1985 (4) TMI 336 - HC - Companies Law

Appellate Court Rules for Bank in Overdraft Agreement Dispute, Orders Defendants to Repay with Interest

Bank of Maharashtra Versus M/s. United Construction Company

Bank of Maharashtra Versus M/s. United Construction Company - AIR 1985 Bom 432 Issues Involved:1. Whether the plaintiff bank granted an overdraft facility to the defendants.2. Whether the claim on the basis of the overdraft facility was maintainable.3. The rate of interest applicable on the overdraft amount.Issue-wise Detailed Analysis:1. Whether the plaintiff bank granted an overdraft facility to the defendants:The plaintiff, a nationalized bank, filed a suit to recover an amount of Rs. 74,047.36 with interest from the defendants, a partnership firm and its partners. The defendants admitted to having a current account with the plaintiff but denied requesting any overdraft facility. The trial judge found the evidence of the plaintiff's witness, Mr. Sathe, who claimed to have granted a temporary overdraft facility, to be improbable. The judge noted that such facilities typically require written applications or promissory notes, and the discrepancy between the dates mentioned in the demand notice and the evidence further weakened the plaintiff's case. The trial judge concluded that there was no express oral agreement for an overdraft facility.2. Whether the claim on the basis of the overdraft facility was maintainable:Despite the absence of an express agreement, the appellate court found that the defendants had overdrawn their account and the cheques issued by them were honored by the bank. Referring to legal principles from Halsbury's Law of England and the case of Cuthbert v. Roberts, Lubbock & Co., the court held that such transactions amount to a loan, and the customer is bound to repay the bank with reasonable interest. The court concluded that there was an implied agreement for an overdraft facility, making the defendants liable to repay the overdrawn amount.3. The rate of interest applicable on the overdraft amount:The trial judge did not find any express agreement regarding the interest rate. The appellate court agreed, noting that although the plaintiff referred to a Reserve Bank Circular mandating a 17% interest rate, this circular governed relations between the Reserve Bank and the banks, not the defendants. The court decided that a reasonable interest rate in this case would be 12% per annum from April 1, 1976, until the date of judgment, and 6% per annum thereafter until payment. The court acknowledged that certain interest amounts in the account extracts were presumed to be calculated at 17%, but since the defendants did not dispute these entries, they were not disturbed.Conclusion:The appellate court set aside the trial judge's judgment and decreed that the plaintiff was entitled to recover Rs. 69,149.26 with interest at 12% per annum from April 1, 1976, until the judgment date, and 6% per annum thereafter until payment. The appeal was allowed without any order as to costs.