Ashok Gupta And Ors. vs Corporation Bank And Ors.

Ranjit Singh, J

Appellant M/s. Ashok Gupta & Sons is an HUF which has filed this appeal to impugn the order dated 6.5.2015 passed by the Tribunal below dismissing the S.A. filed by them. Appellant No. 6 is a minor and appeal on her behalf is filed through her father, namely, Mr. Shailesh Gupta. Some of the FDRs in question are for the benefit of this minor, which had been given as margin money for issuing Bank guarantees in favour of M/s. J.P. Associates Ltd. Appellants 7 to 11 are individuals. The FDRs in question listed in detail in the appeal belonged to them, which were given by them as margin money for issuing Bank guarantees to M/s. J.P. Associates Ltd. Respondent No. 1 Corporation Bank along with other consortium members had sanctioned various credit facilities to M/s. Harish Chandra (I) Ltd. (respondent No. 2) at different times starting from the year 2010. Respondent No. 2 is engaged in construction work. The said, respondent No. 2 had obtained certain orders from M/s. J.P. Associates Ltd. Since the consortium member Banks did not increase the limit nor did they release the Bank guarantees to be furnished to M/s. J.P. Associates Ltd., the appellants pledged their various FDRs as margin for keeping a limited lien in respect of the Bank guarantees issued in favour of M/s. J.P. Associates Ltd. All the Bank guarantees issued in favour of M/s. J.P. Associates Ltd. against which these FDRs were pledged were released, but the respondent Bank did not release the FDRs in question to the appellants and detained them illegally without any authority of law in spite of repeated requests. It is alleged that respondent Bank had even encashed some of the FDRs illegally and misappropriated the amount received, without any consent or intimation to the appellants.

On 8.9.2012, appellants served a legal notice upon respondent No. 1 Bank. Appellants would also urge that they came to know from the pledge memos of their respective FDRs that respondent No. 1 Bank had fabricated the documents, as in some documents the date mentioned against the purported signatures of Bank manager were found pre-dated to pledge of FDRs in question and there were no signatures of the Bank manager on some other purported pledge memos.

On 21.2.2013, the Bank issued notice under Section 13(2) of the SARFAESI Act calling upon respondents 2 to 9 to pay a sum of Rs. 4,61,59,78,192.85. The appellants would submit that the respondents did not ever create any security interest in these FDRs in question in favour of respondent No. 1 Bank for recovery of any amount due from respondent No. 2. Appellants would also allege that respondent No. 1 Bank had no authority to create any security interest in respect of these FDRs belonging to the appellants.

Respondents 2 to 9 raised various objections including the one that FDRs in question were given as margin for issuing Bank guarantees to M/s. J.P. Associates Ltd., which have been released and, therefore, the respondent Bank and the consortium members had no lien in respect of the said FDRs. The appellants accordingly would plead that the FDRs could not be taken as security interest to proceed under the SARFAESI Act. Pleading that the action of the respondent Bank in treating the FDRs in question as security towards the recovery of outstanding dues of respondent No. 2 is illegal, the appellants filed S.A. before the Tribunal below. In the meantime, the appellants had also obtained certain documents under the RTI Act, which included Memorandum of Charge/Lien in respect of these FDRs in question. It is urged that these documents would show that the respondent Bank had manipulated the date of pledge and its validity by overwriting on the original dates put after the signatures.

The Tribunal has, however, dismissed this S.A. and aggrieved against the same the appellants have filed the present appeal.

The Counsel for the appellants would heavily rely upon the interpolation and overwriting on the pledge documents to bring home his point that the dates were so overwritten to create a pledge of these FDRs. The Bank accordingly was directed to bring the original FDRs listed in Annexure-C to the notice under Section 13(2) of the SARFAESI Act. The original FDRs were produced by the Bank. There was no interpolation or overwriting on the FDRs in question. However, in the document Memorandum of Charge/Lien over deposits of third party available on record, figure '11' was written over figure '8' in the figure depicting year 2008 which was endorsed with initial. This was found in the original document as well. Original documents were returned to the respondent Bank.

The Counsel for the appellants has raised various legal submissions in support of his plea. The Tribunal has held that the appellants could not have challenged the action by the Bank by filing an application under Section 17 in view of Section 31(a) and (b) of the SARFAESI Act. Section 31(a) and (b) provides that the provisions of this Act shall not apply to:

(a) a lien on any goods, money or security given by or under the Indian Contract Act, 1872; or the Sale of Goods Act, 1930 or any other law for the time being in force;

(b) a pledge of movables within the meaning of Section 172 of the Indian Contract Act, 1872.

The Counsel for the appellants would urge that the Tribunal below was misconceived in observing that the application under Section 17 of the SARFAESI Act could not be filed as Section 31(a) and (b) would be a bar for the Bank to initiate action under the SARFAESI Act and, hence, the notice issued under Section 13(2) would be bad when the debts is sought to be recovered from the FDRs as security. This being pledge of movables would fall outside the purview of the right of the Bank to proceed under the SARFAESI Act. Counsel would also contend that these FDRs were furnished as security for the Bank guarantees only and once the Bank guarantees were not invoked, these FDRs cannot be used as security for the amount, if any, which is due.

The Counsel for the Bank, on the other hand, would rely upon Memorandum of Charge/Lien to urge that these FDRs were pledged to secure the money advanced and thus the recovery could as well be effected from the FDRs. The Tribunal has taken note of the clauses of this Memorandum of Charge/Lien to urge that these were pledged until liability towards the Bank on account of Bank guarantee/loan account/cash credit, overdraft account/bill discounted/purchased/negotiated/advance bills paid any other account with interest accrued thereon was fully adjusted. This is what has weighed with the Tribunal to pass the impugned order.

The Counsel for the appellants, however, would submit that the Memorandum of Charge/Lien deposited by the appellants is required to be excluded from consideration because of the interpolation of the dates in the said document, which is clearly visible to the naked eye. In one of the documents at Page 156 even change in the year of the date made from 2007 to 2011 is not authenticated by any signature. These documents, according to the Counsel for the appellants, were such where date was changed from 2008 to 2011 by overwriting the figure '11' over '8' in the year column are required to be excluded being doubtful. The Memorandum of Charge/Lien alleged to have been signed in the year 2008 or 2007 are sought to be relied upon by changing the date from 2008/2007 to 2011 and, hence, these documents would be totally unsafe for placing any reliance.

The Counsel for the appellants would also submit that even if it is taken that these FDRs were pledged, the respondent Bank could not have encashed them without bringing a suit against the appellants once there was default in the payment of the debt. The Bank, however, could have retained these as collateral security and could sell if it wanted only on giving reasonable notice to the appellants for sale of the same. Counsel would accordingly challenge the right of the Bank to use these FDRs in the manner it has done.

The Counsel for the appellants submits that the appellants have not availed any credit facilities and, therefore, they will not fall within the definition of 'borrower' given in Section 2(1)(f) of the SARFAESI Act. As per the appellants, they had deposited the FDRs towards the margin money under in respect of Bank guarantees issued by the Bank in favour of M/s. J.P. Associates Ltd. at the request of respondent No. 2. On the other hand, the Bank has relied upon memorandum of pledge where these FDRs were also pledged for recovery of the amount due from respondent No. 2.

To challenge the finding returned by the Tribunal below about the Shoeing not maintainable, the Counsel for the appellants would urge that reference was made to FDRs in the demand notice. Counsel would accordingly contend that once the Bank had proceeded against the FDRs under the SARFAESI Act, the only remedy available to the appellants was to file an application under Section 17 of the SARFAESI Act. In this background, the order passed by the Tribunal below by relying on Section 31(a) and (b) of the SARFAESI Act is termed as misconceived approach. This plea, in my view, cannot be accepted. Though the Bank had made mention of FDRs in the notice under Section 13(2) of the SARFAESI Act, but it is clearly given out in the notice itself that the Bank intended to enforce the securities other than securities created by way of lien and pledge, in terms of Section 13(4) of the Act. Thus, no action under the SARFAESI Act was envisaged so far as the securities created by way of lien and pledge was concerned. Once the notice had clearly indicated so, it would be obvious that the Bank had not intended to take action under the SARFAESI Act so far as these FDRs are concerned. Even the Tribunal below has held the right of the Bank to recover the dues from the FDRs on the strength of Section 171 of the Contract Act which contains a provision in regard to general lien of the Bank.

The main submission of the appellant, however, was that the document of Memorandum of Charge/Lien was forged document where there was some interpolation. As per the appellants, the Bank was guilty of abuse of process of law by relying on such forged documents. As per the appellants, even the Memorandum of Charge/Lien would not further the case of the Bank as the figures appearing at some pages are nowhere near the amounts claimed by the Bank in the demand notice. The plea is that the FDRs were given against Bank guarantees alone.

Plea also is that the pledge has been defined in Section 172 of the Contract Act and constitutes bailment of goods as security for payment of debt or performance of a promise. It is urged that the goods under pledge are liable to be resituated in case pledge comes to an end for want of debt. In short, it is stated that to proceed against the pledged goods the creditor is required to issue a prior notice before enforcement thereof or to file a suit for recovery of the pledge debt in terms of Section 176 of the Contract Act. Counsel would submit that lien is not created if there is a contract to the contrary and since, in the present case, the FDRs were tendered to the respondent for the purpose of furnishing margin money in respect of Bank guarantees, Bank's right of lien is contrary to the contract for which FDRs were deposited.

The Counsel for the Bank, however, would urge that the S.A. was not maintainable as the Bank has not proceeded against the FDRs under the SARFAESI Act. Counsel would also say that the present appeal cannot be heard unless the appellants meet the requirement of depositing 25% of the amount due to the Bank as envisaged under Section 18 of the SARFAESI Act to maintain appeal. Otherwise, the Counsel for the respondent Bank would rely upon Clause 3 of the Memorandum of Charge/Lien which envisages that the lien was created in favour of the Bank as security for repayment of money that may become due. The words of lien/charge created in this case have already been taken note of. As per the Counsel, once a lien is created and Bank is irrevocably authorized to appropriate outstanding balance, etc., the Bank is entitled to appropriate the same without notice to the person who created charge/lien over the FDRs in favour of the Bank. In this regard, reference is made to the case of Syndicate Bank v. Vijay Kumar & Ors., 1991 (SLT Soft) 141 : AIR 1992 SC 1066. Reference is also made to the case of Canara Bank v. M/s. Tarak Prabhu Publishers Pvt. Ltd., I (1991) BC 36 (DB) : AIR 1991 A.P. 258 (DB), to urge that action of the Bank was legally valid where the Bank had a right to set off. Counsel for the Bank would, thus, rely on doctrine of Bankers lien in terms of Section 171 of the Contract Act.

To meet the objection of overwriting, it is urged that the person creating the Memorandum of Charge/Lien were guarantors in the account of M/s. Harish Chandra (India) Ltd. and even otherwise the Bank would have general lien over the said FDRs without execution of any Memorandum of Charge/Lien, under Section 171 of the Contract Act. It is urged that memorandum of Charge/Lien executed by M/s. Vijay Gupta and Sons (HUF) was concerned, there was no overwriting. The Counsel for the Bank would also urge that whether the year is 2008 or 2011, it would not make any difference and thus there was no reason for the Bank to make this overwriting.

I have deeply considered the submissions advanced before me. The only viable ground urged by the appellants is that the Memorandum of Charge/Lien of FDRs cannot be relied upon in view of interpolation/forgery or fabrication. I see substance in the submission made by the Counsel for the Bank that the Bank would have right of general lien over these FDRs even if the Memorandum of Charge/Lien is ignored. Undoubtedly, the FDRs were initially offered as margin for Bank guarantees, but, simultaneously, these were also offered as security for repayment of money that may become due from the borrower on account of Bank guarantee issued/invoked or may be invoked. The appellants had clearly agreed to create charge/lien in favour of the Bank on the FDRs mentioned in the Memorandum of Charge/Lien and had enclosed the FDRs duly discharged to be held by the Bank as security for the repayment of the money due or that may become due. In view of this, the appellants cannot be heard to say that these FDRs could not have been available for use by the Bank. Even if everything is ignored, the right of the Bank to claim general lien on these FDRs cannot be ignored. If reference is to the contract, then it does not run contrary to the right of the Bankers' lien.

In Syndicate Bank's case (supra), the Hon'ble Supreme Court has laid down a law on "Banker's lien". It has been held after a detailed survey of various authorities on English law on the subject that by mercantile system the Bank has a general lien over all forms of securities or negotiable instruments deposited by or on behalf of the customer in the ordinary course of Banking business and that the general lien is a valuable right of the Banker judicially recognized 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 lien is held to be a right of defence and not a right of action. 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. In the case of Syndicate Bank (supra), the Hon'ble Supreme Court did not agree with the reasoning given by the High Court that the Bank had no right to hold the security in their own favour after the Bank guarantee had been released and they were bound to return it to the customer namely the judgment-debtor when he made a demand on the Bank. The Supreme Court further did not approve or accept the observation of the Delhi High Court that the terms of the contract namely furnishing FDRs as security for the Bank guarantee are inconsistent with the general lien that the Bank could claim only a particular lien for the Bank guarantee. The Hon'ble Supreme Court has held that it clearly established that a general lien was created in favour of the Bank on the two FDRs. The following finding returned by the Hon'ble Supreme Court may call for notice:

"8. The High Court, however, found that the two FDRs were given only by way of securities for the Bank guarantee and when once the guarantee is discharged, the amounts covered by the said two FDRs would belong to the judgment-debtor since the charge is limited to the amount of the Bank guarantee. The High Court, in this context relied on the words "Lien to BG 11/80" which are found on the back of each FDRs and according to the High Court in view of this endorsement, the Bank has no right to hold the security in their own favour after the Bank guarantee has been released and they are bound to return it to the customer namely the judgment-debtor when he makes a demand on the Bank. The High Court also observed that the terms of the contract namely furnishing FDRs as security for the Bank guarantee are inconsistent with the general lien that the Bank claims and the Bank can claim only a particular lien for the Bank guarantee. It also observed that since the Bank guarantee has been discharged, the Bank has no right to hold the security for something more than what was agreed upon. We are unable to agree with the reasoning. As already noticed, the recital in the covering letters as extracted above clearly established that a general lien was created in favour of the Bank on the two FDRs. Merely because the two FDRs were also furnished as security for the issuance of the Bank guarantee, the general lien thus created cannot come to an end when the Bank guarantee is discharged. The words "Lien to BG 11/80" do not make any difference."

The observation by the Court is that merely because two FDRs were also furnished as security for the issuance of the Bank guarantees, the general lien thus created cannot come to an end when the Bank guarantee is discharged. The Hon'ble Supreme Court has also observed that the Bank guarantees are on different level and they must be allowed to be honoured free from interference by the Courts and a Bank which gives a guarantee must honour the same according to its terms and it is only in exceptional cases that the Court will interfere with the machinery of irrevocable obligations assumed by the Banks.

In the case of Smt. Sadhna Gupta & Ors. v. Sh. R.C. Gupta & Ors., I.A. No. 8092/2001 in CS(OS) No. 1731/2001, decided on 10.8.2009, the Hon'ble Delhi High Court has considered the provisions of Section 171 of the Indian Contract Act. It is observed that this Section creates a general lien as distinguished from a particular lien of Bankers. The Court has held that this general lien can be excluded by special agreement whether expressed or implied from the circumstances but such agreement must be clearly in consistent with the existence of general lien. As observed by the Court, when a person has a number of accounts kept in the books of the Bank, the customer cannot take the plea in the absence of any special contract to say that securities which he deposited are only applicable to one particular account and not subject to a general lien. The Court has accordingly held that Section 171 of the Contract Act is clear and categoric that unless a contract to the contrary is established by the plaintiff, the Bank's right of lien has to be accepted.

What would emerge from the judgments noticed above is that Section 171 of the Indian Contract Act provides for a general Bankers lien and Bank can look to its general lien as a protection against loss on loan or overdraft or other credit facility. Lien is a right to retain property belonging to another until a debt due from the latter is paid. This is a possessory lien. It has judicially been defined as an "implied pledge". An express contract between the parties creating a lien or security would exclude operation of the statutory general lien under Section 171 of the Contract Act. This section clearly lays down that the provisions of this section would apply only in the absence of an express contract to the contrary. The appellant has not been able to show any express contract to the contrary to the right of the Bank to claim general lien. The plea of implied contract advanced by the Counsel for the appellant on the ground that this property was given as security for a limited purpose of Bank guarantee and this would impliedly create a contract against the right of the Bank to claim a general lien is far-fetched. Similar plea in the case of Syndicate Bank (supra) raised before the Hon'ble Supreme Court was not accepted. It was pleaded that lien over the FDRs given by way of security against Bank guarantee cannot be claimed once the Bank guarantee was discharged, the amount covered by the FDRs would belong to the judgment-debtor. The Supreme Court did not accept this reasoning. Thus, even if these title documents of the property were given to secure Bank guarantee, it cannot be stated that the Bank would be unable to claim general lien over these documents.

Accordingly, the finding returned by the Tribunal below does not suffer from any error and, therefore, would not call for any interference in the present appeal. The appeal is accordingly dismissed. Since the Tribunal below has held that the S.A. is not maintainable, the issue of waiver of requirement of pre-deposit to maintain the appeal as such would be rendered redundant. Even otherwise, the appeal has been dismissed and accordingly the waiver application shall stand closed.