IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN MONDAY, THE 31ST MAY 2010 / 10TH JYAISTHA 1932 OP.No. 13301 of 1999(H) ---------------------------------- PETITIONER(S): ---------------------- BIJU JOSEPH, M/S. ANCIN RUBBERS, NELLIKKAL, PARIYARAM P.O., KOTTAYAM. BY ADV. SRI.BECHU KURIAN THOMAS SRI.PRAKASH PUTHIADAM RESPONDENT(S): -------------------------- 1. KERALA KHADI & VILLAGE INDUSTRIES BOARD, REP.BY SECRTARY, TRIVANDRUM. 2. PROJECT OFFICER, DISTRICT KHADI & VILALGE INDUSTRIES BOARD, KOTTAYAM. ADV. SRI.V.V.JOSHI,SC FOR KHADI BOARD SRI.K.P.HARISH THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 31/05/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ORDER CMP. NO.21401/1999 IN OP. NO.13301/1999 DISMISSED 31/05/2010 SD/- P.N.RAVINDRAN, JUDGE APPENDIX PETITIONER'S EXHIBITS P1:- COPY OF THE FEASIBILITY REPORT DT. 23.3.96. P2:- COPY OF THE PROCEEDING DTD. 15.1.1997. P3:- COPY OF THE LETTER DTD. 12.2.98. P4:- COPY OF THE REPLY NOTICE ISSUED TO THE PETITIONER DTD. 28.4.1998. P5:- COPY OF THE LETTER DTD. 26.5.98 ISSUED BY THE 2ND RESPONDENT. P6:- COPY OF THE LETTER DTD. 16.6.98. P7:- COPY OF THE PETITION DTD. 6.7.98 ISSUED TO THE IST RESPONDENT. P8:- COPY OF THE JUDGMENT DTD. 29.10.98. IN OP. 21017/98. P9:- COPY OF THE ORDER DTD. 28.11.98 NUMBERED AS KB 4913/96/RUB. TRUE COPY P.S.TO JUDGE tss P.N.RAVINDRAN, J. ----------------------------------------- O.P.No.13301 of 1999 ----------------------------------------- Dated this the 31st day of May, 2010 JUDGMENT The petitioner is the proprietor of Ancin Rubbers. He had applied to the Kerala Khadi and Village Industries Board (hereinafter referred to as the Board for short) for a loan of Rs.2,87,000/- for the purpose of setting up a rubber based industry for the manufacture of rubber bands. Ext.P1 is a copy of the project report submitted by the petitioner along with the loan application. The Board sanctioned the sum of Rs.2,58,300/- as loan, consisting of margin money Rs.71,750, capital expenditure loan Rs.1,21,550/- and working capital loan Rs.65,000/-. The petitioner was required to contribute Rs.28,700/- as his share of contribution. Ext.P2 is a copy of the order dated 15.1.1997 issued by the Director of the Board sanctioning the loan applied for by the petitioner. In paragraph 6 thereof it was stipulated that the amount released should be deposited in the SB account to be opened in the State Bank of India or its subsidiary banks. It was also stipulated that the amounts deposited in such account can be withdrawn only on counter-signature by the Project Officer concerned. 2. Pursuant to Ext.P2 the Board released the sum of Rs,1,21,550/- being the amount of capital expenditure loan to the O.P.No.13301 of 1999 -:2:- petitioner by cheque dated 19-4-1997. The said amount was deposited in SB account No.01100039516 opened in the Kottayam Branch of the State Bank of India. The petitioner did not however, withdraw the said amount or any part thereof since the Project Officer did not countersign the cheque for the reason that the petitioner's unit was an existing one and not a newly established unit. The Project Officer thereupon issued Ext.P4 letter dated 28-4-1998 calling upon the petitioner to refund the sum of Rs.1,21,550/- with accrued interest within seven days of receipt of the notice. On receipt of Ext.P4 the petitioner refunded the sum of Rs.1,25,232/- as per cheque dated 14.5.1998, which was made over to the Project Officer. The Project Officer encashed the said cheque. The petitioner had also simultaneously requested the Project Officer to return the title deeds deposited by him. The Project Officer thereupon sent Ext.P5 letter dated 26.5.1998 to the Secretary of the Board requesting for permission to return the title deeds. A copy of Ext.P5 was marked to the petitioner. The Secretary of the Board in turn sent Ext.P6 letter to the Project Officer, with copy to the petitioner, permitting the Project Officer to return the title deeds on the petitioner remitting the sum of Rs.23,811/- under various heads. 3. On receipt of Ext.P6, the petitioner sent Ext.P7 representation O.P.No.13301 of 1999 -:3:- dated 6-7-1998 to the Secretary of the Board disputing his liability to pay interest as demanded in Ext.P6. He also called upon the Secretary of the Board to return the documents of title. He thereafter filed O.P.No.21017 of 1998 in this Court along with another person who was the co-proprietor. By Ext.P8 judgment delivered on 29-10-1998 this Court disposed of the said writ petition with a direction to the Board to consider the request made by the petitioner in Ext.P7 and to take a decision thereon within one month from the date of receipt of a copy of the judgment. Pursuant to the said direction, the Board considered the petitioner's request in Ext.P7 and sent Ext.P9 letter dated 28.11.1998 calling upon him to pay penal interest at 2% and compound interest at 5% on the defaulted payment along with normal interest as a condition precedent for release of the documents of title. Exts.P6 and P9 are under challenge in this writ petition wherein the petitioner seeks a direction for release of the documents of title deposited by him. It is contended that the petitioner did not receive payment of the loan amount or any part thereof for want of countersignature by the Project Officer, and therefore, he is not liable to pay interest at the rates stipulated in Ext.P2. It is contended that the loan agreement never took effect for the reason that the loan amount was not disbursed to the petitioner. O.P.No.13301 of 1999 -:4:- 4. Respondents have filed a counter affidavit. Relying on paragraphs 6 and 7 of Ext.P2 it is contended that the loan amount could have been withdrawn only if the Project Officer had countersigned the cheque. Even according to the respondents the petitioner had not withdrawn any amount. The respondents have virtually admitted payment of Rs.1,25,232/- by cheque dated 28.4.1998, that was encashed by them on 14.5.1998. However, the respondents contend that as money had been lent and advanced to the petitioner at the rates stipulated in Ext.P2 and as repayment was not effected in time he is bound to pay, besides normal interest, compound interest, penal interest and other charges also. 5. I heard Sri.Paul Jacob, learned counsel appearing for the petitioner and Sri.K.P.Harish, learned Standing Counsel appearing for the Board. I have also considered the pleadings and the materials on record. It is not in dispute that out of the loan amount of Rs.2,58,300/- sanctioned as per Ext.P2, the sum of Rs.1,21,550/- being the capital expenditure loan was deposited in the petitioner's SB account with the State Bank of India, Kottayam branch. The said remittance was made by cheque dated 19.4.1997. As per papragraph 6 of Ext.P2 the petitioner could have withdrawn the said amount for investment in his unit only if the cheque was countersigned by the O.P.No.13301 of 1999 -:5:- Project Officer. For the reason that the petitioner's unit was an existing one and not a new industrial unit, the Project Officer declined to permit such withdrawal. In other words, the petitioner did not enjoy the benefit of the loan though a portion thereof, namely the sum of Rs.1,21,550/- came to be deposited in his SB account with the State Bank of India, Kottayam Branch. Since the petitioner was ineligible for getting the loan, the amount advanced was recalled by Ext.P4 letter dated 28-4-1998. In that letter the petitioner was directed to refund the sum of Rs.1,21,550/- with accrued interest by way of a cheque failing which the petitioner was threatened with legal action. The petitioner complied with Ext.P4 by refunding the sum of Rs.1,25,232/- which represented the amount of Rs.1,21,550/- given to the petitioner by the Board as per cheque dated 19-4-1998 and the interest that accrued on the said amount while it was lying in deposit in SB account No.01100039516 with the State Bank of India, Kottayam branch. The said payment was made by cheque dated 14-5-1998 drawn in favour of the Project Officer. It is not in dispute that the said cheque has been encashed and the proceeds realised. However, when the Project Officer moved the Secretary of the Board for permission to release the documents of title deposited by the petitioner pursuant to Ext.P2 order sanctioning the loan, the Secretary of the Board directed the Project O.P.No.13301 of 1999 -:6:- Officer to release the documents of title after realising the sum of Rs.23,811/- from the petitioner. The learned counsel for the respondents, relying on Ext.P2 contended that as the petitioner had failed to utilise the loan amount it was open to the respondents to call upon him to refund the entire unspent balance reserving the right of the respondents to realise the interest, penal interest and other charges from the debtor. Paragraphs 6, 7 and 16 of Ext.P2, which are relevant for the purpose of this case, read as follows:- “6. The amount released should be deposited in the SBI or its subsidiary in S.B. account and can be withdrawn subject to the counter signature by the Project Officer concerned. 7. Where the loanee fails to utilise the amounts with the stipulated period or fails to fulfil any of the conditions for the proper and timely utilisation of the loan amount deposits in the S.B. account, the Board will be at liberty to direct the bank to refund the entire unspent balance with accrued interest. In such cases of recalling the balance amount, the loanee is personally liable for the repayment of the amount already released with interest, penal interest and costs at such rate as determined by the Lender to avoid the possible loss. xx xx xx 16. The rate of interest inclusive of interest tax O.P.No.13301 of 1999 -:7:- shall be 17½ per annum payable quarterly on the 31st March, 30th June, 30th September, 31st December of each year. Any increase in the rate of interest on loans/interest tax effected by Khadi and Village Industries Commission from time to time will automatically be made applicable to the loans sanctioned by the Board. In case of default additional interest @ 2% p.a. on compound basis will be levied on the defaulted amount for the defaulted period.” 6. It is common ground that in view of the stipulations in paragraph 6 of Ext.P2, the amount of Rs.1,21,550/- deposited in the petitioner's SB account with the State Bank of India, Kottayam branch was not withdrawn for the reason that the Project Officer did not permit such withdrawal. Pursuant to the demand made by the Project Officer in Ext.P4 the petitioner refunded the said sum together with accrued interest as per cheque dated 14-5-1998. Then the only question is whether the petitioner is liable to pay any other amount to the respondents. The respondents rely on paragraphs 7 and 16 of Ext.P2 in support of their claim. Paragraph 16 of Ext.P2 stipulates that the rate of interest inclusive of interest tax shall be 17½ per annum payable quarterly on the 31st March, 30th June, 30th September and 31st December of each year. It also stipulated that if the interest rate O.P.No.13301 of 1999 -:8:- increases such increased rate of interest will automatically apply to the loan sanctioned and disbursed to the petitioner. It is also stipulated that in case of default, additional interest @ 2% per annum on compounded basis will be levied on the defaulted amount for the defaulted period. Paragraph 7 of Ext.P2 stipulates that where the loanee fails to utilise the loan amount within the stipulated period or fails to fulfil any of the conditions for the proper and timely utilisation of the loan amount deposited in the SB account, the Board will be at liberty to direct the bank to refund the entire unspent balance with accrued interest. It is also stipulated that in such cases the debtor will be personally liable for repayment of the amount already released with interest, penal interest and costs at such rate as determined by the lender to avoid any possible loss. In my opinion, in view of the fact that the loan amount was not disbursed to the petitioner for want of countersignature from the Project Officer, the petitioner cannot be held liable to pay interest in terms of paragraph 16 of Ext.P2. Paragraph 16 of Ext.P2 cannot apply to loans which remain undisbursed. Paragraph 7 of Ext.P2 can apply only to a situation where the loan amount is disbursed to the loanee and the loanee does not refund the same. On the admitted facts of this case I am constrained to hold that the Board had no right to demand and the petitioner had no duty O.P.No.13301 of 1999 -:9:- to repay to the Board any amount in excess of the sum of Rs.1,25,232/- which represents the principal sum of Rs.1,21,550/- and the accrued interest thereon. Otherwise it will result in the Board being unjustly enriched to the detriment of the petitioner. For the reasons stated above I hold that the demand made in Exts.P6 and P9 cannot be sustained. I accordingly allow the original petition, quash Exts.P6 and P9 and direct the respondents to forthwith return to the petitioner the documents of title deposited by him under proper acknowledgment. Necessary steps in that regard shall be taken within two weeks from the date on which the petitioner produces a certified copy of this judgment before the Secretary of the Board. P.N.RAVINDRAN, Judge. ahg. P.N.RAVINDRAN, J. --------------------------- O.P.No.13301 of 1999 ---------------------------- JUDGMENT 31st May, 2010