High Court · 2007

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 23/11/2007C O R A MTHE HONOURABLE Mr.JUSTICE C. NAGAPPANAppeal Suit No. 816 of 1995 1. M/s. Skins Tane Co.,rep by its PartnersNo.1-B, Mattukara Veerabadran St.,Periamet, Madras 600 003.2. A.M.Abdul Khader2nd Appellant is one of the Partner of 1st Appellant FirmNo.1-B, Mattukara Veerabadran St.,Periamet, Madras 600 003....Appellants/Defendants 1 & 3 VsCentral Bank of IndiaMadras Main Branchrep by its principal Officer and Chief ManagerNo.11, Second Line BeachMadras 600 001. ... Respondent/PlaintiffAppeal against the judgment and decree dated 25.4.1994 made inO.S.No.11102 of 1988 on the file of 18th Asst. Judge, City Civil Court,Madras. For Appellants ... Mr. Ishtiaq Ahmed For Respondent ... Ms. S.K.Indhu,for M/s. Rangarajan & Prabhakaran J U D G E M E N T The unsuccessful defendants 1 and 3 have preferred this appealagainst the judgment and decree dated 25.4.1994 made in O.S.No.11102 of1988 on the file of 18th Assistant Judge, City Civil Court, Madras. https://hcservices.ecourts.gov.in/hcservices/

2. The respondent herein filed the suit seeking for a judgmentand decree directing the defendants to pay the plaintiff a sum ofRs.70,459.92/- with interest at the rate of 16.5% per annum from the dateof plaint till the date of realisation and for costs of the suit.The case of the plaintiff is that the first defendant is apartnership Firm and defendants 2 to 7 are its partners and the firstdefendant opened a current account with the plaintiff on 12.9.1987 inrespect of its leather business and it was regularly issuing cheques tovarious parties and the plaintiff has been honouring those cheques andthe first defendant issued three consecutive cheques all dated 20.11.1987for Rs.29,789/-; Rs.334/- and Rs.75,000/- respectively and all the threecheques were drawn in favour of the Sales Tax Officer, Vepery AssessmentCircle, Madras, and the plaintiff as a prudent banker and keeping in mindthat the first defendant is a commercial organisation and the cheques weredrawn on a government agency, had in good faith passed all the threecheques for payment on 9.12.1987 even though there was a credit balance ofonly Rs.1,312.03 in the current account of the first defendant with theplaintiff. It is also stated by the plaintiff that the representative ofthe first defendant, who was present in the bank premises on 9.12.1987,consented to the honouring of three cheques and promised to bringsufficient funds immediately and adjust the overdrawn position.According to the plaintiff, the first defendant, on 6.1.1988, adjusted thecurrent account to cover the monies due to the plaintiff in respect ofthe cheques for Rs.334/- and Rs.29,789/- and it did not repay theplaintiff the sum of Rs.75,000/- being the amount due in respect of thethird cheque. It is further stated by the plaintiff that the firstdefendant by letter dated 24.12.1987 informed the plaintiff that it hadfiled a writ petition in WP No.13062 of 1987 in this Court and obtainedinjunction order and requested the plaintiff to stop the payment of thethird cheque for Rs.75,000/- and the plaintiff sent a reply dated29.12.1987 informing the first defendant that all the three cheques werepaid for by the plaintiff on 9.12.1987 itself. According to theplaintiff, the defendants refused to pay the outstanding amount and issuedlegal notices dated 8.1.1988 and 7.7.1988 and the plaintiff sent replynotice dated 28.7.1988 requesting the first defendant to settle the duesand that was not done and hence the suit.3. The defendants in the written statement admitted that theyare having a current account with the plaintiff and they issued all thethree cheques for the sums stated therein. According to them, they issuedletter dated 24.12.1987 giving instructions to the plaintiff to stoppayment with regard to the cheque to the value of Rs.75,000/- since theyfiled writ petition and obtained an order of stay with regard to thepayment of the amount and only after that, the plaintiff informed themthat the cheque for Rs.75,000/- along with two other cheques had beenpassed for payment on 9.12.1987. The defendants have denied the plaintaverment that the first defendant representative was present at the bank https://hcservices.ecourts.gov.in/hcservices/ on 9.12.1987 and promised to bring sufficient funds. It is furtherstated by the defendants that they did not have any over-draft facilityarrangement with the plaintiff bank and on the negligence of passing ofthe cheque, the defendants had suffered damages and they are not liable topay the amount due under the cheque. It is further stated by thedefendants that the plaintiff has no right to debit the proceeds of thecheque issued by the customs department to the first defendant and creditthe same to the balance outstanding in the current account and theplaintiff is bound to return that amount to the first defendant withinterest at 24%. The defendants made a counter claim for that amount.4. The plaintiff filed Reply statement stating that the act ofthe defendants in issuing a cheque when sufficient funds are not availablein current account would tantamount to a request for temporary over-draftfacility and in normal commercial and banking practice, such requests areoften acceded to by financial institutions in order to protect, assist andhelp customers and the fact that the cheques were issued in favour of theSales Tax Officer had weighed considerably with the plaintiff forhonouring the cheques. It is further stated in the reply statement thatthe defendants by their words and conduct had prevailed upon the plaintiffto honour the cheques and the plaintiff acted upon it as a prudentbanker. According to the plaintiff, the first defendant having issuedcheque dated 20.11.1987 ought to have issued instruction for "stoppayment" immediately and cannot hold the plaintiff liable for theconsequences of honouring the cheque more than a month subsequent to theissuance of cheque. According to the plaintiff, the cheque to the value ofRs.14,110/- was issued by the Customs Authority towards cash componentsupport payable to the exporter, namely, the first defendant, andaccording to the procedure, the cash component support is payable only tothe customer's bank and the first defendant had authorised the plaintiffto credit the same by their letter dated 9.5.1988 and there is also ageneral lien for the banker as per Section 171 of the Indian Contract Actand hence, the counter claim is not maintainable. 5. The trial court framed six issues and the plaintiff examinedP.W.1 and marked Exs.A.1 to A.13 on its side and the defendantsexamined D.W.1 marked Ex.B.1 on their side. The trial court, on aconsideration of oral and documentary evidence, held that the defendantsare liable to pay the suit claim and they are not entitled for the counterclaim and accordingly decreed the suit and dismissed the counter claim.Aggrieved by the judgment and decree, the present appeal is preferred.For the sake of convenience, in this judgment, the parties are referred toas arrayed in suit.6. The points for determination in the appeal are:(1) Whether the defendants are liable to pay the plaintiff theamount claimed in the suit. https://hcservices.ecourts.gov.in/hcservices/ (2) Whether the plaintiff is entitled for subsequent interestat the rate of 16.5% per annum.(3) Whether the defendants are entitled to the counter claim. POINT No.1:7. It is not in dispute that the first defendant firm was havinga current account with the plaintiff Bank and it issued three consecutivecheques all dated 20.11.1987 for Rs.29,789/-; Rs.334/- and Rs.75,000/- andall the three cheques were drawn in favour of the Sales Tax Officer,Vepery Assessment Circle, Madras. According to the plaintiff there was acredit balance of Rs.1,312.03/- only in the current account of the firstdefendant on 9.12.1987 and the plaintiff, as a prudent banker and keepingin mind that the first defendant is a leather exporter and the chequeswere drawn up on a government agency, in good faith, had passed all thethree cheques for payment on 9.12.1987 and the first defendant adjustedthe current account to cover the monies in respect of the cheques forRs.334/- and Rs.29,789/- and it did not repay the plaintiff the sum ofRs.75,000/- being the amount due in respect of the third cheque. The caseof the defendants is that the first defendant had no over-draftarrangement with the plaintiff bank and the cheque in question was issuedtowards a tax liability and in the meanwhile, the first defendant filed awrit petition and obtained an order of injunction pertaining to that taxliability and hence, it requested the plaintiff to 'stop payment' of thecheque in question and the plaintiff had passed the cheque withoutproper verification of the balance in the account and in disregard to theinstruction of stoppage of payment and hence, they are not liable to paythe amount due under the cheque.8. The plaintiff examined its Assistant Branch Manager asP.W.1 and according to him, there was a balance outstanding of Rs.1,312.03only, on 9.12.1987 in the current account of the first defendant as perEx.A.1 - Statement of Account and all the three cheques had been passedand paid by the plaintiff on that day itself. Ex.A.2 is the letter, dated24.12.1987, of the first defendant requesting the plaintiff to 'stoppayment' of the cheque for sum of Rs.75,000/-. Ex.A.3 is the letterdated 28.12.1987 sent by the plaintiff to the first defendant statingthat the current account was over-drawn to the extent of Rs.1,03,840.97/-.Ex.A.4 is the reply dated 29.12.1987 sent by the plaintiff to the firstdefendant stating that all the three cheques were paid on 9.12.1987 itselfand the payment was made with the knowledge of the representative of thefirst defendant. Ex.A.5 is the Letter dated 5.1.1988 of the firstdefendant stating that they have already instructed the plaintiff to'stop payment' of the cheque for a sum of Rs.75,000/- and hence, they arenot liable to pay the said amount to the plaintiff Bank. Ex.A.6 is theReply dated 8.1.1988 sent by the the first defendant's counsel to theplaintiff denying the liability to pay. Ex.A.7 is the Letter dated https://hcservices.ecourts.gov.in/hcservices/

25.5.1988 of the plaintiff to the first defendant informing the debitbalance in their account and requesting them to bring the account toorder. Ex.A.8 is the Reply dated 7.7.1988 sent by the first defendantthrough their Advocate. Ex.A.9 is the suit notice dated 28.7.1988 issuedby the counsel for the plaintiff demanding payment of the amount.Ex.A.10 is the Reply dated 10.10.1988 sent by the counsel for the firstdefendant. The first defendant has examined one of its partners as D.W.1and he has stated that the first defendant filed a writ petition againstthe Commercial Tax Authorities from levying or collecting tax and obtainedan order of injunction restraining them from collecting the same andhence, they sent Ex.A.2 Notice to the plaintiff to stop payment of thecheque for a sum of Rs.75,000/-. Ex.B.1 is the certified copy of theOrder of Injunction dated 23.12.1987 passed in the writ petition. 9. Mr. Ishtiaq Ahmed, learned counsel for the appellants,contends that the first defendant was not provided with over-draftfacility and the plaintiff has not shown that the payment was made withthe knowledge of the first defendant. 10. Ms. S.K.Indhu, learned counsel for the respondent, submitsthat the first defendant Firm has drawn the cheque for the sum ofRs.75,000/- in excess of the amount standing to the credit of its currentaccount and it has to be taken as request for a loan and since the chequeis honoured, the first defendant has borrowed the money. In support ofher submission she relied on the decision of a Division Bench of theBombay High Court in BANK OF MAHARASHTRA v.. UNITED CONSTRUCTION COMPANYAND OTHERS [Vol.60 Company Cases 163 (1986)]. In the above decision, theDivision Bench considered the question as to whether there should be anexpress agreement for grant of over-draft facility between the banker anda customer and held as follows:"As to the question whether there was any agreement to grantover-draft facility, it might be useful to note that inHalsbury's Laws of England (fourth edition) volume 3, at page155, it has been stated as follows:"A customer may borrow from a banker by way of loan or byway of overdraft. A loan is a matter of special agreement. Inthe absence of agreement, express or implied from a course ofbusiness, a banker is not bound to allow his customer tooverdraw. An agreement for an overdraft must be supported bygood consideration, and it may be express or implied.Drawing a cheque or accepting a bill payable at the bankerswhere there are not funds sufficient to meet it, amounts to arequest for an over-draft." https://hcservices.ecourts.gov.in/hcservices/ In Cuthbert v. Robarts, Lubbock and Co. [1909] 2 Ch 226,Cozens-Hardy M.R. (at page 233 of the report) has observed asfollows:"If a customer draws a cheque for a sum in excess of theamount standing to the credit of his current account, it isreally a request for a loan, and if the cheque is honoured thecustomer has borrowed money."Further observations go on to show that it was held thatsuch borrowing would be a simple transaction of borrowing andwould not amount to borrowing upon security. But we are notconcerned with that question here. Paget in his classic treatiseon the Law of Banking (1972 edition) at page 132 has observed asfollows:"A banker is not obliged to let his customer overdraw unlesshe has agreed to do so or such agreement can be inferred fromcourse of business; borrowing and lending are a matter ofcontract not necessarily premeditated but, possibly, spontaneous,as where a customer, without previous arrangement, draws acheque, payment of which overdraws his account."Unfortunately, the aforesaid decision and the aforesaidbooks were not shown to the learned trial judge. If the legalposition set out in the same is taken into account there is nodoubt that where a customer, namely, an account-holder in bank,even without any express grant of an overdraft facility overdrawson his account and the cheque issued by him is honoured, thetransaction amounts to a loan and the customer is bound to makegood the loan to the bank with reasonable interest. As far asMr. Sayed, learned counsel for the respondents, is concerned, hedid not point out any decision or text-book where a view contraryto the above has been propounded. He merely stated that hesupported the decision of the trial court and had nothing more tosay.We are, therefore, of the view that the learned trial judgewas, with respect, in error in dismissing the suit of theplaintiff on the ground that there was no express oral agreementregarding the grant of overdraft as alleged by the plaintiff.Even in the absence of such an express agreement, in our view, inthe circumstances of the case, there was an implied agreement forgrant of overdraft or loan facility and the customer, namely,defendant No.1 was liable to make good to the bank the amountover-drawn in its aforesaid current account with reasonableinterest." https://hcservices.ecourts.gov.in/hcservices/

11. As already seen, in the present case, the plaintiff is thebanker for the first defendant Firm, which is engaged in leather exportbusiness, and though the first defendant was not granted over-draftfacility, it has drawn the cheque in question in favour of the governmentAuthority in excess of the amount standing to the credit of its currentaccount and the plaintiff as a banker had honoured the cheque and in thecircumstances of the case, an agreement for over-draft can be implied fromcourse of business and the customer, namely, the first defendant, isliable to make good to the plaintiff Bank the amount over-drawn in itscurrent account with reasonable interest. I am also in agreement with theview taken by the Division Bench of the Bombay High Court in the decisionreferred to supra. As rightly held by the trial Court, the defendantsare liable to pay the plaintiff the amount claimed in the suit and thepoint is answered thus.Point No.2:12. Mr. Ishtiaq Ahmed, learned counsel for the appellants,contends that there was neither any express agreement as to the grant ofany over-draft facility nor any agreement that interest would be paid at aparticular rate in respect of the amounts over-drawn between theplaintiff and the first defendant and the claim of interest at the rateof 16.5% per annum made by the plaintiff is unreasonable and the trialCourt ought not to have accepted that plea and granted interest as such.Having regard to the fact that there was no express agreement for grantof over-draft facility to the first defendant and the other circumstancesof the case, the only reasonable rate of interest which can be granted isat 12% per annum from the date of plaint till the date of realisation.The point is determined accordingly.Point No.3:13. It is not in dispute that a cheque for Rs.14,110/- issued bythe Customs Authority towards cash component support payable to the firstdefendant as exporter was credited in the current account of the firstdefendant on 26.4.1988. According to the defendants, the plaintiff shouldhave paid this amount to the first defendant and they have no right todebit the proceeds of the cheque in the account of the first defendant andthat sum is claimed as counter claim. The plaintiff has stated that thebalance outstanding in the current account on 26.4.1988 was only a debitbalance and therefore the outstanding was reduced to the extent of creditafforded to the value of Rs.14,110/- and the banker has a lien as perSection 171 of the Indian Contract Act. As already seen, it is a currentaccount and the plaintiff has claimed the balance outstanding in theaccount as on the date of filing of the suit. The conclusion of the trialCourt that the defendants are not entitled to the counter claim is correctand proper. The point is answered accordingly. https://hcservices.ecourts.gov.in/hcservices/

14. In the result, the plaintiff is entitled to interest at 12%per annum only on the suit claim from the date of plaint till the date ofrealisation and the appeal is allowed to the extent mentioned above andthe judgment and decree of the trial Court are modified accordingly.However, considering the facts and circumstances of the case, there shallbe no order as to costs in the appeal. Sd/Asst.Registrar/true copy/Sub Asst.RegistrarpbTo1. The Registrar, City Civil Court, Chennai.2. 18th Asst. Judge, City Civil Court, Chennai.3. The Record Keeper, V.R.Section,High Court, Madras.1 cc To Mr.N.Ishtiaq Ahmed, Advocate, SR.69555.2 cc To Mr.Rangarajan, Advocate, SR.69615.A.S.No.816/1995 NG(CO)RVL 17.12.2007