D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR. JUDGMENT Bikaner Woollen Mills vs Rajasthan Financial Corporation Private Limited & Ors. . D.B. Civil Special Appeal No.392/1999 under Section 18 of the Rajasthan High Court Ordinance against the order dated 17.2.1999 passed by the learned Single Judge in S.B. Civil Writ Petition No.6160/1992. Date of Order:- April 28th ,2009. PRESENT HON'BLE MR.JUSTICE PRAKASH TATIA HON'BLE DR. JUSTICE VINEET KOTHARI. Mr. S.D. Vyas for the appellant. Mr. S.G. Ojha for the respondent-RFC. REPORTABLE BY THE COURT ( Per Hon'ble Mr.Tatia,J.): Heard learned counsel for the parties. The appellant-petitioner's writ petition to challenge the demand of higher rate of interest raised by the respondent- Rajasthan Financial Corporation (for short “RFC”) was dismissed by the learned Single Judge vide impugned order dated 17.2.1999. The petitioner's writ petition was dismissed only by observing that the Court did not find any reason to interfere with the notice D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 2 issued by the RFC. The facts which are not in dispute are that the petitioner- a private limited company registered under the Companies Act, 1956, applied for loan of Rs.60 lacs, which was duly sanctioned by the respondent-RFC and was communicated to the petitioner- appellant vide letter dated 17/18.10.1989. There was a condition for finance that if refinance will be made available by the Industrial Development Bank of India (for short “the IDBI”), the RFC will charge interest @ 3.5% per annum above the refinance rate and the current rate of interest was kept 14%. To give effect to the contract for loan, a deed in the form of loan agreement was executed between the parties- the appellant borrower and the RFC, the copy of which is placed on record as Annexure 4 in the writ petition. The clause 9 provides for obtaining refinance from the IDBI,which is as under:- “ 9. REFINANCE: That in case the Corporation decide to refer the case for obtaining refinance facilities from IDBI the Borrower agreed to give such information and execute D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 3 such documents as may be necessary in this connection at their own cost. Any modification or/and addition in terms of loan as may be stipulated by IDBI while sanctioning refinance shall be applicable to the loan. If refinance is applied for by the Corporation, the disbursement in the cases of loan exceeding Rs.10.00 lacs shall be made after refinance has been sanctioned by the IDBI.” For charging interest as per clause (3), the appellant- petitioner was entitled to concessional rate of interest if refinance is made available to IDBI. Clause 3(i) is as under:- “3. INTEREST (I) Concessional Rate ( other than soft loan.) If refinance is made available by the IDBI the Corporation will charge interest @ 3-1/2 p.a. above the refinance rate, presently 14% p.a. from implementation period i.e. Upto July 1991 and 15% p.a. for the period thereafter. OR DG Set Loan 15%/17.5% p.a. provided the monthly instalments are paid in time.” The loan was disbursed to the petitioner-appellant by the respondent-RFC and advanced Rs.41.47 lacs against the loan of Rs. D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 4 60 lacs and the first loan amount was disbursed on 30.11.1990 of Rs.34.28 lacs, then on 14.3.1991 of Rs. 3.48 lacs, then on 11.4.1991 of Rs. 2 lacs, then on 30.12.1991 of Rs.1.71 lacs, in total 41.47 lacs. As per clause 9 of the loan agreement, the loan could have been disbursed to the appellant-petitioner only after obtaining the sanction of refinance by the IDBI as the appellant- petitioner loan amount was exceeded Rs. 10 lacs. As per respondent-RFC's own letter dated 22.11.19909 ( Annex.5), the IDBI sanctioned refinance by communication dated 31.7.1990 and the RFC conveyed the appellant that now the concessional rate of interest @ 14% will be chargeable to the loan transaction w.e.f. 31.7.1990. However, in this letter, it has been mentioned that this sanction of refinance is subject to additional terms and conditions which are indicated in the letter itself. It has been also conveyed that compliance of these conditions may be submitted to the Manager or the concerned branch of the RFC. The conditions are as under:- “1. That the date of sanction of refinance will automatically lapse after 24 months from the date of D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 5 refinance sanction. 2. That Co./Unit and/or promoter is not in default towards any Financial Institution/Bank. 3. In case of non-availability of Central/State Subsidy the financial gap shall be met out by the promoters from their own sources. No institutional finance shall be made available on this account. 4. Refinance assistance is sanctioned on concessional terms and conditions subject to the extension of the concessional scheme as applicable to units located in specified backward area of reformulated scheme and as per revised policy and parameters. 5. The Corporation/Bank shall ensure that the concern makes necessary arrangements to meet shortfall in means of financing in the event of the project not being eligible for Central/State Subsidy as envisaged in the financing pattern. 6. The Corporation will confirm before availing of refinance that i) acquisition of second hand machinery IDBI Head Office guidelines (Except 25% of project,) copy enclosed. ii) performance of the group concern viz Bikaner Woollens is satisfactory.” It appears that there were certain changes in plant and D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 6 machinery and, therefore, some permission was sought from the RFC by the appellant-petitioner and that too was approved by the RFC vide its communication dated 7.8.1991 (Annex.7). Be it as it may be, the petitioner was given a letter on 31.12.1991 asking him to comply with the requirements mentioned in the letter dated 31.12.1991 before making further disbursement of the loan. The petitioner-appellant responded to this letter of RFC by reply dated 22.1.1992 and submitted that he has already complied with all the conditions and submitted that if the RFC wants to charge increased rate of interest then the petitioner is not interested in taking the disbursement of further loan, though which has already been sanctioned by the RFC. Ultimately, vide letter dated 13.5.1992, the RFC informed the petitioner that on the term loan already disbursed, the increased rate of interest shall be charged since beginning because the RFC could not avail the sanctioned refinance for want of compliance of conditions by the writ petitioner. The issue is only that whether the RFC could charge increased rate of interest as the RFC could not avail refinance from the IDBI. D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 7 The learned counsel for the appellant submitted that from the documents of the RFC itself, it is proved that before the loan was sanctioned by the RFC to the appellant-petitioner, the IDBI already sanctioned the refinance for the loan amount to be advanced to the petitioner-appellant to the RFC. Further, as per condition no.9, if the amount of loan exceeds Rs. 10 lacs then the RFC could have disbursed the loan only after sanction of refinance by the IDBI. The RFC not only sanctioned the loan but disbursed the loan amount to the appellant-petitioner, then the respondent-RFC cannot charge higher rate of interest, that too from the earlier date, i.e. from the beginning of advancement of loan to the petitioner-appellant. It is also submitted that the RFC, due to its own negligence, may not have obtained the refinance from the IDBI inspite of fact that IDBI already sanctioned the refinance, to save their own officer, it has been blamed that the IDBI did not refinance due to lapse on the part of the petitioner. The learned counsel for the respondent vehemently submitted that the appellant was duly informed vide letter dated 22.10.1990 (Annex.5) that the IDBI had sanctioned the refinance to D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 8 the appellant's loan amount subject to the conditions mentioned in the letter 22.11.1990. Since the appellant did not comply with the conditions, therefore, the IDBI refused to refinance the petitioner's loan amount and, therefore, the RFC is entitled to higher rate of interest which is much more higher to the concessional rate of interest. We considered the submissions of the learned counsel for the parties and found that as per the condition no.9 of the loan agreement, the RFC could have disbursed the loan only after sanction of refinance by the IDBI for the loan amount and in fact the IDBI had already sanctioned the refinance by communication dated 31.7.1990 which is clear from the RFC's own communication dated 22.11.1990 (Annex.5) sent to the petitioner. The letter dated 22.11.1990 (Annex.5) also says that the refinance is subject to additional terms and conditions. From the various letters of the RFC, it appears that the RFC has not cancelled the concessional rate of interest because of the non-compliance of the conditions conveyed to the appellant-petitioner vide letter dated 22.11.1990 but has cancelled the concessional rate of interest, as per letter D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 9 dated 13.5.1992(Annex.11) with enclosure Annex.A, for non- compliance of following conditions:- “Details of conditions stipulated by the IDBI, But compliance of which not made by the loanee company i.e. M/s. Bikaner Woollen Mills (P) Ltd., Bikaner:- (I)A certificate to the satisfaction of R.F.C. That (A) Cost of old machinery including expenses for repairs and renovation etc. Should compare favourable with that of similar new machines. (B) Taking into consideration the extra cost of inputs etc. On account of the second hand machinery, the project would still be economically viable. (C)Delivery period of new machinery would be unduly long and its cost is far in excess of that of second hand machinery and this might affect the profitability of the project. (II)Please send us copy of Audited Balance sheets & Profit and Loss Account of M/s. Bikaner Woollens for last five years. (III)Please submit an oath administered by the notary public that the company & or promoters is/are not in default towards any financial institution/Bank.” The RFC failed to show when the appellant-petitioner was asked to comply with the conditions no.(I), (II) and (III). The D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 10 appellant was declared defaulter in submitting certificate of satisfaction of the RFC that cost of old machinery including expenses for repairs and renovation etc. should compare favourably with that of similar new machines on account of second hand machinery, the project would still be economically viable with regard to extra cost of inputs etc. and the delivery of new machinery would be unduly long and its cost is far in excess of that of second hand machinery and this might affect the profitability of the project. The appellant-petitioner was asked to send copy of audited balance-sheets and profit and loss account of the appellant company for the last five years and submit on oath that the company is/are not in default towards any financial institution. It is clear that all those matters could have been relevant before the loan could have been sanctioned to the petitioner, as the loan is sanctioned by the RFC on the proposal submitted by the applicant wherein he is required to show the feasibility of the project. Therefore, it appears that the reason given for charging higher rate of interest is only afterthought and this inference can be drawn because of the reason that the RFC did not place on record the D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 11 copy of the order or communication sent to it by the IDBI refusing to refinance the loan amount of the appellant to the RFC. In view of the above reasons and particularly the suppression of the letter of the IDBI by the RFC, it is clear that the respondent-RFC might not have got the refinance from the IDBI because of lapse on their own part. We may sum up in the manner that the loan proposal was submitted by the petitioner to the RFC which was duly considered by the RFC and also by the IDBI and the proposal was found feasible both by the IDBI and the RFC. The prior sanction for refinance of the loan was the condition precedent and that was complied with by the RFC by obtaining sanction of refinance from the IDBI. Thereafter, it was the duty of the RFC to take refinance in time from the IDBI as the appellant-petitioner was not supposed to do anything to obtain refinance for RFC from IDBI and the petitioner-appellant could not have know how the respondent-RFC has dealt with the IDBI for taking refinance. It is not proved by the RFC that due to fault on the part of the appellant refinance has been denied by the IDBI after its sanction. The petitioner-appellant D.B. Civil Special Appeal No.392/1999 Bikaner Woollen Mills Private Limited vs. Rajasthan Financial Corporation & ors. 12 cannot be penalized for the lapse on the part of the RFC and, therefore, cannot be saddled with the enhanced rate of interest. The learned Single Judge since has not considered any of the above admitted facts, therefore, has committed error in dismissing the writ petition of the petitioner by a non-speaking order. In view of the above, the appeal of the appellant is allowed and it is held that the respondent-RFC is entitled to only concessional rate of interest and is not entitled to enhanced rate of interest as demanded by the respondent-RFC vide communication dated 23.9.1992 and other communications. Costs easy. (VINEET KOTHARI), J. (PRAKASH TATIA),J. mlt.