Bank Can Exercise General Lien To Appropriate Term Deposits Of Customers Toward Default Payment Of Loan: Karnataka High Court

The Karnataka High Court recently set aside an order of the single judge which had directed Union Bank of India to release the amount in Term Deposits which came to be appropriated towards the loan taken by a businessman, exercising its power of general lien over such deposits.

A division bench of Justice S G Pandit and Justice Ramachandra D Huddar allowed the appeal filed by the Bank and set aside the order dated May 2, 2023.

The bench said “It is observed in the impugned order in writ petition that, because of issuance of recovery certificate by the DRT the term deposits belongs to the petitioners are crystallized. But when the bank has got general lien over such deposits which is dealing in public money and has exercised its general lien as per the undertaking given by the father of the petitioners as well as now the petitioners the question of releasing the said deposit to the petitioners does not arise. Therefore, the appellants (Bank) have made out grounds to interfere with the impugned judgment.”

Background

The petitioners V Harish D Kamath who are children of deceased Devadas S Kamath, challenged the endorsement issued by the bank which had exercised general lien over the Fixed deposits in the name of Kamath and transferred the proceeds of the deposits towards the loan account of the said M/s.Sheshashayana Enterprises on 31.03.2016 of which the deceased had availed.

The petitioners claimed that the boat for which the loan was availed was insured, the Bank ought to have proceeded against the Insurance Company as well as borrower. Therefore, though the Bank has got alternative remedies to recover the loan amount, it ought not to have exercised its lien.

The bank had countered the submission by stating that exercise of the lien by the Bank is in accordance with law as father of the petitioners has given an undertaking that in case the main borrower fails to discharge the loan, the Fixed Deposits belonging to him may be appropriated or adjusted towards the loan.

The Single Judge committed an error in allowing the writ petition and wrongly quashed the impugned endorsement and directed the Bank to release the Term Deposits.

Findings

The court referred to Section 171 of the Contract Act and said “Bankers like the appellants-Bank, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them.”

It noted that the father of the petitioners had offered his Term Deposit as security raised by M/s.Sheshashayana Enterprises and after his demise, it is one of the petitioners in the year 1990 undertook to satisfy the loan 20 by appropriating the Term Deposits.

Referring to the communications between the bank and the petitioners the court noted that the petitioners had undertaken not to call back the deposit/s until Borrower's liability to the Bank on account invoked bank guarantee etc., is fully adjusted with interest accrued.

The court then said, “These series of documents produced along with the appeal memo by the appellants-Bank do establish that the petitioners' father as well as the petitioners have expressed their willingness to adjust the Term Deposits by executing such documents.”

Rejecting the contention of the petitioners that the bank should have recovered the amount from the insurance company the court held “Bank has obtained the certificate of recovery from the DRT, issued under Sub-Section 7 and 22 of Section 19 of the Recovery Debts Due to the Banks and Financial Institution Act, 1993. The recovery certificate was issued on 22.12.2017 after adjustment of term deposit towards the loan raised by M/s.Sheshashayana Enterprises.”

It added “Therefore, now the petitioners cannot contend that the Bank ought to have executed the recovery certificate against M/s.Sheshashayana Enterprises and other guarantors.”

Accordingly the court allowed the appeal.

Case Title: Union Bank of India & ANR AND V Harsih D Kamath & ANR

Appearance: Advocate V B Ravishankar for Appellants

Advocate Jagadish Baliga N for Respondents

Citation No: 2024 LiveLaw (Kar) 527

Case No: WRIT APPEAL NO. 679 OF 2023

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