The petitioner, which is a registered society, challenges the action of the respondent bank in adjusting a sum of Rs.48,80,164/- (Rupees Forty Eight Lakhs Eighty Thousand One Hundred and Sixty Four) with accrued interest in a purported exercise of the right of general lien conferred on the bank under Section 171 of the Contract Act. The petitioner seeks issuance of Writ of Mandamus, directing the respondent bank to repay the said sum along with accrued interest.
2. The brief facts which led to filing of the writ petition are as follows.
3. The petitioner is a constituent of the respondent bank. It is engaged in several service activities and it receives funds from various agencies both Governmental and non-Governmental. The funds so received by the petitioner were deposited in seven different fixed deposits, totaling to a sum of Rs.62,08,745.05 during the year 1995. The fixed deposits were for a period of five years and were due for maturity in the year 2000. The respondent bank had granted loans to a number of individuals under the Differential Interest Rate Scheme (hereinafter referred as ?the DIR Scheme?) in the year 1986. Under the said DIR Scheme, the banks were empowered to seek assistance of local social workers, trade unions, political workers, co- operative societies and multipurpose societies to identify eligible borrowers/beneficiaries. Taking into account the experience of the petitioner society, the respondent bank had availed the assistance of the petitioner society to identify the beneficiaries under the DIR Scheme. On the recommendation of the petitioner society, the respondent bank had advanced various amounts to several individuals as well as self help groups under the DIR Scheme.
4. According to the petitioner, except identifying the beneficiaries and ensuring that the funds were used by the beneficiaries for the particular purpose of borrowing, the petitioner had no other role to play in the entire transactions. In the course of such identification of the beneficiaries, there were several correspondence between the bank and the petitioner society. The petitioner would also claim that its role ended with identification of the beneficiaries and certifying the end-use of the loan amounts. The respondent bank failed to take an appropriate legal action for recovery, when the accounts turned sick. The respondent bank therefore adopted a short-cut method by which, it sought to exercise the general lien on the fixed deposits of the petitioner and informed the petitioner on 05.02.1996 that it is marking a general lien on the deposits of the petitioner society. On 15.02.1996, the petitioner sent a reply stating that the petitioner was neither co-obligant nor a guarantor for the loans advanced by the bank and as such the bank had no right to mark a general lien over the fixed deposits that belonged to the petitioner. A legal notice was also issued to that effect on 16.05.1996, pointing out that the action of the bank in marking a lien or attempting to adjust the proceeds of the fixed deposits towards the loan amounts was not legal. By a reply dated 28.05.1996, the bank rejected the request of the petitioner. This led to certain negotiations between the bank and the petitioner, which also failed to yield any fruitful results. The petitioner therefore, requested the respondent bank to foreclose one of the fixed deposits. The said request was also declined by the respondent bank. The respondent bank thereafter issued one more notice on 10.09.1996, calling upon the petitioner society to pay all the dues in respect of the loan granted to 1540 individuals under the DIR Scheme. On 27.09.1996, the respondent bank informed the petitioner society that a sum of Rs.48,80,164/- (Rupees Forty Eight Lakhs Eighty Thousand One Hundred and Sixty Four) deposited under six fixed deposits stood adjusted towards the existing liabilities of 1540 individuals, who failed to repay the loan amounts.
5. Challenging the action of the bank, the petitioner society approached the National Consumer Disputes Redressal Commission (hereinafter referred as ?NCDRC?), New Delhi in O.P.No.131 of 1997. By an order dated 07.05.2004, NCDRC dismissed the petition on the ground that the petitioner society cannot be considered to be a consumer as defined under the Consumer Protection Act. While doing so, the NCDRC also granted liberty to the petitioner to approach either a civil Court or to take recourse to any other alternative remedy. The NCDRC also made it clear that the findings made by it with reference to the merits of the transactions will not be binding on either the civil Court or the other forum. Aggrieved by the said decision of the NCDRC, the petitioner had approached the Hon'ble Supreme Court by way of Civil Appeal No.7001/2004. The said civil appeal was dismissed by the Hon'ble Supreme Court on 30.07.2009 with liberty to the petitioner to avail of any other alternative remedy under law. It appears from the records that the petitioner has also moved the Banking Ombudsman, which also rejected the petitioner plea on the ground of want of jurisdiction.
6. The learned Senior Counsel appearing for the petitioner would contend that by virtue of the liberty granted by the Hon'ble Supreme Court, it has a right to move this Court under
Article 226 of the Constitution of India seeking a Writ of Mandamus as aforesaid. According to the petitioner, the bank was not justified in invoking the general lien under
Section 171 of the Contract Act, in the absence of any contract between the petitioner and the respondent bank with reference to the loan transactions. It is also the contention of the petitioner that the mere fact that the petitioner assisted the respondent bank in identifying the beneficiaries or the loanees would not cloth the bank with a right under
Section 171 of the Contract Act to exercise a general lien and proceed to adjust the proceeds of the fixed deposits towards the loans due and payable by the beneficiaries/loanees.
7. The respondent bank has filed a counter affidavit contending as follows:-
The petitioner society approached the respondent bank in the year 1986 for granting loans under the self employment scheme to persons recommended by it. It is also claimed that the petitioner society not only recommended the loan but also assured their co-operation and collaboration/joint venture throughout the implementation of the credit programme and guaranteed the recipients in groups. Thus, according to the respondent bank, the petitioner society has guaranteed repayment of the loans by the loanees. In order to prove the claim of the bank that the petitioner society has guaranteed repayment of the loans by the respective loanees certain letters are relied upon by the respondent bank. The bank would also further claim that the loans were granted mainly on the basis of the recommendations/assurances and undertakings of the petitioner to repay the loans. It is also contended that the petitioner had nominated the beneficiaries. It is also further claimed by the bank that the fixed deposits are the seed capital money received by the petitioner society and the deposits were made only on the basis of the guarantees given by the petitioner society for repayment of the loans by the beneficiaries under the DIR Scheme. It is also claimed that the seed capital money was the backbone of the loan facility. The respondent bank would further contend that the dispute is basically a civil dispute and therefore, a Writ Petition under
Article 226 of the Constitution of India will not be a proper remedy. The respondent bank thus claimed that the petitioner has to approach a competent civil Court as the matter involves consideration of conflicting evidence. A further plea is taken to the effect that the matter being one of contract, the petitioner society cannot invoke the extraordinary jurisdiction under
Article 226 of the Constitution of India.
8. I have heard Mr.A.R.L.Sundaresan, learned Senior Counsel for Mr.I.Irullappan, learned counsel appearing for the petitioner and Mr.R.Pandivel, learned counsel appearing for the respondent bank.
9. The respondent bank would justify its action in adjusting the proceeds viz., under
Section 171 of the Contract Act, which enables a banker to exercise a general lien over the moneys belonging to its customers.
10. I think, it would be appropriate for me to deal with the objection of the bank on the ground of availability of alternative remedy. No doubt, true that this Court while exercising jurisdiction under
Article 226 of the Constitution of India, as a matter of judicial discipline, refrains from entertaining disputes which are contractual in nature if it is shown that the petitioner has an effective alternative remedy by way of a civil suit or otherwise. But in the case on hand, the writ petition has been entertained in the year 2010 and it is kept pending for more than seven years. Availability of alternative remedy is not an absolute bar for exercising jurisdiction under
Article 226 of the Constitution of India. It is also seen that the disputes actually emerged during the year 1996. Almost 21 years have passed by and throughout the said period some other proceedings have been pending with regard to the correctness of the action of the bank in exercising the power of general lien under
Section 171 of the Contract Act and adjusting the proceeds of the fixed deposits towards the loans due by different loanees.
11. Admittedly, the bank has not taken any action to recover the moneys from the actual loanees. It has in fact adopted a short cut method of adjusting the fixed deposits forcing the petitioner to run from pillar to post seeking indication of its grievances. The claim of the petitioner has been rejected by NCDRC on the ground that the petitioner is not a consumer. A perusal of the order of NCDRC also shows that the petitioner cannot be treated as a consumer in the absence of a contract between the bank and the petitioner. From the facts narrated above and the materials produced before me, I am of the considered opinion that it is strictly a matter of law as to whether the bank was right in invoking its power of general lien under
Section 171 of the Contract Act to adjust the fixed deposits belonging to the petitioner society towards the loans due by individuals, in the absence of specific contract enabling the bank to adjust or set off the loans and therefore I feel that it will be futile to reject the writ petition on the ground of maintainability or availability of alternative remedy at this distant point of time.
12. As regards the merits of the claim of the petitioner, it could be seen from the correspondence between the petitioner and the respondent bank that the petitioner has acted more or less as a facilitator or an intermediary to enable the bank to identify eligible persons who would be favoured with loans under the scheme. No doubt, true while communicating with the bank certain words like ?joint venture, undertaking, guaranteed? have been used in the communications between the petitioner and the bank. Those words have been used loosely in the course of the correspondence. The respondent bank would basically rely upon the contents of the letter dated 19.10.1989, wherein it is stated by the petitioner as follows: ?we assure that this co-operation and collaboration will be throughout the implementation of our programme?. Again in the letter dated 07.05.1991, it is stated as follows: ?we undertake that the utilization of the loan amount will be ensured by us and also we undertake to monitor the recovery of the dues through our Grama Nala Mandram?. Certain letters written by a Mahalir Membattu Iyakkam have also been produced by the respondent bank, wherein, it is stated that the said Mahalir Membattu Iyakkam would extend its full co- operation in recovering the loans issued by the beneficiaries identified by them. Similarly on 29.11.1993, the petitioner society has written to the respondent bank recommending sanctioning of loans to various persons, wherein it is stated as follows: ?we undertake to repay the loan as per repayment terms fixed by you?.
13. Mr.R.Pandivel, learned counsel appearing for the respondent bank would contend that a combined reading of these correspondence would show that the petitioner society has in fact guaranteed a repayment of the loan amount by the loanees and therefore, the action of the bank in exercising their right of general lien under
Section 171 of the Contract Act is justified.
14. Mr.A.R.L.Sundaresan, learned Senior Counsel appearing for the petitioner would rely upon a judgment of this Court in Indian Bank, Rasipuram Branch Vs. Sri Annapoorna Finance, Rasipuram [(2002) 1 MLJ 125]. The learned Senior Counsel would draw my attention to the following observations in the said judgment, which runs as follows:
?From the above decision it would be clear that there exists a distinction between the Banker's lien and Banker's right to set off. While a lien is confined to securities and properties in the bank's custody, the set- off is in relation to money and may arise from a contract or from the mercantile usage or by operation of law. Applying the same to the present facts of the case, it can be well stated that there is no question of exercise of the banker's lien, in the absence of any security or property in the appellant bank's custody at that time. It is true that the bank can exercise its right to set off in the money balance of a customer, provided there should exist mutual demands and in order that one demand might be set off against another, both must exist mutually between the parties. In the instant case, it cannot be stated that there was any existence of mutual demands.?
15. The learned Senior Counsel would also draw my attention to the judgment of the Hon'ble Supreme Court in Anumati Vs. Punjab National Bank [AIR 2005 SCC 29], wherein, the Hon'ble Supreme Court held that a joint fixed deposit owned by the husband and wife cannot be pledged with bank by one account holder without the consent of the other and the bank also cannot set- off the fixed deposit against any claim in respect of one account holder. While holding so, the Hon'ble Supreme Court after referring to various decisions had observed as follows:
?17. In our view, these decisions correctly set out the law. In the present case the contract in respect of the joint account was between the respondent- Bank and the husband and wife. The fixed deposit was not a debt due by the Bank to Mam Chand alone which could be set-off by the Bank against any claim that the Bank may have had against Mam Chand. Besides, the right of Mam Chand was to receive the money deposited only after it matured, if he survived. Supposing Mam Chand had died before the fixed deposit matured, the only person entitled to get the money would be the appellant. This right of the appellant could not have been take away without her consent.?
16. Learned Senior Counsel would also invite my attention to a judgment of the Division Bench of Karnataka High Court in Vijaya Bank and another Vs. Naveen Mechanised Construction (P) Ltd. and others, [AIR 2004 Karnataka 199] wherein, the Division Bench had observed as follows:
?As stated, the exercise of general lien under
Section 171 of the Contract Act cannot also be exercised by the Bank in the present case as it is well settled in view of the decision relied upon by the learned counsel appearing for respondents 1 and 2 that lien in its primary sense is a right in one man to retain that which is in his possession belonging to another until certain demands of the person in possession are satisfied.?
17. Admittedly, the petitioner society has not executed any deed of guarantee, guaranteeing repayment of the loans by the borrowers. The contents of the letters referred to supra cannot lead to a conclusion that there was any guarantee by the petitioner for repayment of the loans. All that could be culled out from the correspondence that are available on record is that the bank had availed of the assistance of the petitioner to identify the borrowers/beneficiaries and the petitioner has assured the bank that it will assist the bank in recovering the loan amounts. It is not as if the bank had launched any proceedings against the borrowers for recovery of the moneys advanced by it. The bank was content with invoking the general lien and claiming a right of set-off under
Sections 170 and
171 of the Contract Act. The requirements for exercising the right of set-off for a general lien have been set forth by this Court in Indian Bank, Rasipuram Branch Vs. Sri Annapoorna Finance, Rasipuram [(2002) 1 MLJ 125]. There is no question of exercising the general lien in the absence of any security or property in the respondent bank's custody at the time when it sought to exercise the general lien and claim set-off. In fact, this Court in Brahmayya Vs. V.K.P.Thangavelu Nadar and others [AIR 1956 Madras 570] has held that the persons in whose name a fixed deposit is made with the bank has no ownership to the moneys and it is actually a debt due by the bank to the depositors. Therefore, it can only be a case of set-off. Even in a case of set-off, it should be shown that the persons in whose name the money is deposited are under an obligation to pay the bank. In the absence of such obligation the bank cannot exercise its right of set-off.
18. As already seen from the facts, the petitioner is not a co-obligant or a guarantor for the loans advanced to various persons under the DIR Scheme. In the absence of a contract the bank was not justified in exercising its right of general lien under
Section 171 of the Contract Act and claiming a set-off. Therefore, the action of the bank in adjusting proceeds of the deposits to the tune of Rs.48,80,164/- (Rupees Forty Eight Lakhs Eighty Thousand One Hundred and Sixty Four) cannot be justified and the petitioner is entitled to issue of a Writ of Mandamus directing the respondent bank to repay the sum of Rs.48,80,164/- (Rupees Forty Eight Lakhs Eighty Thousand One Hundred and Sixty Four) with accrued interest from the date of deposit till the date of repayment.
19. In the result, the writ petition is allowed and there will be a Mandamus directing the respondent bank to repay a sum of Rs.48,80,164/- (Rupees Forty Eight Lakhs Eighty Thousand One Hundred and Sixty Four) with accrued interest from the date of deposit till the date of repayment. The respondent bank is granted eight weeks time, from the date of receipt of a copy of this order, to repay the sum of Rs.48,80,164/- with accrued interest from the date of deposit till the date of payment. However, in the circumstances of the case, there will be no order as to costs..