A bank cannot unilaterally freeze a partnership firm's account to secure debts from a separate proprietorship, as mutuality of obligation must exist for the right of set-off to apply.

JUDGMENT :

MANOJ JAIN, J

1. This petition poses question whether it is permissible for any bank to "put on hold‟ bank account of one entity to secure its dues to be recovered from another entity.

2. The broad facts are not in dispute.

3. Petitioner and his wife Mrs. Jyoti Bansal (respondent No. 2 herein) are partners in a partnership firm - M/s Imperial Finance Company. Such partnership firm maintains current account no. 3688550290 in one of the branches of the respondent no.1-Bank. Such branch is at Saraswati Bal Mandir, Uttam Nagar Branch, Rajouri Garden, Delhi.

4. Notably, Mrs. Jyoti Bansal, the other partner of the above said partnership firm, as sole- proprietor of M/s Next World Technologies is maintaining a separate current account i.e. CC Account no. 3163455860 with the respondent Bank, albeit, in another branch i.e. Parliament Street Branch, New Delhi, 110001.

5. Apparently, the bank accounts are of two different entities, maintained at different branches.

6. As averred, the petitioner, when, attempted to conduct an online transaction on 10.02.2021 in his abovesaid partnership firm's current account, he could not do so. He, eventually, learnt that the bank had placed their said partnership bank account "on hold‟. Consequently, the petitioner was unable to operate his said account and was unable to withdraw money from said partnership account.

7. The respondent bank also sent a letter to Mrs. Jyoti Bansal on February 11, 2021, informing her that she owed Rs. 80,47,000 in her said CC account related to M/s Next World Technologies. It was also mentioned therein that since despite several communication, she had not regularized said account and overdue was not paid, her said account had been classified as NPA (Non-performing Asset). The bank also stated in the abovesaid letter that she was partner in partnership firm M/s Imperial Finance Company and said firm was maintaining current account with Saraswati Bal Mandir, Uttam Nagar Branch, a sum of Rs. 38,60,000 lying therein had been put "on hold‟ for the aforementioned outstanding sum payable by her proprietorship concern. She was advised to regularize her own account, else to face appropriate action under right to set off.

8. Such letter dated 11.02.2021 issued by respondent No. 1-Bank, whereby it has put on hold the current account of a partnership firm - M/s Imperial Finance Company, is under challenge before this Court by way of the present petition filed under Article 226 of the Constitution of India.

9. The above action of the bank has been assailed while contending as under: -

1) There is no relation or nexus between the two accounts. One account is of partnership firm; the other is of the proprietorship concern.

2) Merely because, respondent no.2 is also partner of M/s Imperial Finance Company, the bank would not get any right to freeze said firm account, when the same is being maintained as per the banking norms.

3) These entities - the partnership firm and the proprietorship firm – are distinct entities, having separate PAN, distinct beneficiary and different mode of operation.

4) No notice was, even otherwise, ever given by the bank to put the account "on hold‟ and, therefore, also, such action of the bank is against the principles of Natural Justice as also against RBI Guidelines and Banking Rules.

5) Partnership firm is separate legal entity and no right of set-off is available to the bank. The amount put "on hold‟ vests with partnership firm whereas the amount alleged to be due was from different concern i.e sole proprietorship concern.

6) Mrs. Jyoti Bansal