TaxTMI 
TaxTMI 
2000 (4) TMI 811
X X X X Extracts X X X X
X X X X Extracts X X X X
....t limit of Rs. 5,00,000 against pledge of shares of various companies, value of all the shares being Rs. 10, 60, 900 at the relevant time. Out of these number of shares of the Castrol Ltd. were 1, 400 @ Rs. 200 per share of the total value of Rs. 2, 80, 000. It is not disputed that as per the guidelines issued by the Reserve Bank of India, banks are allowed to make advance against pledge of shares retaining 50 per cent margin. As per the terms of sanction of the overdraft limit shares were got transferred in the name of the bank. In due course of time, bank received bonus shares numbering 2, 224 of Castrol ltd. It is stated that value of shares also increased manifold. Appellant also paid an instalment of Rs. 1, 45, 600 to the bank against the overdraft limit. Overdraft amount was to be adjusted in three equal instalments. In order to clear the overdraft account the appellant, apart from shares of other companies, requested the bank to arrange sale of 500 shares of Castrol Ltd. This he did by letter dated 23rd April, 1992. 3. After 12 days of the receipt of this letter the bank at Nagpur, where the overdraft account of the appellant was maintained sent a letter dated 5th May, 19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e bank could be termed as deficiency in service. 'Service' has been defined in clause (o) of sub- section (1) of section 2 of the Act and 'deficiency' in clause (g) thereof. These are as under : '(g) "deficiency" means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service; ' '(o) "service" means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service.' 7. In the arguments it was submitted that the appellant is not a consumer within the meaning of sub-clause (ii) of clause (d) of section 2 of the Act. This sub-clause....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rant of overdraft facilities. Appellant as a consumer was hiring service of the bank for consideration by way of payment of interest for the overdraft facilities received by him by pledging the shares of different companies. We reject the argument that the appellant is not a consumer or that the bank is not providing any service to the appellant. The only question that requires consideration is if there was any deficiency in service in the present case. 11. Bank has denied that there was any deficiency in service on its part and the conduct of the bank in dealing with the alleged securities was not negligent. It was stated that facts on record clearly established that it was the appellant who was solely responsible for causing the confusion and misguiding the bank to locate the shares with Bombay office. It was, thus, contended that the alleged delay which was caused could not be attributed to the negligence of the bank as it was the appellant himself who mislead the bank. It was rather explained that it was the assertion of the appellant which led to the time consuming process of checking and again rechecking whether the said shares were indeed in the Bombay office. It was, thu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otal market value inclusive of the original No. of shares pledged with the answering respondent, at a time when market price of the said shares allegedly dipped was higher that the alleged previous value of the Castrol shares pledged by the appellant with the answering respondent. Hence the averments made by the appellant about the loss suffered by him is wholly sustainable and illogical." 12. It was then submitted by the bank that the appellant was a regular defaulter and time and again had, failed to liquidate his dues and discharge his obligations. The bank was under no obligation whatsoever to release the shares which were in its possession and could not be compelled in law to sell any of the pledged shares. Then the bank said that delay was caused to process the request of the appellant to sell the shares held by the bank as security as his request needed to be carefully examined especially in view of the fact that he had several irregular accounts and was a habitual defaulter. The bank which is a custodian of public funds could hardly be rushed into making its commercial/business decisions, so the bank lamented. Lastly, it was submitted by the bank that it could not be bla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant that the bank did not raise any issue regarding law of pledge or the jurisdiction of the National Commission before the National Commission. We heard Mr. Venugopal on the applicability of the law of pledge as contained in sections 172 to 177 of the Contract Act on a plea that there was no deficiency in service because the bank was not under a legal obligation to follow a customer's instructions to sell the pledged shares. He said the statute not only imposes no obligation on the pledgee to sell pledged shares on the request of the pledgor it grants a positive option to the pledgee to either retain or sell the pledged shares which would be nullified by creating an obligation on his part to sell on the request of the pledgor. We may refer to some of the decisions cited by Mr. Venugopal at the bar on this aspect. 15. In Hallday v. Holgate 1868 LR Exchequer 299 the facts (as appeared from the head note) a holder of scrip certificates for shares borrowed of the defendant a sum of money on his own promissory note, payable on demand, and on the security of the shares, and deposited with the defendant the scrip certificates. He afterwards became bankrupt, and the defendant, with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r is not obliged to do anything .... No creditor could carry on the business of lending if he could become liable to a mortgagee [sic : mortgagor] and to a surety or to either of them for a decline in value of mortgaged property, unless the creditor was personally responsible for the decline." 19. In Bharat Bank Ltd. v. Bodhraj AIR 196 Punj, . 1 (DB) the appellant gave notice to the respondent. The appellant was defendant in a suit filed by the respondent-plaintiff. The plaintiff had cash credit account with the Bharat Bank Ltd. at Rawalpindi (now in Pakistan) prior to the year 1947. He had pledged as security 988 shares of a company. The defendant gave notice to the plaintiff demanding payment of the debt due from the plaintiff by 18th August, 1947 and if the amount was not paid the shares would be sold without reference to the debtor and at his risk rind responsibility. The plaintiff did not send any reply to this letter of demand by the defendant. On 28th August, 1948 the shares were sold at Rs. 10 per share. Plaintiff on 31st January, 1949 gave a notice to the defendant claiming Rs. 9, 000 on account of surplus which would have accrued had the shares been sold by the middle ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f and that all transactions entered into ostensibly with the branches are in legal reality transactions with the corporate body and it is with the corporate body that a person must deal directly. But it is also now generally agreed that in the case of a bank which operates through its branches, the branches are regarded for many purposes as separate and distinct entities from the head office and from each other. This court observed in Delhi Cloth & General Mills Co. Ltd. v. Harnam Singh 1995 (2) SCR 402 "In banking transactions the following rules are now settled : (1) the obligation of a bank to pay the cheques of a customer rests primarily on the branch at which he keeps his account and the bank can rightly refuse to cash a cheque at any other branch : Rex v. Lovitt [1912] A.C. 212, State Aided Bank of Travancore v. Dhrit Ram 1942 AIR(PC) 6 and New York Life Insurance Co. v. Public Trustee [1924] 2 Ch. 101; (2) a customer must make a demand for payment at the branch where his current account is kept before he has a cause of action against the bank : Joachimson v. Swiss Bank Corporation [1921] 3 K.B. 110 quoted with approval by Lord Reid in Arab Bank Ltd. v. Barciays Bank [1954....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pal sought reference to the provisions of Securities Contracts (Regulation) Act, 1956 under which stock exchange in the country function. We cannot permit him to raise such a plea which has no foundation either in the pleading or in the evidence before the National Commission.23. We do not think it is necessary for us to go into all these legal niceties in view of the clear provisions of law and in this mass of judicial pronouncements referred to above we should not forget the teal issue. We have held that the appellant is a consumer and bank is provider of the service. Appellant's case is simple. He did not want his shares back. He only wanted part of the shares to be sold and for, the bank to keep the money to liquidate part of his overdraft account. Bank agreed. Each branch of the bank is independent. The bank has taken two principal pleas : (1) it was not obliged to sell the shares as under law bank is not bound to follow the instructions in view of the provisions regarding pledges as contained in sections 172 to 177 of the Contract Act; and (2) it was the appellant who misled the bank by saying that the shares were lying in the head office of the bank at Bombay. That the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fault of the appellant being not regular in his account with the bank, all these pleas raised by the bank are merely afterthoughts in order to hide its own default and inefficiency. Once the bank agreed to sell the part of the shares on request by the appellant and without any preconditions, it cannot fall back on other alleged defaults of the appellant in his dealing with the bank. The plea of the bank that it could dispose of the shares only through its own broker is without substance as it never apprised the appellant this fact. We, therefore, find ourselves unable to agree with the view of the National Commission that there was no negligence on the part of the bank or that the bank was not bound to dispose of the shares.24. The appellant made a claim of Rs. 29, 56, 264.76 before the National Commission. He further claimed interest at the rate of 21 per cent per annum till the final decision of the National Commission and realisation of the decreed amount. We think the claim made is highly inflated and there does not appear to be any basis for the same. The indicative price at which the appellant requested the bank to sell the shares of Castrol Ltd. was Rs. 2, 400 to Rs. 2, 500 ....