* HONOURABLE SRI JUSTICE P.S.NARAYANA +Writ Petition No.13931 of 2007 % 05-02-2008 #Gangavaram Port Limited, Hyderabad. … Petitioner VS. $ Punjab National Bank, Mumbai. … Respondent ! COUNSEL FOR THE PETITIONER: SRI. Atul Sarma ^ COUNSEL FOR THE RESPONDENT: SRI A. Satyanarayana < Gist : > Head Note: ? CITATIONS: 1. (2004) 118 Company Cases 213 (SC) 2. (1983) 3 SCC 379 3. AIR 2004 SC 1815 4. (2005) 6 SCC 657 5. (2005) 12 SCC 725 6. (2006) 7 SCC 654 HON’BLE SRI JUSTICE P.S. NARAYANA WRIT PETITION No.13931 of 2007 Date: February 05, 2008 Between: Gangavaram Port Limited, 345/A, New MLA Colony, Road No.12, Banjara Hills, Hyderabad – 500 034. ... Petitioners And Punjab National Bank, Large Corporate Branch, Makers Tower ‘E’, Ground Floor, Cuffe Parada, Mumbai – 400 005. ... Respondent * * * ORDER: This Court ordered notice before admission on 03.7.2007 and issued rule nisi on 27.11.2007. Counter-affidavit had been filed. Reply affidavit also had been filed. 2. Gangavaram Port Limited, the writ petitioner, filed the present writ petition praying for a writ of Mandamus declaring the non-disbursement of the loan amount of Rs.100.00 crores, in particular, the first instalment amount of Rs.10,34,50,000/- and retention of upfront fee without extending any loan facility to the petitioner and retention of Rs.35,00,000/- of the petitioner without assigning any reason and demanding for additional rate of interest at the rate of 1% against the rate of interest that was originally agreed for and not acting like other Banks and financial institutions that are parties to the Common Loan Agreement, as illegal, arbitrary and violation of lending policy of banks, in particular, the Public Sector Banks and also violation of the guidelines of the RBI and/or Banking Regulation Act and pass such other suitable orders. 3. Sri Atul Sarma, representing Sri Deepak Chowdary, had taken this Court through the relevant portions of the affidavit filed in support of the writ petition, counter-affidavit and also reply affidavit as well and would maintain that inconsistent stands had been taken by the respondent bank, initially taking a stand that the same is being non-remunerative and subsequent thereto taking a stand that the same is non-refundable. Learned counsel also would point out that if that is the stand to be taken by the respondent bank, why a portion of the amount had been paid to the petitioner and there is no answer in this regard. The learned counsel also had pointed out to relevant portions of the letters and correspondence and would maintain that the conduct of the respondent bank is definitely blameworthy and the respondent bank cannot be permitted to have unjust enrichment and in a way the promissory estoppel also would be operative and hence the learned counsel would conclude that though this may relate to contract, inasmuch as there are no disputed questions of fact involved in this matter at all, the relief prayed for to be granted both in law and also on the strength of the equity as well. The learned counsel relied upon certain decisions to substantiate his submissions. 4. Sri Ambadipudi Satyanarayana, learned counsel representing respondent would maintain that the writ petition is not maintainable. The learned counsel also would submit that there are several disputed questions of facts as seen from the correspondence. The learned counsel also point out that the upfront fee is non-refundable and when that being so, in the light of the correspondence between the parties and also in the light of the unilateral decision taken by the writ petitioner without further correspondence, the writ petitioner is not entitled to any of the reliefs prayed for and even otherwise such questions in relation to either breach of contract or consequences flowing therefrom normally cannot be the subject of a writ petition, and even if the petitioner aggrieved, the remedy is elsewhere. Learned counsel relied upon certain decisions in this regard. 5. Heard the counsel and perused the material available on record. 6. The petitioner is a company incorporated under the Companies Act, 1956, having its registered office at 345/A, New MLA Colony, Road No.12, Banjara Hills, Hyderabad. The respondent is a Public Sector bank, engaged in banking business under Banking Regulations Act, 1949 and is State within the meaning of Article 12 of the Constitution of India. The petitioner was engaged in development of Gangavaram Port at Visakhapatnam on built, own, operate and transfer (BOOT) basis and for that purpose the petitioner applied for Project Finance facilities from various banks and financial institutions and the petitioner entered into a Common Loan Agreement with different banks and financial institutions, including the respondent bank. The State Bank of India had been designated by all he parties to the Common Loan Agreement as the Lender’s Agent. The respondent bank agreed in the Common Loan Agreement to provide project finance facility to the petitioner to a tune of Rs.100.00 crores as its share, at an interest rate of 8.75% per annum, which, as per the terms of the Common Loan Agreement, shall remain fixed till the date of commercial operation of the port. Further it is stated that the respondent was entitled for exemption of income tax under Section 10 (23 G) of the Income Tax Act for the finance facilities to be extended to the petitioner. It was agreed at Article 6.1 (A) (xxxiv) of the Common Loan Agreement that in case of withdrawal of such exemption, for whatsoever reason, by the Income Tax Department, the petitioner shall not be required to compensate any amount to the respondent on this count. Article 6.1 (A) (xxxvi) of the Common Loan Agreement reads as hereunder: “The borrower shall not be required to pay on account of non-availability of exemption under Section 10 (23 G) in the event such non-availability is not owing to an act of omission or default on the part of the borrower.” The petitioner, towards the credit facilities to be provided by the respondent bank, paid an upfront fee of Rs.50,00,000/- to the respondent bank as agreed in the Common Loan Agreement through two cheques bearing Nos.268750, dated October 17, 2005 and 274112, dated November 5, 2005 and the same was accepted and acknowledged by the respondent. Copies of payment of upfront fee had been placed before this Court. The banks and financial institutions, as per the terms of the Common Loan Agreement, shall release the agreed loan facilities after due compliance of certain pre-disbursement conditions, as agreed in the Common Loan Agreement. The petitioner, pursuant to its compliance of the same, requested all the banks and financial institutions to release their respective first instalments of the loans. Similarly, the petitioner vide letter Ref.No.GPL/SL1/001, dated April 17, 2006, had also informed to the respondent about its compliance of pre-disbursement conditions under the Common Loan Agreement and also requested through its disbursement request dated April 20,2006 to release first instalment of Rs.10,34,50,000/- i.e., a part of the said Rs.100.00 crores loan amount. The State Bank of India, being the Lender’s Agent, conducted due diligence on the petitioner and while approving the compliance of the pre-disbursement conditions by the petitioner, the Lenders’ Agent through its letters Ref.No.GPP/01/06-07, dated April 25, 2006 and Ref. No.GPP/02/06-07/77, dated April 27, 2006 advised all banks and financial institutions (including the respondent bank) to convey their approval for the disbursement. In response to the said advice of the Lender’s Agent, all the banks and financial institutions approved the achievement of the pre-disbursement conditions with the petitioner. Similarly, the respondent through its letter dated May 5, 2006 had also confirmed its approval for the pre-disbursement compliance by the petitioner. Upon receipt of the confirmation from all the banks, the Lender’s Agent issued to all the banks, including to the respondent bank, lending confirmation notice and specified therein the loan disbursement date as May 10, 2006. Further it is averred that pursuant to the initial request from the petitioner, subsequent approval of the Lender’s Agent confirmation of the compliance by all the banks, the first instalment of the loan amount was released by all the banks and financial institutions, except the respondent bank. It is averred that the respondent, instead of releasing its part of first instalment of loan amount, endeavoured to unilaterally revise the rate of interest, which, as per the terms of Common Loan Agreement shall remain fixed. The respondent in this regard and for the purpose issued a letter to the petitioner on May 9, 2006 demanding the petitioner to remit an upfront additional amount equivalent to the net present value of additional interest @ 1% for the loan period. Relevant part from the respondent’s letter dated May 9, 2006 reads hereunder: “General hardening of the interest rates and withdrawal of the benefits under Section 10 (23 G) of the Income Tax Act, 1961.” It is also stated that through its letter dated May 9, 2006 the respondent bank intended to gain undue benefit from the petitioner by retaining the upfront fee of Rs.50,00,000/- without extending any financial facilities to the petitioner. The petitioner through its letter Ref.No.GPL/FIN/SC/PNB/03, dated May 11, 2006 denied the unlawful demands of the respondent and also inter alia reminded to the respondent that the purported withdrawal by the Income Tax Department of the benefits available under Section 10 (23 G) of the Income Tax Act had been duly taken care at Article 6.1 (A)(xxxvi) of the Common Loan Agreement and the said fixed rate of interest of 8.75% was inclusive of the repercussions if any of withdrawal of the benefits by the Income Tax Department. The petitioner in its letter dated May 11, 2006 further brought to the notice of the respondent that all other banks and financial institutions, who all are parties to the Common Loan Agreement, had duly complied with their respective obligations under the Common Loan Agreement and released the first instalment as agreed for. It is also averred that the respondent deliberately failed to appreciate the request of the petitioner and refused to release the first instalment of the loan of Rs.10,34,50,000/- in terms of the Common Loan Agreement and thereby breached the trust and the terms of the Common Loan Agreement. As a result, the petitioner had to replace the respondent bank with another bank in order to meet its financial requirements for the project and also to honour its obligations with other banks and financial institutions under the Common Loan Agreement. It is also averred that the respondent bank should have refunded the upfront fee of Rs.50,00,000/- if the intention of the respondent bank was not to extend loan facilities to the petitioner and/or to withdraw from the Common Loan Agreement. The respondent bank neither released the loan amount nor refunded the upfront fee of Rs.50,00,000/- and thereby failed to discharge its duty. Hence, the petitioner for the purpose of recovery of the upfront fee of Rs.50,00,000/-, made several oral and written requests to the respondent through the following letters: (a) Letter Ref.No.GPL/FIN/SC/PNB/05, dated June 6, 2006 (b) Letter Ref.No.GPL/FIN/SC/PNB/06, dated October 18, 2006 (c) Letter Ref.No.GPL/FIN/SC/PNB/07, dated November 22, 2006; (d) Letter Ref.No.GPL/FIN/SC/PNB/08, dated February 13, 2007. It is also stated that despite several requests, the respondent did not refund the upfront fee as it is supposed to and requested for. After much follow up by the petitioner, the respondent vide letter dated February 19, 2007, refunded Rs.15,00,000/- i.e., a part of the upfront fee and retained Rs.35,00,000/- without assigning any reason or justification for the retention of the balance Rs.35,00,000/-. The relevant part of the respondent’s letter is reproduced hereunder: “We are pleased to inform that on our recommendations, our authorities have permitted to refund Rs.15 lakhs.” The petitioner, through letter Ref.No.GPL/FIN/SC/PNB/009, dated February 28, 2007 requested the respondent to refund the balance amount of Rs.35,00,000/-. Further it is averred that the respondent neither refunded the balance amount of Rs.35,00,000/- nor responded to the requests of the petitioner. Hence, the petitioner issued a legal notice on April 21, 2007 calling upon the respondent to refund the balance of upfront fee within a period of 10 days from the date of the notice. It is also stated that the respondent bank had not responded to the legal notice issued by the petitioner. In such circumstances, the writ petitioner approached this Court praying for appropriate reliefs. 7. In the counter-affidavit filed on behalf of the respondent, which was sworn by the Chief Manager in the respondent’s bank at Large Corporate Branch, specific stand had been taken that writ petition is not maintainable as the person who had sworn the facts in the affidavit had not filed any authorization on behalf of the petitioner company. In relation to the averments made in paras 1 to 16 of the affidavit filed in support of the writ petition, since these are all statements made by the petitioner in relation to lending by bankers, including the respondent bank, and terms and conditions of the Loan Agreement etc., the petitioner is liable for misrepresentation if they are found to be incorrect. It is averred that it is incorrect to allege that the respondent had deliberately failed to appreciate the request of the petitioner and as a result the petitioner had to replace the respondent bank with another bank in order to meet the financial requirements for the project and also to honour its obligations under Common Loan Agreement. The allegations in para 18 of the affidavit are not correct. It is stated that as per clause No.2.9 (b), the borrower shall pay to the respective senior Lenders upfront fee of 0.50% of the amount of its respective loans on or before execution of this agreement which shall be non-refundable. In view of the specific agreement between the petitioner and the respondent which was also one of the Senior Lenders, the petitioner was not entitled to seek refund of the upfront fee. Further it is averred that there was delay in availment of the sanctioned term loan as the company requested for first disbursement in May 2006 due to various reasons such as fishermen agitation, finalizing the port operator by the company etc. During the intervening period i.e., from June 2005 (sanction month) to June 2006 (request for initial disbursement), there had been so many changes in the economic scenario like hardening of interest rates, scrapping of Section 10 (23 G) of Income Tax Act etc. Due to the above said changes and due to delay in availing the sanctioned loan, the respondent bank had requested the petitioner for suitable increase in the rate of interest, for which the petitioner company did not agree. While the issue was pending for negotiation and finalization, the petitioner had high handedly and unilaterally sent a letter to the respondent stating that they had replaced the respondent bank with IDBI though the respondent bank had agreed for disbursement of term loan at the contracted rate of interest, as such, the petitioner is not entitled for refund of the upfront fee as a matter of right. In para 7 of the counter-affidavit the respondent bank specifically averred that the action of the petitioner in replacing the respondent bank with IDBI bank, when the issue about rate of interest was under consideration and negotiation, was high handed and unilateral. The advance being a consortium lending, the borrower is not entitled to replace the banker’s at its choice without the concurrence of the concerned banker and the consortium. Further it is stated that the issue involved in this writ petition arises out of a Common Loan Agreement which is nothing but a contract and that the petitioner cannot enforce contractual obligations by invoking the jurisdiction of this Court under 226 of the Constitution of India. Further specific stand had been taken that it is well settled law that the writ petition is not maintainable for enforcing the contractual obligations. 8. In the reply affidavit filed it is averred that the petitioner was duly authorized by the Chairman and Managing Director of the petitioner company and in support of the submission a copy of Special Power of Attorney, dated 21 June 2007 had been filed. It is also further averred that vide para 3 of the counter-affidavit while opting for not to comment on the contents of paras 1 to 16 of the affidavit of the petitioner company: (a) The respondent bank had admitted that the rate of interest agreed by and between the petitioner company and the respondent bank shall remain fixed till the date of commercial operation of the port being developed by the petitioner company; (b) The respondent bank had admitted that the petitioner company, being the borrower, shall not be required to pay on account of non-availability of exemption under Section 10 (23G) of the Income Tax Act; (c) The respondent bank had admitted that the petitioner company had paid upfront fee of Rs.50.00 lakhs, which was only payable on or before execution of the Common Loan Agreement, in other words, towards the release of agreed loan amount; (d) The respondent bank had admitted that the petitioner company had complied with all the pre-disbursement conditions unto the satisfaction of all the consortium banks, including respondent bank on April 17, 2006; (e) The respondent bank had admitted that the other consortium banks including the respondent bank got satisfied with the pre-disbursement compliance by the petitioner company; (f) The respondent bank had admitted that the lead bank, State Bank of India, of the consortium had specified 10th May 2006 as the loan disbursement date; (g) The respondent bank had admitted that the consortium of banks except the respondent bank had honoured their obligations under the Common Loan Agreement and released their respective share of first disbursement of loan amounts; (h) The respondent bank had admitted that the respondent bank in contrary to the terms of Common Loan Agreement, had unilaterally and arbitrarily demanded additional interest from the petitioner company on May 9, 2006 i.e., after May 8, 2006, on which lending confirmation notice was issued and loan disbursement date was specified; (i) The respondent bank had admitted that the demand for additional interest by the respondent bank is baseless, which is inter alia due to he alleged hardening of interest rates, which in deed shall remain fixed till the date of commercial operation of the port; (j) The respondent bank had admitted that the demand for additional interest, due to the withdrawal of benefits under the Income Tax Act, is unlawful in the light of specific stipulation in the Common Loan Agreement; (k) The respondent bank had admitted that the respondent bank gained undue benefit to a tune of Rs.50.00 lakhs (which is at present Rs.35.00 lakhs), without extending any credit facility to the petitioner company; (l) The respondent bank had admitted that the respondent bank had refunded Rs.15.00 lakhs and retained Rs.35.00 lakhs without any reason and without extending any credit facility to the petitioner company; (m) The respondent bank had admitted that the petitioner company had denied the unlawful demand by the respondent bank for additional interest on May 11, 2006. It is submitted that the respondent bank, which is a public sector undertaking and functioning to render banking services to general public, including the petitioner company, had acted arbitrarily and endeavoured for undue enrichment, to the tune of Rs.35.00 lakhs, without extending any banking facility and/or rendering any banking service. It is also averred that firstly the petitioner company had intimated its pre-disbursement compliance on April 17, 2006. Secondly, the lead bank, State Bank of India, of the consortium had approved the said compliance by the petitioner company on 25th and 27th April 2006. Thirdly, the lead bank, State Bank of India, of the consortium had specified the loan disbursement date on May 8, 2006. Subsequently the respondent bank had demanded additional interest on May 9, 2006. The petitioner company duly explaining the reasons denied the unlawful demand of the respondent bank on May 11, 2006. Since the respondent bank deliberately failed to respond to the said letter dated May 11, 2006, the petitioner company had reconfirmed its stand on the demand of the respondent bank vide its letter dated June 6, 2006 i.e., after 26 days of specified disbursement date. In the said letter, the petitioner company had duly indicated its obligation to replace the respondent bank. It is also stated that the respondent bank had conveniently interpreted and misrepresented the terms of Common Loan Agreement. The upfront fee was paid by the petitioner company on the assurance that the respondent bank would extend the agreed credit facility. The respondent bank refused to extend the loan without any fault on the part of the petitioner company. Therefore, the respondent bank had received the upfront fee, which manifests that the loan facility is available for the petitioner company. Any request from the respondent bank subsequently to increase the rate of interest is apparent of the fact that it is not interested in disbursing the loan on the agreed terms of the contract. Such an action by the respondent bank is not only arbitrary but also invokes the principle of promissory estoppel. It is also averred that the respondent bank if to be considered as correct, the respondent bank should have explained the reasons for refund of Rs.15.00 lakhs and retention of Rs,.35.00 lakhs. The averments and the alleged reasons for the unlawful demand for additional interest at para 5 of the counter-affidavit are not correct. The Common Loan Agreement stipulated that the rate of interest shall be fixed during the availability period i.e., up to either commercial operations date or 30 months from financial closure or 1st August 2008, which ever is earliest. Therefore, the allegation of the respondent bank that there was delay in availment of the loan facility is baseless. The demand of the respondent bank for additional interest due to the alleged delay of availment is unilateral and arbitrary. Therefore, the alleged contingencies of withdrawal of benefits under Income Tax Act and hardened interest rates are frivolous and can not be considered as reasons for the respondent bank to not to extend the agreed credit facilities. It is also averred that the petitioner refused to yield for coercive demand for additional interest on May 11, 2006 i.e., within 2 days from such demand from the respondent bank. The respondent did not even care to respond to the said petitioner’s letter which tantamount to refusal by the respondent bank to release the loan amount. The petitioner company, after waiting for a period of 26 days, reminded the respondent about the issue vide its letter dated June 6, 2006 wherein the petitioner for the first time indicated to replace the respondent bank due to its compulsion under Common Loan Agreement. It is stipulated in the Common Loan agreement that the petitioner would be at default “if any of the Senior Lenders herein or any other bank or financial institution with whom the borrower had entered into agreements for financial assistance had refused to disburse its/their loan(s) or any part thereof and the borrower had not arranged for substitution of the loan within thirty (30) days and in such an event of default, the other consortium banks withdraw/suspend their loan facilities to the petitioner company. The respondent bank neither withdrew its arbitrary demand nor agreed for disbursement at the contractual rate of interest the petitioner bank had replaced the respondent bank. Refusal of the respondent bank to refund the upfront fee for the unlawful reasons and without extending any banking service to the petitioner company is violation of principles of natural justice. The respondent having not specifically denied the contents of paras 19 to 22, admitted that the respondent bank had released Rs.15.00 lakhs and retained Rs.35.00 lakhs of the petitioner company arbitrarily and without assigning any reason for the same. In case the respondent bank is entitled for the upfront fee as contended in its counter-affidavit, as to why the respondent bank refunded Rs.15.00 lakhs. Certain further averments also had been made in the reply affidavit. 9.