Supreme Court clarifies limitation for counterclaims in banking disputes: Topline Shoes vs. Punjab National Bank (2022)

Date of the Judgment: July 20, 2022

Citation: [Not Available in Source]

Judges: B.R. Gavai, J., Pamidighantam Sri Narasimha, J.

Can a claim for funds withheld by a bank be considered a ‘deposit’ for the purpose of limitation under the Limitation Act, 1963? The Supreme Court of India addressed this question in a case involving Topline Shoes Limited and Punjab National Bank. The core issue was whether the appellant’s counterclaim against the bank was time-barred. The bench comprised of Justice B.R. Gavai and Justice Pamidighantam Sri Narasimha, with the judgment authored by Justice B.R. Gavai.

Case Background

Topline Shoes Limited had a current account with Punjab National Bank. The company claimed that the bank had illegally withheld a certain amount from this account. In response, the bank filed an Original Application (O.A.) before the Debts Recovery Tribunal (DRT) in Mumbai, seeking to recover dues. Topline Shoes then filed a counterclaim, asserting that the bank had illegally withheld their funds. The DRT dismissed both the bank’s claim and Topline’s counterclaim. Both parties appealed to the Debts Recovery Appellate Tribunal (DRAT), which also dismissed their respective appeals. Subsequently, both parties filed writ petitions before the High Court of Bombay. The bank’s petition was withdrawn, while Topline’s petition was dismissed, leading to the present appeal before the Supreme Court.

Timeline:

Course of Proceedings

The Debts Recovery Tribunal (DRT) initially dismissed both the bank’s claim and Topline Shoes’ counterclaim. Both parties then appealed to the Debts Recovery Appellate Tribunal (DRAT), which also dismissed their appeals. Subsequently, the bank and Topline Shoes filed separate writ petitions before the High Court of Bombay. The bank later withdrew its petition. Topline Shoes’ writ petition was dismissed by the High Court, which upheld the concurrent findings of the DRT and DRAT. The High Court agreed that the counterclaim was time-barred under Article 113 of the Limitation Act, 1963.

Legal Framework

The case primarily revolves around the interpretation of the Limitation Act, 1963, specifically Article 22 and Article 113.

Article 22 of the Limitation Act, 1963, deals with suits for money deposited under an agreement that it should be payable on demand, including money of a customer in the hands of his banker so payable. The limitation period is three years, and time begins to run when the demand is made.

Article 113 of the Limitation Act, 1963, is a residuary article that applies to suits for which no specific period of limitation is provided elsewhere in the schedule. The limitation period is three years, and time begins to run when the right to sue accrues.

Arguments

Appellants’ (Topline Shoes) Arguments:

• The appellants argued that the amount withheld by the bank was not a security or fixed deposit but was their own money illegally withheld.
• They contended that Article 22 of the Limitation Act, 1963, should apply, which provides a limitation period of three years from the date of demand.
• The appellants argued that the cause of action for their counterclaim arose when they issued a notice to the bank in September 1999, and since the counterclaim was filed in 2000, it was within the limitation period.
• They relied on the judgment of the Supreme Court in Jammu and Kashmir Bank Ltd. v. Attar-Ul-Nissa & Others, arguing that the limitation period should start from the date of demand.

Respondent’s (Punjab National Bank) Arguments:

• The respondent argued that the concurrent orders of the DRT, DRAT, and the High Court were correct.
• They submitted that Article 113 of the Limitation Act, 1963, was rightly applied to the counterclaim, as the money was not a deposit payable on demand.
• The bank argued that the cause of action arose when the amount was allegedly paid under undue influence in 1994, and therefore the counterclaim was time-barred.

Issues Framed by the Supreme Court

The key issue before the Supreme Court was:

1. Whether, in the facts of the present case, Article 22 or Article 113 of the Limitation Act, 1963, would be applicable for consideration.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

Cases Relied Upon:

• Jammu and Kashmir Bank Ltd. v. Attar-Ul-Nissa & Others [1967] 1 SCR 792 – Supreme Court of India. This case was cited by the appellants to argue that the limitation period should start from the date of demand.

Legal Provisions Considered:

• Article 22 of the Limitation Act, 1963: This article deals with suits for money deposited under an agreement that it should be payable on demand, including money of a customer in the hands of his banker so payable.
• Article 113 of the Limitation Act, 1963: This is a residuary article that applies to suits for which no specific period of limitation is provided elsewhere in the schedule.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court did not follow the precedent in Jammu and Kashmir Bank Ltd. v. Attar-Ul-Nissa & Others [1967] 1 SCR 792*, because the facts of the present case were different.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the factual finding that the amount in question was not a deposit but was allegedly extracted under undue influence in 1994. The Court emphasized that the appellants themselves admitted that they had consciously decided to pay the amount to avoid adverse publicity, and that they had contemplated legal action at that time. The Court also noted that the appellants had waited for five years before issuing a notice to the bank. These factual considerations led the Court to conclude that the counterclaim was time-barred under Article 113 of the Limitation Act, 1963, which provides a three-year limitation period from the date the right to sue accrues.

The Court’s reasoning was based on the specific facts of the case, as noted in the judgment:

“It is not the case of the Defendants that they had paid the amount to the Applicants by way of deposit as securities till the account was finally settled.”

“It is thus obvious that a conscious decision was taken by Defendant No.1 Company to pay off whatever demanded by Applicant Bank without joining the issue and they had accordingly paid the amount maybe much against their wishes.”

“Subsequently if the Defendants wanted to recover the said amount they ought to have taken out proper proceedings before proper forum within the statutory period of three years. This was admittedly not done.”

Key Takeaways

• The limitation period for a counterclaim against a bank for funds withheld is determined by the nature of the transaction.
• If the amount is not a deposit payable on demand, Article 113 of the Limitation Act, 1963, will apply, with a three-year limitation period from when the right to sue accrues.
• A conscious decision to pay an amount, even under protest, may start the limitation period for a claim to recover that amount.
• Delay in raising a claim can result in it being time-barred.

Directions

No specific directions were issued by the Supreme Court in this case.

Development of Law

The judgment clarifies that for a counterclaim against a bank, the nature of the transaction is crucial in determining the applicable limitation period. It emphasizes that if the amount is not a deposit payable on demand, the residuary provision of Article 113 of the Limitation Act, 1963, will apply, with a three-year limitation period from the date the right to sue accrues. This reinforces the principle that parties must act within the prescribed time limits to enforce their claims.

Conclusion

The Supreme Court dismissed the appeal, holding that the counterclaim filed by Topline Shoes was time-barred. The Court found that the amount in question was not a deposit payable on demand but was allegedly extracted under undue influence in 1994. Therefore, Article 113 of the Limitation Act, 1963, applied, and the three-year limitation period had expired before the counterclaim was filed. The judgment underscores the importance of understanding the nature of transactions and adhering to the statutory limitation periods.