Delhi High Court
Trinity Touch Private Limited vs Svc Cooperative Bank Limited on 8 July, 2019
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 8th July, 2019
+ CS(COMM) 1021/2018
TRINITY TOUCH PRIVATE LIMITED ..... Plaintiff
Through: Ms. Aditi Mohan with Mr. Shidharth
Mohan, Advs.
Versus
SVC COOPERATIVE BANK LIMITED ..... Defendant
Through: Mr. Anil Kumar Singh, Adv. along
with A.R.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. The plaintiff has instituted this suit for recovery of Rs.1,68,63,600/-
along with pendente lite and future interest at 18% per annum, from the
defendant bank.
2. It is the case of the plaintiff in the plaint, (i) that the plaintiff, from
time to time, for the purposes of its business, has been availing credit
facility from various banks and financial institutions; (ii) that till January,
2016, the plaintiff was banking with the Indian Overseas Bank (IOB) and
was availing various credit facilities therefrom, which were renewable on a
year to year basis and were due for renewal in January, 2016; (iii) that
sometime in June, 2015, the plaintiff required certain additional facilities
and was approached by the defendant in the month of December, 2015; (iv)
the defendant, vide letter dated 30th January, 2016, sanctioned in favour of
the plaintiff facilities which were earlier being availed of by the plaintiff
from IOB and after including additional credit facilities required by the
plaintiff; (v) the defendant, vide said letter sanctioned credit facilities to the
CS(COMM) No.1021/2018 Page 1 of 25
tune of Rs.43.88 crores in favour of the plaintiff; (vi) pursuant to the
aforesaid sanction, the credit facilities were disbursed to the plaintiff; (vii)
the defendant in the sanction letter aforesaid had included various penal
clauses which had not been discussed with and agreed to by the plaintiff;
(viii) that the sanction letter was due for renewal in the month of January,
2017; (ix) the plaintiff, vide letter dated 29th June, 2016 requested the
defendant for amendment of the terms of the sanction letter with respect to
pre-closure charges and pre-closure penalty and requested the defendant to
waive off/amend the same; another letter dated 5 th October, 2016 was also
sent in this regard; (x) the plaintiff, on 20th January, 2017 i.e. prior to the
expiry of the sanction letter dated 30th January, 2016, submitted a fresh
enhancement-cum-renewal proposal to the defendant and again requested
for waiver/amendment of condition no.13 qua prepayment/pre-closure
charges; (xi) however, till 31st January, 2017, the defendant neither renewed
the credit facilities nor responded to the renewal-cum-enhancement
proposal dated 20th January, 2017 of the plaintiff; (xii) the credit facilities
stood terminated with effect from 30th January, 2017 by efflux of time as
there were neither any extension nor any renewal of the earlier sanction
letter and which was to be done on or before 31 st January, 2017; (xiii) the
defendant, on 16th February, 2017 sought a response to certain queries from
the plaintiff in connection with the enhancement-cum-renewal sought by
the plaintiff and the plaintiff duly replied to the same on 20th February,
2017 itself; (xiv) the plaintiff also wrote letters dated 1st March, 2017 and
10th March, 2017 in this regard including for waiver of processing of
prepayment / pre-closure charges; (xv) the plaintiff, vide e-mail dated 14th
March, 2017 informed the defendant that the plaintiff was no longer
CS(COMM) No.1021/2018 Page 2 of 25
inclined to renew its credit facilities and requested the defendant for closure
of credit facility and release of collateral securities; the said request was
reiterated on 16th March, and 18th March, 2017; (xvi) to the shock and
surprise of the plaintiff, the defendant unilaterally renewed the credit
facilities vide e-mail dated 18th March, 2017 and also arbitrarily and
illegally debited an amount of Rs.17,25,000/- towards processing charges,
for renewal-cum-enhancement of credit facilities and informed the plaintiff
that the sanction letter will be shared shortly; (xvii) the plaintiff having
already on 14th March, 2017 informed the defendant that it was no longer
inclined to renew the credit facilities, the defendant was not entitled to
deduct processing charges of Rs.17,25,000/-; (xviii) a sanction letter dated
18th March, 2017 was also received by the plaintiff from the defendant,
calling upon the plaintiff to sign a duplicate copy thereof as a token of
acceptance of the terms and conditions thereof; (xix) the plaintiff did not
accept the terms and conditions of the said sanction letter and did not send
any signed duplicate copy thereof to the defendant; thus the enhancement-
cum-renewal sanction letter dated 18th March, 2017 was never accepted by
the plaintiff; (xx) the plaintiff, on 18th March, 2017 again informed the
defendant that the plaintiff had already requested the defendant to intimate
the final outstanding amount towards various facilities and thus had no
authority to unilaterally issue a sanction letter and also deduct processing
charges; (xxi) the defendant, vide e-mail dated 21st March, 2017 levied an
additional penalty of 3% on the total sanctioned limits allegedly towards
pre-closure/pre-payment of the credit facilities and which was also illegal
and in contravention of the sanction letter dated 30 th January, 2016; (xxii)
that the plaintiff was forced to switch to another bank on account of
CS(COMM) No.1021/2018 Page 3 of 25
inefficiency and the long delay on the part of the defendant to renew and
enhance the credit facilities which were urgently required by the plaintiff
for its business purposes; (xxiii) on 3rd April, 2017, the defendant recovered
an amount of Rs.1,51,38,600/- from the plaintiff towards prepayment
penalty charges by debiting the account of the plaintiff; (xxiv) the plaintiff,
being aggrieved, approached the Banking Ombudsman, RBI and to which a
reply was filed by the defendant; the Banking Ombudsman vide order dated
17th January, 2018 granted liberty to the plaintiff to approach the
appropriate forum, holding that the total amount of Rs.1,66,39,000/-
claimed by the plaintiff was not within the pecuniary jurisdiction of the
Banking Ombudsman; (xxv) that the renewal on 18th March, 2017 of the
credit facilities by the defendant is unilateral; and, (xxvi) the plaintiff was
thus entitled to recover a sum of Rs.1,68,63,600/- from the defendant.
3. The suit came up for admission before this court on 17th July, 2018,
when summons thereof were ordered to be issued.
4. The defendant has filed a written statement, pleading (i) on request of
the plaintiff, the defendant sanctioned a total credit facility of Rs.43.88
crores including both fund-based and non-funded limits, vide sanction letter
dated 30th January, 2016; (ii) that as per the terms of the sanction as well as
banking norms, these credit facilities were to be renewed every year; (iii)
the plaintiff, on 20th January, 2017 approached the defendant for
enhancement-cum-renewal of the credit facilities; (iv) the renewal-cum-
enhancement proposal was initiated by the defendant and the plaintiff
continued to avail credit facilities beyond date of review under the
sanctioned terms including prepayment penalty terms as per sanction letter
CS(COMM) No.1021/2018 Page 4 of 25
dated 30th January, 2016; as such closing of loan account during the
availment of credit facilities comes under the terms and conditions of
sanction letter dated 30th January, 2016; (v) the defendant was in process of
consideration of the enhancement amount as well as rate of interest and in
the meanwhile the plaintiff, without giving any prior notice, issued the
letter dated 14th March, 2017 informing that it was no longer inclined to
renew its credit facilities and requested for release of collateral securities;
and, (vi) the processing fee as well as pre-closure charges/penalty have
been recovered from the plaintiff in accordance with the norms and the
terms of the sanction letter dated 30th January, 2016.
5. No replication to the written statement has been filed by the plaintiff.
6. The suit came up before the undersigned on 24th April, 2019, for
framing of issues. Attention of the counsels was drawn to DLF Limited Vs.
Punjab National Bank (2011) 180 DLT 435, holding the levy by banks of
prepayment charges to be illegal and the counsel for the plaintiff was asked
to verify whether any appeal was preferred thereagainst and outcome
thereof.
7. The counsel for the plaintiff, on 24th April, 2019 contended that the
processing fee charges and the prepayment penalty charges recovered by
defendant from the plaintiff were contrary to the contract between the
parties and thus, otherwise also recoverable by the plaintiff from the
defendant. The counsel for the plaintiff also contended that no verbal
evidence is required to be recorded in the present suit and all documents of
each other have been admitted.
CS(COMM) No.1021/2018 Page 5 of 25
8. The counsel for the defendant however on 24th April, 2019 could not
respond satisfactorily and the hearing was adjourned to 22 nd May, 2019,
also directing the presence of the responsible officer of the defendant in this
Court. On 22nd May, 2019, the arguing counsel for the defendant appeared
but no officer of the defendant in a position to answer queries of the Court
appeared.
9. On pleadings of the parties, the following issues were framed on 22nd
May, 2019:-
(i) Whether the defendant Bank has illegally debited an
amount of Rs.1,51,38,600/- from the plaintiff‟s account
towards prepayment penalty charges? OPP
(ii) Whether the defendant Bank has illegally debited an
amount of Rs.17,25,000/- towards upfront processing fees?
OPP
(iii) Whether the plaintiff is entitled to interest @18% p.a. on
the aforesaid amounts? OPP
(iv) Whether the plaintiff continued to avail credit facilities
from the defendant beyond due date of review as per
Sanction Letter dated 30th January, 2016 and the suit is not
maintainable for this reason? OPD
10. The counsel for the defendant also, on 22nd May, 2019 stated that all
evidence required in the suit was documentary and no trial was necessary.
Accordingly, the suit was posted on 5th July, 2019 for final hearing.
CS(COMM) No.1021/2018 Page 6 of 25
11. The counsel for the plaintiff was heard on 5 th July, 2019 and the
hearing adjourned to today, for arguments of the counsel for the defendant.
The counsel for the defendant has also been heard.
12. The counsel for the plaintiff, in response to the query made states that
though an appeal has been preferred against DLF Limited supra to the
Division Bench of this Court, but is still pending consideration.
13. The counsel for the plaintiff has argued, (i) that the defendant
sanctioned the credit facilities in favour of the plaintiff on 30 th January,
2016 and which was to be re-paid within one year; (ii) the monies were
actually disbursed on 26th February, 2016; (iii) that the plaintiff, on 20th
January, 2017 requested the defendant for renewal of the facilities and for
enhancement of loan; (iv) the defendant inordinately delayed the
consideration of the said request of the plaintiff and the plaintiff,
exasperated therefrom, on 14th March, 2017 asked the defendant to close
the account of the plaintiff; (v) notwithstanding the same, the defendant on
18th March, 2017 issued a sanction letter and terms and conditions whereof
have not been accepted by the plaintiff; (vi) notwithstanding the plaintiff
having not accepted the terms and conditions of the sanction letter dated
18th March, 2017, the defendant has recovered from the plaintiff processing
charges and also levied pre-closure/prepayment charges from the plaintiff
and which recovery was unlawful and the plaintiff has instituted this suit for
reimbursement of the said amounts; and, (vii) that though the defendant has
recovered prepayment penalty/charges from the plaintiff, but has not
pleaded any damages having been suffered by the defendant from
prepayment.
CS(COMM) No.1021/2018 Page 7 of 25
14. The counsel for the defendant, besides reiterating the dates aforesaid,
has taken me through the same documents which the counsel for the
plaintiff had taken me through and also referred to some additional
documents.
15. I have considered the pleadings, evidence in the form of documents
and contentions.
16. The defendant, vide sanction letter dated 30th January, 2016 Ex.P-1,
informed the plaintiff that the Board of Directors of the defendant, in the
meeting held on 29th January, 2016, had sanctioned the credit facilities as
under in favour of the plaintiff:-
"Facility Prime Security Margin Exist Addn/Redc. Total R.O.I.
p.a./Remarks
Cash Credit Hypn. Of stock 25% 0.00 2300.00 2300.00 [email protected]
& book debts 5.25%
i.e.12.25% p.a.
Renewal due in
January 2017
PC/PCFC Pre shipment 10% 0.00 100.00 100.00 As stipulated by
credit under LC IBD Renewal
due in January
2017
FDBP/FUDBP Post shipment Nil 0.00 (100.00) (100.00) As stipulated by
(sublimit of credit under IBD Renewal
PC/PCFC sight/usance due in January
upto 180 days 2017
under confirmed
contracts
Bills Underlying bills Nil 0.00 800.00 800.00 Rate of Interest
discounting backed by shall be Market
under LC (DA confirmed L/C driven, to be
90 days) opened by confirmed with
nationalized
CS(COMM) No.1021/2018 Page 8 of 25
bank, Scheduled CGM, Credit.
Co-operative
bank & private Renewal due in
sector bank January 2017
Term Loan* Equitable 25% 0.00 388.00 388.00 [email protected]
(LRD) Mortgaged of 3.50% i.e.
(Takeover) Building B 14.00% p.a.
located in
Village Dudhola Repayable in 48
Tehsil & EMI of Rs.10.60
Dist.Palwal, lacs
Haryana.
Review due in
Assignment of January 2017
total net rent
Shortfall in EMI
receivable from
vis-à-vis actual
Phoneix Contact
rentals at any
India Pvt. Ltd.
point of time,
should be met
by the Company
out of own
funds.
Total Funded Limits 0.00 3588.00 3588.00
LC Limit Documents to 10% in 0.00 800.00 800.00 Commission as
Inland/Import goods and FD per card rate
DA usance not pledge of Term
exceeding 120 Deposits
days
Counter
Bank Guarantee
Guarantee**
Total Non-Funded Limit 0.00 800.00 800.00
Total Funded & Non-Funded limit 0.00 4388.00 4388.00
17. The aforesaid sanction letter also contains the Special Terms and
Conditions and the counsel for the plaintiff and the counsel for the
defendant have during their arguments referred to the following clauses:-
"4. Upfront processing charges @ 0.50% of Rs.17.94 lacs plus
applicable Service Tax to be paid prior to disbursement.
CS(COMM) No.1021/2018 Page 9 of 25
5. Bank statement of the Current a/c with Indian Overseas
Bank to be submitted every month. Credits routed through this
a/c to be transferred to cash credit a/c maintained with our
Bank. Company to route transactions through cash credit
account to be maintained with our Bank.
xxxxxxxx xxxxxxx xxxxxx
10. The unsecured loans as per projections be kept in the
business on long term and the same should not be repaid
without bank's permission. The rate of interest on unsecured
loans should not exceed bank's rate of interest.
xxxxxx xxxxxx xxxxxxx
13. Pre-mature closure/Pre-payment of the loan/credit facility
any time during the currency of the advance will attract penalty
charges @ 3.00% on the outstanding balance in case of Term
Loans and on the sanctioned limit or the outstanding balance
whichever is higher in case of other credit facilities at the time
of take over.
14. Facility to be review on or before January 2017."
18. Clause 6 of the "Specific Terms and Conditions for Cash Credit
Facilities" in the said sanction letter is as under:-
"6. Period of Advance: Repayable on demand. The facility is
available for one year subject to review in January 2017 when it
may be cancelled/reduced, depending upon the conduct and
utilisation of the advance."
19. The counsel for the defendant has also drawn attention to Clause 13
of the General Terms and Conditions of the said sanction letter and which is
as under:-
"13. The company should obtain the written consent of the Bank
in respect of the following matters:
CS(COMM) No.1021/2018 Page 10 of 25
a. Entering into any borrowing arrangement with any other
bank/financial institution or with any other party.
xxxxxxx xxxxxx xxxxxx
g. Premature repayments of loans and discharge of other
liabilities."
20. The said sanction letter, at the end provides as under:-
"If all the aforesaid terms and conditions are acceptable to you,
kindly sign duplicate copy of this Sanction Letter as a token of
acceptance and return for our record."
21. The plaintiff signed a duplicate copy of the sanction letter dated 30th
January, 2016 and forwarded the same to the defendant.
22. During the hearing, it is enquired from the counsel for the plaintiff,
whether not though as per the said sanction letter, the Cash Credit,
PC/PCFC, FDBP/FUDBP and Bills discounting under LC limits sanctioned
in favour of the plaintiff, as per the last column titled "R.O.I p.a./Remarks",
were renewable in January, 2017 but the term loan sanctioned was
repayable in 48 EMIs of Rs.10.60 lacs and whether not the plaintiff indeed
has prepaid the term loan on 30th March, 2017.
23. The counsel for the plaintiff contends, that out of the entire limit of
Rs.43.88 crores, the term loan was only of Rs.3.88 crores and the
outstanding thereagainst as on 3rd April, 2017 was Rs.2,97,98,421/- only
and prepayment charges at the rate of 3% could at best be only on that i.e.
amounting about Rs.8.9 lacs and the defendant has instead recovered
Rs.1,51,38,600/- from the plaintiff. It is also argued that though the last
column in the table in the sanction letter, reproduced above, against the
CS(COMM) No.1021/2018 Page 11 of 25
term loan, provides for the same to be repayable in 48 EMIs of Rs.10.60
lacs, but also provides for review thereof to be due in January, 2017 and
Clause 6 reproduced above titled "Period of Advance" qua the same also
provided that it was available for one year and was subject to review in
January, 2017.
24. The counsel for the defendant has argued, (i) that of the total limit of
Rs.43.88 crores, fund-based limit i.e. limit against security, was of Rs.35.88
crores and non fund-based limit i.e. limit without any security, was for Rs.8
crores only; (ii) that the plaintiff, besides signing sanction letter, had also
signed letter of continuity Ex.P-27 as under:-
"With reference to the Demand Promissory Note Dated
19.02.2016 in your favour signed and/or endorsed by me/us for
Rs.8,00,00,000/- (Rupees Eight Crores only) in respect of the
abovementioned account, I/We/the Company do and each one of
us doth hereby agree and undertake that the said Demand
Promissory Note is to stand and be regarded as a continuing
security and be enforceable for all monies which now are or
which may at any time hereafter become due and owing by the
undersigned M/s. Trinity Touch Pvt. Ltd., a Company
registered under the Companies Act, 1956 and having its
registered office at D 10, Defence Colony, New Delhi, Delhi -
110024, to the Bank on the said account or any other account or
accounts and whether or not from time to time there be nothing
owing in such account or the same may be in credit .
Dated at New Delhi this 19th day of Feb. 2016.",
clearly indicating that the loan was to continue; (iii) that the plaintiff
has violated clause 13A of the sanction letter dated 30 th January, 2016 by,
without obtaining written consent of the defendant bank, entering into a
borrowing arrangement with HDFC bank, and with monies received
CS(COMM) No.1021/2018 Page 12 of 25
wherefrom, pre-mature payment had been made to the plaintiff; (iv) that the
plaintiff, vide its letter dated 20th January, 2017, besides renewal, also
sought enhancement of credit limits and which could not have been
enhanced at the level of the branch and was being processed and the
meeting of the Board of Directors of the defendant was scheduled for 17 th
March, 2017, including for consideration of the renewal-cum-enhancement
proposal of the plaintiff; (v) however, the plaintiff on 14th March, 2017,
vide its e-mail Ex.P-11 as under:-
"Dear Sir,
Further to our telephonic discussion with you today, we are
sorry to know that our enhancement proposal has got postponed
to Bank's Committee meeting due now on March 17, 2017. This
is quite disheartening since we've originally submitted proposal
almost 2 months ago and have been emphasizing upon taking it
up on priority, but hasn't been considered so by the bank.
Beside this, we understand that bank is unable to meet our
expectations on commercial pricing either.
In light of these facts and circumstances, we are not interested
in renewing our credit facilities and request you to let us know
the outstanding amount to be paid towards closure of credit
facilities with you. Also, we would request you to release our
collateral securities and charge on current assets suitably. We
thank you for the support and cooperation extended to us in last
one year.",
withdrew the renewal-cum-enhancement proposal dated 20th January,
2017 and on 30th March, 2017 deposited the outstanding in the account of
the defendant; 31st March, 2017 was year ending and 1st and 2nd April, 2017
were Saturday and Sunday; the amounts so received from plaintiff was
CS(COMM) No.1021/2018 Page 13 of 25
adjusted against the outstanding from the plaintiff on 3rd April, 2017; (vi)
that the plaintiff, till 30th March, 2017, was availing of all the credit
facilities sanctioned vide letter dated 30th January, 2016 by the defendant
and the defendant was permitting the plaintiff to so enjoy credit facilities
even beyond 30th January, 2017, because the proposal of the plaintiff for
renewal-cum-enhancement was pending consideration and was being
processed; (vii) it is thus not open to the plaintiff to contend that the
plaintiff has not prepaid, because the plaintiff also continued to enjoy the
credit facilities beyond 30th January, 2017, on the premise that the proposal
for renewal-cum-enhancement was being processed; and, (viii) the sanction
letter was only revivable after one year.
25. I have drawn the attention of the counsel for the defendant to the last
column of the table in the sanction letter dated 30 th January, 2016 and
which has been reproduced here-in-above, and which against all other
limits except term loan, provides for the same to be renewable in January,
2017.
26. The counsel for the defendant contends that the word "renewable"
therein is a typographical error and should have been "reviewable".
27. However, on enquiry whether the defendant in its written statement
has pleaded "renewable" to be a typographical error instead of
"reviewable", the counsel for the defendant fairly states that no such plea
has been taken.
28. On enquiry, whether the defendant has claimed any damages from
the plaintiff for loss if any suffered by the defendant from the plaintiff,
CS(COMM) No.1021/2018 Page 14 of 25
without the written consent of the defendant, having availed of facilities
from HDFC bank, the answer is in the negative.
29. On enquiry, whether the Board of Directors of the defendant, on 17th
March, 2017, was informed of the communication dated 14th March, 2017
from the plaintiff, of withdrawal of the renewal-cum-enhancement
proposal, the answer is again in the negative.
30. On enquiry, whether not the defendant, for the plaintiff having
availed of the credit limits till 30th January, 2017, has charged up-to-date
interest thereon, the answer is in the affirmative.
31. I have enquired from the counsel for the defendant that even though
the defendant may have processed the renewal-cum-enhancement proposal
dated 20th January 2017 of the plaintiff, but admittedly there was no
sanction thereof till 14th March, 2017, when the plaintiff withdrew the said
proposal; in the circumstances, how can the defendant charge processing
charges from the plaintiff, when the said processing was halted by
withdrawal of proposal.
32. The counsel for the defendant states that the processing charges are
recovered year after year i.e. on every review and which review has to be
yearly as per norms.
33. In DLF Limited supra, exercising writ jurisdiction, I was concerned
with a challenge to the demand of the respondent Bank therein, of pre-
payment charges, without there being a provision therefor in the loan
agreement. It was held, that (i) if loan agreement provides for re-payment
of loan in a specified period, pre-payment of the loan by the borrower
before the specified period at best amounts to breach of the loan agreement
and the remedy of the bank for such breach would be to claim
compensation therefor from the borrower; (ii) even if for such breach a
penalty is stipulated, the same under Section 74 of the Indian Contract Act,
1872 read with dicta of the Constitution Bench in Fateh Chand Vs.
Balkishan Dass AIR 1963 SC 1405, is only the maximum extent of penalty
/ compensation payable for such breach; (iii) the bank would still be liable
to prove the loss suffered by it by such breach and would be entitled to only
such compensation to the extent of the loss shown/proved; (iv) unless such
compensation is determined, the bank could not have a right to unilaterally
debit the account of the borrower or else recover the claimed amount
coercively from the borrower; (v) every borrower has an inherent right to
free himself from the loan; and, (vi) similarly every lender has a right in
law to recall the loan at any time unless they agree to suspend that right for
a limited period and in which case, they are barred from recalling the loan
for that period.
34. The counsel for the plaintiff states that it is not the plea of the
defendant also in its written statement that the defendant, owing to alleged
pre-payment of loan by the plaintiff, has suffered any damages and the
defendant has not claimed any damages from the plaintiff.
35. The counsel for the defendant is unable to controvert.
36. Applying DLF Limited supra, the defendant was not entitled to
recover the amount of Rs.1,51,38,600/- towards pre-payment charges from
the plaintiff as a condition for release of securities of the plaintiff and which
securities were required by the plaintiff for deposit with HDFC bank, with
assistance wherefrom the plaintiff re-paid the loan of the defendant. The
plaintiff, in my view is entitled to a decree, insofar as amount of pre-
payment charges recovered is concerned, on this ground alone.
37. It is however the contention of the counsel for the plaintiff that even
in terms of the documents executed by the parties, no pre-payment charges
are recoverable by the defendant from the plaintiff. The counsel for the
plaintiff in this regard has referred to the various clauses of the sanction
letter dated 30th January, 2016 and which have also been set out
hereinabove.
38. The sanction letter dated 30th January, 2016 though in Clause 13 of
the "Special Terms & Conditions" provides that premature closure / pre-
payment of the loan / credit facility at any time during the currency of the
advance will attract penalty charges at 3% of the outstanding balance in
case of term loans and on the sanctioned limit or the outstanding balance,
whichever is higher in case of the credit facilities at the time of takeover,
but at the same time with respect to the facility of Rs.23 crores towards
cash credit, Rs.1 crore towards pre-shipment credit under LC, Rs.1 crore
towards post-shipment credit and Rs.8 crores with respect to underlying
bills, in the said sanction letter states that the said facilities were to be
renewed in January, 2017. The argument of the counsel for the defendant,
admittedly without any pleading, that in the sanction letter dated 30 th
January, 2016 the word „renewal‟ with respect to the aforesaid limits /
facilities is a typographical mistake for „reviewable‟, cannot be accepted.
Moreover, the fact that the sanction letter specifically provides for term
loan to be "reviewable" and all the other facilities provided by the
defendant to be "renewable", does not lend confidence to the argument that
the usage of the word "renewal" was a typographical error.
39. However the sanction letter dated 30th January, 2016 with respect to
the term loan of Rs.38.8 crores does provide for the same to be repayable in
48 equated monthly installments, indicating that the term of the said loan
was of 48 months and any repayment thereof prior thereto would be pre-
payment. However after stipulating that the term loan was repayable in 48
equated monthly installments, with respect to the said term loan, it was
stated that the review thereof was due after one year, in January, 2017.
Clause 14 of the „Special Terms and Conditions‟ also provides that the
facility, meaning the entire facility sanctioned under the sanction letter,
including Rs.38.8 crores towards term loan, was to be reviewed on or
before January, 2017.
40. Once the sanction letter dated 30th January, 2016 stipulates the period
of advance as repayable on demand and for one year only and / or
reviewable at the end of the year, the conclusion is inevitable that the term
for which financial facilities were sanctioned vide sanction letter dated 30th
January, 2016 was of one year only, and payment thereof prior to one year
would constitute pre-payment and payment at the end of the year would not
constitute pre-payment.
41. The fact, that the plaintiff vide its letter dated 20th January, 2017
sought renewal of the entire existing facility sanctioned on 30 th January,
2016 and sought enhancement thereof and / or fresh facilities and the
defendant also entertained the same, also evidences that the plaintiff as well
as the defendant also understood and acted on the understanding that the
facilities sanctioned on 30th January, 2016 were for a term of one year only,
beginning from 30th January, 2016.
42. The defendant also as per the aforesaid understanding, vide its
communication dated 18th March, 2017, informed the plaintiff that it had
reviewed the credit facilities and consented to enhance the credit facilities
as requested by the plaintiff vide its letter dated 20th January, 2017 and that
the sanction letter will be following. Not only so, the defendant vide the
said communication also informed the plaintiff that it had also recovered
Rs.15 lacs plus tax from the plaintiff towards renewal-cum-enhancement of
credit facilities. Had the credit facilities been for a term of more than one
year, the question of renewal thereof after one year would not have arisen.
The defendant processed the request of the plaintiff for renewal and
sanctioned the renewal only because the facilities sanctioned on 30 th
January, 2016 were for one year only. The sanction letter subsequently
issued by the defendant on 18th March, 2017 itself also bears the subject
"Renewal-cum-Enhancement of Credit Facilities" and informs the plaintiff
that the plaintiff‟s request for renewal-cum-enhancement of credit facilities
has been approved by the Board of Directors of the defendant, again
indicating that the earlier sanction dated 30th January, 2016 was for one
year only. Not only so, the term of the facilities, in the sanction letter dated
18th March, 2017, is again shown for one year with renewal due in January,
2018. Though against term loan and fresh term loan sanctioned, again it
was indicated that the same was repayable in 48 equated monthly
instalments and / or in 60 equated monthly instalments, but with the rider
that the same was also reviewable in January, 2018. Not only so, the
sanction letter dated 18th March, 2017 also under „Special Terms &
Conditions‟ provides for all the facilities thereunder to be reviewable on or
before January, 2018.
43. The plaintiff, though on 20th January, 2017 i.e. prior to the expiry of
one year from 30th January, 2016, vide its letter dated sought renewal from
the defendant of the credit facilities, and also certain additional credit
facilities, but upon not hearing anything from the defendant inspite of
repeated requests and reminders, vide its communication dated 14 th March,
2017, recalled its letter dated 20th January, 2017 and unequivocally
informed the defendant that the plaintiff was no longer interested in renewal
of its credit facilities from the defendant and wanted to clear the
outstanding and called upon the defendant to disclose the outstanding.
44. The letter dated 20th January, 2017 of the plaintiff to the defendant
requesting for renewal-cum-enhancement of credit facilities was in the
nature of an offer of the plaintiff. The said offer was withdrawn by the
plaintiff on 14th March, 2017, prior to acceptance thereof by the defendant.
With effect from the communication dated 14 th March, 2017, there was no
offer of the plaintiff, which could have been accepted by the defendant.
Thus the purported acceptance by the defendant of the offer dated 20 th
January, 2017 which had been withdrawn vide the communication dated
14th March, 2017, did not bring about any binding contract of renewal and
enhancement of the credit limits. Section 5 of the Indian Contract Act,
1872 provides that a proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but
not afterwards. Thus, the plaintiff was entitled to withdraw the renewal-
cum-enhancement letter dated 20th January, 2017 at any time before the e-
mail dated 18th March, 2017 of the defendant. Reference in this regard may
also be made to National Highways Authority of India Vs. Ganga
Enterprises (2003) 7 SCC 410, New India Assurance Company Ltd. Vs.
Raghuvir Singh Narang (2010) 5 SCC 335, and Union of India Vs. V.K.
Jain 2012 SCC OnLine Del 193 (DB).
45. Not only so, the acceptance by the defendant was not absolute in as
much as the defendant did not agree to each and every term contained in the
offer letter dated 20th January, 2017 of the plaintiff. It is for this reason
only that the defendant also in its letter dated 18 th March, 2017 called upon
the plaintiff to sign a duplicate thereof in token of its acceptance. The letter
dated 18th March, 2017 was thus in the nature of a counter offer. The
plaintiff did not accept the counter offer and on the contrary on 18th March,
2017 itself again informed the defendant that it was no longer interested in
availing the credit facilities from the defendant.
46. Seen in the aforesaid light, repayment by the plaintiff to the
defendant on 30th March, 2017 of the credit facilities was after the period of
one year of the earlier sanction and before the fresh contract. The said
repayment cannot be claimed to be pre-mature or pre-payment, to attract
penalty as stipulated in the sanction letter. The repayment by the plaintiff
during the period of sanction vide letter dated 30 th January, 2016 or even
immediately after renewal and before the end of the period of renewal could
qualify as pre-payment, but not the repayment after the period of one year
of sanction vide letter dated 30th January, 2016 and before any fresh
contract came into being between the parties.
47. The mere fact that the defendant, after the period of one year of
sanction vide letter dated 30th January, 2016, had allowed the plaintiff to
continue the credit facilities while it was considering renewal thereof,
would also not in my view qualify repayment as pre-payment. During the
said time, there was no specific term for which the plaintiff was entitled to
enjoy the facility and the defendant was free to recall the same at any time
and the plaintiff was also free to withdraw its requests for renewal and
repay as the plaintiff did.
48. Interpreting the sanction letter constituting the agreement between
the parties and the correspondence exchanged between the parties, no case
of pre-payment or premature payment is made out and in any case the
defendant has not pleaded least proved any loss or damage from such pre-
payment, and not claimed any loss or damage and / or being entitled to
coerce the plaintiff to pay the amounts illegally claimed as a condition to
release the securities of the plaintiff withheld by the defendant and having
so recovered the amount, is liable to reimburse the same.
49. What has been analyzed above, also holds good for the processing
charges of Rs.17,25,000/- recovered from the plaintiff. Though
undoubtedly, the defendant commenced processing the request dated 20 th
January, 2017 of the plaintiff for renewal and enhancement of credit
facilities, but before the defendant took any decision, the plaintiff on 14 th
March, 2018 recalled its letter dated 20th January, 2017 and after which
recall there was no request or offer of the plaintiff to be accepted by the
defendant or to be processed further by the defendant. Even though the
defendant may have from 20th January, 2017 till 14th March, 2017
processed the request dated 20th January, 2017 of the plaintiff, but the
defendant in law is not entitled to recover charges for an aborted act. It is
the settled law that the preparations made for entering into a contract, if no
contract is ultimately entered into, do not give rise to any claims unless it is
established that the said steps were at the specific asking of the other party
and charges thereof were payable irrespective of whether the contract is
entered into or not. Reference in this regard may be made to Santi Devi Vs.
Life Insurance Corporation of India 1983 SCC OnLine Ori 120 (DB),
Regalian Properties PLC Vs. London Docklands Development
Corporation (1995) 1 WLR 212, T.N. Peermohamed Vs. The D.F.O.
Tenmala AIR 1974 Ker 192, State of Orissa Vs. Harinarayan Jaiswal
(1972) 2 SCC 36, Aggarwal Associates (Promoters) Ltd. Vs. Delhi
Development Authority (2010) 15 SCC 380, and, K. Poovendran Vs.
Assistant Director 2017 SCC OnLine Mad 19190. Such is not even the
pleaded case of the defendant. Rather, it is inexplicable as to why the
Board of Directors of the defendant bank, in the meeting held on 18th
March, 2017 considered the request dated 20th January, 2017 of the plaintiff
which had already been recalled / withdrawn and proceeded to issue a
sanction letter in terms thereof, albeit with some modification. Such
wrongful act of the defendant would not entitle the defendant to any claim
towards processing charges from the plaintiff. Thus, the unilateral recovery
of processing charges of Rs.17,25,000/- by the defendant from the plaintiff
is also found to be illegal and plaintiff is entitled to reimbursement thereof.
50. Accordingly, (1) I decide issue no.(i) in favour of the plaintiff and
against the defendant, by holding that the defendant bank has illegally
debited an amount of Rs.1,51,38,600/- from the plaintiff account towards
pre-payment charges; (2) I hold that the defendant bank has illegally
debited an amount of Rs.17,25,000/- towards upfront processing charges,
deciding the issue no.(ii) in favour of the plaintiff and against the
defendant; (3) however considering the facts and circumstances of the case,
I find the plaintiff entitled to interest pendente lite and till 30th September,
2019, at 7% per annum; however if the defendant does not satisfy the
decree within said time, the defendant shall ideally / normally be liable for
interest at the same rate as claimed under the sanction letter from the
plaintiff i.e. at the rate of 12.25% per annum with monthly rests; however
the plaintiff having confined the claim for interest at 18% per annum, the
defendant, after 30th September, 2019, would be liable for interest till the
date of payment at 18% per annum; issue no.(iii) is decided accordingly; (4)
under issue no.(iv), I hold that the plaintiff did continue to avail credit
facilities from the defendant beyond the due date for renewal/review as per
sanction letter dated 30th January, 2016, but the counsel for the defendant
has not even urged any argument as to how the same can make the suit not
maintainable. I am unable to fathom any. Issue no.(iv) is decided
accordingly.
51. A decree is passed, in favour of the plaintiff and against the
defendant, of recovery of Rs.1,68,63,600/- along with interest at 7% per
annum from the date of institution of the suit till today and till 30th
September, 2019 whereafter the defendant shall be liable for interest on the
principal amount at 18% per annum.
52. The plaintiff is also entitled to costs of the suit against the defendant,
with professional fee assessed at Rs.2 lacs.
Decree sheet be drawn up.
RAJIV SAHAI ENDLAW, J.
JULY 08, 2019
„AK/gsr‟..
(corrected & released on 5th August, 2019)
(Interest till 30th September, 2019 at 7% is
decreed keeping in mind the release date)
