IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON WEDNESDAY, THE 19TH DAY OF MARCH 2014/28TH PHALGUNA, 1935 WP(C).No. 4985 of 2014 (W) PETITIONER : KERALA FASHION JEWELLERY, PUZHAKKAL TRADE COMPLEX, MANJERI ROAD, PANDIKKAD MALAPPURAM, REPRESENTED BY ITS MANAGING PARTNER O.K.BIJU. BY ADVS.SRI.A.ANTONY SMT.LEELAMMA ANTONY RESPONDENTS : 1. THE REGIONAL HEAD, RESERVE BANK OF INDIA, BAKERY JUNCTION, THIRUVANANTHAPURAM - 695 033. 2. THE BANKING OMBUDSMAN, OFFICE OF THE BANKING OMBUDSMAN, BAKERY JUNCTION THIRUVANANTHAPURAM - 695 033. 3. AXIS BANK LTD., PATTOM BRANCH, PATTOM, THIRUVANANTHAPURAM - 695 005, REPRESENTED BY ITS BRANCH MANAGER. 4. DY. VICE-PRESIDENT, SME BUSINESS, GROUP, AXIS BANK LTD., SME CENTRE 1 FLOOR, PUKALAKKAT CITY CENTRE & SIVADAS TOWERS PALARIVATTOM, KOCHI - 682 025. 5. ING VYSYA BANK LTD., THRISSUR BRANCH, KOKKALA, THRISSUR REPRESENTED BY ITS BRANCH MANAGER. R3 & R4 BY ADVS. SRI.N.T.NANDAKUMAR (PARAVUR) SMT.C.R.RADHIKA R5 BY ADV. SRI.SURESH KUMAR KODOTH THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 19-03-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ttb WP(C).No. 4985 of 2014 (W) APPENDIX PETITIONER'S EXHIBITS : EXT.P1: TRUE COPY OF THE LOAN SANCTION LETTER ISSUED BY THE RESPONDENT NO.4 TO THE PETITIONER DATED 28/1/2013. EXT.P2: TRUE COPY OF LETTER OF PETITIONER DATED 31/1/2014 ADDRESSED TO THE 4TH RESPONDENT. EXT.P3: TRUE COPY OF LETTER OF PETITIONER TO 4TH RESPONDENT AXIS BANK ENCLOSING A PAY ORDER FOR RS.14 CRORES OF 5TH RESPONDENT ING VYSYA BANK DATED 04/02/2014. EXT.P4: TRUE COPY OF PAY ORDER FOR RS.14 CRORES OF 5TH RESPONDENT ING VYSYA BANK IN FAVOUR 03/02/2014. EXT.P5: TRUE COPY OF LETTER DATED 05/02/2014 OF THE 4TH RESPONDENT ADDRESSED TO THE PETITIONER. EXT.P6: TRUE COPY OF LETTER DATED 8/2/2014 OF THE PETITIONER ADDRESSED TO THE 4TH RESPONDENT. EXT.P7: TRUE COPY OF REPRESENTATION DATED 8/02/2014 SUBMITTED BY THE PETITIONER BEFORE THE 1ST RESPONDENT. EXT.P8: TRUE COPY OF COMMUNICATION DATED 11/02/2014 FROM THE 4TH RESPONDENT ADDRESSED TO PETITIONER. EXT.P9: TRUE COPY OF COMPLAINT DATED 14/02/2014 PREFERRED BY THE PETITIONER BEFORE 2ND RESPONDENT. RESPONDENTS' EXHIBITS : NIL. /TRUE COPY/ PA TO JUDGE ttb (CR.) P.R. RAMACHANDRA MENON J. W.P.(C) No. 4985 of 2014 Dated, this the 19th day of March, 2014 JUDGMENT
The demand made by the 3rd respondent Bank vide Exts. P5 and P8 asking the petitioner to satisfy a sum of Rs. 62,92,160/- as "pre-closure charges" of the loan account, which is sought to be taken over by the 5th respondent Bank (at the instance of the petitioner), made the petitioner to approach this Court by filing the present writ petition. The course pursued by the 3rd respondent Bank in realizing the amount is sought to be justified by them with reference to 'Clause 28' of Ext. P1.
2. The sequence of events is as given below : The petitioner is running a jewellery, who had availed financial assistance from the 3rd respondent Bank to an extent of Rs. 14 Crores. After considering and analysing the credentials of the petitioner, the same was sanctioned vide Ext. P1 memo dated 28.01.2013, by way of cash credit facility; tenure of which was for a period of 'one year' (12 months). In the course of transactions, it is stated that the petitioner was being confronted with bitter experience, with regard to 'allegedly defective service' from the part of the 3rd respondent on various heads and in the said circumstance, the petitioner submitted Ext. P2 before the third respondent Bank intimating that the petitioner did not want to continue the financial arrangement with the 3rd respondent Bank any more and sought the same to be taken over by the 5th respondent Bank, who had come to the rescue of the petitioner. The tenure of the term loan was over by 27th January, 2014 and it was accordingly, that Ext.P2 letter was submitted by the petitioner on 31.01.2014, followed by Ext. P3 communication dated 04.02.2014. The 5th respondent Bank furnished Ext. P4 'Pay Order' worth Rs. 14 Crores on 03.02.2014. On receipt of Ext. P3 from the petitioner, the third respondent issued Ext. P5 communication/reply dated 05.02.2014, pointing out that, apart from the outstanding liability of Rs.13,99,35,158.05 as on 04.02.2014 and interest up to that date coming to the tune of Rs. 1,95,561.20, the petitioner had also to satisfy a sum of Rs. 62,92,160.00 towards the "pre-closure charges" @ 4 % of the sanctioned limit (Rs. 56 lakhs plus ST), thus showing the total liability as Rs. 14,64,22,879.25. It was also mentioned in Ext. P5, that in addition to the above, penal interest for non-renewal of limits and up-to-date interest on the outstanding amount till the date of payment, shall also be levied. The petitioner sought to explain the position by submitting Ext. P6 dated 08.02.2013 before the 3rd respondent, but the same did not evoke any positive result, which made the petitioner to file Ext. P7 complaint before the first respondent/Reserve Bank of India and Ext. P9 complaint before the second respondent/Banking Ombudsman. The petitioner has approached this Court for immediate intervention, challenging the course and proceedings being pursued by the 3rd respondent.
3. A counter affidavit has been filed by the respondents 3 and 4 contending that the idea and understanding of the petitioner is quite wrong and misconceived in all respects. It is stated that the course sought to be pursued by the respondent No. 3 is with reference to 'Clause 28' of Ext. P1 sanction letter, whereby it has been clearly mentioned that, if at all any credit liability is taken over, 'penalty' to an extent of 4 % has to be satisfied. As such, the proceedings are stated as perfectly within the four walls of law and that the same is not assailable under any circumstances. Various other aspects are also pointed out in the counter affidavit. The petitioner has filed a reply affidavit as well.
4. Heard the learned counsel for the petitioner, the learned counsel for the 3rd respondent Bank and the learned counsel for the 5th respondent Bank as well.
5. The main dispute raised from the part of the 3rd respondent is with reference to 'Clause 28' of Ext. P1 sanction letter, which reads as follows :
"28. For takeover of limits by another Bank/FIs, penal charges of four percent of limit shall be levied."
By virtue of the said Clause, it is contended as obligatory for the petitioner to have satisfied the liability under the said Clause as well. It is sought to be explained during the course of hearing, that the wording in Ext. P5 describing the same as 'pre-closure charges' is only a mistake and that, it is actually the 'penalty' as contemplated under 'Clause 28' of Ext. P1. It is also contended that the writ petition itself is not maintainable, as it is purely a matter of contract and there is no public duty as far as the third respondent is concerned, with regard to the affairs of the petitioner herein. Reliance is sought to be placed on the decision rendered by the Apex Court in [PRECEDENT].
6. The version of the petitioner in response to above proposition mooted by the 3rd respondent is that, in view of the 'public duty' cast upon the 3rd respondent, 'writ' is maintainable, more so in view of the observations in 'paragraph 41' of the decision rendered by the Apex Court reported in [PRECEDENT]. The said dictum was followed in the subsequent decision reported in [PRECEDENT] as well. It is contended that there is no dispute with regard to [SECTION], but the same is applicable only in so far the loan period is not over and once the tenure is over, and the liability sought to be cleared by causing the same to be taken over, there cannot be any grievance for the third respondent. The first and foremost question to be answered is, whether the writ petition is maintainable.
7. It is settled law that, normally no writ petition is liable to be entertained by this Court, in contractual matters. The issue stands meticulously considered and explained by the Apex Court as per the decision reported in [PRECEDENT] [Sri. [PRECEDENT].] holding that writ is maintainable, even against an individual private Company, by virtue of the wider expression used under [SECTION] of the [ACT], provided there is a 'public duty'. Nature of public duty to be discharged by the parties concerned (respondents), depends upon the relevant facts and circumstances. The position has been clarified by the Apex Court, as discernible from paragraph 41 of the decision rendered in [PRECEDENT] (cited supra) and it was reiterated in the decision reported in [PRECEDENT] (cited supra). There is no dispute with regard to the law declared by the Apex Court in the decision cited by the respondents as well i.e. [PRECEDENT] (cited supra); but the question to be considered is whether the transaction with the 3rd respondent herein is purely a matter of private affair or not.
8. Admittedly, the third respondent is running the show, drawing the source of power from the [ACT] and also the relevant Rules, coupled with the orders/instructions issued by the Reserve Bank of India. The right to collect deposits and disbursement of loans in different sectors including Agricultural, Educational, Business and such other fields, collection of interest at the prescribed rate without exceeding the limit, realization of the due amount invoking the remedy as permissible under the relevant provisions of law etc; are functions which are to be pursued within a pre-set frame work and these functions are to be discharged in terms of the 'public duty' cast upon the third respondent. It is not a private affair between the petitioner and the 3rd respondent, merely on the basis of an agreement, to be taken out side the purview of judicial scrutiny of this Court; but it forms part of 'Banking Service' which involves a public duty. Banking is always a service, which is being rendered to the customers/general public and in view of the nature of transaction, there is an element of 'public duty' to be discharged by the Bankers like the 3rd respondent, who are performing such activities under the [ACT] and other relevant provisions of law, various Orders in terms of 'Policy' of the Government and based on the instructions/Circulars being issued by the Reserve Bank of India. As such, the contention raised by the 3rd respondent that writ petition is not maintainable, is only to be repelled and the position is answered in favour of the petitioner.
9. The next question to be considered is whether the third respondent is entitled to stipulate a term, particularly by way of 'Clause 28' of Ext. P1 sanction letter, prescribing 'penalty' for taking over, by other Banks or financial institutions. It is to be noted that, extension of a credit to a prospective customer, depends upon various factors and it is for the financier to provide/stipulate appropriate terms, as to the conditions under which the financial assistance could be extended. Various aspects are involved behind the stipulation under 'Clause 28', from the stage of submitting an application for the loan. Several studies, including field study will have to be conducted, deputing concerned officers and spending much time and money to analyse the facts and figures. It is within the realm of administration/prudent 'Management' of the affairs of the Bank, to consider, what could be the return on extending the financial assistance to the party concerned, taking note of the quantum to be given, rate of interest to be collected, the tenure of the loan sanctioned and the period for loan sanctioned and to decide whether the financial assistance so provided, will be feasible to generate adequate income to meet the requirement of the Bank. If a party applies for and obtains a loan, after conducting such study and analysis at various levels and on a fine morning, if the credit is sought to be taken over by another financial institution/Bank, no such indepth study/work or such other operation may require to be pursued by the latter Institution, who takes over the limits, but for satisfying the formal requirements, if any. If such a situation is resulted, the original Bank/financial institution will have to remain satisfied, in the normal circumstances, with the 'interest' generated till the loan account is taken over, which by itself may shatter the equilibrium and may even result in huge loss to the Bank, because, the income generated by that time may not be sufficient enough to have met the expenses, ensuring minimum returns. Presumably, it is with this intent, that 'Clause 28' has been incorporated in Ext. P1 sanction letter, stipulating for 'penalty' to an appropriate extent, if the credit limit is sought to be taken over, which has necessarily to be satisfied by the party concerned, who has executed the agreement, entering into the contract with open eyes. As such, incorporation of 'Clause 28' in Ext. P1 is not assailable under any circumstances. The position stands answered in favour of the 3rd respondent.
10. The next point to be considered is whether 'Clause 28' can be attracted to the case in hand, when the petitioner has not chosen to have the credit facility taken over by the 5th respondent during the tenure of the loan, but has expressed desire to have it taken 'after the tenure'. It is to be noted that, feasibility was worked up by the 3rd respondent Bank, as to the extent of loan to be given to the petitioner (to an extent of Rs. 14 Crores), tenure of the loan as 'one year', interest that could be generated at the stipulated rate etc. In other words, the loan was sanctioned to the petitioner, specifically taking note of the fact that, it was only for a period of 'one year', and that the due amount was to be repaid to the 3rd respondent Bank, on expiry of 'one year'. It was found to be a feasible proposal, which in turn was accepted, by virtue of the returns to be generated from such transaction. It is true that, a customer may not close the loan on expiry of the period of 'one year'. But then, subject to renewal of the loan account, further income could be generated, which however cannot be in anticipation of the third respondent Bank at the time of sanctioning the loan. This is for the plain reason that, a genuine customer will all the more be interested to have the loan account cleared, once the requirement is satisfied. Once the entire liability with interest is satisfied, on expiry of the tenure, the third respondent Bank is bound to close the loan account, accepting the due amount, without any demur and no 'penal charge' is liable to be realized. It is in this background, that the next question as to whether, by virtue of the course now sought to be pursued from the part of the petitioner and the 5th respondent Bank, any prejudice has been caused to the third respondent Bank and if so, to what extent, requires to be analysed and answered.
11. It is pointed out that even after expiry of the loan, cheques issued by the petitioner had been honoured and a sum of Rs. 15,37,500/- was released on 31.01.2014 and another sum of Rs. 35,000/- was released on 29.01.2014. This fact has been pleaded in paragraph 6 of the counter affidavit filed by the 3rd respondent Bank. It is stated in paragraph 6 of the counter affidavit that the petitioner had approached the third respondent Bank and sought for renewal by three months more and, it was accordingly, that the cheques issued by the petitioners were honoured on 29.01.2014 and 31.01.2014. The learned counsel for the petitioner submits with reference to the specific denial of the said aspect, as given in paragraph 6 of the reply affidavit, that the said version does not keep the right track of truth and that the concerned cheques were issued on much prior dates, which came to be encashed only on 29.01.2014 and 31.01.2014 respectively. It is also brought to the notice of this Court by the learned counsel for the petitioner that, attempt of the third respondent Bank to realize "pre-closure charges" as per Ext. P5 is beyond the power, jurisdiction and competence of the said Bank; more so when, the practice of realizing 'pre-closure' charges has been put an end to, by the Reserve Bank of India. It was after submitting Ext. P6 representation by the petitioner, pointing out the unsustainability of the demand in Ext. P5, that the third respondent has now come forward, stating that, the term 'pre-closure charges' mentioned in Ext. P5 is actually the 'penalty' in terms of [SECTION] loan sanction memo. It is asserted that, since the loan period is admittedly over, there cannot not be any 'pre-closure charges', nor can there be any penalty, as no offence has been committed by the petitioner/borrower.
12. The learned counsel for the third respondent Bank concedes that, if the borrower seeks to close the loan account, satisfying the due amount, on expiry of the loan period, there is no other alternative, but to have the loan account closed. Exactly the same thing has happened, when the 5th respondent has come forward, stating that the 5th respondent is ready to satisfy the loan account, by pumping in necessary funds and it was accordingly, that Ext. P4 Pay Order dated 03.02.2014 for Rs.14 Crores was given, agreeing to satisfy the balance, if any. What is the difference between the person who is closing the loan himself (and what is the prejudice), if it is sought to be closed through the assistance of another like the 5th respondent Bank, has/have not been explained form the part of the 3rd respondent. In other words, the demand to satisfy a further sum of Rs. 62,92,160.00 even after expiry of the tenure of the loan account, initially termed as 'pre-closure charges' as given in Ext. P5 (which subsequently is sought to be clarified as 'penalty' in terms of Clause 28) cannot, but be an attempt to make 'unlawful gain'. It is true that the petitioner had agreed to the stipulation under Clause 28 as well, at the time of borrowel of the amount, but then, it has to be read and understood with reference to 'tenure' of the loan. In so far as there was no attempt from the part of the petitioner to have the loan pre-closed or taken over during the loan period, it cannot be said that any prejudice has been resulted to the 3rd respondent; once the loan period is over. Of course, the third respondent is entitled to have all other amounts, if at all any due, towards interest and such other charges as mentioned in Ext. P1, but, for imposing 'penalty', there has to be default/lapse or offence on the part of the borrower. The only lapse cited by the third respondent is that the petitioner has not submitted a 'statement', despite several demands in this regard, which however does not support the cause in question.
13. There is also an attempt from the part of the third respondent Bank, as given in paragraph 7 of the counter affidavit, that 'Clause 28' has been incorporated, also in view of various concessions and such other facilities extended to the customers. But there is no specific averment as to any concession extended to the petitioner to sustain the 'penalty'. On the contrary, there is a contention for the petitioner, as given in paragraph 3 of the writ petition, that it is the other way round. It is pointed out that the third respondent Bank, right from the beginning, was charging like anything, even for counting 'Currency Notes'. According to the petitioner, the service rendered by the 3rd respondent Bank was not proper, valid and effective, which forced the petitioner to have had it changed, to be taken over by the 5th respondent, on completion of tenure of the loan.
14. After hearing both the sides, this Court finds that the petitioner is entitled to succeed. The stipulation made by the 3rd respondent in Exts. P5 and P8, insisting the petitioner to pay a further sum of Rs. 62,92,160/- so as to have the loan account taken over by the 5th respondent Bank is not correct or sustainable. Accordingly, Exts. P5 and P8 are set aside to the said extent. The third respondent Bank is directed to serve a communication to the petitioner and the 5th respondent Bank as to the balance amount, if at all any, to be remitted to close the loan account facilitating taking over, without including the amount stated as payable with reference to [SECTION]. Such a statement as to the balance, if any, shall be given within 10 days from the date of receipt of a copy of this judgment; upon which, the said amount shall be cleared by the petitioner either directly or by making appropriate arrangements through the 5th respondent Bank. On satisfaction of the due amount as above, the title deeds deposited with the 3rd respondent Bank shall be handed over to the 5th respondent Bank.
The Writ Petition is allowed to the said extent. No cost.
[ENTITY], (JUDGE) kmd