JUDGMENT
S.T. Kharche, J.
1. By invoking the jurisdiction of this Court under section 100 of the Code of Civil Procedure, the defendant Central Bank of India has filed this appeal being aggrieved by the judgment dated 29-3-1990 passed by the learned District Judge in Regular Civil Appeal No. 153/1988 whereby the appeal came to be dismissed and the judgment and decree passed by the trial Court on 8-4-1988 directing the defendant to pay Rs. 42,000/- with interest @ Rs. 12% per annum from the date of the suit till realisation, was confirmed.
2. Brief facts are required to be stated as under :
The respondent-plaintiff filed the suit for recovery of Rs. 42,000/- with interest against the defendant on the contentions that the plaintiff is owner and the landlord of the building situated on plot No. 1 Survey No. 30/1 at Umarkhed. He contended that the defendant-Bank was inducted as a tenant in this building on the monthly rent of Rs. 2,550/-. The defendant-Bank did not pay the rent for the period September, 1985 to February, 1987, total amounting to Rs. 45,900/- in spite of demand and by their letter dated 19-3-1987 informing that the cheque for Rs. 9925.64 was issued after deducting the amount of Rs. 35974.36 on account of the outstanding amount borrowed by the plaintiff from the Bank of M.G. Road branch. It is contended that the defendant has unauthorisedly and illegally deducted the said amount of outstanding loan as the claim of the Bank for the outstanding amount of the loan was barred by the period of limitation. The defendant-Bank was informed accordingly and was called upon to pay the arrears of rent which were unauthorisedly deducted, but in vain and therefore, the plaintiff was constrained to file the suit for recovery of the unpaid arrears of rent with interest.
3. The defendant-Bank resisted the claim by filing written statement and contended that the plaintiff had borrowed the loan from M.G. Road Bank and the total amount of outstanding loan was to the tune of Rs. 35974.36 till February, 1987 which was inclusive of interest and though the said amount was demanded by service of legal notice, the same remained unpaid. It is contended that the plaintiff did not give any reply to the notice nor even communicated to the Bank for the said adjustment by which the amount of outstanding loan amount was due from him. The plaintiff is residing on the ground floor whereas the defendant-Bank has been inducted as tenant on the first floor of the same premises and the plaintiff had given assurance for repayment of the loan amount from time to time and ultimately there was a meeting between the parties just 8 to 10 days prior to issuing of the cheque for adjustment of the loan amount. The plaintiff had agreed for the adjustment and therefore, the defendant-Bank has rightly deducted the amount of Rs. 35974.36 and it is not liable to pay anything to the plaintiff.
4. On the aforesaid pleadings, the trial Court framed several issues and the parties adduced the evidence in support of their contentions. The trial Court, on appreciation of the evidence, negatived the contentions of the defendant-Bank that it is entitled to adjust the said outstanding loan amount with interest. The trial Court recorded the finding that the defendant-Bank is liable to pay the entire arrears of rent with interest and consistent with these findings, decreed the suit by the judgment dated 8-4-1988. The defendant-Bank being dissatisfied with this judgment and decree passed by the trial Court, carried appeal to the District Court. The learned District Judge dismissed the appeal on 29-3-1990 and confirmed the judgment and decree passed by the trial Court. This judgment of the appellate Court is challenged in this appeal.
5. Mr. Karbhari holding for Mr. V.M. Deshpande, advocate for the defendant contended that the plaintiff had borrowed the loan from the Central Bank of India. M.G. Road branch and the total outstanding amount with interest due against him was to the tune of Rs. 35974.36. He contended that this amount was demanded several times but it remained unpaid and therefore, the defendant-Bank had adjusted this amount and issued the cheque of Rs. 9925.64 towards the satisfaction of the arrears of rent due from it. He contended that this adjustment was made with the consent of the plaintiff which was obtained in the meeting which was held just 8 to 10 days prior to the date of issue of cheque for the adjustment of the loan amount. He contended that there was relationship of debtor and creditor between the parties and therefore, the defendant Bank has right to demand the repayment of the amounts due to it. He contended that two rights flow out of the relationship of debtor and creditor, namely (1) the right of the customer to demand repayment of the amounts due to him if and when he so desires, and (2) the right of the bank to appropriate the monies, funds and securities of the customer coming into its possession in the course of their dealings for repayment of the customer’s indebtedness. This latter right is known as banker’s lien. A bank can enforce its lien if mutual demands exist between itself and the customer, that is, when they mutually exist between the same parties and between them in the same capacity. He further contended that the adjustment of the outstanding amount of loan in the amount of arrears of rent which was due from it to the plaintiff was not unauthorised or illegal and both the Courts below have committed an error in granting decree for recovery of arrears of rent against the defendant-Bank. He contended that in such circumstances the impugned judgment cannot be sustained in law. In support of his submissions, he relied on the decision of the Punjab High Court in the case of Firm Jaikishen Dass Jinda Ram and others vs. Central Bank of India, and also on the decision of the Madhya Pradesh High Court in the case of State of Madhya Pradesh vs. Raja Balbhadra Singh, .
6. Mr. Madkholkar, the learned counsel for the plaintiff contended that the loan amount which was outstanding against him was barred by the period of limitation and therefore, action of the defendant-Bank in making adjustment and deducting the outstanding amount of loan from the arrears of rent is quite unauthorised and illegal. He contended that as per section 171 of the Indian Contract Act, 1872, (for short, the Contract Act) the defendant Bank has claimed lien and the Bank can make adjustment in view of this section only when the goods are bailed with it. He contended that the appellate Court was perfectly justified in coming to the conclusion that the defendant-Bank is not entitled to adjust the outstanding loan amount in the arrears of rent in view of section 171 of the Indian Contract Act. He contended that the outstanding amount was barred by period of limitation and therefore, the defendant-Bank is not entitled to recover the said amount by making adjustment. He contended that the defendant-Bank did not prefer any counter-claim in the suit and therefore, the concurrent findings recorded by both the Courts below are not liable to be disturbed. He contended that no substantial question of law arises in this appeal and the same may kindly be dismissed with costs.
7. This Court has given thoughtful consideration to the contentions canvassed by the learned counsel for the parties. It is not in dispute that the defendant-Bank has been inducted as tenant on the first floor of the building owned by the plaintiff and that the defendant-Bank was in arrears of rent. It is also not in dispute that the defendant-Bank adjusted the amount of outstanding loan amount of Rs. 35974.36 and issued the cheque for the balance for Rs, 9925.64. It is also not in dispute that the defendant is Central Bank of India and its branch office was the tenant of the plaintiff whereas the latter had obtained the loan amount from the different branch i.e. M.G. Road branch of Central Bank of India. It is also not in dispute, that the total outstanding amount due on account of loan with interest by the end of February, 1987 was to the tune of Rs. 35974.36 and the total arrears of rent due were to the tune of Rs. 45,900/-.
8. At this stage it is necessary to reproduce section 171 of the Contract Act which contemplates thus:
General lien of banker, factors, wharfingers, attorneys and policy brokers. – Bankers, factors, wharfingers, attorneys of a High Court and policy brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance goods, bailed to them, unless there is an express contract to the effect.
9. In Firm Jaikishen’s case, (cited supra). It has been held by the Division Bench of the Punjab High Court that; “two rights flow out of the relationship of debtor and creditor, namely (1) the right of the customer to demand repayment of the amounts due to him if and when he so desires, and (2) the right of the bank to appropriate the monies, funds and securities of the customer coming into its possession in the course of their dealings for repayment of the customer’s indebtedness. This latter right is known as banker’s lien. A bank can enforce its lien if mutual demands exist between itself and the customer, that is, when they mutually exist between the same parties and between them in the same capacity”.
10. In State of Madhya Pradesh’s case, (cited supra), the Division Bench of the High Court, Gwalior, M.P. High Court held that; “When two persons have certain accounts and monies are payable by each to the other, they are both entitled to mutual adjustments of the monies provided they are really due and recoverable. The distinction between payment and adjustment is that payment is made to the creditor while the adjustment is made by the debtor himself. Although it is not called ‘payment’ in common parlance yet it undoubtedly partakes the character of payment. At all events, it cannot be called a claim for set off, nor can it be said to be a counter-claim as the defendant does not seek enforcement of his claim, and therefore, Court fee is not due. On general principles a person is entitled to pay to himself that amount which is due to him from another if he has in his hand monies belonging to that other, provided that his dues are legally recoverable. Although that question will be adjudged by the Court of law when it arises, he is, not obliged to sue for the recovery of the money which he is already in possession of.”.
11. This Court may usefully refer the decision of the Division Bench of Gujarat High Court in the case of M/s Shivam Construction Co., Ahmedabad and others vs. Vijaya Bank, Ahmedabad, , wherein it has been observed in para Nos. 31,32, 33, 34 and 35 as under :
“The doctrine of “set-off by the bank has been evolved since long. There, is a definite purpose and philosophy behind’ it. It has long roots.
In Roxburghe vs. Cox, (1881) 17 Ch D 520, the Court of Appeal had taken the view that even if it is taken for granted that bank’s lien applied money paid to the account of the creditor still the proper doctrine of set off under which the bank is authorised to claim an amount for set off of the debts owed by the customers.
The aforesaid decision was again affirmed in another case reference Re-Moris Conveys vs. Moris, (1922) 1 1R 81, where a similar view has been taken with regard to set off for the money which is owed to them by retaining the money belonging to the debtor in a particular account.
The above view has also been affirmed in National Westminster Bank Ltd. vs. Halesowen Presswork and Assemblies Ltd., (1972) 1 All ER 641, by the House of Lords in which the principle of set-off has been expounded and upheld in connection with the bank’s right to realise their debts from a particular debtor whose money was received by the banker in the course of business as such.
In the present case, it is beyond any doubt that the appellants who had enjoyed overdraft facilities on the securities of the FDRs, failed to discharge their duties and committed defaults, went on for over-drawls. Therefore, under the terms of loan as well as under the right of “set-off and also under the general banker’s lien, the plaintiff bank was empowered and entitled to transfer and appropriate even by liquidation the FDs towards their over-draft account of the defendants. On all counts it cannot be said even for a moment that the action of the plaintiff-bank in liquidating the FDRs for purpose of appropriation towards bank’s dues was, in any way, unjust, improper or illegal”.
12. However, the Hon’ble Judges of the Gujarat High Court further observed in para 17 that : “The fixed deposit receipt came to be liquidated and the proceeds along with the interest came to be appropriated towards the dues of the Bank in the current account on 21st October, 1980, and according to the provisions of Article 1, the close of the year in which the last item admitted or proved is entered in the account. Such year is to be computed as in the account from which the time would begin to run. The contention raised on behalf of the Bank is that the financial year at the relevant time was April to March. The suit came to be filed on 17-2-1984. Therefore, the period of limitation would begin to run from 1st April, 1981 and the suit is, therefore, filed within three years”.
13. In the present case it is not disputed that the total loan amount which due from the plaintiff was Rs. 35974.36 till February, 1987 and the said amount was demanded from time to time by issuing notice dated 4-1-1986 which was duly served on the plaintiff. The contents of the notice would clearly show in para No. 2 that the main office of the Central Bank of India, Akola is tenant in the premises of the plaintiff on the monthly rent of Rs. 2,550/- exclusive of taxes. From August, 1985 the rent was paid to him was not being accepted by him in the notice, it has been further mentioned that the plaintiff was not ready to repay the loan amount in spite of demand and therefore, the defendant bank was entitled as of right to appropriate the amount of arrears of rent. It is pertinent to note that the plaintiff did not give any reply to this notice for the best reasons known to him. This conduct of plaintiff is adverse to his contentions.
14. The defendant-bank has also proved the extract of loan account of the plaintiff (Exh.35) which would clearly reveal that the total outstanding amount of loan was to the tune of Rs. 35974.36 and this loan amount was adjusted and accordingly the plaintiff was informed by the notice sent by registered post with acknowledgment due on 19-3-1987. There is an endorsement below the extract of account that, it is true copy of the entries and such entries contained in one of the ordinary Book of the Bank and was made in usual and ordinary course of business and that such book is still in the custody of the Bank and it is verified and certified also.
15. What is pertinent to note that the trial Court did not frame any issue as to whether the outstanding loan amount has been barred by the period of limitation and therefore, it is obvious that it was not open for the appellate Court to record the findings that said outstanding amount of loan has been barred by the period of limitation, without affording any opportunity to the parties to lead the evidence in support of their contentions. The appellate Court has clearly committed an error in holding that the loan amount was advanced at the foot of pro note and the mortgage deed executed by the plaintiff on 16-3-1977 and that even referring to Article 62 of the Limitation Act, the suit has been barred by the period of limitation because the defendant-bank did not prefer any counter claim in the suit and as such was not entitled for the adjustment. This finding of the appellate Court is basically wrong in saying that the adjustment made by the defendant bank in the loan amount of the plaintiff is not legal and valid and that the defendant-bank is not entitled to recover the loan amount and that the defendant-bank has no Banker’s lien as is provided under section 171 of the Contract Act.
16. Simply because the plaintiff did not bail the goods with the defendant-bank, it did not follow that the defendant-bank cannot enforce Banker’s lien available to it under section 171 of the Contract Act in view of the admitted facts that the total outstanding loan amount was to the tune of Rs. 35,974.36 whereas the defendant-bank was in arrears of rent to the tune of Rs. 42,000/- and the parties are entitled to mutual adjustment of the monies provided they are really due and recoverable.
17. It is not in dispute that the monies were really due and also recoverable. The defendant-bank cannot be forced to file a counter claim or separate suit for recovery suit the outstanding loan amount especially when the plaintiff did not care to reply the notice dated 4-1-1986 served on him for the best reasons known to him and the loan amount which is sought to be adjusted was legally recoverable as the last entry in the books of account maintained by the bank is dated 19-3-1987. The present suit was filed on 22-4-1987 and therefore, by no stretch of imagination, prima facie it could be said that the outstanding amount of the loan was barred by the period of limitation.
18. On close scrutiny, it would clearly reveal that the appellate Court has committed an error in not relying on the Banker’s lien available to the defendant-bank under section 171 of the Contract Act and by holding that the outstanding amount of loan was not claimed by filing a counter-claim and as such the defendant-bank is not entitled to adjust the said amount of outstanding amount of loan in the arrears of rent. Therefore, the impugned judgments cannot be sustained in law and this Court is of the considered opinion that the adjustment which was made by the defendant-bank was on account of Banker’s lien available to it under section 171 of the Contract Act. Therefore, the appeal is allowed and the impugned judgments are set aside and the suit of the plaintiff for recovery of arrears of rent with interest, stands dismissed with costs throughout.