Thomas George v. Corporation Bank

## **`IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V THURSDAY, THE 26[TH] DAY OF OCTOBER 2023 / 4TH KARTHIKA, 1945 WP(C) NO. 2647 OF 2017`** ## **`PETITIONER/S:`** ``` MR.THOMASGEORGE AGED64YEARS S/O.GEORGEJOHN,NEELAMPILALIHOUSE, HOUSENO.48,VIJAYAROAD,MARADUP.O., KUNDANNUR. ``` ``` BYADVS. NAVODPRASANNANPATTALI K.V.KRISHNAKUMAR PradeepJoy ANJALYANNJOSEPH(K/001081/2022) DHARMYAM.S(K/1412/2020) ``` ## **`RESPONDENT/S:`** ``` CORPORATIONBANK REPRESENTEDBYSENIORMANAGER, EDAPPALLYBRANCH,KURIEKKALTOWERS, GROUNDFLOOR,EDAPPALLYTOLL, - KOCHI682024. ``` ``` BYADVSRI.V.A.AJAIKUMAR ``` ``` THISWRITPETITION(CIVIL)HAVINGCOMEUPFORADMISSION ON26.10.2023,THECOURTONTHESAMEDAYDELIVEREDTHE FOLLOWING: ``` W.P.(C.) No.2647 of 2017 2 ## **JUDGMENT** The petitioner has approached this Court being aggrieved by the refusal on the part of the respondent bank in releasing the title deeds deposited by the petitioner for the loan availed by him. 2. Short facts are as under: The petitioner secured a mortgage loan from the respondent bank and, in return, executed an equitable mortgage by depositing the title deeds of a property owned by the petitioner in favor of the bank. He committed default in paying the loan installments. Subsequent to receiving a legal notice, referred to as Ext.P1, which threatened legal action, the petitioner contacted the Bank and tendered a payment of Rs.18.5 lakhs as a complete and final settlement of the outstanding loan amount. Following this payment, the petitioner promptly approached the bank, requesting the return of the deposited title deeds. However, when no action was taken by the bank in response to the petitioner's request, he issued Ext.P3 notice. In reply to Ext.P3, the bank issued Ext.P4, wherein it was communicated that an additional sum of Rs.2,08,542, along with accrued interest, remained outstanding in connection with separate transactions involving the petitioner. The petitioner was informed that upon W.P.(C.) No.2647 of 2017 3 payment and closure of this associated account, the documents would be returned to him. The petitioner asserts that the Bank is not justified in insisting upon the petitioner to clear the other dues when the document was mortgaged in connection with Loan Account No. CMTCC/01/100007. It is on these assertions that this writ petition is filed seeking the following reliefs: - i) To issue a writ of mandamus or any other appropriate writ, order or direction, directing the respondent to release the title deeds deposited by the petitioner as security for the loan availed by the petitioner as per the Loan Account No. CMTCC/01/100007 free from all encumbrances. 3. A counter affidavit has been filed by the respondent. Though it is admitted that the petitioner had paid a sum of Rs. 18.5 lakhs towards the loan account, the respondent has denied that the amount was accepted in full and final settlement of the dues to the bank. It is stated that a further sum of Rs.2,08,542.50/- is outstanding in the books of accounts in connection with a cash credit facility availed by the petitioner, together with interest. It is further stated that the petitioner has also availed other cash credit facilities from the respondent bank in the year 2009, viz., Cash Credit limit of Rs.400 lakhs, Term Loan of Rs. 325 lakhs, Working Capital Term Loan of Rs.100 lakhs, Working W.P.(C.) No.2647 of 2017 4 Capital Term Loan of Rs. 127.50 lakhs and Bank Guarantee for Rs. 75 lakhs. It is stated that recovery proceedings have been initiated against the petitioner by filing an application before the Debt Recovery Tribunal, and proceedings have also been initiated under the SARFAESI Act. It is stated that the respondent, being a creditor, the bank has a general lien on all the movable and immovable properties of the defaulted borrower, which include the immovable property having an extent of 24 cents in Sy. No. 337/1/4 of Vijayapuram Village, Kottayam Taluk. It is stated that the aforesaid property stands mortgaged with the respondent bank in Cash Credit Account No. CMTCC/01/100007 availed by the petitioner and his wife. It is stated that the petitioner is not entitled to get release of the property by merely paying the amounts covered under the Cash Credit Limit without paying and settling the entire liabilities due under all the above credit facilities availed by him. 4. I have considered the submissions advanced by both sides and have carefully gone through the records. 5. From the counter affidavit, it is clear that the immovable property having an extent of 24 cents in Sy. No. 337/1/4 of Vijayapuram Village, owned by the petitioner and his wife, was mortgaged by the petitioner in connection with Cash Credit Account No. CMTCC/01/100007. It is undisputed that the W.P.(C.) No.2647 of 2017 5 Cash Credit Account has been settled by the petitioner by paying a sum of Rs. 18.5 lakhs, and the said account stands closed. From the counter affidavit, the contention of the respondent is that the petitioner has availed other credit facilities that have been defaulted, and unless the amounts due under such accounts are remitted, the petitioner is not entitled to release of the property. They assert that the bank has a general lien on all the securities deposited on behalf of the petitioner. 6. The question is whether the said contention can be sustained under law. 7. An identical question had come up for consideration before the Division Bench of the Chhattisgarh High Court, and while holding in favour of the customer, it was held as follows in paragraph Nos.17 to 28, which reads as follows: 17. The term "Banker's Lien" has been defined by Halsbury's Laws of England. 2nd Edn, vol 20, p 552, para 695, as under:- "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." 18. In the matter of **George Henry Chambers v. Patrick Davidson[1]** , while discussing on the aspect regarding lien by the banks, Lord 1 L.R.I PC 296 W.P.(C.) No.2647 of 2017 6 ## - Westbury, observed as hereunder: "But lien is not the result of an express contract, it is given by implication of law. If, therefore, a mercantile relation, which might involve a lien, is created by a written contract, and security given for the result of the dealings in that relation, the express stipulation and agreement of the parties for security exclude lien, and limits their rights by the extent of the express contract that they have made. Expressum facit cessare tacitum. If a consignee takes an express security, it excludes general lien." 19. In order that the general lien may be excluded by a special agreement, whether express or implied from the circumstances, the agreement must be clearly inconsistent with the existence of such a lien. Where the contract between a borrower and his bank specifically showed that the property was given as security only for a particular transaction, the bank could not hold it as security for repayment of another loan. 20. In the matter of **Brandao v. Barnett**[2] , 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." 21. Bearing in mind the provisions contained in Section 171 of the Contract Act and the principles of law laid down by their Lordships of the Supreme Court in the above-stated judgments, the respondent Bank has a statutory right of lien in absence of contract to the contrary, retain as a security for general balance of account, any goods bailed to them. Now, the questions for consideration would be whether there is any "Contract to the Contrary" which prevents the > 2 [1843-60] AII ER Rep 719 W.P.(C.) No.2647 of 2017 7 respondent Bank from exercising their general power of lien and as to whether any goods were bailed to them under Section 171 of the Contract Act? The appellant herein has deposited his title deeds by way of equitable mortgage to the Bank to take term loan in his account as such, it was for specific term loan transaction. No other document has been brought on record to demonstrate that the appellant had given any authorisation to the Bank to hold the title deeds of the mortgaged property given as security to serve some other loan(s). - - 22. 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 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." 23. In the present case, the appellant herein / borrower has admittedly deposited his title deeds in favour of the respondent Bank to secure the term loan in the year 2004 and this is the undisputed fact. As such, a contract/ mortgage has been created by the appellant / borrower for specific purpose and for specific term loan and in other words, deposit of title deeds by way of mortgage was for specific purpose to cover an advance for specific term loan and when the appellant has deposited the title deeds for a specific transaction of loan, the respondent Bank cannot be allowed to contend that they are entitled to hold the title deeds of the appellant for other loan amounts W.P.(C.) No.2647 of 2017 8 which he had taken and more particularly, by virtue of Section 171 of the Contract Act, the bankers are entitled to retain as security "for general balance account", which is not the case of the respondent Bank herein. Accordingly, it is held that there was a specific contract / agreement between the appellant and the respondent Bank and the appellant deposited the title deeds by way of mortgage to secure a particular term loan, which he had already paid and the Bank has withdrawn the execution case and therefore this "mortgage" has to be construed as "Contract to the Contrary" and as such, the respondent Bank cannot claim title deeds of the appellant by invoking the power of general lien under Section 171 of the Indian Contract Act, 1872. The respondent Bank is absolutely unjustified in exercising the general power of lien over the properties of the appellant under Section 171 of the Contract Act. 24. At this stage, the decision relied upon by Mr. Mishra, learned counsel for the respondent Bank, in **Syndicate Bank** (supra) may be noticed herein in which it has been contended that the Bank was justified in exercising the general power of lien under Section 171 of the Contract Act to retain the subject property even after the term loan was paid. 25. In **Syndicate Bank** (supra), their Lordships of the Supreme Court while considering the meaning of the expression "Banker's lien" in legal terminology and the manner in which the same is understood and exercised in the banking system, observed as under in paragraph 6:- "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 W.P.(C.) No.2647 of 2017 9 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 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. Such a lien is also applicable to negotiable instruments including FDRS which are remitted to the Bank by the customer for the purpose of collection. There is no gainsaying that such a lien extends to FDRs also which are deposited by the customer." 26. It is to be noticed that the borrower therein issued a letter in favour of the Bank stating that the Bank is at liberty to adjust from the fixed deposit receipts without any reference to loan and he agreed that the fixed deposit receipts shall remain in the Bank so long as any amount on any account is due to the Bank from them either singly or jointly or with others. Thus, their Lordships while interpreting such a letter covering the transaction executed by the borrower therein, rendered a finding that the Bank therein is entitled to general lien over the fixed deposit receipts given by the borrower therein. As such, the above-stated judgment in **Syndicate Bank** (supra), upon which reliance has been placed by the learned counsel for the respondent Bank, does not support the case of the respondent Bank herein. 27. Accordingly, the question is answered in favour of the appellant and against the respondent holding that the respondent Bank has no general power of lien to retain the title deeds of the appellant for non-payment of other dues which the appellant had allegedly taken. The second question is answered accordingly. W.P.(C.) No.2647 of 2017 10 28. While granting this writ appeal holding that the Bank has no general power of lien under Section 171 of the Contract Act to retain the property in question after the subject loan was repaid, we are not unoblivious of the scope of interference in banking machinery highlighted by the Supreme Court in the matter of **United Commercial Bank v. Bank of India and others[3]** in which their Lordships referred to a passage from **R.D. Harbottle (Mercantile) Ltd. v. National** - **Westminster Bank Ltd.10[4]** with approval, which states as under: "It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life-blood of international commerce. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The courts are not concerned with their difficulties to enforce such claims; these are risks which the merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantees. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the courts. Otherwise, trust in international commerce could be irreparably damaged." 8. The Division bench has held that the Bank has no general power > 3 [(1981) 2 SCC 766] > 4 [(1977) 3 WLR 752] W.P.(C.) No.2647 of 2017 11 of lien under section 171 of the Indian Contract Act, to retain the title deeds of the customer for non-payment of other dues that he had allegedly taken. In the case on hand, the title deed was mortgaged as a security towards a specific loan availed by the petitioner as per loan account No. CMTCC/01/100007, which admittedly has been settled on payment of 18.50 lakhs. If that be the case, applying the principles laid down in the above judgment, which lays down the correct position, the respondent bank is not justified in retaining the documents. 9. In that view of the matter, the petitioner is entitled to succeed. There will be a direction to the respondent to release the title deeds being deposited by the petitioner as security in connection with loan account No. CMTCC/01/100007 free from all encumbrances. The needful shall be done expeditiously, in any event, within one month from the date of receipt of a copy of this judgment. The Writ Petition is disposed of. Sd/- **RAJA VIJAYARAGHAVAN V, JUDGE** NS/27/10/2023 W.P.(C.) No.2647 of 2017 12 ## **`APPENDIX OF WP(C) 2647/2017`** ``` PETITIONER(S)EXHIBITS ``` ``` EXHIBITP1. ``` ``` TRUECOPYOFTHELETTERDATED09.12.2016 ISSUEDBYRESPONDENT. ``` ``` EXHIBITP2. ``` ``` TRUECOPYOFTHELETTERDATED19.12.2016 GIVENBYPETITIONERTOTHERESPONDENT. ``` ``` EXHIBITP3.TRUECOPYOFLETTERDATED03.01.2017SENT BYPETITIONER. ``` ``` EXHIBITP4. ``` ``` TRUECOPYOFLETTERDATED09.01.2017 ISSUEDBYRESPONDENTTOTHEPETITIONER. ``` ``` RESPONDENT(S)EXHIBITS ``` ``` EXHIBITR1 ``` ``` TRUECOPYOFTHESTATEMENTOFACCOUNTOF THECASHCREDITACCOUNTNO.CMTCC/01/100007 OFTHEPETITIONERFORTHEPERIODFROM 01.4.2010TO27.01.2017. ```