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IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT NAGPUR
A.S. Chandurkar, Urmila S. Joshi-Phalke, JJ.
Mr. Sunil – Appellant
Versus
Union Bank Of India – Respondent
Writ Petition No. 32 of 2022
Decided On : 13-06-2022
Indian Contract Act - Right of General Lien - Section 171 - Summary of Acts and Sections: Indian Contract Act, 1872 (Section 171), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Section 13(2)) - The court discussed the right of general lien under Section 171 of the Indian Contract Act, 1872 and its application in the context of retaining security documents by the bank. The court highlighted the interpretation of Section 171 and its limitations, emphasizing that the bank's right of general lien cannot be extended after the clearance of the debt. The court also emphasized the availability of writ jurisdiction against nationalized banks and the obligation of the bank to release security documents upon satisfaction of the loan amount.
Fact of the Case:
The petitioner obtained a loan from the respondent-Bank to purchase a flat and provided the flat's title deeds as security. After repaying the loan, the petitioner requested the bank to release the security documents, but the bank refused, citing a pending loan account related to a company where the petitioner was a director.
Finding of the Court:
The court found that the bank's exercise of the right of general lien under Section 171 of the Indian Contract Act was not justified after the petitioner had fully repaid the loan. The court also held that the petitioner was entitled to relief and directed the bank to release the security documents and consider issuing a no-dues certificate.
Issues: The main issue was whether the respondent-Bank had the right to withhold the security documents under Section 171 of the Indian Contract Act, 1872, despite the petitioner fully repaying the loan.
Ratio Decidendi: The court held that the bank's right of general lien under Section 171 cannot be extended after the clearance of the debt. It emphasized that the bank's exercise of lien was not justifiable when there was no ongoing banker-customer relationship.
Final Decision: The writ petition was partly allowed, directing the respondent-Bank to release the security documents and consider issuing a no-dues certificate. The bank was also permitted to take appropriate steps for loan recovery before the Debt Recovery Tribunal.
JUDGMENT
Urmila S. Joshi-Phalke, J. - Heard learned counsel for the petitioner and learned counsel for the respondent.
2. RULE. Rule is made returnable forthwith.
3. By invoking the jurisdiction of writ, the question raised by the petitioner in the present writ petition is whether the respondent-Bank has right to withhold the documents of security in view of Section 171 of the Indian Contract Act, 1872 (hereinafter referred to as 'the said Act' for short) under the right of general lien especially when petitioner has fully repaid the amount of loan.
4. Brief facts are as under :
A] The petitioner was in need of financial assistance. Accordingly, he approached to the respondent-Bank. He applied for loan of Rs.21,00,000/- (Rs. Twenty one lacs) before the respondent-Bank by way of loan application dated 13/08/2011.
B] The respondent-Bank sanctioned loan vide its sanction letter dated 06/09/2011 on condition that loan is repayable in 300 monthly installments. The petitioner is also a Director and Personal Guarantor in the Company under the name and style as 'Sunil Hitech Limited'. As the Company was in debt went in the liquidation. By an order of National Company Law Tribunal (hereinafter referred to as 'NCLT' for short), Liquidator was appointed. As per the contention of the petitioner due to financial crisis he could not pay monthly installments, therefore, he approached the respondent-Bank for seeking permission to sale the flat which was purchased by him after obtaining the loan. The Title Deeds of said flat was handed over to the Bank as security. Despite repeated requests no response received from the Bank. The petitioner issued a legal notice to the respondent with request to issue No Objection Certificate to sale the flat. But instead of giving No Objection Certificate, respondent-Bank issued notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'SARFAESI Act' for short). By the said notice, loan account of the petitioner was declared as NPA and the petitioner was called upon to pay the loan amount. The respondent-Bank vide reply dated 24/03/2021 gave no objection to the petitioner to sale out the flat. The respondent-Bank further intimated the petitioner that he shall adjust the sale amount towards home loan and remaining amount is to be adjusted towards loan account of the Company. Accordingly, the petitioner closed the loan account i.e. Home Loan. After the amount was satisfied, the petitioner requested to remit the property papers to the purchaser Shri Ishwar Narsing Phunde but respondent-Bank has not paid any heed towards it.
C] Therefore, the petitioner by invoking jurisdiction under writ, made a grievance that despite repeated request the respondent-Bank has not remitted the papers. It was informed to him that due to orders by Superior Officers they are unable to remit the papers, therefore, the petitioner approached Assistant General Manager with request to remit the paper but his efforts were futile. Hence, this petition.
5. In response to the notice, respondent-Bank has filed its reply. As per the respondent-Bank the petitioner has alternate efficacious remedy before the Debt Recovery Tribunal, New Delhi and other Forum to deal, therefore, writ petition needs to be dismissed. It is further contention of the respondent-Bank that respondent-Bank has filed an application before the Debt Recovery Tribunal, New Delhi bearing Original Application No.491/2019 against the petitioner and others for recovery of loan amount. The petitioner is a guarantor/Director/Borrower of Company namely Sunil Hitech. The respondent-Bank has also moved an application for attachment of property owned and possessed by the petitioner and the said matter is pending for final hearing on 14/01/2022, therefore, till the out come of order of Debt Recovery Tribunal, the respondent-Bank is unable to release the documents as prayed in this petition.
The main legal point established in the judgment is that the bank's right of general lien under Section 171 of the Indian Contract Act cannot be extended after the satisfaction of the loan amount, an....
A bank cannot assert a general lien over title deeds related to a home loan to secure unrelated debts; repayment of the home loan extinguishes the lien.
Home loan – No law for time being in force, permits bank to retain title deeds alleging dues in respect of any other transaction, under Section 171 of Contract Act.
A general lien under Section 171 of the Indian Contract Act is not applicable to title deeds of immovable property; they must be returned upon loan settlement unless an express agreement allows other....
A bank can exercise its general lien over securities deposited by customers in ordinary banking business, as provided in Section 171 of the Indian Contract Act, even after discharge of specific liabi....
The main legal point established is that a bank's right to exercise a general lien is limited to specific circumstances, and the mortgagor has the right to redeem the mortgage under the Transfer of P....
A bank cannot exercise a general lien over the documents of a property mortgaged as security for a loan for recovery of amounts other than the loan for which the lien was created.
The main legal point established in the judgment is the limitation on a bank's power to retain pledged goods, emphasizing the need for adherence to higher standards of transparency and reasonableness....
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