Banks Should Release Title Deeds Of Property Which Were Not Intended To Be Secured Asset For A Particular Loan : Orissa High Court

Background Facts

Balaram Choudhary (Petitioner) acquired a home loan along with his wife from the Indian Bank (Respondent) and deposited the original title deeds of his self acquired property (Property) as a security for the loan. Also the Petitioner's wife had a partnership Firm with Mrs. Anita Dutta, where the partners availed a loan from the same bank, on behalf of the firm. But due to non-payment of the firm loan, the account became NPA.

As the petitioner's wife was borrower in both the loan accounts, the respondent bank issued a notice dated 05.08.2023 to the petitioner, stating that the home loan account of the Petitioner would be classified as NPA because the loan account of the firm was classified as NPA. After getting the said notice, the petitioner immediately paid the outstanding amount of the home loan account, but the bank did not returned the title deeds of property.

Aggrieved by the same, the petitioner filed the petition challenging the notice dated 05.08.2023.

The petitioner contended that he had no business interest or financial relation with the partnership firm and the property in question was not a secured asset for the loan to firm, therefore no security interest was created in favour of the respondent bank.

On the other hand, it was contended, by the respondent that even though the Housing Loan Account was closed but the petitioner's wife was defaulter to the Partnership loan account. So the bank had every right to exercise its General Lien under Section 171 of the Indian Contract Act, 1972 by keeping that title deed till the loan account of partnership firm was closed.

Findings of the Court

The court observed that the title deeds deposited as security was not a form of security in respect of which Section 171 of the Contract Act could be applied.

The court further observed that the deposit of title deeds by the petitioner was for a specific purpose of home loan, so the bank cannot hold the documents for a balance due in a different loan account where the petitioner is not a borrower.

The Court held that if a Bank had lent money to a particular customer for a specific purpose, the right of Bank over the money and its customer does not extend to amounts which have been borrowed by the customer in different capacity. The court relied on the case of Punjab National Bank Ltd. v. Aruna Mal Durga Das, wherein the Punjab High Court held that the Bank has no right on a partner's private account for an overdraft on partnership account in different capacity.

The court further observed that for the banks to have a right to combine one or more accounts, it is necessary that the accounts must belong to the one borrower and in the same capacity. The court relied on the case of M. Shanti v. Bank of Baroda wherein the Madras High Court held that the joint and several accounts managed by two or more individuals cannot be offset against the separate deposits of any individual.

The court held that the petitioner's wife was borrower in both loan accounts but these accounts could not be combined as she took both the loans in different capacity. Also, since the petitioner cleared the outstanding balance in the home loan account, the retention of the title deeds of the petitioner by the respondent was without any authority of law and was arbitrary. Hence, the notice dated 05.08.2023 was quashed.

With the aforesaid observations, the Writ Petition was allowed.

Case No. : W.P.(C) No.26178 of 2023

Case Name: Balaram Choudhury vs. Indian Bank, Bhubaneshwar

Counsel for the Petitioner : Ms. Pami Rath, Sr. Adv.

Counsel for the Respondent : Mr. Tuna Sahoo, Adv.