Babu George v. State Bank of India

# **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** # **`PRESENT`** ``` THE HONOURABLE THE CHIEF JUSTICE MR.S.MANIKUMAR ``` ## **`&`** ``` THE HONOURABLE MR. JUSTICE SHAJI P.CHALY ``` ``` WEDNESDAY, THE 14[TH] DAY OF SEPTEMBER 2022 / 23RD BHADRA, 1944 ``` ## **`WA NO. 496 OF 2022`** ``` AGAINST THE JUDGMENT IN WP(C) 5331/2019 OF HIGH COURT OF KERALA ``` ## **`APPELLANT/PETITIONER:`** ``` BABU GEORGE AGED 62 YEARS, S/O.LATE PAILY GEORGE, AGRICULTURIST, RESIDING AT PUNCHAKUNNEL HOUSE, MONIPPILLY VILLAGE, MEENACHIL TALUK, KOTTAYAM DISTRICT. ``` ``` BY ADV A.N.JYOTHILEKSHMI ``` ## **`RESPONDENT/RESPONDENT:`** ``` STATE BANK OF INDIA MUTHOLAPURAM BRANCH, VELIYATHUMALIL BUILDINGS, ELANJI, MUVATTUPUZHA TALUK, ERNAKULAM DISTRICT, PIN- 686 665, REPRESENTED BY ITS BRANCH MANAGER. ``` ``` SRI.M.JITHESH MENON, SC, SBI ``` ``` THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 14.09.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` **W.A.No.496 of 2022** **2** ## **JUDGMENT** Dated this the 14[th] day of September, 2022 ## **Shaji P.Chaly, J.** Petitioner in W.P.(C)No.5331 of 2019 has preferred this appeal challenging the judgment of the learned single Judge dated 03.01.2022 whereby the following relief sought for in the writ petition was declined and the writ petition was dismissed. - “(1) Issue a Writ of Mandamus or appropriate Writs directions or orders directing the Respondent to consider Ext.P-5 and Ext.P-6 and to release the ornaments pledged vide Ext.P-1 and Ext.P-6, upon closure of loan.” 2. Brief material facts for the disposal of the appeal are as follows: Appellant has availed two agricultural gold loans from the respondent Bank in the year 2017. But, due to crop failure and fall in the market price for agricultural produce, the appellant could not renew the gold loan accounts. Thereupon, the Bank issued Exhibits P3 and P4 demand notices intimating **3** ## **W.A.No.496 of 2022** the appellant that the gold will be auctioned on 15.02.2019 if the account is not closed within 15 days from the date of receipt of the notices. When the appellant approached the respondent Bank for closing the gold loan accounts, they informed him that even if the loan accounts are closed, they will not release the gold as he is having another agricultural loan with another branch of the Bank. The said stand taken by the Bank persuaded the appellant to approach this court by filing the writ petition. 3. The respondent Bank has filed a statement in which it is specifically stated that unless the appellant settles the entire loans, the Bank is not in a position to release gold ornaments since it is entitled to exercise its general lien in accordance with section 171 of the Indian Contract Act, 1872 on all the securities. 4. The learned single Judge, after considering the contentions raised by the rival parties and referring to clause No.4 of the loan agreement executed by the appellant with the Bank, has arrived at the conclusion that the appellant is **W.A.No.496 of 2022** **4** ## not entitled to any relief and thus dismissed the writ petition. Operative portion of the judgment reads thus: “5. After considering the contentions of the petitioner and the respondent, according to me, there is some substance in the argument of the learned counsel for the respondent. I perused the judgment dated 18.12.2013 in WP(C)No.30600/2013. It will be better to extract the relevant portion of the judgment. “5. Section 171 of the Act is as follows:- **171. General lien of bankers, factors, wharfingers, attorneys and policy brokers** - Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect. (emphasis supplied). The following excerpt from **Syndicate Bank v. Vijay Kumar and others** [(1992) 2 SCC 330] which is the oft quoted decision of the Supreme Court on this point is apposite and sets at rest the controversy: In **Halsbury's Law of England** , 2nd Edn., Vol.20, p.552, para 695, lien is defined as follows:- - “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. In this primary sense it is given by law and not by contract.” - In **Chalmers on Bills of Exchange** , 13th Edn., p.91 the meaning of “Banker's lien” is given as follows: - “A banker's lien on negotiable securities has been judicially defined as 'an implied pledge'. A banker has, in the absence of agreement to the contract, a lien on all bills received from a customer in the ordinary course of banking business in respect of **W.A.No.496 of 2022** **5** any balance that may be due from such customer.” In **Chitty on Contract** , 26[th] Edn., p.389, para 3032 the Banker's lien is explained as under: “Extent of lien - By mercantile custom the banker has a general lien over all forms of commercial paper deposited by or on behalf of a customer in the ordinary course of banking business. The custom does not extent to valuables lodged for the purpose of safe custody and may in any event be displaced by either an express contract or circumstances which show an implied agreement inconsistent with the lien.... ...... The lien is applicable to negotiable instruments which are ..... remitted to the banker from the customer for the purpose of collection. When collection has been made the proceeds may be used by the banker in reduction of the customer's debit balance unless otherwise earmarked.” In **Paget's Law of Banking** , 8th Edn., p.498 a passage reads as under: “The Banker's Lien Apart from any specific security, the banker can look to his general lien as a protection against loss on loan or overdraft or other credit facility. The general lien of bankers is part of law merchant and judicially recognised as such.” In **Brandao v. Barnett** , it was stated as under: (All ER p.722-H) “Bankers, most undoubtedly, have a general lien on all securities deposited with them, as bankers, by a customer, unless there be an express contract, or circumstances that show an implied contract, inconsistent with lien.” The above passages go to show that by mercantile system the Bank has a general lien over all forms of securities or negotiable instruments deposited by or on behalf of the customer in the ordinary course of banking business and that the general lien is a valuable right of the banker judicially recognised and in the absence of an agreement to the contrary, a Banker has a general lien over such securities or bills received from a customer in the ordinary course of **W.A.No.496 of 2022** **6** banking business and has a right to use the proceeds in respect of any balance that may be due from the customer by way of reduction of customer's debit balance. (emphasis supplied) 6. The High Court of Allahabad in **State Bank of India, Kanpur v. Deepak Malaviya and others** [AIR 1996 Allahabad 165] reiterated the same principle when it observed as follows:- 16. Section 171 of the Act refers to the lien of bankers etc. The right of security for general balance on account of any goods bailed to them. In other words if certain sum is due to the Bank in one account it may retain as security money or other movable that comes into its hands in another account. The aforesaid analysis makes it clear that the Lower Appellate Court was in error in taking a view that the Bank could not have claimed lien over the pledged ornaments of the predecessor-ininterest of the respondent. Section 171 of the Act and the general principles covering the banker's lien specifically authorise the Bank to retain the pledged ornaments claiming lien over them till the Bank's money is not cleared by the respondents for the loan in connection with the other account for which a decree has already been passed in W.P. (C)No.5331/2019 7 favour of the Bank. (emphasis supplied) Again the High Court of Andhra Pradesh in **K.Sita v. Corporation Bank, East Godawari** [(1999) 3 ALT 443] upheld the right of the Bank to retain the gold ornaments pledged in exercise of its general lien till all the debts are cleared. This Court in Thankappan v. Muthukoya [(2011) 2 KLT 907] has held that the general lien can be exercised by a banker even with regard to debts which have become barred by limitation. It was observed thus:- In the light of the authorities mentioned above, the principles are fairly clear. The bank has general lien over the securities which come to its hands. It may be in the form of money, negotiable instrument or any form of security or it may be goods. S.171 of the India Contract Act statutorily recognises the banker's lien. To apply the banker's lien, it is not necessary that the **W.A.No.496 of 2022** **7** debt in respect of which and for the recovery of which the lien is exercised should be one which is not barred by limitation. Bar of limitation for realisation of a debt does not destroy or extinguish the right of the creditor for the debt. It only destroys the remedy. The creditor is not precluded from appropriating or adjusting the amounts of the debtor which come to his hands and from appropriating it towards a barred debt. (emphasis supplied). 7. Thus a Bank has a general lien over all forms of security including gold ornaments deposited by or on behalf of the borrower in the ordinary course of banking business for the general balance of account due from him. The Bank has a further right to sell the securities like the gold ornaments and utilise the proceeds in discharge of the liability due by the borrower in respect of other loans even. This is of course subject to the condition that there is no 'contract to the contrary' between the borrower and the Bank whereby the right of general lien could be statutorily waived. The general lien can be exercised when there is a bailment of gold ornaments by way of security for the repayment of a debt and certainly not in respect of goods entrusted to the Bank for safe custody in a locker. The general lien shall be presumed even in regard to advances made subsequent to the loan availed by pledging the gold ornaments as is evident by Section 174 of the Act. 8. The burden is always on the borrower to establish 'a contract to the contrary' in order to displace the presumption in favour of the Bank under Section 171 of the Act about the existence of a right of general lien. It is not for the Bank to W.P.(C) No.30600/2013 8 establish otherwise as a presumption of a right of general lien in its favour flows from Section 171 of the Act which can of course be rebutted by the borrower. That the onus of proof is on the borrower is well settled over a century ago by the Division Bench of the High Court of Madras in **Kunhan Mayan and others v. Bank of Madras** [(1896) ILR 19 Madras 234]. Mr.Justice Shephard in his separate judgment concurring with Mr.Justice Best after examining the amplitude of Section 171 of the Act observed therein as follows:- It being incumbent on the plaintiff to show that the **W.A.No.496 of 2022** **8** bank had agreed to give up the general lien to which by law a bank is prima facie entitled, I must say that in my opinion the plaintiff has failed in his proof. There is however no plea by the petitioner that there was a contract to the contrary in the instant case disabling the Bank from exercising its right of general lien and thus withhold the gold ornaments till the personal loan is also wiped off 9. The Bank sells the goods pledged not as agents of W.P.(C)No.5331/2019 9 the borrower but as pledgees in exercise of the power under Section 176 of the Act and the provisions of the Banking Regulation Act, 1949 ('the 1949 Act' for short). The sale of pledged assets takes place in the course of banking business and thereby the Bank recovers not only its dues but also recovers interest and its other charges. The question whether lending of money on the security of gold ornaments and its sale on default committed by the borrower is part of banking business or not is no longer res integra. The question is answered affirmatively by the Supreme Court in **Federal Bank Ltd. v. State of Kerala** [2007 (3) KLT 106 (SC)] wherein it has inter alia been held as follows:- Further on reading the provisions of the 1949 Act, one finds that every bank is required to maintain its balance sheet in Form “A” of the Third Schedule, quoted above. The prescribed form indicates that non-banking assets acquired by the banks even in satisfaction of claims, are required to declare their holdings. The prescribed form of balance sheet indicates that banks are required to show on the asset side, non-banking assets acquired by them in satisfaction of claims. Similarly, in Form 'B' of the Third Schedule under Profit and Loss Account, banks are required to show income from non-banking assets and profit from sale of such assets. In our view, therefore, sale of pledged assets takes place in the course of banking business. Therefore, as stated above, the banks, in selling the goods pledged to them, did not act as agents of the borrowers/pledgers and that their sale was in exercise of statutory power under the 1949 Act. Further, in our view it is no doubt true that under S.8 of the 1949 Act, banks are prohibited from trading in **W.A.No.496 of 2022** **9** goods. However, if one reads S.8 along with Third Schedule to the 1949 Act it is clear that dealing in non-banking assets is a banking business and the exception made in S.8 which allows banks to realize security and which allows banks to engage in trade in order to realize security, falls within the banking business whenever undertaken. When a pledged article is sold in an auction, the bank recovers not only its dues but also recovers interests and its other charges. This realization falls within the parameters of the Third Schedule to the 1949 Act. In the circumstances, we are of the view that sale of pledged ornaments falls within the course of banking business under the 1949 Act. 10. Heavy reliance is placed by the petitioner on the judgment of the Division Bench in **Canara Bank v. Haridas Shenoy and another** [W.A.No.656/2013] and my attention was drawn to the following observations therein:- 4. ....... Learned counsel for the appellant relies upon Section 171 of the Indian Contract Act to contend that bankers' general lien would come in aid of the appellant bank, therefore, gold cannot be allowed to be released even if the amount due so far as the gold loan is deposited. Section 171 of the Indian Contract Act reads as under: “171. General lien of bankers, factors, wharfingers, attorneys and policy-brokers:Bankers, factors, wharfingers, attorneys of a High Court and policy brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect.” 5. Reading of the above section makes very clear that the gold pledged for raising the loan as gold loan cannot be the subject matter of bankers' general lien. Therefore, the appellant cannot insist on retaining the gold pledged by the borrower once he repays the entire dues so far as the gold loan. If the borrower completely discharges the loan amount **W.A.No.496 of 2022** **10** pertaining to gold loan, the appellant bank is bound to release the gold in favour of the borrower. But the Bank alertly points out that the above observations are in conflict with the statutory provisions and the dictum laid down by the Supreme Court in Syndicate Bank's case referred to supra and that the same is not sound law. The Bank also contends that the judgment in W.A.No.656/2013 is not final in as much as the Supreme Court has entertained the challenge thereto in Special Leave to Appeal (Civil) No.27995/2013. 11. A reading of the judgment of the learned Single Judge in W.P.(C) No.5670/2013 from which W.A.No.656/2013 was filed would indicate the circumstances under which the right of general lien of the Bank was refused. It appears that the Bank had no case therein that the security furnished for the housing loan and the loan availed by a proprietary concern was inadequate and hence the general lien is to be exercised. It would be inappropriate for me to discuss more about the implications of the judgment in W.A.No.656/2013 since the same has not become final as indicated above. The Bank in the instant case has a specific plea that the personal loan availed by the petitioner on the basis of a demand promissory note is without any security and that the gold ornaments have to be retained. Therefore nothing deters me from relying on Section 171 of the Act and following the dictum in Syndicate Bank's case supra to hold that the Bank is entitled to retain as security the gold ornaments pledged till the personal loan is also cleared. The prayer of the petitioner for a direction to the Bank to release the gold ornaments pledged on his clearing the gold loan keeping the personal loan in tact is hereby declined. 12. The petitioner faced with this situation seeks easy instalments to repay the personal loan due to the Bank even though he has expressed his willingness to clear the gold loan in lump within a short time. I permit the petitioner to repay the amount due towards the personal loan in 6 equal monthly instalments starting from 1.2.2014 in which event the sale of the gold ornaments pledged shall be deferred. The coercive proceedings by the Bank for realisation of the amounts due shall surge ahead if the petitioner commits default **W.A.No.496 of 2022** **11** in the payment of any one of the instalments as directed above. The Writ Petition is disposed of. No costs.” 6. In the light of the above judgment, I think no orders can be passed in this case. According to me, the point raised by the petitioner is covered by the judgment of this Court in W.P.(C)No.30600/2013. The Division Bench judgment of this Court in W.A.No.656/2013 was also considered and this Court observed that, in the light of the other judgments of the Apex Court, the same can not be accepted. Moreover, the judgment in W.A.No.656/2013 was challenged before the Apex Court in SLP No.27995/2013, in which the Apex court allowed the bank in that case to sell the ornaments as per order dated 23.03.2015. Moreover, in the terms and conditions of the loan agreement executed by the petitioner with the bank, clause No.4 says that ''The ornaments pledged to the Bank shall be continuing security for all my/our present and future indebtedness and liabilities to the Bank.” In the light of that specific clause also, no relief can be granted to the petitioner. In such circumstances, according to me, no relief can be granted to the petitioner in this case.” It is thus challenging the legality and correctness of the above judgment, the writ appeal is filed. **W.A.No.496 of 2022** **12** 5. We have heard the learned counsel Smt.A.N. Jyothilekshmi for the appellant and the learned standing counsel Sri.M. Jithesh Menon for the respondent Bank and perused the pleadings and the material on record. 6. The issue raised by the appellant revolves around section 171 of the Indian Contract Act, 1872 dealing with general lien of bankers, factors, wharfingers, attorneys and policy-brokers, which specifies that in the absence of a contract to the contrary, any goods bailed to the bankers can be retained as a security for a general balance of account. ‘Bailment’ is defined under section 148 to mean a delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. 7. Here is a case where various agricultural loans were availed by the appellant and the appellant was prepared to close some of the loans on condition that the bailment is released. But fact remains, in the loan agreement executed **13** ## **W.A.No.496 of 2022** by the appellant with the Bank, at clause 4, it is clearly specified that ornaments pledged to the Bank shall be a continuing security for all present and future indebtedness and liabilities to the Bank. Moreover, the Bank is entitled to invoke the powers conferred under section 171 of the Indian Contract Act, 1872 and insist that unless and until the entire loan transaction with the Bank is cleared, the Bank is entitled to retain the goods pledged; more so when, not only that there is no contract to the contrary as specified in section 171 of the Act 1872, but also when there is an enabling term in the agreement that the appellant would be indebted to all the transactions with the Bank. 8. In fact, the learned single Judge has considered the entire pros and cons with respect to the general lien contained under section 171 of the Act 1872 and the agreement executed by the appellant with the Bank and thereafter only the reliefs sought for by the appellant in the writ petition were declined to be granted. 9. On analysing the situation and the legal **14** ## **W.A.No.496 of 2022** circumstances discussed above, we are of the considered opinion that the appellant has not established any case of jurisdictional error or other legal infirmities justifying us to interfere in an intra court appeal. Needless to say, writ appeal fails. Accordingly, it is dismissed. Pending interlocutory applications, if any, shall stand closed. Sd/- **S.Manikumar Chief Justice** Sd/- **Shaji P.Chaly Judge** **vpv** //true copy// P.A. to Judge