Allowed

Sampada Sahakari Bank Ltd. v. State Bank of India

DRAT24 Nov 2023REGULAR APPEAL/155/2004

Case brief

AI extract

What is this about?

The Tribunal allowed the appeal against a DR.T. order directing the payment of dishonoured bills with interest. The court set aside the lower court order, finding that the respondent bank had improperly settled bills within the operational area of the appellant co-operative bank without proper authority.

What did the court decide?

The judgment and order of the D.R.T. in O.A. No. 647 of 2000 are set aside and quashed. The O.A. is dismissed. The Recovery Certificate is recalled.

Sampada Sahakari Bank Ltd. versus State Bank of… — Contract and Commercial Disputes | DRAT (2023)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson

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Appeal No. 155/2004

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Between

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Sampada Sahakari Bank Ltd.

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V/s.

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State Bank of India …Respondent/s

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Mr Neel P., Advocate for the Appellant Bank.

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The Appellant is a co-operative bank named Sampada Sahakari Bank Ltd. It is aggrieved by the judgment and order dated 20.04.2004 in Original Application (O.A.) No. 647 of 2000 on the files of the Debts Recovery Tribunal-II, Mumbai (D.R.T.) allowing the O.A. filed by the erstwhile State Bank of Mysore (now the State Bank of India) directing the Appellant to pay a sum of ₹15,99,816.62 together with interest at the rate of 12% per annum with effect from 25.08.1983 till realisation and half the costs.

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The O.A. was originally filed as a summary suit No. 459 of 1984 before the Hon’ble High Court of Bombay and was transferred to the D.R.T. and refiled.

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The averments in the plaint in brief were thus:

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The Appellant bank was the banker for a company named Systems Communications Pvt. Ltd., Nariman Point, Mumbai with Shyam D. Chhabria and Deepak D. Chhabria as directors. They were also bankers for Sai Enterprises, a firm of which the aforesaid persons and

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Dawarkasingh K. Chhabria were partners. Sai Services, a proprietorship firm owned by Malti Deepak Chhabria was also banking with the Appellant. A private trust under the name and style Chhabria International of which Shyam, Deepak, Malti and Sonal Chhabria were trustees also had their banking activities with the Appellant.

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It is avered in the plaint that a long-standing custom or usage prevailed among bankers in India more particularly in Mumbai concerning a banker co-accepting a bill of exchange by his customers and taking over the liability as a surety to the holder of the bill of exchange in the event its customers after acceptance of the bill of exchange commits a default to the holder thereof. The co-acceptor bank which signs the bill of exchange invariably pays the amount as per the said bill to the holder in the event of the acceptor customer of the bank not affecting payment.

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The plaintiff had on request made by Systems Communications Pvt. Ltd. and Shyam and Deepak Chhabria in their capacity as guarantors granted a bill discounting facility to the company up to ₹40 lakhs. Similarly, facilities of ₹17 lakhs were also granted to Sai Enterprises.

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Seven bills of exchange aggregating a sum of ₹16,36,242.50 were advanced to the aforesaid company and four bills of exchange adding up to ₹10,42,065/- were also advanced to Sai Enterprises. The bills were drawn respectively by the company and enterprises with mutual reciprocity. The Appellant who was a co-acceptor of the bills however did not make payment. The plaintiff gave due notice of the dishonour

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of the bills by the drawees to the Appellant but still, the Appellant failed and neglected to pay the amount together with interest.

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A meeting was convened on 25.08.1983 at the office of the plaintiff bank in Mumbai to discuss the dishonouring of the bills. Shyam D Chhabria on behalf of himself and others was present. On behalf of the Appellant bank Mr A. G. Bhopatkar was present while the plaintiff was represented by M/s H.G. Balagopal and S Rajagopal. An agreement was arrived at between participants which was reduced to writing as Exh.-G. It was agreed that the principal amount due in respect of bills was ₹26,78,307.50 and the defendant and the parties were granted time to pay the amount due as per the bills. ₹5 lakhs agreed to be paid on or before 05.09.1993 and the balance ₹21,78,307.50 was agreed to be paid in five equal monthly instalments of ₹4,35,661.50 payable on or before the 5th day of the month starting from October 1983 to February 1984 along with overdue interest on the outstanding up to the date of payment. It was also agreed that in the event of default of payment of any of the instalments would grant a right to the plaintiff to proceed against all the concerned parties including the Appellant bank for the entire amount outstanding. The agreement was signed by all concerned. A certain amount was paid. The balance of ₹21,78,307.50 outstanding together with interest was agreed to be paid in instalments with interest at the rate of 20% per annum. A sum of ₹52,178.88 was lying on the credit of the current account maintained by the Appellant with the plaintiff bank. Since the plaintiff had a lien over the said amount in deposit, it was appropriated towards arrears of the interest. Thereafter, the plaintiff filed a

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summary suit for the realisation of the balance amount from the Appellant.

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The main contention raised by the Appellant before the D.R.T. in its written statement is that the Appellant is a co-operative society governed by its bye-laws. It was contended that any dispute arising against the society would have to be decided under the provisions of the Maharashtra Co-operative Societies Act. That apart, it is contended that as per bye-laws, the area of operation of the cooperative bank is confined to the District of Pune. Any revision in this regard requires prior approval of the registry authority and the Reserve Bank of India except for the extension of the area of operation within the district of registration. The present transaction took place in Mumbai and therefore, the Appellant bank could not have got involved in it. The bye-laws also described the powers of a Chairman and necessarily, the bye-laws do not empower the Chairman or the Assistant Manager to get involved in a transaction as referred to in plaint.

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The Ld. Presiding Officer considered the contentious issues and concluded that the bye-laws would regulate only the internal management of the society. The Respondent is a bank and coacceptance of bills is one of the banking activities conducted in the regular course of business of a bank. The defendant’s liability flows from the co-acceptance and therefore, it is binding. The contention regarding the maintainability of the O.A. before the D.R.T. was withdrawn by the counsel appearing for the defendant and hence, not considered.

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The Respondent though appeared in the beginning, did not appear at the later stage for arguments and therefore, was set ex-parte. The Ld. Counsel appearing for the Appellant submits that once the compliance of the bye-laws is mandated by a statute, not only the society and/or its members but also third parties would be bound by the same, as Sec. 73 (1) of the Maharashtra Co-operative Societies Act makes it obligatory to follow the provisions of the bye-laws when it relates to performance of duty. The Ld. Counsel also relies on a decision of the Hon’ble High Court in Shivshankar Dudh Vyavsayek Va Utpadak Sanstha Maryadit, Alani, District Osmanabad & Ano. vs. State of Maharashtra & Ors. 2004 (1) Mh.L.J. 779 in support of his argument regarding the binding nature of the bye-laws of a society on a third party.

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It is pertinent to note that the recitals in the minutes of the meeting held on 25.08.1983 produced as Exh.24 states thus:

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“Sampada Sahakari Bank Ltd will seek the approval of their Board of Directors and produce an extract of the minutes of the meeting duly signed by the Chairman, for execution of the above agreement. A copy of resolution will also forwarded to the Registrar of Co-operative Societies for his information.”

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There is nothing to show that the Board of Directors of the Appellant bank had approved the action of the Chairman and the others who had signed the agreement. The Appellant being a cooperative society functioning in Pune, it was incumbent upon the Respondent bank to have got a clarification regarding the authority of the person who had entered into the agreement. The area of operation of the Appellant Bank is also confined to the district of Pune. Hence, it could not have conducted any operation in Mumbai. The Ld. Presiding Officer was therefore not justified in allowing the O.A. The

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judgment and order, therefore, require to be reversed. Resultantly, the appeal is allowed and the judgment and order of the D.R.T. in O.A. No. 647 of 2000 are set aside and quashed. The O.A. is dismissed. The Recovery Certificate is recalled.

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Sd/Chairperson

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mks-01

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Sampada Sahakari Bank Ltd. v. State Bank of India

Case brief

What is this about?

What did the court decide?

Sampada Sahakari Bank Ltd. v. State Bank of India

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Parties & counsel

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Case details

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