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NATIONAL CONSUMER DISPUTES
REDRESSAL COMMISSION, NEW DELHI
Hon’ble Mr. Justice Suhas C. Sen, President; Mr. Justice
C.L. Chaudhary, Mr. Justice J.K. Mehra, Mrs. Rajyalakshmi Rao &
Mr. B.K. Taimni, Members
CANARA BANK & ANR.—Appellants
versus
C.D. PATEL—Respondent
First Appeal Nos. 604 of 1996 and 22 of 1997—Decided on 28.2.2001
Counsel for the Parties :
For the Appellant :Mr. Pradeep Dewan, Advocate.
For the Respondent No. 1:Mr. R. Jawahar, Advocate for Mr. P.H. Parekh, Advocate.
For the Respondent No. 2: Nemo.
The judgment established the principle that a general lien can be created in favor of a bank, allowing it to adjust a disputed fixed deposit amount against dues from various loans/overdrafts taken by a company.
Headnote:
Bank Guarantee - Security for Loan - FCNR Fixed Deposit Account - Companies Act, 1956, Section 372A - Banking Regulation Act, 1949, Section 9 - Reserve Bank of India Act, 1934, Section 21 - Syndicate Bank v. Vijay Kumar, AIR 1981 SC 126
Fact of the Case:
M/s. Suncrush Fruits P. Ltd. sought an overdraft facility from Canara Bank, with CD. Patel, a Non Resident Indian, providing security by making a fixed deposit of 15,000 pounds. The fixed deposit was to be kept for two years but was allowed to continue for eight years without Patel's consent. When Suncrush faced financial difficulties, Patel demanded the return of the deposit and accrued interest.
Finding of the Court:
The court found that a general lien was created in favor of the Bank, allowing it to adjust the disputed fixed deposit amount against dues from various loans/overdrafts taken by Suncrush. The complaint by Patel was dismissed, and the appeal was also dismissed.
Issues: The key issue was whether the Bank could withhold the fixed deposit amount to meet not only the specific loan for which it was pledged but also other dues of the Bank.
Ratio Decidendi: The court held that a general lien was created in favor of the Bank, allowing it to adjust the disputed fixed deposit amount against dues from various loans/overdrafts taken by Suncrush.
Final Decision: The order dated 31.10.1996 under appeal was set aside, and the complaint was dismissed. The cross appeal by CD. Patel was also dismissed.
Mr. Justice Suhas C. Sen, President— M/s. Suncrush Fruits P. Ltd. approached the Canara Bank for an over draft facility. Canara Bank agreed to furnish the facility but required a security for the amount. CD. Patel, the complainant, a Non Resident Indian, agreed to provide security by making a fixed deposit of 15,000 pounds with the Canara Bank. Fixed deposit was to be kept in a F.C.N.R. Fixed Deposit Account for a period of two years. On the strength of the fixed deposit, Canara Bank agreed to give Suncrush an over draft facility for an equal amount in Indian Rupees. On the maturity of the Fixed Deposit it was renewed at the request of the complainant CD. Patel, the NRI along with the accrued interest.
2. The case of C.D. Patel, the complainant is that he had deposited 15,000 pounds as security for one loan, i.e. Rs. “2 lakhs and that was for a limited period of only 2 years, the period. The said amount was not offered as security for any other loan taken by the Company. The security was allowed to continue beyond two years without knowledge and consent of the complainant. The Bank woke up only after the financial condition of Suncrush becoming precarious and its factory was seized by the financial institutions.
The complainant has demanded return of the entire amount with accrued interest amount standing to his credit in the F.C.N.R. Fixed Deposit Account.
3. The first question is what is the relationship between the complainant, CD. Patel and the Company Suncrush. Suncrush is a Private Company. CD. Patel is a substantial shareholder in that Company. No shareholder stands security for a loan taken by the Company unless he has a deep and abiding interest in the management of the Company. This relationship has not come out in the open in the petition or in the affidavit filed before us. No affidavit has been filed before us on behalf of Suncrush. It is not known what is the status of the Company now. Has the Company been wound up or has any winding up action has been started against the Company ? It has been stated that financial institution have closed in and have seized the assets of the Company. If the loan was initially given for a period of two years and the security was also for a period of two years only, it is strange that even after the F.C.N.R. Fixed Deposit materialized in 1986 no attempt was made by Patel to withdraw this amount and was kept renewed along with the interest and was allowed to be held as security for the Company’s loan/overdraft. It is only when the Company’s condition became precarious Patel decided to withdraw the said Deposit. Suncrush had applied for an overdraft/loan of Rs. 2 lakhs and in the printed form for such application, in column 7 it was stated.
“the consideration for which
The name of C.D. Patel has
the overseas depositor has
been shown as share holder
agreed to pledge the fixed
who has the Company to
deposit as collateral security
tide over problems during
for the loan/overdraft.
the first year of operation.
It was also stated that Patel held 2000 shares of Rs. 100/- each in the Company.
4. It is trite law that a shareholder is not liable for the debts of the Company. The Company is clothed with a juristic personality which is quite different and separate from its shareholders. The shareholders cannot be made liable for the debts of the Company.
There are however situations where for the sake of equity, corporate veil is pierced. Particularly, once winding up proceedings start, the Company’s corporate veil can be lifted to find out the reality. In the instant case, we are not aware of the status of the Company except that it is in financial straits. Its assets have been seized by the financial institution. Patel who had opened a Fixed Deposit Account and given its security for two years but had allowed it to continue for nearly eight years for the benefit of the Company has now come with a complaint that the Fixed Deposit which was due to mature on 28.10.1994 should not be extended any further and
