1981 Supreme(Cal) 243

High Court Of Calcutta
Pratibha Bonnerjea
KRISHNA KISHORE KAR - Appellant
Versus
UNITED COMMERCIAL BANK - Respondent
Suit 1520  Of  1966
Decided On : 07/08/1981

A bank is entitled to appropriate and adjust its claim for Rs. 19,787. 32 against the balance of Rs. 93,500/- in exercise of its general lien under Section 171 of the Contract Act.

Headnote:

BANKING - GUARANTEE - APPROPRIATION - SET OFF - LIMITATION - INTEREST - In a suit for recovery of money deposited with the defendant bank as margin money against the bank's guarantee in favour of the defendant No. 2, HELD, the bank was entitled to appropriate and adjust its claim for Rs. 19,787. 32 against the balance of Rs. 93,500/- in exercise of its general lien under Section 171 of the Contract Act, but not for Rs. 56,740/- as no demand was made prior to alleged appropriation or adjustment.

Fact of the Case:

Plaintiff instituted a suit against the defendants for recovery of Rs. 2,26,858. 26 on account of the following facts: Plaintiff had opened a cash credit account with the defendant bank. Plaintiff had dealings and transactions with Durgapur Project Limited, the defendant No. 2 herein. On 2-8-1962, the defendant No. 1 at the request of the plaintiff, executed a bond for Rs. 2,00,000/- in favour of the defendant No. 2 guaranteeing payment for coal supplied and to be supplied to the plaintiff by the defendant No. 2. As against this bond, the plaintiff, on 2-8-1962, executed a counter guarantee in favour of the defendant No. 1 on certain terms and conditions contained therein. The period of guarantee was from 2-8-1962 to 1-8-1963. The plaintiff alleged that the guarantee period in favour of the defendant No. 2 had expired and he had paid in full the entire dues of the defendant No. 2 and had demanded refund of the margin money of Rs. 1,83,500/- from the defendant Bank but it failed and neglected to refund the same.

Finding of the Court:

The court held that the plaintiff was liable to pay the freight bills on presentation by the Railway regardless whether he had obtained delivery of coal or not and irrespective of the fact that the bills contained error or overcharge. The court further held that the Bank was not entitled to refuse payment on the basis of the plaintiff's instruction dated 31-1-1964. The court also held that the Bank had rightly ignored the said instruction. The court further held that the Bank was entitled to appropriate and adjust its claim for Rs. 19,787. 32 against the balance of Rs. 93,500/- in exercise of its general lien under Section 171 of the Contract Act, but not for Rs. 56,740/- as no demand was made prior to alleged appropriation or adjustment.

Issues: 1. Did the plaintiff duly pay to the defendant No. 2 all amounts in respect of the transactions for the period covered by the Guarantee dated 2-8-1962, as alleged in para 9 of the plaint? 2. Is the defendant No. 1 liable to pay to the defendant No. 2 the sum of Rs. 2,06,272. 90 p. in terms of its letter dated 29-4-1963 out of Rs. 1,83,500/-held by the defendant No. 1 under the Guarantee dated 2-8-62? 3. Is the defendant No. 1 entitled to recover Rs. 56,740/- out of the aforesaid sum of Rs. 1,83,500/- in terms of the letter dated 27-11-62 written by the plaintiff, as alleged in paras 13 and 15 of the written statement of the defendant No. 1? 4. Is the defendant No. 1 entitled to exercise a lien in respect of its alleged claims of Rs. 76,527. 32 against the said sum of Rs. 1,83,500/-, as alleged in para 16 of the written statement of the defendant No. 1? 5. Is the defendant No. 1 entitled to appropriate and/or set off a sum of Rs. 76,527. 32 p. . as pleaded in para 16 of their written statement? 6. Is the claim of the defendant No. 1 for set off and/or counter-claim and/or adjustment barred by limitation, as stated in the Additional Written Statement of the plaintiff?

Ratio Decidendi: The court held that the plaintiff was liable to pay the freight bills on presentation by the Railway regardless whether he had obtained delivery of coal or not and irrespective of the fact that the bills contained error or overcharge. The court further held that the Bank was not entitled to refuse payment on the basis of the plaintiff's instruction dated 31-1-1964. The court also held that the Bank had rightly ignored the said instruction. The court further held that the Bank was entitled to appropriate and adjust its claim for Rs. 19,787. 32 against the balance of Rs. 93,500/- in exercise of its general lien under Section 171 of the Contract Act, but not for Rs. 56,740/- as no demand was made prior to alleged appropriation or adjustment.

Final Decision: Decree for Rs. 1,63,622/- in favour of the plaintiff against the defendant Bank, but this decree will not be drawn up, completed or executable before expiry of four months from date. If in the mean time, the Bank makes a demand in writing on the plaintiff within a month from date, for payment of Rs. 56,740/- in terms of the counter guarantee dated 27-11-1962, and the plaintiff pays the said sum within one month from the date of receipt of the said demand notice, then in that case the defendant Bank will refund the entire sum of Rs. 1,63,622/- to the plaintiff within two months from the receipt of payment of Rs. 56,740/-. In case the plaintiff defaults in making payments as aforesaid within the period mentioned above, then the defendant Bank will be entitled to set off, adjust or retain Rs. 56,740/- out of the said sum of Rs. 1,63,622/- and refund to the plaintiff the balance amount of Rs. 1,06,882/- before expiry of four months from data and the plaintiff will accept the same in full and final satisfaction of the decretal dues. If, however, the Bank fails to make the demand as aforesaid, in that case also the Bank will refund the entire sum of Rs. 1,63,622/- to the plaintiff within four months from date.