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CASE ANALYSIS OF SHANKARLAL AGARWALLA V. STATE BANK

OF INDIA (1984)

Submitted by

B. Mrunali Raj

PRN: 21010224231, Division: A, Batch: 2021-26, Programme: BBA LLB,

Academic Year: 2021-22

Symbiosis Law School, NOIDA

Symbiosis International (Deemed University), PUNE

In

April, 2022

Under the Guidance of

Dr. Kanan Divetia (Course-in-Charge, Special Contract)

Symbiosis Law School, NOIDA

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INDEX

S. No. Particulars Pg. No.

1 Facts of the case 3

2 Judgment 4

3 Analysis of the case 6

4 Bibliography 7
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FACTS OF THE CASE

A customer owned 261 bank currency notes of Rs. l.000/- each. Following the demonization
of high-value currency notes in 1978, he presented the notes to the bank with the required
declaration and instructed the bank to credit the amount to his Current Account. The bank
provided the customer's declaration to the Income-tax Department, which issued a
notification under Sec. 226(3) of the Income-tax Act, with the sum attached. The money was
eventually released. The Calcutta High Court stated that one of the banker's responsibilities to
the customer was to maintain secrecy. This was not only a moral obligation, but a legal one
deriving from the contract. If there is an injury as a result of the violation, a claim for nominal
damages or significant damages may be made. It was not, however, an absolute obligation,
but rather a qualified one with some limitations. The examples being:

1) The need to obey an order under the Bankers' Books Evidence Act,
2) Cases where a higher duty than the private duty is involved, such as where danger to
the State or public duty may supersede the agent's duty to his principal,
3) Of a bank issuing a writ claiming payment of an overdraft, stating on the face the
amount of the overdraft, and
4) The well-known case in which the consumer authorises a referral to his banker.

The learned Judge went on to say that the Reserve Bank of India and the Ministry of Finance
had asked the State Bank of India to provide all details on bank note deposits to the Income-
tax Department as soon as such notices were received. As a result, this case fell into the
exceptions category. The Payment and Settlement Systems Act of 2007 places privacy duties
on people in charge of online payment and settlement systems like RTGS/NEFT, etc.

Section 22 of the Act prohibits a "system provider" from disclosing the presence or contents
of any document or portion of any material provided to him by a system participant, unless
disclosure is:

(a) Required under this act’s provisions

(b) Made with the explicit or tacit permission of the system participant in question

c) In accordance with a court of competent jurisdiction's directions

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(d) In the exercise of statutory powers in obedience to a statutory authority.1

Legal issue of the case – Subject to certain restricted and defined circumstances, a bank must
not divulge the condition of a client's account, any of his or her transactions with a bank, or
any information relating to the customer gained by reason of holding the account without the
express or implied approval of the customer.

JUDGEMENT

“The petitioner owned and possessed 261 bank currency notes of Rs. 1000/- each. On Jan.
16, 1978, an ordinance was promulgated at the High Denomination Bank Notes
(Demonetisation) Ordinance, 1978 which was published in the Gazette on Jan. 16, 1978 and
became an Act in 1978. The said Act came into force on 16th Jan. 1978. On the expiry of
16th Jan. 1978 all high denomination bank noted ceased to be legal tenders. High
denomination bank notes meant bank notes of the denominational value of thousand rupees,
five thousand rupees or ten thousand rupees issued by the Reserve Bank of India. Under the
said Ordinance no person was allowed after 16th Jan. 1978 to transfer to the possession of
another person or receive into his possession from another person any high denomination
bank note. It was further provided that such notes could be exchanged after 16th Jan., 1978
only by way of tender of the said notes. Every person desiring to tender for exchange a high
denomination bank note should prepare in the form set out in the schedule, three copies of
declarations signed by him giving full particulars in that form and hand over the same not
later than 19th Jan., 1978 together with the high denomination bank notes either to the office
of the Reserve Bank Head Office at Bombay or its sub-offices or to the main office or branch
of the State Bank or to any other public sector bank notified by the Reserve Bank. Unless it
appeared that the declaration has not been complete in all material particulars, the Reserve
Bank, State Bank or any bank notified, as the case may be to which an application for
exchange of high denomination bank note has been made shall pay the exchange value of the
said notes either by crediting the account of the owner or if the owner did not have the bank
account by tendering exchange value on proper identification. But where it appeared that the
declaration had not been completed in all material particulars, the bank concerned would
refuse to accept and pay for the bank notes and shall return one copy of declaration to the
declarant after entering the date on which it was presented and shall refer the matter to the
1
Elonnai Hickok, Privacy and Banking: Do Indian Banking Standards Provide Enough Privacy Protection?,
THE CENTRE FOR INTERNET & SOCIETY (April 25, 2022),
https://cis-india.org/internet-governance/blog/privacy/privacy-banking
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Bank concerned forwarding therewith a copy of the declaration with a brief statement of the
reasons for refusing to pay for the bank notes. Thereupon the Bank concerned may require
any declarant to amplify his declaration with proper particulars and unless the declarant was
able to fully complete with such requirement, refuse, for reasons to be recorded in writing to
sanction the exchange.

Under the heading compulsion by law it had been stated that compulsion must be confined to
the regular exercise by the proper officer to actual legal power to compel disclosure. It is not
every enquiry made by government official which falls within this heading. The learned
lawyer appearing on behalf of the petitioner contended that a directive received from the
Central Government to disclose the names of the depositors did not fall within that category.
Hence, disclosure of that information by the State Bank of India to the appropriate authorities
was wrongful. The petitioner contended that the declaration from along with the currency
notes for exchange was delivered on the 19th Jan., 1978. Having accepted the forms and by
not rejecting the same the State Bank was under an obligation to tender the exchange value
immediately although the I.T. Authorities on 28th Feb., 1978, directed the bank to hold the
money subject to further order of the I.T. authorities. The State Bank was wrongful in
withholding the money for that period. It was only on 18th Oct., 1978 that the said order of
attachment was withdrawn and the bank was directed to release the money. Earlier thereto the
State Bank of India was directed by the Reserve Bank of India and the Ministry of Finance to
furnish all particulars regarding deposit of bank notes to the I.T. department as soon as such
notice was received. The respondents contended that such communication was made by the
respondent 1 in public interest. Under the circumstances, this instant case falls within one of
the exceptions as enumerated above. In any event this Court being of the opinion that the
claim by way of damages for interest simplicity by the petitioner could not be entertained
under the writ jurisdiction of this Court, this application is liable to be dismissed. Hence the
rule is discharged. All interim orders vacated.”2

2
Shankarlal Agarwalla v. State Bank of India, 1984 SCC OnLine Cal 188
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ANALYSIS OF THE CASE

This case talks about a banker’s duty to maintain the secrecy and confidentiality of a
customer’s account. Here, the petitioner owned 261 currency notes of 1000 rupees each. An
ordinance was instituted in 1978 as per which notes of Rs. 1000 and above were
demonetized. The petitioner then deposited currency notes of 1000 rupees amounting to
2,61,000 in total. The banker had illegally informed the Income Tax Department about the
encashment of the said notes while he was confided with trust and confidence by the
petitioner and this amounted to breach of obligation that the banker had towards its
constituent.

“The Hon’ble Calcutta High Court referred to Halsbury’s Laws of England, Volume 1,
2nd edition, which stipulates that:

“It is an implied term of the contract between a banker and his customer that the banker will
not divulge to third persons, without the consent of the customer, express or implied, either
the state of the customer’s account, or any of his transactions with the bank or any
information relating to the customer acquired through the keeping of his account, unless the
banker is compelled to do so by order of a Court, or the circumstances give rise to a public
duty of disclosure or the protection of the banker’s own interests requires it.”

 Referring to Paget’s Law of Banking (9 th Edition, page 166), the court observed that among
the duties of the banker towards the customer may be reckoned the duty of secrecy. Such
duty is a legal one arising out of the contract and is not merely a moral one. Breach of it,
therefore, gives a claim for nominal damages or for substantial damages if inquiry is resulted
from the breach. It is, however, not an absolute duty, but is a qualified one subject to certain
reasonable, if not essential, exceptions. One such instance is the duty to obey an order under
the Banker’s Book Evidence Act.”3

Hence, disclosure of client’s bank account information by the State Bank of India to the
appropriate authorities was unlawful.

3
Restriction on sharing of information, VINOD KOTHARI CONSULTANTS (Apr. 25, 2022),
https://vinodkothari.com/2019/11/restriction-on-sharing-of-information/
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BIBLIOGRAPHY

 Shankarlal Agarwalla v. State Bank of India, 1984 SCC OnLine Cal 188
 https://cis-india.org/internet-governance/blog/privacy/privacy-banking

 https://vinodkothari.com/2019/11/restriction-on-sharing-of-information/

 https://www.casemine.com/judgement/in/56095f77e4b01497112ca547#13