(Typed to the dictation of Smt.M.Shreesha, Honble Member)
Aggrieved by the order in CC No.411/2007 on the file of District Forum, Guntur, opposite party preferred this appeal.
The case of the complainants in brief is that the first complainants husband and father of complainants 2 and 3 availed gold loan of Rs.17,000/- from the opposite party under loan account No.J.L.203/04 during his life time and subsequently died on 02-10-2005. The first complainant cleared off the entire loan and she along with complainants 2 and 3 submitted a claim form dated 03-2-2006 with no objection certificate from complainants 2 and 3 and death certificate given by M.R.O., Purchuru dated 18-1-2006 for return of the gold ornaments to complainant No.1. Inspite of clearance of the entire loan, the opposite party failed to return back the gold ornaments to the complainants. Therefore, the 1st complainant got issued a legal notice to the opposite party on 26-2-2007 seeking for return of gold ornaments for which a reply notice was issued dated 7-3-2007 and did not choose to return back the gold ornaments. The complainant submits that the delay on the part of the opposite party in not returning the gold ornaments after receiving the entire loan amount amounts to deficiency in service. Hence the complaint for a direction to the opposite party to return the gold ornaments kept in pledge and pay compensation of Rs.10,000/- and costs.
Opposite party filed counter admitting that the complainants husband applied for a loan amount of Rs.17,000/- and contend that he stood as guarantor to one M/s.Balaji Cotton Traders and M/s. Sudha Cotton Syndicate and both M/s.Balaji Cotton Traders and M/s. Sudha Cotton Syndicate committed default in payment of their respective loans and therefore they had issued notice to the Principal Borrowers as well as guarantors and filed a suit for recovery of the loan amount from M/s. Sudha Cotton Syndicate before the Debt Recovery Tribunal. It submitted that the deceased is guarantor for Rs.13,95,623/- to the loan SOD 1520 of M/s.Sudha Cotton Syndicate and Rs.7,66,900/- to the loan SOD 5093 of M/s.Balaji Cotton Traders and created lien over the gold and therefore it has every right to adjust the gold ornaments amount to the two loans according to bank rules. Opposite party further submitted that after receiving the claim form and other documents from the complainants, they informed them that the deceased acted as a guarantor to the above referred loans and till the discharge of the said loans, the gold ornaments cannot be released as there is a lien created against the gold ornaments in respect of the said loans and prayed for dismissal of the complaint.
Based on the evidence adduced i.e. Exs.A1 to A7 and B1 and the pleadings put forward, the District Forum allowed the complaint in part directing the opposite party to return the pledged gold ornaments to the wife of the deceased together with costs of Rs.1,000/-.
Aggrieved by the said order, the opposite party bank preferred this appeal.
It is the complainants case that M.Raghava Rao, who is the first complainants husband and second and third complainants father pledged gold ornaments in opposite party bank on 06-10-2004 and availed a gold loan. Ex.A1 are the payment receipts issued by opposite party for an amount of Rs.1140/- Rs.19,000/- and Rs.17,000/- respectively dated 30-1-2006, 27-1-2006 and 06-10-2004 respectively. On 02-10-2005 the said M.Raghava Rao died without discharging the entire loan amount. The complainants herein submitted that they paid the entire loan amount with interest to the bank on 27-1-2006 and sought for return of the gold ornaments but the appellant bank refused to return the gold ornaments on the ground that the said Raghava Rao stood as surety to two cotton industries i.e. M/s.Balaji Cotton Traders and M/s.Sudha Cotton Syndicate for Rs.5,00,000/- and Rs.2,50,000/- on 30-1-2003 and 30-12-2003 respectively. The complainants got issued a legal notice dated 26-2-2007 evidenced under Ex.A2 for which the opposite party replied vide Ex.A3 dated 07-3-2007 stating that the bankers have a lien against the gold ornaments in respect of the said loans. The complainants submit in their written arguments that the gold ornaments belong to the first complainant and that there is no separate agreement pledging these gold ornaments as security for the payment of third party loans. And as the deceased is not the owner of the gold ornaments, the deceased, M.Raghava Rao, cannot pledge the gold ornaments for a third party security. They further contend that the appellant bank initiated proceedings before Debt Recovery Tribunal in O.A.144/2006 which was decreed on 31-10-2008. In respect of the debt of M/s.Sudha Cotton Syndicate now the properties of the said firm were brought to sale for the recovery of the amounts due to the bank. As the aforementioned debts are fully secured debts and recovery proceedings are initiated, the bank is not entitled to retain the gold ornaments of the complainants. The learned counsel for the complainants further relied on Section 171 of the Contract Act, 1872 and submitted that once gold loan had been repaid by guarantor, the bank cannot retain their gold ornaments. Therefore, the retention of gold ornaments by the bank was without any authority of law. Bank can retain as security for general balance of a customers account goods bailed to them by that customer and not goods bailed to them by some other customer.
The learned counsel for the appellant/opposite party also relied on Section 171 of Indian Contract Act 1872 which reads as follows:
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.
Â Â Â Â Â It is not in dispute that M.Raghava Rao has taken a gold loan on 06-10-2004 and died on 02-10-2005. Thereafter the complainants herein have discharged the entire loan amount. The contention of the opposite party is that the deceased stood as a guarantor for M/s.Balaji Cotton Traders and M/s.Sudha Cotton Syndicate who have not paid their loans and hence they are entitled to exercise lien U/s.171 of the Indian Contract Act, 1872.
The brief point that falls for consideration is whether the banker has general right of lien to retain the gold ornaments pledged for a particular loan even after discharge after loan for recovery of another loan subsequently advanced.
The learned counsel for the respondents relied on the judgement of the High Court of Orissa reported in AIR 2004 ORISSA 142 in Alekha Sahoo V. Puri Urban Co-operative Bank Ltd., and others which the Honble High Court held as follows:
Contract Act (9 of 1872) S.171 General lien of Banker Is on security of principal debtor and not guarantor. Grant of principal debtor and not guarantor, Grant of gold loans to petitioner against pledge of gold ornaments, Petitioner had also stood as guarantor for Cash Credit Loan granted to another debtor. Bank retained pledged gold ornaments though petitioner had cleared outstanding.
Balance in gold loan accounts-In guarantee agreement executed by petitioner for Cash Credit Loan, there was no provision authorizing Bank to retain his pledged gold ornaments-Once gold loans were cleared by the petitioner, Bank had no right either under its Bye-laws or under S.171 to retain gold ornaments. Retention of gold ornaments by Bank was, therefore, without authority of law and arbitrary.
A brief perusal of Ex.B1 which is the loan application executed between the bank and the borrower reads as follows:
As security for repayment of the outstanding balance of the loan which you may grant to me/us, I/we hereby pledge with you Gold ornaments/silver articles as mentioned in the schedule herein below. You are entitled to hold this security as security for and any other liability/fee payable by me/us in respect of any advance financial assistance granted here (after and owing/that may be owing here) after to the Bank at any office of the Bank on my account whatsoever, whether solely or jointly with others and whether as Principal Debtor of surety.
Â In case of failure on my/our part to repay any of the loan instalments and/or quarterly interest on due dates, the bank is authorised to recall the entire dues and to dispose of the securities described in the schedule without any notice to me/us and, short-fall after adjustment of the net sale proceeds shall be repaid by me/us on demand by the bank. The balance sale proceeds after appropriation of my/our dues may be held by you in our â¦â¦â¦â¦â¦â¦â¦. Â account with you or sent to me/us at our cost.
It is pertinent to note that there is an express and implied provision in this application stating that even after the discharge of the entire loan amount, if the borrower stood as guarantor for some other third parties, these amounts will be adjusted.
In the instant case, this decision of the Honble High Court of Orissa cited by the learned counsel for the respondents is distinguishable in view of the terms and conditions of the application under which the loanee has agreed to pay the outstanding debts on behalf of himself or/and behalf of others as stipuated in Ex.B1, application. To reiterate, there is an express provision in the loan application, (Ex.B1), for the bank to retain gold ornaments inspite of complete discharge of gold loan by the complainants herein. The contention that the bank has initiated recovery proceedings through Debt Recovery Tribunal against the two borrowers for whom the said M.Raghava Rao has stood as a guarantor and therefore the gold ornaments cannot be retained by the bank is unsustainable as the bank can exercise its options to proceed to recover the debt either by filing a suit or by exercising the lien under Section 171 especially in the teeth of Ex.B1
In the result this appeal is allowed and the order of the District Forum is set aside consequently the complaint is dismissed. There shall be no order as to costs.