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Vadivambigai Ginning Indus. Pvt. Ltd. v. Tamil Nadu Mercan. Bank Ltd. (Madras) : Law Finder Doc
Id # 685693
MADRAS HIGH COURT
Before:- Pushpa Sathyanarayana, J.
Second Appeal Nos. 736 and 737 of 2009 and 355 and 356 of 2010 and M.P. No. 1 of 2009. D/d.
28.4.2015.
Sree Vadivambigai Ginning Industries Pvt. Ltd. and others - Petitioners
Versus
Tamil Nadu Mercantile Bank Limited, Through its Manager Pollachi and others - Respondents
For Petitioners in S.A. Nos. 736 and 737 of 2009 :- T.V. Ramanujam and Senior Counsel and C. Rajan,
Advocate.
For Respondents in S.A. Nos. 355 and 356 of 2010 :- V. Chandrasekaran, Advocate.
Indian Contract Act, 1872 Section 171 Limitation Act, Article 113 and Section 10 - General
Lien of Bankers - Title deeds- Retention of - Non-delivery of title deeds despite payments -
Aggrieved thereby, suit for mandatory injunction was filed by plaintiff - Direction of
Trial Court to Defendant/Bank for returning plaint schedule document Nos.1, 2, 8 and 10
to plaintiffs - Trial Court also, held that other documents shall be kept as general lien
till termination of loan obtained by sister concern of Plaintiffs - Defendant Bank
preferred appeal challenging decree directing return of four documents out of 10 -
Lower Appellate Court on appreciation of facts and law, while confirming finding of trial
Court with regard to return of document Nos. 1, 2 and 8, set aside order of trial Court in
respect of return of document No. 10 - Lower Appellate Court also confirmed finding of
trial Court with regard to document Nos. 3 to 7 and 9 holding that defendant Bank is
entitled to have a general lien over plaint schedule documents deposited by plaintiffs
until discharge of loan - Substantial question of law for consideration are (i) whether
reasoning of Lower Appellate Court justifying retention of documents of title of
appellants even after discharge of loan taken by them are sustainable in law, (ii)
whether Courts below have issued directions contravening petitioner under Section 171
of Indian Contract Act, 1872 and (iii) whether suit filed by Plaintiffs is barred by
limitation? - Held, that by operation of Section 171 of Contract Act, unless there is an
intention expressed contrary to contract, bank has a general lien over securities
belonging to debtor that come into its hands, and if money is in its hands as general
account, it has a right to set off; but when any deposit has been made for a special
purpose, in a given circumstance, unless there is any contract to contrary, it cannot be
implied that Bank has a general lien over specified security deposit for a specified
purpose - Indisputably, there is no contract offering to take title deeds deposited by
plaintiffs as security to loan availed by sister concern of plaintiffs - Therefore, it is not
open to Bank to claim general lien over title deeds deposited by plaintiffs - Express
contract was for discharge of loan availed for plaintiffs against which a "No Due
Certificate" has also been issued - In such circumstances, action of defendant Bank in

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refusing to release title deeds is clearly illegal - Instant case, as suit is based on
continuous cause of action, contention of defendant Bank that suit is barred by
limitation will not arise - The mere mention of same would not bind plaintiffs to pay
outstanding their sister concern - Mere mention of outstanding of their sister concern
would not bind plaintiffs to pay outstanding of their sister concern - Judgment and
decree of Lower Appellate are wholly unsustainable and same are set aside - Second
appeal, filed by plaintiffs allowed and appeals preferred by Defendant are dismissed.
[Para 26]
Cases Referred :-
R.D. Saxena v. Balram Prasad Sharma, (2000) 7 SCC 264.
State Bank of India v. Jayanthi, 2011 (2) CTC 465.
COMMON JUDGMENT
Pushpa Sathyanarayana, J. - By this common judgment, this Court proceeds to decide the above
four appeals, which are inextricably interconnected with each other, arising out of similar and
common questions of law and facts.
2. For the sake of convenience, the parties are referred to hereunder according to their litigative
status and ranking before the trial Court.
3. In these appeals, both the plaintiffs as well as the defendant have called in question the legal
sustainability of the judgment and decree 04.12.2008 passed by the learned Subordinate Judge,
Pollachi, in A.S. Nos. 47 and 48 of 2008 filed against the judgment and decree passed by the learned
District Munsif, Pollachi, in O.S. No. 178 of 2006.
4. The plaintiffs, group of Private Limited Companies, filed the suit for mandatory injunction
directing the defendant Tamil Nadu Mercantile Bank Limited to return them the schedule
mentioned documents within a stipulated period.
5. The factual expose which arise for disposal of the present appeals are as follows:-
(a) The plaintiffs, who have obtained a loan of L 37,27,000/- from the defendant Bank on
equitable mortgage by depositing the title deeds, claim to have promptly repaid the loan as
early as on 28.7.1998 and 17.8.1998. It is stated that the defendant also closed the account and
issued "No Due Certificate" to them on 19.6.1999. Thereafter, when the plaintiffs approached
the defendant Bank for return of the title deeds deposited with them at the time of obtaining
the loan, the Bank was delaying in returning the same inspite of assurance to give back the
title deeds. Hence, the plaintiffs issued legal notice on 22.7.1999 for which a reply was received
by them on 10.9.1999 from the defendant stating that the said documents could not be
returned as another Company, which is alleged to be a sister concern of the plaintiffs, viz., Sree
Vadivambigai Textile Mills Limited at Sivaganga, had obtained loan from the Madurai Branch
of the defendant Bank and since the outstanding was not paid by them, the documents
deposited in the Pollachi Branch, by the plaintiffs were withheld as general lien over the
documents. As the mortgages were discharged and the documents were not returned by the
defendant Bank, the plaintiffs filed C.O.P. No. 214 of 1999 before the District Consumer Dispute
Redressal Forum, Coimbatore. However, the Original Petition was dismissed. Aggrieved by the
non-delivery of title deeds despite all payments, the plaintiffs preferred to file the suit O.S. No.

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178 of 2006 for the relief of mandatory injunction.

(b) The defendant Bank, inter alia, contested the suit on the ground that the documents could
not be returned as the same are held as general lien towards the liability of Sree Vadivambigai
Textile Mills Limited, which is the sister concern of the plaintiffs.
(c) The plaintiffs also filed a reply statement contending that the said Sree Vadivambigai
Textile Mills Limited is a separate entity in the eye of law and the documents furnished by
them towards the loan obtained from the Pollachi Branch of the defendant Bank cannot be
retained as collateral security for the outstanding due by their sister concern to the Madurai
Branch of the defendant Bank. The plaintiffs also contended that having issued "No Due
Certificate", the retention of the documents with the defendant Bank is unlawful and hence,
prayed for return of the documents.
6. Before the trial Court, one Subramanian, partner of the second plaintiff was examined as P.W.1
and Exs. A.1 to A.12 were marked. On the side of the defendants, one N. Sivasubramaniam was
examined as D.W.1 besides examining one Pawnraj Rajkumar as D.W.2 and Exs. B.1 to B.7 were
marked.
7. The trial Court, on consideration of the documents and the arguments advanced by the learned
counsel for the parties, decreed the suit in part directing the defendant Bank to return the plaint
schedule document Nos. 1, 2, 8 and 10 to the plaintiffs within a period of one month from the date
of decree. The trial Court also held that the other documents shall be kept as general lien till the
termination of the loan obtained by Shree Vadivambigai Textile Mills Limited, Sivaganga.
Challenging the part of the judgment dismissing the suit declining to return the other six
documents, the plaintiffs preferred appeal before the Subordinate Judge, Pollachi, in A.S. No. 47 of
2008. The defendant Bank also preferred appeal in A.S. No. 48 of 2008 challenging the decree
directing return of the four documents out of 10. The Lower Appellate Court/learned Sub-Judge,
Pollachi, on appreciation of the facts and law, while confirming the finding of the trial Court with
regard to return of document Nos. 1, 2 and 8, set aside the order of the trial Court in respect of
return of document No. 10. The Lower Appellate Court also confirmed the finding of the trial Court
with regard to document Nos. 3 to 7 and 9 holding that the defendant Bank is entitled to have a
general lien over the plaint schedule documents deposited by the plaintiffs until the discharge of
the loan of M/s Sree Vadivambigai Textile Mills Limited, Sivaganga, and accordingly, dismissed the
Appeal filed by the plaintiffs in A.S. No. 47 of 2008 except with regard to the order relating to the
return of document No. 10. As regards A.S. No. 48 of 2008, the appeal was allowed in part and the
judgment and decree of the trial Court were confirmed except with regard to the order relating to
the return of document No. 10. Aggrieved by the non-return of document Nos. 3 to 7, 9 and 10, the
plaintiffs preferred the present Appeals in S.A. Nos. 736 and 737 of 2009 and challenging the
disallowed portion, the defendant Bank filed Second Appeal Nos. 355 and 366 of 2010 before this
Court.
8. At the time of admission of S.A. Nos. 736 and 737 of 2009, this Court formulated the following
substantial questions of law for consideration:-
(i) Whether a charge can be created on a property more particularly the properties as found
in the title documents found in the suit schedule properties by a company when there is non-
compliance with Section 125 of the Companies Act?
(ii) Whether the reasoning of the Lower Appellate Court justifying retention of documents of

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title of the appellants even after discharge of the loan taken by them, are sustainable in law?
9. The subsequent questions of law that were framed at the time of admission of S.A. Nos. 356 and
357 of 2010 are:-
(i) Whether the Courts below have ignored in appreciating the contents of Exs. B.4 and B.5
which are material evidence?
(ii) Whether the Courts below have issued directions contravening the provisions under Section
171 of the Indian Contract Act?
10. Heard Mr. T.V. Ramanujam, learned Senior Counsel appearing for the plaintiffs and Mr. V.
Chandrasekaran, learned counsel representing the defendant Bank and perused the records.
11. At the outset, learned Senior Counsel appearing for the plaintiffs assailed the impugned
judgment as being contrary to law. Submitting that the loans were taken on behalf of the plaintiffs
1 and 3, group of Private Limited Company, for which the second plaintiff is a firm stood as
guarantor for the loan, he contended that the schedule mentioned documents, ten in number, have
been deposited with the defendant Bank by the plaintiffs at the time of taking loan and the said
loan accounts have been liquidated and the Bank has also issued "No Due Certificate" on 19.6.1999.
Learned Senior Counsel also urged that the defendant Bank has no legal right to retain said
documents of title after liquidation of the accounts.
12. Per contra, learned counsel appearing for the defendant Bank based his claim on Ex. B.2 dated
24.02.1999, a letter addressed by the plaintiffs to the defendant Bank by which they had enclosed a
valuation report received from a Chartered Civil Engineer and Approved Panel Valuer of the sister
concern at Madurai, assessing the value of the land and buildings at Pollachi which can be taken
as collateral security. Learned counsel submitted that the above said offer was made by the
plaintiffs to process their project submitted to the defendant Bank for the early conversion of the
existing cash credit limit of L 300 Lakhs and sought for an additional working capital limit of L 2
Crores. The further submission of the learned counsel is that the above offer was pursuant to the
letter sent by the defendant Bank under Ex. A.12 dated 25th January, 1989 which sought for
furnishing of additional collateral security of landed property not less than L 400 Lakhs.
13. Expatiating the arguments, learned counsel for the defendant contended that the plaintiff
companies and Sree Vadivambigai Textile Mills Private Limited are all sister concerns managed by
the same members of the proprietrix or partners. Relying on Section 171 of the Contract Act,
learned counsel made an endeavour to justify the action of the defendant Bank, of retaining the
documents of title. It was submitted that though the plaintiffs had cleared the amount of loan that
they had availed, the banker has a general lien over the documents deposited with it for the due
repayment of loan by the sister concern of the plaintiffs at Madurai.
14. Assailing the contention raised on behalf of the defendant with regard to collateral security, the
learned Senior Counsel for the plaintiffs submitted that the offer of collateral security was made
only on condition that the defendant Bank releases an additional loan of L 2 Crores. He further
contended that since the said sum was not sanctioned, the question of taking the plaintiffs' property
as collateral security does not arise.
15. As regards the contention of general lien, basing the claim on Ex. A.1 "No Due Certificate" issued
by the defendant Bank, learned Senior Counsel for the plaintiffs submitted that once it is admitted
by the Bank that loan availed by the plaintiffs have been closed, the customer relationship between

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the plaintiffs and the Bank came to an end and therefore, according to the learned Senior Counsel,
the question of general lien has no role to play.
16. In support of this contention, learned Senior Counsel relied on the decision of this Court in State
Bank of India v. Jayanthi [2011 (2) CTC 465) wherein the Division Bench of this Court held in
paragraph 12 as under:-
"As noticed above, Section 171 of the Act states that the bankers like Appellant-Bank, in the
absence of a contract to the contrary,retain as security for a general balance account,any
goods bailed to them. Therefore, what is required to be seen in the instant case is whether
there is any contract to the contrary,which prevents the Bank from exercising their general
lien and as to whether any goods have been bailed to them. It can not be disputed that the
property in question was not bailed to the Appellant-Bank by the deceased borrower at any
point of time. Further, it is an undisputed fact that the property in question was offered by
(late) N.P.S Mahendran to cover his liability in respect of the loans,which he had borrowed in
the accounts of M/s. Sanjay Bala Tea Plantation and M/s.Aarthi Bala Tea Plantation and his
self acquired properties were mortgaged to secure this specific loan transaction. No document
has been placed before us to show that the borrower had given any authorisation to the Bank
to hold the documents of the mortgaged property,given to secure the loan transaction for
M/s.Sanjay Bala Tea Plantation and M/s. Somerset Tea Plantation in which (late) N.P.S.
Mahendran, stood as a Guarantor. Thus,the issue boils down to the question as to whether
there is any contract to the contrary,which prevents the Appellant-Bank from exercising its
general lien under Section 171 of the Act."
17. The bone of contention of the plaintiffs is that the borrowals from the defendant Bank were
under distinct loan accounts and admittedly, when they are discharged, the Bank is duty bound to
return the documents to the borrower. In this case, having issued "No Due Certificate" and also
certified that there is no other liability due the Pollachi Branch of the defendant Bank, the title
deeds deposited by the plaintiffs at the time of borrowals, ought to have been returned to them.
While so, the defendant Bank cannot claim general lien over the documents under Section 171 of
the Indian Contract Act for the outstanding of another legal entity though may be a sister concern
of the plaintiffs which is situated in Madurai and the alleged outstanding is also not to the
defendant Bank, i.e., Pollachi Branch.
18. A perusal of the "No Due Certificate" Ex. A.1 dated 19.6.1999 issued by the defendant Bank
confirms that loans having various limits availed by the plaintiffs, viz., Sree Vadivambigai Group,
have been closed and it further certifies that there was no liability to the Pollachi Branch, viz., the
defendant Bank. It is also to be noted that the said document Ex. A.1 is not disputed by the
defendant Bank. Therefore, it cannot be denied that the plaintiffs having discharged the entire
loan, are entitled to get back the documents which were deposited with the defendant Bank as
security.
19. The rule of law with regard to general liens is clearly laid down in Section 171 of the Contract
Act. Bankers have such a lien on things bailed with them unless there is a contract to the contrary.
20. In this regard, it is useful to extract the provisions of Section 171 of the Indian Contract Act,
1872, which read as under:-
"171. General lien of bankers, factors, Wharfinger's, attorneys and policy-brokers.-- Bankers,
factors, wharfinger's, attorneys of a High Court and policy brokers may, in the absence of a

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contract to the contrary, retain, as a security for a general balance of account, any goods
bailed to them; but no other persons have a right to retain, as a security for such balance,
goods bailed to them, unless there is an express contract to that effect".
21. Section 171 of the Contract Act confers the statutory right to a banker to retain, as a security for
a general balance of account, any goods bailed to them. The said statutory right is only for recovery
of their legitimate dues. When Section 171 of the Contract Act contemplates only retention of
"goods", it has to be seen whether the title deeds of the plaintiffs can be deemed as "goods" as
defined under the Sale of Goods Act. The term "goods" contemplated in Section 171 of the Contract
Act is to be understood in the sense that it should be converted in terms of money or in other
words, the goods should have marketability.
22. In the instant case, the "goods" means only the title deeds which belong to the customer, viz.,
plaintiffs, were deposited with the defendant Bank as security. Therefore, there will be no bailment
in case of title deeds. They have not been given to the Bank as a security for doing or accomplishing
certain things whereas they have been given as a security for the loan that has been borrowed by
the plaintiffs. In other words, if a Bank had lent money to a particular customer for a specific
purpose and specific amount, the lien of Bank over the money and its customer does not extend to
amounts which have been borrowed by the customer on any other name or different head. In the
present case, as the defendant Bank had already issued "No Due Certificate" under Ex. A.1 for the
borrowals which had been repaid by the plaintiffs, the question of extending the general lien is
unacceptable.
23. The other important aspect that has to be seen is, the defendant Bank has not made it clear
whether the documents are retained for general lien or as collateral security. Once again, if it is
general lien, there has to be a relationship of Banker and customer between the Bank and the
person depositing security, which should be one that has been received by the Bank in its ordinary
course of banking. It can be stated that once the loan accounts are liquidated and on issuance of
"No Due Certificate", the relationship of Banker and customer ceases. As a corollary, the right of
"banker's lien" will come to an end. Therefore, in the absence of any outstanding for the purpose
which the documents were deposited, the documents cannot be held as general lien. If it is to be
treated as collateral security, then, the intention and offer of the title deeds for the said purpose
have to be established. Though as per Exs. A.12 and B.2, there was a correspondence with respect to
the same, viz., collateral security, admittedly, it was not acted upon as the defendant Bank had not
lent the money sought for by the sister concern of the plaintiffs. In such circumstances, the
retention of the documents by the defendant Bank is not legal.
24. Reliance was also placed on R.D. Saxena v. Balram Prasad Sharma [(2000) 7 SCC 264] and
more particularly, referred to paragraphs 8 and 9 of the judgment wherein it has been held as
follows:-
Para 8 : "Files containing copies of the records (perhaps some original documents also) cannot
be equated with the "goods" referred to in the section. The advocate keeping the files cannot
amount to "goods bailed". The word "bailment" is defined in Section 148 of the Contract Act as
the delivery of goods by one person to another for some purpose, upon a contract that they
shall be returned or otherwise disposed of according to the directions of the person delivering
them, when the purpose is accomplished. In the case of litigation papers in the hands of the
advocate there is neither delivery of goods nor any contract that they shall be returned or
otherwise disposed of. That apart, the word "goods" mentioned in Section 171 is to be
understood in the sense in which that word is defined in the Sale of Goods Act. It must be

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remembered that Chapter-VII of the Contract Act, comprising sections 76 to 123, had been
wholly replaced by the Sales of Goods Act, 1930. The word "goods" is defined in section 2(7) of
the Sale of Goods Act as "every kind of movable property other than actionable claims and
money; and includes stock and shares, growing crops, grass, and things attached, to or forming
part of the land which are agreed to be severed before sale or under the contract of sale."
Para 9 : Thus understood "goods" to fall within the purview of Section 171 of the Contract Act
should have marketability and the person to whom it is bailed should be in a position to
dispose it of in consideration of money. In other words the goods referred to in Section 171 of
the Contract Act are saleable goods. There is no scope for converting the case files into money,
nor can they be sold to any third party. Hence, the reliance placed on Section 171 of the
Contract Act has no merit."
25. Further more, admittedly, the additional loan of L 2 Crores was not sanctioned by the defendant
Bank and the plaintiffs company also did not insist on the same. When admittedly the said sum was
not sanctioned, the question of taking the plaintiffs' property as collateral security does not arise. As
such, the claim of the defendant Bank that it has the right to hold the title deeds of the plaintiffs as
collateral security for the due repayment of the loan advanced to the so-called sister concern of the
plaintiffs cannot be accepted.
26. Considered from the above perspective, I have no hesitation to conclude that by operation of
Section 171 of the Contract Act, unless there is an intention expressed contrary to the contract, the
bank has a general lien over the securities belonging to the debtor that come into its hands, and if
the money is in its hands as the general account, it has a right to set-off; but when any deposit has
been made for a special purpose, in a given circumstance, unless there is any contract to the
contrary, it cannot be implied that the Bank has a general lien over the specified security deposit
for a specified purpose. Indisputably, there is no contract offering to take the title deeds deposited
by the plaintiffs as security to the loan availed by the sister concern of the plaintiffs. Therefore, it is
not open to the Bank to claim general lien over the title deeds deposited by the plaintiffs. The
express contract was for discharge of the loan availed for plaintiffs against which a "No Due
Certificate" has also been issued. In such circumstances, the action of the defendant Bank in
refusing to release the title deeds is clearly illegal. Therefore, this point is answered in favour of the
plaintiffs.
Question of limitation and continuous cause of action:-
27. The next point urged by the learned counsel for the defendant Bank is limitation. He submitted
that the suit is filed only for the relief of mandatory injunction and the cause of action accrued on
10.9.1999 when the Bank refused to return the documents as it intended to hold the same as
general lien for the repayment of loan availed by Sree Vadivambigai Textile Mills Limited at
Sivaganga from Madurai Branch. He further contended that when the relief sought for is only a
mandatory injunction, the suit ought to have been filed within three years from the date of right to
sue accrues as per Article 113 of the Limitation Act and, therefore, according to the learned counsel,
the suit itself is barred by limitation. He also pointed out that earlier, the plaintiffs had approached
the District Consumer Disputes Redressal Forum, Coimbatore, wherein their plea for return of
documents was rejected and hence, the suit was barred by time.
28. Countering the said contention, learned Senior Counsel for the plaintiffs submitted that the
retention of document by the Bank, each day, is a continuous cause of action and hence, Article 113
of the Limitation Act would not be applicable. It was further argued that the Bank is only a

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custodian of the documents and once the loan is discharged by the borrower, the documents have
to be returned. According to him, in cases where the the documents are retained by the Bank in
trust, law of limitation will not apply.
29. In this regard, it would be relevant to refer to Section 10 of the Limitation Act and for easy
understanding, the same is reproduced hereunder:-
"Suits against trustees and their representatives:-- Notwithstanding anything contained in the
foregoing provisions of this Act, no suit against a person in whom property has become vested
in trust for any specific purpose, or against his legal representatives or assigns (not being
assigns for valuable consideration), for the purpose of following in his or their hands such
property, or the proceeds thereof, or for an account of such property or proceeds, shall be
barred by any length of time.
Explanation.-- For the purposes of this section any property comprised in a Hindu, Muslim or
Buddhist religious or charitable endowment shall be deemed to be property vested in trust for
a specific purpose and the manager of the property shall be deemed to be the trustee thereof."
30. In the instant case, as the suit is based on the continuous cause of action, the contention of the
defendant Bank that the suit is barred by limitation will not arise and the said question is also
answered in favour of the plaintiffs.
31. As an last attempt, learned counsel for the defendant Bank placed reliance on Ex. B.1 which is
the Annual Report and Accounts for the year 1998 - 99 of Sree Vadivambigai Textile Mills Limited to
show that the plaintiffs are the Companies under the Management of Sree Vadivambigai Textile
Mills Limited.
32. I have perused Ex. B.1. Clause 32 of the said report relates to balances from concerns in which
two directors are interested and also the closing balance in their accounts as on 31.3.1999 together
with maximum outstanding at any time during the year. The outstanding during the relevant year
of the companies under the same Management are mentioned there. Plaintiffs 1 to 3 are said to be
the Companies under the Management of Sree Vadivambigai Textile Mills Limited. It was pointed
out that it is only the outstanding, at any time during the year, of the plaintiffs companies that
were shown under Clause 32 of Ex. B.1. The mere mention of the same would not bind the plaintiffs
to pay the outstanding of their sister concern. As such, this point also finds favour with the
plaintiffs.
In view of the foregoing discussion, the judgment and decree of the Lower Appellate are wholly
unsustainable and they are liable to be set aside. The substantial questions of law are answered
accordingly. In the result, Second Appeal Nos. 736 and 737 of 2009 stand allowed decreeing the suit
as prayed for and Second Appeal Nos. 355 and 356 of 2010 preferred by the defendant Bank are
dismissed. Consequently, the judgment and decree of the Lower Appellate Court dated 04.12.2008 are
hereby set aside by this Court for the reasons assigned in this Appeal. As a sequel thereto,
connected Miscellaneous Petitions are closed.
Appeals by defendant dismissed.

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