NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI ORIGINAL PETITION NO.154 OF 1996 M/s. Aquadev India Ltd. Complainant Versus State Bank of Hyderabad and Ors. Opp. Parties BEFORE: HONBLE MR. JUSTICE M.B. SHAH, PRESIDENT. MRS. RAJYALAKSHMI RAO, MEMBER HONBLE MR. JUSTICE S.N. KAPOOR, MEMBER. For the Complainant : Mr. Sudhir Chandra, Sr.Advocate with Mr. S.Muralidharan, Advocate Mr.Trideep Pais, Advocate Mr.Bhagabati Prasad Padhy, Advocate For the Opp.Party Nos. 1-5: Mr. R.P.Vats, Advocate For the Opp. Party No.6 : Mr. B.R. Narang, Advocate 02.09.2004 O R D E R
M.B. SHAH, J., PRESIDENT
The
grievance of the Complainant in this complaint is that the respondent banks
which formed a consortium for grant of loan, have not released the sanctioned
loan after having two appraisal reports and directing the Complainant to issue
prospectus for issue of equity shares.
It is contended that the banks, in blatant abuse of power and without
giving any reasons, refused to disburse the loan. This has caused complete destruction of the whole project and
placed the Directors and shareholders of the company in a precarious
position.
It is
submitted that :
(i)
The denial of the loan facility after the same has been
sanctioned by the Respondent Banks was not in the bona- fide exercise of
discretion vested in the Banking Institutions. The lead bank has not informed
any reason for non-release of the sanctioned loan.
(ii)
On the basis of the categorical promise by the banks and
sanction of the loan for a sum of Rs.23.85 crores, complainant entered into
various contracts for execution of the major works of the project. Large amount was spent and thereafter by
non-release of the sanctioned loan, many satellite projects depending upon the
complainants project were required to be closed.
(iii)
As one of the conditions for sanction of the loan of Rs.23.85
crores, Respondent No.1 Bank directed that the complainant company should go in
for a public issue, designated itself as the lead Manager for the said issue,
and got the prospectus prepared by the Merchant Banking Bureau of State Bank of
Hyderabad who had made the complainant company to represent to the public at
large that the said loan amounts were sanctioned and were available to the
complainant company for its project, thereby inviting the public at large to
invest their funds in the project ; and believing such representations, the
Public at large had invested their funds in the project which have been
expended in the works of the project.
(iv)
In view of the latest appraisal report received as late as in
January 1996, there remained no reason for non-release of the sanctioned loans
by the Respondent Banks.
On the basis of the aforesaid
and other averments, it has been prayed that (a) the respondent banks be
directed to release the sanctioned loan amount of Rs.23.85 crores to the
complainant company, and (b) direct the respondents to pay damages to the
complainant to the tune of Rs.79.20 crores with interest @ 24% per annum.
The learned senior
counsel Mr. Sudhir Chandra for the Complainant submitted that this case does
not require any detailed enquiry and the complainant seeks to rely only upon
facts which are mentioned in the documents filed by the complainant and the
banks.
He further submitted
that the contention raised by the banks with regard to sanction and
disbursement of the amount would not be covered by the C.P. Act, is
absurd. Section 2(o) defines the word
service, which includes bank, and in the present case admittedly before
sanctioning the loan, banks have charged a fee of Rs.6 lacs. Therefore, complainant is entitled to
approach the Consumer Forum for redressal of his grievances.
Facts and contentions of the Complainant:
It has
been pointed out that
the complainant , Aquadev
(India) Limited, was
established with a
view to start
an Integrated Aquaculture Project. The said
unit is a
100% export oriented
for the production
of processed Shrimp
and proposed to
have a hatchery
for 100 million seedlings per annum, grow-out
ponds on an extent
of 120 hectares, a feed
mill of 4500 MT
p.a. and a
processing plant of the capacity of 3000 MT p.a. and the
estimated capital outlay was to the tune of Rs.32.40 crores. The break-up of the said outlay is as
follows:
(Rs.
in Crores)
Promoters Equity 4.75
crores
[Initially
Promoters contribution was to be Rs.4.25 crores and APIDC and MPEDA were to contribute Rs.50.00 Lacs. However, Since APIDC did not participate,
the promoters equity enhanced to Rs.4.75 crores].
Public
Issue 3.55
crores
Term Loan from Banks 23.85 crores
Subsidy from the Marine
Products 0.25 crores
Export Development Agency
(MPEDA) _______________
32.40 Crores
==============
In June 1993, the
complainant approached a consortium of six banks led by the State Bank of
Hyderabad for a Term Loan.
On
17.08.1993 the First Appraisal Report was prepared by the State Bank of
Hyderabad and the State Bank of India in consultation with National Bank of
Agriculture & Rural Development (NABARD) for the purpose of appraising
project prior to grant of loan. For this appraisal report, Rs.6.00 Lacs was
charged as fees by the State Bank of Hyderabad from the Complainant and further
1% of the proposed term loan was to be debited towards front end fee by the
State Bank of India i.e. Rs.4.77 Lacs.
The
balance sheets of Ragunath Cotton and Oil Products Limited, a Company
(hereinafter referred to as RCOPL) of which Shri G. Venakateswarlu was the
Managing Director, were submitted to the Banks along with application for this
loan and all the banks have obtained Confidential Credit Reports from the
relevant Institutions and Banks as part of their appraisal before sanction of
the loan.
Thereafter
on 14.12.1993, sanction letter was issued by the lead bank. Other consortium Banks, i.e. State Bank of
India (R-2), State Bank of Travencore (R-3), Dena Bank (R-4), Bank of
Maharashtra (R-5) and Catholic Syrian Bank (R-6) issued similar letters on
18.06.1994, 08.03.1994, 04.01.1995, 21.04.1994 and 23.03.1994 respectively.
The
conditions stipulated in the said sanction letters were as follows:
(a). Promoters
equity to be raised and invested before disbursement of loan.
(b). Sanction of
Equity from the Marine Products Export Development Agency and Andhra Pradesh
Industrial Development Corporation.
(c). Public Issue to
be completed before disbursement of loan.
(d). Personal
guarantee of the Directors.
(e). Mortgage of the
land purchased by the Company.
(f). NOC
under the Land Ceiling Act (Andhra Pradesh Government).
(g). Hypothecation
of all moveable and immoveable assets; and
(h). Bio-Data
of all the Promoters, and
(i) State
Bank of Hyderabad to be appointed as the Lead Manager to a Public Issue.
The
sanction letters issued by the above banks were approved by the Board of
Directors of the company and the duplicate copies of the said sanction letters
were signed and returned to the respective Banks as a token of acceptance. Thereby, a concluded contract came into
existence between the parties and the consideration for the same was also paid
by way of appraisal fees. The interest (@ 15.5% Quarterly compounded) on the
loan amount was also the consideration.
Based
on the above commitment, the Complainant acquired 530 acres of land and started
implementing the project by commencement of civil works, recruitment of senior
officials, placement of orders for machinery and components, release of advance
to various contractors, besides obtaining all Government clearances which were
necessary as stipulated by the Banks.
It
is alleged that on 7.4.94, the respondents banks received an anonymous
complaint in the name of one Sai Bhaskar, inter-alia, alleging that Shri
G.Venkateswarlu had cheated Andhra Bank; that a CBI case pending in
Pondicherry; that Raghunath Cotton and Oil Products Limited had
mis-appropriated Rs.3.00 Crores; and that disputed lands were shown as
acquired. The informant therein
requested the banks to stop the loan.
Thereafter
consortium meeting of the Banks was held and their deliberations were recorded
in letter dated 14.06.1994. The banks had, by this letter, unilaterally imposed
additional conditions to be fulfilled even after the sanction letters were
issued.
Those
additional terms were as follows:
a)
Title Deeds to be cleared by the Legal Advisor of the Bank.
b)
Public issue must be completed.
c)
Land to be acquired for the canal water intake system.
d)
Infusion of promoters equity.
e)
Approvals to be obtained from Government and public
agencies.
Additional
terms and conditions stipulated by the first Consortium meeting were complied
with by the Complainant Company.
The
banks were obviously aware of the anonymous complaint by this date, however,
they agreed and proceeded with the implementation of the project. On 12.9.1994
the prospectus of the Public issue was issued by the State Bank of Hyderabad as
Lead Manager for the Public Issue. Catholic Syrian Bank was one of the Bankers
to the Issue. State Bank of Travancore
and Bank of Maharashtra were the co-managers to the issue and necessary charges
were paid for the same.
Following
details were mentioned in the prospectus:
i)
The complete background of one of the Directors Shri
G.Venkateswarlu:
That
he was the Managing Director of Raghunath Cotton and Oil Products Limited; and
that
Andhra Bank had filed a suit against Mr. G.Venkateswarlu one of the Promoter
Directors and Guarantor of Laxmi Oil Mills Pvt. Ltd. for recovery of certain
amounts.
ii)
That the company had acquired the land held by the partners
of a Registered Partnership firm. That firm dissolved and it conveyed its
assets to the company and the partners of the said firm were allotted Equity in
the complainant company as consideration for the contribution of the land. This procedure for acquiring lands was
approved by the Advocate of the Bank. He gave opinion to the effect that the
manner of acquisition of the land was valid and that the land was capable of
being mortgaged.
On
30.9.1994, M/s. J.S. Rao and Associates, Chartered Accountants were
appointed by the consortium banks to verify the capital expenditure incurred by
the company, to verify the capital brought-in by the Promoters, to have
scrutiny of transfer of funds between Aquadev and Raghunath Cotton and Oil
Products Limited and to verify whether the company had obtained all necessary
statutory clearances.
M/s.
J.S. Rao, in their report, clearly observed that:
(a). Delay in
implementation was leading to escalation in cost and recommended for
acceleration of release of loan.
(b). The company had
acquired land in excess,
(c). Most Government
Clearances were obtained,
(d). There
was no direct transfer of funds between Raghunath Cotton and Oil Products
Limited and Aquadev India Limited.
As
such, M/s. J.S. Rao & Company did not find any deficiencies on the part of
the complainant. At the end of the said
report it was recommended that:
It
may be pertinent to mention here that the disbursement may be accelerated to
avoid further time and over-runs which may hamper the viability of the
Project.
Thereafter,
on 24.3.1995 consortium meeting of the Banks was held and in the
meeting, the allegations made in the anonymous complaint were discussed wherein
it was clarified by Shri G.Venkateswarlu that he was merely a guarantor in
Laxmi Oil Mills Pvt. Ltd. and his name has been deleted from the array of
parties, after he resigned as a Director from the company. All other allegations were also looked into
and it was found that there was no merit in them. The Banks even required the complainant to pledge the shares of
Raghunath Cotton and Oil Products Limited with them.
Thereafter,
following additional conditions were laid down in the consortium meeting:
a). Shares
of M/s.Raghunath Cotton & Oil Products Ltd. of the value of Rs.75 lacs
which the company had agreed to pledge to State Bank of India and Dena Bank
will now have to pledge to all Consortium Banks on a pari-passu basis.
(b). The
shares held by the Promoters-Directors in Acquadev India Limited to be pledged
to the Banks as collateral security subject to legal opinion.
(c). Latest
Encumbrance Certificates certifying that the land acquired/purchased by the
Company was not encumbered, were to be submitted to the lead Bank.
(d). Dena
Bank would immediately release Rs.300 lacs which would be reimbursed by the
other Banks later.
Therefore,
it is obvious that the contents of the anonymous complaint were dealt with, and
it was decided to proceed with the disbursement of the loan and support the
project.
Thereafter,
to the shock of the complainant, on 6.4.1995, Dena Bank refused to release
Rs.300 lacs, though they had taken all the collateral security for the same.
Further,
without assigning any reasons, the Catholic Syrian Bank and the State Bank of
Travancore withdrew from the consortium on 18.08.1995 and 05.10.1995
respectively. This was illegal
in-as-much as after having joined the consortium, an individual Bank cannot
leave the consortium for a period of two years, as prescribed by the Reserve
Bank of India.
The
Respondent Banks allege that they received another anonymous complaint dated
21.06.1995 wherein the principal allegations were that Shri G.Venkateswarlu had
cheated State Bank of India and MMTC; that he had forged signatures of
landowners and there was an Income Tax raid in his factory.
On
30.12.1995, the Consortium of Banks held a second meeting. All allegations made in the anonymous letter
dated 21.06.1995 were looked into and were found without any merits. In the
minutes drawn on 1.1.1996, it is observed:
To
verify whether the company has complied with all terms and conditions of
sanction, as advised in the consortium meeting held on 24.03.1995. The expenses incurred by the company should
be valued by an approved valuer of the Bank and any further expenses to be
spent by the company should be disbursed on approval of disbursement committee
which would be decided at the consortium meeting scheduled to be convened after
the reappraisal of the project.
State
Bank of Travencore and Catholic Syrian Bank ltd. have indicated their decision
to opt out of consortium and did not attend the Bankers meet. The company should, make alternate
arrangements to tie-up the gap by inducting other banks into the consortium or
impress upon State Bank of Travencore and Catholic Syrian Bank Ltd., to take up
their share in the consortium for the limits originally sanctioned by
them. The investing banks have
indicated that they will not increase their exposure and the company should
make alternate arrangements to tie-up the gap of State Bank of Travencore and
Catholic Syrian Bank Ltd.
It
is submitted that despite the two Banks leaving the consortium, the remaining
members of the consortium decided to go ahead with the project by requesting
the complainant to impress upon State Bank of Travancore and the Catholic
Syrian Bank to reconsider their decision or to induct two other banks in their
place. It was also decided to do a
quick appraisal of the project since the appraisal had been done earlier in the
year 1993. It is obvious that even at
this stage the Banks were keen on going ahead with the project.
The
Minutes of the said Meeting revealed that the State Bank of India (Sole Bankers
of RCOPL) had investigated the allegations made in anonymous complaint and
found that there was no diversion of funds and that they were satisfied in
respect of the dealings of MMTC with Raghunath Cotton and Oil Products
Limited. Dena Bank also confirmed that
they had made a detailed investigation about the land, ownership of 19
individuals and the affidavits submitted by them were in order.
Pursuant to the
second Consortium meeting, State Bank of Hyderabad, Dena Bank and Bank of
Maharashtra conducted a quick appraisal and submitted its report on
05.01.1996. The quick appraisal went
over the project and its status and found as under:
(i). No additional cost is required to be
considered for implementation of the Project although there was delay. Incidentally, the delay has protected the
company from being vulnerable to the climatic adversities and diseases as the
company can now adopt protective measures as suggested from now-onwards.
ii)
The company will have to make revised plans and designs
adopting water treatment technology, as already accepted.
iii)
The Feed Mill and the Processing Plant will have to be
installed only after successful implementation and economic results from the
Farm & Hatchery. Accordingly, the
disbursement for these items was suggested to be taken up in the 2nd
phase of Project implementation.
iv)
Although, all the required clearances viz. SADA, APPCB,
APSEB, etc, have been obtained, these must be got revalidated before
disbursement of loan, which the company has agreed.
v)
The interim Supreme Court direction do not adversely affect
the Project.
vi)
The revised economics supports the financial viability of
the Project.
vii)
The proposal is found technically feasible and economically
viable and hence deserves SUPPORT. In
the absence of which the investment already made becomes non-productive and
futile.
From
this, it is clear that the original sanctioned amounts were sufficient; that
there was compliance with terms and conditions laid down by the Banks as per
the sanction letters and that the Banks were keen to go ahead with the
disbursement of the loan. In concluding portion of the report it is stated that non-disbursement of
loan will lead to financial ruin of the company and its promoters.
From
this it is contended that till January 1996 the Banks had not found any
deficiency on the part of the complainant. Despite withdrawal of two Banks,
remaining Banks decided to go ahead with the implementation of the project.
On
8.2.1996, M/s. J.B. & Company, a firm of Chartered Accountants, was
appointed by the lead Bank, which returned a report stating that the Public
Issue was fully subscribed; investment was of Rs.793 lacs; that the land was
properly acquired and the liability of Income Tax being paid by
Mr.G.Venkateswarlu.
Despite the
aforesaid facts, for unknown and mala fide reasons, the banks refused to disburse the loan.
Hence, this complaint.
CONTENTIONS OF THE BANKS:
It is submitted on
behalf of the banks that the Complainant made various misrepresentations and
concealed important facts which would
have bearing and effect on the decision for granting or not granting of loan.
The complainant
proposed to establish a fully integrated, semi-intensive shrimp (aqua culture)
Farm comprising of a hatchery, processing plant and feed mill, in an area of
415 acres of land at Village Ethamukkala, Kothapatnam Mandal, Prakasam
District, Andhra Pradesh. The following
were the Board of Directors of the complainant company:-
–
Shri G. Venkateswarlu, Managing Director
–
Shri V. R. Pantulu, Director
–
Shri K. Gopalan, Director; and
–
Shri N.V.S.S.S. Rao, Director.
It is the say of the
State Bank of Hyderabad that on the basis of representations made and
information supplied by the complainant, the bank agreed to sanction a loan of
Rs.477.00 lacs subject to various terms stipulated. The sanction letter dated 18-6-1994 was issued by the Bank. There was a clear understanding that it
would be the responsibility of the complainant to arrange for balance requisite
loan from the other proposed Consortium Banks and in no case, the State Bank of
Hyderabad would release its share, unless all the other proposed Consortium
Banks release their share subject to other terms and conditions. As per the arrangement, State Bank of
Hyderabad, State Bank of Travancore, Bank of Maharasthra and State Bank of
India have agreed to sanction the loan for a sum of Rs.477.00 lacs each, while
Catholic Syrian Bank and South Indian Bank Ltd. have agreed to sanction
Rs.238.50 lacs each.
Thereafter, the Complainant failed to
comply with the following conditions
a) Creation
of equitable mortgage on the properties comprising of 532 acres of land — The
complainant had handed over to Answering Respondent the title deeds pertaining
to 432 acres of land but the complainant had subsequently withdrawn the same on
14-9-1995.
b) Pledge of shares held by the Promoter-Directors of M/s. Acquadev India
Limited as collateral security —
However, it was never done.
c) Extension of pari passu charge in favour of all the remaining Consortium
member Banks on the shares of M/s. Raghunath Cotton & Oil Products Ltd.
already pledged by the above-named Directors of the complainant with Ongole
Branch of the Respondent No. 1 i.e. State Bank of India — However, it was
never arranged by the complainant.
d) Furnishing of personal guarantee of 19 shareholders of the
complainant. Whole land was to be
mortgaged — However, it was not done as some papers/documents of land were in
the name of non-existing persons.
e) Acquisition of land, especially the strip of land through which the
water intake drain system was to be constructed. — However, the said land had
not so far been acquired for the purpose.
f) Sanction and release of equity by APIDC and M/s. Marine Products Export
Development Agency (MPEDA) was one of the conditions to release the Consortium
loan and for that purpose the participation of APIDC and MPEDA in equity was to
be treated as core Promoters equity. — APIDC and MPEDA, though agreed, but
never participated in the equity and so the level of core promoters equity was
never achieved, as agreed, as a pre-condition for the release of consortium
loan.
g) As per the Project Report, a Jetty was to be constructed on the
sea-shore and for that purpose, sea-shore Development Agency/Authoritys
permission was required and the complainant Co. had to pay a compensation to
the local fishermen for depriving them of their livelihood because of large
area covered by the jetty. — However, the said permission had not been granted
and even the local fishermen and farmers were not compensated by the
complainant Co.
That
the complainant was yet to fulfill the aforesaid terms and conditions.
On
7th April, 1994, a telegram was received from one Mr. Sai Bhasker
making serious allegations against Shri G.Venkateswarlu, the Managing Director
of the complainant. On the basis of the telegram, respondent made
investigations in the matter and the findings of the said investigation were as
under :-
.(a). It was found that Andhra Bank, Yanam Branch
had filed a suit for recovery of Rs.1.18 crores in Pondicherry Court against
M/s. Lakshmi Oil Mills Pvt. Ltd. of which Shri G. Venkateswarlu was the
Executive Director and Promoter.
Though Shri G.Venkateswarlu had resigned from the Executive
Directorship, he continued to be one of the Directors in M/s.Lakshmi Oil Mills
Pvt. Ltd. and he was also a Guarantor in the said account for the loan advanced
by Andhra Bank. It was also found that
the C.B.I. had registered a case in the matter.
(b). Promoter Shri G. Venkateswarlu has concealed
the following facts :-
1.
He was promoter, one time Executive Director
and continued to be Director in M/s. Lakshmi Oil Mills Pvt. Ltd.
2.
Made incorrect statement of having invested
a sum of Rs.151 lacs as capital by way of 432 acres of land bought by various
persons who had been promised of allotment of shares in lieu thereof.
3.
The said 432 acres of land was purchased
only by 19 persons for just Rs. 20.86 lacs.
Of this 19 persons were either family members, friends and/or employees
of Shri G.Venkateswarlu. Further,
acquisition of the land by the company
was against the provisions of land ceiling applicable in the State of Andhra
Pradesh.
4.
Subsequently, it was revealed that most of
the land acquired by the complainant was the land allotted to landless persons
long back by the Government for cultivation purposes and the acquisition of
land was on the basis of forged signatures of the real owners.
5.
Shri G. Venkateswarlu had cheated the State
Bank of India for a sum of Rs. 7.00 crores.
6.
Income-tax Deptt. had raided the factory and
the books of RCOPL were seized.
On
the basis of the said information Consortium Banks got the matter investigated
by M/s. J. B. & Co., Chartered Accountants.
Therefore,
the Catholic Syrian Bank, the State
Bank of Travancore and Bank of Maharashtra withdrew from Consortium on
18.8.1995, 5.10.1995 and 14.2.1996
respectively.
On
such withdrawal by the three banks complainant had to tie up with other banks
to meet the gap between the required loan and the loan to be made available by
the remaining three banks. However, the
complainant took no initiative in this regard and thereafter requested the State
Bank of Hyderabad to return the title deeds which were submitted by the
complainant for verification and creation of mortgage. Thereafter, the
documents were returned to the complainant on
14-9-1995.
The
Bank has also raised the following contentions:
(1) .(a). the complaint is
not maintainable under the Consumer Protection Act.
(b). the Complainant is not a consumer within
the meaning of the Consumer Protection Act.
(c). That the answering respondent Bank has
not provided/rendered any services to the complainant as such there is no
question of any deficiency in the services and hence the present complaint is
liable to be dismissed. In any case,
the loan, to be advanced by the Answering respondent Bank was nothing but
leasing/renting out of its money to the complainant and the said act/business
does not constitute any service by any stretch of imagination.
(2). Complainant has
not fulfilled various terms & conditions before release of funds on the
basis of sanctionletter.
(3). Granting or
non-granting of a loan is purely a commercial decision to be taken by the banks
and therefore the complaint is not maintainable.
FINDINGS:
(I) Whether the Complainant is
consumer? And, whether the complaint is maintainable?
In
our view the contention of the banks that complaint is not maintainable under
the Consumer Protection Act, 1986 is misconceived. The Complainant has availed
the services of the banks by paying charges/fees. As stated above, at the
initial stage, for appraisal report, the Complainant was required to pay Rs.6
lakhs to the State Bank of Hyderabad and Rs.4.77 lakhs, i.e. 1% of the proposed
term loan to be sanctioned, to the State Bank of India.
Section
2(o) gives the meaning to the word service and it, inter alia, includes,
service in connection with the banking. Similarly, consumer would mean
[(2(d)(ii)] any person, inter alia, who
avails of any service for consideration. For this purpose, we would refer to
the following facts:
(i). The
Complainant approached the Opposite Party Banks for sanction of loan in June,
1993.
(ii). On
17.8.93 first appraisal report was prepared.
(iii). On
14.12.93 to 4.11995 – sanction letters were issued by different banks.
Conditions were imposed.
(iv). Basing
on the said sanction letters the Complainant acquired 530 acres of land and
also all the clearances as required by the banks.
(v). On
7.4.94 there was an anonymous letter.
(vi). 14.6.94
Consortium meeting. Additional conditions were imposed.
(vii). 12.9.94
: Prospectus of public issue was issued for Rs.3.55 crores.
The
Banks imposed conditions twice, i.e. once on 14.12.1993 and again on 14.6.1994.
And, after a considerable period of three months, they allowed the Complainant
to go for public issue. Surprisingly, Dena Bank, a Member of the Consortium has
issued a sanction letter after the public issue, i.e. on 04.01.1995.
Aforesaid facts
would certainly establish that the Complainant availed of the services of the
Respondents for taking loan from them. The Complainant was asked to go ahead
with the project on the basis of the appraisal reports and was also asked to
issue prospectus of public issue. Hence, If there is deficiency in service by
the bank in disbursing the loan despite it being sanctioned the complaint will
be maintainable. After sanction of the bank loan, if the loan is not disbursed,
the Complainant may suffer irreparable loss. Because, on the promise of the
bank to sanction and disburse the loan amount, the Complainant will proceed in
establishing his business or the contemplated activity. That would be frustrated if the loan is not
disbursed on due dates or at appropriate time and that the Complainant may
suffer irreparable loss.
Therefore,
the contention of the Banks that Petitioner is not a consumer within the
meaning of Sec.2(d)(ii) or that the complaint is not maintainable under the Act
is without any substance.
The
aforesaid question is dealt with by the Apex Court in Viswalakshmi Sasidharan
(Mrs.) and Ors. Vs. Branch Manager, Syndicate Bank, Belgaum, (1997) 10 SCC 173.
In that case, Petitioners have taken loan from the Syndicate Bank, on two
accounts : one for a sum of Rs.1,50,000/- and the other for Rs.3 lakhs; bank
disbursed a sum of Rs.1.47 lakhs and
the balance amount was not released in
favour of the Petitioner. For deficiency in service a complaint was filed for
damages. That complaint was finally dismissed by the National Commission. Against that order an S.L.P. was filed. In
that backdrop, the Apex Court observed that, if pursuant to the contract the
bank did not disburse the amount, it furnishes right to complaint of deficiency
in service and to seek redressal under the Consumer Protection Act. The Court
also observed that mere filing of suit by the bank for recovery of the amount
may not be an absolute bar on the Commission to go into the question of
deficiency in service for the reason that the issue before the Civil Court is
not the deficiency in service unless that is specifically raised as a defence
in the suit.
Further,
in the case of Gujarat State Financial Corporation Vs. M/s. Lotus Hotels Pvt.
Ltd. (1983) 3 SCC 379, M/s. Lotus Hotels Pvt. Ltd. approached the Gujarat State
Financial Corporation for a loan of Rs.30 lacs for business of hotels. Loan of
Rs.29.93 was sanctioned on certain
terms and conditions. The terms and conditions were accepted by the
Company. The Corporation thereafter
resolved not to disburse the loan to the Company. Hence, the Company filed a Writ Petition for mandamus to the
Corporation to disburse the promised loan to the Company. In that petition mandamus was issued
directing the Gujarat State Financial Corporation (G.S.F.C.) to disburse the
promised loan to the Company in accordance with the agreement. While dismissing the appeal, the Apex Court
held that the agreement to advance the loan was entered into in performance of
the statutory duty cast on the Corporation by the statute under which it was created. The Court observed that on solemn promise by the GSFC Respondent
incurred expenses, suffered liabilities to set up a hotel and presumably, if
the loan was not forthcoming Respondent may not have undertaken such a huge
project. The Court therefore held that the principle of promissory estoppel
would certainly estop the Corporation from backing out of its obligation arising
from the solemn promise. The officer of the G.S.F.C. cannot arbitrarily on his
mere whim ignore his promise on some undefined and undisclosed ground of
necessity or change the conditions to the prejudice of the person who had acted
upon such representation and put himself in a disadvantageous position.
Nodoubt, the aforesaid case
is with regard to jurisdiction of the High Court to issue writ of mandamous but
similar principle would be applicable to find out deficiency in service by a
bank in not disbursing the loan which
was sanctioned and on such promise the Complainant has proceeded further
and has invested a large amount. The
officers of the Banks cannot commit breach of the contract or promise to give
loan arbitrarily or mala fide or oblique motive.
In
view of the above discussion we hold that the complaint is maintainable.
II. Services for Commercial
Purposes:
The
learned Counsel for the Banks submitted that even if the complaint for
deficiency in service is maintainable, the present complaint is not
maintainable because the loan was sanctioned or the services of the banks were
hired for commercial purpose, i.e. for establishing aqua culture. It is true
that after amendment of the Act there
is an exclusion in the definition of the word consumer in Section 2(1)(d)(ii)
to the effect that hiring of services does not include a person who hires of
such services for any commercial purpose. But, the said exclusion clause came
into force w.e.f. 15.3.2003 and would not have any retrospective effect. The
complaint, in the present case, was filed in the year 1996. Therefore, the effect of Amendment, in the
facts of the present case, is not required to be dealt with in this complaint.
III. Regarding deficiency in
service, it can be divided into three parts:
.(a). whether
refusal to release the sanctioned loan was arbitrary or is based on undisclosed
ground?
.(b). whether
in the facts of the case, refusal to release the loan amount is deficiency in
service?
.(c). Even if
it is justifiable, whether the Complainant is entitled to damages for the loss
suffered by him, as for two years he was asked to proceed ahead with the
project?
(a) Whether refusal to release the sanctioned
loan was arbitrary or is based on undisclosed ground?
For
deciding the first part, we would refer to the submission made by the learned
Counsel for the Complainant that the Complainant had complied with all the
conditions laid down by the Banks for grant of the loan. However, for mala fide and extraneous
considerations the loan was not disbursed. It was a wilful and deliberate act
of malice on the part of the concerned officers of the bank. The investigative and appraisal report and
the minutes of the meeting held by Consortium no where suggested for withdrawal
of the sanctioned loan. It is contended
that
1.
The promoters who had originally contributed the land
transferred the same to the Company and the Title Deeds were pledged to the
Banks.
2.
The promoters equity of Rs. 4.75 crores was invested.
3.
The Public Issue was completed and shareholders contributed a
sum of Rs. 2.30 Crores. The Manager to the Public Issue was the lead bank; i.e.
State Bank of Hyderabad. Respondents 3
& 5 acted as Co managers for a fee.
4.
No Objection certificate from the Land Ceiling Authorities and
the Pollution Control Board were duly obtained and furnished to the Banks.
5.
The sanctions from the Marine Product Export Development
Agency was duly obtained and submitted.
6.
The land for the canal was duly purchased and a canal for the
intake of water was constructed.
7.
The buildings for the hatchery and feedmill were duly
constructed and the complainant incurred an expenditure of Rs. 8.5 crores on
the project which had under its employment 120 personnel at the relevant time,
just when the loan was to be released.
Therefore, the
learned Senior Counsel Mr. Sudhir Chandra submitted that doctrine of res
ipsa loquitor (facts speak for themselves) would be applicable and that
from the admitted and irrefutable facts which are borne out by admissions and
documents of the Respondent Banks, it can be held that the act of refusal to
disburse was utterly malicious intent.
For damages, he
referred to :-
.(1). The Appraisal Report and the Prospectus
issued by the State Bank of Hyderabad to the public issue show that loss of
profits for the year 2001 would amount to Rs. 46.03 crores.
.(2) The
cost of overrun in order to complete the project would come to Rs. 27.72
crores.
.(3) Advances forfeited for other contracts
come to Rs. 2.18 corres; and
.(4) Complainant
has incurred expenditure of Rs. 1.78 crores for administration.
As against this, on
behalf of the banks, it was pointed out that a number of proceedings were
pending against Shri G.Venkateswarlu, the Managing Director. He had suppressed
the material facts at the time of applying for the loan. In the written version
filed by the State Bank of Hyderabad, it has been averred that on the basis of
the said information, the proposed Consortium Banks got the matter investigated
by M/s. J. B. & Co., Chartered Accountants. The relevant part of the written version is reproduced below:
(i)
The land to be used for Aqua culture was
still agricultural land and permission had not so far been granted by the
Government/concerned authorities to convert the use thereof for aqua-culture.
(ii)
Certain portion of land to be mortgaged with
the proposed Consortium Banks was Benami and since all 19 Shareholders in whose
name the land stood were to be made as Guarantors, the said condition could not
be fulfilled by the complainant.
(iii)
Investigations revealed existence of 5 more
Associate firms/Companies about which none of the proposed Consortium Banks had
any information/knowledge as the same was never provided by the complainant and
its promoters.
(iv)
I.D.B.I./I.C.I.C.I. had large overdues and
they had decided to recall the advances from RCOPL. A copy of I.D.B.I. letter dated 11.4.1996 addressed to the Govt.
of India is produced on record.
(v)
As a consequence of Income Tax raid the
complainant Company and its Managing Director were required to pay a large
capital gains/stamp duty to the extent of Rs.115.00 lacs out of which only a
small amount had been paid so far.
(vi)
M.M.T.C. had informed that RCOPL was not
reliable and M.M.T.C. had initiated criminal proceedings against the said firm.
M/s.
J.B. & Co., Chartered Accountants, have further pointed out that the R.B.I.
vide its letter dated 10.6.1996 (R-1/4) had informed all the Banks and
Financial Institutions about the interim order dated 24th August,
1995 passed by Honble Supreme Court in a Public Interest Litigation in Writ
Petition No. 561 of 1994 whereby all the State Governments and Union
Territories were directed not to give fresh licences/permission for setting
up/establishment of any Aqua Farms in their respective territories till further
orders.
It
is also pointed out that :
.(i).
432 acres of land was purchased only by
19 persons for just Rs. 20.86 lacs and those
19 persons were either family members, friends and/or employees of Shri
G.Venkateswarlu. Further, acquisition
of the lands by the company was
against the provisions of land ceiling applicable in the State of Andhra
Pradesh.
.(ii). Subsequently, it was revealed that most of
the land acquired by the complainant was the land allotted to landless persons
long back by the Government for cultivation purposes and the acquisition of
land was on the basis of forged signature of the real owners.
.(iii). Shri G. Venkateswarlu had cheated the State
Bank of India for a sum of Rs. 7.00 crores.
(iv). Income-tax
Deptt. had raided the factory and the books of RCOPL were seized.
Further, by letter dated
19.1.1996 the State Bank of Hyderabad requested to carry out special audit (i)
to inquire into the purchase of lands; and (ii) to inquire into the details of
the raid conducted on the Promoter, its
two Directors, etc. The Auditors have, inter
alia, reported as under:
The
investigation Department of Income Tax, Hyderabad conducted search and seizure
operations during February 1995, on the offices and premises of the Promoter
Directors of the Company and also M/s. Raghunath Cotton and Oil Products Ltd.
Shri G.Venkateswarlu appears to have admitted and made a disclosure of
concealed and unaccounted income under Sec.132(1) of the Income Tax Act, 1961
in his name and also in the names of his family members, relatives and friends
to the tune of Rs.249 lacs. The consequent tax liability on Shri
G.Venkateswarlu is estimated to be of the order of Rs.115 lacs including
interest accrued and due thereon.
Our
verification of documents and also access to the appraisal report of the
Investigation Department of Income Tax reveal that the promoter director, Shri
G.Venkateswarlu appears to have acquired the lands for the then market value
against cash payments and managed to register them quoting a lower value as
apparently he could not explain the sources of the said investment. In
order to account for his investment in the Company and to match the required
promoters contribution to quantify for the Public Issue, the promoter has
chosen to employ this method of admission and dissolution of partnership to
transfer the immovable properties at the market value. We have in fact
secured a copy of the Registered Document bearing Docu. No. 3215 of 1994
which justifies that the current market
value is about Rs.50,000/- per acre in Maddipadu Village. Also the market value
of the land at Ethamukkala Village is estimated at Rs.40,000/- per acre as
certified by the Sub-Registrar of Assurances, Ongole. Manifestly the Promoter
Director has chosen this method of utilise the unaccounted money for buying the
above mentioned lands and for more fully securing the title to the property. He
has also attempted to avoid capital gains tax under the pretext of classifying
them as agricultural lands and incidental stamp duty arising out of the
transfer of immovable property.
The
balance tax liability of about Rs.91 lacs is in arrears to the Department. The
bank may have to ascertain the sources of Shri G.Venkateswarlu to meet the
arrears of tax liability before granting any disbursement from the loan under
consideration..
Thereafter,
it gave the following findings:
(i)
We are of the view that the Promoter Director, Shri
G.Venkateswarlu, with a view to introduce his unaccounted cash into the
business, has chosen to adopt the colourable exercise of understating the
market value of the lands and also transferred them through the partnership
process discussed above. However, the Encumbrance Certificates secured by
us, establish that the lands are free from encumbrance apart from conveying a
clear, valid and marketable title to the Company. The allotment of shares done to meet the consideration for
acquiring the lands also appears to be reasonable.
(ii)
We are of the opinion that the Bank must be cautious to
ascertain the sources of Shri G.Venkateswarlu to meet the balance tax liability
of Rs.91 lacs arising out of his disclosure of Rs.250 lacs as concealed income.
The bank also has to verify the credentials of either sister concerns to
avoid any possible diversion of funds in future.
From
the aforesaid audited report and the allegations made it would be difficult to
hold that the decision taken by the Banks not to disburse the sanctioned loan
was in any way arbitrary or unjustified. In short, from the Special Audit and
the submissions, it appears that the Banks were asked to be cautious and to
ascertain the source of Shri G.Venkateswarlu to meet the balance tax liability
and has to verify the credentials of other sister-concerns to avoid any
possible diversification of funds in future; (ii) there was use of unaccounted
cash for purchase of the lands; (iii) there was income tax raid and disclosure
of unaccounted income; (iv) unverified allegation was with regard to cheating
of SBI to the tune of Rs.7 crores by Shri Venkateswarlu; (v) allegation was
that land was allotted to landless people long back by the Government for
cultivation purposes; (vi) information given by MMTC with regard to the
concern, RCOPL; (vii) interim order passed by the Supreme Court in Public
Interest Litigation whereby State
Governments were directed not to give fresh licences/permissions for setting up
of any aqua forms and hence, the R.B.I. vide letter dated 10.9.1996 directed
the Banks to keep in view the orders of the Supreme Court and await its final
decision on new aqua-culture units; (viii) large overdues of IDBI and ICICI
from RCOPL; and (ix) after the first appraisal report, State Bank of Travencore
and Catholic Cyrian Bank have withdrawn from the Consortium indicating the
Banks were having doubt at that stage.
From the audit
report it is apparent that :
(i). the entire dealings of the main
Promoter of the Company, Shri G.Venkateswarlu have become suspecious.
(ii). From the admitted facts it is apparent
that the term loan agreed to be disbursed by the banks was to the tune of
Rs.23.85 Crores. It is virtually 75% of the total estimated outlay for making
the project functional. Contemplated equity was Rs.8.30 Crores (i.e. Rs. 4.75
Crores + Rs.3.55 Crores). Admittedly the Marine Products Export Development
Agency (MPEDA) has not released the subsidy. So, before releasing such a large
amount if the Banks have carried out special audit of the functioning of the
Company wherein Mr.G.Venkateswarlu was the Managing Director, and arrived at
the conclusion that loan is not required to be disbursed, it cannot be said to
be unjustified one. That decision is based upon various factors including the
viability of the project and recovery of such large funds.
(b)
The next question is whether in the
facts of the case refusal to release loan amount is deficiency in service?
Conditions
stipulated, as pointed out by the Complainant, inter alia, provide for personal
guarantee of Directors, mortgage of land purchased by the Company, NOC under
the Land Ceiling Act, bio-data of all promoters and additional conditions, such
as, approval to be obtained from the Government and public agencies. It would
be difficult in this case to arrive at the conclusion that the aforesaid
conditions are complied with by the Complainant. The word deficiency is defined under Sec. 2(1)(g) to mean any
fault, imperfection, shortcoming or inadequacy in the quality, nature and
manner of performance which is required
to be maintained by or under any law for the time being in force or has been
undertaken to be performed by a person in pursuance of a contract or otherwise
in relation to any service. Considering this provision it cannot be held that
there was any fault or shortcoming in the nature and manner of performance
which was undertaken to be performed by
the banks in pursuance of a contract in relation to disbursement of loan.
Further, if the banks arrive
at the conclusion that it would be difficult to recover the disbursed loan, it
cannot be compelled to disburse the same. Therefore, presuming that there was
breach of contract by the banks, direction to release the funds on the basis of
sanctioned loan cannot be issued. This would be in conformity with Section 14
of the Specific Relief Act, 1963, which, inter alia, provides that contracts
for non-performance of which
compensation is an adequate remedy cannot be specifically enforced.
Clause (b) of Section 14 further provides that a contract, which is in its nature determinable, also cannot
be specifically enforced. In this view
of the matter, the first prayer for a direction to the banks to release the
funds on the basis of the sanctioned loan is required to be rejected.
It was next
contended that after second appraisal report, there was no question of
obtaining the auditors report in January 1996.
In our view, considering various allegations made against
Mr.G.Venkateswarlu this submission is unjustified. If there is an error,
intentional or unintentional, in the previous appraisal reports, or the decision
taken by the Banks, subsequent finding of error would not debar the banks to
reconsider the decision or would not prevent the banks in refusing to disburse
the loan.
(c) Even if it is
justifiable, whether the Complainant is entitled to damages for the loss
suffered by him, as for two years he was asked to proceed ahead with the
project?
Lastly,
it is contended by the learned Senior Counsel for the Complainant that for one
or the other reasons, the bank officers assured the Complainant that loan would
be disbursed. On the basis of their assurances, the Complainant Company was
required to invest large amounts by constructing canals and they were also
required to spend large amount in purchasing the land and to get the necessary
certificates from the Revenue Authorities. The Banks were having the first
appraisal report on 18.8.1993. The Banks were knowing about the financial
position of RCOPL. Despite this, the project was cleared for sanctioning the
loan. The Complainant was asked to proceed ahead with the public issue. Because of the withdrawal after two years by
the banks not only the Complainant but also the subscribers of the public issue
have suffered. For this deficiency in service, the banks should be directed to
pay the costs incurred by the Company in making construction as well as paying
wages to the labourers.
We
find much force in the aforesaid contention, as it is blow hot and cold
attitude of the officers of the banks.
In
the present case, it cannot be disputed that after having appraisal reports
banks have decided to sanction the loan. Thereafter, again, on verification of
the allegations, the banks decided to proceed ahead with the grant of loan and
the Complainant was asked to proceed further in purchasing the lands as well as
in proceeding ahead with the project. In these circumstances, Complainant has
suffered loss. For this loss, whether banks should compensate the Complainant
or not?
In our view, there
is no reason why the concerned officers who submitted the first appraisal
report have not bothered about the financial position of RCOPL. Thereafter,
sanction letters were issued from 14.12.1993 onwards by various banks. An
anonymous letter was received on 7.4.1994 stating that the various
irregularities alleged to have been committed by Shri G.Venkateswarlu. Those were considered by the Consortium
Meeting which are recorded in letter dated 14.6.1994. Firstly, on 30.9.1993 M/s. J.S.Rao & Associates, Chartered
Accountants were appointed by the Consortium Banks to have scrutiny of transfer
of funds between the Complainant and the RCOPL. Again the Consortium meeting
was held on 24.3.1995. The allegations
were looked into and banks decided to proceed further with the grant of loan.
Thereafter, further Consortium meeting was held on 30.12.1995. There also the
banks have decided to go ahead with the project. Nodbout, the State Bank of
Travencore and the Catholic Syrian Bank
withdrew their decision to grant loan. But, the banks were expected to
verify at the initial stage whether the project was viable; if viable, whether
the Directors could be relied upon before sanctioning the loan. That was not
done. These facts indicate that for one or other reasons, the bank officers
cleared the project and asked the Complainant to proceed further. It is
apparent that they have failed to discharge their duties for the reasons best
known to them. It is the allegation of the Complainant that refusal to release
the sanctioned loan was mala-fide.
As such, in these proceedings, though it will be difficult to arrive at
the conclusion that the said decision was mala-fide, but it certainly reveals
serious lapses and deficiency on the part of the officers of the concerned
banks in discharge of their duties.
It is quite possible
that public at large might not have subscribed to the shares if it was not
stated that State Bank of Hyderabad was the lead bank.
Hence,
even though we have arrived at the conclusion that the banks were entitled to
repudiate the contract for justifiable reasons, the delay in taking such
decision and in the meantime asking the Complainant to proceed ahead with the
project has caused heavy loss to the Complainant. The loss claimed by the Complainant is for implementing the project,
for commencing the civil works, for recruitment of senior officers, for
placement of orders for machinery and components, for release of advances to
various contractors, besides spending large amount for obtaining Government
clearances and the amount incurred for public issue. On this account, the
Complainant has claimed large amount of Rs.8.5 crores, which
we are not inclined to grant in view of various facts stated above. It
is also quite possible that public at large might not have subscribed for the
shares if it was not stated that the State Bank of Hyderabad was the lead bank
and the State Bank of Travencore and the Bank of Maharashtra were Co-Managers
to the public issue. Hence, even though this is not a fit case for grant of
compensatory compensation/damages, but grant of nominal compensation is fully justified for the deficiency in
service arising out of repeatedly obtaining appraisal reports/verifications and
giving assurances, and thereafter not disbursing the funds. Hence we direct the
State Bank of Hyderabad which has
accepted to be the lead Bank as mentioned in the prospectus by the Complainant
to pay Rs.10 lakhs as nominal compensation and also refund the amount of Rs.6
lakhs which was charged as fees for
appraisal report, because the appraisal report
was in favour of the Complainant. Respondent Nos. 2 and 4, i.e. the
State Bank of India and the Dena Bank are directed to pay Rs.2 lakhs and the
Respondent Nos. 3, 5 and 6 are directed to pay Rs.1 lakh each to the
Complainant towards nominal compensation.
It
would be for the Banks to recover the aforesaid amounts from the concerned
officers who have committed faults or who were deficient in discharge of their
duties, for known or unknown reasons.
The
original petition is disposed of in the above terms. The State Bank of Hyderabad is directed to pay Rs.10,000/- by way
of costs to the Complainant.
J
(M.B.SHAH)
PRESIDENT
.
(RAJYALAKSHMI RAO)
MEMBER.
..J.
(S.N.KAPOOR)
MEMBER
