NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

(Academic Session: 2020-2021)

SEMESTER: II (End Term)

SUBJECT: Law of Contracts

TOPIC: Case Analysis: UCO Bank v. Hem Chandra Sarkar

Submitted to: Submitted By:

Ms. Padma Singh Juhi Mandhare

Professor of Law Roll No. 47

NLIU, Bhopal

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 TABLE OF CONTENTS

JUDGEMENT DETAILS..........................................................................................................5

BACKGROUND OF THE CASE...............................................................................................5

BENCH........................................................................................................................................5

COUNSEL...................................................................................................................................6

MATERIAL FACTS OF THE CASE.........................................................................................6

ISSUES RAISED.........................................................................................................................6

ARGUMENTS ADVANCED ON BEHALF OF THE APPELLANTS.....................................7

ARGUMENTS ADVNCED ON BEHALF OF THE RESPONDENT.......................................7

VARIOUS PROVISIONS RELLATED TO THE CASE...........................................................8

CITATIONS RELIED UPON.....................................................................................................9

JUDGEMENT & ITS ANALYSIS.............................................................................................9

RATIO DECIDENDI................................................................................................................11

CONCRETE JUDGEMENT.....................................................................................................11

CONCLUSION..........................................................................................................................12

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 CERTIFICATE
This is to certify that the research for the project titled “Case Analysis: UCO Bank v. Hem
Chandra Sarkar” has been undertaken by Juhi Mandhare, roll no. 2020BALLB47 for
Semester II (End Term) of the National Law Institute University, Bhopal. The research is her
own work and has been carried out under the guidance of Prof. Padma Singh. All the sources
used for the research have been duly acknowledged in the footnotes and bibliography.

(2020B.A.L.L.B.47)

(Signature of the Student)

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 ACKNOWLEDGMENT
I would sincerely like to acknowledge and thank the Vice Chancellor Dr V Vijaykumar, and
Dean Undergraduate Studies Dr Ghayur Alam as well as the Professor for Law of Contracts
Ms. Padma Singh for giving me this opportunity to work on such a project that enlightened me
in not just one but many ways and helped me understand the concept of research in detail.

I would especially like to extend my gratitude to my teacher for guiding me throughout the due
course of the project and helping me out wherever possible.

Last but not the least I would like to acknowledge the efforts of my family and friends for
helping me make this project happen.

NLIU, Bhopal

June 16th, 2021

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 JUDGEMENT DETAILS
UCO Bank v. Hem Chandra Sarkar

Supreme Court of India

Civil Appellant Jurisdiction

Civil Appeal No.3566 of 1989

(From the Judgment and Order dated 17-2-1989 of the Gauhati High Court in F.A. No. 7 of
1972)

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BACKGROUND OF THE CASE

The case has come before the Supreme Court as an appeal against the order of the Guwahati
High Court, wherein the court decreed against UCO Bank. The court affirmed the findings of the
trial court which had accepted the suit in part and decreed the payment of Rs.1,26,500/- and
accepted the contention that there existed a 'fiduciary relationship' between the Bank and the
respondents as well as accepted the Bank to be the agent of the respondents. The Bank denied all
of these contentions as well as the existence of the fiduciary relationship.

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BENCH
The case was referred to a Division bench of the Supreme Court and consisted of Hon’able Mr.
Justice K. Jagannatha Shetty & Hon’able Mr. Justice M. Fathima Beevi.

The judgment was unanimously delivered by Justice K. Jagannatha Shetty.

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 COUNSEL
The counsel appearing on behalf of the Appellant was Advocate Mr. K.N. Bhatt, Sr. Advocate,
Mr. H.N. Salve, Mr. A.K. Sil and Mr.G. Joshi and the counsel appearing on behalf of the
Respondent was Advocate Mr. S. Parekh.

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MATERIAL FACTS OF THE CASE

1. The respondent (Hem Chand Sarkar) is a wholesale dealer of textile and yarn in Agartala.
2. He was appointed as a Government nominee to indent for and lift the quantities of cloth
and yarn to Agartala from different mills situated in Bengal, Bombay, Ahmedabad and
other places.
3. And for business purposes, the respondent sustained a current Bank account (no. 391)
with the appellant Bank i.e. the United Commercial Bank Ltd. aka UCO Bank.
4. The appellant and respondent had entered into an oral agreement on September 2, 1950
under which the duty of the Bank consisted of receiving bills, documents and air receipts
sent by or on behalf of the plaintiff from his agents or suppliers and would release and/or
take delivery of goods sent by them, as and when the goods arrive at Agartala.
5. The terms also included that the payment of bills of goods dispatched to the Bank would
be paid by the respondents and that the respondent is to be delivered the goods and air
receipts according to his conditions.
6. The issue arose when the appellant (Bank) did not deliver the goods to the respondents
even after the payment for the same.
7. Following this the respondent brought a suit for accounts, damages, compensation, and
delivery of goods or their equivalent in money, valued at Rs.2,68,198.97.

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ISSUES RAISED
1. Whether in the circumstances of the case, the appellant (“Bank”) was required to act as
agent of the respondent or as bailee in respect of goods entrusted for delivery to the
respondent against payment.

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Along with this issue the SC also took into account the issues raised by the trial court, which are:

1. Were there any agreement and or arrangements between the parties as alleged in the
plaint?
2. Was the defendant a trustee and or agent of the plaintiff as alleged in the plaint? And
3. Was there any fiduciary relationship between the parties as alleged by the plaintiff?

The question raised by the Supreme Court is a question of law while out of the three questions
raised by the trial court the first question is a mixed question of law and fact, the second and the
third are questions of law.

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ARGUMENTS ADVANCED ON BEHALF OF THE APPELLANTS

1. The appellant contended that the claim of the respondent is based upon an oral agreement,
which is contrary to Banking transactions.
2. The appellants claimed that they only acted as the collecting agent and that Adjustment of
bills by debiting to the current account without cheques from the respondent would not
change the ordinary relationship of Bank and customer and the ordinary course of
Banking resulted in no special relationship.
3. The Bank received and took charge of the goods only as bailee and any inference of a
fiduciary relationship between parties was unwarranted and unjustified.

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ARGUMENTS ADVANCED ON BEHALF OF THE RESPONDENT

1. That there was an oral agreement under which the Bank acted as the agent of the
respondent.
2. The acts of the Bank, with regard to collection of goods and making of payment and debit
from accounts, led to it acting as an agent and hence the creation of a fiduciary
relationship.

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VARIOUS PROVISIONS RELATED TO THE CASE

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 1. BAILMENT

The concept of bailment is present under Chapter IX of the Indian Contract Act, 1872 from
sections 148 to 181 and it is defined as — “the delivery of goods by one person to another for
some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or
otherwise disposed of according to the directions of the person delivering them.”1

Thus, when one person is in possession of certain goods without the transfer of ownership under
the bounds of a contract, bailment occurs. For the instant case, the appellant contended that they
only acted as a bailee to the respondents with regards to storage of goods and payment and there
was no other relationship. The court depends upon the idea of bailment to determine the validity
of the claim of the appellants.

2. AGENCY

Agency too is a type of Special Contract present under Chapter X of the Indian Contract Act,
1872 from sections 182 to 238. Agency is a type of contractual relationship wherein the
‘Principal’ appoints another person known as the ‘Agent’ to represent him in a legal capacity.
The two share a vicarious relationship and are bound by the rules laid down in various sections of
Chapter X.

For the instant case, the agency was referred to since the respondents alleged that the relationship
created by the oral agreement was that of agency and hence there was an existence of a fiduciary
relationship. This argument was agreed to by the trial as well as the high court.

3. FIDUCIARY RELATIONSHIP

A relationship in which individual places complete confidence, trust, and reliance in someone
who has a fiduciary duty to act for the individual's benefit. A fiduciary relationship need not be
formally or legally established; it may be assumed where the fiduciary has superior knowledge
and training compared to the person whose affairs the fiduciary is handling.2

2
Nolo’s Plain-English Law Dictionary https://www.nolo.com/dictionary/fiduciary-relationship-term.html

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For the purpose of the present case, if the fiduciary relationship is established then the acts of the
appellant would be considered to be in the breach of that relationship and thus the respondent
would be deemed to be in a breach of duty.

CITATIONS RELIED UPON

1. Halsbury's Laws of England3

Halsbury's Laws of England is a leading text which includes comprehensive and narrative
statements on the laws of England. It has almost all the sources of laws. For the present case, the
judge referred to the book to explain the liability of the Bank in those circumstances when the
goods that were kept with the Bank and were to be delivered are lost or are delivered to the
wrong person. In such cases the liability of the Bank is absolute, however it can be opted out of
with an express term.

2. Paget's Law of Banking4

Paget's Law of Banking provides a detailed account of Banking laws and lay down the
explanation for the rules that generally bind the practice of Banking. The judge in the instant case
has referred to the book to understand what is a current account? Its facilities and its limitations.
For the respondents had alleged that since the Bank debited amounts directly from their current
account they are acting as the agent and this argument was backed by the trial court.

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JUDGEMENT & ITS ANALYSIS

In substance, though the Supreme Court did sustain the judgment of the trial court and the high
court and it dismissed the appeal filed by the Bank with costs, its reasoning was completely
different. As mentioned the court also took into consideration, the issues framed by the trial
court and with reference to the question of arousal of a fiduciary relationship referred to the
above mentioned legal and Banking books. The court brought about that, the basis of trial court’s
decision for acknowledging and stating that ‘a fiduciary relationship has been formed’ was due to

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the acts of collection of bills, remittances to mills, meeting expenses of storing the goods, and
debiting the same to the current account even without cheques from the plaintiff. However, the
Supreme Court points out that these acts were not anything out of the ordinary and that these acts
did not take the two parties outside the relationship of a Banker and a customer.

The Supreme Court’s this observation holds much validation, the main objective of a Bank is to
deal with the monetary transactions of its client and since Banks too are a business, like any other
businesses they bring about their own incentives and schemes to attract more customers and
show their gratitude to the existing ones. Thus they also offer to deal with other possible
monetary duties of their customer and if in such situations they have to bear a burden in the form
of a fiduciary relationship, while all that the Bank is doing is its duty in the interest of its
customers, it might create a problem on both the ends.

With reference to the next question i.e. whether the Bank acted as an agent of the plaintiff in
respect of the goods in question? The Bank here agrees with the submission of the appellants’
that the Bank acted only as the bailee in the present case and not as an agent. The court points out
that, what the Bank was asked to do were the acts to be performed by a bailee i.e. taking charge
of goods, articles and securities. The Bank was dependent upon the direction of the respondents
as is in bailment and cannot enter into a contract on their behalf unlike agency where the agent
has the authority to take charge himself and enter into contracts as well. The court further went
on to explain the legal standing of the two entities, like how a bailee cannot make the bailor
liable. For the application of this the court notes that there is no action or evidence that could
show that the Bank represented any of the parties in a capacity or authority to alter their legal or
contractual relationships.

With reference to the acceptance of the appeal, the court mentions the observations of the courts
below which found that it is of no consideration that whether the Bank was a bailee or an agent.
It is established on the basis of the evidence presented that the respondents (then plaintiff) pay
the required amount to the Bank, with reference to the goods in question. Bank pleaded that its
goods were delivered to one Shishu Ranjan Sen, who was the authorized agent of the then
plaintiff and present respondents. But at the relevant time, the plaintiff has his own agent called
Dhani Ram and he did not receive the goods. The Bank has neither examined Shishu Ranjan Sen

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nor Dhani Ram.5 Thus it was concluded that the Bank had received the payment but failed to
deliver the goods. The court notes that a bailee whether gratuitous or for reward is to take care of
the entrusted goods as his own or like a reasonable prudent man. Further, a paid bailee must use
the greatest possible care and is expected to employ all precautions in respect of the goods
deposited with him. If the property is not delivered to the true owner, the banker cannot avoid his
liability in conversion.6

On the basis of the above finding, the Supreme Court dismissed the appeal with costs i.e. the
Bank was held liable to make the payment as had been decided by the lower courts.

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RATIO DECIDENDI
When the Bank performs the various monetary acts and dealings on behalf of his customer in the
ordinary course of its banker-customer relationship, the two parties cannot be said to have
entered a fiduciary relationship.

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CONCRETE JUDGEMENT
The court, disregarded the findings of the lower courts so far as the formation of fiduciary
relationship between the two parties and noted that it was not created. Disregarded the conclusion
of the lower courts on the question of the Bank acting as an agent to the respondents and stated
that they only acted as a bailee. It agreed with the finding of the lower court that whatever the
relationship, the Bank was under a duty to take care of the goods as a reasonably prudent man,
which the bank failed to do.

The appeal was dismissed with costs.

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 CONCLUSION
The court discussed upon some important questions in the judgment, regarding the bank and its
possible relationship with its customers. Two of the concepts of the special contracts i.e.,
bailment and agency were also discussed, with the court taking time to explain the difference
between the two and why one is applicable and the other isn’t. Relationships of individuals and
firms with entities such as banks, trusts and the market are complicated to be defined, they leave
a very fine line between the type of relationship they are in and the one they can cross over to as
in this case and it is at these times that the judiciary plays an extremely important role. Further,
though contractual agreements in the written form are a source of way lesser ambiguity, it is the
oral agreements that create ambiguities in the works of the two parties.

Presently the court, in this case, had applied amicable reasoning for providing the respondents
with the cost of the goods. Even though the relationship with the banks is a complicated one, it is
not a tough concept to understand that the bank is not absolved from the duty of looking after or
rather taking care of the goods of its customer. They under any type of relationship are under an
obligation to protect the goods of their loyalties and hence the reasoning by the court stands
undisputed.

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