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CASE NO.: Appeal (civil)  6945 of 2004

PETITIONER: Anumati

RESPONDENT: Punjab National Bank

DATE OF JUDGMENT: 25/10/2004

BENCH: RUMA PAL & ARUN KUMAR

JUDGMENT: J U D G M E N T

(Arising out of S.L.P.(C) No.15786 of 2002)

RUMA PAL, J.

               Leave granted.

       This appeal raises the issue whether  a fixed deposit  jointly owned with an "either or survivor" clause can be pledged  by one of the account holders with the Bank and whether the  Bank can adjust the amount of fixed deposit against such  pledge, without the authority, knowledge or  concurrence of the  other account holder.         The appellant and  her husband Mam Chand made a  fixed deposit of Rs. 20,000/- with the respondent bank on 31st  May, 1988 for a period of 84 months ( i.e. seven years). The  fixed deposit  would have matured on 31.5.1995 and the  amount payable on maturity was Rs. 39,930/-     According  to  the appellant  half of the deposited amount belonged to her and  the other half belonged to her husband.  On 24th June, 1988, a  loan was taken by one Khem Chand in his sole proprietary   business of M/s. Verma Agro Industries.  In 1991 the  respondent bank filed a suit against M/s. Verma Agro  Industries, Khem Chand and the appellant’s husband Mam  Chand.  In the suit it was alleged that M/s. Verma Agro  Industries and Khem Chand had executed various agreements  with regard to the loan and credit facilities made available by  the Bank to them. It was also pleaded in the suit that Khem  Chand and Mam Chand had secured the amount of the loan by  creating a mortgage in respect of immoveable property  consisting of agricultural land.  According to the plaint a total  sum of Rs. 2,57,625/- inclusive of interest was payable  by M/s.  Verma Agro Industries and Khem Chand to the respondent  Bank.  It was further pleaded that Mam Chand and one Nanak  Chand had executed guarantee agreements on 24th June,  1988.  The Bank prayed for a decree for Rs. 2,57,625/- together  with the additional interest and for enforcement of the claim  against the hypothecated and the mortgaged properties with a  further prayer that if the aforesaid securities were found  insufficient for realization of the amount payable under the  decree, it be given the liberty to recover the balance from the  persons and other properties of the defendants.           While the suit was pending, a legal notice was given on  28th November, 1992, to the respondent Bank by the appellant  and Mam Chand through their advocate, asking for premature

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encashment of the fixed deposit receipt.  It was alleged in that  letter that the Bank had kept the original receipt and  only  issued a photo-copy of the same to Mam Chand and the  appellant with the assurance that the amount deposited would  be encashable  whenever required.  It was also stated that both  Mam Chand and the appellant were illiterate and had relied  upon such representation made by the Bank.  It does not  appear that the Bank had responded to this notice.  A second  notice was sent through an advocate by Mam Chand and the  appellant on 26.5.1995, again demanding the amount payable  on maturity of the fixed deposit stating that the original FDR  receipt had been lost by the appellant and her husband.  This  letter also does not appear to have been replied to by the  respondent Bank.         On 3rd July, 1995 the respondent Bank filed an application  in the Court before which the suit was pending seeking to  inform the Court that the fixed deposit receipt had been  "mortgaged" as security towards the disputed loan and that it  had "after taking permission of higher officials" deposited the  amount covered by the fixed deposit in the disputed loan  account.  Mam Chand filed an objection to the Banks’  application saying that he had never given any such guarantee  and that the fixed deposit receipt had never been mortgaged to  the Bank.           The Trial Court allowed the Bank’s application holding  that the amount of fixed deposit account had rightly been  adjusted in the account of the disputed loan. Mam Chand  challenged this order by way of a revision application under  Section 115 of the Code of Civil Procedure.  The Revisional  Court held that the application was not maintainable under  Section 115 of the Code of Civil Procedure as amended by UP  Act No. 31/1978.  It was held by the Revisional Court that it was  open to Mam Chand and his wife to initiate legal  actions/proceedings for the recovery of the amount deposited,  against the Bank.  It was further held that the order of the Trial  Court would not in any way inhibit the appellant from initiating  such proceedings since she was not a party either in the suit or  to any other proceedings initiated by Bank.  The Revisional  Court found as a fact that the fixed deposit receipt did not bear  the thumb impression of the appellant and the only thumb  impressions appearing thereon were that of Mam Chand.  It  was also held that since the FDR was not mortgaged as  guarantee for the loan taken by Verma Agro Industries or Khem  Chand, the dispute regarding the FDR was not in issue in the  suit filed by the Bank.  It was therefore held that the Trial Court  should not have passed any order regarding the right of the  Bank to adjust the amount of the fixed deposit towards the  recovery of the loan alleged to have been taken by M/s. Verma  Agro Industries and Khem Chand.  Despite having come to the  conclusion that the Trial Court’s order was without jurisdiction,  "totally irrelevant and unwarranted", the Revisional Court did  not interfere with the order of the Trial Court  on the basis of the  UP Amendment to Section 115 of the Civil Procedure Code.         The appellant then filed a complaint before the District  Forum under the Consumer Protection Act.  It was contended  by the respondent Bank before the District Forum that both the  Trial Court as well as the Revisional Court had held that the  fixed deposit receipt had been mortgaged by  Mam Chand as  security for the loan granted by the Bank to M/s. Verma Agro  Industries and that Mam Chand was entitled to do so because  the fixed deposit receipt had specified that it was payable to  "either or survivor".  The District Forum, however, came to the  conclusion that the appellant was entitled to recover half of the  amount of the FDR i.e.   Rs. 19,965/- together with interest from  1.6.1995 because she had never mortgaged her share of the

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fixed deposit in favour of  any party.  It was held that since the  receipt was in the joint name of the appellant and her husband,  the respondent Bank should not have accepted any pledge of  the account without informing the appellant and getting her  consent.  Since it had not done so, the service rendered by the  Bank to the appellant was deficient. The Bank was therefore  directed to pay the appellant a sum of Rs. 19,967/- together  with interest at 17% per annum thereon as well as Rs. 3,000/-  towards mental agony suffered by the appellant and costs of  Rs. 1,000/-.   The Bank preferred an appeal to the State Commission.   The State Commission proceeded on the basis that Mam  Chand had validly pledged the FDR with the respondent-Bank.  It held that since the fixed deposit receipt was payable to "either  or survivor" it showed that the Bank could have got discharge  by making payment to either of the account holders.  According  to the State Commission when payment could have been made  to a single individual in terms of the directions of the depositors  then the Bank was at liberty to accept mortgage of the fixed  deposit  receipt on behalf of one of the depositors and the  consent of the other depositor was not necessary.   The appeal  was accordingly allowed and the complaint of the respondent  was rejected.  The National Commission merely reproduced the  view of the State Commission with which it concurred.  It also  held that financial institutions had every right to protect their  interest by taking "conscious decisions".  Since  the Bank had  taken a "conscious decision" in this case, it could not be faulted  and there was no deficiency of services.         Before us learned counsel for the appellant has claimed  that the Bank had no right to adjust the amount of the fixed  deposit receipt when there was no claim with regard thereto  and when the liability of the defendants in the suit was yet to be  quantified.  It is further submitted that the Bank had in any  event no claim against the appellant and could not have acted  on the basis of any pledge alleged to have been created by the  husband of the appellant  of the fixed deposit receipt without  the knowledge, concurrence or consent of the appellant.  The  decision of the Division Bench of the Lahore  High Court in  Simla Banking and Industrial Company Ltd. Ambala City  Vs. Mt. Bhagwan Kaur AIR 1928 Lahore 316 and a passage  from Tannan’s Banking Law and Practices in India have been  cited as authorities in support of this submission.         The respondent has submitted that since the account was  admittedly an "either or survivor" one, it was open to Mam  Chand  to pledge the account with the Bank and the consent of  the appellant was unnecessary.  It is submitted that the  appellant had come with an inconsistent case with regard to the  loss of the original fixed deposit receipt. It is further submitted  that  Mam Chand had created the pledge by executing a  discharge on the fixed deposit receipt on the same date that the  fixed deposit was pledged by Mam Chand with the Bank.   Although it is admitted that the fixed deposit had not been  mentioned in the plaint as one of the Banks’ securities nor any  claim raised in respect thereof, it is contended that this was not  necessary in view of the discharge granted by Mam Chand on  the fixed deposit receipt. On the question of legality of the  adjustment of the fixed deposit account, it is submitted that it  had already been decided by the Civil Courts that this was  validly done.  The respondent Bank relied upon the decision of  this Court in Punjab National Bank and Ors. Vs. Surendra  Prasad Sinha reported in 1993(1) suppl. SCC 499 to contend  that the Bank had a general lien on the account. Parties to a joint account are not automatically authorized  to pledge each others credit. According  to Sheldon and  Fidler’s Practice and Law of Banking , a Banker should not

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lend money to the parties to a joint account, either by means by  an overdraft or in any other way, without obtaining  from each of  the parties an undertaking to be severally as well as jointly  liable  to pay the loan. The Banker has no right to set off the  credit balance in the joint account except in respect of another  joint account of the same parties (ibid).  The difference between  the Joint Fixed Deposit account and a joint Savings, Current or  other account, is that there is no right in the depositors to  operate such account and withdraw the moneys  except upon  maturity.         A fixed deposit in the joint names of two persons is  nothing but a joint account  which, as the name itself suggests,  is repayable on the expiration of the agreed period.  The fixed  deposit receipt is merely a written acknowledgement by the  Bank that it holds a certain sum to the use of its customers.   The Bank is thus a debtor to the account holders in respect of  the amount deposited \026 a debt which is repayable by the bank  to the account holders with interest on the expiry of an agreed  period.  An "either or survivor" clause in such an account  means that the amount payable by the Bank on maturity  of the  fixed deposit may be paid to either of the account holders by  the Bank in order to obtain a valid discharge.   In other words  under a tripartite agreement between the joint account holders  inter se and the Bank, the Bank may, on maturity, make  payment only to either of them.  This tripartite agreement  cannot be bilaterally modified by one of the joint account  holders for example by  pledging the account with any third  party including the Bank itself in its capacity of creditor, so that  the amount becomes payable to such third party, without the  consent of the joint account holder.  Thus in Tannan’s Banking  Law and Practice in India     the legal position has been  summarized thus:  "On the view that the terms of operation of a  joint account constitute a term of the contract of deposit, any  variation or revocation of instructions in a joint account, whether  the operation is by ’either or survivor’ or ’former or survivor’ can  be effected only under the joint signatures of all persons  entitled to operate the joint account.  One of the joint account  holders thus cannot unilaterally instruct the Bank not to honour  cheques signed by the others, issue duplicate deposit receipt,  premature repayment or loan against Fixed Deposit".    This was also held by a Division Bench of the Lahore High  Court (Shadi Lal, C.J. and  Broadway, J.) in Simla Banking  and Industrial Company Limited, Ambala City Vs. Mt.  Bhagwan Kuar AIR 1928 Lahore, 316.  In that case  Bhagwan  Kuar and her son Raghunandan Singh had deposited an  amount with the Bank against a Fixed Deposit Receipt which  was payable to "either or survivor".  Raghunandan had  borrowed money from the Bank.  The Bank credited the amount  due under the Fixed Deposit Receipt to the overdraft account of  Raghunandan.  Bhagwan Kuar thereupon filed a suit against  the Bank for recovery of the amount due.  The Bank pleaded a  general lien and claimed to have acted within its rights in  appropriating the amount as it had done.  The Division Bench  was of the view that the action of the Bank was neither  supported by authority nor in law nor in equity.                 The decision in Simla Banking and Industrial Company  Ltd. V. Mt. Bhagwan Kaur (supra) was followed by the  Calcutta High Court in the case of  Nath Bank Ltd. V. Sisir  Kumar Sarkar AIR 1954 Cal. 303.  In that case, there was a  fixed deposit made by two persons, one of whom was indebted  to the plaintiff-company.  The fixed deposit receipt was  repayable after a period of 12 months to either or survivor.  The  Calcutta High Court was of the view that during the joint lives of  the two account holders or at least until due demand for  repayment of the money was made by the Bank to the  debtor -

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account holder the debt in the form of a fixed deposit receipt  was that of the bank to the joint account holders and the bank  could not set off a debt due from one of the joint account  holders against such a joint debt.           In Hirschorn v. Evans (Barclays Bank Ltd.,  Garnishees), 1938 (2) KB 801(L)  a joint deposit account was  opened by A and B (who were husband and wife) and the bank  was authorized to accept the signature of either A or B or of the  survivor as a sufficient discharge for the repayment of the  moneys deposited.  This debt was attached by a third party in  execution of a decree against A, the husband. Pursuant to the  garnishee summons, the Bank paid A’s decretal debt to the  decree holder. The Court of Appeal held that inasmuch as the  debt which the bank owed was not a debt due to the husband  alone, but to him jointly with his wife, it could not be attached to  answer the judgment against the husband.    In our view, these decisions correctly set out the law.  In  the present case the contract in respect of the joint account was  between the respondent bank and the husband and wife.  The  fixed deposit was not a debt due by the bank to Mam Chand  alone which could be set off by the bank against any claim that  the bank may have had against Mam Chand.  Besides the right  of Mam Chand was to receive the money deposited only after it  matured, if he survived.  Supposing Mam Chand had died  before the fixed deposit matured, the only person entitled to get  the money would be the appellant.  This right of the appellant  could not have been taken away without her consent.  The decision cited by learned counsel on behalf of the  respondents i.e.  Punjab National Bank V. Surendra Prasad  Sinha 1993 (1) SCC 499 was not rendered in connection with a  joint fixed deposit account in which only one of the account  holders was a debtor.  In that case, both the account holders  stood guarantors to the principal debtor and had jointly  executed the security bond and entrusted the fixed deposit  receipt as security to adjust the outstanding debt from it at  maturity.   We have our doubts regarding the validity of the order of  the Trial Court allowing the Banks "information" application.  But  it is unnecessary to pronounce on it as it does not bind the  appellant as was correctly held by the Revisional Court. Nor  does anything turn on the supposedly shifting stances taken by  the appellant in the two legal notices as there is no dispute that  there was in fact a fixed deposit. The State and National Commission both erred in  proceeding on the basis that the Civil Court’s decision was that  the FDR had in fact been pledged by Mam Chand to the bank.   We have already quoted the observation of the Revisional  Court earlier.  In fact, the Revisional Court also held that the  decision of the trial Court did not in any fashion bind the  appellant.  There is no independent finding by any of the fora  that the pledge had indeed been created of the fixed deposit  receipt by Mam Chand as claimed by the bank.         In the circumstances, the Bank had no right to refuse  payment of the amount deposited to the appellant.  The refusal  as disclosed to this Court, was contrary to banking norms. We  are therefore of the view that the District Forum was correct in  accepting,  and the State Commission and the National  Commission erred in rejecting, the appellant’s complaint.  The  appeal is accordingly allowed and the decision of the State  Commission and the National Commission are set aside and  the order of the District Forum is confirmed with costs.