Holding

The bank’s failure to promptly sell the pledged shares after agreeing to do so constitutes a deficiency in service, making it liable to compensate the consumer for the loss incurred.

Summary

V.C. Grover obtained an overdraft facility from Bank of India by pledging shares and later requested the bank to sell 500 of those shares to clear part of his overdraft. The bank delayed the sale for several months, during which the share price fell dramatically, causing Grover a loss. He filed a complaint before the National Consumer Disputes Redressal Commission, which dismissed his claim on the ground that no deficiency in service existed. On appeal, the Supreme Court held that granting an overdraft facility is a service under the Consumer Protection Act and that the bank’s unreasonable delay in selling the pledged shares constituted a deficiency in service, making the bank liable for compensation. The Court set aside the Commission’s order, awarded Grover the loss amount with interest, and directed the bank to pay within four weeks. The decision clarified the applicability of consumer protection principles to banking services and the obligations of banks under pledge agreements.

Issues considered

The grant of an overdraft facility by a bank constitutes a 'service' within the meaning of Section 2(1)(o) of the Consumer Protection Act, 1986.
Whether the bank’s delay in selling pledged shares, after agreeing to do so, amounts to a 'deficiency in service' under Section 2(1)(g) of the Consumer Protection Act.
Whether the provisions of Sections 172 to 177 of the Indian Contract Act, 1972, impose any obligation on the bank to sell pledged shares on the customer's request.
The permissibility of raising new pleas on appeal that were not pleaded before the National Consumer Disputes Redressal Commission.

Legislation cited

Banking Regulation Act, 1949
Consumer Protection Act, 1986s. 2(1)(g), s. 2(1)(o), s. 2(2)(d)
Reserve Bank of India Act, 1934
Securities Contracts (Regulation) Act, 1956

Subjects

consumer protectionbanking serviceoverdraft facilitypledge of sharesdeficiency in servicebank negligencecompensationIndian Contract ActBanking Regulation Act

Judgment

VIMAL CHANDRA GROVER A
v.
BANK OF INDIA

-- APRIL 26, 2000

[S. SAGHIR AHMAD AND D.P. WADHWA, JJ.] B

Consumer Protection Act, 1986-S. 2{l)(o), 2(l)(g) & 2(2)(d)-Bank-
Deficiency in service-Overdraft facility availed by a customer by pledging his
shares-Request for selling in a part of shares pledged-Delay on the pm1 of
the Bank in disposing the shares-Meanwhile share prices falling down- c
Customer incurring loss-Claim for compensation-Dismissed on the gmund
that there was no deficiency in service-Validity of-Held, grant of ovenlraft
facility to a customer by charging interest amounts to 'service' by Bank-
Delay in disposing the shares resulting in loss to the customer amounts to
'deficiency' in service-Customer entitled to claim compensation along with
interest-Banking Regulation Act, 1949-S. 6-lndian Contract Act, 1972- D
Ss. 172 to 177.

Pleadings-New plea-Raising of-No foundaJion laid either ill the
pleadings or in the evidence before the court below-Held, cannot be allowed
to be raised.
E
Worru & Phrases:

"Service"-Meaning and scope of in the context of S. 2(l)(o) of the
Consumer Protection Act, 1986.

"Customer"-Meaning of in the context of S. 2(2)(d) of the Consumer F
Protection Act, 1986.

"Deficiency" -Meaning and scope of in the context of S. 2(1 )(g) of the
Consumer Protection Act, 1986.

Appellant availed an overdraft facility from the respondent-Bank by G
pledging his shares. In order to clear his overdraft account, appellant
requested the Bank to sell part of his shares. However, the Bank sold the
shares after a delay of several months, by which time prices of shares fell
down resulting in monetary loss to the appellant. Consequently, appellant
filed a claim before the National Consumer Disputes Redressal Commis- H
587
588 SUPREME COURT REPORTS (2000) 3 S.C.R.
A sion, and it was dismissed on the ground that there was no deficiency in
service in disposing the shares. Hence the present appeal. ~· 11

Allo,,,ing the appeal, the Court

HELD : 1.1. National Consumer Disputes Redressal Commission
B was not justified in holding that there was no negligence on the part of the
Bank or that the Bank was not bound to dispose of the shares. Appellant
is entitled to claim compensation for the loss incurred along with
interest. [605-E; 606-B-C]
1.2. Grant of overdraft facilities to its customers by a Bank amounts
c to providing 'service' within the meaning of S. 2(1)(o) of the Consumer
Protection Act, 1986. Bank is rendering service by providing overdraft fa.
cilities to a customer which is not without consideration. Bank is charging
interest and other charges as well in providing said service. Request for sale
of part of the pledged shares for clearing overdraft facilities and which is
agreed to by the Bank is certainly part of the service connected with the
D grant of overdraft facilities. Appellant as a consumer was hiring service of
the Bank for consideration by way of payment of interest for the overdraft
facilities received by him by pledging the shares of different companies.
Thus, it cannot be accepted that appellant is not a consumer or that the
Bank is not providing any service to the appellant. [594-G-H; 596-B-D]
E
1.3. There was 'deficiency' in service on account of negligent conduct
of the Bank in disposing the shares. H action has been taken by the Bank
promptly or within a reasonable time, appellant would have been able to
clear him overdraft account. Thus, it cannot be disputed that appellant
suffered loss because of the delay in not disposing of his shares. It is true
F that the Bank is not expected to process the request of its customers at once
but within reasonable time and certainly promptness and deligence is
required which was lacking in the instant case. Once the Bank agreed to
sell the part of the shares, on request by the appellant and without pre-
conditions, it cannot fall back on other alleged defaults of the appellant in
G his dealing with the Bank. [605-A-E]
2. The plea of respondent-Bank that the provisions of Ss. 172 to 177 of
the Contra~tAct, 1972 were applicable to the parties and thus the Bank was
not under a legal obligation to follow a customer's instructions to sell the
pledged shares or the plea regarding jurisdiction of National Commission
H cannot be permitted to be raised since no foundation was laid either in the
V.C. GROVER v. BANK OF INDIA [D.P. WADHWA, J.] 589
.- • )It
pleadings or evidence before the National Commission. A
[599-G-H; 604--B-C]
•
Management of Northern Railway Co-operative Society Ltd. v. Indus-
t1ial Tribunal, Rajasthan, Jaipur & Am:, [1967] 2 SCR 476; Chinta Lingam &
Ors. v. Government of India & Ors., [1970] 3 SCC 768; S.L Ramaswamy
Chetty & Am: v. M.S.A.P.L Palanlappa Chettiar, AIR (1930) Madras 364 B
(DB); Bank ofMaharashtra v. Mis. Racmann Auto (P) Ltd., AIR (1991) Delhi
278; Bharat Bank lid. v. Bodhraj, AIR (1956) Punjab 155 (DB); Surajmal v.
Fulchand, AIR (1951) Nag. 264, referred to.

Halliday v. Holgate, (1868) LR Exchequer 299 and China and South
Sea Bank lid. v. Tan, (1989) 3 ALL E.R. 839; Warehousing & Forwarding
c
Company of East Africa Ltd. v. Jafferali & Sons lid., (1963) 3 All.E.R. 571,
referred to .
.,,.
Chitty on Contract (Twenty-Seventh Edition), referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 15701 of D
1996.

From the Judgffient and Order dated 21 .6.96 of the National Consumer
Disputes Redressal Comrnissioll, New Delhi, in D.O.P. No. 163 of 1994.

U.U. Lalit for the Appellant. E

Krishnan Venugopal, Ms. Tania Bery, Ms. Nina Gupta, Vineet Kumar
and Ms. Narnita Sood for the Respondent.

The Judgment of the Court was delivered by
F
D.P. WADHWA, J. This appeal is directed against the order dated June
21, 1996 of the National Consumer Disputes Redressal Commission (National
Commission) holding that 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 not to dispose of shares through brokers not on the G
_)\. approved list of the Bank and lastly that it could not be said that there was
any deficiency in service by the Bank as defined in Section 2(l)(g) of the
Consumer Protection Act, 1986 ('Act' for short). Leave was granted limited
to the claim of the appellant to his shares of Castrol Limited pledged with
the Bank. H
590 SUPREME COURT REPORTS [2000] 3 S.C.R.
A On the request of the appellant, Bank sanctioned to him on September
20, 1990 an overdraft limit of Rs. 5,00,000 against pledge of shares of various
companies, value of all the shares being Rs. 10,60,900 at the relevant time.
Out of these number of shares of the Castro} Limited were 1400 @Rs. 200
per share· of the total value of Rs. 2,80,000. It is not disputed that as per the
guidelines issued by the Reserve Bank of India, banks are allowed to make
B
advance against pledge of shares retaining 50% margin. As per the terms of
sanction of the overdraft limit shares were got transferred in the name of the
Bank. In due course of time Bank received bonus shares numbering 2,224
cif Castro} Limited. It is stated that value of shares also increased manifold.
Appellant also paid an instalment of Rs. 1,45,600 to the Bank against the
c overdraft limit. Overdraft amount was to be adjusted in three equal instal-
ments. In order to clear the overdraft account the appellant, apart from shares
of other. companies, requested the Bank to arrange sale of 500 shares of
Castro} Limited. This he did by letter dated 23, 1992.

The Chief Manager, April 23, 1992
D Bank of India,
Kings way,
Nagpur.
Dear Sir,
I have advised my share broker, Mr. Janakbhai Dalal ofM/s. Jayant Amorchand Kalidas, Bombay
to sell 500 shares of Castrol Limited, at an indicative price of Rs. 2400 to Rs. 2500 per share,
out of the lot of the same company pledged with you. These shares are lying with your Head
E Office at Bombay.
The shares are to be delivered to the above named broker in payment. Mr. Janakbhai Dalal of
Mis. Jayant Amorchand Kalidas has suggested two options in respect of payment of sale proceeds
as under:-
(1) The shares may be delivered to the Bombay Stock Exchange claiming House. The payment
will be made on-the·pay out day.
F (2) To accept a post dated cheque from Mis . .Jayant Amorchand Kalidas for the date of the pay
out notified by the Stock Exchange. However. Mr. Janakbhai Dalal of Mis. Jayant Amorchand
kalidas is authorised by me to discuss the mode of payment in respect of the sale of the
said shares with your Bombay Office. Mr. Janakbhai Dalal of Mis. Jayant Amorchand
Kalidas is a client of your Bombay Office and also is a recognised broker of your Bank.
This letter is issued, in triplicate so that you can send a copy of this letter to your H.O. share
department to discuss this matter with Mr. Janakbhai Dalal, when he calls on them. He is fully
G authorised to discuss and settle suitable mode of payment, protecting your full interest, on my
behalf.
The sale proceeds when received by your H.O. may be transferred to the credit of my OD
Account No. 15098 with you at ~agpur
Thanking you,
Yours faithfully,
H (V.C. GROVER)"
V.C. GROVER v. BANK OF INDIA [D.P. WADHWA, J.] 591
After 12 days of the receipt if this letter the Bank at Nagpur, where A
the Overdraft Account of the appellant was maintained, sent a letter dated
May 5, 19922 to its Head Office at Bombay (copy of this letter was endorsed
to the appellant) agreeing to the terms of the appellant set out in his letter
of April 23, 1992. Nagpur Branch received a letter of June, 19, 1992 from
its Head Office stating that it did not receive the letter dated April 23, 1992
B
of the appellant and further that the shares were not in the Head Office.
By letter dated July 29, 19923 Nagpur Branch of the Bank Informed the
appellant that Head Office was not holding the shares. It was, however, found
that the shares were lying with the Nagpur Branch itself. By this time it
appeared that the price of the share fell and the shares could not be sold at
the price indicated by the appellant. He therefore, filed a claim with the c
National Commission for Rs. 5,09,037 .53 in respect of shares of Castro!
Limited as under :

BANK OF INDIA
INTER OFFICE MEMORANDUM D
from : The Chief Manager To : The Chief Manager
Nagpur (Main) Branch Bombay (Main) Branch
Nagpur. Sales Purchase
Department
\
Ref. No. : NGP/C & IC : VBP : 92-93/83 Date: 5.5.92
Our Overdraft account E
--! Shri V.C. Grover,
against pledge of shares
Sanctioned Limit : Rs. 5 lacs
Sanctioning Authority &
Date - H.0. Committee dated 28.8.89

Our Constitutent, Shri Grover vide his letter dated 23.4.92 (copy enclosed) has advised F
us that some shares of Mis. Castro! India Limited are lying with you for selling the same in
the market. Out of these shares, he desires to sell 500 shares (of Mis. Castro! India limited)
through his broker, Mis. Janakbhai Dalal at the price of Rs. 2400 to Rs. 2500 per share. The
instructions for sale are mentioned in the aforesaid letter which may be followed.

2. Please discuss this matter with the above ref~rred share broker. Please send the proceeds
by Credit Note for the credit of overdraft account of Shri V.C. Grover with us and advise us G
if any clarification is required.

Encl. : ala. CHIEF MANAGER
hs/
CC : Shri V.C. Grover,
4th Aoor, National Insurance Bldg.
Kingsway, Nagpur. H
592 SUPREME COURT REPORTS [2000] 3 S.C.R.
A "Loss on account of non-sale of 500 shares of Castrol Limited.

a. Estimated sale price of 500
shares @ Rs. 2400 Per share Rs. 12,00,000.00

Deduct price prevailing on
B 23.7.92 @ 700 per Share ---. __Rs. 3,50,000.00

Rs. 8,50,000.00

Deduct amount of effective
debit balance in O/D on 30.6.92 Rs. 3,40,962.53
c Rs. 5,09,037.53"

He also filed other claims against the Bank with which we are not concerned
in this appeal.

There cannot be any doubt if action had been taken by the Bank
D
promptly or within a reasonable time appellant would have been able to clear
his overdraft account. About the prevalent price of the share as claimed by
the appellant there cannot be any dispute.

Bank of India
E H.0. : Express Towers, Nariman Point, Bombay • 21
Telex : Stringent
Phone : 531404/531405/531406
Nagpur Main Branch,
Post Box No. 9
S.V. Patel Road,
Nagpur-I
F Ref. No. : NGP : C & IC : VBP 92-93/345 Date : 29.7.1992
Shri V.C. Grover
National Insurance Building
4th Floor, Kingsway
Nagpur - 400001.
Dear Sir,
G Reg. : Your Overdraft Account with us.
Kindly refer to your letter No. Nil dated 23.4.92.
2. As requested by you we have advised our Bombay Office to sell 500 shares of Castro}
India Limited. However, we understand from that they are not holding such shares with them.
This is for your information.
Thanking you, Yours faithfully,
H CHIEF MANAGER
V.C. GROVER v. BANK OF INDIA [D.P. WADHWA, J.] 593
Bank has submitted before us that relationship between the part,ies is A
governed by Sections 172 to 1774 of the Contract Act, 1972 and Bank was
within its right to choose the time and place as to when it would like to
dispose of the pledged goods and that the only requirement is that before that
notice is to given to pawnor, appellant in the present case. In support of its
submissions reference was made to a Division Bench decision of the Punjab
B
High Court in BharaJ Bank v. Bodhraj, AIR (1956) Pun. 155. We were also
referred to "Chitty on Contracts". Twenty-Seventh Edition, and other deci-
~ sions to which we will presently refer.

Prima facie it does appear to us that Bank has failed to honour its
commitment resulting in loss to the appellant. The question still, however, C
arises if the alleged default on the part of the Bank could be termed as

-- .
deficiency in service. "Service" has been defined in clause (o) of sub-section
(1) of Section 2 of the Act and "deficiency" in clause (g) thereof. These are
as under :
D
4 172. "Pledge", "Pawnor" and "pawnee" defined. - The bailment of goods as security
for payment of a debt or perfom1ance of a promise is called "pledge". The bailor is in this
case called the "pawnor". The bailee is called the "pawnee".
173. Pawnee's right of retainer. - The pawnee may retain the goods pledged, not only for
payment of the debt or the perfomiance of the promise, but for the interest. of the debt, and
all necessary expenses incurred by him in respect of the possession or for the' preservation of
the goods pledged. E
174. Pawnee not to retain for debt or promL~e other than that for which goods pledged :
Presumption in case of subsequent advances. - The pawnee shall not, in the absence of a
contract to that effect, retain the goods pledged for any debt or promise other than the debt
or promise for which they are pledged; but such contract, in the absence of anything to the
contrary, shall be presumed in regard to subsequent advances nrade by the pawnee.
175. Pawnee's right where pawnor makes default. - It the pawnee is entitled to receive from F
the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.
176. Pawnee's right where pawnor makes default. - If the pawnor makes default in payment
of the debt, or performance, at the stipulated time, of the promise, in respect of which the goods
were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and
retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving
the pawnor reasonable notice of the sale.
If the proceeds of such sale are less than the amount due in respect of the debt or G
promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater
than the amount so due, the pawnee shall pay over the surplus to the pawnor.
177. Defaulting pawnor's right to redeem - If a time is stipulated to the payment of the debt,
or performance of the promise, for which the pledge is made, and the pawnor makes default
in payment of the debt or perfom1ance of the promise at the stipulated time, he may redeem
the goods pledged at any subsequent time before the actual sale of them; but he must, in that
case, pay, in addition, any expenses which have arisen from his default. H
594 SUPREME COURT REPORTS [2000] 3 S.C.R.
A "(g) "deficiency" means any fault, imperfection, shortcoming or
inadequacy in the quality, nature and manner of performance,
which is required to be maintained by or under any law for the
time being in force or has been undertaken to be performed by
a person in pursuance of a contract or otherwise in relation to
any service."
B
"(o) "service" means service of any description which is made
available to potential users and includes the provision of
facilities in connection with banking, financing, insurance,
transport, processing, supply of electrical or other energy, board
c or lodging or both, housing construction, entertainment, amuse-
ment or the purveying of news or other information, but does

D
not include the rendering of any service free of charge or under
a contract of personal service;"

In the arguments it was submitted that the appellant is not a consumer
within the meaning of sub-clause (2) of clause (d) of Section 2 of the Act.
This sub-clause is as under :
. --
"2(d) "consumer" means any person who

(i) ...

E (ii) hires or avails of any services for a consideration which has been
paid or promised or partly paid and partly promised, or under any
system of deferred payment and includes any beneficiary of such
services other than the person who hires or avails of the services for
consideration paid or promised, or partly paid and party promised, or
under any system of deferred payment, when such services are availed
F
of with the approval of the first mentioned person.

Explanation - ...

We think that the argument that the appellant is not a consumer or that
the Bank is not rendering service is an argument in desperation. No such plea
G was raised before the National Commission. Overdraft limit prescribed by the
Bank was not without consideration. Bank is rendering service by providing
overdraft facilities to a customer which is not without consideration. Bank A
is charging interest and other charges as well in providing the service.
Provision for overdraft facility is certainly a part of the banking and its
H service within the meaning of clause (o) of Section 2 of the Act. In ordinary
V.C. GROVER v. BANK OF INDIA [D.P. WADHWA, J.] 595
parlance "banking" is a business transactions of a bank (The Concise Oxford A
Dictionary). "Banking" is defined in the Black's Law Dictionary. It is as
under :

"The business of banking, as defined by law and custom, consists in
the issue of notes payable on demand intended to circulate as money
when the banks are banks of issue; in receiving deposits payable on B
demand; in discounting commercial paper; making loans of money on
collateral security; buying and selling bills of exchange; negotiating
loans, and dealing in negotiable securities issued by the government,
state and national and municipal and other corporations. Mercantile
Bank v. New York, 121 U.S. 138, 156, 7 S.Ct. 826, 30 L.Ed 895; In C
re Produce Co., D.C.N.Y., 10 F. Supp. 33, 36."

The Reserve Bank of India under the Reserve Bank of India Act, 1934
controls various activities of the banks in india. Under Section 22 of that Act,
Reserve Bank of India has the sole right to issue bank notes in India. Bank
in the present case is governed by the Banking Regulation Act, 1949. Under D
clause (b) of Section 5 "banking" means the accepting for the purpose of
lending or investment, of deposits of money from the public, repayable on
demand or otherwise, and withdrawable by cheque, draft, order or otherwise.
Under clause (c) "banking company" means any company which transacts
the business of banking in India. Under -clause (cc) "branch" or "branch E
office", in relation to a banking company, means any branch or branch
office, whether called a pay office or sub-pay office or by any other name,
· at which deposits are received, cheques cashed or moneys lent, and for the
purposes of Section 35 includes any place of business where any other form
of business referred to in sub-section (i) of Section 6 is transacted. Section
65 of this Act describes the forms of business which can be conducted by .F

5. Fonns of business in which banking companies may engage. - (1) In addition to the business
of banking, a banking company may engage in any one or more of the following fom1s of
business, namely :
(a) the borrowing, raising, or taking up of money; the lending or advancing of money
either upon or without security; the drawing, making, accepting discounting, buying, G
selling, collecting and dealing in bills of exchange, hoondees, promissory notes,
coupons, draft, bills of lading, railway receipts, warrants, debentures, certificates, scrips
and other instruments, securities whether transferable or negotiable or not; the granting
and issuing of letters of credit, traveller's cheques and circular notes; the buying,
selling and dealing in bullion and specie; the buying and selling of foreign exchange
including foreign bank notes; the acquiring, holding, issuing on commission, under-
writing and dealing in stock, funds, shares, debentures, debenture stock, bonds,
obligations securities and investments of all kinds, the purchasing and selling of bonds, H
596 SUPREME COURT REPORTS [2000] 3 S.C.R.
A a banking company in addition to the business of banking. When Bank is
engaged in different types of business as mentioned in Section 6, it is
apparent that when bank is granting overdraft facilities to its client which is
a customer, it is providing service to him. The Act itself does not define the
term "banking" and as to what services a bank can provide, we can usefully
refer to Section 6 of the Banking Regulation Act, 1949.
B
Request for sale of part of the pledged shares for getting overdraft
facilities and which is agreed to by the Bank is certainly part of the service
connected with the grant of overdraft facilities. Appellant as a consumer was
hiring service of the Bank for consideration by way of payment of interest
c for the overdraft facilities received by him by pledging the shares of different
companies. We reject the argument that the appellant is not a consumer or
that the Bank is not providing any service to the appellant. The only question
that requires consideration is if there was any deficiency in service in the
present case.

D Bank bas denied that there was any deficiency in service on its part
and the conduct of the Bank in dealing with the alleged securities was not
negligent. It was stated that facts on record clearly established that it was the
appellant who was solely responsible for causing the confusion and misguiding

scrips or other forms of securities on behalf of constituents or others, the negotiating
E of loans and advances, the receiving of all kinds of bonds, scrips or valuables on
deposits or. for safe custody or otherwise, the providing of safe deposit vaults : the
collecting and transmitting of money and securities;
(b) acting as agents for any Government or local authority or any other person or persons;
the carrying on of agency business of any description including the clearing the
forwarding of goods, giving of receipts and discharges and otherwise acting as an
attorney on behalf of customers, but excluding the business of a managing agent or
F secretary and treasurer of a company;
(c) contracting for public private loans and negotiating and issuing the same;
(d) the effecting, insuring, guaranteeing, underwriting, participating in managing and
carrying out of any issue, public or private, of State, municipal or other loans or of
shares, stock, debentures, or debenture stock of any company, corporation or associa-
tion and the lending of money for the purpose of any such issue;
G (e) carrying 011 and transacting every kind of guarantee and indemnity business;
(t) managing, selling·and realising any property which may come into the possession of
the company in satisfaction or part satisfaction of any of its claims;
(g) acquiring and holding and generally dealing with any property or any right, title or
interest in any such property which may fomt the security or part of the security for
any loans or advances or which may be connected with any such security;
H (h) undertaking and executing trusts;
V.C. GROVER v. BANK OF INDIA [D.P. WADHWA, I.] 597
the Bank to locate the shares with Bombay Office. It was, thus, contended A
that the alleged delay which was caused could not be attributed to the
negligence of the Bank as it was the appellant himself who misled the Bank.
It was rather explained that it was the assertion of the appellant which led
to the time consuming process of checking and again rechecking whether the
said shares were indeed in the Bombay Office. It was thus denied that "there
B
was any negligence or deficiency in service on the part of the respondent
Bank who carried out its duty with due diligence and care and was hampered
by the misleading information given by the appellant himself'. It was then
contended that the Bank had lien over certain shares which the appellant had
pledged as security for the overdraft facility of Rs. 5,00,000 provided by the
Bank. It was stated that the Bank, in fact, acceded to the request of the c
appellant and sanctioned the overdraft facility after imposing certain terms
and conditions. It was also submitted that prior to the agreement for grant
of overdraft facility of Rs. 5,00,000 appellant had executed a latter of lien
and set of dated August 9, 1989 which entitled the Bank to retain all the
shares, which were in its possession or which may come into the possession D
of the Bank at any future date, as collateral security for all the outstanding
dues of the appellant apart from any specific facility provided to him. Then
the Bank said that it was well-settled principle of law that the Banker's lien

(i) undertaking the administration of estates as executor, trustee or otherwise;
(j) establishing and supporting or aiding in the establishment and support of associations, E
institutions, funds, trusts and conveniences calculated to benefit employees or ex-
employees of the company or the dependents or connections of such persons; granting
pensions and allowances and making payments towards insurance; subscribing to or
guaranteeing moneys for charitable or benevolent objects or for any exhibition or for
any public, general or useful object.
(k) the acquisition, construction, maintenance and alteration of any building or works
necessary or convenient for the purposes of the company; F
(l) selling improving, managing, developing, exchanging, leasing, mortgaging, disposing
of or turning into account or otherwise dealing with all or any part of the property
and rights of the company;
(m) acquiring and undertaking the whole or any part of the business of any person or
company; when such business is of a nature enumerated or described in this sub-
section;
(n) doing all such other things as are incidental or conducive to the promotion or
G
advancement of the business of the company;
(o) any other form of business which the Central Government may, by notification in the
Official Gazette, specify as a from of business in which it is lawful for a banking
company to engage. '
(2) No banking company shall engage in any form of business other than those referred
to in sub-section ( l). H
I
j

598 SUPREME COURT REPORTS [2000] 3 S.C.R.

A extended to all securities deposited it in its character as a banker. It was,
therefore, contended that it was undisputed that the Bank had every right
to exercise lien over the pledge shares. Then it was submitted that though
the appellant had requested the Bank to sell the shares through his broker .
who was not on the approved list of the Bank and that it was the Standard
Practice followed by the banks that they dealt with the pledged shares only
B
through brokers whose names featured in the approved list of the Bank.
According to the Bank appellant should have discharged his contractual
obligations by settling the overdraft account in three equal installments as
agreed and secured the release of the pledged shares but instead he sought
release of some of the pledged shares. Bank, in pursuance to the request
c and directions given by the appellant, carried out a thorough search in the
Bombay Office but the Castro! shares were not traceable there. It was then
denied by the Bank that the appellant suffered any monetary loss. This is
how the Bank advanced its plea :

"It is submitted that the appellant received some bonus shares of
D
Castrol India Ltd., which were allotted in the ratio of 3.5 on
23.6.1992. Subsequently the appellant obtained some more bonus
shares whose total market value inclusive of the original No. of shares
pledged with the answering respondents, at a time when market price
of the said shares allegedly dipped was higher than the alleged
E previous value of the Castro! shares pledged by the appellant with the
answering respondent. Hence the averments made by the Appellant
about the loss suffered by him is wholly unsustainable and illogical."

It was then submitted by the Bank that the appellant was a regular
F defaulter and time and again had failed to liquidate his dues and discharge
his obligations. The Bank was under no obligation whatsoever to release the
shares which were in its possession and could not be compelled in law to
sell any of the pledged shares. Then the Bank said that delay was caused to
process the request of the appellant to sell the shares held by the Bank as
security as his request needed to be carefully examined especially in view
G of the fact that he had several irregular accounts and was a habitual defau!ter.
The Bank which is a custodian of public funds could hardly be rushed into
making its commercial/business decision, so the Bank lamented. Lastly, it was
submitted by the Bank that it could not be blamed for any fluctuations of
the market price of the shares and by merely fluctuating the market price
H of the shares on the days when the value of the shares are particularly high,
V.C. GROVER v. BANK OF INDIA [D.P. WADHWA, J.] 599
one cannot calculate the gain or loss suffered and that in any case fluctuations A
is the value of the shares could also be worked out the other way, i.e., to
the prejudice of the Bank. That is all to the case set up by the Bank.

." We have been referred to various decisions by Mr. Krishna Venugopal,
who appeared for the Bank. He submitted that he could certainly raise issues
such as the law of pledge or the jurisdiction of the National Commission in B
this appeal for sustaining the decision of the National Commission. In support
of his submission, he referred to a decision of this Court in Management of
Northern Railway Co-operative Society Ltd. v. Industrial Tribunal, Rajasthan,
Jaipur & Am:, [1967] 2 SCR 476. But as held by this Court in Chinta Lingam
& Ors. v. Government of India & Ors., [1970] 3 SCC 768 when there is no c
foundation laid in the pleadings before the National Commission argument
of such pleading could not be allowed to be raised in this Court. However,
if it is a pure question of law going to the root of the case, this plea may
be allowed to be raised with the permission of the Court. We may in this
connection refer to Order 41 Rule 22 of the Code of Civil Procedure which
provides that though the respondent may not have appealed from any part D
to the decree, he may not only support the decree but may also state that
finding against him in the court below in respect of any issue ought to have
been in his favour. For this, however there has to be pleadings and evidence
on that. In Warehousing & Forwarding Company of East Africa Ltd. v.
Jafferali & Sons Ltd., (1963) 3 All.E.R. 571 on the question when a new point E
is raised in appeal, which was not raised in the court below, whether that new
point should have been allowed to be taken the Privy Council observed :

"The question of ratification never having been investigated and
the outcome of such an investigation not being clear, it was not
possible to hold that the result would have been the same whatever F
such investigations would have revealed; in such circumstances the
respondents ought out to have been allowed to argue the new point
before the Court of Appeal."

Mr. Krishna Venugopal, it appears, made this point in answering to
objection by the appellant that the Bank did not raise any issue regarding law
G
of pledge or the jurisdiction of the National Commission before the National
Commission. We heard Mr. Venugopal on the applicability of the law of
pledge as contained in Sections 172 to 177 of the Contract Act on a plea that
there was to deficiency in service because the Bank was not under a legal
obligation to follow a customer's instructions to sell the pledged shares. He H
)

600 SUPREME COURT REPORTS [2000] 3 S.C.R.
A said the statute not only imposes no obligation on the pledgee to sell pledged
--'(''
shares on the request of the pledgor it grants a positive option to pledge to
either retain or sell the pledged shares which would be nullified by creating
an obligation on his part to sell on the request of the pledgor. We may refer
I
to some of the decisions cited by Mr. Venugopal at the Bar on this aspect.
B In Halilday v. Holgate, (1868) LR Exchequer 299 the facts (as appeared
from the Head Note) a holder of scrip certificates for shares borrowed of the
defendant a sum of money on his own promissory note, payable on demand,
and on the security of the share~. and deposited with the defendant the scrip
certificates. He afterwards became bankrupt, and the defendant, without
c demand and without notice, sold ten of the fifteen shares to repay himself
his debt. The creditors' assignee, without making any tender of the amount
of the debt, brought an action of trover against the defendant to recover the
value of the shares. It was held that even assuming the sale to be wrongful,

D
the immediate right to the possession of the shares was not by the sale
revested in the plaintiff, and that he could not, therefore, maintain trover,
• ....

either for the whole value of the shares of for, nominal damages.

In S.L. Ramaswamy Chetty & Am: v. M.S.A.P.L. Palanlappa Chettiar,
AIR (1930) Madras 364 (DB) the Court said :

E "The respondent (a pledgor) could not compel the appellants to
exercise the power of sale as a means of discharging or satisfying the
decree. His only rights were (1) in case the appellants (a pawnee)
exercised the power, to insist that it should be honestly and properly
done and the sale proceeds applied to the debt (2) in case the
F appellants did not exercise the power, to redeem the pledges on
payment of the debt or so much of it as remained otherwise unpaid
and (3) in case the sale was improperly exercised, to get damages
caused thereby."

A single Judge of the Delhi High Court in Bank of Maharashtra v. Ml
G s. Racmann Auto (P) Ltd., AIR (1991) Delhi 278 on examining the provisions
of Sections 176-177 said :

"In view of the provisions of Section 178 Of the Contract Act, there
remains no doubt about the legal proposition that it is in the discretion
H of the plaintiff bank to have filed the suit for recovery of the debt and
V.C. GROVER v. BANK OF INDIA [D.P. WADHWA, J.] 601
retain the pledged goods as collateral security or in the alternative A
could resort to selling the pledged goods after giving reasonable
notice of sale to the defendant. Plaintiff bank had in its wisdom
exercised the first option of filing the suit and retained the pledged
goods as collateral security. So, even if the value of the goods had
deteriorated due to passage of time, no relief can be obtained by the
B
defendant against the plaintiff as the defendant was legally bound to
clear the debt and obtain the possession of the pledged goods from
the plaintiff bank before the pledged goods were sold during the
pendency of the suit. That is clearly provided in S. 177 of the Contract
Act."
c
In China and South Sea Bank Ltd. v. Tan, (1989) 3 All.E.R. 839, the
Privy Council laid the following principle :

"The creditor is not obliged to do anything .... No creditor could carry
on the business of lending if he could become liable to a mortgagee
(sic : mortgagor) and to a surety or to either of them for a decline in D
value of mortgaged property, unless the creditor was personally
responsible for the decline."

In Bharat Bank Ltd. v. Bodhraj, AIR (1956) Punjab 155 (DB) the
appellant gave notice to the respondent. The appellant was defendant in a suit
by the respondent-plaintiff. The plaintiff had cash credit account with the E
Bharat Bank Ltd. at Rawalpindi (now in Pakistan) prior to the year 1947. He
had pledged as security 988 shares of a company. The defendant gave notice
to the plaintiff demanding payment of the debt due from the plaintiff by
18.8.1947 and if the amount was not paid the shares would be sold without
any reference to the debtor and at his risk and responsibility. The plaintiff F
did not send any reply to this letter of demand by the defendant. On 28.8.1948
the shares were sold at Rs. 10 per share. Plaintiff on 31.1.1949 gave a notice

--
to the defendant claiming Rs. 9,000 on account of surplus which would have
accrued had the shares been sold by the middle of September 1947 when the
price was Rs. 19-12-0 per share. The defendant replied on 8.2.1949 saying
that it was not bound to sell the shares in September 1947 and could sell them
0
at any time after the expiration of the period of notice sent by it in August
1947. The material plea of the defendant was that the Bank could not function
after August 1947 due to disturbances that the Bank could not bring its
records to India due to restrictions imposed by the Pakistan Government and
that before the shares could be sold the Bank had to get the sanction of the H
602 SUPREME COURT REPORTS [2000] 3 S.C.R.
A Custodian of Evacuee Property. Suit of the plaintiff was decreed on appeal
by the defendant to the High Court. Reference was made to Section 176 of
the Control Act which requires a reasonable notice of the sale. It was
submitted by the defendant that the sale should take place within a reasonable
time of the notice but the High Court negatived this plea. High Court referred
to an earlier decision in Surajmal v. Fulchand, AIR (1951) Nag. 264 where
B
it was held a pawnee who have given a reasonable notice of sale under
Section 176, Contract Act can sell at any time and is not bound to sell within
a reasonable time after the expiry of the period mentioned in the notice. '*'
Section 176 of the Contract Act talks of reasonable notice of sale. The pawnor
is warned by notice that if he does not discharge the debt within a reasonable
C time the pledged goods would be put to sale. This will mean that if there is
, default by the pawnor the goods would be put to sale after expiry of
reasonable period from the date of the notice. However, it does not mean that
after reasonable period has expired from the date of notice, the pawnor is
debarred from all time to redeem his pledged goods. Any time before the
D pledged goods are put to sale, he can redeem them after discharging the debt.
In Agencia Commercial International Limited and Others v. Custodian
of the Branches of Banco Nacional Ultramarino, [1982] 2 SCC 482 this Court
held that branch of the bank in which account is maintained by customer
is a separate and distinct entity from the head office. This is how this Court
E said:

14. Now it is indisputable as a general proposition that a body
corporate and its branches are not distinct and separate entitles from
each other; that the branches constitute mere components through
which the corporate entity expresses itself and that all transactions
F entered into ostensibly with the branches are in legal reality transac-
tions with the corporate body, and it is with the corporate body
that a person must deal directly. But it is also now generally agreed
that in the case of a Bank which operates through its Branches, the
Branches are regarded for many purposes as separate and distinct
G entities from the Head Office and from each other. This Court
observed in Delhi Cloth and General Mills Co. l.Jd. v. Harnam Singh,
[1995] 2 SCR 402 :

In banking transactions the following rules are now set-
tled : (1) the obligation of a bank to pay the cheques of a cus-
H tomer rests primarily on the branch at which he keeps his account
V.C. GROVER v. BANK OF INDIA [D.P. WADHWA, J.] 603
and the bank can rightly refuse to cash a cheque at any other A
branch : Rex v. Lovitt, (1912) AC 212, State Aided Bank of
Travancore v. Dhrit Ram, AIR (1942) PC 6 and New York life
Insurance Co. v. Public Trustee, (1924) 2 CH. 101; (2) a cus-
·.
tomer must make a demand for payment at the branch where his
current account is kept before he has a cause of action against the
B
bank; Joachimson v. Swiss Bank Corporation, (1921) 3 KB 110
quoted with approval by Lord Reid in Arab Bank 1.Jd. v. Barclays
Bank, (1954) SC 495. The rule is the same whether the account is
a current account or whether it is a case of deposit. The last two
cases refer to a current account; the Privy Council case was a
case of deposit. Either way, there must be a demand by the cus- C
tomer at the branch where the current account is kept, or where
the deposit is made and kept, before the bank need to pay, and for
these reasons the English courts hold that the situs of the debts is
.)
at the place where the current account is kept and where the de-
mand must be made.
D
It was explained further that if the bank wrongly refused to pay when
a demand was made at the proper place and time then it could be sued
at its head office as well as at its branch office, but the reason was
that "the action is then, not on the debt, but on the breach of the
contract to pay at the place specified in the agreement", and reference E
was made to Warrington, L.J. at page 116 and Atkin, L.J. at page 121
of New York Life Insurance Co. v. Public Trustee. That is the position
in regard to banking law and practice, and it is apparently in that light
that the Regulation has been framed."
F
Chitty on Contract (Twenty-Seventh Edition) dealt with unlawful deal-
ing by the pledgee. It said, "if the pledgee deals with the thing pledged in
an unlawful manner, such as by sale before the time fixed for repayment of
_... the debt, or by wrongfully claiming to be absolute owner of the thing, the
contract of pledge is not determined and the pledgor cannot, without payment
or tender of the debt, sue the pledgee for conversion. But if the pledgee "deals G
with it in a manner other than is allowed by law for the payment of his debt,
.A then, in so far as by disposing of the reversionary interest of the pledgor he ·-
causes to the pledgor by any difficulty in obtaining possession of the pledge
on payment of the sum due, and thereby does him any real damage, he
commits a legal wrong against the pledgor." (paras 32-100) H
604 SUPREME COURT REPORTS [2000] 3 S.C.R.
A It is difficult to accept the contention of the Bank that the correspond-
ence that was exchange 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 Limited
pledged with it by the appellant. This agreement can be clearly spelt out from
the correspondence exchanged between the parties. Mr. Venugopal sought
B
reference to the provisions of Securities Contracts (Regulation) Act, 1956
under which stock exchanges in the country function. We cannot permit him
to raise such a plea which has no foundation either in the pleading or in the
evidence before the National Commission.

c We do not think it is necessary for us to go into all these legal niceties
in view of the clear provisions of law and in this mass of judicial pronounce-
ments referred to above we should not forget the real issue. We have held
that the appellant is a consumer and Bank is provider of the service.
Appellant's case is simple. He did not want his shares back. He only wanted
part of the shares to be sold and for the bank to keep the money to liquidate
D part of his overdraft account. Bank agreed. Each branch of the bank is
independent. The Bank has taken two principal pleas : (1) it was not obliged
to sell the shares as under law Bank is not bound to follow the instructions
in view of the provisions regarding pledges as contained in Sections 172 to
177 of the Indian Contract Act; and (2) It was the appellant who misled the
E Bank by saying that the shares were lying in the head office of the Bank at
Bombay. That the Bank has a right under the law to retain the pledged goods
is not in dispute. But once the Bank having agreed to sell part of the pledged
goods, it could not fall back on those very provisions to raise a plea of its
right under the law to retain the pledged goods. Bank says it was misled by
the appellant that the shares were lying in Bombay when in fact these were
F
lying in the Nagpur branch itself where the appellant had the overdraft
account. Could not the Bank verify as to where the pledged shares were kept
when on the basis of those very shares as security overdraft facility was
granted? We think that the Bank is just firing a shot from the shoulders of
the appellant to hide its own defaults, nay negligence. As far as the appellant
G is concerned, he has clearly stated, which has not been denied, that the
pledged shares were to be transferred in the name of the Bank and sufficient
number of blank transfer forms duly signed by him were submitted to the
Bank and further that the Share Department of the Bombay Head Office of
the Bank was centralised for handling all matters concerning shares and that
bonus shares in this very case were received by the Bombay Head Office of
H
V.C. GROVER v. BANK OF JNDIA [D.P. WADHWA, J.] 605
the Bank. Bank also advance a plea that the appellant was guilty of contribu- A
tor negligence by which the Bank tacitly admitted its own negligence on its
part as well. That the appellant suffered loss because of the delay in not
disposing of his shares as agreed to by the Bank cannot be disputed. In these
days of revolution in information technology Bank is merrily going on
corresponding with its customer, the appellant, and also its own Head Office.
B
It was not difficult for the Bank to find out on receipt of the letter dated April
23, 1992 of the appellant where the pledged shares were lying. It took 12
days to transmit the request of the appellant to its Head Office. When the
Nagpur Branch received letter dated June 19, 1992 from the Head Office that
the shares were not lying there, it took another 40 days to infom1 the appellant
of this fact by its letter of July 29, 1992. Then the Nagpur Branch finds that c
the shares are lying with it and then it is too late. It is true that the Bank
is not expected to process the request of its customer at once but within
reasonable time and certainly promptness and diligence is required which we
find lacking in the present case. Whatever may be the fault of the appellant
being not regular in his account with the Bank, all these pleas raised by the D
Bank are merely afterthoughts in order to hide its own default and ineffi-
ciency. Once the Bank agreed to sell the part of the shares on request by the
appellant and without any pre-conditions, it cannot fall back on other alleged
defaults of the appellant in his dealing with the Bank. The plea of the Bank
that it could dispose of the shares only through its own broker is without
substance as it never apprised the appellant this fact. We, therefore, find E
ourselves unable to agree wi!h the view of the National Commission that there
was no negligence on the part of the Bank or that the Bank was not bound
to dispose of the shares.

The flppellant made a claim of Rs. 29,56,264.76 before the National
Commission. He further claimed interest at the rate of 21 % per annum till
F
the final decision of the National Commission and realisation of the decreed
amount. We think the claim made is highly inflated and there does not appear
to be any basis for the same. The indicative price at which the appellant
requested the Bank to sell the shares of Castrol Ltd. was Rs. 2,400 to Rs 2,500
per share. As to what is the price of share on any day is known to the Bank G
and for that matter to any person interested in knowing value of the share.
:A On July 29, 1992 the price of the share of Castrol Ltd. had fallen to Rs. 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 Rs. 8,50,000 as the loss occasioned to him. On June 30, 1992 his overdraft
H
606 SUPREME COURT REPORTS [2000] 3 S.C.R.
A account showed debit balance of Rs. 3,40,962.53 with the Bank. The appel-
lant, therefore, said that he suffered a loss of Rs. 5,09,037.47 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 Rs. 29,56,264.76. On the face of it apart from the claim
B of damages for loss in selling of shares other claims are too much overblown
to be considered at all. The appellant would, thus, be entitled to the award
of Rs. 5,09,037.47 with interest at the rate of 11% per annum from August
1, 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%
c per annum on the amount of Rs. 5,09,037.47 from the date of the award till
payment. We are not concerned in this appeal with the working of the
overdraft account, which the appellant had with the Bank in respect of which
shares of Castrol India Ltd. were pledged. If any amount is due to the Bank
in any of the accounts of the appellant or of any of his fums where he is
a partner or otherwise, the Bank shall be entitled to adjust the amount
D
awarded by this judgment Bank shall, however, not claim any interest or other
charges on amount of Rs. 3,40,962.53 in the relevant overdraft account of
the appellant from the date of filing of complaint before the National
Commission.

E The appeal is, therefore, allowed, impugned judgment of the National
Commission is set aside and the complaint of the appellant is allowed.
Thereshall be award of Rs. 5,09,037.47 with interest at the rate of 11 % from
August 1, 1992 in favour of the appellant and against the respondent Bank
of India. Bank is granted four weeks time to make the payment of tl1e amount
so awarded. In case of default the appellant shall be entitled to further interest
F at the rate of 18% on Rs. 5,09,037.47 from the date of this judgment till
payment. Bank shall be entitled to adjust the amount of award against any
sum due to it from the appellant in any of his accounts with the Banks or
any other account in which he has interest as a partner or otherwise. Parties
shall bear their own costs.
G
S.V.K. Appeal allowed.

H