Dila Ram vs Canara Bank & Another

Jyotsna Rewal Dua, J

Despite settling of a loan account for which petitioner had mortgaged his specific immovable property in capacity of a guarantor, respondent-Bank has refused to issue him a 'No Objection Certificate' on the ground that respondent-Bank has general lien over the said property for another loan though the property in question was not mortgaged as security for that other loan. Aggrieved against the action of the respondent-Bank in not releasing the mortgaged property and withholding the 'No Objection Certificate' to him, petitioner has preferred instant writ petition.

Facts:

2(i). One Deepak Kumar son of petitioner was proprietor of M/s Himalayan Shawl Industries. He availed cash credit facility from the respondent-Bank in the name of M/s Himalayan Shawl Industries. The respondent-Bank disbursed loan amount of Rs.12,00,000/- to Deepak Kumar as proprietor of the above mentioned firm.

2(ii). For the above loan advanced to his son, petitioner stood as a guarantor and mortgaged 4/15th share of his land comprised in Khasra Nos.536, 538 and 548, measuring 0-01-67 hectares, out of total land measuring 0-06-25 hectares, situated at Mohal Bashing, Tehsil Kullu, District Kullu, H.P. Report No.290 dated 31.03.2013, was incorporated in the revenue record reflecting charge over the property in question.

2(iii). Principal debtor, i.e. son of the petitioner, could not pay loan instalments regularly, resultantly, the respondent-Bank instituted Civil Suit No.209 of 2014, titled Canara Bank versus M/s Himalayan Shawl Industries and others, for recovery of the loan amount. Petitioner was also impleaded as one of the defendants in the civil suit. The civil suit was compromised between the parties and disposed of vide order dated 09.12.2017 (Annexure P-2) on the basis of a statement made on behalf of the respondent-Bank that it had received a sum of Rs.4,55,800/- from the defendants as full and final payment towards satisfaction of entire loan amount.

2(iv). After settling of the loan account, the petitioner requested the respondent-Bank for removing the charge over his property and issuance of 'No Objection Certificate'. On hearing no response from the respondent-Bank, the petitioner served a Legal Notice dated 02.07.2018 upon the respondent-Bank. In response thereto, respondent-Bank, vide its reply dated 07.08.2018 (Annexure P-4), declined to release mortgaged property of the petitioner on the ground that:- petitioner had stood as a guarantor in one another loan case of M/s River Mount Trout Fish Farming through its Prop. Anup Ram; the loan account of M/s River Mount Trout Fish has become NPA; therefore, petitioner's property mortgaged in loan account of M/s Himalayan Shawl Industries cannot be released till the clearance of loan of M/s River Mount Trout Fish.

2(v). Aggrieved against the decision of the respondent-Bank in not issuing 'No Objection Certificate' to him in respect of his land comprised in Khasra Nos.536, 538 and 548, referred to above, the petitioner has preferred the instant petition with a prayer to direct the respondent-Bank to issue 'No Objection Certificate' in respect of the mortgaged land in question.

Contentions:

3(i). Mr. J.L. Bhardwaj, learned counsel representing the petitioner, has urged that:- the land in question was mortgaged by the petitioner in the capacity of a guarantor in respect of loan raised by his son in the name of M/s Himalayan Shawl Industries; the loan amount having been repaid, loan account having been completely settled, the mortgaged property is required to be released and no Objection Certificate is required in law to be issued to the petitioner.

He has further contended that the property in question was not mortgaged by the petitioner towards any other loan account. Therefore, release of this property cannot be withheld on account of balance loan amount of M/s River Mount Trout Fish, wherein, petitioner was a guarantor. For securing the loan disbursed to M/s River Mount Trout Fish, petitioner had mortgaged another set of his immovable property in the capacity of guarantor.

Besides petitioner, there are two other guarantors, namely, Bhagat Ram and Ludar Ram for the loan advanced to M/s River Mount Trout Fish, whereas, Mr. Anup Kumar was the principal debtor. Petitioner's immovable property in question cannot be made the subject matter of Mr. Anup Kumar's loan account without his (petitioner's) consent and express agreement.

3(ii). The factual position of satisfaction of the loan account in the name of M/'s Himalayan Shawl Industries, has not been disputed by the respondent-Bank. It is also not in dispute that the immovable property comprising in Khasra Nos.536, 538 and 548, referred to above, had been mortgaged by the petitioner only towards securing the loan account of M/s Himalayan Shawl Industries.

Mr. Gulzar Singh Rathore, learned counsel for respondent-Bank, defended its action in not issuing 'No Objection Certificate' in favour of the petitioner on the grounds that:- a loan amount of Rs.69,55,000/- was sanctioned in favour of Mr. Anup Kumar as proprietor of M/s River Mount Trout Fish Farming; petitioner alongwith other two persons, namely, Bhagat Ram and Ludar Ram, stood as guarantors for this loan amount; value of property mortgaged for securing this loan amount is not sufficient to meet out the outstanding liability, which in October, 2018, was Rs.2,07,70,515/-; respondent-Bank has already instituted recovery proceedings before the Debt Recovery Tribunal for recovery of the loan amount; it will not be possible for the respondent-Bank to recover the loan amount sanctioned in favour of Mr. Anup Kumar in case 'No Objection Certificate' is issued to the petitioner for release of his property mortgaged against loan account of Mr. Deepak Kumar/ M/s Himalayan Shawl Industries; Respondent -Bank has general lien against the immovable property of the petitioner mortgaged towards loan account of M/s Himalayan Shawl Industries, therefore, respondent-Bank is within its legal right to refuse issuance of 'No Objection Certificate' to the petitioner.

4(i). The point to be adjudicated in the instant writ petition is whether the respondent-Bank has right of general lien to proceed against the properties of the petitioner mortgaged specifically for loan amount of M/s Himalayan Shawl Industries, for the outstanding loan amount of M/s River Mount Trout Fish Farming only on the ground that petitioner is a guarantor in both the loan accounts.

Section 171 of the Indian Contract Act having relevancy for adjudication of the point involved, is reproduced hereinafter:-

"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.1 -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."

4(ii)(a). Right of the Bank to exercise general lien over retained property has been recognized under Section 171 of the Indian Contract Act, only, where there is no contract to the contrary. This Section came up for interpretation before Hon'ble Apex Court in 1992(2) SCC 331, titled Syndicate Bank versus Vijaya Kumar.

Hon'ble Apex Court, in this case, recognized the right of Bank to have general lien in view of factual situation, which existed in the case, wherein, the borrower had issued a letter in favour of the Bank stating that Bank will be at liberty to adjust from his fixed deposit receipts without any reference to the loan and he had further agreed that the FDRs will remain in the Bank till the time any amount is due to the Bank on any of the loan amount due from him either singly or jointly. The factual position of the instant case is different. It is admitted case of the respondent-Bank that the petitioner has not executed any written agreement to the effect that the immovable property in question mortgaged by him for securing loan account of M/s Himalayan Shawl Industries can be used for satisfying any other loan account. 4(ii)(b). The similar issue also came up for adjudication in AIR 2011 Madras 179, titled State Bank of India & another versus Jayanthi & others, wherein, it was held as under:-

"16. As noticed above, the facts of the present case are couched differently. There was a specific contract/agreement between the deceased borrower and the bank, by which the borrower offered the property in question to secure only a particular transaction. Therefore, this agreement/mortgage has to be construed as a "Contract to the Contrary" and therefore, we have no hesitation to hold that the bank cannot claim these documents by invoking the power of general lien under Section 171 of the Indian Contract Act, 1872."

Similarly, in a case titled M. Shanthi versus Bank of Baroda, W.P.(MD) No.12613 of 2016, decided by Madras High Court on 09.08.2017, after taking note of various judgements on applicability of Section 171 of the Indian Contract Act, vis-a-vis, Bank's claim of general lien over the mortgaged properties, it was held by the Court that the Bank can not exercise lien over mortgaged property for satisfying one particular loan amount when the property has been specifically mortgaged for satisfying another loan account. The relevant para is reproduced hereinafter:-

"31. 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.

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."

5(i). In the facts of instant case, the mortgaged deed itself has to be considered as 'a contract to the contrary' falling within the definition of Section 171 of Indian Contract Act. It is not the case of the respondent-Bank that the petitioner has ever expressly agreed or consented for treating his immovable property in question as mortgaged towards satisfaction of loan account of M/s River Mount Trout Fish Farming. Petitioner was only a guarantor. The immovable property in question was mortgaged specifically only for securing loan amount of M/s Himalayan Shawl Industries. It is an admitted position that this loan account stands settled.

5(ii). It has not been disputed by the respondent-Bank that while standing as guarantor for the loan account of M/s River Mount Trout Fish Farming, petitioner has mortgaged another set of his property. Besides the petitioner, two other persons, namely, Mr. Bhagat Ram and Mr. Ludar Ram, had stood as guarantors for this very loan account with value of mortgaged assets at more than Rs.2 crores.

Valuation of assets mortgaged for M/s River Mount Trout Fish, though is disputed by the Bank, nonetheless, it was for the Bank to secure the loan in the manner required and to take timely action for its recovery. Respondent-Bank cannot be heard to complain that outstanding loan amount of M/s River Mount Trout Fish has now swollen and allegedly cannot be satisfied by the properties mortgaged by the guarantors for securing loan of M/s River Mount Trout Fish. All these facts are disputed by the petitioner.

Be that as it may, in view of the legal and factual position, the respondent-Bank cannot be permitted to exercise general lien over the property in question of the petitioner for securing a loan amount towards which, it had not been mortgaged. The property in question in the instant writ petition was mortgaged by petitioner, as guarantor, specifically for securing loan amount of M/s Himalayan Shawl Industries disbursed to his son Deepak Kumar. Petitioner has not consented either directly or impliedly for letting his property in question to be used by Bank as security for recovering any other loan. Therefore, after satisfaction of the loan amount of M/s Himalayan Shawl Industries, respondent bank is required in law to release the title deeds and to issue 'No Objection Certificate' to the petitioner in respect of property in question.

Accordingly, the writ petition is allowed. The respondent-Bank is directed to issue 'No Objection Certificate' to the petitioner in respect of land comprised in Khasra Nos.536, 538 and 548, situated at Mohal Bashing, Tehsil Kullu, District Kullu, H.P., within a period of four weeks from today. The writ petition stands disposed of, so also the pending miscellaneous application(s), if any.