In the absence of an express agreement for the grant of overdraft, there can be an implied agreement for grant of overdraft or loan facility, and the customer is liable to make good to the Bank the amount overdrawn in its aforesaid current account with reasonable interest.

Headnote:
BANKING - OVERDRAFT FACILITY - IMPLIED AGREEMENT - INTEREST - RATE - CIRCULAR OF RESERVE BANK - APPLICABILITY:
Fact of the Case:

Plaintiff Bank filed a suit against the defendants, a partnership firm and its partners, for recovery of an overdraft amount with interest. The plaintiff claimed that the defendants had requested for an overdraft facility and that facility was sanctioned. The defendants denied the claim and contended that no overdraft facility was granted to them.
Finding of the Court:

The court held that even in the absence of an express agreement for the grant of overdraft, there was an implied agreement for grant of overdraft or loan facility and the customer, namely, defendant No. 1 was liable to make good to the Bank the amount overdrawn in its aforesaid current account with reasonable interest.
Issues: 1. Whether there was an implied agreement for the grant of overdraft facility? 2. What is the reasonable rate of interest that can be granted in such a case?
Ratio Decidendi: 1. The court relied on the legal principles that a customer may borrow from a banker by way of loan or by way of overdraft, and that an agreement for an overdraft must be supported by good consideration, and it may be express or implied. 2. The court held that the Reserve Bank Circular governing the relations between the Reserve Bank and the Bank is subject to its control and does not bind the customer or its partners.
Final Decision: The court allowed the appeal, set aside the impugned judgment, and decreed for the plaintiff against the defendants for a sum of Rs. 69,149.26 with interest thereon at the rate of 12% per annum from 1-4-1976 till the date of judgment and 6% per annum hereafter till payment or realization, whichever is earlier.

JUDGMENT - KANIA M.H., J.: - This is an appeal against the judgment of a learned Single Judge of this Court dated December 18, 1981 dismissing the suit filed by the appellant. We propose to refer to the parties hereafter, for the sake of convenience, by their original description in the suit. The plaintiff is a nationalised Bank. Defendant No. 1 is a partnership firm of which defendants Nos. 2 to 4 are the partners. The suit was filed by the plaintiff for recovery of a sum of Rs. 74,047.36 with further interest on Rs. 69,149.26 at the rate of 17% per annum from September 1, 1976 till judgment and thereafter at the rate of 6% per annum.

2. The relevant facts have been set out in the judgment of the learned trial Judge and hence we only propose to set out only such of these facts as are necessary for the appreciation of the controversy raised before us. On October 11, 1971 defendant No. 1 made an application to the Bandra Branch of the plaintiff Bank for opening a current account. That application was signed by defendants 2 to 4. Alongwith the said application defendants 2 to 4 handed over a letter stating, inter alia that they were partners of defendant No.1 firm and gave special instructions that the current account to be opened could be generally operated by cheques signed by any one of the partners. A copy of the said letter is Exhibit 'A' on record. Pursuant to this request of defendants, a current account bearing No. 115 was opened by the plaintiff Bank. That account was operated upon by defendant No. 3 on behalf of defendant No. 1. The case of the plaintiff is that in August, 1973 the defendants requested for an overdraft facility and that facility was sanctioned. Pursuant to this facility, defendant No. 3 on behalf of the defendant No. 1 withdrew several amounts from the account and on September 30, 1975 there was a debit balance of Rs. 63,397.37 due from the defendants. The suit was filed by the plaintiff Bank for recovery of this amount with interest at 17%. The plaintiff served a notice of demand on October 6, 1975 on the defendants and an advocate's notice dated May 7, 1976. According to the plaintiff, the defendants failed to return the amount and hence the suit was filed on August 31, 1976.

3. It may be mentioned that separate written statements were filed by defendants Nos 1, 2 and 4 on the one hand and by defendant No. 3 on the other. It is not necessary to dilate upon the defences taken up. All the defendants admitted that they had opened a current account with the plaintiff as claimed by the plaintiff but denied that they had sought any overdraft facility from the plaintiff. They further complained that no details about the accounts of the alleged overdraft facility had been supplied to them by the plaintiff. The defendants denied that from time to time there were debit balances in the said account against the defendants, as was claimed by the plaintiff. No issues were framed, as is usually done, before the hearing commenced, but from the judgment of the learned trial Judge it appears that he took the view that the sole issue which required determination in the suit was whether the plaintiff has granted any overdraft facility to the defendants and whether the claim on the basis of that facility was maintainable.

4. In support of the claim of the plaintiff, one Manohar Sitaram Sathe, who was working as the Branch Manager of the Bandra (East) Branch at the relevant time, was examined. He stated in his evidence that defendant No. 3 had approached him in August, 1973 and orally sought a temporary overdraft facility, which the said Sathe agreed to sanction as it was for a temporary duration. Sathe produced a bundle of the cheques drawn on behalf of defendant No. 1 firm and a copy of the statement of account duly certified under the Banker's Books Evidence Act showing the balance due from defendant No.1. The statement of accounts of the said account tendered by Sathe is Exhibit ”C” on record and at Exhibit “D” is the re

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