Anantkoti Fabrics A Partnership ... vs Bank Of Baroda
2021 Latest Caselaw 3324 Guj

          C/SCA/14522/2020                          CAVJUDGMENT



     IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

      R/SPECIAL CIVIL APPLICATION NO. 14522 of 2020
                           With
       R/SPECIAL CIVIL APPLICATION NO. 14525 of 2020

FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE VIPUL M. PANCHOLI                   :        Sd/­

=======================================================

1 Whether Reporters of Local Papers may be NO allowed to see the judgment ?

2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any NO order made thereunder ?

======================================================= ANANTKOTI FABRICS A PARTNERSHIP FIRM THROUGH ITS PARTNER ARUN KHANNA Versus BANK OF BARODA ======================================================= Appearance:

MR HARSHIT S TOLIA(2708) for the Petitioner(s) No. 1 BHASKAR SHARMA(9209) for the Respondent(s) No. 1 JUHI D CHAVDA(8626) for the Respondent(s) No. 1 =======================================================

CORAM: HONOURABLE MR. JUSTICE VIPUL M. PANCHOLI

Date : 26/02/2021

CAV JUDGMENT

1. Rule. Learned advocate, Mr. Bhaskar Sharma waives

service of notice of Rule for respondent - bank.

2. In both these petitions, the issue involved is

similar and, therefore, learned advocates

appearing for the parties have jointly requested

C/SCA/14522/2020 CAVJUDGMENT

that both these petitions be heard together and be

disposed of at an admission stage and, hence, both

these petitions are disposed of by this common

judgment.

3. Both these petitions are filed under Article 226

of the Constitution of India, in which, the

petitioners have prayed that the direction be

given to the respondent - bank to defreeze the

current account and cash credit account of the

concerned petitioner firm and issue "No Objection

Certificate" in pursuance to the concerned term

loan account as well as cash credit account of the

concerned petitioner - firm and to return all the

documents of the properties of the concerned

petitioner.

4. Heard learned advocate, Mr. H.S. Tolia for the

petitioner and learned advocate, Mr. Bhaskar

Sharma appearing for the respondent - bank.

5. For the sake of convenience, the facts of Special

Civil Application No.14525/2020 are considered,

which are as under,

5.1 It is stated that the petitioner is a

partnership firm constituted under the

provision of the Indian Partnership Act. The

C/SCA/14522/2020 CAVJUDGMENT

partnership was executed on 14.05.2014. At

the relevant point of time, there were three

partners viz., (1) Shri Sajjan Gupta; (2)

Shri Kanwaldeep R. Tanwar; and (3) Shri

Pradeep Dhingra. It is further stated that

the respondent - bank sanctioned credit

facilities like Term Loan and Cash Credit in

favour of the petitioner - firm, which was

renewed from time to time. The petitioner is

also maintaining current account with the

respondent - bank.

5.2 It is stated that one of the partners of the

petitioner - firm viz., Pradeep Dhingra was

also Director in another firm viz., M/s.

Sidhant Creations Pvt. Ltd. ("SCPL" for

short), which is incorporated under the

provision of the Companies Act w.e.f.

07.10.2008. It is stated that the said

Company was also enjoying several credit

facilities from the respondent - bank. It is

stated that the said Company had signed

certain deeds of guarantee, hypothecation

etc. and the said Pradeep Dhingra stood as

guarantor and gave personal guarantee and

C/SCA/14522/2020 CAVJUDGMENT

also mortgaged his personal movable and

immovable properties with the respondent -

bank for the loan transaction of the said

Company i.e. SCPL. It is the specific case of

the petitioner that the petitioner - firm has

nothing to do with SCPL and the petitioner

has never stood as guarantor or signed any

document or connected with any loan, cash

credit or other account of SCPL.

5.3 It is stated that the the account of SCPL was

declared as NPA and the respondent - bank has

initiated recovery proceeding against the

Company and its Director/ Guarantor. The

petitioner has narrated various facts

including the correspondences which took

place with the respondent - bank in the memo

of petition. Thereafter, it is stated that

the said Pradeep Dhingra resigned from the

petitioner - partnership firm and new

partnership deed was executed on 30.10.2019,

wherein the said Pradeep Dhingra retired and

one Smt. Amita Khanna is inducted as new

partner in the petitioner - firm. It is

stated that all the loan accounts, CC

C/SCA/14522/2020 CAVJUDGMENT

accounts and current accounts of the

petitioner - firm and SCPL are completely

different and having no connection with each

other.

5.4 It is stated that the respondent - bank

issued letter/email dated 04/05.02.2020

demanding share of retiring partner of the

petitioner­firm. The petitioner has provided

details in June, 2020 to the respondent -

bank. It is further stated that during the

period between 23.06.2020 to 30.07.2020,

various emails were exchanged between the

petitioner - firm and the respondent - bank

regarding the demand to execute certain

documents, asking for details related to

partnership firm, demanding CA certified

account GST Returns etc. and all such

necessary details were supplied as per the

case of the petitioner. It is stated that CC

account of the petitioner has been debit

freeze by the respondent - bank in June,

2020. Thereafter, the respondent - bank

continued to pressurize the petitioner - firm

and, therefore, the petitioner - firm was

C/SCA/14522/2020 CAVJUDGMENT

constrained to transfer all its credit

facilities to another bank i.e. ICICI Bank

and cleared the loan the account and CC

account fully. It is the specific case of the

petitioner that thus the petitioner is not

liable to pay any amount to the respondent -

bank as there is no outstanding amount due to

the respondent - bank. It is further stated

that on 28.09.2020, the respondent - bank

informed the petitioner that it has debit

freeze the current account of the petitioner

- firm. The petitioner also paid outstanding

amount in the CC account to the respondent -

bank by 03.10.2020. The petitioner - firm,

therefore, requested the respondent to remove

debit freeze of both cash credit and current

accounts of the petitioner - firm, however

and there was no response from the respondent

- bank and, therefore, the letter was written

to the Banking Ombudsmen on 06.10.2020.

5.5 Thereafter, the petitioner also sent email on

16.10.2020 to the respondent - bank asking

the respondent - bank to issue No Due

Certificate in respect of loan and cash

C/SCA/14522/2020 CAVJUDGMENT

credit accounts and to release the papers of

the properties.

5.6 It is the case of the petitioner that the

respondent - bank has debit freeze the

current account as well as CC account of the

petitioner nor issued "No Objection

Certificate" pursuant to term loan account as

well as CC account. Therefore, the petitioner

has filed present petition.

6. Learned advocate, Mr. Tolia appearing for the

petitioner has mainly contended that the

respondent - bank has neither contractual nor

legal right to recover the amount of the share of

the retiring partner because it is neither

contractual nor legal liability or obligation of

the petitioner - firm to directly remit the fund

of the share of the retiring partner to the

respondent - bank. It is submitted that the

petitioner is not at all concerned with any loan

transaction, credit facility or other transaction

of SCPL. He submitted that even the petitioner -

firm is not a guarantor of SCPL nor the petitioner

has hypothecated, mortgaged or agreed to create

any lien or right towards the properties including

C/SCA/14522/2020 CAVJUDGMENT

the share or capital of its partners. It is

submitted that thus the petitioner is not at all

concerned with the inter se dispute/ agreement/

arrangement between Mr. Pradeep Dhingra and the

respondent - bank and thus, action of the

respondent - bank is violative of Article 19(1)(g)

of the Constitution of India. At this stage,

learned advocate would further submit that the

respondent - bank has not initiated any proceeding

to recover the outstanding amount of Mr. Pradeep

Dhingra from the petitioner - firm and thus, the

respondent - bank has failed to file suit for

recovery of the outstanding amount from the

petitioner - firm, therefore, the respondent -

bank is not entitled to straightaway direct the

petitioner - firm to give share of retiring

partner to the respondent - bank. It is further

submitted that Mr. Pradeep Dhingra is the

unsecured creditor of the loan of the petitioner -

firm and entire fund is already invested into

machinery and, therefore, share of the said

partner cannot be transferred to the respondent -

bank and thus, the respondent - bank is required

to file proceeding before the competent forum for

C/SCA/14522/2020 CAVJUDGMENT

the recovery of the said amount from the

petitioner - firm.

7. It is further submitted that the petitioner - firm

has repaid the amount and thus, there is not a

single amount outstanding so far as the petitioner

is concerned towards the cash credit account or

term loan account and, therefore, it is not open

for the respondent - bank to freeze the said

account of the petitioner. It is submitted that

therefore, the respondent - bank is obliged to

issue "No Objection Certificate" for cash credit

account and term loan account and the respondent -

bank is also obliged to debit freeze the current

account of the petitioner.

8. At this stage, learned advocate, Mr. Tolia has

referred to relevant provision of Recovery of

Debts and Bankruptcy Act, 1993. It is submitted

that the said Act is a complete code law providing

mechanism for recovery of due by the bank.

9. At this stage, learned advocate for the petitioner

has also referred to the provision contained in

Section 171 of the Contract Act, which provides

for general lien of banker. It is submitted that

the aforesaid provision is not applicable in the

C/SCA/14522/2020 CAVJUDGMENT

facts of the present case and, therefore, the

respondent - bank has no authority of law to debit

freeze the account of the petitioner and,

therefore, this Court may issue appropriate

directions to the respondent - bank.

10. At this stage, it is pointed out that the

complaint filed before the Banking Ombudsman is

closed and in fact, Clause 7(2) and 8 of Banking

Ombudsman Scheme, 2006 provides that complaint can

be filed before the said authority with regard to

deficiency in service and the lis of the present

petition does not fall in any of the categories of

Clause 8. It is further submitted that there is no

disputed questions of fact involved in the present

petition as stated by the respondent - bank in the

affidavit­in­reply and, therefore, when the

respondent - bank is a 'State' within the meaning

of Article 12 of the Constitution of India, the

petitioner has approached this Court by filing

present petitions under Article 226 of the

Constitution of India against the bank for

violation of fundamental rights guaranteed under

Article 19(1)(g) of the Constitution of India.

11. Learned advocate, Mr. Tolia has placed reliance

C/SCA/14522/2020 CAVJUDGMENT

upon following judgments,

(1) judgment in case of State Bank of India Vs.

Radheshyam Spinning Mill Pvt. Ltd., reported

in 2020 (1) GLH 8;

(2) judgment in case of Mohammed Hanif Vs. State

of Assam, reported in (1969) 2 SCC 782;

(3) judgment in case of The Punjab National Bank

Ltd. Vs. Aruna Mal Durga Das & Anr., reported

in 1960 (2) ILR (P&H) 823;

(4) judgment in case of Internet And Mobile

Association of India Vs. Reserve Bank of

India, reported in (2020) 10 SCC 274.

12. Learned advocate, Mr. Tolia, therefore, urged that

these petitions be allowed and appropriate

directions be issued to the respondent - bank.

13. On the other hand, learned advocate, Mr. Sharma

appearing for the respondent - bank has opposed

these petitions and raised preliminary objection

with regard to maintainability of these petitions

on the ground that the petitioner is having

alternative remedy before the civil court. It is

further stated that there are disputed questions

of fact involved in the present petitions and the

dispute between the petitioner and the respondent

C/SCA/14522/2020 CAVJUDGMENT

- bank is contractual in nature and, therefore,

these petitions may not be entertained. Learned

advocate, Mr. Sharma would thereafter submit that

Mr. Pradeep Dhingra was one of the partners in the

petitioner - firm. It is submitted that on

08.08.2019, the respondent - bank requested the

petitioner - firm not to transact or part with any

proceed, share or money by any means without

written consent of the respondent - bank. He

submitted that thereafter also on 04.02.2020 and

15.06.2020, letters were addressed to the

petitioner - firm and the petitioner - firm

replied to the same vide communication dated

22.06.2020 that they have reconstituted the

partnership firm. It is stated that the petitioner

concealed the said fact for a period of seven

months. It is further submitted that undervalued

capital contribution of retiring partner, Mr.

Pradeep Dhingra was converted into unsecured loan,

which has caused prejudice to the respondent -

bank and, therefore, the respondent - bank has

taken the impugned action, which is permissible

under the law and thereby the respondent - bank

has not committed any illegality as alleged.

C/SCA/14522/2020 CAVJUDGMENT

Learned advocate, Mr. Sharma appearing for the

respondent - bank has, therefore, prayed that

these petitions be dismissed.

14. Having heard learned advocates appearing for the

parties and having gone through the material

placed on record, it would emerge that the

petitioner - firm was constituted on 14.05.2014

and at the relevant point of time, there were

three partners viz., (1) Shri Sajjan Gupta; (2)

Shri Kanwaldeep R. Tanwar; and (3) Shri Pradeep

Dhingra of the said firm. It is not in dispute

that Mr. Pradeep Dhingra was also Director of

SCPL, which is a separate company incorporated

under the provision of the Companies Act. The

petitioner - firm is having a current account with

the respondent - bank and the petitioner - firm

also availed cash credit facility as well as term

loan from the respondent - bank and certain

documents are handed over to the bank with regard

the properties. It is further revealed that SCPL

also availed credit facilities from the respondent

- bank and at that time, certain deeds of

guarantee, hypothecation etc. as per the bank

practice were executed. Mr. Pradeep Dhingra also

C/SCA/14522/2020 CAVJUDGMENT

stood as guarantor and gave personal guarantee

with regard to the term loan and cash credit

facility availed by SCPL. He has also mortgaged

his personal movable and immovable properties for

the loan obtained for the said Company. It is the

case of the petitioner that the petitioner never

stood as guarantor nor signed any document nor the

petitioner - firm is connected with the loan, cash

credit or any other account of SCPL in any manner.

15. It further transpires from the record that the

account of SCPL was declared NPA and the

respondent - bank initiated proceeding under the

relevant provision of the Law against the said

Company for the recovery of the amount due to the

bank. However surprisingly, the respondent - bank

has debit freeze the cash credit account and term

loan account of the petitioner - firm on the

ground that one of the partners at the relevant

point of time viz., Mr. Pradeep Dhingra has

retired from the said firm and his share has been

converted into unsecured loan of the petitioner -

firm and new partner is inducted without the

knowledge of the respondent - bank. The respondent

- bank has taken shelter of the provision

C/SCA/14522/2020 CAVJUDGMENT

contained in Section 171 of the Contract Act.

16. From the record, it is further revealed that the

petitioner - firm is not in any manner connected

with the loan account/ cash credit account of SCPL

and, therefore merely because one of the Directors

of the said Company was one of the partners of the

petitioner - firm, can the respondent - bank debit

freeze the cash credit account and term loan

account of the petitioner - firm and that too,

without any order of the competent court/

tribunal/ forum?

17. It is the specific case of the petitioner that the

petitioner - firm has made full payment of cash

credit account and term loan account and

outstanding amount is zero and inspite of that,

the current account of the petitioner - firm is

freezed by the respondent - bank and the

respondent - bank is not issuing "No Objection

Certificate" though full payment is received so

far as the cash credit account and term loan

account are concerned.

18. It appears from the record that the respondent -

bank has not obtained any order for the recovery

of the amount of one of the partners, who has

C/SCA/14522/2020 CAVJUDGMENT

already retired from the petitioner - firm. Thus,

this Court is of the view that the fundamental

rights of the petitioner under Article 19(1)(g) of

the Constitution of India are violated. There are

no disputed questions of fact as contended by

learned advocate appearing for the respondent -

bank. There was no contractual relationship

between the petitioner - firm and the respondent -

bank with regard to the account of SCPL maintained

with the respondent - bank. The complaint filed

before the Banking Ombudsman is closed as

contended by learned advocate for the petitioner.

Therefore, this Court can exercise the powers

under Article 226 of the Constitution of India in

the facts of the present case when it is

specifically alleged that the respondent - bank

has violated the fundamental rights of the

petitioner.

19. At this stage, this Court would like to refer to

the decision in case of Radheshyam Spinning Mill

Pvt. Ltd. (supra), wherein the Division Bench of

this Court has observed in Para Nos.7, 33 to 35,

38(B) and 38(C),

"7. It appears that there were no factual disputes and the only legal question

C/SCA/14522/2020 CAVJUDGMENT

involved in the petition was whether the State Bank of India could invoke its right of lien under section 171 of the 1872 Act. The State Bank of India despite service of notice chose not to remain present before the learned Single Judge. The matter was heard exparte and the learned Single Judge came to the conclusion that the State Bank of India, Commercial Branch, Rajkot, had no authority to claim right of lien under section 171 of the 1872 Act. The learned Single Judge in its judgment dated 26.11.2018 dealt with in detail the law on the point and in the facts and circumstances of the case came to the conclusion that the State Bank of India was not justified in retaining the title­deeds of immovable properties of writ petitioner Nos.2 and 3. It accordingly allowed the writ petition and directed the State Bank of India to return the title­deeds.

33 Section 171 of 1872 Act gives the right to a Bank of general lien only with respect to goods bailed to it and that too for a general balance of account. Admittedly, there was no general balance of account insofar as respondent No.3 is concerned, as she had no concern at all with M/s Radheshyam Fibres Pvt. Ltd.

34. Further, in the present case, we do not find any such bailment of goods nor was there any balance left insofar as the loan account of M/s Radheshyam Spinning Mills Pvt. Ltd. is concerned. Thus, in our considered opinion, the Bank was not right in claiming right of general lien under section 171 of the 1872 Act insofar as the holding on to the title­deeds is concerned once the loan account of M/s Radheshyam Spinning Mills Pvt. Ltd. stood liquidated.

35. The Bank could have taken a stand that under general law, it could have exercised its right of general lien which by judicial pronouncements has been extended in some of the cases of the superior Courts in India

C/SCA/14522/2020 CAVJUDGMENT

but in the facts and circumstances of the present case, as discussed above and as may be demonstrated hereinafter, the appellant Bank did not have even that right available to it under the general law.

38.    xxx       xxx     xxx

(A)    xxx       xxx     xxx

(B) In the case of Alekha Sahoo Vs. Puri Urban Co­operative Bank Ltd. And Ors. (supra), the Orissa High Court interpreting Section 171 of the 1872 Act states that only 'goods' bailed could be retained by the bank and a right of general lien could be traced. Paragraphs 8, 9 and 10 thereof are reproduced hereunder:

"8. The next question to be decided in this writ petition is whether the Bank could in exercise of its right of general lien under Section 171 of the Indian Contract Act retain the gold ornaments of the petitioner as additional security for the loans granted to Manmohan Sahoo, Proprietor M/s. Bimala Bhandar for whom the petitioner was a guarantor. Section 171 of the Indian Contract Act is quoted herein below :

"171. General lien of bankers, factors, wharfingers, attorneys and policy­ brokers : Bankers, factors, wharfingers, attorneys of a High Court and policy­brokers 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."

The aforesaid Section states that bankers may, in the absence of a

C/SCA/14522/2020 CAVJUDGMENT

contract to the contrary, retain as a security for a general balance of account, any goods bailed to them. The said Section 171 does not extensively deal with the cases in which a banker can retain as security for a general balance of account any goods bailed to it. Section 171 of the Contract Act, however, is a recognition of the right of general lien of bankers under English Mercantile Law and therefore the decision of Court in England as to in which cases such lien can be exercised by bankers and in which cases such lien cannot be exercised by bankers will, equally apply to exercise of lien under Section 171 of the Contract Act.

9. In Wolstenholm v. Sheffield Union Banking Co. Ltd. (1886) 54 L.T. 746, the question that arose for decision was as to whether the Bank can retain a property belonging to a partner to satisfy the general account of his firm and Lord Esher, M. R. held that the Bank cannot exercise such lien over the private property of a partner for satisfying the general balance of account of his firm. To quote Lord Esher, M. R. :

"The bank said, 'we shall not account to Wing's trustees for the surplus, although the lease was his private property, because we have a right to keep it to satisfy the general account of his firm'. That was tantamount to saying, 'we are now claiming your surplus to pay the debt of somebody else.' The claim in effect was that, in virtue of the bank's general lien, they were entitled to retain the property of one man to pay the debt of another. That claim was based, not upon agreement, but on a supposed custom that bankers should in such a case have a general lien. There never

C/SCA/14522/2020 CAVJUDGMENT

was or could be a custom, however, by which you could take the property of one man to pay the debt of another. No such proposition was put forward in the cases cited, and no such proposition has ever been laid down in any of the cases respecting a banker's lien."

In Cuthbert v. Roberts, Lubbock & Co, (1909) 2 Ch. 226, C.A., the bankers applied to claim the plaintiffs' shares or the proceeds thereof to the liquidation of the debit balance of Chancellor's Current Account and Joyce J. held that the bankers were not entitled to do so. Joyce J. in particular held :

"... It is true that the bankers have a general lien on the securities of any customer deposited by him with them otherwise than for a particular purpose, to secure any sum in which the customer may be indebted to the bankers. This, however, is a lien upon the securities of the customer and not upon those of other persons, and the general lien of a banker does not attach even upon money or securities of the customer known to the bankers to be affected by a trust. ..."

This view taken by Joyce J. that the lien of the Bank is upon the security of the customers and not upon those of other persons was upheld by Buckley L.J. and Kennedy L.J. and the appeal against the decision of Joyce J. was dismissed. It is thus clear from the aforesaid decision of the Courts of England that under the English Mercantile Law relating to Banker's General Lien the Bank can retain as security for general balance of an account of a customer, goods bailed to them by that customer and not goods bailed to them by some other customer.

C/SCA/14522/2020 CAVJUDGMENT

10. The contention of Mr. Kanungo is that the petitioner is a guarantor for the loan account of M/s. Bimala Bhandar and is therefore liable for the outstanding balance of M/s. Bimala Bhandar by virtue of the provisions of Section 128 of the Contract Act which provides that the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. But there is no provision in the Contract Act to the effect that the properties of the surety can be retained by the creditor as security for the debts due from the principal debtor to the creditor. On the other hand, Courts have taken a view that Bank in exercise of its general lien cannot retain the private property of a partner to satisfy the outstanding balance in the general account of his firm notwithstanding the settled position of law that the partners are jointly and severally liable for the debts of a firm of which they are the partners. The aforesaid decision in Wolstenholm v. Sheffield Union Banking Co. Ltd. (supra) has been followed by a Division Bench of the Punjab High Court in Punjab National Bank Ltd. v. Arura Mal Durga Das and Anr., AIR 1960 Punjab 632, for coming to the conclusion that :

"a bank has no lien on a partner's private account for an overdraft on partnership account or vice versa for want of reciprocity."

Similarly, in Gurbax Rai and Ors. v.

Punjab National Bank (supra) cited by Mr. Patnaik, learned counsel for the petitioner, the Supreme Court has held that goods which are offered by the firm as security for the cash credit facility could not be utilized for

C/SCA/14522/2020 CAVJUDGMENT

adjusting the liability of the partners to the Bank. The relevant portion of the said judgment of the Supreme Court in Gurbax Rai and Ors. v. Punjab National Bank (supra) is quoted herein below :

"The question is : Is it open to the Bank which held pledged goods against the cash credit facility to adjust the amount recovered from the pledged goods for wiping out separate dues of the individual partners ? The goods were of the firm. They were not the goods of the partners. The goods were not offered as security for the individual debt of the partners. The goods were pledged against cash credit facility of the firm. Therefore, when the amount on account of the destruction of the pledged goods of the firm was recovered from the insurer, it must be given credit only in the cash credit account and to that extent the liability in the cash credit account would be reduced. .....""

We may also extract paragraph 11 thereof hereunder, where the Orissa High Court holds that only 'goods' bailed could be retained as against general balance in the customer's account who has bailed the 'goods' and not for general balance for some other customer's account:

"11. In Syndicate Bank v. Vijay Kumar and Ors. (supra) cited by Mr. Kanungo, the judgment­debtor who owned two Fixed Deposits executed two letters on 17.9.1980 creating a lien in favour of the Bank over the two Fixed Deposit Receipts and on these facts the Supreme Court held that the two letters executed by the judgment­ debtor on 17.9.1980 created a lien in favour of the Bank over the two Fixed

C/SCA/14522/2020 CAVJUDGMENT

Deposit Receipts, this is thus a case where the owner of the Fixed Deposit Receipts had expressly agreed that the Bank would have lien over the Fixed Deposit Receipts. In this case, the Supreme Court has not laid down any law that the Bank can exercise its general lien under Section 171 of the Contract Act over the properties of the surety for the liabilities of the principal debtor to the Bank, In S.

Vasupataiah v. The Vysya Bank, Kudagenahalli Branch (supra) and in City Union Bank Ltd. v. C. Thangarajan (supra) cited by Mr. Kanungo, the learned single Judges of the Karnataka High Court and the Madras High Court respectively have referred to the aforesaid decision of the Supreme Court in Syndicate Bank v. Vijay Kumar and Ors. (supra) and have held that the Bank can exercise lien over the properties of a guarantor or a co­ promisor for recovery of the outstanding dues of the principal debtor or the promisor to the Bank. But as we have discussed above, Courts in England and in India have held that the Bank can exercise general lien over the properties of a customer for the general balance in such customer's account and not for the general balance of some other customer's account. Unless therefore a customer has expressly agreed that his properties can be retained as security for the outstanding balance in the account of some other customer, a Bank cannot exercise lien over the properties of such customer under Section 171 of the Contract Act. In the guarantee agreement executed by the petitioner for the cash credit account of M/s. Bimala Bhandar, a copy of which has been annexed to the counter­affidavit as Annexure­R/2, there is no such provision that the Bank can retain the properties of the

C/SCA/14522/2020 CAVJUDGMENT

petitioner as security for the outstanding balance in the loan account of M/s. Bimala Bhandar. In fact, the Bank has also not relied on any such provision in the guarantee agreement and instead has relied on the bye­laws of the Bank and the general lien of the Bank as provided in Section 171 of the Contract Act. As we have seen, the Bank has no such right under the bye­laws or Section 171 of the Contract Act to retain the gold ornaments of the petitioner as security for the outstanding balance in the loan account of M/s. Bimala Bhandar."

(C) In the case of Vijaya Bank and Anr. Vs. Naveen Mechanised Construction (Private) Limited and Ors.(supra), the Karnataka High Court was also of the same view that retaining of security could be only for repayment of debt borrowed by the same person. The relevant extract is reproduced below:

"13. .... the Bank is not at all justified in retaining the security as Section 171 of the Contract Act would only enable the Bank to retain the security for repayment of debt borrowed by the same person. In the present case as no amount is due to be paid by the petitioners, the contention that the Director of the first petitioner­ Company as also the guarantor for the transaction is also a Director in MFEL against which recovery proceeding has been initiated in the Debt Recovery Tribunal. That would not be a justifiable ground to withhold securities in the absence of any express clause in the contract entered into by the petitioners and the Bank."

20. In a judgment in case of Mohammed Hanif (supra),

the Hon'ble Supreme Court has observed in Para

C/SCA/14522/2020 CAVJUDGMENT

Nos.4 and 5 as under,

4. The material facts of that case are not parallel to those of the present case. The question at issue in that case was whether the Maliahs having been granted by the ex­ Zamindars by virtue of the office they held under sanads and whether the grant was intended to serve as remuneration for services rendered by them by virtue of the said office. The case of the State of Orissa was that the land was held by the ex­Zamindars on service tenures which were resumable at the will of the grantor. The contention of the ex­Zamindars was that they had proprietary rights in the Maliahs and the State of Orissa had no right to resume the lands granted to them and were not entitled to recover possession from them. It would thus be seen that the main dispute of the parties w*as in regard to the nature of the grant. The distinction between grants of land burdened with service and grants of land made by way of remuneration attaching to the office created by them is well known. In the first category of cases, the grant may not be resumable while in the second category of cases, with the abolition of the office the land can be resumed. The parties in that case were at issue on the question about the character of the grants under which the predecessors of the ex­Zamindars were originally granted the areas in question. The material facts in the present case are quite different. The title of the appellant as lessee under the lease executed by the Secretary of State for India on December 19, 1907 is not disputed and the High Court had, therefore, no justification in dismissing the writ petition of the appellant in limine on the ground that a disputed question of title was involved. It is also not right to contend that the appellant was trying to enforce a mere contractual right by way of a writ petition under Art. 226 of the Constitution. Several important issues of. public law have been

C/SCA/14522/2020 CAVJUDGMENT

raised on behalf of the appellant. In the first place it was argued that the State of Assam had no right to resume the property in dispute under C1. V of the lease dated December 19, 1907 because the right of the British Government in respect of the lease has not devolved on or vested in the State, of (1) A.I.R. 1964 S.C. 685. Assam under the relevant constitutional provision. It was contended that even on the assumption that the right of the British Government under the lease of 1907 had devolved on the State of Assam the latter could only enforce its rights under the contract of lease and had no power to forcibly turn out the appellant from the property by mere executive action. It was stressed on behalf of the appellant that the Executive authorities can only act in pursuance of the power given to them by law and cannot interfere with the liberty or property of the subject except on condition that they can support the legality of their action before a court of law. It cannot be urged, therefore, that the appellant was merely attempting to enforce a contractual right by taking recourse to the machinery provided by Art. 226 of the Constitution.

5. It is true that the jurisdiction of the High Court under Art. 226 is an extraordinary jurisdiction vested in the High Court not for the purpose of declaring the private rights of the parties but for the purpose of ensuring that the law of the land is implicitly obeyed and that the various tribunals and public authorities are kept within the limits of their jurisdiction. In other words, the jurisdiction of the High Court under Art. 226 is a supervisory jurisdiction, a jurisdiction meant to. supervise the work of the tribunals and public authorities and to see that they act within the limits of their respective jurisdiction. In a proceeding under Art. 226 the High Court is not concerned merely with the determination of the private rights of the parties; the only object of such a

C/SCA/14522/2020 CAVJUDGMENT

proceeding under Art. 226 is to ensure that the law of the land is implicitly obeyed and that various authorities and tribunals act within the limits of their respective jurisdiction. Article 226 states that the High Court shall have power to issue to any person or authority, including in appropriate cases any Government, directions, orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari. All these writs are known in English law as prerogative writs, the reason being that they are specially associated with the King's name. These writs were always granted for the protection of public interest and primarily by the Court of the King's Bench. As a matter of history the Court of the King's Bench was held to be coram rege ipso and was required to perform quasi­governmental functions. The theory of the English law is that the King himself superintends the due course of justice through his own Court ­­preventing cases of usurpation of Jurisdiction and insisting on vindication of public rights and protecting the liberty of the subjects by speedy and summary interposition. That is the theory of the English law and as pointed out by this Court in Basappa v. Nagappa (1) our Constitution makers have borrowed the conception of prerogative writs from the English law and the essential principles relating to such prerogative writs are applicable in Indian law. It is obvious that the remedy provided under Art. 226 is a remedy against the violation of the rights of a citizen by the State or statutory authority. In other words, it is a remedy in public law. But as already pointed out the appellant in the present case is not merely attempting to enforce his contractual right but important constitutional issues have been raised on behalf of the appellant."

21. In a judgment in case of Aruna Mal Durga Das

C/SCA/14522/2020 CAVJUDGMENT

(supra), the Punjah & Haryana Court has observed

as under,

"............... a bank has no lient on a partner's private account for an overdraft on partnership account or vice versa for want of reciprocity."

"A bank has no lien upon the deposit of a partnership for a balance due by one of the partners."

22. Keeping in view the aforesaid decisions rendered

by the Hon'ble Supreme Court, this court as well

as the Punjab & Haryana Court, if the facts of the

present case as discussed are carefully examined,

this Court is of the view that the petitioner -

firm has paid entire amount of term loan as well

as cash credit account and, hence, the respondent

- bank is required to issue "No Objection

Certificate in favour of the petitioner - firm and

to return the documents submitted by the

petitioner at the time of availing the aforesaid

facilities. Further, there is no reason for the

respondent - bank to debit freeze the current

account of the petitioner, which has no connection

with SCPL and, therefore, the action of the

respondent - bank is illegal, arbitrary and is

required to be quashed and set aside.

C/SCA/14522/2020 CAVJUDGMENT

23. Therefore, Special Civil Application No.14525 of

2020 stands allowed. The respondent - bank is

hereby directed to defreeze the current bank

Account No.02810200002048 of the petitioner -

firm, defreeze the cash credit Account

No.02810500000272 of the petitioner­ firm and

issue "No Objection Certificate" in pursuance to

term loan Account No.02810600002170 and Cash

Credit Account No.02810500000272 of the petitioner

- firm and thereby return all the documents of the

properties provided by the petitioner - firm at

the time of availing those facilities.

24. Simultaneously Special Civil Application No.14522

of 2020 stands allowed. The respondent - bank is

hereby directed to defreeze the current bank

Account No.02810200002042 of the petitioner -

firm, defreeze the cash credit Account

No.02810500000238 of the petitioner­ firm and

issue "No Objection Certificate" in pursuance to

term loan Account No.02810600001973 and Cash

Credit Account No.02810500000238 of the petitioner

- firm and thereby return all the documents of the

properties provided by the petitioner - firm at

the time of availing those facilities.

C/SCA/14522/2020 CAVJUDGMENT

25. Rule is made absolute to the aforesaid extent.

Direct service is permitted.

Sd/­ (VIPUL M. PANCHOLI, J.)

Gautam