MR.JUSTICE D.BHARATHA CHAKRAVARTHY W.P.No.17121 of 2024 and W.M.P.No.18897 of 2024 Balaji .S .. Petitioner Vs. 1.The Banking Ombudsman C/o Reserve Bank of India Fort Glacis Chennai – 600 001. 2.The Branch Manager IndusInd Bank Ltd No.9, 1st Floor, Thuraiyur Road Opp. Municipality Marriage Hall Ganesapuram, Namakkal – 637 001. .. Respondent Prayer: Writ Petition filed under Article 226 of the Constitution of India seeking a Writ of Certiorarified Mandamus, to call for the records pertaining to order passed by the 1st respondent in RBI/CMS/N202324027009452/2023-24 dated 19.03.2024 and quash the same as illegal, incompetent and ultravires and consequently direct the 2nd respondent to issue No Objection
IN THE HIGH COURT OF JUDICATURE AT MADRAS
ORDERS RESERVED ON: 06.03.2025
ORDERS PRONOUNCED ON: 08.04.2025
CORAM :
THE HON’BLE MR.JUSTICE D.BHARATHA CHAKRAVARTHY
W.P.No.17121 of 2024 and W.M.P.No.18897 of 2024
Balaji .S .. Petitioner
Vs.
1.The Banking Ombudsman
C/o Reserve Bank of India
Fort Glacis
Chennai – 600 001.
2.The Branch Manager
IndusInd Bank Ltd
No.9, 1st Floor, Thuraiyur Road
Opp. Municipality Marriage Hall
Ganesapuram, Namakkal – 637 001. .. Respondent
Prayer: Writ Petition filed under Article 226 of the Constitution of India seeking a Writ of Certiorarified Mandamus, to call for the records pertaining to order passed by the 1st respondent in RBI/CMS/N202324027009452/2023-24 dated 19.03.2024 and quash the same as illegal, incompetent and ultravires and consequently direct the 2nd respondent to issue No Objection Certificate against the cleared loan account of the petitioner and pass such other or further orders.
For the Petitioner : Mr.M.Mohamed Afridi
For the Respondent : Mr.T.Poornam for R1
Ms.Meera Gnanasekar for R2
O R D E R A.The Writ Petition:
The prayer in this Writ Petition is to quash the order of the 1st respondent, the Banking Ombudsman and to direct the 2nd respondent, IndusInd Bank Limited to issue No Objection Certificate, in respect of the loan account cleared by the petitioner. By the impugned order, the complaint that is preferred by the Writ Petitioner against the 2nd respondent – Bank was rejected by the 1st respondent.
B.Case of the Petitioner:
2. The brief facts are that the petitioner – S.Balaji, availed a loan for
purchase of LPG tanker lorry with Registration No.KL 09 AG 6814 with the 2nd respondent – Bank, vide loan account bearing reference No.TAN03010D dated
27.03.2018. The petitioner fully repaid the loan and the account was closed on 27.10.2021. However, the Bank is refusing to issue No Objection Certificate (NOC) and to release the title documents.
C.Case of the 2 nd respondent:
3. The case of the Bank is that, apart from the above loan account, there was another loan in Account No.TAN02932D where one K.Leelavathi is the principal borrower and the petitioner is a co-borrower. The said loan remained outstanding and the Bank therefore, invoked arbitration proceedings in ACP No.IND/SP/278/2021 and already an award was passed on 26.12.2022. Even the said loan was also for purchase of a vehicle and the vehicle could not be located or seized by the Bank. Therefore, since the amount remains unpaid, the Bank had marked the lien on the above NOC and the title documents. In terms of paragraph No.20.2 of the loan agreement, the Bank withheld the issue of NOC. The clause No.20 of the loan agreement is extracted hereunder for ready reference:-
“20.0 SET-OFF AND LIEN
20.1 Notwithstanding anything contained in this Agreement, the
Lender shall have a lien over all the assets of the Borrower(s)/ Co
–borrower(s) in the lender’s control and a right of set off against any monies due to the Lender from the Borrower/Co-borrower(s) and to combine all accounts of the Borrower(s)/ Co-borrower(s) for recovery of the Lender’s dues hereunder.
The Borrower(s)/Co borrower(s) understand, accept and agree that the Lender is also further entitled to withhold No Objection Certificate (NOC) or No Dues Certificate (NDC) or Loan Clearance Letter for those contracts which are closed, until recovery of overdue amounts in all other contracts, in which the Borrower(s)/Co-borrower(s) are one of the Party(ies).
20.2° It is hereby agreed and understood by the Borrower(s)/Coborrower(s) that, in the. event the Borrower(s)/Co-borrower(s) defaults in payment of the Installments/charges/fees, without prejudice to the right of termination, the Lender shall have the right to set-off all monies, securities, deposits, other assets and properties of the Borrower(s)/Co-borrower(s) that is held by the Lender as secured asset, against the amount in respect of which the default has been committed under this Agreement or any other Agreement. For this purpose the Lender can combine all accounts held in the name of the Borrower, Co Borrower and/or Guarantor.”
Accepting the above stand of the Bank, the impugned order was passed by the Banking Ombudsman. Aggrieved by which, the present Writ Petition is filed.
D.Contention of the Petitioner:
4. It is the contention of the petitioner that the mortgage was specifically with reference to the 1st loan alone and when the entire amount is repaid, the mortgager has a right of redemption and accordingly, when the petitioner -mortgager redeemed the property, the Bank has no right to withhold the NOC and title deeds.
4.1. The Writ Petition is resisted by the Bank, by filing a counter affidavit.
E.Contention of the 2 nd respondent:
5. It is contended by the Bank that in paragraph No.5 of the counter affidavit, the liability of the petitioner as a co-borrower / guarantor is coextensive that of the liability of the borrower, one Mrs.Leelavathi under loan agreement No.TAN 02932D and hence both of them are jointly and severally liable to pay the balance outstanding. As per both the loan agreements, the Bank shall have the lien over the assets of the borrower and co-borrower and has a control and right of set off against any monies due by the lendor – Bank and it is entitled to combine all accounts of the borrowers for recovery of the lendor’s dues. It further entitled to withhold the NOC. F.Contention of the 1 st respondent:
6. As a matter of fact, the 1st respondent – Banking Ombudsman also filed
a detailed counter affidavit justifying the action of the 2nd respondent. However, the 1st respondent is an Ombudsman constituted under the Banking Ombudsman Scheme, 1995 framed by the Reserve Bank of India, in exercise of its powers under Section 35 (a) of the Banking Regulation Act, 1949. It is akin to a Tribunal. In this regard, useful reference can be made to the Judgment of the Hon’ble SC in Durga Hotel Complex Vs. Reserve Bank of India (2007) 5 SCC
120 more specifically paragraph No.14 and the relevant portion reads thus,
“14. There is a more fundamental aspect. The Ombudsman, at best, is an authority or tribunal of limited jurisdiction constituted under the Scheme. It is a jurisdiction conferred by the Scheme.
…………………..”
6.1. Thus, it is a body that is set up to adjudicate the disputes with specific impetus on resolving the issues between the customers and the Banks. Thus, it is not expected to defend the order passed by it and it is for the 2nd respondent to defend the same and accordingly, I reject the counter affidavit and this Court is not considering any of the contentions raised by the 1st respondent in the counter affidavit.
G.The Submissions:
7. Mr.Mohamed Afridi, the learned counsel for the petitioner would
submit that the Bank does not have such a power of lien with reference to the NOC or the title deeds deposited by the petitioner. In support thereof, he would rely upon the Judgment of the Hon’ble Division Bench of the Bombay High Court in Sunil Vs. Union Bank of India, (2022 SCC OnLine Bom 1224) more specifically relying upon paragraph Nos.9 to 13. The learned counsel would rely upon another Full Bench Judgment of the Hon’ble Bombay High Court in FA Construction Vs. Union Bank of India (W.P.(L) No.14532 of 2021) whereunder it has been held that when the mortgager is entitled to exercise its right of redumption as per Section 60 of the Transfer of Property Act, 1885, the Bank cannot claim the general right of lien under Section 171 of the Indian Contract Act. Specific reliance is made to paragraph No.23 to 27 of the said Judgment.
7.1. Per contra, Ms.Meera Gnanasekar, the learned counsel appearing on behalf of the Bank would submit that, apart from the banker’s general lien, there is an express agreement by the petitioner, as outlined in Clause 20 of the Loan Agreement and other clauses, which enable the bank to combine both loan agreements and withhold the No Due Certificate, as long as the other loan accounts remain outstanding. Therefore, the Bank is entitled to exercise its right of lien by withholding the No Due Certificate.
7.2. I have considered the opposing submissions and the material records of the case.
H.Consideration of this Court:
8. The question that arises in the instant case is that whether or not the Bank is entitled to withhold the No Due Certificate in the facts and circumstances of the instant case. Before adverting to the facts of the present case, it is essential to advert to the legal position on the subject. Section 171 of the Indian Contract Act, 1872 reads as follows:-
“171.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.”
Section 60 of the Transfer of Property Act, 1882 reads as follows:-
“60. Right of mortgagor to redeem.—At any time after the principal money has become [due], the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgagemoney, to require the mortgagee (a) to deliver [to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee], (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished:
Provided that the right conferred by this section has not been extinguished by act of the parties or by [decree] of a Court.
The right conferred by this section is called a right to redeem and a suit to enforce it is called a suit for redemption.
Nothing in this section shall be deemed to render invalid any provision to the effect that, if the time fixed for payment of the principal money has been allowed to pass or no such time has been fixed, the mortgagee shall be entitled to reasonable notice before payment or tender of such money.
Redemption of portion of mortgaged property.—Nothing in this section shall entitle a person interested in a share only of the mortgaged property to redeem his own share only, on payment of a proportionate part of the amount remaining due on the mortgage, except 1[only] where a mortgagee, or, if there are more mortgagees than one, all such mortgagees, has or have acquired, in whole or in part, the share of a mortgager.”
8.1. In Sunil’s case (cited supra) the facts before the Hon’ble Division Bench of the Bombay High Court is that the petitioner was sanctioned a loan for himself and he had repaid the loan. In another loan account, the petitioner was
the Director and also the personal guarantor of the Company, by name Sunil Hi Tech Limited and the said loan remained unpaid and proceedings were pending under the SARFAESI Act as well as before the National Company Law Tribunal. Upon payment of the loan amount in his individual account, the petitioner sought for return of title deeds. The Bank contended that, in view of Section 171 of the Indian Contract Act, it is justified in exercising its right of lien. In this context, the Court considered the nature of the right of lien under Section 171 and the expression ‘goods bailed to the bank.’ It also referred to the earlier Division Bench judgment in Surendra Vs. Chief Manager and Authorised Officer, State Bank of India, Nagpur (2013 5 Mah LJ 283), which had held that once the loan amount is repaid, the banker-customer relationship comes to an end, and therefore, the bank cannot exercise the right of lien. It is essential to extract paragraph Nos.10 and 11 of the said Judgment which reads as follows:-
“10. The facts of the present case reveal that on the petitioner repaying the entire amount of loan in proceedings before the Debt Recovery Tribunal, Nagpur, he was issued a “No Dues Certificate” by the respondent-Bank. Thus, the amount advanced by the respondent-Bank and which was due and payable by the petitioner came to be realized. It is, therefore, clear that on such repayment, there being no debt due with the petitioner, the loan transaction came to an end. Therefore, the relationship of Banker and Customer that came into being as a result of the petitioner’s availing the facility of loan came to an end when he repaid the entire loan. The relationship of Banker and customer could not have been continued after 5-122012 when the respondent-Bank issued “No Dues Certificate” and realized the entire loan amount. The said transaction having been completed, the relationship of Banker and Customer between the parties also came to an end. In such situation, it is difficult to accept the stand of the respondent-Bank that it was exercising its right of general lien under Section 171 of the said Act.
11. It is also relevant to consider that there was a relationship of employer and employee between the parties. According to the respondent-Bank, the petitioner who was its employee had committed a fraud resulting in monetary loss to the Bank, and for recovering the said loans, it had filed a civil suit. It is to be seen that the relationship of Banker and Customer was independent of the relationship of employer and employee. The recovery that was sought to be made by the respondent-Bank was in its capacity as an employer who had been defrauded by its employee. This is further clear from the pleadings in aforesaid civil suit. It is not the case of the respondent-Bank that aforesaid lien was being exercised so as to safeguard the amount of loan that remained due and payable. In fact, the bank admits that the loan amount has been fully received along with interest. In such situation, it is not open for the respondent Bank to continue to exercise its general lien for the securities deposited with it especially when it seeks to recover the amount from the petitioner on account of fraud committed by him and on the basis of the employer and employee relationship. It is not in dispute that such a general lien is not being exercised for a general balance of account as required under Section 171 of the said Act. Further, it would not be open for a bank to exercise its right of general lien for the securities with it on culmination of the banker and customer relationship. It cannot exercise such general lien under Section 171 as an employer against an employee especially when such employee who had borrowed the amounts from the Banker had fully repaid the same. It is thus, clear that there is no legal justification on the part of the respondent-Bank to retain said documents by relying upon the provisions of Section 171 of the said Act.”
8.2. Again, the Bombay High Court in FA Constructions (cited supra) dealt with a case, where the petitioner had mortgaged his assets with the Bank and availed a loan of Rs.98 Lakhs, by deposit of title deeds. The entire loan amount was repaid. However, the Bank refused to release the mortgage documents, on the ground that the petitioner and their associate concerns were having other accounts and the amounts are due in respect of other loan accounts. The Hon’ble Division Bench held that a mortgage is transfer of an interest in the specific immovable property. The mortgager has a right to redeem the property as per Section 60 of the Transfer of Property Act, 1882. The memorandum of deposit of title deeds clearly mentions that the amount secured is only Rs.98 Lakhs. On that basis, the Division Bench held that while at the time of depositing the title deeds, there was no contract to extend the security to the other loans and there cannot be any clog on the right of redemption provided under Section 60 of the Transfer of Property Act. Paragraph Nos.25, 26 and 27 of the said Judgment are extracted hereunder for ready reference:-
“25. The recitals specifically refer to the lien of Rs.98,00,000/- and whatever would be due then or from time to time or at any time. The memorandum of deposit of title deeds nor letter given by the mortgagor to the bank stipulates any other loan than the working capital term loan limit of Rs.98,00,000/-
26. It is not disputed that the said account i.e. working capital term loan of Rs.98,00,000/- has been closed and no dues certificate has been issued by the bank. In that event, the mortgagor gets a right to redeem the same. Bank would not be entitled to retain the documents for recovery of other amounts i.e. the amount other than outstanding in the working capital term loan account of Rs.98,00,000/-.
27. In view of the provisions of section 60 of Transfer of Property Act, the mortgagor will have every right to redeem and there cannot be any clog on right of mortgagor to redeem. Even otherwise, the creditor can always approach the court for attachment of property or claim such other relief as is permissible under law.”
8.3. The Division Bench of this Court in M.Shanthi Vs. Bank of Baroda (2017 SCC OnLine Mad 37703) was considering the case, where the petitioner had created an equitable mortgage by deposit of title deeds by borrowing a sum of Rs.47 Lakhs. When the same was sought to be redeemed, the Bankers claimed right of general lien as further monies were outstanding in respect of the loan account of one C.M.S Educational Trust, for which the petitioner was also stood as a guarantor. In that context, the Division bench considered several earlier decisions of this Court as well as the Hon’ble Supreme Court of India and the other Hon’ble High Courts had held in paragraph Nos.36 and 37 as follows:-
“36. Hence this Court is of the firm view that the
respondent bank cannot exercise right of lien to secure any other liabilities of the mortgagor by retaining the documents of the mortgagor or guarantor, which are deposited with an intention to secure a particular loan transaction. Lien is primarily considered as a right to retain security. It is doubtful, whether in exercise of such right to retain the title deeds the mortgagee can bring the property for sale for recovery of some debt which is due from the mortgagor, in connection with a different transaction, which is not covered by the mortgage.
37. Any agreement conferring a right upon anyone to bring the property which is offered as a security for a loan transaction, is considered to be a transaction creating a right in immovable property and such agreement namely mortgage can be executed by way of a registered instrument. The right of lien, under Section 171 of the Indian Contract Act, will be contrary to the provisions of Transfer of Properties Act, if Section 171 is also made applicable to the title deeds, which are offered as a security in relation to a particular transaction. Considering the scope of Section 60 of the Transfer of Property Act, and the scope and object of Section 171 of the Indian Contract Act, this Court is of the firm view that the respondent Bank cannot retain the title deeds or proceed with the properties which were offered as security in relation to an independent loan transaction, even after the borrower discharged the entire liability of borrower in connection with the loan which is secured by deposit of title deeds.”
8.4. The Division Bench of the Orissa High Court in Aleka Sahoo Vs. Poori Urban Co.Operative Bank Limited (AIR 2004 Orissa 142) had
considered a similar situation and held that the right of lien can be exercised in cases where the person is only the principal debtor and where he is not a guarantor. Paragraph Nos.8 and 9 of the said Judgment are relevant and are extracted 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 BimalaBhandar 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 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 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. Robarts, Lubbock & Co., (1909) 2 Ch. 226, C.A., the bankers applied to claim the plaintiff’s shares or the proceeds thereof to the liquidation of the debit balance of Cancellor’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.”
8.5. The Delhi High Court in Indus Sor Urja Private Limited vs Indian Bank (MANU/DE/1740/2024) has taken a view that the Bank does not have such a right, so long as the other account involves a different capacity and when the payers of the loan are different persons and the Bank cannot combine the same. Paragraph Nos.18 and 20 are extracted hereunder:-
“18.Thus, High Court of Madras in the case of M/s. Sree Vadivambigai Ginning Industries Pvt. Ltd. & Others Versus M/s.
Tamil Nadu Mercantile Bank Limited Through its Manager Chellam Talkies Road, Pollachi MANU/TN/0913/2015, has held as follows:
“xxx xxx xxx
22. In the instant case, the ‘goods’ means only the title deeds which belong to the customer, viz., plaintiffs, were deposited with the defendant Bank as security. Therefore, there will be no bailment in case of title deeds. They have not been given to the Bank as a security for doing or accomplishing certain things whereas they have been given as a security for the loan that has been borrowed by the plaintiffs. In other words, if a Bank had lent money to a particular customer for a specific purpose and specific amount, the lien of Bank over the money and its customer does not extend to amounts which have been borrowed by the customer on any other name or different head. In the present case, as the defendant Bank had already issued ‘No Due Certificate’ under Ex. A.1 for the borrowals which had been repaid by the plaintiffs, the question of extending the general lien is unacceptable.
23. The other important aspect that has to be seen is, the defendant Bank has not made it clear whether the documents are retained for general lien or as collateral security. Once again, if it is general lien, there has to be a relationship of Banker and customer between the Bank and the person depositing security, which should be one that has been received by the Bank in its ordinary course of banking. It can be stated that once the loan accounts are liquidated and on issuance of ‘No Due Certificate’, the relationship of Banker and customer ceases. As a corollary, the right of ‘banker’s lien’ will come to an end. Therefore, in the absence of any outstanding for the purpose which the documents were deposited, the documents cannot be held as general lien. If it is to be treated as collateral security, then, the intention and offer of the title deeds for the said purpose have to be established. Though as per Exs. A.12 and B.2, there was a correspondence with respect to the same, viz., collateral security, admittedly, it was not acted upon as the defendant Bank had not lent the money sought for by the sister concern of the plaintiffs. In such circumstances, the retention of the documents by the defendant Bank is not legal.
xxx xxx xxx
26. Considered from the above perspective, I have no hesitation to conclude that by operation of Section 171 of the Contract Act, unless there is an intention expressed contrary to the contract, the bank has a general lien over the securities belonging to the debtor that come into its hands, and if the money is in its hands as the general account, it has a right to setoff; but when any deposit has been made for a special purpose, in a given circumstance, unless there is any contract to the contrary, it cannot be implied that the Bank has a general lien over the specified security deposit for a specified purpose. Indisputably, there is no contract offering to take the title deeds deposited by the plaintiffs as security to the loan availed by the sister concern of the plaintiffs. Therefore, it is not open to the Bank to claim general lien over the title deeds deposited by the plaintiffs. The express contract was for discharge of the loan availed for plaintiffs against which a ‘No Due Certificate’ has also been issued. In such circumstances, the action of the defendant Bank in refusing to release the title deeds is clearly illegal. Therefore, this point is answered in favour of the plaintiffs.
xxx xxx xxx” (Emphasis Supplied)
………..
20. Petitioner in the case above referred to has obtained a mortgage loan. When the respondent Bank initiated proceedings under SARFAESI Act, the entire mortgage loan was settled by sale of the property to the buyer introduced by the petitioner leaving also a balance of more than Rs. 16 Lakhs. When the petitioner sought for return of the balance, it was not considered on account of the fact that the petitioner as a guarantor of another loan to a third party is also liable to repay the amount of around Rs. 5 Crores and recovery proceedings had been initiated before the Debt Recovery Tribunal. In view of a specific clause in the deed of guarantee, the Bank claimed that it is entitled to enforce the right of lien over the surplus amount lying to the credit of petitioner as aforesaid. The High Court directed the Bank to return the surplus amount and gave liberty to the petitioner to withdraw the amount which was directed to be deposited in Court.”
8.6. The Hon’ble Division Bench of this Court in C.R.Ramachary Vs. Indian Overseas Bank (2018 SCC OnLine Mad 3298) again considered the issue and after considering the earlier Judgment of this Court in State Bank of India and another v. Jayanthi and others (2011) 3 MLJ 245 and the Judgment of this Court in M.Shanthi’s case (cited supra) held that the banker’s right of lien cannot be exercised in respect of the outstanding balance account of some other customer, but if it belongs to the same customer, the same can be exercised. It thereafter, followed the dictum of the Hon’ble Supreme Court of India in Syndicate Bank Vs. Vijayakumar, (AIR 1992 SC 1066) to hold that the banker’s right of lien can be exercised. Paragraph Nos.8 and 12 of the said
Judgment are extracted hereunder for ready reference:-
“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 FDR 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 this 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.
……… ………
12. In the banking system it is understood that Bank guarantee has a dual aspect. In the case of a Bank guarantee the banker is the promisor. It is a contract between the Bank and the beneficiary of the guarantee and it is also a security given to the beneficiary by a third party. Now, it is a well-known business transaction in the world of commerce and it has become the backbone of the banking system. Now coming to its enforceability the same depends upon the terms under which the guarantor has bound himself. He cannot be made liable for more than what he has undertaken. Therefore the Bank guarantee, as already noticed, is in the nature of a special contract depending upon the happening of a specific event and when once it is discharged the guarantee comes to an end. It has to be borne in mind that the obligations arising under the Bank guarantee are independent of the obligations arising out of a specific contract between the parties. Therefore the endorsement of the words “Lien to BG 11/80” cannot have a bearing on the banker’s lien on the two FDRs. Merely because on the basis of the security of the two FDRs the appellant Bank gave a guarantee it cannot be said that the banker had only a limited particular lien and not a general lien on the two FDRs. In our view this finding of the High Court is erroneous.”
8.7. In P.K.Parthiban Vs. Regional Manager, Canara Bank and Another
(2020) SCC OnLine Mad 13350, the learned Single Judge after considering the Judgment of the Hon’ble Supreme Court of India in Vijaya Kumar’s case (cited supra) and that of the Delhi High Court in Rajkumar Vs. Syndicate Bank (2016) SCC OnLine Delhi 4726 held that the Bank can exercise general lien.
Thus, on a certificate of various Judgments of this Court as well as the other Courts, it can be seen that there is uniformity of view that the right of the Bank to combine the accounts can be exercised, if only the loan accounts are belonging to that of the same person in the same capacity.
8.8. The Division Bench in M.Shanthi’s case (cited supra) had captured all the relevant decisions in paragraph Nos.10 to 12 and 18 of the said Judgment, which are extracted hereunder:-
“10. It is also the contention of the respondent bank that it has laid O.A. No. 244 of 16, before the Debt Recovery Tribunal, Madurai, for recovery of a sum of Rs. 32.85 crores, from CMS Educational Trust,. Thereafter, SARFAESI proceedings were also initiated against the petitioner. The legal contention was mainly by referring to Section 171 of Indian Contract Act. It is the argument of respondent that the right available to the mortgagee is an implied right and so long as the same is not expressively excluded, the petitioner cannot claim redemption ignoring the general lien.
11. Having regard to the stand taken by the respondent, it can be seen that the there is no factual issues as the respondent has not denied the facts which led to the above Writ Petition. The only question is about the scope and object of Section 171 of Indian Contract Act. In other words, the short question arises for consideration in this writ petition is whether the bank can exercise the right of general lien in respect of the properties of the guarantor, who has also given her properties as security by way of deposit of title deeds in respect of and in connection with a demand loan obtained by the guarantor independently from the bank. Since the whole issue revolves on the scope and applicability of Section 171 of Indian Contract Act, same is extracted below:
“171. General lien of bankers, factors, wharfingers, attorneys and policy brokers, Bankers, factor, 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 which balance, goods, bailed to them, unless there is an express contract to that effect.”
12. The learned counsel appearing for the respondent bank, after referring to the documents, made the following submissions:
(a) The Writ Petition is not maintainable, as the issue purely involves on the contractual obligation on the basis of disputed facts.
(b) The Madurai Bench of Madras High Court has no jurisdiction to entertain this Writ Petition as the cause of action arose at Namakkal, the place which comes under the territorial jurisdiction of the Principal Seat.
(c) Since No Due Certificate is not issued by the Bank, the relationship of bank and customer has not come to an end, and that therefore, there cannot be impediment for the bank to exercise its general lien under Section 171 of Indian Contract Act. The Bank’s lien cannot be ignored in this case, as there is no express contract at the time of creating equitable mortgage to exclude the application of Section 171 of Contract Act.
………… …………
18. A Division Bench of Karnataka High Court, in the case of Vijaya
Bank v. Naveen Mechanised Construction (P) Ltd. reported in AIR 2004 Kar 199, has dealt with a situation where some securities were furnished by the petitioner’s company for the purpose of issuing Bank guarantees and after all the bank guarantees were returned and cancelled due to completion of work by petitioner’s company, the securities were retained by the Bank as the Director of the company was also the guarantor for a transaction with another company against which recovery proceedings were initiated before Debt Recovery Tribunal. It was held that Bank was 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 payment of debt borrowed by the same person. Para 12 and 13 of the judgment are relevant and extracted as follows:
“12. It is clear from the above said provision that the above said clause only relates to change in the constitution of the borrower or the Bank subsequent to the agreement, and would not absolve the liability of the parties but would bind the same despite the change in the constitution of the borrower or the Bank and does not specifically authorise the appellant-Bank to retain the security given for issuing Bank guarantee to be utilised for recovery of debt of any other Company or individual and wherefore the above said clause does not confer any specific lien on the appellant-Bank. As stated, the exercise of general lien under Section 171 of the Contract Act cannot also be exercised by the Bank in the present case as it is well-settled in view of the decision relied upon by the learned Counsel appearing for respondents 1 and 2 that lien in its primary sense is a right in one man to retain that which is in his possession belonging to another until certain demands of the person in possession are satisfied. In the present case, it is not disputed that the securities mentioned in First Schedule to the writ petition were furnished for the purpose of enabling the appellant-Bank to issue Bank guarantees and all the Bank guarantees have been returned and cancelled and the question is as to whether the Bank is justified in exercising its lien in refusing the return of the securities in exercise of lien over the said securities towards the discharge of debt of another Company MFEL on the ground that it has got banker’s lien and is also authorised by the agreement.
13. The decision relied upon by the learned Counsel appearing for the appellant-Bank in Vijay Kumar case, supra, would not be helpful to him in the present case as in the said case the letters were executed in favour of the Bank specifically to enable the Bank to retain the securities with the Bank so long as any amount on any account is due to the Bank from the borrower. In the present case, it is not the case of the appellant-Bank that the petitioners have subsequently borrowed any amount and that the security is withheld for any amount due from the petitioners and wherefore in the absence of any specific authorisation or Hen conferred upon the appellant-Bank to retain the security towards the discharge of any debt in respect of other Companies, 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.””
8.9. The said position is reiterated by the Delhi High Court in Indus Sor
Urja’s case (cited supra) and also yet another Division Bench of this Court in Jayanthi’s case (cited supra). Therefore, in the instant case, when the loan in question is borrowed by S.Balaji, the claim of the 2nd respondent Bank that it has a right to combine the balance dues with reference to the second loan where one Leelavathi is the principal borrower and the Balaji is only a guarantor, cannot be accepted. As far as the second question with reference to the retaining the NOC and title deed, it can be seen that there is no two opinions that the Bankers right of lien cannot be exercised in case the other loan is not by the same person.
8.10. In this case, even though the Bank tried to contend that the petitioner is a co-borrower, it is essential to note the difference firstly in paragraph No.5 of the counter affidavit, the Bank also uses the term ‘coborrower / guarantor’. Secondly, the loan agreement though makes the liability co-existent and grant with that of the borrower, it can still be seen that the loan is granted to the borrower and not to the co-borrower. The repayment of the loan is primarily by the borrower and the liability of the co-borrower is triggered by the default of the borrower. Clause 2.9. (a) is extracted hereunder for ready reference:-
“2.9 REPAYMENT OF LOAN
(a) The repayment of the Loan and the interest hereof shall be made by the Borrower in Installments, The details such as number, due dates and amount payable in respect of the Installments are described in the second schedule. The repayment schedule is without prejudice to right of the Lender to demand payment of the entire Loan amount along with other dues as contemplated under this agreement. Further, the computation/fixation of the installment will be without prejudice to the right of the Lender to re-compute the amount of Installments and interest thereon, including in case it is discovered at any stage that the installments have been computed wrongly. The installments shall be payable as per the Second schedule.”
8.11. Thus, it can be seen that the nature of the loan for which the deposit of title deeds was made which is individually by the petitioner – Balaji is different from the loan which is granted to the said Leelavathi in which the said Balaji was shown as a co-borrower is different and two views are taken. The first view is that, in case of the loan accounts of the third person, if there is an express agreement by the borrower, the Bank can exercise such a right whereas the view taken by Division Bench of this Court in M.Shanthi’s case (cited supra) is that when the mortgage is a right in immovable property created by a registered instrument, any such extension thereof should also be by way of registered instrument and therefore, the Bank is not entitled to invoke the right of lien. The Hon’ble Division Bench of the Bombay High Court in FA Construction’s case (cited supra) holds that the creditor can always approach the Court for attachment or claim such other relief as may be permissible in law.
8.12. In the instant case, the Bank has obtained an arbitral award on 26.12.2022 in respect of the other loan and therefore, it has a remedy to approach the executing Court for attachment of the property or such other remedy as may be permissible in law. Therefore, I am of the view that the impugned order of the 1st respondent is unsustainable. The 2nd respondent – Bank is directed to issue No Objection Certificate to the petitioner and hand over the copies of the title deeds to the petitioner. However, it would be open for the 2nd respondent – Bank to approach the appropriate forum for attachment of the property in the manner known to law.
I.The Result:
9. In view thereof, this Writ Petition stands disposed of. No costs.
Consequently, the associated miscellaneous petition is closed.
08.04.2025
Neutral Citation : Yes
Jer
To
1.The Banking Ombudsman
C/o Reserve Bank of India
Fort Glacis
Chennai – 600 001.
2.The Branch Manager
IndusInd Bank Ltd
No.9, 1st Floor, Thuraiyur Road Opp. Municipality Marriage Hall
Ganesapuram, Namakkal – 637 001.
D.BHARATHA CHAKRAVARTHY, J.
Jer
W.P.No.17121 of 2024 and W.M.P.No.18897 of 2024
08.04.2025
