Bank Cannot Remit Funds Contrary To Customer Mandate: Supreme Court Upholds Madras HC Ruling Against Canara Bank
The Supreme Court on Tuesday held that Canara Bank could not unilaterally divert funds contrary to the instructions of its customer while deciding a dispute arising from a remittance transaction involving Archean Industries Pvt Ltd, Canara Bank Overseas Branch, and Goltens Dubai.
A Bench of Justices J.B. Pardiwala and R. Mahadevan was hearing cross appeals arising from a judgment of the Madras High Court dated August 16, 2021. Holding that Canara Bank could not have remitted the amount to the vessel owner contrary to the instructions issued by its customer Archean Industries, the court observed,
“The communication regarding the processing of documents with the Reserve Bank of India (Exhibit P13) was not addressed to the Bank. Once clear instructions had been issued by its customer, the Bank was required either to comply with those instructions or to seek clarification regarding the necessity of regulatory approval and whether such approval had been obtained to facilitate the remittance. The Bank could not have unilaterally remitted the amount to the vessel owner.”
The case arose from ship repair dues owed to Goltens Dubai, where Archean Industries had undertaken to remit US$100,000 from freight payable to the vessel owner. Archean issued clear instructions to Canara Bank on May 21, 1998, along with requisite documentation, to transfer the amount to Goltens Dubai. However, the bank mistakenly remitted the amount to the vessel owner instead of the plaintiff.
The bank sought to justify its action on the ground that Reserve Bank of India approval was required for such remittance and had not been obtained. Rejecting this contention, the court noted that the communication regarding RBI processing was not addressed to the bank.
It held that once specific instructions were issued by the customer, the bank was duty-bound either to comply with them or seek clarification regarding regulatory requirements. The court observed that the bank had no authority to unilaterally decide the recipient of the funds. Even in the absence of RBI approval, the court said, the bank ought to have withheld the transaction or sought further instructions instead of transferring the amount to a third party.
Holding the bank's unilateral action to be unjustified, the Supreme Court upheld the Madras High Court's view permitting Archean Industries to recover the amount from the bank under third-party proceedings. The court also affirmed Archean's liability to Goltens Dubai.