Bombay HC: Relationship between banker and customer is of debtor and creditor for money deposited by customer in the bank

 As the Tribunal has pointed out, it is fairly well settled that when moneys are deposited in a bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not of trustee and beneficiary. Applying this principle, the pass book supplied by the bank to its constituent is only a copy of the constituent's account in the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. In view of this, the Tribunal was, with respect, justified in holding that the pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee, that is, a book maintained by the assessee or under his instructions. In our view, the Tribunal was justified in the conclusions at which it arrived. {Para 5}

 IN THE HIGH COURT OF BOMBAY

Income-tax Reference No. 16 of 1973

Assessment Year: 1962-1963

Decided On: 12.02.1982

Commissioner of Income Tax, Poona Vs. Bhaichand H. Gandhi

Hon'ble Judges/Coram:

M.H. Kania and M.N. Chandurkar, JJ.

Author: M.H. Kania, J.

Citation: (1983) 141 ITR 67,1982 SCCINLINEBOM 320

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Is the relationship between the customer and Bank a creditor and a debtor?

 The money that a customer deposits in a bank is not held by the latter on trust for him. It becomes a part of the banker’s funds who is under a contractual obligation to pay the sum deposited by a customer to him on demand with the agreed rate of interest. Such a relationship between the customer and the Bank is one of a creditor and a debtor. The Bank is liable to pay money back to the customers when called upon, but until it’s called upon to pay it, the Bank is entitled to utilize the money in any manner for earning profit.

Supreme Court

CHIEF JUSTICE OF INDIA N.V. RAMANA JUSTICE SURYA KANT JUSTICE HIMA KOHLI

N. Raghavender Vs. State of Andhra Pradesh, CBI

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Basic principles for determining whether a document is mortgage by conditional sale or sale with option to repurchase

Whether an agreement is a mortgage by conditional sale or sale with an option for repurchase is a vexed question to be considered in the facts of each case. The essentials of an agreement, to qualify as a mortgage by conditional sale, can succinctly be summarised. An ostensible sale with transfer of possession and ownership, but containing a Clause for reconveyance in accordance with Section 58(c) of the Act, will clothe the agreement as a mortgage by conditional sale. The execution of a separate agreement for reconveyance, either contemporaneously or subsequently, shall militate against the agreement being mortgage by conditional sale. There must exist a debtor and creditor relationship. The valuation of the property, and the transaction value, along with the duration of time for reconveyance, are important considerations to decide the nature of the agreement. There will have to be a cumulative consideration of these factors, along with the recitals in the agreement, intention of the parties, coupled with other attendant circumstances, considered in a holistic manner. The language used in the agreement may not always be conclusive.

11. In Bhaskar Waman Joshi (deceased) and Ors. v. Shrinarayan Rambilas Agarwal (deceased) and Ors. MANU/SC/0161/1959 : AIR 1960 SC 301, the principles for determination of the nature of the document were explained as follows:

7...The question in each case is one of determination of the real character of the transaction to be ascertained from the provisions of the deed viewed in the light of surrounding circumstances. If the words are plain and unambiguous they must in the light of the evidence of surrounding circumstances be given their true legal effect. If there is ambiguity in the language employed, the intention may be ascertained from the contents of the deed with such extrinsic evidence as may by law be permitted to be adduced to show in what manner the language of the deed was related to existing facts.

12. In the light of the aforesaid discussion and the facts of the present case, an examination of the recitals in the agreement dated 29.04.1971 holistically, including the heading of the document, we are left with no doubt that it was not a sale deed with an option for repurchase but a document of mortgage by conditional sale. An agriculturist will normally not so easily dispose his agricultural land, the source of his survival and livelihood merely for purchases made by him on credit. The dire financial straits of the Plaintiffs is evident from the fact that they were left with no option but to mortgage 2½ acres of their agricultural lands for credit purchase of daily necessities. The financial stringency of the Plaintiffs is apparent from their failure to repay anything even after execution of the instalment bond. Given the limitations of the Plaintiffs because of their poor financial status, the fact that they may not have objected to the mutation so done three years later cannot be considered as sufficient for a contrary interpretation of the agreement dated 29.04.1971, especially when the Appellate Court held that the Plaintiffs were in possession of the lands. In the facts of the case, a debtor and creditor relationship stands clearly established and hardly needs further elucidation. 

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 3960 of 2011

Decided On: 12.09.2019

 Ganpati Babji Alamwar Vs.  Digambarrao Venkatrao Bhadke 

Hon'ble Judges/Coram:

Navin Sinha and Indira Banerjee, JJ.

Citation: AIR 2019 SC 4292

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How to ascertain whether a transaction is sale transaction or mortgage transaction?

The recitals "your amount shall carry no interest and my fields will not carry any rent" indicate that the consideration received by the transferor was to be treated as a debt. The interest was payable in the shape of appropriation by the transferee of the rent which he would otherwise be liable to pay to the transferor. That there has been an express mention of interest militates against any assumption that the transaction was intended to operate as an absolute sale. The stipulation that the transferee was to pay land revenue appears to be of no significance beyond the fact that the person who was to enjoy the profits was to bear the burden. Then the recital "I cease to have any right, etc., for five years" followed by the expression "I shall pay and shall redeem my fields" clearly goes to prove the existence of the relation of debtor and creditor between the parties. The vernacular words equivalent to the word "redeem" are "sodun ghein"  which mean 'release or redeem.' These are significant inasmuch as if there had been an intention to purchase back the fields, the words used would have been 'vikat ghein' .

10. In the premises, the impugned judgment and order of the lower Appellate Court does not disclose any error of law in the matter of construction of the document. The construction of a document is a mixed question of law and fact. As I have noted above, it is essentially to be decided by considering the words employed by the parties, though it is permissible to take into account surrounding circumstances in case the words used are not sufficiently clear to designate their effect. The words used in the present case are sufficiently clear and their effect is to create a mortgage by conditional sale with a right of redemption preserved unto the debtor. The relationship conveyed by the document is of debtor and creditor and not of vendor and buyer.

IN THE HIGH COURT OF BOMBAY

Second Appeal No. 369 of 2013 and Civil Application No. 1011 of 2013 in Second Appeal No. 369 of 2013

Decided On: 07.03.2017

Mangal Popatrao Sodmise Vs.  Abdagiri Vishvanath Narale

Hon'ble Judges/Coram:

S.C. Gupte, J.

Citation: 2017(6) MHLJ 152

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Whether insolvency petition is maintainable if debt is denied by debtor?

This contention of Mr. Bhandari that if the debt is denied by the debtor then no petition would be maintainable under Section 9 of the Act, cannot be accepted, because if the expression "debt is a liquidated sum" is interpreted in the manner in which Mr. Bhandari wants this Court to interpret it, then it would provide an easy handle to every debtor to escape the consequences under the provisions of the Act by simply raising a plea of dental about the existence of the debt. In order to debar a creditor from presenting an insolvency petition against a debtor under Section 9 it is necessary for the debtor to show that the debt is of such a nature which is not capable of being easily ascertained within the mischief of Section 9 of the Act. In P.N.V. Ratnasami Naidu v. K.S.P.A. Subba Reddiar, MANU/TN/0146/1943 : AIR 1943 Mad 766 the learned Judge while defining the expression "debt is a liquidated sum" observed as follows:--

"It is not always easy in a claim on an account to say definitely whether it is for a liquidated sum or for an unliquidated sum. It does not cease to be a, liquidated sum, because it can be arrived at only after making some simple calculation; but if it is not readily ascertainable without enquiry, then it is an unliquidated claim."

13. In Madhya Bharat case Ramchandra Narayanji v. Rameshwar Bhagwandas AIR 1951 MP 115 there was a claim for damages for breach of contract of sale and it was in that context that the learned Judge observed that,--

"An essential condition for the foundation of a creditor's petition is that the debt must 'be a liquidated sum. There must, therefore, be a certain sum admittedly due and payable to the person who presents the petition. A claim for damages for non-performance of a contract of a sale cannot ordinarily be within the meaning of a liquidated sum, especially where the alleged contract and its validity or the need of its performance are in question."

This authority, in my opinion, cannot be of any avail to the appellant, because the facts of that case showed that the claim for damages for the non-performance of the contract of a sale could not be accepted as a "debt" of the creditor, unless such a claim was determined by a competent authority. In my opinion this ruling cannot help the court to find out the correct interpretation of the expression "the debt is a liquidated sum", as used by the Legislature in Clause (b) of Sub-section (1) of Section 9 of the Act.

14. In Allahabad case Balak Ram v. Kaley 1966 All LJ 476, the learned Judge held that a claim for damages before passing of the decree could not be termed as a liquidated sum. but in his opinion once a decree is passed, it becomes a liquidated sum payable immediately. This authority is distinguishable on : the point that in that suit the debt claimed depended upon " the adjudication about the quantum of damages and unless it was done that debt could not be said to be of a liquidated sum. In my opinion this authority of Allahabad High Court hardly throws any light on the question that has been posed for this court to answer.

15. In Subramonia Iyer Saradam-bal v. K. R. Ramchandra Iyer AIR 1956 TC 88, the learned Judges, while examining the scope of Section 9 of the Act, observed that.-

"A debt on which the insolvency petition can be based must be one provable in insolvency or in other words it must be a subsisting debt due from the debtor on the date of the presentation of the petition. It must also be a liquidated sum payable either immediately or at some future time."

According to these observations of the learned Judges, if the debt, even though denied by the party, can be proved easily in the insolvency court, then it can act as a base or foundation for submitting a petition under the provisions of the Act.

 Citation : AIR 1976 Raj 4

IN THE HIGH COURT OF RAJASTHAN

Civil Misc. First Appeal No. 60 of 1973

Decided On: 09.10.1975

Mohanlal
Vs.
Rameshwar Dayal and Ors.

Hon'ble Judges/Coram:
V.P. Tyagi, J.

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Whether insolvency petition abate on death of debtor?

The scheme of the Act shows that the proceedings in the insolvency are really in rem and ensure for the benefit of all the creditors of the insolvent. The petition cannot be withdrawn without the leave of the court, nor does it abate on the death of the debtor and provision has been made for consolidation of two or more petitions of various creditors and also for substitution of the petitioner .

Delhi High Court

Shadi Ram Ram Sarap Dass And Ors. vs Ravi Chander Xazigla And Ors. on 26 November, 1976

Equivalent citations: AIR 1977 Delhi 187

Bench: B Misba

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Whether debtor can initiate insolvency petition against creditor bank?

The question is whether the bank can claim exemption from insolvency proceedings under Section 8 of the Act. Any company registered under any enactment is exempted from the insolvency proceedings. The bank was registered as a banking company as defined under Section 5(c) of the Banking Regulation Act, 1949 (Act No. 10 of 1949), which reads as under:

"5(c) 'banking company' means any company which transacts the business of banking in India;" Clause (d) of Section 5 of the Act No. 10 of 1949 defines 'company' to mean any company as defined in Section 3 of the Companies Act, 1956; and includes a foreign company within the meaning of Section 591 of that Act. Section 2 of Act No. 10 of 1949 provides that the provisions of Act shall be in addition to, and not, save as hereinafter expressly provided, in derogation of the Companies Act, and any other law for the time being in force.

After the enforcement of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (Act No. 5 of 1970), all the banking companies including the foreign companies registered under the Companies Act, 1959, were nationalised and more than 51 per cent shares were taken over by the Government of India and the banking companies became the body corporate under Section 2(d) of Act No. 5 of 1970. Clause (d) defines 'corresponding new bank in relation to existing bank' to mean a body corporate specified against such bank in column 2 of Schedule 1. In the First Schedule 'Punjab National Bank Ltd.' is in the first column and in the second column it has been referred to as 'Punjab National Bank'. Section 4 of 1970 Act provides that on commencement of the Act undertaking of every existing bank shall be transferred to and shall vest in the corresponding new bank.

 In view of the aforesaid provision of law, Punjab National Bank is a Government company under Section 617 of the Companies Act. The view taken by the courts below that the bank is registered company and, therefore, it is exempted from insolvency proceedings--does not suffer from any illegality.

IN THE HIGH COURT OF ALLAHABAD

Civil Misc. Writ Petition No. 17526 of 2001

Decided On: 24.05.2001

Appellants: Nagendra Kumar Jain
Vs.
Respondent: District Judge, Moradabad

Hon'ble Judges/Coram:
S.N. Agarwal, J.

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Supreme Court: Payment made by a debtor is to be appropriated to interest first and thereafter to the principal

The normal rule is that in the case of a debt due with interest any payment made by the debtor is in the first instance to be applied towards satisfaction of interest and thereafter to the principal. It was for the mortgagors to plead and prove an agreement- that the amounts which were deposited in Court by the mortgagors were accepted by the mortgagees subject to a condition imposed by the mortgagors

Supreme Court of India

Meghraj & Ors vs Mst. Bayabai & Ors on 30 April, 1969

Hon'ble Judges/Coram:

G.K. Mitter and J.C. Shah, JJ.

Citations: 1970 AIR 161, 1970 SCR (1) 523,MANU/SC/0368/1969, 1969 SCC (2) 274

 The Judgment of the Court was delivered by

Shah, J.

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