JUDGMENT
1. This appeal is filed against the order dated 22-2-2002 passed in W.P. No. 26909 of 2000, wherein the learned Single Judge directed the 2nd appellant-Bank to release the securities and margin money as mentioned in First Schedule.
2. The necessary facts in brief are, the 1st respondent is a leading National Bank constituted under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980 and the 2nd respondent is its Branch. Petitioner 1 is a Private Company registered under the Companies Act and the 2nd petitioner is its Managing Director. The 2nd respondent-Bank extended credit facility of Rs. 2,460 lakhs and the 2nd respondent-Bank agreed to furnish Bank guarantee to the extent of Rs. 708.02 lakhs. The petitioners deposited the securities as mentioned in First Schedule to the writ petition and thereafter the second respondent-Bank had executed Bank guarantee. However, all the Bank guarantees were cancelled due to the completion of the work undertaken by the petitioner-Company and in terms of the contract. Accordingly, an application was made to the second respondent-Bank to return the securities mentioned in First Schedule to the writ petition and the margin money. The second respondent refused to release the securities on the ground that amounts were due from the group of Companies owned by R.N. Shetty who is also a Director of the first petitioner-Company. In view of the refusal of the second respondent-Bank to return the security after all the Bank guarantees furnished by the second respondent-Bank were cancelled without justifiable ground and as the same violated the rights of the Company, the second petitioner who is the Managing Director filed writ petition for a mandamus to return the securities as mentioned in First Schedule to the writ petition.
3. Respondents 1 and 2 resisted the writ petition by filing objections contending that the fixed deposit mentioned in First Schedule pertains to the security given by the petitioners for furnishing Bank guarantee and the deposit shown in First Schedule arises out of 25% cash margin money deposited by petitioner 1 towards issue of fresh as well as extended Bank guarantee against the Bank guarantee limit of Rupees 795 lakhs granted to the first petitioner. That R.N. Shetty, who is one of the Directors of the first petitioner-Company, who is a Director of M/s. Murudeshwara Foods and Exports Limited (for short, the ‘MFEL’); and since the amount borrowed by the said Company which has been secured by the guarantee of R.N, Shetty has not been repaid an application for recovery of the said money has been filed before the Debt Recovery Tribunal in Original Application No. 127 of 1997; and therefore, the securities furnished as per Annexure-R1 have been withheld by the Bank exercising power of lien by the second respondent-Bank. It is also averred that the securities have been withheld in exercise of the right of lien to retain the amount until discharge of liability to the first petitioner and its guarantor R.N. Shetty, to pay the dues in respect of the case filed against MFEL, himself and others in O.A. No. 127 of 1997 before the Debt Recovery Tribunal, Bangalore, for recovery of Rs. 7.46 crores plus interest and costs in exercise of the power under Section 171 of the Contract Act.
4. During the pendency of the writ petition, respondents 1 and 2 were directed to return the fixed deposit on furnishing Bank guarantee for the said amount by the petitioners and the learned Single Judge after considering the contention of the learned Counsels appearing for the parties and the material on record by order dated 22-2-2002 held that, admittedly the petitioners have availed the security for keeping Bank guarantee and all the Bank guarantees had been cancelled as the work undertaken by the petitioner-Company was successfully executed and the respondent-Bank could not withhold the money in respect of the amount which is due to it from MFEL and different legal entities, and even if the Directors in the two Companies are common there is no justification for the respondent-Bank to retain the security offered by the petitioner-Company. Accordingly, he directed the second respondent to release the securities and margin money as mentioned in First Schedule to the writ petition which are in its possession and further ordered that, in view of the declaration whatever the Bank guarantee offered by the petitioners by
virtue of the interim order upon the said guarantee stands discharged, and three months time was granted for compliance. Being aggrieved by the said order of the learned Single Judge, respondents 1 and 2 have preferred this appeal.
5. Learned Counsel Urval N. Ramanand, for the appellants submitted that the learned Single Judge has erred in giving direction and, as a matter of fact, the writ petition should have been dismissed as not maintainable since the matter involved disputed questions of fact. He also submits that the learned Single Judge erred in holding that the Bank cannot retain the securities offered by the 1st respondent-Company towards the liability of M/s. Murudeshwara Foods and Exports Limited (for short, ‘MFEL’) as the two are separate legal entities. He also submits that the learned Single Judge failed to note that R.N. Shetty represented 1st respondent while taking the Bank guarantee limit of Rs. 795 lakhs and also executed certain personal guarantees both in 1st petitioner-Company and MFEL, and therefore, the principle of “lifting the corporate veil” is fully applicable in the instant case. He further submits that the learned Single Judge failed to take notice of the additional documents filed by the 2nd appellant-Bank and that it can also legally retain the securities in exercise of the general lien of bankers under Section 171 of the Contract Act. He relied on the decisions of the Supreme Court in Juggilal Kamlapat v. Commissioner of Income-tax, Uttar Pradesh State of Uttar Pradesh v. Renusagar Power Company and Syndicate Bank v. Vijay Kumar and Ors. , wherein the Apex Court has held that the Bank is entitled to withhold the securities in exercise of the general lien of bankers under Section 171 of the Contract Act; and Manager, St. Thomas U.P. School, Kerala v. Commissioner and Secretary to General Education Department and Ors. , wherein the Apex Court held that, where the question is as to whether the institution is a minority institution, it is a question of fact which cannot be gone into in a writ petition. He also placed reliance on the decision of the Supreme Court in Delhi Development Authority v. Skipper Construction Company (Private) Limited , in support of his contention that this Court has to lift the veil, as in the above case, which would show that MFEL is the subsidiary of the first respondent-Company.
6. Learned Senior Counsel A.G. Holla for K. Shashikiran Shetty, Advocate appearing for respondents 1 and 2 has not disputed the legal propositions enunciated in the above cases, but submits that each case depends upon the facts of its own and none of the cases relied upon by the appellants are applicable to the facts of the given case. He further submitted that the points, which were not specifically raised before the learned Single Judge, cannot be permitted to be raised in this appeal. The learned Single Judge after considering the material on record has rightly given direction. He submits that the all the Bank guarantees have been cancelled by the appellant-Bank and when once the Bank guarantee has been cancelled, the appellant-Bank is not justified in withholding the security more particularly when cancellation is not disputed by the Bank. He submits that the question of ‘lifting the corporate veil’ does not arise as no fraud or illegality has been alleged by the respondents and no factual foundation is laid for injunction and even otherwise the material produced by the petitioners would show that MFEL is not the subsidiary of the 1st respondent-Company. He has relied on the decision of Supreme Court in Gurbax Rai and Ors. v. Punjab National Bank, New Delhi , wherein their Lordships have observed that it is not open to the Bank to adjust the amount recovered for the pledged goods for wiping out separate dues of the individual partners as the goods that were pledged belong to the firm and the goods were kept against the cash credit facility of the firm; and the decision of this Court in The Mangalore Catholic Co-operative Bank Limited, Mangalore v. M. Sundara Shetty 1987(3) Kar. L.J. 21, wherein this Court has held that security cannot be utilized by the Bank even for a subsequent debt incurred under Section 171 of the Contract Act. He also submits that the decision relied upon by the appellant are not helpful nor the appellant can take advantage of the alleged documents filed, in the facts of the given case, at this stage.
7. We have heard the learned Counsels for the parties, perused the material on record and the additional documents produced by the appellant-Bank and also the cases cited.
8. It is well-settled that the Company has a separate existence apart from its share-holders. It is also well-settled that when securities are offered to the Bank for the purpose of furnishing Bank guarantee and all the Bank guarantees have been returned and cancelled, the Bank should return the securities to the petitioners. What is the factual aspect pertaining to the personal guarantee and its continuance, in MFEL case before the Debt Recovery Tribunal, cannot be gone into in this writ appeal. It is also settled that the points specifically not raised before the learned Single Judge cannot be permitted to be raised in an appeal. Even otherwise, on consideration, we find no substance in the submission of the appellants.
9. It is not disputed that the 1st respondent-Company is a Company registered under the Companies Act; the securities in First Schedule were furnished to the appellant-Bank for the purpose of furnishing Bank guarantee and that all the Bank guarantees furnished by the appellant-Bank have been cancelled as the work undertaken by the 1st respondent has been completed. But, still the appellant-Bank is withholding the security on the ground that R.N. Shetty who is a Director in the first petitioner-Company is also a Director in MFEL, which is subsidiary of the first petitioner-Company according to the Bank. The justification of the appellant-Bank for retaining the securities for the discharge of debt due by R.N. Shetty is that it has power to exercise lien over the securities in its possession, is that the documents, would clearly show that MFEL is a subsidiary of the 1st respondent-Company, R.N. Shetty is not a party in the writ petition or writ appeal. We are not satisfied with the said justification. It is also not in dispute that O.A. No. 127 of 1997, filed by the appellant-Bank for recovery of the amount against MFEL is pending before the Debt Recovery Tribunal, Pendency of the suit filed by the appellant will not come in the way of the appellant-Bank in returning the securities when the 1st respondent-Company has admittedly discharged its liability.
10. The argument of the appellants that the learned Single Judge ought to have applied the principle of ‘lifting the corporate veil’ has no substance, as it is clear that recovery proceeding pending before the Debt Recovery Tribunal is against MFEL, alleged to be a subsidiary Company of the 1st petitioner. It is seen from the decision relied upon by the learned Counsel for the appellants wherein the principle of lifting the corporate veil has been considered by the Apex Court that from a juristic point of view the Company is a legal personality entirely distinct from its members and the Company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members. However, in exceptional cases the Court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade and normally, the Court has discarded the separate legal entity of a Company only where the Company is formed or used to facilitate evasion of legal obligation and concept of corporate entity has been evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. As stated, the point was neither agitated nor any factual foundation has been laid for ‘lifting the corporate veil’ or for piercing the corporate entity. As such, in the facts of the present case, the question of invoking the said principle does not arise.
11. So far as the other argument that in view of Clause 13 in the agreement dated 16-1-1996 executed by the petitioner-Company as also the guarantor, the appellant-Bank can retain the securities is concerned, it would be relevant to refer to the said clause, which reads as follows:
“Principal solely or the account or accounts of a concern on which the Principal may become liable jointly in any manner whatsoever with any Company or firm or persons and whether such account or accounts stands or stand either in the name of the Principal himself or in the name of any concern of which the Principal is the sole proprietor a partner or in any other name and the same shall not be affected by any change, in the name of such account or accounts or any change in the constitution of your Bank its successors, assigns or transferees or by its absorption in or by the amalgamation with any other Bank or Banks”.
12. It is clear from the above said provision that the above said clause only relates to change in the constitution of the borrower or the Bank subsequent to the agreement, and would not absolve the liability of the parties but would bind the same despite the change in the constitution of the borrower or the Bank and does not specifically authorise the appellant-Bank to retain the security given for issuing Bank guarantee to be utilised for recovery of debt of any other Company or individual and wherefore the above said clause does not confer any specific lien on the appellant-Bank. As stated, the exercise of general lien under Section 171 of the Contract Act cannot also be exercised by the Bank in the present case as it is well-settled in view of the decision relied upon by the learned Counsel appearing for respondents 1 and 2 that lien in its primary sense is a right in one man to retain that which is in his possession belonging to another until certain demands of the person in possession are satisfied. In the present case, it is not disputed that the securities mentioned in First Schedule to the writ petition were furnished for the purpose of enabling the appellant-Bank to issue Bank guarantees and all the Bank guarantees have been returned and cancelled and the question is as to whether the Bank is justified in exercising its lien in refusing the return of the securities in exercise of lien over the said securities towards the discharge of debt of another Company MFEL on the ground that it has got banker’s lien and is also authorised by the agreement.
13. The decision relied upon by the learned Counsel appearing for the appellant-Bank in Vijay Kumar case, supra, would not be helpful to him in the present case as in the said case the letters were executed in favour of the Bank specifically to enable the Bank to retain the securities with the Bank so long as any amount on any account is due to the Bank from the borrower. In the present case, it is not the case of the appellant-Bank that the petitioners have subsequently borrowed any amount and that the security is withheld for any amount due from the petitioners and wherefore in the absence of any specific authorisation or Hen conferred upon the appellant-Bank to retain the security towards the discharge of any debt in respect of other Companies, the Bank is not at all justified in retaining the security as Section 171 of the Contract Act would only enable the Bank to retain the security for repayment of debt borrowed by the same person. In the present case as no amount is due to be paid by the petitioners, the contention that the Director of the first petitioner-Company as also the guarantor for the transaction is also a Director in MFEL against which recovery proceeding has been initiated in the Debt Recovery Tribunal. That would not be a justifiable ground to withhold securities in the absence of any express clause in the contract entered into by the petitioners and the Bank.
14. Insofar as the argument regarding the maintainability of the writ petition is concerned, no doubt, in extraordinary jurisdiction, this Court will not investigate the facts nor the disputed questions of fact can be decided. Under the circumstances, in the facts of the given case, as discussed, the argument that writ petition is not maintainable, is not tenable.
15. No other point was pressed.
16. In view of what we have discussed above and for the reasons mentioned, the impugned order holding that the appellant-Bank had no justification to retain the securities offered by the petitioner-Company does not suffer from any infirmity. We find no error or illegality in the order of the learned Single Judge so as to call for interference in this appeal. Accordingly, the writ appeal is dismissed with no order as to costs.