Madras High Court
S.Prema vs Indian Overseas Bank on 23 November, 2023
Author: N.Anand Venkatesh
Bench: N.Anand Venkatesh
2023/MHC/5219
W.P.(MD)No.7045 of 2021
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED : 23.11.2023
CORAM
THE HONOURABLE MR.JUSTICE N.ANAND VENKATESH
W.P.(MD)No.7045 of 2021
and
W.M.P.(MD).Nos.5410, 5413 & 5415 of 2021
S.Prema ... Petitioner
Vs.
Indian Overseas Bank,
Represented by Senior Manager,
Kaliyakkavilai Branch,
Kanyakumari District. ...Respondent
PRAYER: Writ Petition filed under Article 226 of the Constitution of
India for issuance of Writ of Certiorarified Mandamus, calling for the
records on the file of the respondent pertaining to its auction notification
bearing no. nil dated 19-03-2021 released in Thina Tanthi bringing
petitioner jewel pledged loan account nos. 214003549 dated 30.10.2019
2028009423 dated 06.11.2019 and 2028009318 dated 30.10.2019 and
quash the same and consequence direct the respondent to hand over the
Jewels to petitioner on receipt of the loan outstanding amount specified in
the notice that is a sum of Rs.4,69,564/- within a time frame that may be
fixed by this Court.
1/22
https://www.mhc.tn.gov.in/judis
W.P.(MD)No.7045 of 2021
For Petitioner : Mr.S.C.Herold Singh
For Respondent : Mr.N.Dilip Kumar,
Standing Counsel
ORDER
This Writ Petition was filed challenging the auction
notification issued by the respondent Bank and for a consequential
direction for the respondent Bank to hand over the jewels that were
pledged by the petitioner for the loan availed by the petitioner which the
petitioner was willing to repay back to the respondent Bank.
2. The issue that is involved in the present Writ Petition has
been captured in the earlier order that was passed by this Court on
08.11.2021 and is extracted hereunder:
“This writ petition has been filed
challenging the auction notification issued by the
respondent Bank dated 19.03.2021 and for a
consequential direction to hand over the jewels
that were given as security by the petitioner while
securing the loan from the respondent Bank.
2. The petitioner had availed agricultural
loan from the respondent Bank. There were three
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loans that were availed by pledging the jewels.
The amount became due and payable and a
demand was made by the respondent Bank through
their notice dated 11.01.2021. The petitioner
sought for some time to repay back the loan and in
the meantime, the respondent Bank proceeded to
issue a notification by bringing the jewels pledged
by the petitioner for public auction. The same
became the subject matter of challenge in this writ
petition.
3. When the matter was taken up for hearing
today, the learned counsel for the petitioner
submitted that the entire amount that was
demanded by the respondent Bank has been paid
by the petitioner through three demand drafts all
dated 03.04.2021. The learned counsel, therefore,
submitted that in view of the repayment of the
loans, the respondent Bank should not proceed
with the public auction. The learned counsel
further submitted that in view of the settlement of
the loans, the respondent Bank must be directed to
hand over the jewels that were pledged at the time
of availing the loan.
4. Per contra, the learned counsel
appearing on behalf of the respondent Bank
submitted that the demand drafts have been
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received from the petitioner and in view of the
same, the respondent Bank will take a decision to
stop the public auction, which was slated to take
place today, ie., 08.03.2021 at 3.00 p.m. The
learned counsel further submitted that insofar as
the consequential relief sought for by the
petitioner to return back the jewels is concerned,
the same is not sustainable since the petitioner has
availed of other loan facilities from the respondent
Bank and the respondent Bank has a general lien
over the jewels pledged by virtue of Section 171 of
the Indian Contract Act, 1872. The learned
counsel further submitted that even as per the
terms and conditions of the jewel loan, the jewels
can be retained as security for the other loans
availed by the petitioner.
5. The learned counsel appearing on either
side brought to the notice of this Court some
reported judgments on this issue.
6. In the considered view of this Court, the
consequential relief sought for by the petitioner
seeking for returning back the jewels, has to be
independently decided by this Court by taking into
consideration the law on the point. This would
require the petitioner to file an additional affidavit
along with all the necessary documents in order to
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explain the nature of loan that has been availed by
the petitioner and if any independent security has
been given for the same. On such filing of the
additional affidavit, the respondent can also file a
counter for the same. Thereafter, this Court will
independently consider this issue and render its
findings.
7. For the present, since the petitioner has
settled the entire loan amount, the respondent
Bank is directed not to proceed further with the
public auction that is slated to be held today. The
cancellation of the public auction shall
immediately be announced to the potential
bidders.
8. Post this matter under the caption 'for
orders' on 03.06.2021. In the meantime, the
petitioner shall file the additional affidavit along
with the documents and the respondent Bank shall
also file their counter affidavit. This Court will
deal with the consequential relief sought for by the
petitioner and pass orders in the writ petition.”
3. Pursuant to the above order, the petitioner has filed an
additional affidavit and she has stated that an agricultural loan was availed
by the petitioner from the respondent Bank, Kulasekaram Branch, for
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which, the petitioner had created a security by deposit of title deed on
15.04.2015 and thereby, the property situated in R.S.No.44/1A2B
measuring 45 cents was mortgaged. Subsequently, the loan was declared
as “NPA” and a notice dated 03.02.2021 was issued under Section 13 (2)
of the SARFAESI Act, 2002. The petitioner has stated in the additional
affidavit that the total value of the immovable property that was given as
security, is worth more than Rs.1,00,00,000/- (Rupees One Crore only) and
whereas, the outstanding loan was only a sum of Rs.21,13,101/- (Rupees
Twenty One Lakhs Thirteen Thousand One Hundred and One only).
Therefore, the petitioner has taken a stand that the available security will
be more than sufficient for the Bank to recover the unpaid loan availed by
the petitioner. Accordingly, it is stated that the respondent Bank cannot
further exercise general lien under Section 171 of the Indian Contract Act,
1872, on the jewellery that was pledged by the petitioner for the jewellery
loan that was availed and which was subsequently, repaid back.
4. The respondent Bank has filed a counter affidavit. The
relevant portions in the counter affidavit are extracted hereunder:
“5. Before adverting to counter the
contentions raised by the petitioner, it is necessary
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to state the following details:-
a. Petitioner along with her son and
daughter had borrowed an Agricultural Term Loan
(loan account number 004203881500002) of Rs.15
lakhs on 15.04.2015 from Indian overseas Bank,
Kulasekaram branch. Towards securing the loan
outstandings, petitioner and her co-borrowers had
deposited their title deeds in respect of an
immovable asset of house site together with
building vide registered deed of mortgage dated
15.04.2015 bearing Document No. 923 of 2015 on
the file of the Sub Registrar, Thiruvattar.
b. Due to default committed by the
petitioner and her co-borrowers, the loan account
was classified as a Non-Performing Asset on
29.06.2020. After giving sufficient time to the
petitioner and co-borrowers, a demand notice was
issued on 03.02.2021, to which a representation
was received from the petitioner on 22.03.2021
and it was also promptly replied on 23.03.2021
c. Petitioner had not made good the
loan defaults till date.
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d. In the meanwhile, petitioner under
three jewel loans bearing account numbers
2028009318 dated 30.10.2019, 214003549 dated
30.10.2019 and 2028009423 dated 06.11.2019
borrowed respective sums of 1,00,000/-, 2,20,000
and 1,00,000/- by pledging gold jewel gold jewels,
from the Kaliyakkavilai Branch of Indian Overseas
Bank. All these three loans had been sanctioned
upon receipt of a valid application from the writ
petitioner. She had also issued letters of
undertaking in respect of these loans and she had
also signed the loan agreements agreeing to abide
by the conditions which inter alia contains the
following term:-
“The jewelry pledged to the bank shall be
continuing security for all my present and future
indebtedness and liabilities either solely or jointly
with other persons in whatsoever capacity either
as borrower or guarantor at any office of the
Bank."
e. There is a clear contract between
the parties establishing the availability of a right
of lien in favour of the respondent bank apart from
the statutory Banker's General Lien provided
under Section 171 of the Indian Contract Act.
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f. Petitioner failed to repay the
outstandings in the jewel loans also compelling the
answering respondent to issue a demand notice on
11.01.2021.
g. Petitioner issued a legal notice on
02.02.2021and it was replied by the bank advocate
on 04.02.2021 categorically stating as follows:-
“...Your client has further agreed that
notwithstanding anything to the contrary contained
in the agreement of pledge it is specifically agreed
and acknowledged that the bank shall always be
entitled to have the bank's right of general lien and
set off on the surplus money, if any remaining out
of the sale of the project against any of your
client's liability to the bank as borrower or
customer. The contention in your notice that the
right of general lien cannot be exercised in respect
of another loan offered by your client long before
the pledging of jewels in the bank is unsustainable
and untenable. The branches at Kulasekaram and
Kaliakavilai come under the fold of the very same
Indian overseas Bank. So the bank has got the
right to exercise its general lien over all the assets
of your client and as such the jewel pledged in the
bank is liable for the amount due from your client
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and agricultural loan availed from the
Kulasekaram branch".
h. Petitioner did not come forward to
settle the jewel loan outstanding compelling the
bank to issue a jewel auction sale notice and
publish the same in the newspaper.
i. After challenging the auction stile
notice in this WP, during the pendency of the writ
petition, the petitioner had paid a total sum of Rs.
4,69,264/- to the bank and after adjusting the loan
outstanding, there is a balance amount of Rs.
6983/- payable by the petitioner towards the jewel
loan outstanding.
j. In light of the availability of a
contractual lien in addition to the general lien
under Section 171 of the Contract Act in favour of
the bank, against the jewels, towards securing the
loans advanced by its Kulasekaram branch, the
bank is entitled to withhold the Pledged jewels till
the entire outstanding payable by the petitioner
towards all loan accounts are settled.”
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5. The main contention that was raised by the learned counsel
appearing for the petitioner is that the respondent bank had issued a notice
dated 11.01.2021 in all the three jewellery loan accounts and had directed
the petitioner to pay the dues and redeem the jewels. This offer made by
the Bank was accepted by the petitioner and accordingly, the entire
jewellery loan was repaid back and in spite of the same, the jewellery
which were pledged was not returned back to the petitioner. The learned
counsel by relying upon the language under Section 171 of the Indian
Contract Act, 1872, submitted that the notice dated 11.01.2021 that was
issued towards the three jewellery loan accounts was a contract to the
contrary, which enabled the petitioner to redeem the jewels and therefore,
the respondent bank does not have a general lien over the jewellery as a
security towards the agricultural loan which remains due and payable.
6. The learned counsel appearing for the petitioner further
submitted that the respondent bank has already initiated proceedings under
the SARFAESI Act, 2002 and the same has been put to challenge by the
petitioner in S.A.No.252 of 2021 which is pending before the Debt
Recovery Tribunal, Madurai and interim stay was granted in I.A.No.954 of
2021, staying all further proceedings of the Bank with a condition that the
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petitioner must deposit a sum of Rs.3,17,000/- (Rupees Three Lakhs and
Seventeen Thousand only) in two installments and this condition was also
complied with by the petitioner. In view of the same, the stay order is in
operation and the case is also pending before the Debt Recovery Tribunal.
The learned counsel submitted that the agricultural loan carried an
independent security by means of mortgage by deposit of title deeds and
therefore, such a security cannot be extended by including the jewelleries
also which was given as a security for the jewellery loan that was availed
by the petitioner. To substantiate this submission, the learned counsel
relied upon the Division Bench Judgment of this Court in the case of
M.Shanthi Vs. Bank of Baroda, represented by its Chief Manager
reported in 2017 SCC Online Mad 37703. The learned counsel appearing
on behalf of the petitioner also relied upon the Judgment of the learned
Single Judge in the case of N.Rajathi Vs. The Manager-Canara Bank,
Kombai Branch, South Car Street, Uthamapalayam Taluk, Theni
District and others in W.P.No.506 of 2014 dated 06.01.2023. The learned
counsel also placed reliance upon the Judgment of the Bombay High Court
in the case of A.S.Chandurkar and others Vs. Union Bank of India,
Through its Branch Manager reported in 2022 0 AIR (BOM) 195
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7. Per contra, the learned counsel appearing for the respondent
Bank submitted that the Judgments that were relied upon by the learned
counsel appearing for the petitioner will not apply to the facts of the
present case, since in all those cases, there was mortgage of immovable
property which was relatable to the concerned loan account and hence it
cannot be extended to the other loan, more particularly, when the loan for
which the security was given was already repaid back. In the instant case,
the jewelleries were pledged which is a bailment in line with Section 148
of the Indian Contract Act, 1872. The learned counsel submitted that
insofar as the Bankers loan for the securities that are pledged, the
Judgment of the Hon'ble Apex Court in the case of Syndicate Bank Vs.
Vijay Kumar and Others reported in (1992) 2 Supreme Court Cases 330
will directly apply and specific reliance was placed on the following
passage:
“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
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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 arc deposited by the customer.”
8. The learned counsel appearing for the respondent Bank
further submitted that the notice dated 11.01.2021 cannot be taken to be a
contract to the contrary, since the notice only pertains to the jewellery loan
that was availed by the petitioner and at the relevant time, the petitioner
had not repaid back the jewellery loan and hence, the Bank was taking
steps to recover the loan by bringing the jewellery pledged for auction. In
view of the same, this notice which pertained to the jewellery loan cannot
be considered to be a contract to the contrary insofar as the agricultural
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loan that was taken by the petitioner. The learned counsel submitted that
insofar as the jewellery loan that was availed by the petitioner, even though
he had pledged the jewellery as a security, the petitioner had specifically
agreed in Clause 9.4 of the Agreement that the jewellery that is pledged to
the Bank will be a continuing security for all the present and future
indebtedness and liabilities and hence, the petitioner is bound by the
contractual obligation. The learned counsel further submitted that there
are no merits in this Writ Petition and that the same is liable to be
dismissed by this Court.
9. The relief sought for in this Writ Petition has two limbs to
it. The first limb pertains to the auction notification issued by the
respondent Bank to bring the jewellery for auction and sale. In view of the
fact that the petitioner has repaid back the jewellery loan, there is no
reason for the respondent Bank to take any action to once again issue any
auction notification. Hence, the first limb of the relief has become
infructuous by virtue of the subsequent development that took place in this
case. The discussion in this Writ Petition will confine therefore itself only
to the second limb of the relief that has been sought for by the writ
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petitioner, wherein, the petitioner had sought for a direction to the
respondent Bank to return back the jewellery which was pledged as a
security.
10. Even at the inception, it must be seen as to whether the
petitioner had a contractual obligation to continue the jewellery to be kept
as a security when she availed of the jewellery loan from the respondent
Bank. For this purpose, Clause 9.4 of the terms and conditions is extracted
hereunder:
“The jewelry pledged to the bank shall be
continuing security for all my present and future
indebtedness and liabilities either solely or jointly
with other persons in whatsoever capacity either
as borrower or guarantor at any office of the
Bank."
11. It is clear from the above Clause that the petitioner has
specifically agreed that the jewellery that was pledged towards the jewel
loan will continue to be a security for all the present and future
indebtedness and liabilities. Therefore, even if the petitioner had repaid
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back the jewellery loan, insofar as the agricultural loan that was availed by
the petitioner, the contractual obligation obligates the petitioner to
continue to keep the jewellery as a security even for the agricultural loan
that was availed by the petitioner. By virtue of this agreement, the
petitioner herself has indirectly admitted the right of general lien available
to the respondent Bank under Section 171 of the Indian Contract Act,
1872.
12. Insofaras the Judgments that were relied upon by the
learned counsel for the petitioner, all those cases dealt with the mortgage
created over an immovable property and none of those cases pertained to a
pledge of movable properties. Insofar as the security given towards the
loan through mortgage by deposit of title deed, once the amount is settled
with respect to that loan, the Bank cannot continue to retain the documents
by relying upon the provisions of Section 171 of the Indian Contract Act,
1872. This is in view of the fact that the title deed in question which was
deposited is relatable only to the concerned loan that was availed by the
borrower. Once that loan amount is repaid, the general lien cannot be
exercised under Section 171 of the Indian Contract Act, 1872, for the
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amount that is due and payable towards some other loan. Even the
Division Bench of this Court in M.Shanthi case referred supra, has taken
note of this position of law and has held that the lien is primarily
concerned as a right to retain security and that the Bank cannot retain the
title deed of the mortgage or can proceed further to bring the property for
sale towards the recovery of dues in connection with a different transaction
which is not covered by the mortgage. The Division Bench held that the
right of lien under Section 171 of the Indian Contract Act, 1872, cannot
run contrary to the provisions of the Transfer of the Property Act, 1882,
which deals with the creation of a mortgage by deposit of title deeds
towards security for a particular transaction.
13. In the light of the above discussion, this Court has
absolutely no hesitation to hold that the Judgments that were relied upon
by the learned counsel for the petitioner will not apply to the facts of the
present case, since in the present case, apart from the petitioner being
bound by the contractual obligation, the properties involved are movable
properties that were pledged and which falls within the scope of bailment
under Section 148 of the Indian Contract Act, 1872. In view of the same,
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it directly falls within the scope and ambit of Section 171 of the Indian
Contract Act, 1872.
14. The notice dated 11.01.2021 issued by the respondent
Bank to the petitioner by directing the petitioner to pay the dues and to
redeem the jewels cannot be taken to be a contract to the contrary. These
notices only pertained to the jewellery loan that was due and payable at the
relevant point of time and the petitioner was informed that if the amount is
not paid, action will be taken to auction the jewels that were pledged for
recovering the loan. Therefore, the notice that was issued directing the
petitioner to repay back the loan amount, cannot be taken to be a contract
to the contrary. This is more so, since the petitioner had already obligated
herself by virtue of Clause 9.4 of the terms and conditions of loan.
15. The learned counsel for the petitioner submitted that the
petitioner believed that the jewellery will be returned back after the
jewellery loan is settled and the petitioner had arranged for a marriage in
the family and now, the amount has already been paid with very great
difficulty and the jewels have also not been returned back. Therefore, the
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learned counsel requested this Court to consider equity in this case, more
particularly, when the immovable property that was given as a security for
the agricultural loan will sufficiently take care of the recovery of that loan.
16. In a case of this nature, a Writ Court cannot invoke equity
and grant the relief, since the respondent Bank is dealing with public funds
and the Hon'ble Apex Court has repeatedly held that the High Courts
cannot exercise their jurisdiction under Article 226 of the Constitution of
India on misplaced sympathy. That apart, the value of the security that is
available for the agricultural loan cannot be a determinant factor to deny
the respondent Bank of their right of general lien available under Section
171 of the Indian Contract Act, 1872. In a way, the petitioner had also
admitted this right by means of Clause 9.4 of the terms and conditions.
Thereby, the petitioner is also under a contractual obligation to recognize
the general lien of the respondent Bank under Section 171 of the Indian
Contract Act, 1872.
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17. The conspectus of the above discussion leads to the only
conclusion that the second limb of the relief sought for by the petitioner
seeking for returning back the jewelleries, cannot be granted by this Court.
18. Accordingly, the Writ Petition stands dismissed. No costs.
Consequently, the connected miscellaneous petitions are closed.
23.11.2023
NCC:yes/no
Index:yes/no
Internet:yes/no
tsg
https://www.mhc.tn.gov.in/judis
N.ANAND VENKATESH, J
tsg
23.11.2023
https://www.mhc.tn.gov.in/judis
