TMI Blog1992 (3) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... required by the executing court to furnish a Bank guarantee for a sum of ₹ 90,000/- in favour of High Court of Delhi. On 10.9.80 the Judgment-debtor requested the appellant Bank to furnish a Bank guarantee for a sum of ₹ 90,000/- in favour of Registrar of High Court of Delhi. The Bank agreed to furnish the Bank guarantee on the condition that the Judgment-debtor should deposit the entire sum of ₹ 90,000/-as security for the guarantee with the Bank. Or. 17.9.80 respondent No. 3, partner of the Judgment-debtor firm deposited by way of two Fixed Deposits Receipts ( FRDs for short) of ₹ 65,000/- and ₹ 25,000/- respectively after duly discharging them by signing on the reverse of each FDR. The FDRs were to mature on 17.12.83 and 1.7.85 respectively. The two covering letters were also executed on the Bank's usual printed forms on 17.9.80. As per the recital in the said letters the Judgment-debtor agreed that the deposits and renewals shall remain with the Bank so long as any amount on any account is due to the Bank from them i.e. M/s. Jullundur Body Builders. Thereafter the Bank issued a guarantee for a sum of ₹ 90,000/- in favour of Registrar of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also his contention that on account of discharge of the Bank guarantee,the appellant Bank had a right to set off the amount in deposits against the liability of the Judgment-debtor due to the Bank. He also canvassed that the Banker's lien is legally recognised and it is of great importance to the entire Banking community and such a lien cannot be interfered with unless the liability in respect of which the lien is created, is fully discharged. 4. To appreciate these contentions it becomes necessary to refer to some of the relevant documents and then examine the meaning and scope of the expressions Banker's lien and Bank guarantee in the light of some settled principles. 5. The two FDRs were duly discharged by signing on the reverse of each of them by the Judgment-debtor and were handed over alongwith two covering letters on the Bank's usual printed forms on 17.9.80 at the time of obtaining the guarantee. The relevant clause of the letter reads as under: The Bank is at liberty to adjust from the porceeds covered by the aforesaid Deposit.Receipt/Certificate or from proceeds of other receipts/Certificates issued in renewal thereof at any time without an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (emphasis supplied) In Paget's Law of Banking, Eighth Edition, Page 498 a passage reads as under; THE BANKER'S LIEN Apart from any specific security, the banker can lock to his general lien as a protection against loss on loan or overdraft or other credit facility. The general lien of bankers is part of law merchant and judicially recognised as such. In Brandao v. Barnett, (1846)12 Cl. and Fin.787 it was staled as under: Bankers most undoubtedly have a general lien on all securities deposited with them as bankers by a customer, unless there be an express contract, or circumstances that show an implied contract, inconsistent with lien. The above passages go to show that by mercantile system the Bank has a general lien over all forms of securities or negotiable instruments deposited by or on behalf of the customer in the ordinary course of banking business and that the general lien is a valuable right of the banker judicially recognised and in the absence of an agreement to the contrary, a Banker has a general lien over such securities or bills received from a customer in the ordinary course of banking business and has a right to use the proceeds in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral lien thus created cannot come to an end when the Bank guarantee is discharged. The words Lien to BG 11/80 do not make any difference. 9. In this context it becomes necessary to examine the meaning and scope of a Bank guarantee and the respective rights created thereunder. 10. It is in common parlance that the issuance of guarantee is what that a guarantor creates to discharge liability when the principal debtor fails in his duty and guarantee is in the nature of collateral agreement to answer for the debt. It is well-settled that the Bank guarantee is an autonomous contract and imposes an absolute obligation on the Bank to fulfill the terms and the payment in the Bank guarantee becomes due on the happening of a contingency on the occurrence of which the guarantee becomes enforceable. 11. The Guarantee has been defined in Halsbury's Laws of England Vol.20, Fourth Edn. page 49 para 101 as that'' A guarantee is an accessory contract whereby the promisor undertakes to be answerable to the promisee for the debt, default or miscarriage of another person whose primary liability to the promise must exist or be contemplated. 12. In the banking system it is und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med letter of credit, the bank was onl concerned to ensure that the terms of its mandate and confirmation had been complied with and was in no way concerned with any contractual disputes which might have arisen between the buyers and sellers.... The above passage has also been referred in U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. wherein this Court held that the aforesaid represents the correct state of the law. In this case, this Court has affirmed the obligation of payment without dispute by the Bank in the Indian context in cases relating to Bank guarantees. But it is equally obvious that the same liability or obligation on the part of the Bank will not be there when the Bank guarantee is discharged and this needs no emphasis. 14. From the above discussion it can be gathered that the Bank guarantees are on different level and they must be allowed to be honoured free from interference by the courts and a Bank which gives a guarantee must honour the same according to its terms and it is only in exceptional cases that the court will interfere with the machinery of irrevocable obligations assumed by the banks. Afortiori the same principle app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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