Keshavlal Trikamlal Vs. Indian Overseas Bank Ltd. - Court Judgment

B.K. Mehta, J.

1. An interesting question arises in this revision, namely, whether a customer can sue his banker for accounts The question arises in the following circumstances:

The applicant herein is doing the business of selling cloth in Ahmedabad and for purposes of his business had certain banking facilities with the opponent-Bank herein. There were two types of accounts with the opponent-Bank namely; (i) Key Cash Credit Account and (ii) Bills Purchase Account. For the purposes of having facility in the first account, the applicant used to hand over the key of his godown where his bales of cloth were stored to the opponent-Bank with a complete control over the same. The opponent-Bank used to maintain accounts of the bales deceived and replaced in the said godown from time to time and on the basis of the valuation of the stock of the bales in custody of the Bank, advances were made to the extent of 70 per cent of the price of the goods subject to maximum of Rs. 2,50,000/- The applicant used to sell his goods to upcountry merchants. But before the delivery of the goods was effected to the merchants concerned, the applicant used to draw the bills on the upcountry constituent, which the opponent-Bank used to purchase by advancing amounts to the applicant and which amounts were adjusted finally in the Key Cash Credit Account when all the bales of cloth were delivered to the merchants concerned by the opponent-Bank against the price thereof, which the Bank used to credit in the plaintiff's account in the Bank. It appears that some insolvency proceedings were initiated against the applicant in the City Civil Court at Ahmedabad in December, 1961. It is the case of the applicant that from that time, the relationship between the applicant and the Bank came to an end. It is his further case that the opponent-Bank informed him when he inquired in about December, 1961 that the value of the goods in favour of the Bank was to the tune of Rs. 1,45,000/-. The grievance of the applicant in the suit is that the Bank refused to give any details about the plaintiff's accounts in the Bank, though the opponent-Bank was in possession of the details about the bills purchased, which were either honoured by the upcountry constituents or were dishonoured as a result of which the opponent-Bank was forced to sell the goods. It is the case of the applicant that the opponent-Bank was accountable to him for these sale transactions, which, according to the applicant, were not effected at the market price. The applicant is not in a position to ascertain the exact amount due to him from the defendant-Bank as some of the creditors had taken away all his books of accounts at the time of the aforesaid insolvency proceedings. It is his further grievance that the opponent-Bank has delivered the goods pledged with the Bank to unauthorised persons, and in some cases to the employees of the Bank and the opponent-Bank has not accounted for these goods in its periodical statement of accounts or falsely accounted for as delivered to the applicant. The plaintiff, therefore, filed the suit for recovery of an aggregate amount of Rs. 60.000/- comprising broadly of three items, namely,:Rs. 21,000-00 or any excess amount which became due to the plaintiffon taking accounts by way of damages a? due from the Bank as it wrongfully sold away the goods and did not give credit at the market price.Rs. 5,000-00 By way of damages from the Bank for wrongfully debitting to the account of the applicant, the amountsof false and fabricated cheques or any other excess amount by way of damages on ascertaining the record.Rs. 34,000-00 or any other excess amount, which may be found dueon taking accounts by way of damages for wrongfullydebitting to the account of the applicant the price ofgoods delivered to unauthorised persons.----------------Rs. 60,000-00

2. In the written statement filed by the opponent-Bank, there was no plea as to the non-maintainability of the suit for accounts. However, it appears that the plaintiff sought the amendment and furnished better particulars of these three broad items claimed as damages, after taking inspection of the accounts, with the opponent-Bank. The amendment was ultimately permitted to be made for purposes of furnishing better particulars of these three items. Pursuant to this amendment made, the opponent-Bank filed its written statement to the amended plaint and raised a plea amongst others that the suit for accounts was not maintainable. The court, therefore, raised the question by Issue No. 14, whether the salt for accounts was not maintainable. After allowing the parties to lead evidence on this preliminary issue and after hearing the advocates of the parties, the learned city civil Judge came to the conclusion that such a suit was not maintainable, as the suit was not so worded nor valued as to be a suit for accounts. The learned city civil Judge also held that having regard to the relationship between the applicant and the opponent-Bank which is that of a creditor and a debtor notwithstanding the fact that there was a Key Cash Credit Account, such a suit was not competent. The learned city civil Judge was further of the opinion that having regard to the evidence led in connection with this preliminary issue, the applicant as well as his son had an opportunity and had in fact Inspected the accounts books for a week or so and, therefore, the applicant was in a position to file a suit for an ascertained amount. Having not done so, toe suit for accounts was not competent.

3. Being aggrieved with this order of the learned city civil Judge, the applicant has come in revision before this Court.

4. At the time of hearing of this revision, Mr. N. J. Bhatt, the learned advocate, appearing on behalf of the applicant, urged the following contentions:

(1) The learned city civil Judge was clearly in error in holding that the suit for accounts was not maintainable, having regard to the relationship of the applicant and the opponent-Bank in the facts and circumstances of this case.

(2) The learned city civil Judge refused to exercise his jurisdiction, inasmuch as, he held that such a suit was not competent, as it was not so worded or valued.

(3) The learned city civil Judge misread the evidence, inasmuch as, he held that because the applicant and his son had inspected the respective accounts of the applicant with the opponent-Bank, the applicant had an opportunity of filing a suit for an ascertained amount and having not done so relief for account in the alternative was not incompetent in the facts and circumstances of this case.

5. Mr. B. H. Shah, the learned advocate, appearing on behalf of the opponent-Bank has urged that no account could be obtained by a customer against his banker; the relation between them in no sense fiduciary, but merely that of debtor and creditor. It was also urged by Mr. Shah that the opponent-Bank used to furnish periodical statements of accounts to the applicant, who had in fact, as found by the learned city civil Judge, on the evidence led by the parties in connection with his accounts for a considerable period and, therefore, the applicant is now estopped from challenging the correctness of entries and suing for accounts as it constituted a settled accounts. In any case, it was urged by Mr. Shah that the opponent-Bank was holding these goods as bailee merely and, therefore, such a suit is incompetent. Mr. Shah also urged it that the terms and conditions of the Key Cash Credit of Account between the parties provided that the accounts of sales rendered to the applicant by the Bank would be conclusive evidence, both in and out of Court in all matters stated there and, therefore, such relief for taking joint accounts is not open to the applicant.

6. In my opinion, the learned city civil Judge was not right when he read the plaint as if there were no grounds stated for asking for the reliefs of account or that it was not so valued. The averments, which I have stated above in this judgment, clearly make, out that the relationship between the applicant and the opponent-Bank was not merely akin to one between classical banker and depositor which is stated to be now as that of a debtor and a creditor. It has been clearly averred that there were two types of accounts; one known as Key Cash Credit Account, which is sort of a Pledge Account and the second, was Bills Purchase Account, where the opponent-Bank used to purchase bills drawn by the applicant on the upcountry constituents towards the price of goods held by the Bank and sold by the applicant to those customers. What is the nature of relationship of a banker and customer in case of pledge of goods or in case of purchase of bills by the Banker from the Customer, would be presently discussed. It is sufficient to say for the immediate purpose that the observation of the trial court that there was no foundation laid in the plaint for purposes of asking relief of accounts was not warranted. The applicant has in terms in respect of the three broad items of claim alleged that the Bank had given wrong credits or debits for the goods sold by the Bank or the goods delivered to the unauthorised persons and also about the wrong debits made on account of false and fabricated cheques. It has also been averred in this context that some insolvency proceedings were commenced against the applicant and the creditors have taken away all the books of accounts of the applicant at that time. It was further averred that in or about December, 1961, when the insolvency proceedings were initiated against the applicant, he asked for the particulars from the Bank about the dealings of the Bank in respect of the goods held by the Bank in pledge, and that the Bank failed to furnish the necessary and satisfactory particulars. It has been specifically averred that the opponent-Bank is in possession of the particulars of the bills which were either honoured or dishonoured by the upcountry constituents and unless those particulars were given to the applicant, he would not be in a position to ascertain what was the amount, actually due from the Bank to him, when the opponent-Bank informed the applicant that the Bank was holding the goods worth Rs. 1,45,000/- only in pledge. In my opinion, therefore, the learned city civil Judge has failed to read properly the necessary averments made in the plaint in respect if the three items of claim or for purposes of taking accounts in the alternative.

7. The learned city civil Judge was over simplifying the matter when he observed that the relationship between the applicant and the opponent-Bank is of creditor and debtor notwithstanding the fact that the plaintiff-applicant used to pledge the goods with the Bank at the time of taking advances. Mr. Bhatt was right when he made a grievance that necessarily and for all purposes, it cannot be said that the relationship between a Banker and a Customer would be that of a creditor and a debtor. In Chitty on Contracts. Volume 2, Twenty Third Edition, at page 195, in paragraph 383, it is observed regarding 'nature of relationship' between Banker and customer as under:

As bankers perform different services for their customers the nature of the relationship between the parties may vary from transaction to transaction. Thus, when the banker accepts the custody of documents or goods he acts as bailee, and when he agrees to hold moneys on trust he becomes a trustee. The relationship of banker and customer, however, is established, as has been shown, by the opening of an account. When a banker opens an account for the customer the relationship established is one of debtor and creditor. When the account is in credit, the customer is the creditor and the banker the debtor. The position is reversed when the account is overdrawn. While the relationship of debtor and creditor prevails in all types of accounts opened by bankers, there are super added obligations in some types of accounts, which will be discussed subsequently.

The said Author in paragraph 386 on page 195 dealing with 'the rights and duties of the banker' under the Current Account observed as under:.When drawing a cheque the customer, acting as principal, authorises his banker-his agent-to make payment. (Vide London Joint Stock Bank v. Macmillan (1918) A.C. 777). A relationship of principal and agent is, accordingly, superimposed on the basic relationship of creditor and debtor.

In Corpus Juris Secundum at page 546 in paragraph 267, regarding relationship between Bank and depositor, the nature of relationship has been described as under:

The intention of the parties controls the character of the relation between bank and depositor, which may be that of bailee and bailor, but is ordinarily that of debtor and creditor.

The preliminary duty of a bank is to its depositors, and it has been said that the contract between a bank and a depositor is not materially different from any other contract by which one person becomes bound to take a charge of and repay another's funds. The relation between a bank and a depositor may be dual in character, the bank being the depositor's debtor with respect to one thing and his agent with respect to another, or his debtor at one time and his agent at another and while the relation between the bank and a depositor with respect to a general deposit is generally regarded as that of debtor and creditor, yet in another sense the depositor is the owner of the deposit, in that he can demand repayment at any time.

There is, however, a difference between the liability of banks to their depositors and that of ordinary debtors to their creditors, the bank discharging its obligation as a debtor subject to the rules obtaining between principal and agent, and a Bank can go beyond the ordinary debtor and creditor relation and submit to the court any controversy over the ownership of a deposit.

In determining the relation or status existing between any particular depositor and bank, the controlling element is the mutual intention and purpose of the parties with respect to the fund on deposit, and in the absence of a subsequent agreement, the nature of the relation between the parties will depend on the terms of the contract of deposit.

At page 570 in paragraph 275 in Corpus Juris Secundum, it is observed in respect of deposits 'for specific' purposes, as under:

A delivery of money or property to a bank for application to a particular specific purpose is not a general deposit, nor is it, strictly speaking a 'special' deposit as that term is usually employed, but ordinarily it partakes of the nature of a special deposit in that title to the thing remains in the depositor and the bank becomes an agent, bailee, or trustee and not a debtor.

It is not ultra vires for a bank to receive and hold money to be applied to a special purpose. A specific deposit, or deposit for a specific purpose, consists in the delivery of money or property to a bank for application to a designated object or a defined purpose, as in the case of money deposited to meet a maturing obligation or a note delivered for collection....

A 'specific' deposit partakes of the nature of a 'special' deposit to the extent that title to the thing deposited remains in the depositor and does not pass to the bank, unless and until applied to the specified purpose, that no relation of debtor and creditor is created between bank and depositor, and that the bank becomes the depositor's agent, bailee, or trustee, in using deposits made for the purpose of having them applied to a particular purpose, if the bank, acting as the agent of the depositor should fail to apply it at all, or should misapply it, it can be recovered as a trust deposit....

Dealing with the question of the nature of deposit and the relationship of the banker and a customer in a case arising in respect of the prosecution launched under the provisions of Foreign Exchange Regulations Act the Supreme Court in Shanti Prasad Jain v. The Director of Enforcement Foreign Exchange : [1963]2SCR297 , observed in paragraphs 43 and 44 as under:.It is well known that Banks engage, in addition to their normal work as Bankers, in several activities, which are not associated with, and do not involve any elements of banking. In Halsbury's Laws of England, Third Edition Vol. 12 Note (g) it is stated : 'Numerous other functions are undertaken at the present day by banks, such as the domiciled bills, custody of valuables, discounting bills executor and trustee business or acting in relation to stock exchange transactions and bank, have functions under certain financial legislation, e. g. by delegation' under the Exchange Control Act, 1947, or as authorised dealers under that Act and subordinate legislation. These functions are not strictly banking business

(44) In Paget's Law of Banking, Sixth Edition, p. 48 it is stated that 'superimposed on this general relationship of banker to customer there may be special relationships arising from particular circumstances and requirements' and that the express terms of those relationships override the implied terms arisine from the general relationship. It was argued for the respondent that this statement of the law could have as suggested by the word 'superimposed' reference only to special contracts entered into with customers, and that involves the admission that appellant is a customer. Normally no doubt banks would undertake these wort for their customers, but there is nothing to prevent them from doing so for other as well....

The Supreme Court thereafter referred to the above quotation from Corpus Juris Secundum and approved the proposition that intention of parties controls the character of relation between the bank and the depositor.

8. The question therefore, arises that what was the intention of parties as can be gathered from the terms and conditions contained in the document passed between the parties for the Key Cash Credit Account pledging goods as security for repayment of the amount due and payable at the foot of the said account. In the opening paragraph of the said document the borrower had agreed to deposit with the opponent-Bank all goods, documents of title to the goods and securities of every description other than securities for immovable property by way of security with the Bank to be held by the Bank upon and subject to the terms and conditions contained in the document. According to condition No. 1, the goods etc., would be held by the Bank as security, for payment, to the Bank by the borrower all moneys which may become due and payable from time to time, interest on the amounts so due, commission and other customary charges and all other expenses which may be incurred by the Bank in selling or attempting to sell the said secured goods or any of them or in realising the said securities or part thereof, and all costs, charges and expenses including legal charges, which the Bank may be put to in connection with the premises or the exercise or enforcement of any right or powers conferred under the document. According to condition No. 2, the moneys were to be paid at the Head Officer at Madras on demand made by the Bank. According to condition No. 3, the borrower agreed at all times while any money remain due and payable to deposit and keep deposited with the Bank all goods, documents of title to goods and securities approved by the Bank of such value. By condition No. 4 it is provided that in case of default being committed by the borrower to repay the moneys due after 48 hours of the notice demanding the payment, the Bank would be entitled to sell the said securities in such manner as the Bank may think fit. By condition No. 5 it is provided that the Bank shall be at liberty to buy in or rescind any contract for sale and resell without being accountable for any loss or diminution in the price of the secured goods or being answerable for any deterioration of the said goods or for any depreciation in the value of the securities. By condition No. 6 the borrower agreed to do and complete all acts done as to effectively vest the secured goods in the Bank. Conditions Nos. 7, 8 and 9 are important and they are reproduced as under:

7. The Bank shall not be liable to me/us for any involuntary losses which may occur during its custody of the said securities or by reason of the sale of the said securities or any of them or for any deterioration of the goods or for any depreciation in the value of the said securities,

8. The Bank may out of the proceeds of sale of the said securities retain all moneys owing by me/us in my/our said account under the said several items specified in paragraphs (a) to (e) of clause 1 hereof; the surplus if any is to be paid to me/us subject however to the Bank's general lien and I/We agree to make good the deficiency, if any, to the Bank' at Madras on demand.

9. All account of sales rendered to me/us by the Bank shall be conclusive evidence both in and out of court of all matters therein stated.

By condition No. 10, the Bank had a liberty to discontinue the facilities. By condition No. 11, the borrower agreed to pay interest till the principal amount would be fully repaid. By condition No. 12, the borrower agreed to treat the security as a continuing security for all the moneys due and payable by the borrower under any account with the Bank. By condition No. 13, the same terms and conditions would govern the securities being made in future in respect of payments due and payable under any account with the Bank. By condition No. 14, the borrower assured the Bank about the secured goods being of his absolute ownership.

9. On perusal of the above conditions, it is clear that the intention of the parties appears to be that the relationship between the applicant and the opponent-Bank was not merely of creditor and debtor, but the relationship of pawner and pawnee is superimposed on the same. Having regard to these terras and conditions, I do not think that it can be successfully urged that the opponent-Bank was holding the property as a mere bailee. Conditions Nos. 4, 5, 7, 8 and 9 clearly indicate that the Bank had a right to sell the property, if the applicant committed default after being called upon to pay. The Bank was under obligation of rendering account of sales made on behalf of the applicant under condition No. 4. In this particular case, before me, the opponent-Bank has, when the bills purchased by it were dishonoured, sold the goods covered by those bills. The Bank is also entitled to recover not only principal and interest, but commission and other customary charges and expenses incurred by the Bank in selling or attempting to sell the securities and all costs, charges and expenses to which the Bank may be put to in connection with the premises or exercise or enforcement of any right or powers conferred under the document between the parties, in respect of the pledged goods. It is, therefore, clear in view of these terms and conditions that the relationship between the applicant and the opponent-Bank could not be said to be merely of a creditor and a debtor. The relationship is not merely of a bailment also. The relationship between the parties of debtor and creditor was superimposed with the relationship of pawnee and pawner as stated above. As held by the Supreme Court in Jaswantrai Manila Akhanfy v. The State of Bombay : 1956CriLJ1116 , where a question arose about the rights of the pawnee in respect of the security pawned by a Bank with another Bank His Lordship Justice Sinha (as he then was), speaking for the court, observed as under in paragraph 11:

We will now deal with the legal position, apart from the terms of the contract. On the facts stated above the Exchange Bank had become the bailee in respect of the securities. The securities had been delivered by the Co-operative Bank to the Exchange Bank for the express purpose, as disclosed in the contract set out above, that they shall be disposed of in accordance with the terms contained in Ex. G set out above. By the very fact of the delivery of the security to the bailee the latter became a trustee in terms of the contract, not for all purposes, but only for the limited purpose indicated by the agreement between the parties.

The pledger has in the present case only transferred his possession of to property to the pledgee who has a special interest in the property of enforcing ' charge for payment of an overdraft, if any, whereas the property continues to be, owned by the pledger. The special interest of the pledgee comes to an end as so' as the debt for which it was pledged is discharged....

10. It is therefore clear that in the present case, when the applicant pledged goods, title to goods and other securities to the opponent-Bank by way of security for purposes of repayment of the advance made, the relationship was not merely that of creditor and debtor as held by the learned city civil Judge. It is, as observed by the Supreme Court in Jaswantrai Manilal's case (supra), that for the limited purpose as described in the pledge document the relevant conditions of which are summarised hereinabove, the bailee became a trustee on delivery of secured goods to him, though not for all purposes. In that view of the matter, therefore, the learned city civil Judge was clearly in error in relying on the decision of the High Court of Jammu and Kashmir in State of Jammu and Kashmir v. L. Tola Ram A.I.R. 1971, Jammu & Kashmir, 71, which was a case of a suit filed by a building contractor against the State Government for the wotsen done in respect of a road, where the court has referred with approval at page 74 the passage from Principles of Equity by Snell, the relevant portion of which for our purposes reads as under:.No account can be obtained by a customer against his banker, the relation between them being in no sense fiduciary, but merely that of debtor and creditor....

The learned city civil Judge was in error in applying certain tests which have been set out in the said judgment in paragraph 10 from Treatise on the Law of Agency by Brindaban Katiar, Second Edition, 1961 at page 571. In my opinion, the facts in the present case satisfy these tests; firstly, as the opponent-Bank has received the goods which were not its property; secondly, the applicant is entitled to account in certain cases; thirdly the Bank was not holding the goods merely as a bailee; fourthly the Bank received in its possession and control the said goods, and fifthly there was a privity of contract between the parties hereto in respect of these reliefs. The oriental Bank, it should be recalled, not only was entitled to continue to hold the goods for all sums due for the applicant under any contract, but was also entitled to sell the goods, if the bills purchased by it under the bills, purchase account were dishonoured or in case the applicant failed to pay the amount after 48 hours on being called upon to do so by a notice in writing. Therefore, the Bank was also an Agent for collection of these bills and entitled to sell the goods, if the bills purchased by the Bank were dishonoured and this sale of goods on behalf of the applicant could be as the pledgee. In that view of the matter, therefore, the learned city civil Judge has failed to exercise jurisdiction, inasmuch as, he held that such a suit for account was not competent. Mr. Shah has urged before me that conditions Nos. 5,6,7,8 and particularly condition No. 9 exonerate the Bank from rendering the accounts. He has drawn, my attention to condition No. 9, where all the accounts of sales rendered by the Bank to the applicant were agreed to be conclusive evidence, both in and out of court, for all matters stated therein. This condition may have a bearing ultimately on the questions that may be required to be tried and adjudicated upon by court, but having regard to condition No. 1, where the Bank is entitled to various amounts not only on account of principal and interest, but commission, other customary charges, costs and expenses for which it has a right to sell goods, it was clearly provided that the Bank was under an obligation to render the accounts. In Chitty on Contract, 23rd Edition, at page 202 in paragraph 402, relating to nature and history of pass-books, it has been observed as under:.Modern English authorities indicate that in the absence of an express contractual undertaking, the customer is not under any implied obligation to examine the debit entries in his pass-book or periodical statement of account, nor to check the validity of any cancelled cheque which the banker may forward him. It has been held that not even the return of a pass-book to the banker by a customer, without comment and with the entries ticked, constitutes a settled account, and that the customer is not prevented from subsequently challenging the correctness of the entries....

In Corpus Juris Secundum, Vol. 9, at page 553 in paragraph 271 relating to Statement of Account, it is observed as under:

While in the final analysis, the true state of the account controls the rights of the parties, both bank and depositor have certain duties in respect of the making and examination of bank statements. The Bank is ordinarily under a duty to render periodical statements and the depositor under a duty to examine them with reasonable diligence and dispatch and to report any errors.....The present rule, however is that the rights of neither party are fixed or changed by entries in, or the settling of, a pass book, but in all cases the account is open to examination and correction.....Where, however, the bank furnishes its depositor with a statement of his account, the depositor is under a duty to examine the same without unreasonable delay and to object to any item that he may consider incorrect, and if he fails to do so, the account will be deemed correct in the absence of fraud or concealment, and the depositor may be held liable for any resultant loss or damage to the bank....

It is, therefore, not correct to contend that merely because the conditions of the contract make the statement of accounts as conclusive account, they would be binding to the parties, even if fraud or concealment have been brought to light and established by satisfactory evidence. It is, as a matter of fact, the grievance of the applicant herein that the goods were sold by the Bank without any notice to him and that they were delivered to the persons who were unauthorised or the amounts were debited under false and fabricated cheques. In this state of averments, therefore, it cannot be said that because the applicant had an opportunity to controvert the periodical Statement of accounts, he cannot ask for accounts.

12. In that view of the matter, therefore, I am of the opinion that the learned city civil Judge was clearly in error in holding on issue No. 14 that the applicant was not entitled to sue for accounts.

13. The result is that this revision application is allowed and it is held that the plaintiff-applicant is entitled to sue for accounts.

14. However, the trial court shall determine on the evidence that may be adduced by the parties whether the statements of accounts supplied to the applicant from time to time before the suit or the statements of accounts that may be filed in the court are conclusive and binding to the applicant, or he is entitled to falsify and surcharge any item of the same. Having regard to the peculiar facts and circumstances of this case, there should be no order as to costs.