C.D.FATEL vs Canara Bank

THE complainant is a non-resident Indian currently settled in United Kingdom. He is one of the major share holders of OP No. 2. OP No. 2 was in need of financial assistance to meet some present interest payments and had approached OP No. 1 for some overdraft facility. OP No. 1 required guarantee from an NRI who will keep in Fixed Deposit some adequate sum for a period of two years subject to approval of RBI. OP No. 2 approached the complainant for such a deposit for which the complainant agreed and sent a draft of 15,000/-on 28.10.1986 in his name with specific understanding that the amount be kept as complainants F.C.N.R. Fixed Deposit Account for a period of two years only and on the strength of said account the 1st opp. party may grant equal amount to 2nd opp. party in overdraft. After the expiry of guarantee period of two years there was no further extension of guarantee. On maturity of Fixed Deposit it was renewed at the request of complainant periodically by reinvesting the interest accrued thereon. THE fixed deposit now matures in the month of October, 1994. THE complainant has given the fixed deposit as a continuing guarantee for the debts of second opp. party. His guarantee was limited only for a period of two years as borne out from the application and documents executed by opp. party No. 2 in favour of opp. party No. 1. On maturity of the F.C.N.R. Fixed Deposit, opp. party No. 1 is trying to appropriate the proceeds towards the debts of opp. party No. 2 by exercising his lien. After the expiry of guarantee period of two years the complainant has not consented to continue as surety or guarantee for the debts of opp. party No. 2 nor any sanction of RBI was obtained to continue to hold the F.C.N.R. fixed deposit as security for the overdraft account of opp. party No. 2 or for his other debts. Hence, the claim of opp. party No. 1 is illegal, without authority of complainant, arbitrary and opposed to the Banking practice and hence the present complaint to direct the 1st opp. party to make full payment of the proceeds of F.C.N.R. Fixed Deposit to the complainant and costs.

THE opp. parties have appeared and filed their respective versions. THE version of opp. party No. 2 is in conformity of the complaint and consents that the complaint may be allowed as prayed for. Opp. party No. 1 has denied the claim of complainant. THE claim of the Bank (1st opp. party) is that the complainant made the deposit of U.K. 15,000/- with the Bank for a period of two years covered by Foreign currency Non-Resident Kamadhenu Deposit receipt issued by the Bank and the same was pledged by the complainant with the Bank for the loan of Rs. 2,00,000/- advanced by the Bank to opp. party No. 2 under the head of A/c VSL 5166/86. THE said deposit on its maturity together with interest was renewed from time to time at the request of complainant and also by reason of automatic renewal as indicated in the foot-note described in F.D. Receipt No. 413/95/92. THE Reserve Bank of India by its letter dated 3.12.1986 has accorded permission to the Bank to sanction loan to opp. party No. 2 to the permissible limit against the security of Fixed Deposit of U.K. 15,000/- in the name of complainant, an NRI and that sanction had concurrence of department of banking operations and Development (DBOD). According to the recitals contained in the letter of pledge executed by the complainant the pledge is given as a continuing security for the said loan of Rs. 2,00,000/- of opp. party No. 2 and the opp. party bank is entitled to hold the said pledged F. D.R. as a continuing guarantee for all loans, advances, overdraft and bank guarantees made or to be made to opp. party No. 2 on whatsoever from time to time and all sums ultimately become due with full right of enforcement or appropriation. THE complainant''s contention that the security was only for two years and not beyond is untrue and untenable. THE pledge made by complainant was by way of continuing security and irrevocable, until the liabilities of opp. party No. 2 were all discharged. THEre is no irregularity or illegality in holding the pledged F.D.R. as continuing guarantee for the debts of opp. party No. 2. THEre is no violation of Regulations of RBI or the Department of Banking Operation and Development. Opp. party No. 2 has obtained several financial assistance on various accounts and for the dues in these accounts totally amounting to Rs. 3,83,51/350.18 a civil suit has been filed as O.S. No. 3 of 1994 in the Court of 2nd Addl. Civil Judge, Bangalore Rural District, Bangalore, which now stands transferred to Debt Recovery Tribunal. THE maturity value of F.C.N.R. fixed deposit on 28.10.1994 was U.K. 34,728.54, the equivalent value in Indian currency was Rs. 17,74,628/-. THE amount due on VSL 51 of 2nd OP had come to Rs. 7,51,032/- and after adjusting so much amount towards the discharge of debt the balance amount of F.D.A. cw as Rs.10,23,596/- and the same is transferred to suspense account for adjustment of the same towards the other liabilities of opp. party No. 2. In the end amongst some other contentions the opp. party Bank has claimed for dismissal of complaint with cost. Both the sides have filed their affidavits and documents. On behalf of the complainant his power of attorney V. Jayanth Kini has filed the affidavit and on behalf of opp. party Bank, the Manager of the Bank has filed his affidavit. The documents of complainant produced in evidence are marked as Ex.C 1 to Ex. C 5, and that of the opp. party Bank as Ex. Rq to Ex. R 14. We have heard the arguments of both sides. On the basis of pleadings, the points arising for our consideration are as follows: (a) Whether the petition of complainant is maintainable? (b) Whether the pledge or security given by the complainant was limited for a period of two years? (c) Whether the Fixed Deposit pledged or given in security is available for discharge of other liabilities of the debtor? (d) For what relief the complainant is entitled? Our findings on the above points are as follows: 1. Affirmative 2. Negative 3. Negative

As per order REAsONS 4. The complainant has given his U.K. 15,000/- F.C.N.R. deposit in pledge or security for the overdraft (loan) granted by the 1st opp. party (Bank) to the 2nd opp. party, the debtor. The complaint is for direction to the opp. party Bank to make payment of the proceeds of the F.C.N.R. deposit as maturity. Primary objection of the first opp. party is that the complainant being a foreign national is not entitled for any relief under the Consumer Protection Act. We do not find any prohibition provided under the Act against any foreign national to maintain any petition before the Consumer FORAs. The overdraft loan granted by the 1st opp. party (Bank) to the 2nd opp. party (debtor) on the security of FCNR deposit given by the complainant is approved by the Reserve Bank of India as per foreign exchange regulations. The complainant is surety and the opp. parties are the creditor and the principal debtor. When the complainant claims for return or refund of the security given in pledge after discharge of the debt or on the alleged termination of guarantee is a matter concerned with financial assistance extended by the 1st opp. party Bank. The Banking services are covered by the Consumer Protection Act. The complaint before the Consumer FORA is maintainable when there is any allegation of deficiency of services. Therefore, we do not find that the complaint is not tenable. We find Point No. 1 in affirmative.

THE complainant has claimed that the surety or guarantee given by him was only for a period of two years and after the expiry of that period he has not extended the guarantee. THE claim of the opp. party Bank is that the surety furnished was a continuing security. First we would examine whether the guarantee furnished by the complainant was limited only for a period of two years. THEn we would examine what is the continuing guarantee or surety. In the documents produced by the complainant Ex. C 1 is the letter of complainant dated 28.10.86 written to the opp. party Bank. In this letter he has stated that he has arranged to send ? draft of Rs. 15,000/-to be deposited in F.C.N.R. in his name and he authorises the opp. party Bank to given opp. party No. 2 equal amount in overdraft. THEre is no stipulation of time for which the guarantee is given. Next document is Ex. C 3. This is a copy of the application of opp. party No. 2 in format LOV 5 referred to the RBI for approval of granting loan on the security of foreign currency deposited by the complainant. In this document the period for which the loan is required is shown as two years and the period of fixed deposit is also shown as two years. Apart from these two documents the complainant has nothing more to show that the surety furnished by him was only for a period of two years. THE opp. party Bank has produced Ex. R1 a copy of the letter of the complainant written to the Bank that he is agreeable to pledge the deposits against loan granted in favour of opp. party No. 2. Necessary loan application FCNR a/c opening forms, discharge form, etc., are enclosed with that letter. THE letter does not bear any date. It is not clear whether it was written earlier or later than the letter Ex. C 1. In this letter also there is no stipulation that the guarantee is limited for a period of two years only. THEre appears to be some misunderstanding about this period of two years. According to paragraph 29 A. 13(b) of the Foreign Exchange Regulations the fixed deposits of Non-resident (external) account should be for a minimum period of two years and the non- resident depositor should not withdraw the deposit for atleast two years even though the loan may be a shorter period of two years or the loan is discharged within the two years. THErefore, the deposit in this case is taken for two years. That does not mean that the guarantee furnished was only for a period of two years and on the expiry of that period the surety is discharged and entitled for return or refund of his deposit. Under Section 128 of the contract that the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. THE liability of the surety would be not only for the amount guaranteed but also for any interest and charges which have become due on it. As long as the debt is not discharged by the principal debtor the surety shall not stand discharged. Similarly there is some misunderstanding about the continuing guarantee or surety as understood by the opp. party Bank. By using this terminology the opp. party thinks that the guarantee furnished by the surety does not cease by the expiry of two years but subsists till the debt is discharged. Continuing guarantee defined by Sec. 129 of the Contract Act is that guarantee which extends to series of the transactions. The guarantee given by the surety is for an amount of Rs. 2,00,000/- overdraft granted by the Bank to the principal debtor. Illustrations appended to Sec. 129 of the Contract Act would indicate that guarantee would be limited to the sum assured even though the transactions may extend to any number of transactions. Whereas the guarantee furnished to a particular debt the liability of the surety would be not only that particular amount of debt but also to the interest and expense, which may become due on that debt. In view of the circumstances, the liability of the complainant surety does not cease to exist on expiry of the period of two years from the date of granting loan. As per Sec. 128 of the Contract Act the liability of the complainant surety is co-extensive the principal debtor for the amount of debt as well as interest and expenses becoming due until the same is discharged. In the result, we find Point No. 2 in the Negative.

THE next point that arises for consideration is whether the proceeds of the FCNR deposit of the complainant is available to be adjusted towards other debts of principal debtor. In the first place, the deposit amount is liable to be adjusted towards the principal amount of the overdraft of Rs. 2,00,000/- sanctioned to the principal debtor and the interest and other expenses that have become due. THE claim of the complainant is that the amount-of debt has become time-barred and therefore his deposit amount is not liable to be adjusted for any loan amount of the debtor. It is the belief of the complainant that the debt is time-barred. On the basis of the debt being time-barred the guarantor cannot claim any discharge since the debt does not extinguish or being barred by limitation. Second aspect of the case is that the principal debtor has borrowed the amount of Rs. 2,00,000/- on 3.12.86 on executing a promote and delivery letters Ex. R 3 & R 4. He has executed acknowledgement of debt Ex. R6 dated 3.11.1989 and Ex. R 7 dated 15.10.92 and the proceeds of the FCNR deposit have been adjusted on 28.10.94 as per Ex. R 8. THEre is no force in the contention of the complainant that the debt was time-barred and the proceeds of his FCNR amount could not be adjusted towards the dues of O/D account of principal debtor. The next crucial point is whether the proceeds of FCNR of complainant could be appropriated for other debts, of principal debtor. Primarily the complainant has given his FCNR deposit in pledge for grant of overdraft of Rs. 2,00,000/- to the principal debtor (opp. No. 2). That is the expression conveyed by the com plainant in his letter Ex. C 1 and Ex. R 1. Ex. R 2 is the letter of pledge. The pledge is given in security for the loan of Rs. 2,00,000/- granted to the principal debtor (opp. party No. 2). There are some admission or submission printed on pages 2 & 3 of the document that the security pledged may be held as continuing guarantee for all kinds of loans or dues of the principal debtor, either incurred earlier, present or in future. Peculiarity of this document is that it has not been executed by the complainant in India at the Bank premises on the date of granting the loan. The letter of complainant Ex. R 1 and Ex. C 1 indicate that the complainant has sent the required application duly signed by him from U.K. Therefore, it cannot be taken for granted that the complainant has signed this document knowing fully well that the security furnished by him was not only for the overdraft a/c of Rs. 2,00,000/- but the security extends for all the global debts of the principal debtor. Secondly, we feel that taking such a document from the principal debtor may be legitimate to some extent that in case of Banking transaction by virtue of Sec. 171 of Contract Act the Bank has right of exercise its general lien over the amounts due to the debtor to be adjusted towards other dues of debtor to the Bank. But to take such undertaking from the surety or guarantor that his security or pledged article is liable to be appropriated towards other debts of the debtor is something strange. In other words, it would amount that for whatever the amount the surety or guarantor has given pledge or security would not be limited only to the amount for which the guarantee is furnished but is available for all the debtors of principal debtor either incurred earlier, present or future. These conditions imposed by the Bank or the submissions undertaken by the guarantor are in the nature of unfair trade practice. We are not examining imposition of these conditions sitting as a Civil Court competent. to declare the conditions as void. But our conscience is not premitting us to hold that when a surety pledges his goods or any valuable security as guarantee or security for the discharge of any particular debt of the principal debtor, he should be held responsible to discharge the global debts of the principal debtor. In addition to our sentiments we find that the opp. party Bank had not considered this deposit as security for other debts of the principal debtor nor it was considered as security for other debts of the debtor. This fact is evident from the documents of creditor husband. The first document is the application Ex. C 3 referred to the RBI for permission to grant loan against the FCNR deposit. The loan amount shown is Rs. 2,50,000/- which against the deposit of 15,000/- of the complainant. The next document is Ex. C4 the covering letter of Bank to RBI. The next document is Ex. C 5, the letter of creditor Bank (OP No. 1) dated 3.8.94 addressed to the complainant intimating that the loan amount of principal debtor against the FCNR deposit and seeking advice for disposal of remaining amount. After these letters the FCNR proceeds have been appropriated to the OD a/c of opp. party No. 2 on 28.10.94 as per the ledger extract Ex. R 8 and the remaining amount of Rs. 10,23,596/- kept in suspense account. In addition to it the creditor Bank (OP No. 1) has filed suit O.D. No. 3/94 on 24.12.93 against the principal debtor (i.e., OP No. 2 of this case) for all the amounts due to Bank totally amounting to Rs. 3/83,51,350/- In this suit/ the overdraft a/c of the present complainant is not included nor the complainant of this case has been impleaded as surety for those dues of the principal debtor on the basis of liability incurred by the complainant under Ex. R 2. It is only under the reply Ex. R 12 dated 11.11.94 to the legal notice of the complainant he has been called upon to discharge the other debts of the principal debtor. Under these circumstances, we are of the considered opinion that the complainant was not responsible to discharge the other debts of the principal debtor other than the O.D. A/C No. VSL 5166/86. Withholding of the remaining amount of the FCNR as shown in Ex. R8 Rs. 10,23,596/- by opp. party No. 1 is deficiency in service. In the result, we find Point No. 3 in negative.

CONSEQUENTLY, our finding on point No. 3 we find that the complainant is entitled for recovery of Rs. 10,23,596/- with interest to the complainant. Hence, we find point No. 4 accordingly. ORDER Opp. party No. 1 is directed to refund Rs. 10,23,596/- to the complainant with interest @ 18% p.a. from the date of appropriation i.e., from 28.10.1994 till the date of payment. Opp. party No. 1 directed to pay costs of this proceeding in a sum of Rs. 2,500/- to the complainant. OP No. 1 shall pay the sums so awarded to the complainant within 60 days from the date of this order. Complaint allowed with costs.