Anumati Vs. Punjab
National Bank  Insc 652 (25 October 2004)
Ruma Pal & Arun Kumar
(Arising out of S.L.P.(C) No.15786 of 2002) Ruma Pal, J.
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 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
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 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 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
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 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 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
The Bank is thus a debtor to the account holders in respect of the amount
deposited 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
This was also held by a Division Bench of the Lahore High Court (Shadi Lal,
C.J. and Broadway, J.) in Simla Banking 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 - 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.