thing so done or delivered. The important point to notice is that in a case falling under Section 70 the person doing Page 84 of 99 C/AO/128/2005 CAV JUDGMENT something for another or delivering something to another, cannot sue for the specific performance of the contract, nor ask for damages for the breach of the contract, for the simple reason that there is no contract between him and the other person for whom he does something or to whom he delivers something. So where a claim for compensation is made by one person against another under Section 70, it is not on the basis of any subsisting contract between the parties but on a different kind of obligation. The juristic basis of the obligation in such a case is not founded upon any contract or tort but upon a third category of law, namely, quasi-contract or restitution.
[5] In Punjab National Bank v. Surendra Prasad reported in AIR 1992 S.C. 1815 the Hon'ble Apex Court has held that for recovery of bank loan adjustment of FDR security deposited by the guarantor on its maturity, would not amount to criminal breach of trust even if debt is barred by limitation. Therefore, what is confirmed by the Hon'ble Apex Court is to the effect that when debtor did not repay the debt, the bank as creditor, can adjust the amount of FDR against outstanding debt. For doing so, the rules of limitation are not barred since it does not mean to destroy the right of the parties. It is held Page 85 of 99 C/AO/128/2005 CAV JUDGMENT that the time barred debt does not cease to exist by reason of section 3 of the Limitation Act and that right can be exercised in any other manner than by means of suit.
[6] In the case of V.R. Subramanyam v. B Thayappa reported in AIR 1966 S.C. 1034, while dealing with the provisions of section 70 of the Contract Act, the Hon'ble Apex Court has held that the person who obtained some benefit, is liable to compensate from whom he has received such benefit, when benefit was not extended or intended to extend gratuitously even in absence of any express agreement and contract to that effect and that there is no need to prove such agreement. The Hon'ble Apex Court has awarded the amount spent by the building contractor for the work done by him which was though outside the regular contract, but when such work was accepted by the otherside.
[7] Reference to the case between Citibank N.A. v. Standard Chartered Bank, reported in [2004] 6 S.C.C. 1 is necessary though the issue in such reported case is not with reference to set off and provision of section 70 of the Contract Act, but it deals with the instrument and document by the bank. In the present case, when the plaintiff has issued a cheque in favour Page 86 of 99 C/AO/128/2005 CAV JUDGMENT of BBK and drawn upon the defendant, the possession of cheque with the BBK and its presentation before the defendant is to be considered lawfully, which would confirm one of the conditions for enforcing the right under section 70.
[8] Zenit Mataplast P. Ltd. v. State of Maharashtra; AIR 2009 SC (Supp) 2364:
Observations and findings by the Apex Court, after relying upon several other citations/decisions, are material to refer here, which states that interim order is to be passed on the basis of prima facie findings, which are tentative. Such order is passed as a temporary arrangement to preserve the status quo till the matter is decided finally, to ensure that the matter does not become either infructuous or a fait accompli before the final hearing. The object of the interlocutory injunction is, to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial, (vide Anand Prasad Agarwalla v. Tarkeshwar Prasad and Ors. AIR 2001 SC 2367 :
(2001 AIR SCW 2221); and Barak Upatyaka D.U. Karmachari Sanstha (2009) 5 SCC 694) : (2009 AIR SCW 2977 : AIR 2009 SC 2249).Page 87 of 99 C/AO/128/2005 CAV JUDGMENT
It would be beneficial to refer following paras of said decision;
25. Grant of an interim relief in regard to the nature and extent thereof depends upon the facts and circumstances of each case as no straitjacket formula can be laid down. There may be a situation wherein the defendant/respondent may use the suit property in such a manner that the situation becomes irretrievable. In such a fact situation, interim relief should be granted (vide M. Gurudas and Ors. v. Rasaranjan and Ors., AIR 2006 SC 3275 : (2006 AIR SCW 4773); and Shridevi and Anr. v. Muralidhar and Anr. (2007) 14 SCC 721.) Grant of temporary injunction, is governed by three basic principles, i.e. prima facie case; balance of convenience; and irreparable injury, which are required to be considered in a proper perspective in the facts and circumstances of a particular case. But it may not be appropriate for any Court to hold a mini trial at the stage of grant of temporary injunction (Vide S. M. Dyechem Ltd. v. M/s. Cadbury (India) Ltd., AIR 2000 SC 2114 : (2000 AIR SCW 2172); and Anand Prasad Agarwalla (supra)).
In Colgate Palmolive (India) Ltd. v. Hindustan Lever Ltd., AIR 1999 SC 3105 :
(1999 AIR SCW 3050, Para 24), this Court observed that the other considerations which ought to weigh with the Court hearing the application or petition for the grant of injunctions are as below :Page 88 of 99 C/AO/128/2005 CAV JUDGMENT
(i) Extent of damages being an adequate remedy;
(ii) Protect the plaintiff's interest for violation of his rights though however having regard to the injury that may be suffered by the defendants by reason therefor;
(iii) The Court while dealing with the matter ought not to ignore the factum of strength of one party's case being stronger than the others;
(iv) No fixed rules or notions ought to be had in the matter of grant of injunction but on the facts and circumstances of each case - the relief being kept flexible;
(v) The issue is to be looked from the point of view as to whether on refusal of the injunction the plaintiff would suffer irreparable loss and injury keeping in view the strength of the parties' case;
(vi) Balance of convenience or inconvenience ought to be considered as an important requirement even if there is a serious question or prima facie case in support of the grant;
(vii) Whether the grant or refusal of injunction will adversely affect the interest of general public which can or cannot be compensated otherwise."
27. In Dalpat Kumar and Anr. v. Prahlad Singh and Ors., AIR 1993 SC 276 : (1992 Page 89 of 99 C/AO/128/2005 CAV JUDGMENT AIR SCW 3128, Para 6), the Supreme Court explained the scope of aforesaid material circumstances, but observed as under :-
"The phrases 'prima facie case',
'balance of convenience' and
'irreparable loss' are not rhetoric phrases for incantation, but words of width and elasticity, to meet myriad situations presented by man's ingenuity in given facts and circumstances, but always is hedged with sound exercise of judicial discretion to meet the ends of justice. The facts rest eloquent and speak for themselves. It is well nigh impossible to find from facts prima facie case and balance of convenience."
28. This Court in Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hira Lal, AIR 1962 SC 527 held that the civil Court has a power to grant interim injunction in exercise of its inherent jurisdiction even if the case does not fall within the ambit of provisions of Order 39, Code of Civil Procedure.
29. In Deoraj v. State of Maharashtra and Ors., AIR 2004 SC 1975 : (2004 AIR SCW 2134, Para 12), this Court considered a case where the Courts below had refused the grant of interim relief. While dealing with the appeal, the Court observed that ordinarily in exercise of its jurisdiction under Art. 136 of the Constitution, this Court does not interfere with the orders of interim nature passed by the High Court.
However, this rule of discretion followed in practice is by way of just self-imposed restriction. An irreparable Page 90 of 99 C/AO/128/2005 CAV JUDGMENT injury which forcibly tilts the balance in favour of the applicant, may persuade the Court even to grant an interim relief though it may amount to granting the final relief itself. The Court held as under :-
"The Court would grant such an interim relief only if satisfied that withholding of it would prick the conscience of the Court and do violence to the sense of justice, resulting in injustice being perpetuated throughout the hearing, and at the end the Court would not be able to vindicate the cause of justice."
30. Such a course is permissible when the case of the applicant is based on his fundamental rights guaranteed by the Constitution of India, (vide All India Anna Dravida Munnetra Kazhagam v. Chief Secretary, Govt. of Tamil Nadu and Ors. (2009) 5 SCC 452)).
31. In Bombay Dyeing and Manufacturing Co. Ltd. v. Bombay Environmental Action Group and Ors. (2005) 5 SCC 61, this Court observed as under :-
"The Courts, however, have to strike a balance between two extreme positions viz. whether the writ petition would itself become infructuous if interim order is refused, on the one hand, and the enormity of losses and hardships which may be suffered by others if an interim order is granted, particularly having regard to the fact that in such an event, the losses sustained by the affected parties thereby may not be possible to be redeemed."Page 91 of 99 C/AO/128/2005 CAV JUDGMENT
32. Thus, the law on the issue emerges to the effect that interim injunction should be granted by the Court after considering all the pros and cons of the case in a given set of facts involved therein on the risk and responsibility of the party or, in case he loses the case, he cannot take any advantage of the same. The order can be passed on settled principles taking into account the three basic grounds i.e. prima facie case, balance of convenience and irreparable loss. The delay in approaching the Court is of course a good ground for refusal of interim relief, but in exceptional circumstances, where the case of a party is based on fundamental rights guaranteed under the Constitution and there is an apprehension that suit property may be developed in a manner that it acquires irretrievable situation, the Court may grant relief even at a belated stage provided the Court is satisfied that the applicant has not been negligent in pursuing the case.
44 We cannot go beyond the decision and wisdom of the Hon'ble Apex Court, but with due respect only because the Hon'ble Apex Court has observed in particular, case based upon the facts of that case, it would not restrict the jurisdiction and power of the first appellate Court to decide the appeal on its own merits, inasmuch as even in the above observation also what is stated is to the effect that the appellate Court should not have Page 92 of 99 C/AO/128/2005 CAV JUDGMENT substituted its views only when different conclusion was possible, but it is no-where stated that even if the view taken by the trial Court is incorrect, improper, illegal, unjust, arbitrary, capricious, perverse and against the settled principle of law or alike, the first appellate Court cannot interfere with such orders. So far as the facts are concerned, the plaintiff is relying upon mark 25/8 bank statement as well as notice by HDFC Bank to BBK dated 20/5/2003 at mark 4/21, wherein defendant has claimed the amount from BBK and has not debited the amount from the plaintiff's account. However, that alone would also not preclude the bank to set off and adjust the account amongst different accounts of the same customer since the same is permissible under the provisions of sections 70 and 72 of the Contract Act and also pursuant to legal discussion as above.
45 Therefore, now to answer the dispute on hand, what is required to be verified is that [1] whether payment by the defendant is gratuitous or not? [2] whether such payment was lawful? [3] Payment by the defendant to BBK is for and behalf of the plaintiff and thereby whether the plaintiff has taken benefit of such payment? [4] whether the defendant is entitled to set off?
Page 93 of 99 C/AO/128/2005 CAV JUDGMENT46 The discussion of facts and law in previous paras, give clear answer to all such questions that the defendant has not made the payment gratuitously, but it has simply honoured the cheque, negotiable instrument issued by the plaintiff and drawn upon it. Therefore, payment was lawful also when extending similar benefit of temporary overdraft by way of utilizing/transferring balances from/to other bank accounts of the plaintiff was in practice. It is also not disputed that BBK has credited this amount not in their account or for their own benefit, but credited the amount in the loan account of the plaintiff and thereby, full credit of total Rs.7.5 crores was given in the plaintiff's account when they have not claimed such amount in their recovery application being Original Application No. 278/2003, which is filed for recovering only balance amount of approximately Rs.18 lacs. It is also not disputed that the plaintiff has accepted such credit in their loan account with BBK when they have disclosed such amount as their debt towards HDFC as unsecured creditor in Company Petition No. 370/2004 before this High Court and in the same petition, when they disclosed that they are in debt of BBK only for Rs.11 lacs, thereby the plaintiff has admitted that they are not in debit of BBK for Rs.7.5 crores. Hence, payment by the Page 94 of 99 C/AO/128/2005 CAV JUDGMENT defendant to BBK is for and behalf of the plaintiff and thereby whether the plaintiff has taken benefit of such payment.
47 Though the plaintiff has preferred Civil Suit No. 1360/2003 to avoid payment of such amount to BBK and though the plaintiff is aware that they are in debt of such amount to BBK. But when such amount is being paid by the defendant to BBK because of the negotiable instrument issued by the plaintiff and when the plaintiff admits that they are in debt of defendant for Rs.7.5 crores, now the plaintiff is not allowed to argue that they have not utilized such amount and that since amount is not received by them but received by BBK, the defendant cannot claim such amount from them. If we peruse the contempt application in Civil Suit No. 1360/2003, it becomes clear that there the plaintiff has claimed restitution of position as before; thereby the amount in question is to be repaid by BBK to the defendant and not to the plaintiff. However, the prayer is drafted so wisely when it is prayed that the defendant in that suit i.e. BBK be directed to deposit such amount before the Court though it is stated that original position is to be restored, which would result into payment to present defendant HDFC. This attitude and pleadings are not only surprising, but seems Page 95 of 99 C/AO/128/2005 CAV JUDGMENT to be taking disadvantage of the judicial process. Such application is at exh. 28 in Civil Suit No. 1360/2003 dated 24/7/2003, which is produced at mark 38/8 in the present suit.
48 So far as letters dated 16/2/2002 at mark 4/15 and 16 are concerned, it cannot be considered as an express or implied contract between the parties for not to set off account. On the contrary, it can be considered as express and implied contract, at least till such letters, to set off the account and, therefore, pursuant to factual and legal discussion as above, I hold that the defendant is entitled to set off the account.
49 So far as right of the plaintiff to avoid payment in question because of the notification dated 11/11/2002, etc., produced at mark 4/10 to 12 are concerned, the previous litigation by the plaintiff against different banks, makes it clear that because of such notifications, the plaintiff cannot avoid the payment of cheques issued by it. Therefore, even instructions or orders for not utilizing such cheques in the previous suit would not help the plaintiff to avoid the payment either to BBK or to HDFC i.e. defendant. The plaintiff is also relying much upon their letter dated 28/5/2003 Page 96 of 99 C/AO/128/2005 CAV JUDGMENT produced at Mark 20/1, whereby it was conveyed to the defendant that they should not suppose to honour the cheque and to emphasize that the defendant admitted their lapse in honouring such cheque, wherein the plaintiff has refused to accept the proposal of creating temporary overdraft by the defendant. However, provisions of sections 70 and 72 of the Contract Act and discussion of legal issues hereinabove, makes it clear that the bank is entitled to recover such amount treating it as a loan or overdraft and can set off the amount from other accounts of the same customer. Therefore, there is no substance in such submission by the plaintiff. It cannot be ignored that the plaintiff has disclosed in all its accounts that they are in debt of the defendant. Though it is stated in such disclosure that such debt is subjudice, it does not change the situation that the plaintiff is in debt of defendant HDFC.
50 Then, only issue remains is whether the defendant can set off the account as it is done in December, 2004 i.e. after couple of months, the legal discussion in aforesaid paragraphs makes it clear that the defendant bank is entitled to execute set off and to recover their debt from the different accounts of the same customer. The only grievance remains to answer is Page 97 of 99 C/AO/128/2005 CAV JUDGMENT regarding not to set off the account and not to show debit of the plaintiff for 19 months by the defendant and to execute the set off all of a sudden, without prior intimation and thereby dishonouring further cheques. This issue can be taken care of while deciding the suit finally that if at all the defendant has acted without prior intimation, what would be effect and remedy to the plaintiff, but based upon discussion hereinabove, when it is clear that the defendant insisted to get set off of its debt from the plaintiff and more particularly when the plaintiff has tried to take disadvantage of judicial process by filing different suits for total amount of more than Rs.18 crores on the ground of notification regarding declaration as sick unit and even after losing such privilege upto the Hon'ble Apex Court, not to disclose such facts either on record or to make necessary arrangement to settle the issue with the defendant as it is done at-least with Dombivali Bank, Bombay, it disentitled the plaintiff to get and confirm the interim relief, more particularly in mandatory form in its favour. One more reason for such conclusion is the interim order by this Court on 13/4/2005 when an amount of Rs.1.12 crores was directed to be deposited by the defendant in the name of the plaintiff with a condition that the plaintiff shall not be Page 98 of 99 C/AO/128/2005 CAV JUDGMENT entitled to encash it without prior permission of this Court. So practically the impugned order was modified to above extent and such position remains in force till date.
51 Therefore, the amount in question has been secured by the order dated 13/4/2005, now practically there is no reason for interfering with such interim order at this stage.
52 Therefore, this appeal is partly allowed by making the interim order dated 13/4/2005 as final order with a direction to the trial Court to see that the suit is decided at the earliest. The amount in credit as per order dated 13/4/2005 shall remain as such till final disposal of the suit.
In view of the above order, civil application stands disposed of accordingly.
(S.G.SHAH, J.) * Pansala.
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