IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA RSA No.: 311 of 1997 Date of decision : 20.8.2009 Canara Bank Appellant. Versus Roop Dutt Respondent Coram The Hon’ble Mr. Justice Deepak Gupta, Judge. Whether approved for reporting?1 Yes. For the Appellant: Ms. Devyani Sharma, Advocate. For the Respondent : Mr. Naresh Kumar Thakur, Advocate. Deepak Gupta, J. This second appeal has been admitted on the following questions of law:- 1. Whether the impugned judgement and decree is the result of mis- application and misconstruction of the law cited before it particularly in AIR 1991 Andhra Pradesh 258 and AIR 1960 Punjab 632? 2. Whether the impugned judgement and decree is the result of overlooking of the provisions of Section 171 of the Contract Act which gives appellant Bank right of Banker’s lien and set-off against the amount due to it? 3. Whether the impugned judgement and decree is against law laid down by the Hon’ble Apex Court in AIR 1992 SC 1066 and is sustainable? 4. Whether the impugned judgement and decree is against the terms of agreement entered into by the respondent with the appellant Bank whereby vide clause 14, it had agreed that the Bank shall be at liberty to apply any money in hands of it standing to the credit of or belonging to the respondent. 1 Whether the reporters of the local papers may be allowed to see the Judgment? Yes. 2 Briefly stated, the facts of the case are that Shri Roop Dutt (hereinafter referred to as the plaintiff) alongwith one Shri Bal Kishan obtained a loan from the appellant (hereinafter referred to as the Bank) for purchase of a truck. Loan of Rs.1,66,850/- was sanctioned and availed of by the plaintiff and Shri Bal Kishan. Admittedly this loan amount was not repaid within time. Thereafter, the bank set off an amount of Rs.28,200/- lying in the saving bank account No. 2047 of the plaintiff with the bank against the loan amount. The plaintiff filed a suit for declaration that this amount could not have been set off mainly on the ground that the loan had been availed by two persons and liability to pay the amount was joint liability of the plaintiff and Bal Kishan but the set off had been made from the sole account of the plaintiff. This suit was decreed by the learned trial Court. The appeal filed by the bank was dismissed. Hence, the second appeal. I have heard Ms. Devyani Sharma, learned counsel for the appellant, and Shri Naresh Kumar Thakur, learned counsel for the respondent. At the outset reference may be made to Clause 14 of the agreement entered into between the bank and the plaintiff and Shri Bal Kishan at the time of the grant of loan. The copy of such agreement is Ext. DW-1/A. Relevant portion of clause 14 reads as follows:- “If the net sale proceeds of other dealings with the hypothecated goods together with the net proceeds of the policies hereinbefore mentioned shall be insufficient to cover the amount so found due, the Bank shall be at liberty to apply any other money or moneys in the hands of the Bank standing to the credit of or belonging to the Borrower or any one or more of them towards payment to the balance due to the Bank and in the event of there 3 being on such money or moneys in the hands of the Bank or in the event of such moneys being still insufficient to discharge such balance in full, the Borrower promises forthwith on production to him of the accounts so to be prepared and signed by the agent or other duly authorized Officer of the Bank, to pay any further balance which may be due by the Borrower thereon.” A bare perusal of this clause shows that the parties had agreed that the bank had the right to appropriate any money or moneys of the borrower lying in the hand of the bank to set off the amount outstanding in the loan account. Section 171 of the Indian Contract Act reads as follows:- “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.” In terms of this section the banker has a general lien in respect of the moneys of the borrowers lying with it. The learned Courts below have relied upon certain judgements of various Courts while decreeing the suit of the plaintiff. In my considered opinion, both the Courts below have totally misconstrued and misunderstood these judgements. A Division Bench of the Punjab High Court in Punjab National Bank Ltd. vs. Arura Mal Durga Das and another, AIR 1960 Punjab 632 held that the right of a bank to apply a deposit to an indebtedness due from the depositor results from the right of set off which obtains between persons occupying the relation of debtor and creditor and between whom there exist mutual demands. Mutuality is essential to the validity of a set off 4 and in order that one demand may be set off against another, both must mutually exist between the same parties. In the case before the Punjab High Court, a loan had been taken by one person from the Punjab National Bank. The said person was a partner in the plaintiff firm. The bank had applied the principle of set off by adjusting the amount lying to the credit of the partnership firm against the loan availed by defendant No.1, who was a partner in the partnership firm. It was in this context that the Punjab High Court held that two entities were entirely different. The loan had been taken by the person in his individual capacity and therefore, the partnership in which other partners also had an interest could not have been jointly held liable to pay the loan amount. This authority has no applicability to the facts of the present case. In the case in hand the liability of plaintiff Roop Dutt and Bal Kishan was joint and several. They were each jointly and severally liable to the bank. The bank in terms of Clause 14 and in terms of the provisions of Section 171 of the Indian Contract Act had the right to set off the amount lying to the credit of either of the two loanees against the outstanding loan amount. This is because their existed mutuality of dealings between both the loanees in their individual capacity with the bank. The reliance placed by the learned Courts below on the judgement of the Andhra Pradesh High Court in Canara Bank vs. M/s Taraka Prabhu Publishers Pvt. Ltd. and others, AIR 1991 Andhra Pradesh 258, is totally misplaced. This judgement in fact does not help the plaintiff at all. It clearly supports the case of the bank. In the case before the Andhra Pradesh High Court, a loan had been raised by the writ petitioner Company from the 5 Canara Bank. Since this loan was not repaid the bank after issuing notice to the company instituted a suit for recovery of Rs.1,39,53,650.18/- The petitioner Company also had a current account in the Canara Bank and an amount of Rs.80,693.32/- was lying in deposit in the current account. During the pendency of the suit, without issuing notice to the writ petitioner the bank set off/adjusted the amount lying in the current account against the loan amount. This action was challenged by filing a writ petition. The writ petition was disposed of and relevant portion of the orders reads as follows:- “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. 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 petitioners guaranteed to them under Article 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 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 realize the loans advanced to the petitioners which they have failed to discharge. We are of the view that this 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, weeklies, etc. 6 I fail to understand how the Courts below have applied this case in favour of the plaintiff. The law laid down herein in fact supports the appellant bank. The matter does not rest here. Both the Courts below also totally misinterpreted the judgement of the Apex Court in Syndicate Bank vs. Vijay Kumar and others, AIR 1992 SCC 1066. In the case before the Apex Court, the Court upheld the right of the bank to set off of the amounts of the borrower lying in fixed deposit with the bank. In the case before the Apex Court, a firm known as Jullundur Body Builders was enjoying various credit facilities from the appellant bank. A decree was obtained by the bank against the said firm. During the course of execution proceedings the judgement-debtor agreed to pay the decretal amount in installments. To ensure compliance of the agreement to pay the amount in installments, the judgement-debtor was directed to furnish an undertaking and to execute a bank guarantee for a sum of Rs. 90,000/- in favour of the High Court of Delhi. The judgement-debtor asked the Syndicate Bank to furnish bank guarantee, which was furnished. This bank guarantee was furnished on the partner of the judgement-debtor firm depositing two Fixed Deposits Receipts (FDRs) for a sum of Rs.65,000/- and Rs.25,000/- respectively. Thereafter, the bank guarantee was issued. The judgement-debtor had filed an appeal before the Division Bench and the Division Bench of the Delhi High Court discharged the bank guarantee. Thereafter, an application was made for attachment of the amount of Rs.35,000/- out of the FDRs amount of Rs.90,000/- lying with the bank. An order of attachment was duly passed by the High Court. The bank contested this 7 attachment order on the ground that since the firm owes a huge amount of money to the Bank it (the Bank) had a right to set off the amount payable on the FDRs against the amount due to the bank. The Apex Court after considering the entire law on the subject came to the conclusion that the appellant bank had a lien over the two FDRs, both in accordance with the terms of the agreement entered into between the parties as well as keeping in view mercantile customs as judicially recognized that the banker has general lien over all forms of deposits or securities made by and on behalf of the customer in the ordinary course of banking business. The Apex Court specifically upheld the right of the bank to adjust the amount of the FDRs against the outstanding loan amount payable by the borrowers. This authority helps the bank and not the respondents. Ms. Devyani Sharma, learned counsel for the appellant, has also cited before me a judgement of the Karnataka High Court in S.Vasupalaiah v. VYsya Bank, Company Cases 2003, Volume 113, wherein the Karnataka High Court after considering a number of authorities on banking and the judgement of the Apex Court cited here-in-above held that even if the remedy to recover the debt from the principal debtor is barred by limitation the liability still subsists and the bank is entitled to appropriate the amount lying in deposit with the Bank whether it belongs to the principal debtor or the surety. I am in respectful agreement with the judgement of the Karnatka High Court which goes even further than what is required in the present case. Here the plaintiff himself is the principal 8 loanee and there is no reason why the amounts lying with the bank in his account could not be set off against the loan amount where he was the principal loanee albeit one of the two principal loanees. This right of the bank is a well recognized right both under custom and under statute. This right is also accepted by both the parties in terms of Clause 14 of the agreement. In view of the above discussion, all the four substantial questions are answered in favour of the appellant bank and against the respondent. Consequently, the appeal is allowed, the judgements and decrees of both the Courts below are set-aside and the suit of the plaintiff is dismissed with costs throughout. 20th August, 2009. ( Deepak Gupta ) ™ Judge.