Industrial Finance Corporation ... vs M/S. T.T. Ltd.
2012 Latest Caselaw 3806 Del

$~R-7
*   IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                    Date of Decision: July 02, 2012

+                         RFA(OS) 37/2009

       INDUSTRIAL FINANCE CORPORATION OF INDIA LTD.
                                                 ..... Appellant
           Represented by: Mr.Sandeep Sethi, Sr.Advocate
                          instructed by Mr.Abhishek Anand,
                          Advocate and Ms.Priya, Advocate.

                                 versus

       M/S. T.T. LTD.                                   .....Respondent
             Represented by: None.

       CORAM:
       HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
       HON'BLE MR. JUSTICE MANMOHAN SINGH

PRADEEP NANDRAJOG, J. (Oral)

1. Appellant had extended loan facilities to the respondent under four agreements pertaining to a spinning unit set up by the respondent. The four loan agreements are as under:-

Loan Agreement Amount Rate of Loan Scheme date sanctioned Interest Disbursed (p.a.)

Project 30.10.92 Rs.269.00 19.12% Rs.242.00 Finance Lakhs Lakhs

Equipment 10.09.92 Rs.350.00 19.61% Rs.266.34 Finance Lakhs Lakhs Scheme

Equipment 14.01.93 Rs.500.00 22.00% Rs.469.00 Credit Lakhs Lakhs Scheme

Foreign 10.09.92 DM Currency 1303,500 Loan under (Equivalent Project to Rs.231 Finance lakhs) Scheme (in Deutsche Mark)

2. Having availed the loans, vide Ex.P-2 on December 11, 1996, the respondent wrote to the appellant raising a grievance that interest charged being high it wanted to avail the benefit of pre-payment and requested for pre-payment charges being waived.

3. The matter was followed up by the parties by exchange of letters Ex.P-3, Ex.P-4, Ex.P-5, Ex.P-6 and Ex.P-7 between the dates February 11, 1997 and July 24, 1997; contents whereof need not be noted by us for the reason nothing turns on said exhibits.

4. The letters exchanged reflect the rival view-points of the parties, resulting finally in the appellant writing the letter Ex.P-9 on August 8, 1997 to the respondent informing as under:-

"M/s.Tirupathi Texknit Ltd. 880 East Park Ltd.

Opp. Ajmal Khan Park Post Box No.2706 Karol Bagh New Delhi-110 005.

Dear Sirs,

Re: Pre-payment of outstanding loans

Please refer to your fax dated 6th August, 1997 and further discussion the undersigned had with your representative Shri Mehta on the subject.

2. In this connection, we are agreeable to your proposal of prepayment of our outstanding term loans. Accordingly, you are requested to arrange funds for payment which includes principal, interest, other charges and premium, which has been calculated up to the cut-off date i.e. 14th Aug. 1997 as per our prevailing standard norms, set by the financial institutions. The total amount payable will be advised separately. We further inform that any delay in repayment of outstanding term loans shall lead to revised calculations of premium etc.

3. In this context, we may further advise that our charge on the company's assets shall be released only after the realization of the entire amount due to IFCI.

Please acknowledge and respond."

5. Suffice would it be to state that as per Ex.P-9 the appellant intimated the respondent that it had agreed to the request of the respondent for pre-payment of the loan amounts but upon the condition that the same would be accepted by the appellant with the cut-off date being August 14, 1997 and upon the prevailing standard norms of the appellant being applicable. Needless to state, the stated standard norms were the policy guidelines framed by the appellant with respect to the pre-payment charges.

6. The respondent responded to Ex.P-9 vide four communications, Ex.P-10, Ex.P-11, Ex.P-12 and Ex.P-13, all dated September 11, 1997; and the four communications pertained to the four loan accounts. With respect to the foreign currency loan account, the response was vide Ex.P-12, which reads as under:-

"THE INDUSTRIAL FINANCE CORPORATION OF INDIA LTD.

DELHI REGIONAL OFFICE, 4TH FLOOR, CORE NO.V, SCOPE COMPLEX, 7, LODHI ROAD, NEW DELHI-110003

Dear Sirs,

Sub: PREPAYMENT OF IFCI TERM LOANS (PROJECT FINANCE SCHEME -

FOREIGN CURRENCY LOAN)

Please refer to your letter ref. no.DRO/Group-V/Proj./97-6923 dated August 8, 1997 regarding our proposal to prepay all our outstanding loans.

Accordingly, we enclose herewith our Pay Order No.183143 Dt. 11.09.97 for Rs.1,93,55,646/- (Rupees one crore ninety three lacs fifty five thousand six hundred forty six only) drawn on Oriental Bank of Commerce, Overseas Branch, Panchkuian Road, New Delhi towards payment of outstanding FCL loan amount including interest payable thereon as per details attached.

You are requested to acknowledge receipt of the above payments and let us know, if any balance amount is still payable by us. You are also requested to provide us the details of the balance amount payable, if any."

7. Under its four letters dated September 11, 1997, the respondent made certain calculations and remitted the amounts which according to the respondent were payable to the appellant with respect to the pre-payment charges.

8. Appellant responded to the four letters dated September 11, 1997 vide Ex.P-15 dated September 17, 1997 informing respondent as under:-

"M/s.Tirupathi Texknit Ltd. 880 East Park Ltd.

Opp. Ajmal Khan Park Post Box No.2706 Karol Bagh New Delhi-110 005.

       Dear Sirs,

       Attn.:        Shri Sunil Mahnot

Re: Pre-payment of IFCI TermLoan

Please refer to your letter dated the 11th September, 1997 on the subject.

2. In this connection, as already discussed we advise that total amount of prepayment comes to Rs.739,06,561/- as per the calculations made up to 12th Sep. 1997, i.e. the date of payment, enclosed for various loan account, for your ready reference. While you have already paid Rs.688,45,697/-, you are therefore, requested to make balance payment of Rs.50,60,864/- immediately so as to sort out the matter early. Please note that any further delay in making payment shall attract interest and liquidated damages as per rules."

9. Under cover of Ex.P-15 the appellant gave the calculations as to how it was claiming total pre-payment charges to be as per Ex.P-15.

10. The respondent responded vide Ex.P-16 on September 18, 1997 and in respect of the Foreign Currency Loan took up a stand as under:-

"B. PREPAYMENT PREMIUM ON FOREIGN CURRENCY LOANS (FCL)

(i) As per your above said letter, prepayment premium demanded on prepayment of FCL amounts to DM 116727 (equivalent to Rs.23.35 Lacs).

We are advised that if we go by your logic

and method of calculation of prepayment premium on prepayment of Rupee loans, no prepayment premium ought to be demanded in our case, since lending (document) rate of the loan was 9.50% p.a. and your current lending rate for foreign currency loans (DM) is not less than 9.50% p.a. In fact, we are, in this case entitled to prepayment premium from you, based on your current PLR of 14.5%. We therefore are entitled to refund @5% flat from you on principal amount (Rs.158.67 lacs) prepaid by us which cames to Rs.793350/-.

(ii) Further, there is no provision of charging and/or right to impose any condition whatsoever, on premature payment of the Loan in the Loan Agreement."

11. The respondent even questioned the pre-payment demand raised by the appellant with respect to the Equipment Credit Scheme and Project Finance Scheme. It also alleged that a sum of `1,60,000/- was lying in excess with the appellant in the account maintained by the appellant pertaining to the respondent.

12. After paying the amounts demanded by the appellant, the respondent approached this Court under its writ jurisdiction. The writ petition was dismissed. In the Intra Court appeal, on the statement made by counsel for the respondent the writ petition itself was dismissed as withdrawn resulting in the respondent filing a suit seeking declaration and recovery of the pre-payment charges demanded by the appellant and paid by the respondent.

13. We need not bother ourselves with respect to the dispute pertaining to the pre-payment charges relating to the Project Finance Scheme, Equipment Finance Scheme,

Equipment Credit Scheme inasmuch as the suit filed by the respondent pertaining to pre-payment charges relatable thereto has been dismissed and neither an appeal nor cross- objections have been filed. The claim in the suit pertaining to `1,60,000/- stated to be lying in excess in the account maintained by the appellant pertaining to the respondents having been dismissed, there being neither an appeal nor cross-objections, we are also not concerned therewith.

14. Our concern in the appeal pertains to the finding returned by the learned Single Judge with respect to pre- payment charges in sum of `22,19,000/- pertaining to the Foreign Currency Loan Account.

15. Vide impugned judgment and decree dated October 21, 2008, decreeing suit in sum of `22,19,000/- together with pendente-lite and future interest @12% per annum with proportionate costs, it needs to be only noted by us that the case of the parties which was litigated on said subject before the learned Single Judge was : That vide Ex.P-9 dated August 08, 1997 the appellant had agreed to the loan amounts being pre-paid as per the appellant's standard norms, a condition which was accepted by the respondent vide Ex.P-10 to Ex.P-13, and in relation to the Foreign Currency Loan Account the letter being Ex.P-12. Unfortunately for the appellant it fought the battle by attempting to prove that the prevailing standard norms were as per its policy circular dated March 04, 1998.

16. To the reader of our decision it would be apparent that the view taken by the learned Single Judge is that a circular dated March 04, 1998 could obviously not stipulate the prevailing standard norms when letter dated August 08, 1997 was written by the appellant to the respondent and its

conditions were accepted by the respondent vide its letter dated September 11, 1997.

17. Now, as per the evidence led before the learned Single Judge the view is correct for the reason the appellant could not justify the demand on the basis of the circular dated March 04, 1998.

18. However, corrective action has to be taken by us on account of the fact that along with the instant appeal the appellant had filed CM No.2675/2010 invoking Order 41 Rule 27 of the Code of Civil Procedure. The said application was allowed vide order dated September 12, 2011. Not only was the application allowed but a circular dated December 06, 1993 was taken on record as a proved document.

19. The circular in question stipulates the prevailing standard norms as on the date of the circular i.e. December 06, 1993 which circular was in force as of August 08, 1997 and September 11, 1997, and in respect to the Foreign Currency Loans, vide para 7(B) lists as under:-

"(B) Foreign Currency Loan (FCL) - (Non - ERAS)

(i) Where FCL agreements provide for charging of prepayment premia, institutions including IFCI, in turn, shall charge the premia at the same rate from the sub borrowers. Where such a provision did not exist, the following guidelines shall be followed:

When institutions including IFCI do not park their funds with the Reserve Bank of India (RBI), premium shall be recovered from the sub borrower, which shall be the sum of the net present value of the following:

(i) Normal institutional spread, which would have been received from the sub-borrower over the unexpired period of the loan(s) discounted at the current 6 month LIBOR for the currency;

(ii) Prepayment premium, if any, payable to institutions, including IFCI, lenders; and

EITHER

(iii) - the estimated loss on account of interest differentials on keeping the funds in deposits abroad up to the date of prepayment/repayment, discounted at the current six month LIBOR for the currency

OR

- the cost, if any, built into the parking facility by RBI, in case funds were allowed to be parked with them.

The premium as above calculated at prevailing market rates, would be collected in rupees. The prepayments shall have to be made in the respective currencies and any transaction cost in cross currency conversions, etc., shall have to be borne by the sub-borrowers."

20. We note that the calculation, under cover of Ex.P-15 i.e. appellant's letter dated September 17, 1997, are in conformity with the circular in question. We highlight that after the respondent, vide its letters dated September 11, 1997 accepted appellant's letter Ex.P-9 dated August 08, 1997, the appellant had worked out and communicated the demand as per Ex.P-15.

21. The appeal is accordingly allowed.

22. Impugned judgment and decree dated October 21, 2008 is set aside but on account of the fact that the appellant did not bring to the notice of either the respondent nor to the notice of the learned Single Judge the correct circular upon which it was relying we refrain from imposing any costs, making it clear that parties shall bear their own costs all

throughout.

23. Vide interim order dated April 21, 2009 passed in the appeal the execution of the impugned decree was stayed upon the condition that the appellant would deposit the decretal amount. The appellant complied with the said direction and vide order dated July 06, 2009 the respondent was permitted to withdraw the amount deposited by the appellant but under the condition that it would furnish a corporate guarantee to the satisfaction of the Registrar General of this Court. The respondent furnished the corporate guarantee, Ex.RW-1/1, and withdrew the decretal amount.

24. Since the decree has been reversed, the Registrar General of this Court is directed to raise a demand by invoking corporate guarantee Ex.RW-1/1 and after realizing the amount as per the guarantee, pay over the same to the appellant. As regards the interest which has accrued, appellant would be entitled to seek restitution as per law.

(PRADEEP NANDRAJOG) JUDGE

(MANMOHAN SINGH) JUDGE JULY 02, 2012 dk