LAW FINDER

Submitted By: Syed Faisal Ali

Mudunuru Srinivasa Varma v. State Bank of India, (Andhra Pradesh) : Law Finder Doc Id #
2067895
ANDHRA PRADESH HIGH COURT
Before:- R. Raghunandan Rao, J.
W.P.No.11863 of 2020. D/d. 30.09.2022.
Mudunuru Srinivasa Varma - Petitioner
Versus
State Bank of India and Ors. - Respondents
For the Petitioner:- Smt. T.V. Sridevi, Advocate.
For the Respondents:- Sri K.B. Ramanna Dora, Advocate.
Indian Contract Act, 1872 Section 171 Transfer of Property Act, 1882 Section 60
Cases Referred :-
K. Sita v. Corporation Bank, Kakinada 1999 (3) ALT 443 (S.B.)
M. Shanthi v. Bank of Baroda, rep. By its Chief Manager, Namakkal Branch, Namakkal, 2017 (2)
WritLR 584 : (2017) 1 SCC Online MAD 37703
Syndicte Bank v. Vijay Kumar, AIR 1992 SC 1066 : (1992) 2 SCC 331.
ORDER
R. Raghunandan Rao, J. - The petitioner was earlier working in the 1st respondent-Bank in
Srungavarapukota Branch, Punyagiri Road, S. Kota, Vizianagaram District. While working in the
said Bank, the petitioner had obtained a bank loan of Rs.2,44,840/- repayable in 20 years.
Thereafter, the petitioner constructed a house in the year 1999 with the said loan amount and was
paying the instalments to the bank regularly. As security for the loan amount, the petitioner
deposited the documents of that house with the 3rd respondent bank.
2. The respondents, on the ground that the petitioner had indulged in misappropriation, had
initiated a criminal prosecution as well as disciplinary proceedings against the petitioner. The
criminal case which was taken up as C.C.No.357 of 2005, in the Court of the Judicial Magistrate of
First Class, S.Kota, ended in an acquittal. An appeal bearing Criminal Appeal No.58 of 2015 was filed
in the Court of Principal District Judge, Vizianagaram, against which the petitioner has filed a
Revision in Crl.R.C.No.2793 of 2015, which is pending before this Court, and a stay was granted in
those proceedings against the pending Criminal Appeal No.58 of 2015.
3. The disciplinary proceedings ended in dismissal of the petitioner. The final proceedings, on the
basis of which the order of dismissal had been granted, also recorded that an amount of
Rs.3,90,610/- had been misappropriated by the petitioner.
4. The petitioner cleared the loan amount and the said loan account was closed on 29.10.2018.

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Thereafter, the petitioner made various representations dated 05.01.2019, 05.03.2019, 22.05.2019 and
29.07.2019 requesting the 3rd respondent to release the house property documents. As the
documents were not released, the petitioner approached the banking Ombudsman. The 3rd
respondent stated before the Banking Ombudsman that the bank was seeking to recover the
amount of misappropriation, as quantified by the bank, from the petitioner and were exercising
general lien over the title deeds for repayment of the amounts said to have been misappropriated.
5. The petitioner has now approached this Court by way of the present writ petition contending
that retention of the documents of the petitioner relating to his house property, for recovery of
amounts alleged to have been misappropriated by him, is arbitrary, highhanded and without any
supporting provision of law.
6. Smt. T.V. Sridevi, learned counsel for the petitioner while reiterating the contentions raised above,
would submit that in similar circumstances, a Division Bench of the Hon'ble High Court at Madras
(Madhurai Bench) in M. Shanthi v. Bank of Baroda, rep. By its Chief Manager, Namakkal
Branch, Namakkal reported 2017 (2) WritLR 584 : (2017) 1 SCC Online MAD 37703 , had
held that the bank would not have any such right of lien and would have to return the documents.
7. Sri K. B. Ramanna Dora, learned Standing Counsel appearing for the respondent-Bank, would
submit that the bank is entitled to have a general lien over the property, given as security for a
loan, and can exercise the said general lien even against the other sums due to the bank and relied
upon the judgment of a learned Single Judge of the erstwhile High Court of A.P., in K. Sita v.
Corporation Bank, Kakinada 1999 (3) ALT 443 (S.B.) and a judgment of the Hon'ble Supreme
Court in Syndicte Bank v. Vijay Kumar and Ors., AIR 1992 SC 1066 : (1992) 2 SCC 331.
8. The learned Single Judge of the erstwhile High court of A.P., after considering various judgments
of the Hon'ble High Court at Madras and the judgments of the erstwhile High Court of A.P., and
after following the judgment of the Hon'ble Supreme Court, cited supra, had held that once a
general lien is created in favour of a bank, the bank is given authority to retain the assets under
the general lien, as long as any amount of any account is due to it from the judgment debtor. The
assets over which such general lien was granted, in the cases before the Hon'ble Supreme court
and the High Court, were fixed deposit receipts.
9. The entire controversy relates to interpretation of section 171 of the Indian Contract Act, 1872,
which reads as follows:
Section 171. General lien of bankers, factors, wharfingers, attorneys and policy-brokers.-
Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the
absence of a 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."
10. A closer look of this provision would show that the persons to whom goods bailed are put in two
categories. The first category is bankers and other persons named in the provision, who are entitled
to exercise a general lien over any goods bailed to them in the absence of a contract to the
contrary. The second category consists of all other persons to whom goods are bailed and they
would be entitled to exercise a general lien only if there is an express contract to that effect.
11. The aforesaid distinction made out between these two categories makes it clear that any goods
or property handed over to a banker can be retained by the banker unless there is a contract to
the contrary.

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12. In the judgments cited by Sri K.B. Ramanna Dora, learned Standing Counsel, the FDRs had been
pledged with the bank and both the Hon'ble Supreme Court and the learned Single Judge of the
erstwhile High Court of A.P., had held that the bank would have a general lien over the said FDRs
and can use such lien for recovery of loans other than the loan for which the lien had created.
13. A Division Bench of the Hon'ble High Court at Madras, after considering both the judgments,
had distinguished the said judgments on the ground that a mortgage created over the immoveable
property under section 60 of the Transfer of Property Act, essentially creates a contract to the
contrary, limiting the lien granted to the bank only to the extent of the loan for which the lien had
been created. The Division Bench also went into the distinction between a right of lien created
under section 171 of the Indian Contract Act and the security that is created under section 60 of the
Transfer of Property Act and held that the right of lien, under section 171 of the Indian Contract
Act, is contrary to the provisions of the Transfer of Property Act and as such the bank cannot
exercise a general right of lien over the documents of title deposited with the bank.
14. The relevant paragraphs in the judgment of the Hon'ble High Court at Madras, read as follows:
34. In this connection, it is also relevant to refer to sections 58, 59 and 60 of Transfer of
Property Act, dealing with the transaction relating to different forms of mortgage. The
mortgage is defined as a transfer of interest, in specific immovable property for the purpose of
securing the payment of money advanced by way of loan, existing or future debt or the
performance of an engagement which may give rise to a pecuniary liability. A person creates
an equitable mortgage by deposit of title deeds, if he delivers to a creditor or his agent
documents of title deeds in relation to immovable property, with intention to create a security
thereon. Section of 60 of the Transfer of Property Act, reads as follows:
60. Right of mortgagor to redeem
At any time after the principal money has become due, the mortgagor has a right, on payment
or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to
deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged
property which are in the possession or power of the mortgagee, (b) where the mortgagee is in
possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at
the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third
person as he may direct, or to execute and (where the mortgage has been effected by a
registered instrument) to have registered an acknowledgement in writing that any right in
derogation of his interest transferred to the mortgagee has been extinguished:
35. section 60 of Transfer of Property Act, speaks about specific rights of mortgagor. It is clear
that every mortgagor is entitled to collect the mortgage deeds and all other documents relating
to the mortgaged properties, which are in the possession or power of mortgagee. This right of
mortgagor is certainly a legal enforceable right. The mortgagee is under an obligation to
return the title deeds upon payment of the entire money due. This legal obligation gives an
enforceable right in favour of the mortgagor in connection with the mortgage. This legal
obligation of the mortgagee to return the title deed to the mortgagor upon discharge of
mortgage loan for which the title deeds were secured, can be certainly treated as an implied
contract contrary to section 171 of the Indian Contract Act.
36. Hence this Court is of the firm view that the respondent bank cannot exercise right of lien
to secure any other liabilities of the mortgagor by retaining the documents of the mortgagor or

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guarantor, which are deposited with an intention to secure a particular loan transaction. Lien
is primarily considered as a right to retain security. It is doubtful, whether in exercise of such
right to retain the title deeds the mortgagee can bring the property for sale for recovery of
some debt which is due from the mortgagor, in connection with a different transaction, which
is not covered by the mortgage.
37. Any agreement conferring a right upon anyone to bring the property which is offered as a
security for a loan transaction, is considered to be a transaction creating a right in immovable
property and such agreement namely mortgage can be executed by way of a registered
instrument. The right of lien, under section 171 of the Indian Contract Act, will be contrary to
the provisions of Transfer of Properties Act, if Section 171 is also made applicable to the title
deeds, which are offered as a security in relation to a particular transaction. Considering the
scope of section 60 of the Transfer of Property Act, and the scope and object of section 171 of
the Indian Contract Act, this Court is of the firm view that the respondent Bank cannot retain
the title deeds or proceed with the properties which were offered as security in relation to an
independent loan transaction, even after the borrower discharged the entire liability of
borrower in connection with the loan which is secured by deposit of title deeds."
15. In the circumstances, it would have to be held that the bank cannot exercise a general lien over
the documents furnished by the petitioner as security for repayment of the house loan obtained by
him.
16. Accordingly this writ petition is allowed with a direction to the respondent bank to release the
documents lodged by the petitioner with the respondent-bank as security, by way of mortgage, for
due repayment of the house loan obtained by the petitioner. There shall be no order as to costs.
As a sequel, pending miscellaneous petitions, if any, shall stand closed.
.

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