Kamlesh Gandhi vs Union Bank of India and others

DR. D.Y. Chandrachud, J.—Sometime in 1997 the first respondent, Union Bank of India granted credit facilities at its Mumbai Samachar Marg branch to a partnership firm by the name of Jivanlal and Sons. The two partners of the firm at the material times were an HUF called Kamlesh Gandhi of which the petitioner is the Karta and the wife of the petitioner. The firm had availed of these credit facilities which were secured by personal guarantees executed by the petitioner and his wife. On 31 May, 2007, the account of the partnership firm was classified as an NPA. The first respondent instituted proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 by filing Original Application No. 28 of 2008 before the Debts Recovery Tribunal for the recovery of an amount of Rs. 30,06,17,891.66 together with interest in respect of the outstanding dues towards the partnership firm. The first respondent also initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Certain recoveries were effected upon the sale of secured assets. According to the Bank, as on 21 June, 2011 an amount of Rs. 23.78 crores is due and payable.

On 30 May, 2006, the petitioner availed of a Housing Loan from the Retail Mart of the first respondent in the amount of Rs. 20 lakhs. The loan payments were in arrears despite letters dated 15 March, 2008 and 26 March, 2008 by the bank. On 14 February, 2011 a letter was addressed by the petitioner to the Manager of the first respondent seeking an NOC for the sale of a residential flat. On 15 February, 2011, the first respondent through its Retail Mart addressed a letter to the petitioner stating that it had no objection to the sale of the residential flat, Flat 708 at Tilak Nagar, H.P. Employees Co-operative Housing Society, Chembur. The flat was mortgaged in favour of the First respondent by deposit of title deeds. The Bank by its letter informed the petitioner that the outstanding dues under the loan account were Rs. 19,12, 247/-and that it held the original share certificate pertaining to the flat in its possession. On 13 April, 2011, the petitioner entered into an agreement for sale of the flat with the fifth and sixth respondents for a consideration of Rs. 45 lakhs. The fifth and sixth respondents obtained a loan from the fourth respondent, Bharat Co-operative Bank. On 25 May, 2011, the first respondent informed the fourth and fifth respondents that the outstandings in respect of the Housing Loan were in the amount of Rs. 18,10,310/-. The fourth respondent under cover of its letter dated 26 May, 2011 addressed to the first respondent forwarded a pay order of Rs. 18,10,310/- towards a full and final payment of the Housing Loan. The fourth respondent accordingly, upon payment of the amount, requested the first respondent to close the account releasing the title deeds and to cancel its lien/charge over the property and issue a No Dues Certificate. By a letter dated 11 June, 2011, the fourth respondent informed its constituents, the fifth and sixth respondents, that the first respondent had refunded the amount of Rs. 18,10,310/-on 7 June, 2011 on the ground that the petitioner is a defaulter of the Bank and legal proceedings were initialed for the recovery of its dues. Accordingly, the amount received was adjusted to the housing loan, which was taken by the fifth and sixth respondents and the account was closed.

The petition under Article 226 of the Constitution has been instituted essentially in order to seek performance of the agreement which the petitioner claims to have been arrived at with the first respondent as reflected in the first respondent''s letter dated 15 February, 2011. Prayer (a) in the petition is to challenge a letter of the first respondent dated 11 June 2011, refunding an amount of Rs. 18,10,310/- received by the first respondent towards liquidation of the outstanding amount due from the petitioner under Housing Loan Account. The other reliefs which are sought in the petition, which are essentially to complete the cause of action are: (i) A direction to the fourth respondent to forward a demand draft in the amount of Rs. 18,10,310/- to the first respondent; (ii) A direction to the first respondent to accept the pay order issued by the fourth respondent and to appropriate it towards the outstanding dues of the petitioner under the Housing Loan Account; (iii) A direction to the first respondent to issue a No Dues Certificate to the petitioner, to cancel its lien over the flat and to hand over the tide documents to the fourth respondent; (iv) A direction to the fourth respondent to grant a housing loan to the fifth and sixth respondents on the same terms and conditions as earlier granted.

In support of the petition, it has been urged on behalf of the petitioner that :(i) An agreement was entered into between the petitioner and the first respondent as is reflected in the Bank''s letter dated 15 February, 2011 under which the Bank agreed to the petitioner selling the flat which had been mortgaged to it against adjusting the outstanding loan due and payable by the petitioner; (ii) In discharge of the agreement, an amount of Rs. 18,10,310/- was paid by the fourth respondent on behalf of the fifth and sixth respondents to the first respondent and the entire loan thus stood liquidated; (iii) All that remained to be carried out was a return of the tide documents by the first respondent to the fourth respondent; (iv) The first respondent is a Nationalized Bank and amenable to the writ jurisdiction under Article 226 of the Constitution; (v) The right to property of the petitioner cannot be affected save and except under authority of law; (vi) The exercise of the writ jurisdiction is warranted in order to enable the petitioner to seek recourse against the arbitrary decision of the first respondent to refund the payment which was made by the fourth respondent and in order to ensure that the contract which was entered into with the petitioner for the repayment of the loan against the surrender of the title documents is duly performed.

Counsel appearing on behalf of the fifth and sixth respondents who are the flat purchasers has supported the submissions which were urged on behalf of the petitioner.

On the other hand, it has been urged on behalf of the first respondent that (i) The exercise of the writ jurisdiction is not warranted in a petition under the provisions of Article 226 of the Constitution, which in substance seeks specific performance of contract; (ii) The petitioner has an efficacious alternate remedy available u/s 19(8) of Recovery of Debts Due to Banks and Financial Institutions Act, 1993; (iii) The first respondent has exercised a Banker''s lien u/s 171 of the Contract Act in respect of securities created by the petitioner which is sought to be enforced against the liability of the petitioner as a guarantor in respect of the dues of the partnership firm and; (iv) The Housing Loan Account has also been declared NPA on 4 August, 2011.

In the present case, as on the date of the filing of the writ petition under Article 226 of the Constitution, the position as emerged before the Court is thus: The petitioner had obtained a housing loan from the first respondent in the amount of Rs. 20 Lakhs. The first respondent had also advanced credit facilities to a partnership firm, whose partners consist of (i) an HUF of which the petitioner is Karta; and (ii) me wife of the petitioner. The first respondent has filed a claim before the DRT for recovery of dues outstanding against the partnership firm. The dues as on 26 June, 2011 are stated to be in the amount of Rs. 23.78 crores. The petitioner and his spouse are guarantors in respect of credit facilities extended by me Bank to the partnership firm. The liability of a guarantor, it is well settled, is co-extensive with that of the principal borrower. The petitioner seeks enforcement of an agreement under which the first respondent furnished its no objection for the sale of a mortgaged flat and for the closure of a loan account against the payment of outstanding dues to the first respondent. The reliefs which are sought in the writ proceedings are in substance (i) An enforcement of the alleged agreement between the petitioner and the first respondent; (ii) A direction to the fourth respondent to pay consideration for the flat to the first respondent; (iii) A direction to the first respondent to accept the payment of consideration and to appropriate it towards the outstanding dues under the loan account; (iv) A direction to the first respondent to issue a No Dues Certificate and to hand over the title documents upon the closure of the loan account and to cancel its lien; and (v) a direction to the fourth respondent to issue a fresh letter of sanction in favour of the fifth and sixth respondents. These reliefs cannot appropriately be granted in the exercise of the writ jurisdiction under Article 226 of the Constitution. Undoubtedly, as a general principle of constitutional law, the exercise of the writ jurisdiction under Article 226 of the Constitution cannot stand excluded merely because a matter relates to a contractual dispute. Even in matters involving contract, the State and its instrumentalities are subject to constitutional restraints against an arbitrary exercise of powers. Hence, an arbitrary exercise of powers, even in the contractual sphere is in an appropriate case amenable to the writ jurisdiction of the Court. Therefore, as a matter of the first principle the maintainability of a petition under Article 226 cannot be ousted merely on the plea that a contractual issue is involved. At the same time, the exercise of the writ jurisdiction under Article 226 is subject to the judicious exercise of discretion. In a given case, a dispute of a contractual nature may involve disputed questions of fact requiring evidence to be adduced. In such a case, Court may relegate the parties to participate in an ordinary civil proceeding. Where a defence which is sought to be raised is not illusory or frivolous but raises a substantial question which turns upon interpretation of the contract and adjudication of facts the parties will have to be relegated to the remedy to a civil suit. In the present case, we have noted that the petitioner seeks in substance a decree of specific performance. The first respondent has in the present case already approached the Debts Recovery Tribunal for recovery of its dues against the partnership firm, the petitioner being imp leaded to those proceedings in his capacity as guarantor of the dues. Section 19(8) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 empowers the Tribunal to consider a Counter-claim against the claim of the applicant. Section 19(8) provides that "a defendant in an application may, in addition to his right of pleading a set-off under sub-section (6), set up, by way of counter-claim against the claim of the applicant, any right or claim in respect of cause of action accruing to the defendant against the applicant either before or after the filing of the application but before the defendant has delivered his defense." That a counter-claim of the nature can be raised, is evident prima facie from the law laid down by the Supreme Court in State Bank of India Vs. Ranjan Chemicals Ltd. and Another, . The first respondent has set-up a lien u/s 171 of the Indian Contract Act and in this regard relied upon the judgment of the Supreme Court in Syndicate Bank Vs. Vijay Kumar and others, wherein the Supreme Court held that:

By mercantile system the Bank has a general lien over all forms of securities or negotiable instruments deposited by or on behalf of the customer in the ordinary course of banking business and that the general lien is valuable right of the banker judicially recognized and in the absence of an agreement to the contrary.(emphasis supplied).

The petitioner contends that the lien has lapsed upon the grant of an NOC by the first respondent. Whether the lien had been abandoned or relinquished is a matter, which must be determined at a trial action on the basis of evidence.

The facts in the present case are quite unlike those which came up before the Supreme Court in Zonal Manager, Central Bank of India Vs. Devi Ispat Ltd. and Others, . In that case, the respondent who was a borrower had sought an enhancement of credit facilities from the Appellant. As a result of various irregularities in the account of borrower, the Bank advised the borrower to shift its loan account to some other Bank. The Bank sent information pertaining to the borrower to the State Bank of India. The State Bank of India issued a banker''s cheque for Rs. 15 crores to the respondent Company which the Appellant Bank had encashed and appropriated in lieu of the outstanding balances. Despite this, the Bank did not return the title documents held up by it to the respondent, nor had it issued a No Dues Certificate. The Supreme Court noted in paragraph 20 of the judgment that it was based on the advise of the Bank that the respondent had shifted its account to another nationalized bank. The Bank encashed a cheque for Rs. 15 crores and appropriated it. As a matter of fact, the Appellant had on 14 May, 2009 clearly mentioned that no balance was due from the respondent. After filing of the writ petition, the respondent owed money through its relationship with other concerns to the bank. The Supreme Court held that the relevant date would be the institution of the writ petition when admittedly nothing was due and payable by the borrower to the bank. It was in this background, that the Supreme Court confirmed the Judgment of the High Court which required the Bank to surrender the title documents. In the present case admittedly, the petitioner besides the housing loan which was furnished by the first respondent was also a guarantor in respect of the credit facilities extended by the first respondent to the partnership firm. Evidently the partners of the partnership firm consist of an HUF of which the petitioner himself is Karta, while other partner is the spouse of the petitioner. The bank has instituted a suit for recovery against the partnership firm and the petitioner is a party before the Tribunal. In these circumstances, the facts of the present case are clearly distinguishable.

Considering the matter in its perspective, we are of the view that in this case the Court should not exercise its writ jurisdiction. The petitioner must be relegated to the alternate remedy which is available in accordance with law. We do not express any conclusive opinion on the maintainability of a counter-claim u/s 19, since that is not an issue which falls for determination here. We also clarify that all the observations contained in the order are confined to the issue of maintainability of the petition under Article 226 of the Constitution and shall not come in the way of adjudication on merits of the rival contentions before the appropriate forum. We dismiss the writ petition on the ground that a petition under Article 226 is not maintainable in the given facts. There shall be no order as to costs.