T. Ramaprasada Rao, J.
1. This appeal is directed against the judgment and decree of the Subordinate Judge of Tiruchirapalli. The defendants therein are the appellants and the plaintiffs are bankers having their head office at Madras and branches in India and has an overseas branch in Penang as well. The first defendant is a partnership firm carrying on business at Tiruchi and other places including overseas trading at Penang. The name and style of the first defendant's firm is M/s. VE. A. Firm. This was originally started by VE. A. Annamalai Chettiar and his divided son VE. A. Vairavan Chettiar, the third defendant. On 3rd February, 1959, Annamalai Chettiar died, and thereafter, the third defendant on his behalf and as the trustee and executor of his father, as also the second defendant and the fourth defendant continued the firm as per a fresh deed of partnership dated 13th April, 1960. Defendants 5 and 6 were inducted into the partnership by a deed dated 13th April, 1964, under which the defendants agreed to take over the assets and liabilities of the quondam partnership. In the course of such partnership dealings, the firm and, therefore, its partners secured from time to time accommodation from the plaintiffs-Bankers and more particularly, from their Penang branch. The account between the first plaintiff and the defendants were settled on 30th July, 1964, and on that date a sum of 1,71,800 Malaysian dollars were due by the defendants to the plaintiffs under what is known as the Miscellaneous Cash Credit account. In connection with the said debt, the defendants with the permission of the Reserve Bank offered Indian securities in the shape of fixed deposits which they deposited with the Tiruchi branch of the Bankers in India. Under Exhibit B-1 dated 3rd June, 1958 the firm at Penang requested the Tiruchi branch of the plaintiffs Bank to take delivery of their fixed deposits receipts for which they gave due discharge receipts even at the time of deposit and hold them as security to all the monies which the defendants firm may owe in respect of the facilities offered to the firm at the Penang branch of the Bankers. The firm undertook to renew the fixed deposits from time to time and agreed to lodge such securities duly discharged, so that such fixed deposits may continuously operate as securities against their debt which they may owe to the Penang branch. They have also expressly authorised the Bankers at Tiruchi to adjust the outstandings of the firm's account with their Penang branch at any time from and out of the said deposits without any reference to the firm. It may be also pointed out that the accommodation was granted by the firm on condition that all outstandings shall be repaid by the firm' on demand from local funds meaning thereby that the debt was repayable in dollars. (Vide: Exhibit A-4 dated 15th August, 1951). It is common ground that the Reserve Bank gave sanction to the plaintiffs to advance monies to the firm in dollars against deposits made by the firm at their Tiruchi branch (Vide: Exhibit A-64 dated 14th June, 1958 and Exhibit A-5 dated 5th August, 1958). Due to certain circumstances the firm was unable to clear their debt due and owing to the Penang branch. Hence, they wrote under Exhibit A-62 dated 25th April, 1966 stating that they were unable to pay either the interest or the overdraft amount due to the Bank and requested the Penang branch to obtain the Reserve Bank's permission and arrange for the remittance of the Indian deposits and adjust the outstanding overdraft. Based on this request the Penang branch, requested their head Office to permit them to write to their Tiruchi office for repatriation of the Indian deposits for purposes of settling the account at Penang (Vide: Exhibit A-7 dated 9th May, 1966). Under Exhibit A-8 dated 13th May, 1966, the Central Office gave such permission and the Penang branch, therefore, wrote under Exhibit A-28 dated 20th May, 1966, referring to the request of the firm and also to their correspondence with their head office and asked the Tiruchi branch to obtain the Reserve Bank's permission and remit the proceeds of the deposits. On 6th June, 1966, the Malaysian dollar was devalued to the prejudice of the customer. The fixed deposits ho doubt were to mature on 24th June, 1966. On the 25th July, 1966 under Exhibit A-10, the head Office of the plaintiffs' bank set out in full the history of the advances taken by the defendants firm at Penang and referred to the permission which the Reserve Bank itself granted to keep the Indian fixed deposits as security to the foreign debt and sought for permission to comply with the customer's request for adjusting the outstanding overdraft. Meanwhile, the Penang branch on the basis of the devaluation of the Malaysian dollar and after adjusting the value of the Indian securities towards the outstanding claimed a shortfall of about 59,881 Malaysian dollars, apparently calculating the Indian deposits at the new exchange rate after devaluation. The Reserve Bank wanted some more particulars regarding request for (sic) repatriation made by the Tiruchi branch. Such particulars were furnished as is seen from Exhibits A-15 dated 10th May, 1967, A-16 dated 30th May, 1967, A-18 dated 13th July, 1967. Finally, the officials of the Tiruchi branch prepared what is known as A-7 Form which is the prescribed Form for permission to transfer Indian funds on conversion to a foreign country and gave the reason for payment originally reading as 'Transfer of Funds in liquidation of the overdraft given to the firm at Penang against the security of the deposits in India', and later corrected as 'Transfer of Funds as part adjustment of the overdraft given' etc. This Form was signed by the firm on 22nd July, 1967. The balance outstanding in the overdraft account of the firm at Penang as on 10th January, 1967, was noted as Malaysian dollars 177,678-55. Finally, the Reserve Bank under Exhibit A-72 dated 15th September, 1967 granted permission to the plaintiffs' bank to remit the proceeds of the Indian fixed deposits amounting to Rs. 2,85,153-45 to liquidate the overdraft availed of by the firm. Even there, we do not find as to what is the conversion rate to be adopted for purposes of remittance. As according to the plaintiffs, the overdraft account was adjusted on 11th October, 1967 at the exchange rate of 2.45 Malaysian dollars that left a balance of 73,227.38 dollars as still payable. After debiting further interest to the outstanding amount under the account, the bank instituted the suit for recovery of Rs, 1,87,445-40 as per the ruling exchange rate, together with further interest of Rs. 4,026-21. The plaintiffs averred that they were under no obligation to adjust the account till the fixed deposits matured on 24th June, 1966 and that there was no negligence or delay on their part so as to make them indirectly responsible for the loss consequent upon the devaluation of the Malaysian dollar in June, 1966, which was before the date of maturity of the fixed deposits. In any event, they would say that repatriation of the funds was payable only after obtaining the permission from the Reserve Bank, and even though they took steps for such permission on 23rd May, 1966 they could got the permission only in September, 1967 and as the money was repayable in Malaysian dollars, the first defendant as the partnership firm and defendants 3 to 6 as partners thereto are liable for the suit amount.
2. The defendants' contention is that even though the amount is repayable in dollars, the Indian deposits ought to have been adjusted at the ruling rate which was prevailing on 25th April, 1966, on which date they wanted the plaintiffs to adjust the deposits towards the overdraft account and that on such adjustment, it is the plaintiffs, who had to pay the defendants and no amount is due and payable by the defendants to the plaintiffs. They would refer to the delayed action taken by the plaintiffs in the matter of obtaining permission from the Reserve Bank and would aver that the plaintiffs are under a legal obligation to make the adjustment as on the date when the customer made the request for closure of the account and the later proceeds of actual repatriation being only ancillary to the main incident, the defendants cannot suffer the loss as a result of the devaluation which was long after the date when they requested for adjustment and subsequent repatriation of the Indian funds to Malaysian dollars. The defendants would say that there was no impediment or obstacle to the Bank in making the required adjustment before 24th June, 1966, which was the date of maturity of the Indian deposits. As the adjustment should have been made on 25th April, 1966 and as the permission of the Reserve Bank in September, 1967, would not alter the material situation, the suit ought to be dismissed, and on the other hand they made the counterclaim in the sum of Rs. 29,592.38 on the basis of the value of the Malaysian dollar as on 23rd April, 1966. They also raised certain contentions about the additional claim for interest.
3. The plaintiffs in their reply statement would deny their liability to the counterclaim.
4. The following issues were framed for trial:
1. Whether the plaintiffs were bound to adjust the fixed deposits standing to the credit of the defendant in the Tiruchirapalli Office of the plaintiffs towards the overdraft balance against the defendants in the Penang branch of the plaintiffs before the due date of the maturity of the deposits?
2. Whether the permission of the Reserve Bank of India was necessary for making the said adjustment?
3. Whether there was any default, delay inaction or negligence on the part of the plaintiffs in obtaining the permission of the Reserve Bank of India as contended by the defendants ?
4. Whether the plaintiffs are entitled to claim and charge the interest as stated in the plaint?
To what interest is the plaintiff entitled and from what date?
5. Whether the suit is barred by limitation ?
6. Whether defendants 2 to 6 are liable for the suit claim ?
7. Whether the counterclaim made by the defendants is true and valid?
8. To what relief are the plaintiffs entitled?
9. Whether the 2nd plaintiff has any locus standi to maintain the suit?
10. Whether the claim by the 2nd plaintiff is in time?
5. The trial Court on issues 1 and 2 concluded that the permission1 of the Reserve Bank of India is absolutely necessary for adjusting the fixed deposit amount in India to the credit of the defendants firm towards the overdraft advance made by the plaintiffs-Bank in Malaysian dollars at Penang. The findings on issues 3 and 4 were not canvassed before us in the appeal. On issue No. 5, the learned Judge held that the suit was in time. In so far as the issues Nos. 6 and 7 are concerned, the lower Court held that defendants 3 and 6 were liable for the suit claim, and in all, it held in favour of the plaintiffs and decreed the suit with proportionate costs and dismissed the counterclaim of the defendants but without costs.
6. Before considering the contentions of parties certain general observations are necessary. It is true that sympathy and generosity do not have any part to play while deciding the problems arising under the Foreign Exchange Act. It should however, be remembered that there is a difference between the commission of an offence and a bona fide intent to avoid the committing of the offence. In order to escape the clutches and stringency of the technical law of Foreign Exchange Control, the persons, who are in the pale of such activity, are not expected to mechanically adopt the norms of that law as a shield for each and every involvement of theirs in Foreign Exchange transactions. Section 3 of the Foreign Ex-change Regulation Act, 1947, creates persons, who could authorisedly deal in foreign exchange. Section 4 thereto imposes restrictions on the dealing in foreign exchange. In particular Section 4(1) and (2) of the Act read as follows:
4. (1) Except with the previous general or special permission of the Reserve Bank, no person other than an authorised dealer shall in India, and no person resident in India other than an authorised dealer shall outside India, buy or otherwise acquire or borrow from or sell or otherwise transfer or lend to or exchange with, any person not being an authorised dealer, any foreign exchange.
(2) Except with the previous general or special permission of the Reserve Bank, no person whether an authorised dealer or otherwise, shall enter into any transaction which provides for the conversion of Indian currency into foreign currency or foreign currency into Indian currency at rates of exchange other than the rates for the time being authorised by the Reserve Bank.
7. Section 5 says that any payment to or for the credit of any person resident outside India shall be in accordance with general or special permission granted by the Reserve Bank of India from time to time. Even in the case of creation and transfer of securities or in the matter of placing any sum to the credit of any person resident outside India such a permission is required. Section 20 sets out the various situations whereunder the permission of the Reserve Bank is necessary for repatriation of funds. Section 21 creates a bar against the entering into any contracts or agreements which would directly or indirectly result in evasion or avoidance of any of the provisions of the Act. The scheme of the Foreign Exchange Control Act appears to be that with the permission of the Reserve Bank, a resident in India could offer securities, which are current in India towards a debt payable by that resident to a foreigner. These are the principal guidelines which should be borne in mind in the particular case.
8. We have already seen that the appellant-firm in order to ensure the repayments of the advances granted to them by the Penang branch of the plaintiff-Bank under their Miscellaneous Cash Credit Account deposited at their Tiruchi branch fixed deposits, and this security was given by the appellants after getting permission from the Reserve Bank of India to offer such securities. Under Exhibit A-5, dated 5th August, 1958 the Reserve Bank of India accorded permission for the grant of the overdraft advances to the appellants and also permitted the appellants and in consequence, the respondents also to accept the securities offered to the Bank which securities were in Indian currency in rupees in order to ensure the repayment of the debt in dollars. In fact, the caption of the account, which the Penang branch of the Indian Overseas Bank Ltd., was maintaining in connection with its dealing with the appellants, is named as overdraft against the Indian deposits. This is also clear by the conduct of the Bank itself as is seen from their letter Exhibit A-64, which is as follows:
Indian Overseas Bank Ltd.
Central Office, Madras.
The Reserve Bank of
India, Exchange Control Dept., Madras.
Ref. 261|F|3912-dt. 14th June, 1958.
Ref. : Trading and Commercial Loans and Overdrafts - A|C VE. A. Firm.
We refer to your letters Nos. MA; EX: COM: 876|120|57, dated 25-6-57 MA: EC: COM: 607|120|58, dated 10-2-1958 and MA: EC: COM: 1212| 120|(43)|58, dated 14-3-1958, whereby advance limit of $ 125,000|- $22,000|-and $25,000|- respectively were authorised by you to be Held at our Penang office in favour of the captioned firm against deposits at our Tiruchi branch.
The firm has now requested for renewal of the facilities for an amount of $172,000|- in consolidation of the 3 limits and accordingly an application in duplicate is submitted herewith. We shall thank you to let us have your early sanction in the matter.
Sd. x x x x
x. F.E.A|cs. Dept.
Encl. Supplementary statement attached to the main application in regard to the private loans and O.Ds. Long afterwards, under Exhibit A-62 the defendants wrote to the plaintiffs as under:
Copy of letter dated 25th April, 1966 from VE.A. Firm, 134, Penang St., Penang, addressed to the Manager, Indian Overseas Bank Ltd., Penang.
Overdraft against Indian deposits with your Bank.
With reference to the above, I have to inform you that the collections of our advances have been poor and there have been many bad debts. Hence, we are unable to pay either the interest or the overdraft amount due to your Bank. Therefore, we shall be glad if you will obtain the Reserve Bank's permission and arrange for the remittance of Indian deposits and adjust the outstanding overdrafts.
per Pro. VE. A. FIRM
Sd. SP. Srinivasan.
They wanted the Penang branch of the Bank to adjust the outstanding overdraft, since they were unable to pay the interest or the overdraft amount due to the Bank. The Penang branch in their letter to their head office, after referring to the request of the customer said that the Tiruchi office may be advised for the repatriation of the deposits. Even the Central Office under Exhibit A-8 agreed with their Penang branch that the Tiruchi branch may apply to the Reserve Bank of India for permission to repatriate the proceeds of the deposits held as security towards the liquidation of the Miscellaneous Cash Credit account. Accordingly, under Exhibit A-28 the Penang branch wrote to Tiruchi branch requesting them to obtain the Reserve Bank's permission and remit the proceeds of the deposits.
9. At this stage it would be convenient to refer to the correspondence that passed between the appellants' firm and the Bank's Tiruchi branch when they offered the Indian fixed deposits as security for their debt due to the Penang branch. Under Exhibit B-1 they would ask the Tiruchi branch to take delivery of the fixed deposit receipts which have been discharged by them and hold the same as security for all the monies which the firm may owe to the Penang branch of the Bank in respect of the facilities offered to them. The express understanding between the firm and the Tiruchi branch which was obviously known to the Penang branch as well is to the following effect.
I hereby authorise you to renew the said deposits from time to time until the account in M|s. VE.A. Firm's name with your Penang branch is closed and hereby undertake that they will lodge with you the renewed fixed deposit receipts from time to time duly discharged.
I hereby authorise you to adjust the outstanding in M|s. VE.A. Firm's account with your Penang branch at any time from out of the said deposit without any reference to me whatsoever.
No doubt when the cash credit account was opened in Penang the undertaking between the firm and the Penang branch was that the amount which might be outstanding from time to time will be repaid on demand from local funds and that the Bank may retain the relative deposits in India until such time as the overdraft of the overseas branch is fully adjusted.
10. Mr. C. Ramakrishnan, appearing for the Bank, after referring to the above relevant correspondence and other documents such as Exhibits A-34, A-28, A-8 and A-9, would lay an accent upon the alleged intention of the parties that at all material times the debt was repayable in dollars and there could be an adjustment of the account only after the Reserve Bank passes an order for repatriation of the funds in India, so that the account of the firm could be closed by entering the credit in dollars against the existing debit representing the debt of the firm. He would say that not with sanding request for adjustment and the other steps taken by the respective branches with the Reserve Bank of India as per the letter Exhibit A-62, dated 25th April, 1966, there could be no enforceable adjustment having regard to the primary intention of the parties to repay the debts in dollars. Even assuming that the devaluation of the Malaysian dollar has no impact on the situation, yet as the statutory sanction to repatriate was given by the Reserve Bank after such devaluation and as such repatriation was effected in the teeth of such devaluation and as until then, the relationship of debtor and creditor continued as between the firm and the Bank, the exchange rate has to be worked out as on the date when the Reserve Bank sanctions such repatriation.
11. What, therefore, is the intention of the parties in the instant case? While Mr. Ramakrishnan would say that the intention was to pay back the debt in dollars which was the local currency, the learned Advocate-General appearing for the firm would say that eo instanti the firm requested for adjustment on the plea of inability to pay the debt and as soon as that information reached both the Tiruchi branch as well as the Central branch on which necessary action was taken, then the fact that the Reserve Bank took sometime to pass an order for repatriation would not make any difference, and the debt ought to be adjusted as on 26th April, 1966.
12. It is true that it is the dollar which is referred to as the measure of the obligation between the parties. But an overemphasis should not be made on this obligation so as to buttress and ignore the realities of the situation. The fact that the plaintiffs have filed the suit in India for recovery of the monies in rupees, though the alleged intention was that the debt should be repaid in local currency, also throws considerable light upon the intention of the party. No doubt the customer has promised to repay the debt in dollars. Should that be understood as meaning that although the dollars are made available or could be made available within the framework of the Foreign Exchange Law, the debtor is bound to suffer because relationship of 'debtor' and 'creditor' has been snapped within the meaning of common law. When the customer in this case has requested the Banker to adjust the available securities, then the time, taken by the Bank in conjunction with the Reserve Bank to adjust the amount is only in the stream of procedural process of realisation and does not have an impact upon the substantive relationship of 'debtor' and 'creditor'. The principle of depitum in presenti and selvindum in futuro has a part to play in such situation. It may be that a credit in the pure accountancy sense is not possible because the Penang account has to be closed with reference in Malaysian dollars. But on the facts and circumstances of this case, it only remained for the Penang branch as creditor or their complement the Tiruchi branch to obtain the permission of the Reserve Bank to convert rupee account in India into a dollar account so as to repatriate it to Malaysia. This process may take time, and naturally it has to, since the Reserve Bank being the apex Foreign Exchange Bank, with all the national and international commitments cannot be expected to act forthwith and grant the necessary permission. Let us take for instance a case where the Reserve Bank takes some years before sanction is accorded or refuses permission. If within that period, there is more than one devaluation or revaluation to the prejudice of the customer, then it would be illogical to conclude that all such prejudices caused as a result of such devaluation should be passed on to the customer as if it was by automatic transmission. Tiruchi as well as the Penang branch understood the situation correctly and furthered the intention behind the contract by taking steps to obtain permission from the Reserve Bank to repatriate the Indian Funds. The Penang branch as well as the Tiruchi Branch applied to the Central Office expeditiously for permission to enable them to apply to the Reserve Bank for due conversion of the rupee fund into dollars and transmit the same to Malaysia. These steps were taken by the branches prior to 6th June, 1966; the date of devaluation. The Central Office takes up the matter with the Reserve Bank setting out the history of the Indian fund and asking for permission to comply with the parties' request for adjustment of their debt as against the Indian deposits. Exhibit A-10 dated 25th July, 1966 is self-explanatory. Thereafter, correspondence passed between the Central Office on the one hand and their Tiruchi branch office on the other hand and with the Reserve Bank also in connection with the transmission of funds. This is seen from Exhibits A-14, dated 4th April, 1967, A-15 dated 10th May, 1967, Exhibit A-16 dated 30th May, 1967 and Exhibit A-18 dated 13th July, 1967. It is after all this and in or about September, 1967, permission to transfer the rupee account was made in due Form under A-7. By this time it was more than one year since the firm asked for adjustment. It is therefore, fairly clear that the time taken by the bankers in the matter of forwarding an application for permission to convert the funds and transfer the same to Penang was considerably long. The Bankers sent the Form A-7 duly filled up by them and that is marked as Exhibit A-19 in the case. In Exhibit A-19 while asking for permission to transfer the above rupee amount, they stated the purpose for which, the transfer was required. They would say that the reason for the application was the transfer of funds in India in liquidation of the overdraft account as against the appellant-firm. Though they have originally mentioned the word 'in liquidation' they corrected it in their own handwriting to 'part adjustment' of the overdraft. Admittedly, this Form was prepared by the Bank officials. They definitely say that the permission to transfer the funds was for purposes of adjusting the overdraft account against securities of the Indian deposits to the tune of Rs. 2,85,153.45 inclusive of interest. They also would commit themselves to the effect that the outstanding balance in the overdraft account at Penang was $177,678.55 Malaysian dollars. It is clear from this application that the parties did apply their mind, as it was the Bank which sent the Form duly filled for the firm's signature. Therefore, the intention of the parties, notwithstanding the recitals in the original contract to repay the debt in dollars, is that on the date when they applied for sanction to repatriate the funds, the Bank treated the account as having been fully or partly adjusted having regard to the exchange value of the Indian securities in rupees. In other words, they acted upon the letter of request by the customer to adjust and understood the bargain as one under which they should either liquidate the debt in full or partially adjust the same according to the exchange value of the securities, on the date of such request for adjustment and that they entertained the view that the loan ought to be adjusted on the date when the customer sought for adjustment. On the only ground that the Reserve Bank gave permission to repatriate dollars to Malaysia after devaluation, the debtor-firm should not suffer the consequential prejudice. We find that the intention was originally to repay the debt in dollars and that by reason of the letter of request for adjustment of the overdraft from and out of the Indian securities, the rupee value of such securities should be converted into dollars on that date and the necessary adjustments, though not physically but notionally be made, and the rights and obligations of parties should be worked out in that light.
13. In the light of the above discussion, the question is as to what is the relevant date when the Indian securities should be converted into Malaysian dollars. In other words, when does the right to set-off arise in the instant case, when once it is found that the intention of the parties was to get the account adjusted no sooner a specific request to that effect was made by the customer. It is also for consideration whether the non-maturity of the fixed deposit on the date of the request by the customer for adjudication makes any difference in the ultimate conclusion to be reached.
14. When the customer writes Exhibit A-62, dated 25th April, 1966, to adjust the security and when the Bank had the right to close the account at any time by such adjustment of the Indian security as is seen from Exhibit B-1, it follows that the relationship of debtor and creditor is snapped on the date of Exhibit A-62, and the events that happened later are all consequential and cannot uproot that legal result that has already cropped up by reason of the cessation of the relationship of debtor and creditor. In so far as the Indian securities are concerned, the Bank is a debtor. A debt is repayable according to the contract between the parties. As the Bank has had in its possession discharged receipts in relation to the fixed deposits, it can pay; itself the debt at any time when so required or when such an occasion arises for adjustment. The Bank can exercise its right to so adjust under Exhibit B-1. It cannot be said that the customer has no such right, and if he desires that adjustment should be made because of his financial position, it tantamounts to an unilateral mandate to the banker to do so. On the other hand, it would amount to a request by the customer to the banker to exercise its privilege or power gained by the Banker under Exhibit B-1 under which the Banker was enabled to adjust the firm's outstandings with the Penang branch at any time from out of the Indian deposits without any more reference thereto. It is not unknown in mercantile practice for Bankers to allow the withdrawal of the fixed deposits before due dates. In the instant case, such was the clear understanding as is exhibited from Exhibit B-1, the terms of which have already been referred to. For a greater reason such adjustment on the basis of the rate of exchange prevailing on the date of Exhibit A-62 is possible because the Reserve Bank has already approved the holding of the Indian securities which were in rupees as against the foreign debt in dollars. This approval was given as early as 1958. Once the Reserve Bank has granted such permission which authorised the Penang branch to advance monies in dollars as against deposits in India which were in rupees, no fresh approval is necessary to adjust the overdraft account or to evaluate the rupee account into a dollar account' on the date when such adjustment was sought. Actual repatriation of the Indian funds after conversion into Malaysian dollars which again requires a permission from the Reserve Bank of India may take place after the Reserve Bank of India accords such sanction. But in order to set-off the foreign debt as against the Indian rupees, the only thing to be done is to find the exchange rate on the date of Exhibit A-62 and convert the Indian deposits into Malaysian dollars in accordance therewith and cause the adjustment or set-off to be made so that the foreign debt may be commercially wiped out either in full or in part. As monies deposited in a bank under fixed deposits are the monies of the Bank and they are the owners thereto, it is feasible for the Bank to set-off that amount as against the debt whether internal or external due to it from the relevant customer and cause an adjustment of it. In our case, the Indian deposits have been earmarked by way of security for the loan given by the Penang branch to the customer. This transaction obviously means that until the loan is repaid to the extent of such earmarking of the funds nothing is due by the Bank to the customer nor can the customer be paid any amount from the said deposit even though it matures unless the bank gives up the security. In a Full Bench case which arose in the Kerala High Court in Isaac v. Palai Central Bank : AIR1964Ker1 , the following were the relevant facts:
A had a fixed deposit with the Bank. He took a certain loan from the Bank on a promissory note. Along with the promissory note he also handed over to the Bank the fixed deposit receipts with an endorsement of discharge thereon and the delivery and instruction letters containing a direction that on maturity the proceeds of the deposit receipt should be credited to A's loan account. On insolvency of the Bank before the maturity of the fixed deposit, A claimed set-off in respect of the proceeds of the fixed deposit against his loan under the promissory note:
Held, (i) that the fact that A handed over to the Bank the fixed deposit receipt with an endorsement of discharge thereon, a delivery letter and an instruction letter, amounted to no more than the creation of a charge on the amount covered by the fixed deposit or a hypothecation of that fund. A debt which would have been unsecured, if the promissory note alone was in existence, became a secured debt as a result of that transaction. The existence of such a security did not affect the question of a set-off.
(ii) that the arrangement between A and the Bank was itself to effect a set-off on the maturity of the fixed deposit.
(iii) that the fact that the deposit had not matured when the winding up commenced was not of material consequence.
(iv) that the effect of the Bank's insolvency was to accelerate the date on which the set-off should be effected and to make the commencement of the winding up the time for that purpose. Hence A's claim to a set-off is valid and could be admitted.
Applying the principle in the above case, it can be safely said that in the instant case the customer's right to seek a set-off of his deposit as against the Penang debt was accelerated on the date when he wrote for such adjustment, and the fact that the fixed deposits in India had not matured for payment was of no consequence.
15. As was observed by Gentle, J., in Ananta Raman v. Official Liquidators, T.N. & Q. Bank Ltd. : AIR1940Mad157 , a debt though not presently payable, can be set-off against monies owing to a company in liquidation. We may also add that even the bankruptcy of the customer, if it happens, after the date when he request-ed for adjustment of the Indian securities against the foreign debt would not matter at all, because the banker has secured for himself a vested right to appropriate the securities on the date when Exhibit A-62 was written. If the devaluation which followed that date was really re-valuation and was to the advantage of the banker, will it give up such a fortuitous addition? We hope not. As the bank had the indisputable right and recourse against the money covered by the securities we are of the view that the debt ought to have been adjusted against the account at least notionally and for purposes of this case on the date when Exhibit A-62 was written, that is, 25th April, 1966, which was long before the date of devaluation of the Malaysian dollar. Following up this reasoning, the correct date for the conversion of the rupee debt into Malaysian dollars would be the date when the debt became due. The date for calculating the exchange rate should be the date when an unconditional right to appropriate was given to the Banker and not the date when the dollars were permitted to be sent to Malaysia consequent upon the permission of the Reserve Bank in 1967.
16. In re: British American Continental Bank Credit General Liegeois' Claim (1922) 2 Ch.D. 589, the Court accepted the principle that for ascertaining the correct date for conversion in an action brought in England for recovery of a debt due in a foreign country in the currency of that country it is the date when the debt became due. In Di Ferdinando v. Simon, Smits & Co. (1920) 3 K.B. 409, the same principle was reiterated when the occasion arose for the Court to assess the damages incurred abroad consequent upon a breach of a contract. The Court of Appeal said that in arriving at the proper equivalent in British currency for the purposes of assessing these damages, the rate of exchange prevailing on the date of breach and not that prevailing at the date of judgment should be adopted. In The Ottoman Bank v. Chakarian (1930) A.C. 277, when an employee was wrongfully dismissed and when he laid a suit for damages for such wrongful dismissal and when it was found that the employee was unjustifiably dismissed, and therefore, entitled to damages, the House of Lords made the following observation:
Conversion into sterling of the damages in Turkish currency in respect of the respondent's pension under the contract should be at the rate of exchange at the date of his dismissal, not at the date of the judgment.
In re, Russian Commercial and Industrial Bank (1955) 2 W.L.R. 62, the Court said that the correct date for the conversion of the rouble debt into sterling was the date on which it became due. Finally, In Re: United Railways of the Havana and Regle Warehouses Ltd. (1960) 2 All. E.R. 332, the House of Lords referred to an earlier decision of the Privy Council and approved of the following principle:
At what date must the prate of exchange be calculated? There can, their Lordships apprehend, be now no doubt as to the English law on this point. It is true that different views have been taken at different times and by different systems of law. Indeed, there are at least four different alternative rules which might be adopted. The rate of exchange might be determined as at the date at which payment was due, or at the date of actual payment, or at the date of the commencement of proceedings to enforce payment, or at the date of judgment.--English law has adopted the first rule, not only in regard to obligations to pay a sum certain at a particular date, but also in regard to obligations the breach of which sounds in damages, as for an ordinary breach of contract, and also in regard to the satisfaction of damages for a wrongful act or tort.
17. In our case long before Malaysian dollar was devalued on 6th June, 1966, the banker obtained an indefeasible right to appropriate the Indian funds towards the Penang debt. Thus, the cause of action to adjust and set-off had already arisen on 25th April, 1966. Devaluation being a nonforeseeable circumstance, cannot make any inroad on the right of the Banker to assess the value of the Indian securities in Malaysian dollars as on the date of the cause of action which in this case is 25th April, 1966.
18. How does the process of the repatriation interact on the situation? In the peculiar circumstances of this case as the Reserve Bank had already blessed the transaction of keeping the Indian fixed deposits as security for the overdraft dollar debt, no second permission is necessary for the Bank to exercise its right to adjust and set-off one account as against the other. Repatriation arises only in the course of the execution of the contract. It has no relevancy or impact on the right of the customer to ask for adjustment and the legal entitlement of the Banker to so adjust and set-off by conversion of the rupee security into a Malaysian dollar security, when the occasion is called for under the contract. This is not impossible of calculation and reckoning. The grant of permission by the Reserve Bank to repatriate converted funds is not adjudication by the Reserve Bank, as if it was a quasi-judicial determination of certain rights of parties. Ismail, J., in Ramiah v. Reserve Bank of India : (1970)1MLJ1 , while considering the scope of Section 21(3) (c) of the Foreign Exchange Control Act, said that as far as possible the permission contemplated by Section 21(3) (c) of the Act is concerned, it does not purport to adjust the rights of any parties. The rights and obligations of the parties have already been determined in the suit on legal proceedings instituted in which a decree has been passed in favour of one party against the other. Once a decree has been passed the judgment-debtor is under an obligation to discharge the decree debt and it is not the intention or object of the Act to wipe out or obliterate that obligation or to confer any benefit on him with reference to that obligation. The ratio in this case justifies our conclusion that once the Bank is in seisin of the Indian fund over which it has obtained control to the extent necessary for them to make a book adjustment, and thus set-off the security as against the debt, then the Banker cannot take undue advantage of the statutory formality which is thereafter required for mere transmission of the converted dollar fund to Penang. It would be highly unjust and illogical to assume that it is only on the date when the dollar's reached Penang as a result of the permission granted by the Reserve Bank that the debt has been paid and until then the relationship of debtor and creditor continued. The principle has been well laid and clearly set out by the House of Lords in Contract and Trading Co. v. Barbey (1959) 3 All. E.R. 846. The short facts as set put in the headnote are as follows:
The respondents carried on business and were resident outside the 'scheduled territories' as defined in the Exchange Control Act, 1947. They were holders in due course of three bills of exchange of which the appellants were acceptors and which were dishonoured on presentation. The appellants did not dispute that, apart from the effect of the Act of 1947, they would be liable to pay the amount due on the bills claimed by the respondents. No permission of the Treasury to make a payment under Section 5 was obtained by the appellants. By Section 33(3) and para. 4(1) of schedule IV to the Act, a claim for the recovery of a debt in a prescribed Court might not be defeated 'by reason only of the debt not being payable without the permission of the Treasury'. By Section 33(1) of the Act, it was an implied condition of any contract that a term of the contract should not be performed except in so far as Treasury permission was given or was not required. The respondents brought ah action in the High Court (which was a prescribed Court) for the amount of the bills, and the appellants contended that, by reason of the term implied in the bills by Section 33(1), the bills were not due and payable since Treasury permission had not been given.
Lord Radcliffe, speaking for the Board clearly explained the position at page 851 thus:
judgments for payment of money are subjected to similar conditions requiring Treasury consent before payment; in effect, the hand of control is shifted from the contract to the right arising under the judgment. Moneys due under judgments or orders can be paid into Court, thus discharging the debtor, and the fund itself still remains out of the control of the creditor until consent has been obtained.
19. The only difference in our case is that instead of a judgment of a Court, we have the contract which governs the parties and the same is in writing. The Bankers have secured their right to adjust whenever they pleased which obviously would include the legal obligation to adjust whenever a request is made by the customer to so adjust. Therefore, by reason of Exhibit A-62, a situation has arisen in and by which a right to set-off and adjustment has become vested in the Banker. This, therefore, discharged the appellants as debtors. The relationship between the customer and the banker as debtor and creditor eo instanti ceased. The Indian securities remained out of the control of the creditor until the permission was obtained from the Reserve Bank to transmit the same for purposes of regularising the book entries in Penang, but for all purposes, both legal and equitable, and by reason of the right to set-off the securities as against the debt, and sometimes to avoid unjust enrichment, the debt has become discharged on 25th April, 1966. If as per the rate of exchange as on that date any more amount is still payable by the appellants to the Banker that amount only can be claimed by them.
20. In the instant case, however, the Bankers demanded not the amount as above but the amount which was the difference between the debt as in the Penang Books and the value of the Indian securities converted into Malaysian dollars on the date when the Reserve Bank granted permission namely 15th September, 1967, and they claimed this difference in this action. It is common ground that if the conversion rate as on 25th April, 1966 is invocable and the Indian securities converted on that basis, there would be nothing due by the customer. But on the other hand, the Banker has to refund the excess amount in their hands.
21. It is as a result of this, the appellants as defendants in their written statement made a counterclaim. The lower Court decreed the suit on the ground that the exchange rate has to be worked out on the date when the Reserve Bank gave permission. As a consequence, it dismissed the counterclaim. But, in the light of the reasoning as above, the appeal has to be allowed and even so the counterclaim, because if the rate of exchange as on 25th April, 1966, is adopted, then the bookishly converted Malaysian dollars as on that date was more than sufficient to wipe off the Penang debt. There remained also some more money with the Tiruchi Bank, which is the subject-matter of the counter claim, which has been rightly laid.
22. The other question which was raised in this appeal whether defendants 4 to 6 are liable at all does not arise for consideration, as the suit ought to be dismissed and the counterclaim be allowed. We are not, therefore, inclined to consider the question whether on the facts and circumstances of the case, defendants 4 to 6 could be made personally liable for the debt of the firm. Prima facie, however, it appears to us, that as they took over liabilities of the firm when they were inducted into it, they would be bound by the contract and even so under the provisions of the Indian Partnership Act. No more discussion on this question is necessary.
23. We therefore, allow the appeal in full and accept the counterclaim as claimed by the appellants in their written statements. The appellants will be entitled to their costs throughout.
This appeal having been posted this day for being spoken to, the Court delivered the following Judgment:
24. This appeal is posted today for being spoken to. As the subject-matter raised a question which is bereft of authority and as both the counsel rendered their best possible assistance to come to a conclusion, we feel that the parties should be directed to bear their costs throughout themselves.