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High Court Of Calcutta
M. N. RAO, DILIP KUMAR BASU
GUPTA BISCUITS (P) LTD. - Appellant
Versus
UNITED COMMERCIAL BANK - Respondent
F. M. A. 273 Of 1987
Decided On : 11/04/1987
COMPANY LAW - Company and its Director - Distinction - Bank Account - Operation and Management of - Right to operate - Liability of Director for the debt of the Company - Negotiable Instruments Act, 1881 - Sections 31, 32, 61, 64 - Companies Act, 1956 - Section 433 (e) - Civil Procedure Code, 1908 - Order 39, Rules 1, 2 - Whether the respondent Bank was justified in withholding payment or dishonoring the cheque, when the appellant had sufficient fund available?
Fact of the Case:
The appellant, a Private Limited Company, had a Current Account with the respondent Bank. The appellant's Directors were also the proprietors of a Consumer Agency, which had an overdraft facility with the respondent Bank. The Consumer Agency failed to repay the overdraft, and the respondent Bank filed a suit against the appellant and its Directors to recover the amount due. The respondent Bank also advised the appellant's other Bank, Andhra Bank, to take appropriate steps to prevent the appellant from running away with the money deposited with the respondent Bank. The appellant issued a cheque for Rs. 90,000/- in favour of Andhra Bank, for transfer of the amounts lying with the respondent Bank, but the respondent Bank refused to credit the said amount in favour of Andhra Bank on the ground that the drawer's signature differs. The appellant issued another cheque for Rs. 82,035.61p in favour of the respondent Bank, for issuing a Demand Draft in favour of Durgapur Project Ltd. for Rs. 81,841.61p. The respondent Bank returned the concerned cheque and other forms as filed without issuing the Draft in favour of Durgapur Project Ltd. The appellant filed a writ petition challenging the respondent Bank's action. The learned single Judge dismissed the writ petition, holding that the parties should file a suit to establish their rights.
Finding of the Court:
The Court held that the respondent Bank was not justified in withholding payment or dishonoring the cheque, when the appellant had sufficient fund available. The Court also held that the appellant had a right to operate its Bank Account and that the respondent Bank could not refuse to honour the cheque simply because the appellant's Directors were defaulters in respect of another Account. The Court further held that the respondent Bank's action in refusing to honour the cheque was mala fide and arbitrary.
Issues: 1. Whether the respondent Bank was justified in withholding payment or dishonoring the cheque, when the appellant had sufficient fund available? 2. Whether the appellant had a right to operate its Bank Account? 3. Whether the respondent Bank could refuse to honour the cheque simply because the appellant's Directors were defaulters in respect of another Account? 4. Whether the respondent Bank's action in refusing to honour the cheque was mala fide and arbitrary?
Ratio Decidendi: 1. A Bank has a duty to pay and honour the cheque of its customer, if the customer has sufficient fund available. (See paragraph 21) 2. A Company has a right to operate its Bank Account, even if its Directors are defaulters in respect of another Account. (See paragraph 14) 3. A Bank cannot refuse to honour the cheque of its customer simply because the customer's Directors are defaulters in respect of another Account. (See paragraph 13) 4. The respondent Bank's action in refusing to honour the cheque was mala fide and arbitrary, as the respondent Bank had no valid reason to believe that the appellant was trying to defraud the Bank. (See paragraph 21)
Final Decision: The Court allowed the appeal and set aside the judgement of the learned single Judge. The Court also directed the respondent Bank to pay interest on the appellant's Bank Account from 1st October, 1986 @ 12% p. a.
( 1 ) THIS appeal from original order is directed against the judgement and order dated 16th January, 1987, passed by a learned single Judge in C. O. No. 15186 (W) of 1986. By such determinations, the application. which was moved and on the basis whereof the concerned Civil Order was issued, was dismissed, holding inter alia amongst others that in the facts and circumstances of the case, the parties should file a suit to establish their rights.
( 2 ) THE appellant M/s. Gupta Biscuits (P) Ltd. is an existing Private Limited Company registered under the Companies Act, 1956 and has its Registered Office at N. S. Road, Asansol, Burdwan and the factory is situated at Karangapara Road, Durgapur, Burdwan. It was the case of the appellant that it was engaged in manufacturing and selling of biscuits of various types and for the convenience of operation and for carrying on the day to day monetary affairs, a Current Account with the United Commercial Bank, Asansol was opened. It has also been stated that in the course of the business with the said Bank, deposits of money, cheques etc. for realisation and credit in favour of the appellant were made and cheques were also issued for withdrawal of the amounts lying with the said Bank in the concerned Current Account.
( 3 ) THE appellant has stated that the regular operation and exchanges of business between it and the Bank as mentioned hereinbefore, went on smoothly till September, 1986, but the trouble was created by the said Bank, by not honouring the cheques drawn by the appellant since Oct. 1986, although the appellant had and still has sufficient funds in the concerned Current Account with the Bank as mentioned above. It has been stated that considering the conduct of the respondent Bank, the appellant wanted to close its Account with them and accordingly, a resolution to that effect was passed in the Board meeting of the appellant on 1st Oct. 1986, and the same was communicated to the Bank by the letter of the same day. The said letter has been disclosed as Annexure-A to the writ petition and the same was signed by Anil Kumar Gupta, Sunil Kumar Gupta, Manju Gupta and Arun Kumar Gupta.
( 4 ) IT was the case of the appellant that in course of business it had deposited some Drafts in the Current Account and issued cheques for withdrawal of the amount including the amount of the encashed Drafts, but the respondent Bank declined to allow such withdrawal and informed the appellant that the Andhra Bank at Asansol, another Nationalised Bank with whom the appellant had also a Current Account, has raised objection for running Accounts with two separate Banks by the appellant and on such information the appellant approached the said Andhra Bank, who after hearing it, withdrew the objection by writing a letter dated 6th Oct. 1986, which was also disclosed by Annexure-B to the petition.
( 5 ) IT has been alleged that thereafter, the appellant issued another cheque for Rs. 90,000/- on 21st Oct. 1986, in favour of Andhra Bank, for transfer of the amounts lying with the respondent Bank, but they refused to credit the said amount in favour of Andhra Bank on the ground that drawer's signature differs and when the appellant wanted to sign the concerned cheque again, the respondent Bank disallowed such signature to be put in. It was also the case of the appellant that on 29th Oct. 1986, another letter was addressed to the respondent Bank, stating inter alia amongst others that on account of their refusal to honour the cheque in spite of having sufficient funds in the account, the appellant has suffered and was suffering a loss of Rs. 50,000/- per day and the said respondent Bank was further requested to issue a Bank Draft in favour of M/s. Durgapur Project Ltd. , for Rs. 81,871. 61 and to remit the balance of the funds as available, to Andhra Bank. The respondent Bank, it has been stated, in their turn, refused to take any action in the matter and on 4th November, 1986, the appellant al
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