Indian Overseas Bank vs M/s. Bismilla Trading Co.

A.S. Venkatachalamoorthy, J.—The defendant is the appellant. The respondent herein, as plaintiff, filed a suit in C.S.No.561 of 1984 on the

file of the High Court against the appellant/defendant, praying the court to grant a decree against the appellant/defendant for a sum of Rs.

12,43,240.93 together with interest at 19.5% thereon from the date of the suit till realisation.

The case of the respondent/plaintiff is that it had a cash credit facility to the extent of Rs.17 lakhs with the appellant/defendant Bank since

26.3.1983 and for which, as directed by the defendant, the plaintiff gave a Fixed Deposit of Rs.25 lakhs to the defendant. Apart from that, it had

also hypothecated its stocks in trade worth more than Rs.1 crore with the defendant by way of security for repayment of loan. It is the case of the

respondent/plaintiff that the defendant without any reason whatsoever, dishonoured three cheques issued by it viz., [a] Cheque No.0577368 dated

2.9.83 for a sum of Rs.29,645; [b] Cheque No.0577369 dated 2.9.83 for Rs.55,317.50 and [c] Cheque No.0577362 dated 29.8.83 for a sum

of Rs.2,102.50. When the plaintiff enquired as to the reason for dishonouring of those cheques, the defendant replied that it was because of the

closure of plaintiffs accounts. As far as the plaintiff is concerned, it never stopped the operations in the cash credit account. It is the case of the

plaintiff that the defendant had no business to act unilaterally in dishonouring the cheques issued by the plaintiff, when the credit facility was in force,

backed by huge security. The plea of the plaintiff is that'' consequent of such dishonouring of the cheques, the plaintiff''s reputation was jeopardised

heavily and its business was totally paralysed. The plaintiff would contend that since it had sufficient funds in its account, the defendant could not

have returned the cheques and because of such illegal act, the plaintiff had suffered damages to the tune of several lakhs since its name was

defamed. The plaintiff claimed that the defendant is liable to pay huge damages, but however, it restricted its claims to Rs. 1,00,000.

The further contention of the plaintiff is that due to such unilateral, high-handed and illegal action of stopping operation of the accounts, the business

of the plaintiff was wrecked and in fact, the plaintiff was making profit of not less than Rs. 1,00,000 per month and that roughly the plaintiff had

suffered a business loss of Rs.10,00,000. The plaintiff, on 4.9.1983, wrote a letter to the defendant, calling upon him to adjust the Fixed Deposit

amounts as against the loan due and payable by it and settle its whole account. But however, the defendant took its own sweet time to close the

account and in fact, the account was closed on 8.1.1984. That being so, neither in law, nor in equity, the defendant was entitled to charge interest

and debit the same to the plaintiffs account and consequently, the defendant is bound to pay a sum. of Rs.81,406.10 to the plaintiff. The plaintiff

also questioned the correctness of the statement of accounts sent by the defendant inasmuch as the defendant had debited interest to the tune of

Rs.29,317 towards the charge on cheques against clearance. The plaintiff claims that this amount should also be refunded.

The further case of the plaintiff is that the defendant had debited another unlawful charge of Rs.100 towards lawyer''s notice, which amount, the

plaintiff was not liable to pay. On the above basis, the plaintiff claimed that the defendant owed a sum of Rs. 12,10,895.10.

The appellant/defendant filed a written statement inter alia contending that the plaintiff was granted from 26.3.1983 a total limit of Rs.17 lakhs

comprised of [a] cash credit against hypothecation of stocks of Rs.15 lakhs of iron and steel at an interest of 18% per annum; [b] Rs.l lakh for

drawing against late clearing cheques, and [c] Rs.l lakh on purchase of outstation cheques and that the said limits were secured by deposit of title

deeds of the movable properties situate at Door Nos.149, 185 and 193, New Street, Tuticorin and valued at Rs.15 lakhs, L1C Policies with face

value of Rs.2.37 lakhs and fixed deposits at Muthialpet Branch of the defendant totalling Rs.7.42 lakhs and the third party deposit of Rs.10 lakhs.

But however, the actual deposit made was only Rs.5.12 lakhs plus Rs.10 lakhs being third party deposit. The defendant admitted having

dishonoured three cheques when the account showed a debit balance of Rs.12,98,544. The defendant had stopped the operation for the reason

that there was an enquiry from the Income Tax Inspector, cautioning the defendant and indicating that the Fixed Deposit and other current assets of

the plaintiff firm i.e., S.P. Noor Mohammed, was involved as a guarantor in respect of which there was an outstanding payable by Steel

Corporation, an associate firm of the plaintiff to the defendant/Royapuram Branch. That apart, the defendant also claimed that as per the letter

dated 26.3.1983, the defendant/Bank reserved its right to reduce, withdraw and cancel the limits sanctioned at its discretion without assigning any

reason whatsoever and this condition had been agreed by the plaintiff by affixture of signature of partners of the plaintiff in the duplicate copy of the

sanction letter and in these circumstances, the claim of the plaintiff that on the particular date, the operation was still in force and inspite of that, the

cheques were returned, was denied as incorrect. At the time of presentation of cheques, the account of the plaintiff showed a debit balance of Rs.

12,93,544. The defendant categorically denied the allegation of the plaintiff that it had suffered damages to the tune of several lakhs since its name

was defamed. According to the defendant, the very fact that the plaintiff restricts its claim for damages to Rs.l lakh is a positive prcot of the fact

that the plaintiff suffered no damages at all. The defendant also denied the allegation of the plaintiff that its business was wrecked and that the

plaintiff was making a net profit of not less than Rs.l lakh per month. The letter of the plaintiff, requesting for adjustment of Fixed Deposit amounts

as against the loan due and payable by it and settle its whole account was received by the defendant on 8.9.1983 and by that time the assets were

attached by the Income Tax Authorities and ultimately adjustments were made on 3.1.1984 to the account. In fact, till the date of adjustment,

interest was allowed on Fixed Deposit and interest was charged for outstanding. The defendant claimed that it is entitled to charge the interest and

debit the same to the plaintiffs account and therefore, the defendant is not bound to pay the said sum of Rs.81,406.10 to the plaintiff as claimed. A

sum of Rs.29,317 was debited towards interest charge on the account of the plaintiff from 1.1.1983 to 3.9.1983 towards credits realised [towards

unrealised effects] and the plaintiff was availing of the facility from the beginning as per the letter of sanction and in such circumstances, the

defendant is not liable to refund the said amount to the plaintiff and the plaintiffs claim is unsustainable. As far as the debiting of Rs.100 towards

lawyer notice is concerned, the defendant claimed that it is customary and usual on the part of the defendant/bank to debit the plaintiffs amount for

lawyer''s fees. The defendant further claimed that it is not liable to pay any portion or whole of the amount as claimed by the plaintiff under various

heads totalling a sum of Rs.12,10,8.95.10.

The parties went to trial and the learned Single Judge decreed the suit to the extent of Rs.2,10,895.10.

The learned Single Judge, after elaborately considering the oral and documentary evidence, came to the conclusion la] the action of the

defendant in closing the account and the consequent dishonour of cheques is erroneous and hence, the defendant/Bank is answerable to the

plaintiff; [b] the plaintiff is entitled for general damages as on account of the dishonouring of cheques, it suffered a stigma in its reputation; [c] when

the plaintiff called upon the defendant/bank to close its accounts, it should have done it forthwith ie., on the same day; [d] the defendant was wrong

in charging interest for the delayed period viz., from 4.9.1983 to 8.1.1984 as the defendant was solely at fault for the delay; [e] The debiting of

Rs.29,317 is neither properly accounted for nor explained and hence, the defendant is liable to pay the said amount to the plaintiff.

The present appeal has been filed by the Indian Overseas Bank, defendant in the suit, questioning the correctness of the Judgment and decree

passed by the learned Single Judge.

At this juncture, it may be mentioned for the.purpose of completeness that the respondent/plaintiff did not file any appeal or any cross-objection

in respect of disallowed claim.

On a request made by the plaintiff, which is a registered partnership firm, the defendant, by a communication dated 26.3.1983 granted some

facilities so that the plaintiff would be able to carry on its business. The Bank provided Rs.15 lakhs as cash credit against hypothecation of fully

paid stocks of iron and steel; Rs.l lakh for drawing against late clearing cheques, and another sum of Rs.l lakh for the out station cheque purchase.

In order to secure repayment of this loan, the defendant required the plaintiff to deposit [a] the title deeds relating to the properties situate at Door

Nos.149, 185 and 193, New Street, Tulicorin and valued at Rs.15 lakhs; [b] LIC policies withface value of Rs.2.37 lakhs and surrender value of

Rs.0.75 lakhs; [c] Fixed Deposits with Muthialpet and Kilpauk Branch totalling Rs.7.42 lakhs, making it clear that no advance will be granted

against these deposits; [d] fresh third party deposit of Rs.10 lakhs duly discharged with letter of authority, here again making it clear that no

advance to be granted against the deposits.

In the said communication, the defendant/bank had mentioned that it reserves the right to reduce, with draw and cancel the limits sanctioned, at

any time and at its sole discretion without assigning any reason whatsoever and that the renewal of the limit is left to its option and not to exceed the

limits without any prior arrangement with it.

The said letter dated 26.3.1983 was sent in duplicate and the plaintiff was called upon to sign the duplicate letter and return it to the Bank in token

of accepting the terms and conditions. The plaintiff did so as required by the defendant and complied with all the terms and conditions as stipulated.

In short, it may be mentioned straight away that there is no dispute between the parties that the plaintiff was given cash credit facility to the tune of

Rs.15 lakhs and the plaintiff provided proper security for due repayment of the loan.

It is also admitted by the defendant in para No.3 of the written statement that as on 2.8.1983, the account of the plaintiff showed a debit balance

of Rs.12,98,544. The plaintiff issued three cheques viz., [i] cheque No.0577362 dated 29.8.83 for a sum of Rs.2,102.20; [ii] cheque

No.0577368 dated 2.9.1983 for a sum of Rs.29,645; [iii] cheque No.0577369 dated 2.9.83 for a sum of Rs.55,317.50.

When these cheque''s were presented by the respective persons in whose favour they were issued, the cheques were not honoured on the ground

that the credit facility that was given to the plaintiff was cancelled by the Bank. The above facts are admitted.

The questions that are to be considered in this appeal are : [i] Whether the defendant/bank was justified in cancelling .the cash credit facility? [ii]

Whether the plaintiff would be entitled for compensation by way of damages for its reputation?; [iii] whether the defendant was justified in charging

interest on the amount for the period from 3.9.1983 to 8.1.1984?; and [iv] whether the defendant was entitled to debit a sum of Rs.29,317

towards interest charge on ""cheques as against clearance?

The plaintiff is admittedly a trader carrying on business in large � scale. The agreement came into existence between the plaintiff and the

defendant and according to which, the defendant agreed to provide cash credit facility to the tune of Rs.15 lakhs to the plaintiff and for which, the

plaintiff also furnished security as demanded and required by the defendant/bank. There was also a relationship between the plaintiff and the

nationalized Bank viz., the defendant as that of the Banker and Customer. There is always an element of trust between the Bank and its customer.

The Bank''s business depends upon this trust so also the trader''s/customer''s.

True, the letter issued by the defendant/bank dated 26.3.1983 agreeing to provide to the plaintiff with cash credit facility clearly stipulates that the

defendant/bank reserves the right to reduce, withdraw and cancel the limits sanctioned at any time without assigning any reason whatsoever.

In this context, two questions arise for consideration, whether the Bank reserve its right to reduce, withdraw or cancel the limits sanctioned without

any reason, should be understood as without even infimating the plaintiff in advance. Secondly, whether the said stipulation that it can do so without

any reason, to be understood to mean that such action can be even it it does not stand to reason, and in the nature of arbitrary exercise.

As far as the first question is concerned, it has to be pointed out that the stipulation in the communication by the Bank dated 26.3.1983 is only

to the effect that the defendant/bank can without assigning any reason reduce, withdraw or cancel the limits sanctioned and it does not say that

such action on the part of the bank need not be informed to the other party viz., the plaintiff. Or in other words, what this Court is trying to point

out is that in case if the bank desires to reduce, withdraw or cancel the cash credit limits already sanctioned, it must inform the plaintiff about the

same in advance.

The plaintiff is carrying on business in Linghi Chetty Street, Madras-1 and the defendant Bank is carrying on business in Kilpauk Garden Road,

Madras-10. If the Bank desired to vary the cash credit limits sanctioned, and if the Bank considered that the same had to be done immediately, it

could have telephonically informed its customer viz., the plaintiff, or sent a communication through a special Messenger and it the matter was not so

urgent, could have sent a communication by speed post, which would have reached the plaintiff on the very next day, the purpose or idea being the

customer once receives such a communication would not thereafter issue cheques.

It has to be pointed out that before the customer receiving the intimation of varying the terms or further limiting or cancelling the cash credit

facility, the customer might have issued some cheques and in such a case, the Bank is expected to honour those cheques, but of course subject to

the limits for which it agreed to provide to its customers. Or in other words, in this case, we are of the view that the Bank should have sent a

communication, informing about the cancellation of the cash credit facility, as otherwise, the plaintiff would put to untold suffering.

The next aspect to be considered is whether "" in view of the stipulation in the communication sent by the Bank to the plaintiff dated 26.3.1983,

the defendant can cancel the facility without any reason and whether by so cancelling, the bank has acted arbitrarily? Even though such a clause is

there, it is always subject to reasonableness. If the customer had acted in any manner detriment to the Bank or if the customer had been only

drawing from the Bank and not repaying, then perhaps there would have been some justification for the Bank to close the account. Or in other

words, suppose if the Bank has some basis to come to the conclusion that the customer has not been discharging his part of the obligation

satisfactorily that may prompt the Banker to entertain an apprehension that the customer may not honour his commitments, then the Bank may be

justified in cancelling the facility. To put it in a different way, the Bank must have some reasonable ground to exercise its power. Can the Manager

of the Bank say that he does not like the customer for some reason and consequently, he is cancelling the cash credit facility. The answer is

emphatically ""No"".

To sum up, we hold that the Bank can cancel the facility for valid reasons in the sense that if such steps are necessary for the Bank to safeguard its

interest and not certainly without any basis whatsoever. If the Bank cancels the cash credit facility without any basis whatsoever, it would be

always open to the customer to approach a court of law and claim compensation against the Bank.

Coming to the present case, in the written statement, the reason for not honouring the three cheques had been stated to be that there was an

enquiry from the Income Tax Inspector cautioning the defendant and indicating that the Fixed Deposit and other current assets of the plaintiff firm

ie., S.P. Noor Mohammed was involved as a guarantor in respect of which there was an outstanding payable by steel corporation an associate

firm of the plaintiff to the defendant''s Royapuram Branch.

It is not known as to when and to whom such caution was made. It is rather sickening to note that the defendant/bank failed to take steps to

examine the concerned Officer. Even assuming that some enquiries or suggestions were made by the Income Tax Department that there is

likelihood of attachment of the assets of the plaintiff, then the Bank cannot act simply on the basis of the same, when there is no official or

authorised communication to that effect, close the account. Admittedly, on the date when the account was closed or when the cheques were

dishonoured, no attachment had been made. Even assuming they wanted to close the account when there were sufficient funds in the accounts they

ought to have honoured the cheques and then closed the account after informing the plaintiff in the manner we have already indicated above.

The defendant/bank is a nationalised bank. It has a legal department of its own. Is it to be taken that the Officer who represented the defendant

had acted without taking legal assistance from the Legal Department of the Nationalised bank.

Before Court, DW-1 categorically admitted that in the normal course, the Banker ought to have cleared those cheques and this is because the

plaintiff was given cash credit facility to the tune of Rs.15 lakhs and on the relevant date that was on 2.9.1983, the plaintiff account showed a debit

balance of Rs. 12,98, 544. The three cheques were in total less than Rs.l lakh.

In his evidence, DW-1 has stated that the cheques were dishonoured because there was an Income Tax warrant against M/s. Steel Corporation of

India. What Steel Corporation of India has to do with the plaintiff is not at all stated or explained. What all stated if that Steel Corporation of India

is the sister concern of the plaintiff. Unfortunately, the defendant bank has not taken steps to produce particulars in that regard. That apart, even

assuming that it is a sister concern of the plaintiff, the Income Tax warrant was directed only against Steel Corporation of India and not against the

plaintiff. That being so, it is not known as to how the defendant/bank could close the account and dishonour the cheques. In fact, D.W.I has

categorically stated that the Bank closed the account and dishonoured the cheques not because of any instruction from the Income Tax

Department but from the State Bank of India.

Again, we do not understand how State Bank of India could interfere and issue directions to the defendant Bank. The defendant/bank is controlled

by its Head Office and it has got its own regulations. Certainly, State Bank of India cannot interfere with the defendant/bank''s transactions or in

any internal matters. Again, it is only stated that a telephonic message was received at the Head Office and the Regional Office. As already stated,

the Officer, who received the telephonic message has not been examined so also the Officer, who passed on the message either at the Head Office

or Regional Office. Assuming that the account was closed , on account of the instruction of the State Bank of India, then we have to only describe

it as highly unwarranted and objectionable.

In this context, it has to be mentioned that DW.l has categorically admitted that the request from the plaintiff to close the account was on 4.9.1993,

whereas the warrant was received from the Income Tax Department on 7.9.1993. Further more, even that warrant has not been placed before

Court.

In fine, we come to the conclusion that though the defendant/bank has endeavoured to give some reasons for its closing the accounts, those

reasons, first of all, have not been substantiated. Even assuming that those reasons existed, the same could not justify the appellant/defendant to

close the account of the plaintiff.

The next question that arises for consideration is whether the award of Rs.1,00,000 passed by the learned Single Judge towards damages for

loss of reputation for dishonouring of the cheques, can be said to be without any basis or excessive.

In this context, we would like to refer to a Ruling of the Division Bench of this Court reported in The New Central Hall, a firm of two partners,

Ismail Ibrahim Sully and Another Vs. The United Commercial Bank Ltd. Madurai, wherein it has been held as under:-

No doubl, it has been held in Gibbons v. Wesminster Bank Ltd., 1939 (3) A11.E.R. 5771 that in the case of the dishonouring of a cheque of a

person who is not a trader, only nominal damages would be awarded in the absence of any proof of loss or credit or other special loss or damage.

But, there is no doubt that in the case of a trader like the plaintiffs, such proof of special loss or damage would not be necessary, and that

substantial damages would be presumed and awarded for the wrongful dishonouring. The very same view regarding both traders and non-traders

was adopted in Davidson v. Barclays Bank Ltd, 1940 (I) ALL E.R. 316. Leading text book writers on the Negotiable Instruments Act have

stated that the same rule applies to India, as Mr. Venkatadri pointed out. We are of opinion that the Indian Law on the subject is not at all different

from the English Law on the point, and that in the case of a non-trader, nominal damages should be awarded where there is no proof of special

loss or damage by the wrongful dishonouring, and that in the case of a trader, substantial damages should be awarded even in the absence of proof

of special loss or damages. Of course, if there is proof of special loss or damages, that will be taken into consideration for arriving at the exact

quantum of damages. Mr. Narasimha chariar was unable to show us any ruling to the contrary. We must also say that the lower court has gone

wrong in observing that it is well settled that in India nominal damages can never be awarded. They can, in our opinion, be certainly awarded in

suitable cases, like a trespass not causing damages but only annoyance, the wrongful dishonouring of a cheque issued by a non-trader without

special damages etc. Coming to the present case, as already noted, the plaintiff has been carrying on business in large scale. Certainly, by

dishonouring of cheques, the reputation of the Firm would have gone down in the business circle. We do not consider that awarding of Rs.1 lakh

as compensation for the loss of reputation as high or excessive.

Corning to the question as, to whether the interest claimed by the defendant viz., Rs.81,406.10 is justified or not, we have to point out that

DW-1 has admitted that when a party requests for closure of bank account, the banker is bound to close the account on the same day.

As far as the present case is concerned, even on 4.9.1983, the plaintiff sought for closure of his account. But, the defendant took his own sweet

time to close the account and it was done only on 8.1.1984. But, for the period from 4.9.1983 to 8.1.1984, the defendant has charged interest.

Certainly, the delay was because of the inaction on the part of the defendant, who took so much time to close the account, eventhough the plaintiff

requested for the same on 4.9.1983 itself. Therefore, the claim of the defendant/bank that the plaintiff is liable to pay Rs.81,406.10 as interest for

four months and four days from 4.9.1983 to 8.1.1984 is absolutely unjustified. As far as the contention of the defendant that it is entitled to debit

Rs.29,317 towards interest charges on cheques on plaintiffs account from 1.1.1983 to 3.9.1983 is concerned, it has to be pointed out that the

defendant has not produced the accounts. The defendant/bank would only say that after closing the account, they reversed the entries. Needless to

mention that it is the bounden duty of the defendant to account for the same and to show how they debited the plaintiffs account with the same.

We have already pointed out that the evidence of D.W.1 has not at all substantiated the case of the defendant. Therefore, we hold that the claim of

the defendant for Rs.29,3177 is neither properly accounted nor explained. Consequently, the defendant is liable to pay the said amount to the

plaintiff.

We also hold that debiting the plaintiffs account for Rs.1,007 towards lawyer''s fee is also incorrect and unjustified. The defendant bank

claimed interest at 17.5% from the plaintiff in respect of its liabilities. Therefore, the defendant is liable to pay interest on these amounts at 17.5%.,

Learned Single Judge, on the basis of various findings about which we are in total agreement, has decreed the suit to the extent of

Rs.2,10,895.10. We do not find any reason to interfere with the same.

In the result, the appeal is dismissed, with costs.