ORDER
1. This revision under Section 115 of the Code of Civil Procedure is directed against the order dated 15-5-1996, passed by District Judge, Durg, in Civil Suit No. 66-A of 1991, whereby he rejected the I.A. No. 31, filed by the applicant under Section 151 of the Code of Civil Procedure, wherein it was prayed that the applicant be permitted to adjust Rs. 10 Lakhs deposited in the current account of non-applicant No. 8, Mool Chand Jain, with the Malviya Nagar, Durg Branch of the applicant or be permitted to retain the same as security for the suit claim on the basis of 'Bankers Lien' or the aforesaid amount be ordered to be deposited in the Court till it passes an appropriate order for its disposal at the time of passing the decree in the suit.
2. It is necessary to state the relevant facts giving rise to this revision in a narrow compass. The applicant filed Civil Suit No. 66-A of 1991 for recovery of Rs. 2,81,75,422.21 advanced to non-applicant No. 1 through its directors and claimed 18% interest pendente lite and the future interest at the same rate on the decretal amount till realisation. It was stated in the plaint that the non-applicant No. 1 company was engaged in the business of rerolling steel and manufacturing steel goods. It was advanced loan through its directors after furnishes security for loan as per Banking Policy of the applicant. Since the loan was not repaid, the applicant was compelled to file the suit in the year 1991.
3. It is stated that the non-applicant No. 3, who was one of the directors of the non-applicant No. 1 and a guarantor to loan, took four years to file his written statement. It is stated in the memo of revision that non-applicants Nos. 1 to 3 and non-applicants Nos. 18 to 30 have taken the stand in their written statement, that non-applicant No. 8 alone was responsible for non-payment of the loan as he had criminally misappropriated the amount for which he was facing prosecution under Sections 420, 406, 409, 468 and 471 of the Indian Penal Code. This Court has mentioned the above fact because it is stated in memo of revision. However, this Court is firmly of the opinion that nothing turns on the allegations made by the co-defendants against the non-applicant No. 8 and the Court shall not be influenced in its ultimate decision by these allegations, which are not germane for resolving the controversy in this revision.
4. It is not in dispute that the applicant filed an application under Order 39, Rules 6, 7 and 8 of the Code of Civil Procedure for permission to self hypothecated/pledged goods with the applicant belonging to non-applicants for appropriating the sale-proceeds towards its dues. This application was allowed subject to condition that sale shall not proceed in case, the non-applicants deposited half of the amount claimed, within two months of the order and further that they were required to formulate a scheme of repayment of loan within two months. This order was not challenged by the non-appiicants and it became final. Since the non-applicants failed to comply with stipulations made in the order permitting sale of pledged/hypothecated goods, the applicant was entrusted with these goods. The applicant got the goods valued through an approved valuer, who estimated the value of goods to the extent of Rs. 29.28 Lakhs. Thereafter, in an auction-sale the highest bid for sale of these goods fetched the price to the tune of Rs. 43.51 Lakhs. However, this auction-sale was subsequently set aside upon the objection of the non-applicants. Now, under the orders of the Courts a fresh auction is still to take place. This time it would be for sale of movable as well as immovable property entrusted to the applicant. The approved valuer has valued these assets of the non-appticants up to Rs. 75.50 Lakhs.
5. It is not in dispute that non-applicant No. 8 has deposited Rs. 10 Lakhs in the Malviya Nagar Branch of the applicant-State Bank of India, at Durg, in his current account. It appears that on 7-2-95, the applicant filed an application for attachment of Rs. 10 Lakhs lying in the current account of non-applicant under Section 94 of the Code of Civil Procedure read with Section 151 thereof. The trial Court allowed this application but this Court, by order dated 21-11 -95, set aside that order. The Court, however, did not debar the applicant from filing a fresh application. Hon'ble R. S. Garg, J., speaking for the Court, stated in paragraph 9 of his judgment, passed in M. A. No. 243/95, as follows :--
'9. ... ..It is, however, made clear that if the plaintiff moves an application either for order of attachment or for grantof injunction in accordance with law then the Court below shall be free to pass suitable orders. .....'
6. It appears, thereafter another application under Order 39, Rule 1, Order 38, Rule 5, read with Sections 151 and 94 of the Code of Civil Procedure for attachment of Rs. 10 Lakhs, in deposit with the Malviya Nagar, Durg, Branch of State Bank of India, credited to the name of non-applicant No. 8. was filed in the trial Court. This application was rejected by the trial Court. This order of the trial Court was upheld in Civil Revision No. 6 of 1996. The main ground, on which this civil revision was dismissed that the application filed by the applicant could be deemed to be under Order 38, Rule 5 of the Code of Civil Procedure and since the appellant did not plead the facts which may have formed the ingredients of Rule 5 of Order 38 (ibid) of the C.P.C., the condition for exercise of power under that rule did not exist. As already noticed, that judgment rendered by Hon. R. S. Garg, J., in M. A. No. 243/95 had permitted the applicant to file fresh application and, therefore, there appears to be no occasion to make an observation that the applicant was bound to release the amount during pendency of the application. The observations of S. S. Jha, J. in Civil Revision No. 6 of 1996 appear to be contrary to the implied direction of R. S. Garg, J. in M. A. No. 243 of 1995. It is well established that a Co-ordinate Bench cannot take a different view in the same matter. However, the remarks do not form the part of main decision and are as such per incuriam.
7. Thereafter, the applicant moved I.A. No. 31. It appears that the applicant in this application stated that it has right to claim adjustment/set off of Rs. 10 Lakhs under the 'Bankers General Lien' as per Section 171 of the Contract Act. It was claimed in this application that the non-applicant No. 8 was not only a director of the non-applicant-company, but has stood a surety for the loan advanced by the applicant in favour of the non-applicant No. 1. For this reason, the applicant was entitled to move an application in respect of 'Bankers' General Lien' to claim set-off or adjustment of Rs. 10 Lakhs deposited with the Malviya Nagar Branch of the applicant-bank, at Durg. It was further stated that earlier applications under Order 38, Rule 5 of the C.P.C. were moved on wrong advice. When the applicant sought to file an appeal to Supreme Court, against the order of this Court in C.R. No. 6/96, its counsel, in the Supreme Court advised the applicant to move an application under Section 171 of the Contract Act. This application was under an independent right and this right of the applicant was not affected by the earlier decisions of this Court.
8. The non-applicant No. 8, in his reply, has taken the stand that this Court had already rejected the application of the applicant under Order 38, Rule 5 of the C.P.C. by order dated 22-2-1996 in Civil Revision No. 6/96. Similarly, the High Court had earlier set aside the order passed by the trial Court, vide judgment dated 21-11-1995, in M.A. No. 243/95. It was further asserted that the applicant was in possession of the entire property of the company which was hypothecated/pledged or mortgaged with the applicant. The applicant was in possession of property worth Rs. 6 crores and for security of loan of the amount approximately property worth Rs. 15 crores was hypothecated/pledged or mortgaged. Thus, the amount sought to be recovered from that property can be recovered by selling the property in case the applicant's suit is decreed. The application under Section 171 of the Contract Act is not maintainable and it was made mala fide with a view to harass the non-applicant No. 8. The prayer for permission to exercise the power under Section 171 of the Contract Act would amount to Contempt of Court. It was also claimed that Rs. 10 Lakhs did not belong to non-applicant No. 8. They belonged to a partnership firm.
9. The learned District Judge, after hearing the parties recorded the following conclusion:--
That it was well established as per decision of Supreme Court in the case of State Bank of India v. Indexport Registered, AIR 1992 SC 1740, that adecree holder was entitled to recover the amount due under a decree either from the principal debtor or the person who stood as surety for repayment of loan. The trial Court seems to have held that in the aforesaid case of State Bank of India(supra), the decree was sought to be executed against the sureties and not against the principal debtor. For this reason, the case of the applicant in this case was distinguishable as the application for adjustment/set-off was made at trial stage. The learned trial Judge further held that the amount claimed by the applicant was secured by hypothecated/pledged goods of Rs. 3 crores and property worth Rs. 15 crores was mortgaged by the non-applicant. The appellant was bound to raises this point now sought to be litigated when it filed application under Order 38, Rule 5 and Order 39, Rules 6 and 7 of the Code of Civil Procedure and Section 94 read with Section 151 thereof. Therefore, the principles of res judicata shall apply to the application in view of decisions of the Court in M. A. No. 243/95, dated 21-1-95 and C.R. No. 6/96, dated 20-2-96. It was also held that in view of decision of this Court in C.R. No. 6/96 the amount of Rs. 10 Lakhs, deposited with the applicant-Bank, was not the property of non-applicant No. 6. It was a loan taken by the Firm Mool Chand and non-applicant No. 8. For the aforesaid reason the amount in question could not be adjusted.
10. Shri G. M. Chafekar, learned counsel for the applicant has argued that it is well established that a surety is as much liable to repay the loan as the Principal Debtor. The liability of a guarantor orasurety is co-extensive with that of the principal debtor. Therefore, the non-applicant No. 8, who was one of the directors of the principal debtor as well a surety, cannot escape from his liability to repay the debt. The learned counsel for the applicant relied upon the decision of the Supreme Court in the case of State Bank of India (AIR 1992 SC 1740) (supra). The learned counsel for the applicant argued that facts of the case showed that the applicant was unable to recover debt on account of dilatory tactics of the non-applicant. The hypothecated/pledged goods could not be sold in auction as the non-applicants got the auction set aside. The non-applicant No. 8 himself had filed his written statement very late. During the arguments, the learned counsel for the applicant referred to the cases of Syndicate Bank v. Vijay Kumar, AIR 1992 SC 1066; Punjab National Bank v. Surendra Prasad Sinha, AIR 1992 SC 1815 and Devendra Kumar v. Gulabsingh Nekhesingh, AIR 1946 Nag 114. The learned counsel also referred to Sir D. F. Mulla's Commentary on Section 171 of the Contract Act. He further argued that the right of appropriation of goods in the hands of a Banker is statutorily recognized in India. He submitted that this right is an additional guarantee. This right could not be clubbed with the right of attachment before judgment under Order 38, Rule 5 of the Code of Civil Procedure or right of a person under Section 94, read with Section 151 of the Code of Civil Procedure. Even the rights given to a person under Order 38, Rules 6 and 7 of the Code of Civil Procedure are not same as the right of the applicant under Section 171 of the Contract Act. The learned counsel argued that the principles of constructive res judicata would not operate in this case because the statutory right conferred upon the applicant operated on a different plane. The right under Section 171 of the Contract Act, inheres in the applicant. The applicant was merely seeking permission of the Court for claiming Rs. 10 Lakhs for the reason the suit was pending. The applicant did not require any order from the Court ordinarily in view of Section 171 of the Contract Act. The applicant had sought only permission because a suit was pending between the applicant and the non-applicants. The learned counsel for the applicant sought to argue that the non-applicant No. 8 had taken the stand earlier that money belonged to him. However, the non-applicant No. 8 now changed the stand. It is now said that Rs. 10 Lakhs belonged to a partnership firm. The learned counsel for the applicant asserted that the applicant shall not be able to recover its even Rs. 10 Lakhs if permission to adjust/set-off is not granted.
11. Shri Ravish Agrawal, learned counsel for the non-applicant No. 8 argued that in view of the decision of this Court in M. A. No. 243/95, decided on 21-11-95, and Civil Revision No. 5/96, decided on 22-2-96, the applicant cannot claim any right of lien and, therefore, there was no question of granting permission to appropriate Rs. 10 Lakhs. The learned counsel submitted further that the items of money in deposit in the Bank are not goods in specie. The Bank had no right to exercise its powers under Section 171 of the Contract Act. The learned counsel submitted that Rs. 10 Lakhs were not in deposit with the applicant-Bank, at Malviya Nagar Branch, in Durg. The applicant cannot adjust or claim set-off that amount. The learned counsel for the non-applicant No. 8 further submitted that money deposited in another Branch cannot be appropriated in the manner claimed by the applicant.
12. In order to appreciate the controversy between the parties. It is necessary to dilate upon the nature of liability of the non-applicant No. 8. The trial Court has held that the non-applicant No. 1, Madhya Pradesh Iron and Steel Works, is the principal debtor and the non-applicant No. 8 is one of the directors of non-applicant No. 1. He has entered into contract of guarantee for discharging the liability of repayment of loan of the non-applicant No. 1, in case of its default and stood as surely for the same. Thus, the non-applicant No. 8 is a 'surety' in relation to the applicant, who is a creditor of the non-applicant No. 1. The tripartite agreement between the applicant, the non-applicant No. 1 apd the non-applicant No. 8 is called the 'contract of guarantee' as per Section 126 of the Contract Act. However, the contract of guarantee by itself is deemed to be an independent contract which substantially, depends upon the default of the principal debtor. Under Section 128 of the Contract Act, the liability of surety is co-extensive with that of the principal debtor, unless it is otherwise provided in the contract. Therefore, unless there be anything contrary in the contract, a creditor has an option to proceed against surely independently of the principal debtor, if he chooses to do so. Both the principal debtor and surety are jointly and severally liable to the creditor. Therefore, the creditor need not exhaust his remedy against the principal debtor before claiming a relief against the surety. In the case of Bank of Bihar Ltd. v. Dr. Damodar Prasad, AIR 1969 SC 297, it was held that solvency of principal is no ground for restraining the execution, of decree against the surety. Indeed the Supreme Court opined that if the execution of decree could be stayed on the ground of solvency of the creditor, the very object of the guarantee shall be rendered nugatory. The relevant observations of the Supreme Court in that case arc at page 298, paragraph 4, as follows :--
'4. Before payment the surely has no right to dictate terms to the creditor and ask him to pursue his remedies against the principal in the first instance. As Lord Eldon observed in Wright v. Simpson. (1802) 6 Ves Jum 714 at p. 734 : 31 ER 1272 at page 1282. 'But the surety is a guarantee; and it is his business to see whether the principal pays, and not that of creditor.' In the absence of some special equity the surety has no right to restrain an action against him by the creditor on the ground that the principal is solvent or that the creditor may have relief against the principal insome other proceedings.'
But, in the case of Union Bank of India v. Manku Narayana, AIR 1987 SC 1078, a different note was struck. It was held in that case, when a composite decree is passed against the property mortgaged by the principal debtor as well as personally against the principal debtor and the surety, the creditor was bound to exhaust his remedy of recoverying the debt from mortgaged property before proceeding to execute the decree against the surety. However, in the case of State Bank of India (AIR 1992 SC 1740) (supra), this view has been overruled by the Supreme Court. It was held that even when there is a composite decree for recovery of debt from the principal debtor personally as well from the securities furnished by him and also a decree against surety, then the decree holder can proceed to recover the debt from the surety alone. The Supreme Court emphasized the principle of Section 128 of Contract Act and referred to the case of Bank of Bihar Ltd. (AIR 1969 SC 297) (supra). In this case, the Supreme Court approved the decision, of Karnataka High Court in the case of Hukumchand Insurance Co. Ltd. v. Bank of Baroda, AIR 1977 Kant 204, Venkatchalliah, J. (as His Lordship then was), speaking for the Division Bench observed in paragraph 12, page 208 as follows :--
'The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is co-extensive with that of the former are really separate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously.'
The Supreme Court upset earlier decision in the case of Union Bank of India (AIR 1987 SC 1078) (supra) and held that creditor need not exhaust its remedies against the principal debtor as the liability of the surety is not limited to repay the debt of principal debtor personally. 13. Thus, it is clear that contract of guarantee is an independent contract making the liability of surety co-extensive with that of the principal debtor, unless otherwise agreed upon. The creditor can opt to proceed to recover debt against the surety independently of the principal debtor. Even though the contract of surety may originate from the same transaction, it creates rights and liabilities which would be 'separate and distinct' from the rights and liability created by contract between the principal debtor and the creditor. The two cannot be mixed up. It is, therefore, clear that subject to contract to the contrary, liability of surety remains intact so long as the debt of the principal debtor is not discharged. This is what the word 'co-extensive' in Section 128 of the Contract Act means. Since the contract of guarantee is an independent contract, the surety cannot require the creditor to recover the 'debt' from principal debtor personally or from the securities furnished by the principal debtor for repayment of loan by way of hypothecation, pledge or mortgage. If this be permitted, then it would amount to trenching upon altogether different contract between the principal debtor and the creditor. This right is not vested in a surety ordinarily in a contract of guarantee. The use of word 'co-extensive' sometimes may create confusion. The extent mentioned in Section 128 of the Contract Act must be limited to the liability of the principal debtor and not to the manner of discharge of debt of the principal debtor. Therefore, this Court comes to conclusion that right to recover a debt wholly or partially vests in a creditor till such time the debt of the principal debtor is discharged. Then only the liability of surety shall come to.an end.
14. Now, we take up the question of right of applicant to recover debt from the non-applicant No. 8 as per provisions of Section 171 of the Contract Act known as 'Bankers Lien', for which the applicant had filed the application. The I.A. No. 31 filed under Section 151 of the Code of Civil Procedure relates to right of the Bank to claim a right of adjustment, set-off or retention of Rs. 10 Lakhs deposited by the non-applicant No. 1 in its current account with the Malviya Nagar Branch of applicant-Bank, at Durg. It is not in dispute that the non-applicant No. 8 stood as a surety for repayment of debt of the principal debtor, the non-applicant No. 1 and executed a 'contract of guarantee'. The contract of guarantee was for repayment of debt of the non-applicant No. 1, the principal debtor. The right of the applicant under the contract of guarantee is an independent right. This independent right survives until and unless the loan is repaid by the principal debtor. The contract of guarantee may be an offshoot of the transaction between the principal debtor and the creditor but it has its own identity, separate and distinct. The I.A. No. 31 is based on contract of guarantee. The loan of the principal debtor was not repaid to the applicant and, therefore, it moved the Court for retention, adjustment or set-off of Rs. 10 Lakhs deposited in the current account of non-applicant No. 8, Moolchand Jain at Malviya Nagar Branch of the applicant-Bank, at Durg. The application was made under Section 151 of the Code of Civil Procedure. Therefore, without considering the rights of creditor to recover the loan from the principal debtor or from the other securities furnished by it, for repayment of loan, the Court is required to examine if the applicant can claim any Hen or set-off for adjusting or retaining Rs. 10 Lakhs till the debt is repaid. Since the applicant is not bound to exhaust its remedies against the principal debtor, before proceeding to recover the debt from the surety, it would not be necessary ' to consider if any attempt was made by the applicant to recover the debt from the principal debtor at this stage. Nor does the contract between the principal debtor and the applicant shall be, considered for determining or construing the rights and liabilities of the surety.
15. The learned counsel for the applicant referred to Section 171 of the Contract Act and argued that the 'Bankers Lien' under that section is an additional right to retain the possession of Rs. 10 Lakhs deposited with the Malviya Nagar Branch of the applicant-Bank, at Durg, by the non-applicant No. 8 against his name in the current account. The learned counsel for the applicant brought to the notice of this Court the case of Devendra Kumar v. Gulabsingh Nekhesingh, AIR 1946 Nag 114. In this case, the Banker had filed a suit for recovery of Rs. 290-10-0, claiming that at the instance of the defendant, he had transferred Rs. 265-5-0 from the deposit account of the defendant to loan account of defendant in his bank. The defendant denied that he had given any instruction to the plaintiff and made a counter-claim of Rs. 135-11 12 the trial Court dismissed the suit holding that there were no instructions to the plaintiff todeposit the amount in the loan account. It was further held that there was no Hen. The counterclaim was decreed. In revision, Puranik, J. held that even though Section 171 of the Contract Act did not apply in terms as there could be no bailment of deposits made to a Bank, the right of Banker to claim lien could be justified. It was held that the Contract Act was not a complete Code in itself and Section 1 of the Contract Act itself saved any usage or custom of trade. Relying on Irrawaddy Flotille Co. v. Bhagwandas, (1891) 18 Ind App 121, Jwaladutt v. R. Pillani, AIR 1929 PC 132 and Kalyanji Kuwarji v. Tikaram Sevlal, AIR 1938 Nag 254, it was held that Contract Act was not exhaustive. It was held that in view of Section 6 of Central Provinces Act, the rules of justice, enquity and good conscience applied where Contract Act was not applicable in terms. The principles of English Law could be adopted as principles of justice, equity and good conscience, if they suited Indian conditions. The learned Judge referred to Khan Bahadur Mehrban v. Makhna, AIR 1930 PC 142 and Waghela Rajsanji v. Shekh Meeludin, (1887) ILR 11 Bom 551 as examples where the principles of English Law were made applicable. Thus, applying the principles of English Law in Union Bank of Australia Ltd. v. Murray Aynslay, 1898 AC 693, that in that particular case, the plaintiff was entitled to 'retain the moneys of the defendant and had even rights to combine the two accounts)' The argument-- 'no custom or usage of trade' was pleaded or proved, was repelled by Puranik, J., on the ground that banking business in India was carried on the same lines as was carried in England and Bankers in India are governed by the same rules as that are followed in England. 16. It appears that Puranik, J., rightly held that Section 171 of the Contract Act in terms did not apply to cases of deposit of money. In case of deposit no relationship of bailor and bailee is established in accordance with Section 148 of the Contract Act. The items of money deposked with a Bank do not retain their identity unless they are set apart or earmarked under special terms of contract. They are normally not held in specie. Since the relationship of debtor and creditor is established between a Bank and a depositor, the money-in-deposit in the Bank legitimately belongs to the Bank. It has the right of ownership of particular items of moneydeposited. It can utilize that money for its own purpose. Under the contract of deposit, the Bank is required to refund us equivalent as per terms. Lien in the context would be a right of retention of goods of the debtor in the hands of creditor until the debt is repaid. A Bank cannot claim lien on the money that belongs to it. Therefore, application of Section 171 at the Contract Act should be properly confined to cases where the papers, securities and oilier goods belonging to a debtor, are kept with the Bank for creating relationship of bailor and bailee. Puranik, J.. was clearly right in holding that the Contract Act was not a complete Code and the Banking business, which was imported to India from England in its modern form, was governed by usages and customs of Banking business in England. However, the learned Judge has called right to retain or combine the two deposits as Banker's Men. It is now recognized in England as well as in India that it would be a misnomer to call the right of a Banker to hold money-in-deposit towards the payment of debt or to combine two accounts of a depositor as Banker's lien. It should be properly called right of set-off or right of adjustment. It has been loosely called as Banker's lien in England as well as in India. However, the practical effect in either case should not be much different.
17. In the case of Punjab National Bank Ltd. v. Arura Mal Durga Das. AIR 1960 Punj 632. Tekchand J. speaking for Division Bench, stated at page 635. as follows in paragraph 13-
'Strictly speaking the use of the word 'lien' in relation to money -- though frequently used, is not correct. It is confined to securities and property in Bank'scustody. A distinction is drawn between a Banker's lien on its clients, paper, goods and security etc. and the Bank' sright to set-off deposits against debts due to it from its depositors. It may arise from the contract, or from mereantile usages or by operations of law. Hart (Law of Banking, 3rd. edition, page 810) cited with approval the following from the treatise of Mcrse on the American Law of Banking :
'The word 'lien' cannot properly be used in reference to the claim of the bank upon a general deposit, for the funds on general deposit are the property of the bank itself. The term 'set-off should be applied in such cases and lien when a claim against paper or valuation on special or specific deposit is referred to. In the eases the words are used very loosely.......The practical effect of lien and set-off is much the same.' The learned Judge concluded in paragraph 14, at page 635 as follows -
'The rule of English law that the Bank has a lien or more appropriately, a right to set-off against all monies of his customers in his hands has been accepted as the rule in India. According to this rule when monies are held by the Bank in one account and the depositor owes the Bank on another account, the Banker by virtue of his lien has a charge on all monies of the depositor in his hands and is at liberty to transfer the monies to whatsoever account, the banker may like with a view to set-off or liquidate the debts: vide Llyode Bank Ltd. v. Administrator General of Burma, AIR 1934 Rangoon 66 and Devendrakumar Lalchandji v. Gulabsingh, AIR 1946 Nag 114.' Lord Denning, Master of Rolla, in Halesowen Presswork and Assemblies Ltd. v. Westminster Bank Ltd., (1970) 3 WLR 625 at page 634, stated as follows :--
'Seeing that the banker's lien is no true lien, in order to avoid confusion. I think we should discard the use of the word 'lien' in this context and speak simply of a banker's right to combine accounts' : or a right to 'set-off one account against the other.
Using this phraseaiogy, the question in this case is : suppose a customer has one account in credit and another in debit. Has the banker a right to combine the two accounts. So that he can set-off the debit against the credit, and be liable only for the balance?
The answer to this question is : Yes, the banker has a right to combine the two accounts whenever he pleases, and to set-off one against the other, unless he has made some agreement, express or implied, to keep them separate. This principle was stated and applied in two cases decided on the same day-- November 8, 1872. One was in re European Bank, Agra Bank Claim's case. 1872 LR 8 Ch App 41, in the Court of Appeal in Chancery. The other was Garnett v. Mckewan. (1872) LR 8 Exch 10 in the Court of Exchequer II has been applied several times since, such as T. and H. Greenwood Teale v. William Williams. Brown and Co.. (1894) 11 TLR 56 and in re Keever ( A Bankrupt), 1967 Ch182. Conversely, the customer has a right to call on the banker to combine the two accounts, and to set-off one against the other unless there is some agreement, express or implied, to the contrary : see Mutton v. Peat, (1900) 2 Ch 79.'
18. In the case of Punjab National Bank (AIR 1992 S'C 1815) (supra) the Supreme Court recognized the right of a Banker to adjust the amount in Fixed Deposit of Bank on its maturity towards debt owed by the two sureties to the Bank under a guarantee to repay the debt of the principal debtor in case the debt is not repaid by him, when the F.D.Rs. were furnished as security for repayment of debt by the two sureties. This appears to be a good example of Banker's lien so far as the F.D.Rs. were concerned, the Bank was bailee and the sureties were the Bailers. However, as already stated, the practical effect of the right of set-off or lien is just the same. The following observation of Supreme Court brings out the rights extent of right enjoyed by a creditor-Bank in the case of Punjab National Bank (AIR 1992 SC 1815) (supra), at page 1817:
'...... .It is not obligatory to file a suit to recover the debt. It is settled law that the creditor would be entitled to adjust, from the payment of a sum by a debtor, towards the time barred debt. It is also equally settled law that the creditor when he is in possession of an adequate security, the debt due could be adjusted from the security in his possession and custody. Undoubtedly, the respondent and his wife stood guarantors to the principal debtor, jointly executed the security bond and entrusted the F.D.R. as security to adjust the outstanding debt from it at maturity. Therefore, though the remedy to recover the debt from the principal debtor is barred by limitation, the liability still subsists. In terms of the contract the Bank is entitled to appropriate the debt due and credit the balance amount to the saving bank account of the respondent........'
19. The learned counsel for the appellant, Shri-G. M. Chaphekar. strongly relied upon this decision to claim that the applicant had a right of lien or set-off.
20. Shri Ravish Agrawal, the learned counsel for the non-applicant No. 8, rightly contended in this particular case that the applicant cannot claim any Banker's lien. The right if any, would be called right of set-off. The learned counsel contended that right of set-off could be exercised only when there was mutuality. There must be mutual demands between the Bank and the depositor. The mutual demands must be between the same panics and they should lie in the same capacity. In case, the deposit with the Bank is not of same party who is indebted to Bank as a surety, the question of right ofexercise of set-off did not arise. Further even if the party may be same, his capacity as a depositor in the Bank may he altogether different. In either case, the Bank will have no right of set-off. The learned counsel submitted that Rs. 10 Lakhs deposited in the Malviya Nagar Branch of the applicant-Bank, at Durg do not belong to the non-applicant No, 8 in the capacity of the surety for repayment of debt of the non-applicant No. 1. This amount is not his own and it belongs to a partnership firm. That is to say the capacity of the depositor is not the same. The learned counsel also argued that since the amount of Rs. 10 Lakhs was not deposited with the applicant but with another branch at Malviya Nagar, Durg, there was no right of set-off.
21. In the opinion of this Court, the learned counsel for the non-applicant No. 8 is right in contending that there should be mutuality, that is to say there must be mutual demands between the same parties and their capacities must be the same.
22. Therefore, it is necessary to settle the question regarding mutuality at the out set. The liability of non-applicant to repay the debt to non-applicant No. 1 under contract of guarantee cannot be doubted. The applicant's right to proceed against him at its option cannot be disputed. Once it is proved that the non-applicant No. 1 has not paid the debt, the facts reveal that the non-applicant No. 8 is liable to repay the entire debt of non-applicant No. 1 unless it is discharged. Thus, the non-applicant No. 8 is held liable. If the amount deposited with the Durg Branch of the applicant-Bank, belong to the non-applicant No. 8, in his individual capacity, then so far as he is concerned, his capacity is the same. Therefore, it is necessary to examine the facts of the case from this point of view. In reply to the application dated 7-2-1995, fixed for 15-2-1995 (Annexure C), the non-applicant No. 8 had admitted that Rs. 10 Lakhs were deposited in his name in the current account. This was the first plea of the non-applicant No. 8 (Anncxure D). However, in reply to second application (Annexure E), the non-applicant No. 8, took altogether different stand. It was stated in this reply that the amount did not belong to him. In fact, it was a loan obtained by firm M/s. Moolchand Jain from M/s. Pal Credit and Capital. It was deposited in the name of Moolchand Jain because the aforesaid company issued a wrong cheque/draft. It was also claimed that Moolchand Jaih was not even a partner of M/s. Moolchand Jain a firm. The deposit in the name of Moolchand was made in order to avoid delay. It is obvious that the non-applicant No. 8 was taking a shifting stand. The fact nevertheless remains that the non-applicant No. 8 did deposit the amount of Rs. 10 Lakhs and it stands deposited in his name. It has not been pleaded by him that there was any contract to the contrary with the Bank regarding this amount. Therefore, there is no escape from the conclusion that the amount deposited in the current account of Moolchand Jain was in his individual capacity. It cannot be disputed at this stage that there are mutual demands against each other. Therefore, so far as Moolchand Jain is concerned, the amount of deposit with the applicant-Bank at its Malviya Nagar Branch, Durg, is held to be in the same capacity as that of the surety.
23. It was, however, sought to be argued by the learned counsel for the non-applicant No. 8 that the amount deposited by Moolchand at Durg Branch of the applicant-Bank, was at a different branch of the applicant. In other words, the applicant cannot claim the same capacity for the deposit in another Branch. It may be remembered that State Bank of India is one Corporate Body constituted under the State Bank of India Act, 1955 With its Central Head Office at Bombay, the branches are part and parcel of the Corporate Body. It has been held to be a State within the meaning of Article 12 of the Constitution of India (see State Bank of India v. Kalpaka Transport Co. Pvt. Ltd., AIR. 1979 Bom 250. The deposits in any branch of State Bank of India cannot be said to be deposit with a separate body. Therefore, capacity of the State Bank of India would not change. Moreover in the case of Garnett v. M Kawan (P.O.), (1872) LR 8 Exch 16, the right of combination from different accounts with different branches was held to be valid. The plabitum of the aforesaid case brings out the meaning of the 'unanimous decision' as follows :--
'The plaintiff having an account at the L. branch of the defendants' bank, which showed a balance 10 his credit exceeding 23, drew .cheques to that amount on that branch. At the same time he was indebted to the bank at their B. branch in an amount which, having regards to his whole account, reduced his assets in the bank's hands to a few shillings only. The Bank, without any notice to him, transferred the B. debt to the L. branch, and refused to pay the cheques on presentment. There was no special contract between the parties that each account should be kept separate :-- Held, that the bank was entitled at any time to combine the accounts, and tocharge the L. account with the B. debt.'
24. The learned counsel for the non-applicant brought to the notice of this Court the decision of Calcutta High Court in the case of Krishna Kishore Kar v. United Commercial Bank, AIR 1982 Cal 62. It was contended that in view of the fact that the loan of the principal debtor was secured by various securities the applicant could not claim any lien or set off. In that particular case, inter alia, the defendant bank had executed on 27-11-62, a bank guarantee of Rs. 1,00,000/- in favour of President of India for its transaction with the Eastern Railway. The bank undertook to pay the amount to the Eastern Railway unconditionally. There was a counter guarantee of the plaintiff for re-imbursement of the amount and on default the bank was authonsed to recover it from the plaintiff from securities or adjust from the accounts of plaintiff in the hands of Bank. Under such circumstances, it was held that the bank could not claim general lien under Section 171 of the Contract Act. The counter guarantee created a special contract. Therefore, the Court held that the bank could not claim general lien to adjust Rupees 56,740/- but the operative portion of the judgment in paragraph 24 shows that a decree in terms of a counter guarantee was granted. This case is not applicable to the facts of the case, in hand, as the right of set off claimed by the applicant is against the non-applicant No. 6 in respect of Rs. 10 Lakhs. There is no agreement between the parties that the amount from the surety could be recovered in a particular manner. Nor there was any agreement pleaded that Mool Chand deposited Rs. 10 Lakhs subject to condition that this amount shall not be combined with the loan account of non-applicant No. 8, whose liability is in coextensive with that of the non-applicant Mo. I in the capacity of surety. It cannot be inferred that such a term is implied and, therefore, it must be express.
25. The learned counsel for the non-applicant No. 8 vehemently contended that the bank ought to have raised a plea under Section 171 of the Contract Act when it filed an application under Order 38, Rule 5 of the Code of Civil Procedure. The plea of attachment of Rs. 10 Lakhs before judgment required essential facts to be pleaded and proved. In Civil Rev. No. 6 of 1996, this Court, by order dated 22-2-1995 held that the applicant had not pleaded essential ingredients for proving its case under Order 38, Rule 5 of the Code of Civil Procedure. The question is if the dismissal of application for attachment before judgment amounts to res judicata and precludes the applicant from filing this application. In the opinion of this Court, the plea under Order 38, Rule 5 of the Code of Civil Procedure itself is not conclusive during the pendency of a suit. Nothing prevents a person from moving another application for attachment before judgment if the circumstances change. The idea behind that application is that the defendant may not be permitted to deal with his property making it impossible for the plaintiff to get the fruits of the decree. The principles of constructive res judicata could hardly apply to such proceedings. Moreover, in Civil Revision No. 6 of 1996, this Court did not pass any order on merits of the application. In paragraph 9 of the order it was found that 'None of the ingredients under Order 38 Rule 3(2) CPC are made out.' The observation of this Court in paragraph 12, meeting the arguments of learned counsel for the applicant, points out in the same direction. The whole paragraph shows that the learned single Judge was of the view that it was not pleaded that the non-applicant No. 8 was likely to dispose of Rs. 10 Lakhs with interest to defeat or delay the execution of decree. Once the court came to conclusion that the ingredients of Order 38 Rule 3(2) of the CPC were not pleaded, the rejection of the application was on preliminary grounds which were technical in nature. If the Court came to conclusion that the applicant had pot pleaded the ingredients of Order 38, Rule 3(2) of the CPC. theprinciples of resjudicata do not come into play.The same application could have been revivedafter pleading the ingredients. The dismissal ofapplication under Order 38. Rule 5 of the CPCwas dismissal at the thresh-hold on the technicalground that the applicant had not pleadedingredients for success of the application underOrder 38, Rule 5 of the CPC. The dismissal ofsuch application was on technical grounds. Theprinciples of res judicata are not attracted to sucha case. It is well established when there is dismissalon technical ground and not on merits, principledof res judicata do not apply. The same principlewould operate in case of application of principlesof constructive reas judicata. For the reasonsaforesaid, the subsequent application under Section151 of the Code of Civil Procedure is not batted.Nor does any observation made in Civil RevisionNo. 6 of 1996 shall be binding because they couldnot be treated as directly and substantially inissue.
26. The next and most important question is if this Court should grant or permit the applicant to claim set off or adjustment as claimed by it The learned counsel for the non-applicant No. 8 his placed reliance in the decision in the case of Purewal & Associates v. Punjab National Bank 1993 Supp (3) SCC 309 : (AIR 1993 SC 954). This decision was rendered against the order recalling the order made by the High Court on concession made by the counsel for the Bank-The appellants were denied Banking service by all Banks, even those to which it did not owe any money. Therefore, the Supreme Court ordered that Banking facilities shall be provided to the appellants for carrying on the normal business. The paragraph 7 of the order shows that this was purely interim arrangement till the suit was filed and the parties were given liberty to seek further direction from the forum where such legal proceedings were commenced by the Bank. The facts of this case are altogether different from the case before the Supreme Court. The non-applicant No. 8 has not claimed that the Banks are denying him any Banking facilities. It is not his case that all the Bankers are denying him the Banking facilities. There was no offer to repay the loan at any stage. On the other hand, the non-applicant No. 8 is denying that the money deposited in the Bank belongs to him. Therefore, no assistance can be derived from this decision. However, the question still is whether the Court should in the interests of justice grant permission to the Bank to exercise its right of set off. The facts of this case indicate that claim of the Bank is for Rs. 2,81,75.422.21. The non-applicants are defaulters and have not cared to repay the loan. They have not come voluntarily with any scheme to repay the loan. The non-applicant No. 8. apart from being a director, is also a surety. All Ihc non-applicants arc delaying the repayment of loan. A Bank is a public institution and the non-applicants cannot be permitted to take undue advantage of the fact that the Bank granted loan to them. It was their equal obligation to see that the loan is repaid. The applicant is. therefore, entitled to its remedy of set off, which it would have in ordinary course of circumstances, if it had not filed the suit. The permission is sought only because the suit is pending. Therefore, in ordinary circumstances it would be in consonance with justice to grant permission to set off. The non-applicant No. 8 cannot be permitted to abuse the process of Court in defeating the rights of the applicant-Bank. The call of administration of justice is that the Court should not stultify the right of set off or adjustment given to Bank which is hallowed by custom and usage of Banks. The law of merchant anJ the practice of Banking Trade must not be ordinarily whittled down. The learned counsel for the non-applicant No. 8 urged that the Bank cannot be permitted to destroy the working capital of non-applicant No. 8. The non-applicant No. 8 had a right to ask the Bank before depositing Rs. 10 Lakhs for not enforcing the claim of set off. He did not do so. Therefore, he cannot be heard to say that the applicant is doing injustice when it is trying to recover ils loan. claiming that the non-applicant No. 8 is liable to repay the same in law. It is true that this method is somewhat coercive, hut there appears to be no other way out. The non-applicants have shown no willingness to repay the loan, therefore, the applicant-Bank is entitled to recover a part of the loan even if it is required to use harsh measures against the non-applicant No. 8, It is the firm opinion of this Court that a good deal of injustice will be done by refusing the permission to the applicant-Bank than by granting it and this opinion has been arrived after considerable reflection. In the golden scales of justice the case of the applicant appears to be heavier than that of the non-applicant No. 8.
27. The result of the aforesaid discussion is that this revision succeeds and it is allowed. The impugned order dated 15-5-1996 is set aside. Consequently, it is directed that the applicant shall be permitted to set off Rs. 10 Lakhs (Rupees ten lakhs) deposited by the non-applicant No. 8, in the Malviya Nagar Branch of the applicant-Bank, at Durg, towards the claim made by it against the non-applicant No. 1. The amount so set off, shall be repayable to the non-applicant No. 8 in the event the entire claim of the applicant is satisfied by the principal debtor under a decree or otherwise; or the suit of the applicant-Bank fails and is dismissed. If such an event occurs, the applicant shall refund to the non-applicant No. 8, Rs. 10 Lakhs (Rupees ten lakhs) along with interest thereon at the rate of 18% (eighteen per cent) per annum from the date of deposit till the entire loan with interest is repaid by the non-applicant No. I in satisfaction of the decree or otherwise; or till the date the amount of Rs. 10 Lakhs (Rupees ten lakhs) is refunded to the non-applicant No. 8. consequent to dismissal of the suit of the applicant in the trial Court, as the case may be. No costs.