Gujarat High Court
Jal Fabrics vs Manager, Bank Of Baroda on 13 July, 2023
Author: Nikhil S. Kariel
Bench: Nikhil S. Kariel
NEUTRAL CITATION
C/SCA/6129/2023 ORDER DATED: 13/07/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 6129 of 2023
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JAL FABRICS
Versus
MANAGER, BANK OF BARODA
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Appearance:
MR HARSHADRAY A DAVE(3461) for the Petitioner(s) No. 1,2
MR PRANAV G DESAI(290) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE NIKHIL S. KARIEL
Date : 13/07/2023
ORAL ORDER
1. Heard learned Advocate Mr. Harshadray A. Dave on behalf of the petitioners and learned Advocate Mr. Pranav G. Desai on behalf of the respondent-Bank.
2. A very limited issue has arisen for consideration of this Court, inasmuch as according to learned Advocate Mr. Dave, the petitioners had obtained financial facilities from the respondent-Bank as regards two different loan accounts i.e. Account migrated to Bank of Baroda No. 77420500000018 - eDB Account No. 080013023906 and Account migrated to Bank of Baroda No. 77420600000110 - eDB Account No. 080054023908 respectively, and whereas though the total outstanding for both the accounts have been repaid, yet, the respondent-Bank is not returning back the title documents of a property which had been mortgaged with the Bank towards Page 1 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined the loan accounts. The loan account of the petitioners being availed in their respective names and whereas it would appear that the petitioners had also stood as guarantors with regard to a loan obtained by one M/s Dholphin Enterprise. It is the case of the petitioners that the loan accounts insofar as the financial facilities obtained by the petitioners respectively has been paid and whereas since there is outstanding in the account of M/s Dholphin Enterprise in which the petitioners stood as guarantors, therefore the Bank is not ready to release the title deeds of the documents which were mortgaged towards the loan availed by the respective petitioners. Learned Advocate would submit that the Bank is not entitled to retain as security, the property which was mortgaged as regards a different loan account, as a general lien for any other loan accounts or any other account in which the parties concerned had stood as guarantors. Learned Advocate Mr. Dave in support of his submissions would rely upon decision of the Hon'ble Division Bench of this Court in case of State Bank of India Vs. Radheshyam Spinning Mill Pvt. Ltd., reported in 2020-GLH-1-8, and decision of a learned Co-ordinate Bench of this Court in case of M/s. Mahalaxmi Textiles, a Proprietorship Firm through its Proprietor Bhartiben Maheshbhai Chevli Vs. Syndicate Bank, Surat Main Branch, in Special Civil Application No. 18997 of 2019.
3. As against the same, learned Advocate Mr. Pranav Desai for the Page 2 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined respondent-Bank would submit that as such, the loan accounts of the respective petitioners are not fully paid up and there is substantial outstanding and whereas learned Advocate would submit that in case, the outstanding is paid up by the petitioners, then the Bank would definitely take appropriate action in accordance with law. Learned Advocate Mr. Desai would further submit that the petition itself is misconceived inasmuch as since the entire loan amount has not been repaid, the question of demanding return of documents has not yet arisen.
4. In rejoinder, learned Advocate Mr. Dave for the petitioners would submit that the petitioners are ready and willing to repay whatever is the outstanding and whereas the only reason for the non-payment is the fact intimated by the Bank that the same repayment would not entail automatic return of the title documents of the mortgaged property.
5. Heard learned Advocates for the parties who have not submitted anything else.
6. Considering the submissions made by learned Advocates for the parties, while it would appear that the petition may be premature since the petitioners have not yet repaid the loan amount and whereas it has been the contention of the learned Advocate for the petitioners that while the petitioners are inclined to repay the entire amount, it is only on account of Page 3 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined the fact that the respondent-Bank has informed the petitioners that repayment would not entail release of the papers of the property which has been mortgaged, therefore the loan is not being repaid. It would also appear that learned Advocate Mr. Desai for the respondent-Bank has submitted that upon the loan being repaid, the respondent-Bank shall take appropriate action in accordance with law.
7. Considering the above submissions, at this stage, this Court deems it appropriate to rely upon observations of a learned Co-ordinate Bench made in case of M/s. Mahalaxmi Textiles (supra), in a similar context. It would be pertinent to mention here that the learned Co-ordinate Bench had in addition to relying the observations of the Hon'ble Division Bench in case of Radheshyam Spinning Mill Pvt. Ltd. (supra), had also relied upon the observations of the learned Co-ordinate Bench whose judgment had been challenged before the Division Bench in case of Radheshyam Spinning Mill Pvt. Ltd. The relevant observations of the learned Co-ordinate Bench from Paragraphs No. 6 to 11 being relevant for the present purpose are quoted hereinbelow for benefit.
"6. It is apposite to refer to the law as laid down by this Court in the decision dated 26.11.2018 rendered in the Special Civil Application No.13890 of 2017, paragraphs 48 to 52 reads thus :-
"48. The case of the respondent Bank as it emerges from the materials on record, more particularly, the reply of the Bank to Page 4 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined the notice issued by the writ-applicants is that they have a right to retain the title deeds of the property delivered to them in the normal course of business transaction by exercising the general lien under Section 171 of the Act and, therefore, they are bound to retain the same till the liability in the other account, i.e. M/s.Radheshyam Fibres Private Limited, where the writ- applicant nos.2 and 3 are guarantors, is discharged.
49. In the course of hearing of this matter, the decision of the Supreme Court in the case of Syndicate Bank v. Vijaya Kumar and others, reported in 1992(2) SCC 331 was also looked into.
50. As noticed above, Section 171 of the Act states that the bankers like the respondent Bank, in the absence of a contract to the contrary, retain as security for a general balance account, any goods bailed to them. Therefore, what is required to be seen in the instant case is, whether there is any contract to the contrary, which prevents the bank from exercising their general lien and as to whether any goods have been bailed to them. It cannot be disputed that the title deeds in question were not bailed to the Bank by the writ-applicants at any point of time. Further, indisputably, the property in question of which the title deeds are in possession of the Bank was offered by the writ-applicants to cover their liability in respect of the loans which they had borrowed in the account of M/s.Radheshyam Spinning Mill Private Limited. There is nothing on record to indicate that the writ-applicants herein had given any authorization to the Bank to hold the title deeds of the mortgaged property given to secure the loan transaction for M/s. Radheshyam Spinning Mill Private Limited for the purpose of any other loan availed in any other branch by M/s. Radheshyam Fibres Private Limited, in which the writ- applicant nos.2 and 3 stood as guarantors. Thus, the issue boils down to the question as to whether there is any contract to the contrary, which prevents the Bank from exercising its general lien under Section 171 of the Act.
51. In Chitty on Contracts, 29th Edition (2004) - Volume-II, Page 496 on Banker's Lien, it is stated as follows :
".....The most frequent example of circumstances inconsistent with the general lien is in the case of a deposit expressed to Page 5 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined cover an advance for a specified purpose. However, once the original purpose has been fulfilled by repayment of the specified advance, if a customer knowingly permits the banker to retain the security, a general lien may ultimately be implied and its protection then claimed in respect of other advances."
52. In the case on hand, the writ-applicants have admittedly deposited the title deeds of the property to secure a loan transaction availed in respect of M/s.Radheshyam Spinning Mill Private Limited. This fact is apparent from the reply of the Bank itself which has been referred to in the earlier part of the judgment. In such circumstances, I have no hesitation to hold that this contract/mortgage had been created by the writapplicants for a specific purpose and for a specific loan and the contract was self-contained and the terms and conditions were binding upon both, the borrowers as well as the Bank. To put it in other words, the deposit of title deeds, by which the mortgage was created by the writ-applicants, was for a specific purpose to cover an advance for a specific loan. When such is the situation, the borrower, having deposited the title deeds in order to secure a specific transaction, the Bank cannot take a stance that they could hold the title deeds for a balance due in a different loan amount, i.e. with respect of M/ s. Radheshyam Fibres Private Limited, where the writ-applicant nos.2 and 3 may be guarantors. Further, the language of Section 171 of the Act is explicit to the fact that the bankers are entitled to retain as a security for a 'general balance account'. Indisputably, it is not the case of the respondent Bank that the amount which is now said to be due on account of the borrowings of M/s.Radheshyam Fibres Private Limited is a general balance account of the writ-applicants."
6.1 The aforesaid judgment was carried in Appeal which came to be confirmed by the Hon'ble Division Bench and the same is reported in (2020) 1 GLH 8, para-39 reads thus :-
"39. Thus, for all the reasons recorded above, we do not find any infirmity in the order of the learned Single Judge directing the appellant Bank to return the title-deeds forthwith and also to discharge the charge recorded in the records of the Registrar of Companies. The appeal lacks merit and is accordingly dismissed. Consequently, Civil Application No.1 of 2019 Page 6 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined stands disposed of."
6.2 In the case of Pravin Cotton Pvt. Ltd., vs. Branch Manager, Dena Bank, 2019 SCC OnLine Guj. 4201, Paragraphs 12 to 15 reads thus :-
"12. Having considered the submissions made by the learned counsel for the respective parties, what is evident is that the letter of sanction dated 1.10.2015 was in the context of the petitioner Company to the Cash Credit Hypothecation whereby certain properties were agreed to be mortgaged by the Company i.e. Parvin Cotton Pvt. Ltd. and the details of the securities have been mentioned in the sanctioned letter at page No.33. List shows the properties of Parvin Cotton Pvt. Ltd. and, therefore, the stand of the Bank that they are not willing to release the properties of Parvin Cotton Pvt. Ltd. itself is not proper. What is evident from the record is that the property is mortgaged by two separate corporates i.e. Parvin Cotton Pvt. Ltd. And Parvin Exim Pvt. Ltd.
13. I am inclined to accept the submission of Mr.Puj as far as the contention of objecting to the release of such dues on the ground of having sanctioned Letter of Guarantee of General lien and General Undertaking at page No.118. Such undertaking was given by the Directors of Parvin Exim Pvt. Ltd. at page No.118 and though they may be the Directors of the Company, one cannot lose sight of the fact that what binds Parvin Exim Pvt. Ltd., would not bind Parvin Cotton Pvt. Ltd. I am supported by the view taken by this Court in the case of Radheshyam Spinning Mill Pvt. Ltd. (Supra) which has extensively considered Section 171 of the Contract Act and relied on a Division Bench Judgment and categorically considered the case on similar facts and the prayers made in the context of facts therein and directed the Bank to release the title deeds of the mortgaged property pertaining to a legal entity namely; one M/s.Radheshyam Spinning Mill Pvt. Ltd. Facts on hand would also indicate similar case because there were common Directors / Promoters, and that the properties by virtue of the Equitable Mortgage was made of the petitioner company, the Bank cannot refuse to release mortgage deeds of the properties belonging to Parvin Cotton Pvt. Ltd. merely Page 7 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined because some of the Directors / Promoters are also part of Parvin Exim Pvt. Ltd.
14. Pending the petition, the petitioner Company has filed an undertaking dated 21.1.2019 stating that they are willing to clear the outstanding dues if the Court gives a direction to the Bank to return the documents in respect of the properties belonging to the petitioner which are enlisted in the sanctioned letter dated 1.10.2015. In fact, Mr.Puj has pointed out that in order to show bonafide of their will to stand by the proposal on 20.9.2019, the petitioner company has already deposited an amount of Rs.50,00,000/- (Rupees fifty lacs only) with the Bank.
15. Considering the request made by the petitioner for release of the title deeds of the documents in respect to the properties belonging to the petitioner, it is directed that in the event, the petitioner presents before the Bank buyers of the properties which they have offered for sale to which the Bank responded on 19.3.2018 and once the buyer deposits the entire outstanding dues of the petitioner by way of the sale consideration of such properties, the Bank shall release the documents in respect of such properties within a period of two weeks thereafter and shall also give `No Objection Certificate' to that effect. Thereby, the petition is allowed in terms of paragraph Nos.8(A) and 8(B). Rule is made absolute to the aforesaid extent."
Analysis :-
7. The communication by the respondent No.1 Bank dated 20.11.2017 to the writ-applicant herein is germane for adjudication of the present writ-application which reads thus :-
"Ref No: 175/7170/VlNAYAK/2017 Date : 20.11-2017 MIS. Mahataxmi Textiles, Prop. Bharti M Chevli, Plot.No.16,Axarnagar Row House, Kharvarnagar, Khatodara, surat 395002 Page 8 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined Dear Sir, Sub : Sale of property at C-303/304, Sree Kuberji TextiIe Park, Ring Road, Surat Property above is under mortgage to our Bank created by M/S. Vinayak Fabrics for the facilities extended to them. However, account has become process of selling the properties mortgaged to us.
We have no objection to your buying the above property at Rse 2.50 Crore and you may remit tv proceeds directly to the borrower's account (Vinayak Fabrics ) and on receipt of Rs, 2,50 Crore (Rs. Two Crore and Fifty Lakhs), we wilt release the above property from our charge.
Yours faithfully Sd/-
Asst General Manager"
Pursuant to the aforesaid communication the writapplicant deposited the entire amount of Rs.2.50 crores to the respondent No.1 Bank through the respondent No.2 which has been accepted by the respondent No.1 Bank and also encashed by the bank in the account of the respondent No.2.
8. In view of this Court, it is not open for the respondent No.1 Bank to deny the writ-applicant herein, the title deed, no objection certificate/no due certificate and the sale deed executed in respect of the subject property in terms of the aforesaid letter dated 20.11.2017 issued by the respondent No.1 Bank to sell the property to the writ- applicant on receipt of the consideration of Rs.2.50 crores. It is not open for the Bank to fasten indirect liability of the respondent No.2 - Vinayak Fabrics to the the respondent No.1 Bank in respect of loan advanced to M/s. Jay Ganesh Roadlines wherein respondent No.2 - Vinayak Fabrics is a guarantor. The respondent Bank is bound by the contractual agreement between the writ-applicant and the respondent Bank. It is not open for the Bank to assert that unless and until the total dues of the Bank which are due and payable by the alleged liability of M/s. Jay Ganesh Roadlines in favour of the respondent No.1 Bank are realized. The writ-applicant be denied the release of the title deed, no objection certificate/no due certificate with respect Page 9 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined to the subject property.
9. The title deed of the immovable property purchased by the writ- applicant was not mortgaged as collateral/primary security for the purpose of loan granted by the respondent No.1 Bank to M/s. Jay Ganesh Roadlines wherein respondent No.2 Vinayak Fabrics is a guarantor. Further the language of Section 171 of the Contract Act is explicit to the fact that the bankers are entitled to retain security only for general balance account. Undisputably there is no charge over the immovable property in question. Undisputably there is no charge on the immovable property in question in respect of alleged liability of M/s. Jay Ganesh Roadlines in favour of the respondent No.1 Bank, therefore in view of above it is not open for the respondent No.1 Bank to deny the contractual commitment of issuing no objection certificate/no due certificate and release of title deeds of the property and the writ-applicant having made full and final payment and the Bank having accepted the same as per the letter dated 20.11.2017, the secured assets has already been sold by the secured creditor i.e. respondent Bank with concurrence of the borrowers to the writ- applicant.
10. In view of above an equitable mortgage created by Vinayak Fabrics in respect of alleged loan advanced to M/s. Jay Ganesh Roadlines, the writ-applicant cannot be denied the prayers as prayed for having fulfilled the entire obligation in accordance with the communication dated 20.11.2017 as referred above. No subsisted liability can be said to be continued against the writ-applicant herein.
11. The respondent No.1 bank is directed to release the charge over the property in question and is further directed to hand over the original title documents of the property in question forthwith latest within a period of two weeks from the receipt of this order."
8. From the observations of the learned Co-ordinate Bench as reproduced hereinabove, it would appear that the law in this regard being that title deeds of a property which are in possession of a Bank, tendered by a borrower to cover his liability in respect of loans towards a particular Page 10 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023 NEUTRAL CITATION C/SCA/6129/2023 ORDER DATED: 13/07/2023 undefined account, cannot be retained towards another loan account unless an authorization is given by the borrower to hold the title deeds with regard to loan obtained by another firm irrespective of whether there is commonality amongst the directors of the companies in question. To clarify the deposit of title deeds, by which a mortgage was created by a borrower would be for a specific purpose to cover an advance for a specific loan and when title deeds are deposited in order to secure a specific transaction, the Bank cannot take a stand that they could hold the title deeds against balance due in a different loan account. It also appears that Section 171 of the Contract Act could also not be invoked in such situations.
9. Having regard to the above, it is required to be observed that it would be open for the petitioners to repay the outstanding amount due to the respondent-Bank and in case such entire outstanding is deposited by the petitioners, then the respondent-Bank shall take appropriate action in accordance with law, as explained hereinabove.
10. With the above observations and direction, the present petition is disposed of as partly allowed. Direct service is permitted.
(NIKHIL S. KARIEL,J) BDSONGARA Page 11 of 11 Downloaded on : Sat Sep 16 21:17:18 IST 2023