STANDARD CHARTERED BANK Vs. JAIN STUDIO LIMITED

JUDGEMENT

(1.) This Petition presents an interesting question of law in novel circumstances. The Respondent Company maintains a Current Account with the Petitioner Bank. The Petitioner's case is that it had honoured a Cheque drawn by the Respondent Company in the sum of Rs.2,11,94,000/- without there being corresponding funds in the Current Account maintained between the parties. It is not in dispute that Overdraft limits and/or Loan facilities had not been granted to the Respondent Company. Nevertheless, admittedly by mistake, the Cheque for the afore-mentioned sum of Rs.2,11,94,000/- was cleared without sufficient funds being available, and payments had been released to M/s. Charu Trading. A Statutory Notice was issued to the Respondent Company in reply to which the above narrated circumstances were highlighted. The Respondent Company has denied its liability for making any payment to the Petitioner.

(2.) The Learned Counsel relies on Bank of Maharashtra Vs. M/s. United Construction Co. and Others. AIR 1985 Bombay 432, in which a Division Bench of the High Court of Mumbai had observed that if an account holder, even without any express grant of overdraft facility overdraws on his account the transaction amounts to a loan. The following passage had been relied upon: "As to the question whether there was any agreement to grant over-draft facility it might be useful to note that in Halsbury's Law of England, (Fourth Edition) Vol. 3, at page 155, it has been stated as follows:: "A customer may borrow from a banker by way of loan or by way of overdraft. A loan is a matter of special agreement. In the absence of agreement, express or implied from a course of business, a banker is not bound to allow his customer to over-draw. An agreement for an overdraft must be supported by good consideration, and it may be express or implied. Drawing a cheque or accepting a bill payable at the banker's where there are no funds sufficient to meet it amounts to a request for an overdraft." In Cuthbort v. Robarts, Lubbock & Co.; (1909) 2 Ch.D.226, Cozens-Hardy M.R. (at Page 233 of the report) has observed as follows:

(3.) To buttress the above observation, the Learned Counsel has also relied on the treatise titled "The Banking Law in Theory and Practice" by S.N. Gupta and in particular the following passage: