Shankarlal Agarwalla v State Bank of India and Anr (1984)

A banker owes its customer a duty not to disclose the customer's affairs, subject to the four exceptions laid down in Tournier v National Provincial & Union Bank of England (1924): compulsion by law, a duty to the public, the bank's own interest, and the customer's consent. This case is the Indian decision in which a bank disclosed a depositor's particulars to the income-tax authorities, and the customer sued.

It arose from the 1978 demonetisation of high-denomination notes. The State Bank passed the depositor's declaration to the Income-tax Department on Government directives, and the Department attached the money for over a year and a half. The court treated the disclosure as made in the public interest and so within one of the recognised exceptions — and, separately, refused to award interest as damages in writ proceedings.

The petitioner held 261 notes of Rs 1,000 each. The High Denomination Bank Notes (Demonetisation) Ordinance 1978, which came into force on 16 January 1978, ended their status as legal tender. They could be exchanged only by tendering them, with a declaration in the prescribed form in triplicate, by 19 January 1978 at notified offices.

On 19 January 1978 the petitioner tendered the notes, with the declarations, at the Netaji Subhas Road branch of the State Bank of India, a notified office. The bank accepted the notes and forms and gave a receipt. He asked that the exchange value, Rs 2,61,000, be credited to his current account with the Punjab National Bank.

The bank did not pay. It passed the declaration particulars to the Income-tax Department, which issued notices under s. 226(3) (15 February 1978) and s. 281(b) (20 February 1978) of the Income-tax Act attaching the sum. The petitioner's home and office were raided and searched, and he and his son were summoned. The attachment notices were withdrawn by notices of 18 October 1979, and the bank finally released the money by letter of 27 October 1979.

The petitioner's case was that no tax was due from him — on the contrary a refund of Rs 3,245 was due — and that the bank, entrusted with the notes in confidence, had in breach of its duty as a banker informed the Income-tax Department. He claimed interest as damages for the period the money was withheld.

The bank's answer was that it acted on notices and circulars from the Reserve Bank and directions from the Ministry of Finance and the Commissioner of Income-tax, West Bengal, requiring it to furnish particulars of all such deposits and hand over the declaration forms. It also argued that the petitioner was not its customer at all: he had no account with it, and its obligation arose only under the 1978 Act.

1. Was the State Bank's disclosure of the petitioner's declaration to the income-tax authorities a wrongful breach of the banker's duty of secrecy, or did it fall within a recognised exception?
2. Was the petitioner a customer of the State Bank, so that the duty arose at all?
3. Can a claim for interest by way of damages for money wrongfully withheld be pursued in a writ petition under Article 226, and was it in any case barred by delay?

The rule was discharged and the petition dismissed. All interim orders were vacated.

The banker's duty of secrecy

The court set out the duty from Halsbury's Laws of England: "It is an implied term of the contract between a banker and his customer that the banker will not divulge to third person without the express or implied consent of the customer either the state of the customer's account or any of his transactions with the bank or any informations 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 protection of the banker's own interest requires it."

It then set out the four Tournier heads — "(a) where the disclosure was under compulsion by law, (b) where there was a duty to the public to disclose, (c) where the interest of the bank require disclosure and (d) where the disclosure was made by express or implied consent of the customer."

Relying on Paget, the court described the duty as contractual and legal: "Such duty is a legal one arising out of the contract, not merely a moral one. Breach of it therefore gives a claim for nominal damages or for substantial damages if injury is resulted from the breach." But "It is, however, not an absolute duty but qualified subject to certain reasonable if not essential exceptions."

On compulsion by law, the court noted 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."

Applying the exceptions

The bank had been directed by the Reserve Bank of India and the Ministry of Finance to furnish particulars of such deposits to the income-tax department, and the respondents contended that the communication was made in the public interest. The court accepted this: "Under the circumstances, this instant case falls within one of the exceptions as enumerated above."

Who is a customer

The court noted Paget's view that a single transaction can be enough: the older idea that "customer" requires some minimum course of dealing has generally given way to the view that duration is not of the essence, and that an intention to enter upon a course of dealing is probably sufficient to establish the relationship of banker and customer. The judgment records this and the bank's contrary argument but does not rest its decision on the point.

Interest in writ proceedings

The claim was, in substance, for interest as damages. Relying on State of MP v Bhailal Bhai, Suganmal v State of MP and Ratanlal Singhania v M.M. Sethi, the court held that "not only the petitioner's claim for interest was not maintainable by way of writ of mandamus but it was also barred by the Law of Limitation". The exchange value was tendered in October 1979 and the application came only in February 1984. The court concluded that "the claim by way of damages for interest simpliciter by the petitioner could not be entertained under the writ jurisdiction of this Court".

A banker's duty of secrecy is a legal, contractual duty but a qualified one, subject to the Tournier exceptions. Disclosure by a bank of a depositor's particulars to the income-tax authorities, made on directions from the Reserve Bank and the Ministry of Finance in the public interest, falls within one of those exceptions. Separately, a claim for interest simpliciter as damages for money withheld cannot be entertained under Article 226, and is in any event defeated by unreasonable delay measured against the civil limitation period.

• Direct question: Discuss the banker's duty of secrecy and its exceptions. Start with Tournier and its four heads, then use Shankarlal Agarwalla as the Indian illustration: disclosure to tax authorities on Government directives accepted as within the exceptions.
• Problem question: a bank passes a customer's deposit details to a tax officer on a circular from the Ministry. Discuss whether this is compulsion by law (the court's warning that not every official enquiry qualifies) or a public duty (how the court in fact resolved it).
• Side point worth marks: the one-transaction customer — Paget's view, recorded here, that duration is not of the essence.
• Remedies point: why a writ court would not award interest simpliciter as damages; the proper remedy was a civil suit.