Canara Bank Overseas Branch v. Archean Industries Private Limited
Background
A Dubai-based ship-repair company had repaired a vessel and was owed money by the vessel's owner. As part of a settlement, Archean Industries (which had chartered the vessel to carry granite) agreed to pay USD 100,000 out of the freight it owed the vessel owner directly to the repair company, and issued a "Corporate Guarantee" to that effect. Archean instructed its banker, Canara Bank, to remit this sum to the repair company's account, but the bank mistakenly transferred the money to the vessel owner's account in the US instead. When the repair company sued both Archean and the bank for the unpaid amount, the trial court and then the High Court of Madras held Archean liable to the plaintiff, while also granting Archean a "third-party" decree against the bank for its error.
Decision Breakdown
The Supreme Court dismissed both appeals: one by Archean challenging its primary liability, and one by Canara Bank challenging the third-party decree against it. The Court held that Archean's own Corporate Guarantee made it liable to the plaintiff regardless of any RBI approval issue (which was in any case never pleaded), and that its remedy against the actual wrongdoer (the vessel owner) remained separately available under Section 140 of the Contract Act. On the bank's appeal, the Court held that once Archean gave clear remittance instructions, the bank was bound to follow them or seek clarification, and could not unilaterally redirect the funds to the vessel owner: the bank was not a party to the charter agreement and could not rely on its terms to justify the error. The Court also upheld the use of the summary third-party procedure under Order VIII-A CPC to resolve the bank's liability within the same suit, rejecting the argument that the plaintiff should have separately impleaded the vessel owner, since a plaintiff (dominus litis) cannot be compelled to add parties it hasn't chosen to sue.
Lesson Learnt
A bank that receives clear remittance instructions from its customer must either follow them precisely or seek clarification. It cannot substitute its own judgment and redirect funds elsewhere, and doing so makes it liable to indemnify its customer for the resulting loss. A plaintiff is entitled to choose whom to sue, and defendants cannot force it to implead other potentially liable parties.