2025 (3) TMI 1597 - HC - Indian Laws

Bank's recovery rights after pledged goods destroyed by fire; court permits enforcement and adjustment of insurance proceeds.

Bank was permitted to pursue recovery of loan after pledged goods were destroyed by fire; the court held no legal bar prevents the bank from enforcing its ... Right of pledgee to contract out of liability - Duty of bailee u/s 151 of the Indian Contract Act - Exemption from liability u/s 152 of the Indian Contract Act - Bank's right to recover loan despite a parallel suit for damages - Adjustment of insurance proceeds against bank's claim - Interlocutory relief restraining coercive action pending trial - HELD THAT:- Goods were stored in warehouse of defendant no.2, and there was a valid insurance policy with defendant no.3, on the date when the entire goods worth Rs. 8,80,88,000/- were destroyed by fire on 14th May 2023. As pledged goods were destroyed the defendant no.1 – Bank started making margin call and demanded amounts from plaintiff. The defendant no.1 – Bank by its email dated 20th November 2023, informed the plaintiff that they have adjusted Rs.1,20,00,000/- from plaintiff’s bank account and also placed the account under debit freeze. And further that the plaintiff’s account will be turning into N.P.A. The issue before us is whether the bank can be directed not to take action of recovery of its dues from borrowers who have defaulted in payment of outstanding loan amount. In our view, there cannot be any legal bar on the Bank from taking any steps to recover its money. Monies which the Bank had offered as loan was ultimately public money. If the Bank is prohibited from recovery of its outstanding amount, it will have repercussion on its banking business. The Apex Court in Bank of Rajasthan Ltd. v. VCK Shares & Stock Broking Services Ltd. [2022 (11) TMI 1325 - SUPREME COURT] has settled that while a borrower may have the right to institute a parallel suit for damages against the Bank, there can be no question of a stay on the Bank's recovery proceedings under the RDB Act. This Court rejected the contention that Clause 7 did not apply where the defendant-Bank or its servants were negligent. The Court held that the clause was not limited to instances without negligence and that excluding negligence would import words of limitation into the agreement. Further, the Court reasoned that a Bank is not an insurer of goods under Section 152 of the Indian Contract Act, 1872, unless expressly stated, and liability is generally limited to negligence unless otherwise contracted. The Court also noted that words like “any loss however caused” or “under any circumstances” provide a sufficient warning to the bailor that the bailee is exempt from liability for negligence. In the judgment of Lallan Prasad [1966 (12) TMI 65 - SUPREME COURT] of the Supreme Court relied upon by the plaintiff, the appellant had advanced Rs.20,000/- to the respondent against the promissory note. The respondent executed an agreement whereby he agreed to pledge as security aero-scraps and to deliver them at appellant’s house and keep them there in his custody. The appellant’s case was the respondent failed to deliver the goods and stored them in a plot adjacent to the aerodrome. When the suit was filed to recover the amount advanced, the respondent in the written statement admitted the said loan, but alleged that they had delivered aero-scraps to the appellant. Therefore, though appellant was entitled to obtain a decree but he should willingly redeliver the goods pledged. In such a situation, the Supreme Court held that pawnee has to return the property pledge. If by his default, the pawnee is unable to return the security against the payment of debt, the pawner as a good defence to the action. In our view, the ratio will not be applicable to the present proceeding, as in the present proceeding as per pledge agreement, the goods were in the warehouse and as per the terms if there was a fire, the Bank could not be held liable. If the Insurance Company pays the entire amount as claimed by the plaintiff, the said amount is to be adjusted by the defendant no.1 Bank against its claim and for the balance amount (if any) the defendant no. 1 is free to take such steps by following the due procedure of law. The learned Judge of the City Civil Court has considered all relevant aspects and has come to the finding that the defendant no.1 Bank is at liberty to take recourse in accordance with the due procedure of law. We do not find any reason whatsoever to interfere with the impugned interlocutory order. We find no merit in this Commercial Appeal From Order and hence the same is dismissed. No costs. In view of disposal of the Commercial Appeal From Order, pending Interim Application is also disposed of. It is however observed that any observations made by the trial Court in the impugned order or in the present order shall not come in the way of either party and all contentions are kept open for being raised before the trial Court. Issues: Whether the High Court should interfere with the City Civil Court's interlocutory order dated 11 June 2024 which refused the plaintiff's prayers for ad-interim injunctions and directed the Bank not to take coercive action against the plaintiff except by following due procedure of law.Analysis: The Court examined the contractual documents between the parties including the sanction letter and the pledge agreement, the scope of Sections 151 and 152 of the Indian Contract Act, 1872 concerning the bailee/pledgee's duty of care and the possibility of contracting out of such liability, and the effect of any insurance proceeds on the Bank's claim. The Court noted precedent establishing that a pledgee/bailee can, by agreement, limit liability for loss of goods and that a borrower may pursue parallel remedies for damages without necessarily restraining a secured creditor's recovery steps. The Court also considered the Bank's undertaking before the Court that any insurance proceeds paid to the Bank would be adjusted against the Bank's claim and that the Bank would proceed only for the balance, and observed that the interlocutory order below permitted the Bank to pursue recovery in accordance with due procedure of law.Conclusion: The Commercial Appeal is dismissed and the interlocutory order dated 11 June 2024 is affirmed; the Bank is permitted to pursue recovery by following due procedure of law, subject to adjustment of any insurance proceeds as undertaken to the Court.