2013 (3) TMI 261 - HC - Companies Law

Freezing of accounts - Petitioner having business dealings with M/s.Lakshmi Ganesh Textiles (P) Ltd., Coimbatore who in the course of business transactions issued a cheque towards part payment for the purchases made from the petitioner & the said cheque was honoured and subsequently when petioner issued cheques to third parties towards the amounts payable by him, but it was dishonoured stating that the account was freezed - Held that - It is true that when the cheque was presented by the petitioner on 05.04.2012, the same was honoured, but earlier to the said date i.e. on 02.04.2012 itself, instructions were issued by M/s.Lakshmi Ganesh Textiles (P) Ltd., for stopping the payment referring to some dispute with regard to quality and quantity of the goods supplied by the petitioner. Though the receipt of such letter was acknowledged by the 3rd respondent on 03.04.2012, as explained in the counter affidavit, it appears, they have not uploaded it in the system for stop-payment alert, and due to the same, by oversight, the cheque, which was presented by the petitioner, was honoured and the amount was credited to his account. In view of the letter dated 02.04.2012, which was received by the 3rd respondent on 03.04.2012, it is a mistaken transfer, which falls within the scope of Section 72 of the Indian Contract Act, as per which, a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. As the bank has paid to the petitioner by mistake, contrary to the stop-payment letter dated 02.04.2012, it is the obligation on the part of the petitioner to pay- back such amount on his own. In view of such mistaken transfer and in view of the letter dated 23.04.2012, addressed by the 3rd respondent to the 2nd respondent, where the petitioner operates his account, the account is freezed to realise the amount, which was mistakenly transferred to his account - the petitioner is not entitled for the relief sought for in this writ petition.

Summary

Issues:
Freezing of petitioner's account without notice or inquiry, Violation of Articles 19 and 21 of the Constitution of India, Mistaken credit to petitioner's account, Legal basis for freezing the account.

Analysis:
The petitioner, engaged in cotton business, had a business transaction with M/s.Lakshmi Ganesh Textiles (P) Ltd. where a cheque was issued for Rs.24,15,365/-. The cheque was honored, and the amount was credited to the petitioner's account. Subsequently, a cheque issued by the petitioner was dishonored due to the freezing of his account without notice or inquiry. The respondent bank froze the account based on stop-payment instructions from M/s.Lakshmi Ganesh Textiles (P) Ltd., citing a mistake in crediting the amount. The Banking Ombudsman passed an award in favor of M/s.Lakshmi Ganesh Textiles (P) Ltd., directing the bank to credit back the amount.

The petitioner argued that the freezing of the account was unjust as he had no fault in the matter and relied on a Supreme Court judgment. The respondents contended that the stop-payment instructions were issued before the cheque date, justifying the freezing of the account. They also cited Section 72 of the Indian Contract Act, 1872, to support their actions.

The Court noted that while the cheque was honored, stop-payment instructions were issued earlier due to a dispute over goods supplied. The bank's failure to comply with the instructions led to the mistaken credit. The freezing of the account was deemed appropriate to recover the mistakenly transferred amount, as per Section 72 of the Indian Contract Act.

The Court distinguished the case from a Supreme Court judgment on the Negotiable Instruments Act, stating that the present case falls under the Indian Contract Act. A Karnataka High Court judgment supported the bank's position on mistaken credits. The Court found no illegality in freezing the account based on the stop-payment instructions and the Banking Ombudsman's award.

The petitioner was advised to pursue remedies against M/s.Lakshmi Ganesh Textiles (P) Ltd., and the writ petition was disposed of, with no costs awarded.