BRANCH MANAGER, P.N.B. vs SHRI GURMUKH SINGH

THIS appeal raises an important question of law, whether the bank have a lien on the saving bank account of the partner under his separate account for the balance due to the bank from partnership firm and whether amount lying in the separate account of the partner can be set off against the loan secured by the partnership firm.

THE relevant facts set out in this complaint are that the complainant has opened a Saving Bank Account No. 1142 with the opposite party "hereinafter to be referred as the Appellant" and an amount of Rs. 5762.50 was standing in his credit. THE respondent was a partner with the partnership firm concern, namely Virdi Industry, Sansarpur Terrace and the firm consisted of four partners. THE said firm has raised loan from the appellant which they have not been able to re-pay. THE appellant, however, has set off the amount lying in his personal saving account of the respondent and debited the entire such amount to the account of M/s. Virdi Industry Sansarpur Terrace. According to the respondent, the action of the appellant is illegal and arbitrary. The allegations of the respondent have been controverted by the appellant except that it has been admitted that Virdi Industry of which the respondent is one of the partners had raised a loan from the appellant. However, according to the appellant the respondent being a partner of the firm is also personally liable along with other partners for repayment of the loan advanced to the partnership-firm. The liability of the respondent is co-extensive with other partners. The appellant is entitled to recover the amount standing on the name of the firm as well as from the partners who are jointly or severally liable. In fact, a regular civil suit for the recovery of Rs.4,88,211/-has been filed in the Court of the District & Sessions Judge, Hoshiarpur, against the firm, its partners and guarantors including the complainant. As per terms of the agreement, the bank is competent to set off any moneys, bank drafts, deposits coming into possession of the bank without notice and therefore, the appellant has rightly set off the amount of the complainant towards the loan of the partnershipfirm.

The learned Counsel for the appellant in order to substantiate his contention has argued that the appellant has rightly set off the amount of the respondent lying in his saving account against the loan advanced to the partnership firm under Section 171 of the Contract Act. According to him, the appellant has general lien on the account of the respondent.

WE have considered the matter, and we are afraid, Section 171 of the Contract Act cannot be applied in the facts and circumstances, of the case. There is no dispute that a Civil Suit has been filed for recovery of Rs. 4,88,211/- in the Court of District & Sessions Judge, Hoshiarpur against the firm, its partners and guarantors including the respondent. There appears to be further no dispute as stated at the bar that the firm has mortgaged and hypothecated some land and machinery as guarantee for the repayment of the loan. The Civil Suit is still pending and the liabilities of the firm, partners and guarantors are yet to be determined by the Court and decree is yet to be passed. The appellant can seek order from the Court for attachment of the amount of any partner of the firm lying in the bank including the respondent before the judgment.

IN these circumstances, the action of the appellant in setting off the amount lying in the saving account of the respondent for the loan advanced to the partnership firm is highly arbitrary, illegal and cannot be sustained in the eyes of law. Unless the liability of the respondent is determined and become due and intimated to him, those loans cannot be brought straightaway in the balance account. As already stated, the appellant had entered into express contract with the respondent and as a result of this contract the firm has mortgaged/hypothecated land, machinery as a guarantee for the repayment of the loan. Such guarantee providing the method of reimbursement of the loan by invoking the property mortgaged/pleaded etc. admittedly exclude the op eration of the statutory general lien under Section 171 of the Contract Act, as the general lien as provided under Section 171 of the Contract Act Can be invoked only in the absence of the contract to the contrary. As such general lien under Section 171 of the Contract Act cannot be invoked in the present case. The West Bengal State Commission, in Sushil Kumar Das v. Allahabad Bank, III (1995) CPJ 482, held the similar view and observed : "The exercise of the power of general lien by the bank, in respect of F.D.R.s which come into the possession of Section 171 of the Contract Act does not apply in the instant case inasmuch as that the Agricultural loan was more than fully secured by the mortgage of 10 acres of agricultural land worth of Rs. 3,00,000/- and the tractor itself worth of more than the dues of the bank. Accordingly, in view of the said position of express contract between the parties creating a lien or security over 10 acres of agricultural land worth of Rs. 3,00,000/- and mortgage of the tractor against the agricultural loan would exclude operation of the general lien under Section 171 of the Contract Act. The respondent/bank had an express contract by way of counter guarantee providing the method of reimbursement by invoking the properties in pledge, the said contract would automatically exclude operation of the statutory general lien under Section 171 of the Contract Act."

IN order to create a banker''s lien over several accounts they must belong to customer in the same capacity, e.g. not his capacity as a trustee or his account jointly with a third person. Nor is there a lien on the account of a partner for a loan due from a firm. The banks have no lien on the deposit of a partner on his separate account for a balance due to the bank from the partnership.

IN the light of this, therefore the general lien cannot be excercised by the bank on the saving bank, account of the partner under his separate account for the balance due to the bank from partnership firm and the amount lying in separate account of the partner cannot be set off against the loan secured by the partnershipfirm. The Counsel for the appellant next relied upon Clause 10(b) of the agreement of hypothecation. The Clause 10(b) is reproduced below : "The bank may (in addition to any general lien or similar rights to which the bank is entitled) at any time and without notice to the borrowers combine or consolidate all or any of the borrowers account/s with and liabilities to the bank and set off or transfer any sum/s standing to the credit of any one or more of such accounts in or towards satisfaction of any of the borrowers'' liabilities to the bank or any other accounts or any other subject whether such liabilities be actual or contingent, primary or collateral and several or joint."

No doubt, in this clause the Bank is entitled to set off or transfer any amount standing to the credit of the borrower to the bank towards satisfaction of the borrowers'' liabilities to the bank whether such liabilities are actual or contingent, primary or collateral and several or joint. This clause in our opinion, at this stage is not applicable as already discussed. This civil suit for recovery of the amount is still pending in the Court and the liabilities of the partners including the respondent has yet to be determined and it has yet to be found whether or not the respondent is liable to pay any amount to the bank. It is possible that the land, machinery etc. mortgaged/hypothecated as security to the bank might prove sufficient and discharge the respondent for the satisfaction of the decree in case it is passed by the Civil Court. Only in case ultimately if it is found that the decree passed cannot be satisfied from the assets mortgaged/ hypothecated to the bank, only in that situation debits of the respondent can be brought into the general balance and Clause 10(b) aforementioned and Section 171 of the Contract Act can be invoked. Even, otherwise, Clause 10(b) in our opinion, is harsh, unreasonable and arbitrary.

IN the result, there is no force in this appeal and the appeal is accordingly dismissed. There is no orders as to costs. Appeal dismissed.