2000 (4) TMI 811 - SC - Indian Laws

Whether there was no negligence on the part of the respondent-bank in dealing with its security of pledged shares of the appellant or its release in part to him and that the bank could also not be faulted on its practice? Held that - It is difficult to accept the contention of the bank that the correspondence that was exchanged between the appellant the Nagpur Branch of the bank and its head office did not constitute an agreement between the parties under which the bank is agreed to sell the 500 shares of Castrol Ltd. pledged with it by the appellant. This agreement can be clearly spelt out from the correspondence exchanged between the parties. The indicative price at which the appellant requested the bank to sell the shares of Castrol Ltd. was 2 400 to 2 500 per share. As to what is the price of share on any day is known to the bank and for that matter to any person interested in knowing value of the shares. On 29th July 1992 the price of the share of Castrol Ltd. had fallen to 700 per share though it was more than the value of the share at the time these shares were pledged with the bank. The appellant has arrived at the figure of 8 50 000 as the loss occasioned to him. On 30th June 1992 his overdraft account showed debit balance of 3 40 962.53 with the bank. The appellant therefore said that he suffered a loss of 5 09 037.45 after deducting the debit balance which he thus claimed with interest and other charges like damage for loss of long standing business due to non-renewal of letter of credit; for non-releasing of securities; undue and unjust harassment thus making a total of 29 56 264.76. On the face of it apart from the claim of damages for loss in selling the shares other claims are too much overblown to be considered at all. The appellant would thus be entitled to the award of 5 09 037.47 with interest at the rate of 11 per cent per annum from 1st August 1992. The bank is granted four weeks time to make the payment. In case of default the appellant shall be entitled to further interest at the rate of 18 per cent per annum on the amount of 5 09 037.47 from the date of the award till payment.

Issues Involved:
1. Negligence on the part of the respondent-bank in dealing with the pledged shares.
2. Deficiency in service by the bank as defined under the Consumer Protection Act, 1986.
3. Whether the appellant qualifies as a "consumer" under the Consumer Protection Act, 1986.
4. The bank's right to retain or sell the pledged shares under sections 172 to 177 of the Contract Act, 1972.
5. The appellant's claim for damages due to the alleged delay in selling the pledged shares.

Detailed Analysis:

1. Negligence on the part of the respondent-bank in dealing with the pledged shares:
The National Consumer Disputes Redressal Commission held that there was no negligence on the part of the respondent-bank in dealing with the pledged shares of the appellant. However, the Supreme Court found that the bank failed to honor its commitment to sell the shares promptly, resulting in a loss for the appellant. The bank's delay in processing the appellant's request to sell 500 shares of Castrol Ltd. was deemed unreasonable. The bank's assertion that the appellant misled them regarding the location of the shares was not accepted, as the bank should have verified the location of the pledged shares promptly.

2. Deficiency in service by the bank as defined under the Consumer Protection Act, 1986:
The Supreme Court examined whether the bank's actions constituted a "deficiency in service" as defined under section 2(1)(g) of the Consumer Protection Act, 1986. The definition includes any fault, imperfection, shortcoming, or inadequacy in the quality, nature, and manner of performance required by law or undertaken to be performed by a person in relation to any service. The court concluded that there was indeed a deficiency in service by the bank, as it failed to act with promptness and diligence in selling the pledged shares as agreed.

3. Whether the appellant qualifies as a "consumer" under the Consumer Protection Act, 1986:
The bank argued that the appellant was not a consumer within the meaning of section 2(1)(d) of the Act. The Supreme Court rejected this argument, stating that the appellant availed of the bank's services for consideration through the payment of interest for the overdraft facilities. The provision of overdraft facilities by the bank constituted a service under section 2(1)(o) of the Act. Therefore, the appellant was deemed a consumer, and the bank was a service provider.

4. The bank's right to retain or sell the pledged shares under sections 172 to 177 of the Contract Act, 1972:
The bank contended that it had the right to choose the time and place to dispose of the pledged shares and was not obligated to follow the appellant's instructions. The Supreme Court acknowledged the bank's right under the Contract Act but emphasized that once the bank agreed to sell the shares, it could not rely on those provisions to justify its delay. The bank's claim that it was misled by the appellant was deemed an afterthought to cover its own negligence.

5. The appellant's claim for damages due to the alleged delay in selling the pledged shares:
The appellant claimed Rs. 5,09,037.53 as damages for the loss incurred due to the bank's delay in selling the shares. The Supreme Court found the claim justified, noting that the indicative price at which the appellant requested the bank to sell the shares was Rs. 2,400 to Rs. 2,500 per share, but the price had fallen to Rs. 700 per share by the time the bank acted. The court awarded the appellant Rs. 5,09,037.47 with interest at 11% per annum from 1st August 1992 and 18% per annum in case of default in payment within four weeks.

Conclusion:
The Supreme Court allowed the appeal, set aside the judgment of the National Commission, and awarded the appellant Rs. 5,09,037.47 with interest. The bank was granted four weeks to make the payment, failing which higher interest would apply. The bank was also entitled to adjust the awarded amount against any dues from the appellant in any of his accounts. Each party was to bear its own costs.

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