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PUNJAB & HARYANA HIGH COURT
Tek Chand and Shamsher Bahadur JJ.
Punjab National Bank Ltd.
Versus
Arura Mal Durga Das
First Appeal No. 141 of 1954,
Decided On : MAY 26, 1960
BANKING - LIEN - RIGHT OF SET-OFF - MUTUALITY OF OBLIGATION - BANK CANNOT COMBINE ACCOUNTS OF DIFFERENT PARTNERSHIPS OR OF A PARTNERSHIP AND AN INDIVIDUAL PARTNER - BANK CANNOT APPROPRIATE PARTNERSHIP DEPOSIT TO PAY OVERDRAFT OF ANOTHER FIRM CONSTITUTED BY THE SAME SET OF PARTNERS - BANK CANNOT CLAIM LIEN ON PARTNER'S PRIVATE ACCOUNT FOR OVERDRAFT ON PARTNERSHIP ACCOUNT OR VICE VERSA - BANK CANNOT SET OFF JOINT AND SEVERAL ACCOUNTS OPERATED BY TWO OR MORE PERSONS AGAINST INDIVIDUAL DEPOSIT OF ONE OF THEM - BANK CANNOT CLAIM DEPOSIT OF ONE PARTNER MADE ON HIS SEPARATE ACCOUNT IN ORDER TO UTILISE OTHER DEPOSIT AGAINST DEBT DUE FROM FIRM - PARTNERSHIP DEPOSITS CANNOT BE APPLIED TO INDIVIDUAL INDEBTEDNESS OF ONE OF THE PARTNERS.
Fact of the Case:
Plaintiffs, a firm of clearing agents, sued defendant No. 2, Punjab National Bank, for recovery of Rs. 5,000/- against a call deposit receipt issued by the bank in favor of defendant No. 1, M/s. Kakasingh Gurmukh Singh. Defendant No. 1 had approached the plaintiffs for a loan of Rs. 5,000/- against the security of the call deposit receipt, which was advanced by the plaintiffs on 24th December, 1946. Defendant No. 1 authorized the plaintiffs to receive the amount from the bank when it became payable. The bank refused to pay the amount to the plaintiffs, claiming a lien on the deposit to adjust the debit balance of defendant No. 1 in its Sheikhupura branch.
Finding of the Court:
The court held that the bank could not combine the account of defendant No. 1 with the account of the firm in Sheikhupura branch, as they were different entities. The bank's claim to set off the call deposit amount against the debts in Sheikhupura branch was, therefore, not valid. The court also held that the bank had no lien on the deposit of defendant No. 1 for the balance due to the bank from the firm, as there was no mutuality of obligation between the bank and defendant No. 1.
Issues: 1. Whether the suit lies in the present form? If so, how and to what effects? 2. Did the plaintiff advance Rs.5,000/- to the defendant firm No.1 on date 24th December,, 1946? If so, on what terms and to what effect? 3. Whether the defendant Bank No.2 is not liable to repay Rs.5,000/- deposited with it by the defendant firm No.1; if so, how and what effect? 4. Is the plaintiffs suit not within time? 5. Is the plaintiff entitled to recover the amount in suit from the defendant Bank No.2? If so how? 6. Is the plaintiff entitled to any interest? If so, what and from whom? 7. Relief.
Ratio Decidendi: The court applied the principles of banking law and the law of set-off to determine the rights of the parties. It held that a bank has a right to set off against all monies of its customers in its hands, but this right is subject to the requirement of mutuality of obligation. In the present case, there was no mutuality of obligation between the bank and defendant No. 1, as the account in Sheikhupura branch belonged to a different firm. Therefore, the bank could not set off the call deposit amount against the debts in Sheikhupura branch.
Final Decision: The court dismissed the appeal filed by the bank and upheld the decree of the lower court, which had granted the plaintiffs' claim for Rs. 5,000/- against the bank.
Tek Chand, J.
1. This is an appeal preferred by the Punjab National Bank Limited, Delhi, defendant No.2, from the decree of the Subordinate Judge 1st Class, Amristar.
2. In this case a decree was passed for Rs.5,000/- with proportionate costs in favour of the plaintiffs against the Bank. The plaintiffs, who are a firm of clearing agents of East Punjab government, had instituted a suit for the recovery of Rs.5,500/- against defendant No.1 M/s. Kakasingh Gurmukh Singh which had been sued through its partners Sham Singh, Harbhajan singh and Jai Ram Singh.
3. According to the allegations in the plaint, the plaintiffs who are a firm registered under the indian Partnership Act, used to carry on their business at Lahore before the partition of the country and defendant No.1 was an approved tenderer of the Punjab Government and in that capacity it had made what is called "a call deposit" of Rs.5,000/- in favour of the Punjab government in the Punjab National Bank, Limited, Lahore (defendant No.2), against a call deposit receipt dated the 6th September, 1945. It was alleged that defendant No.1 had approached the plaintiffs for a loan of Rs.5,000/- against and on the security of the said call deposit receipt and this money had been advanced by the plaintiffs to defendant No.1 on the 24th December,, 1946. Defendant No.1 had authorised the plaintiffs to receive this amount as represented by the receipt from the Bank when it became payable. In July 1947 the name of defendant No.1 was removed from the list of approved tenderers, and the Punjab Government by its letter No.6478-A-FA-CDR/47 of July 1947 wrote to the Bank to pay Rs.5,000/- which was the amount of the receipt dated the 6th September, 1945, to defendant No.1. A copy of this letter was also sent to defendant No.1. It was also stated that defendant No.1, intimated to the plaintiffs, after the 15th August, 1947, that the amount had been released. Defendant No.1 also wrote to defendant No.2, the Bank, to pay the amount of Rs.5,000/- to the plaintiffs and had also authorised the plaintiffs to receive the amount from the Bank. As the Bank had not paid the amount to the plaintiffs the latter approached defendant No.1 who again on the 23rd March, 1948, wrote to defendant No.2 to pay to the plaintiffs the amount of the said call deposit and gave a copy of this letter to the plaintiffs. The plaintiffs have, therefore, claimed Rs.5,000/- as principal and Rs.500/- as interest, totaling Rs.5,500/-, primarily from defendant No.1 and also from defendant No.2.
4. In a written statement filed on behalf of defendant No.1 it was stated that Sham Singh, harbhajan Singh and Jai Ram Singh had been carrying on business at Kamoke now in Pakistan. It was stated that the partnership had since been dissolved and the transaction, which is the subject-matter of the suit, relates to the partnership business carried on at Kamoke in the name of messrs. Kakasingh Gurmukhsingh. It was contended that the present suit had been filed against messrs. Kakasingh Gurmukhsingh carrying on business at Dhab Wasti Ram, Amristar, which has no concern with the transaction involved. It was also stated that Jai Ram Singh was not the partner of the defendant-firm.
5. On the merits it was stated that defendant No.1had never approached the plaintiffs for a loan of Rs.5,000/- against or on the security of the call deposit receipt. On the other hand, it was pleaded that the plaintiffs had approached Jai Ram Singh at Kamoke for permission to supply goods to the Government against cash advance of Rs.5,000/-. On this the right, title and interest in the aforesaid deposit were transferred in favour of the plaintiffs who were authorised to receive the call deposit from defendant No.2 after they had supplied the necessary goods to the government. It was further denied from the list of approved tenderers in 1947. Defendant No.1, however, stated that the amount of the call deposit became payable to the plaintiffs as a result of the
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