{"id":256747,"date":"2004-09-02T00:00:00","date_gmt":"2004-09-01T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-aquadev-india-ltd-vs-state-bank-of-hyderabad-and-ors-on-2-september-2004"},"modified":"2015-10-15T06:19:32","modified_gmt":"2015-10-15T00:49:32","slug":"ms-aquadev-india-ltd-vs-state-bank-of-hyderabad-and-ors-on-2-september-2004","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-aquadev-india-ltd-vs-state-bank-of-hyderabad-and-ors-on-2-september-2004","title":{"rendered":"M\/S. Aquadev India Ltd vs State Bank Of Hyderabad And Ors. on 2 September, 2004"},"content":{"rendered":"
National Consumer Disputes Redressal<\/div>\n
M\/S. Aquadev India Ltd vs State Bank Of Hyderabad And Ors. on 2 September, 2004<\/div>\n
  \n \n \n \n \n \n NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION \n\n\n\n\n \n\n \n\n\n\n \n\nNATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION  \n\n \n\nNEW DELHI \n\n \n\n\u00a0 \n\n \n\n\u00a0 \n\n ORIGINAL PETITION NO.154 OF\n1996 \n\n \n\n \u00a0 \n\n \n\nM\/s. Aquadev India Ltd.  Complainant \n\n \n\n\u00a0 \n\n \n\nVersus \n\n \n\n\u00a0 \n\n \n\nState Bank of Hyderabad and Ors.  Opp. Parties \n\n \n\n\u00a0 \n\n \n\n\u00a0 \n\n \n\n BEFORE: \n\n  HONBLE MR. JUSTICE\nM.B. SHAH, PRESIDENT. \n\n \n\n MRS. RAJYALAKSHMI RAO,\nMEMBER  \n\n \n\nHONBLE MR. JUSTICE S.N. KAPOOR, MEMBER. \n\n \n\n\u00a0 \n\n \n\n\u00a0 \n\n \n\nFor the Complainant :  Mr.\nSudhir Chandra, Sr.Advocate \n\n \n\n with\nMr. S.Muralidharan, Advocate \n\n \n\n Mr.Trideep\nPais, Advocate \n\n \n\n Mr.Bhagabati\nPrasad Padhy, Advocate  \n\n  \n\n \n\nFor the Opp.Party Nos. 1-5: Mr. R.P.Vats, Advocate \n\n \n\nFor the Opp. Party No.6 : Mr.\nB.R. Narang, Advocate \n\n \n\n  \n\n \u00a0 \n\n \n\n \u00a0 \n\n \n\n 02.09.2004 \n\n \n\n\u00a0 \n\n  O R D E R \n<\/pre>\n
\u00a0 <\/p>\n
 \u00a0 <\/p>\n
 M.B. SHAH, J., PRESIDENT <\/p>\n
\u00a0 <\/p>\n
  The
\ngrievance of the Complainant in this complaint is that the respondent banks
\nwhich formed a consortium for grant of loan, have not released the sanctioned
\nloan after having two appraisal reports and directing the Complainant to issue
\nprospectus for issue of equity shares.\n<\/p>\n
It is contended that the banks, in blatant abuse of power and without
\ngiving any reasons, refused to disburse the loan. This has caused complete destruction of the whole project and
\nplaced the Directors and shareholders of the company in a precarious
\nposition.\n<\/p>\n
It is
\nsubmitted that :\n<\/p>\n
(i)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe denial of the loan facility after the same has been
\nsanctioned by the Respondent Banks was not in the bona- fide exercise of
\ndiscretion vested in the Banking Institutions. The lead bank has not informed
\nany reason for non-release of the sanctioned loan.\n<\/p>\n
(ii)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nOn the basis of the categorical promise by the banks and
\nsanction of the loan for a sum of Rs.23.85 crores, complainant entered into
\nvarious contracts for execution of the major works of the project. Large amount was spent and thereafter by
\nnon-release of the sanctioned loan, many satellite projects depending upon the
\ncomplainants project were required to be closed.\n<\/p>\n
(iii)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nAs one of the conditions for sanction of the loan of Rs.23.85
\ncrores, Respondent No.1 Bank directed that the complainant company should go in
\nfor a public issue, designated itself as the lead Manager for the said issue,
\nand got the prospectus prepared by the Merchant Banking Bureau of State Bank of
\nHyderabad who had made the complainant company to represent to the public at
\nlarge that the said loan amounts were sanctioned and were available to the
\ncomplainant company for its project, thereby inviting the public at large to
\ninvest their funds in the project ; and believing such representations, the
\nPublic at large had invested their funds in the project which have been
\nexpended in the works of the project.\n<\/p>\n
(iv)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nIn view of the latest appraisal report received as late as in
\nJanuary 1996, there remained no reason for non-release of the sanctioned loans
\nby the Respondent Banks.\n<\/p>\n
\u00a0 <\/p>\n
 On the basis of the aforesaid
\nand other averments, it has been prayed that (a) the respondent banks be
\ndirected to release the sanctioned loan amount of Rs.23.85 crores to the
\ncomplainant company, and (b) direct the respondents to pay damages to the
\ncomplainant to the tune of Rs.79.20 crores with interest @ 24% per annum.\n<\/p>\n
\u00a0 <\/p>\n
 The learned senior
\ncounsel Mr. Sudhir Chandra for the Complainant submitted that this case does
\nnot require any detailed enquiry and the complainant seeks to rely only upon
\nfacts which are mentioned in the documents filed by the complainant and the
\nbanks.\n<\/p>\n
\u00a0 <\/p>\n
 He further submitted
\nthat the contention raised by the banks with regard to sanction and
\ndisbursement of the amount would not be covered by the C.P. Act, is
\nabsurd. Section 2(o) defines the word
\nservice, which includes bank, and in the present case admittedly before
\nsanctioning the loan, banks have charged a fee of Rs.6 lacs. Therefore, complainant is entitled to
\napproach the Consumer Forum for redressal of his grievances.\n<\/p>\n
 \u00a0 <\/p>\n
 Facts and contentions of the Complainant:\n<\/p>\n
 It has
\nbeen pointed out that
\nthe complainant , Aquadev
\n(India) Limited, was
\nestablished with a
\nview to start
\nan Integrated Aquaculture Project. The said
\nunit is a
\n100% export oriented
\nfor the production
\nof processed Shrimp
\nand proposed to
\nhave a hatchery
\nfor 100 million seedlings per annum, grow-out
\nponds on an extent
\nof 120 hectares, a feed
\nmill of 4500 MT
\np.a. and a
\nprocessing plant of the capacity of 3000 MT p.a. and the
\nestimated capital outlay was to the tune of Rs.32.40 crores. The break-up of the said outlay is as
\nfollows:\n<\/p>\n
  (Rs.\n<\/p>\n
in Crores) <\/p>\n
  Promoters Equity 4.75
\ncrores <\/p>\n
 [Initially
\nPromoters 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,
\nthe promoters equity enhanced to Rs.4.75 crores].\n<\/p>\n
\u00a0 <\/p>\n
  Public
\nIssue 3.55
\ncrores <\/p>\n
 Term Loan from Banks   23.85 crores <\/p>\n
  Subsidy from the Marine
\nProducts 0.25 crores <\/p>\n
  Export Development Agency  <\/p>\n
 (MPEDA)   _______________ <\/p>\n
   32.40 Crores <\/p>\n
 ============== <\/p>\n
  In June 1993, the
\ncomplainant approached a consortium of six banks led by the State Bank of
\nHyderabad for a Term Loan.\n<\/p>\n
\u00a0 <\/p>\n
  On
\n17.08.1993 the First Appraisal Report was prepared by the State Bank of
\nHyderabad and the State Bank of India in consultation with National Bank of
\nAgriculture & Rural Development (NABARD) for the purpose of appraising
\nproject prior to grant of loan. For this appraisal report, Rs.6.00 Lacs was
\ncharged as fees by the State Bank of Hyderabad from the Complainant and further
\n1% of the proposed term loan was to be debited towards front end fee by the
\nState Bank of India i.e. Rs.4.77 Lacs.\n<\/p>\n
\u00a0 <\/p>\n
  The
\nbalance sheets of Ragunath Cotton and Oil Products Limited, a Company
\n(hereinafter referred to as RCOPL) of which Shri G. Venakateswarlu was the
\nManaging Director, were submitted to the Banks along with application for this
\nloan and all the banks have obtained Confidential Credit Reports from the
\nrelevant Institutions and Banks as part of their appraisal before sanction of
\nthe loan.\n<\/p>\n
\u00a0 <\/p>\n
  Thereafter
\non 14.12.1993, sanction letter was issued by the lead bank. Other consortium Banks, i.e. State Bank of
\nIndia (R-2), State Bank of Travencore (R-3), Dena Bank (R-4), Bank of
\nMaharashtra (R-5) and Catholic Syrian Bank (R-6) issued similar letters on
\n18.06.1994, 08.03.1994, 04.01.1995, 21.04.1994 and 23.03.1994 respectively.\n<\/p>\n
\u00a0 <\/p>\n
  The
\nconditions stipulated in the said sanction letters were as follows:\n<\/p>\n
(a). Promoters
\nequity to be raised and invested before disbursement of loan.\n<\/p>\n
(b). Sanction of
\nEquity from the Marine Products Export Development Agency and Andhra Pradesh
\nIndustrial Development Corporation.\n<\/p>\n
(c). Public Issue to
\nbe completed before disbursement of loan.\n<\/p>\n
(d). Personal
\nguarantee of the Directors.\n<\/p>\n
(e). Mortgage of the
\nland purchased by the Company.\n<\/p>\n
(f). NOC
\nunder the Land Ceiling Act<\/a> (Andhra Pradesh Government).\n<\/p>\n
(g). Hypothecation
\nof all moveable and immoveable assets; and <\/p>\n
(h).  Bio-Data
\nof all the Promoters, and  <\/p>\n
(i)  State
\nBank of Hyderabad to be appointed as the Lead Manager to a Public Issue.\n<\/p>\n
\u00a0 <\/p>\n
  The
\nsanction letters issued by the above banks were approved by the Board of
\nDirectors of the company and the duplicate copies of the said sanction letters
\nwere signed and returned to the respective Banks as a token of acceptance. Thereby, a concluded contract came into
\nexistence between the parties and the consideration for the same was also paid
\nby way of appraisal fees. The interest (@ 15.5% Quarterly compounded) on the
\nloan amount was also the consideration.\n<\/p>\n
\u00a0 <\/p>\n
  Based
\non the above commitment, the Complainant acquired 530 acres of land and started
\nimplementing the project by commencement of civil works, recruitment of senior
\nofficials, placement of orders for machinery and components, release of advance
\nto various contractors, besides obtaining all Government clearances which were
\nnecessary as stipulated by the Banks.\n<\/p>\n
\u00a0 <\/p>\n
  It
\nis alleged that on 7.4.94, the respondents banks received an anonymous
\ncomplaint in the name of one Sai Bhaskar, inter-alia, alleging that Shri
\nG.Venkateswarlu had cheated Andhra Bank; that a CBI case pending in
\nPondicherry; that Raghunath Cotton and Oil Products Limited had
\nmis-appropriated Rs.3.00 Crores; and that  disputed lands were shown as
\nacquired. The informant therein
\nrequested the banks to stop the loan.\n<\/p>\n
\u00a0 <\/p>\n
  Thereafter
\nconsortium meeting of the Banks was held and their deliberations were recorded
\nin letter dated 14.06.1994. The banks had, by this letter, unilaterally imposed
\nadditional conditions to be fulfilled even after the sanction letters were
\nissued.\n<\/p>\n
\u00a0 <\/p>\n
\u00a0 <\/p>\n
Those
\nadditional terms were as follows:\n<\/p>\n
a)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nTitle Deeds to be cleared by the Legal Advisor of the Bank.\n<\/p>\n
b)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nPublic issue must be completed.\n<\/p>\n
c)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nLand to be acquired for the canal water intake system.\n<\/p>\n
d)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nInfusion of promoters equity.\n<\/p>\n
e)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nApprovals to be obtained from Government and public
\nagencies.\n<\/p>\n
\u00a0 <\/p>\n
  Additional
\nterms and conditions stipulated by the first Consortium meeting were complied
\nwith by the Complainant Company.\n<\/p>\n
\u00a0 <\/p>\n
  The
\nbanks were obviously aware of the anonymous complaint by this date, however,
\nthey agreed and proceeded with the implementation of the project. On 12.9.1994
\nthe prospectus of the Public issue was issued by the State Bank of Hyderabad as
\nLead Manager for the Public Issue. Catholic Syrian Bank was one of the Bankers
\nto the Issue. State Bank of Travancore
\nand Bank of Maharashtra were the co-managers to the issue and necessary charges
\nwere paid for the same.\n<\/p>\n
\u00a0 <\/p>\n
  Following
\ndetails were mentioned in the prospectus:\n<\/p>\n
i)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe complete background of one of the Directors Shri
\nG.Venkateswarlu:\n<\/p>\n
That
\nhe was the Managing Director of Raghunath Cotton and Oil Products Limited; and <\/p>\n
that
\nAndhra Bank had filed a suit against Mr. G.Venkateswarlu one of the Promoter
\nDirectors and Guarantor of Laxmi Oil Mills Pvt. Ltd. for recovery of certain
\namounts.\n<\/p>\n
\u00a0 <\/p>\n
ii)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThat the company had acquired the land held by the partners
\nof a Registered Partnership firm. That firm dissolved and it conveyed its
\nassets to the company and the partners of the said firm were allotted Equity in
\nthe complainant company as consideration for the contribution of the land. This procedure for acquiring lands was
\napproved by the Advocate of the Bank. He gave opinion to the effect that the
\nmanner of acquisition of the land was valid and that the land was capable of
\nbeing mortgaged.\n<\/p>\n
\u00a0 <\/p>\n
  On
\n30.9.1994, M\/s. J.S. Rao and Associates, Chartered Accountants were
\nappointed by the consortium banks to verify the capital expenditure incurred by
\nthe company, to verify the capital brought-in by the Promoters, to have
\nscrutiny of transfer of funds between Aquadev and Raghunath Cotton and Oil
\nProducts Limited and to verify whether the company had obtained all necessary
\nstatutory clearances.\n<\/p>\n
  M\/s.\n<\/p>\n
J.S. Rao, in their report, clearly observed that:\n<\/p>\n
(a). Delay in
\nimplementation was leading to escalation in cost and recommended for
\nacceleration of release of loan.\n<\/p>\n
(b).  The company had
\nacquired land in excess,  <\/p>\n
(c).  Most Government
\nClearances were obtained, <\/p>\n
(d). There
\nwas no direct transfer of funds between Raghunath Cotton and Oil Products
\nLimited and Aquadev India Limited.\n<\/p>\n
\u00a0 <\/p>\n
  As
\nsuch, M\/s. J.S. Rao & Company did not find any deficiencies on the part of
\nthe complainant. At the end of the said
\nreport it was recommended that:\n<\/p>\n
It
\nmay be pertinent to mention here that the disbursement may be accelerated to
\navoid further time and over-runs which may hamper the viability of the
\nProject.\n<\/p>\n
\u00a0 <\/p>\n
 Thereafter,
\non 24.3.1995 consortium meeting of the Banks was held and in the
\nmeeting, the allegations made in the anonymous complaint were discussed wherein
\nit was clarified by Shri G.Venkateswarlu that he was merely a guarantor in
\nLaxmi Oil Mills Pvt. Ltd. and his name has been deleted from the array of
\nparties, after he resigned as a Director from the company. All other allegations were also looked into
\nand it was found that there was no merit in them. The Banks even required the complainant to pledge the shares of
\nRaghunath Cotton and Oil Products Limited with them.\n<\/p>\n
  Thereafter,
\nfollowing additional conditions were laid down in the consortium meeting:\n<\/p>\n
\u00a0 <\/p>\n
a).  Shares
\nof M\/s.Raghunath Cotton & Oil Products Ltd. of the value of Rs.75 lacs
\nwhich the company had agreed to pledge to State Bank of India and Dena Bank
\nwill now have to pledge to all Consortium Banks on a pari-passu basis.\n<\/p>\n
(b). The
\nshares held by the Promoters-Directors in Acquadev India Limited to be pledged
\nto the Banks as collateral security subject to legal opinion.\n<\/p>\n
(c). Latest
\nEncumbrance Certificates certifying that the land acquired\/purchased by the
\nCompany was not encumbered, were to be submitted to the lead Bank.\n<\/p>\n
(d).  Dena
\nBank would immediately release Rs.300 lacs which would be reimbursed by the
\nother Banks later.\n<\/p>\n
  Therefore,
\nit is obvious that the contents of the anonymous complaint were dealt with, and
\nit was decided to proceed with the disbursement of the loan and support the
\nproject.\n<\/p>\n
  Thereafter,
\nto the shock of the complainant, on 6.4.1995, Dena Bank refused to release
\nRs.300 lacs, though they had taken all the collateral security for the same.\n<\/p>\n
  Further,
\nwithout assigning any reasons, the Catholic Syrian Bank and the State Bank of
\nTravancore withdrew from the consortium on 18.08.1995 and 05.10.1995
\nrespectively. This was illegal
\nin-as-much as after having joined the consortium, an individual Bank cannot
\nleave the consortium for a period of two years, as prescribed by the Reserve
\nBank of India.\n<\/p>\n
\u00a0 <\/p>\n
  The
\nRespondent Banks allege that they received another anonymous complaint dated
\n21.06.1995 wherein the principal allegations were that Shri G.Venkateswarlu had
\ncheated State Bank of India and MMTC; that he had forged signatures of
\nlandowners and there was an Income Tax raid in his factory.\n<\/p>\n
\u00a0 <\/p>\n
  On
\n30.12.1995, the Consortium of Banks held a second meeting. All allegations made in the anonymous letter
\ndated 21.06.1995 were looked into and were found without any merits. In the
\nminutes drawn on 1.1.1996, it is observed:\n<\/p>\n
 To
\nverify whether the company has complied with all terms and conditions of
\nsanction, as advised in the consortium meeting held on 24.03.1995. The expenses incurred by the company should
\nbe valued by an approved valuer of the Bank and any further expenses to be
\nspent by the company should be disbursed on approval of disbursement committee
\nwhich would be decided at the consortium meeting scheduled to be convened after
\nthe reappraisal of the project.\n<\/p>\n
 State
\nBank of Travencore and Catholic Syrian Bank ltd. have indicated their decision
\nto opt out of consortium and did not attend the Bankers meet. The company should, make alternate
\narrangements to tie-up the gap by inducting other banks into the consortium or
\nimpress upon State Bank of Travencore and Catholic Syrian Bank Ltd., to take up
\ntheir share in the consortium for the limits originally sanctioned by
\nthem. The investing banks have
\nindicated that they will not increase their exposure and the company should
\nmake alternate arrangements to tie-up the gap of State Bank of Travencore and
\nCatholic Syrian Bank Ltd.\n<\/p>\n
\u00a0 <\/p>\n
  It
\nis submitted that despite the two Banks leaving the consortium, the remaining
\nmembers of the consortium decided to go ahead with the project by requesting
\nthe complainant to impress upon State Bank of Travancore and the Catholic
\nSyrian Bank to reconsider their decision or to induct two other banks in their
\nplace. It was also decided to do a
\nquick appraisal of the project since the appraisal had been done earlier in the
\nyear 1993. It is obvious that even at
\nthis stage the Banks were keen on going ahead with the project.\n<\/p>\n
\u00a0 <\/p>\n
  The
\nMinutes of the said Meeting revealed that the State Bank of India (Sole Bankers
\nof RCOPL) had investigated the allegations made in anonymous complaint and
\nfound that there was no diversion of funds and that they were satisfied in
\nrespect of the dealings of MMTC with Raghunath Cotton and Oil Products
\nLimited. Dena Bank also confirmed that
\nthey had made a detailed investigation about the land, ownership of 19
\nindividuals and the affidavits submitted by them were in order.\n<\/p>\n
\u00a0 <\/p>\n
  Pursuant to the
\nsecond Consortium meeting, State Bank of Hyderabad, Dena Bank and Bank of
\nMaharashtra conducted a quick appraisal and submitted its report on
\n05.01.1996. The quick appraisal went
\nover the project and its status and found as under:\n<\/p>\n
(i).  No additional cost is required to be
\nconsidered for implementation of the Project although there was delay. Incidentally, the delay has protected the
\ncompany from being vulnerable to the climatic adversities and diseases as the
\ncompany can now adopt protective measures as suggested from now-onwards.\n<\/p>\n
ii)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe company will have to make revised plans and designs
\nadopting water treatment technology, as already accepted.\n<\/p>\n
iii)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe Feed Mill and the Processing Plant will have to be
\ninstalled only after successful implementation and economic results from the
\nFarm & Hatchery. Accordingly, the
\ndisbursement for these items was suggested to be taken up in the 2nd
\nphase of Project implementation.\n<\/p>\n
iv)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nAlthough, all the required clearances viz. SADA, APPCB,
\nAPSEB, etc, have been obtained, these must be got revalidated before
\ndisbursement of loan, which the company has agreed.\n<\/p>\n
v)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe interim Supreme Court direction do not adversely affect
\nthe Project.\n<\/p>\n
vi)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe revised economics supports the financial viability of
\nthe Project.\n<\/p>\n
vii)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe proposal is found technically feasible and economically
\nviable and hence deserves SUPPORT. In
\nthe absence of which the investment already made becomes non-productive and
\nfutile.\n<\/p>\n
\u00a0 <\/p>\n
  From
\nthis, it is clear that the original sanctioned amounts were sufficient; that
\nthere was compliance with terms and conditions laid down by the Banks as per
\nthe sanction letters and that the Banks were keen to go ahead with the
\ndisbursement of the loan. In concluding portion of the report it is stated that non-disbursement of
\nloan will lead to financial ruin of the company and its promoters.\n<\/p>\n
\u00a0 <\/p>\n
  From
\nthis it is contended that till January 1996 the Banks had not found any
\ndeficiency on the part of the complainant. Despite withdrawal of two Banks,
\nremaining Banks decided to go ahead with the implementation of the project.\n<\/p>\n
\u00a0 <\/p>\n
   On
\n8.2.1996, M\/s. J.B. & Company, a firm of Chartered Accountants, was
\nappointed by the lead Bank, which returned a report stating that the Public
\nIssue was fully subscribed; investment was of Rs.793 lacs; that the land was
\nproperly acquired and the liability of Income Tax being paid by
\nMr.G.Venkateswarlu.\n<\/p>\n
\u00a0 <\/p>\n
  Despite the
\naforesaid facts, for unknown and mala fide reasons, the banks refused to disburse the loan.
\nHence, this complaint.\n<\/p>\n
\u00a0 <\/p>\n
\u00a0 <\/p>\n
 CONTENTIONS OF THE BANKS:\n<\/p>\n
\u00a0 <\/p>\n
  It is submitted on
\nbehalf of the banks that the Complainant made various misrepresentations and
\nconcealed important facts which would
\nhave bearing and effect on the decision for granting or not granting of loan.\n<\/p>\n
\u00a0 <\/p>\n
 The complainant
\nproposed to establish a fully integrated, semi-intensive shrimp (aqua culture)
\nFarm comprising of a hatchery, processing plant and feed mill, in an area of
\n415 acres of land at Village Ethamukkala, Kothapatnam Mandal, Prakasam
\nDistrict, Andhra Pradesh. The following
\nwere the Board of Directors of the complainant company:-\n<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n<\/p>\n
Shri G. Venkateswarlu, Managing Director <\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n<\/p>\n
Shri V. R. Pantulu, Director <\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n<\/p>\n
Shri K. Gopalan, Director; and <\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n<\/p>\n
Shri N.V.S.S.S. Rao, Director.\n<\/p>\n
\u00a0 <\/p>\n
 It is the say of the
\nState Bank of Hyderabad that on the basis of representations made and
\ninformation supplied by the complainant, the bank agreed to sanction a loan of
\nRs.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
\nwould be the responsibility of the complainant to arrange for balance requisite
\nloan from the other proposed Consortium Banks and in no case, the State Bank of
\nHyderabad would release its share, unless all the other proposed Consortium
\nBanks release their share subject to other terms and conditions. As per the arrangement, State Bank of
\nHyderabad, State Bank of Travancore, Bank of Maharasthra and State Bank of
\nIndia have agreed to sanction the loan for a sum of Rs.477.00 lacs each, while
\nCatholic Syrian Bank and South Indian Bank Ltd. have agreed to sanction
\nRs.238.50 lacs each.\n<\/p>\n
\u00a0 <\/p>\n
 Thereafter, the Complainant failed to
\ncomply with the following conditions  <\/p>\n
a) Creation
\nof equitable mortgage on the properties comprising of 532 acres of land — The
\ncomplainant had handed over to Answering Respondent the title deeds pertaining
\nto 432 acres of land but the complainant had subsequently withdrawn the same on
\n14-9-1995.\n<\/p>\n
\u00a0 <\/p>\n
b)\u00a0\u00a0\u00a0\u00a0 Pledge of shares held by the Promoter-Directors of M\/s. Acquadev India
\nLimited as collateral security —\n<\/p>\n
However, it was never done.\n<\/p>\n
\u00a0 <\/p>\n
c)\u00a0\u00a0\u00a0\u00a0 Extension of pari passu charge in favour of all the remaining Consortium
\nmember Banks on the shares of M\/s. Raghunath Cotton & Oil Products Ltd.
\nalready pledged by the above-named Directors of the complainant with Ongole
\nBranch of the Respondent No. 1 i.e. State Bank of India — However, it was
\nnever arranged by the complainant.\n<\/p>\n
\u00a0 <\/p>\n
d)\u00a0\u00a0\u00a0\u00a0 Furnishing of personal guarantee of 19 shareholders of the
\ncomplainant. Whole land was to be
\nmortgaged — However, it was not done as some papers\/documents of land were in
\nthe name of non-existing persons.\n<\/p>\n
\u00a0 <\/p>\n
e)\u00a0\u00a0\u00a0\u00a0 Acquisition of land, especially the strip of land through which the
\nwater intake drain system was to be constructed. — However, the said land had
\nnot so far been acquired for the purpose.\n<\/p>\n
\u00a0 <\/p>\n
f)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Sanction and release of equity by APIDC and M\/s. Marine Products Export
\nDevelopment Agency (MPEDA) was one of the conditions to release the Consortium
\nloan and for that purpose the participation of APIDC and MPEDA in equity was to
\nbe treated as core Promoters equity. — APIDC and MPEDA, though agreed, but
\nnever participated in the equity and so the level of core promoters equity was
\nnever achieved, as agreed, as a pre-condition for the release of consortium
\nloan.\n<\/p>\n
\u00a0 <\/p>\n
g)\u00a0\u00a0\u00a0\u00a0 As per the Project Report, a Jetty was to be constructed on the
\nsea-shore and for that purpose, sea-shore Development Agency\/Authoritys
\npermission was required and the complainant Co. had to pay a compensation to
\nthe local fishermen for depriving them of their livelihood because of large
\narea covered by the jetty. — However, the said permission had not been granted
\nand even the local fishermen and farmers were not compensated by the
\ncomplainant Co.\n<\/p>\n
\u00a0 <\/p>\n
  That
\nthe complainant was yet to fulfill the aforesaid terms and conditions.\n<\/p>\n
  On
\n7th April, 1994, a telegram was received from one Mr. Sai Bhasker
\nmaking serious allegations against Shri G.Venkateswarlu, the Managing Director
\nof the complainant. On the basis of the telegram, respondent made
\ninvestigations in the matter and the findings of the said investigation were as
\nunder :-\n<\/p>\n
.(a). It was found that Andhra Bank, Yanam Branch
\nhad filed a suit for recovery of Rs.1.18 crores in Pondicherry Court against
\nM\/s. Lakshmi Oil Mills Pvt. Ltd. of which Shri G. Venkateswarlu was the
\nExecutive Director and Promoter.\n<\/p>\n
Though Shri G.Venkateswarlu had resigned from the Executive
\nDirectorship, he continued to be one of the Directors in M\/s.Lakshmi Oil Mills
\nPvt. Ltd. and he was also a Guarantor in the said account for the loan advanced
\nby Andhra Bank. It was also found that
\nthe C.B.I. had registered a case in the matter.\n<\/p>\n
(b). Promoter Shri G. Venkateswarlu has concealed
\nthe following facts :-\n<\/p>\n
1.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nHe was promoter, one time Executive Director
\nand continued to be Director in M\/s. Lakshmi Oil Mills Pvt. Ltd.\n<\/p>\n
2.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nMade incorrect statement of having invested
\na sum of Rs.151 lacs as capital by way of 432 acres of land bought by various
\npersons who had been promised of allotment of shares in lieu thereof.\n<\/p>\n
3.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe said 432 acres of land was purchased
\nonly by 19 persons for just Rs. 20.86 lacs.\n<\/p>\n
Of this 19 persons were either family members, friends and\/or employees
\nof Shri G.Venkateswarlu. Further,
\nacquisition of the land by the company
\nwas against the provisions of land ceiling applicable in the State of Andhra
\nPradesh.\n<\/p>\n
4.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nSubsequently, it was revealed that most of
\nthe land acquired by the complainant was the land allotted to landless persons
\nlong back by the Government for cultivation purposes and the acquisition of
\nland was on the basis of forged signatures of the real owners.\n<\/p>\n
5.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nShri G. Venkateswarlu had cheated the State
\nBank of India for a sum of Rs. 7.00 crores.\n<\/p>\n
6.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nIncome-tax Deptt. had raided the factory and
\nthe books of RCOPL were seized.\n<\/p>\n
\u00a0 <\/p>\n
  On
\nthe basis of the said information Consortium Banks got the matter investigated
\nby M\/s. J. B. & Co., Chartered Accountants.\n<\/p>\n
\u00a0 <\/p>\n
  Therefore,
\nthe Catholic Syrian Bank, the State
\nBank of Travancore and Bank of Maharashtra withdrew from Consortium on
\n18.8.1995, 5.10.1995 and 14.2.1996
\nrespectively.\n<\/p>\n
\u00a0 <\/p>\n
  On
\nsuch withdrawal by the three banks complainant had to tie up with other banks
\nto meet the gap between the required loan and the loan to be made available by
\nthe remaining three banks. However, the
\ncomplainant took no initiative in this regard and thereafter requested the State
\nBank of Hyderabad to return the title deeds which were submitted by the
\ncomplainant for verification and creation of mortgage. Thereafter, the
\ndocuments were returned to the complainant on
\n14-9-1995.\n<\/p>\n
\u00a0 <\/p>\n
  The
\nBank has also raised the following contentions:\n<\/p>\n
(1) .(a).  the complaint is
\nnot maintainable under the Consumer Protection Act<\/a>.\n<\/p>\n
 (b).  the Complainant is not a consumer within
\nthe meaning of the Consumer Protection Act<\/a>.\n<\/p>\n
 (c). That the answering respondent Bank has
\nnot provided\/rendered any services to the complainant as such there is no
\nquestion of any deficiency in the services and hence the present complaint is
\nliable to be dismissed. In any case,
\nthe loan, to be advanced by the Answering respondent Bank was nothing but
\nleasing\/renting out of its money to the complainant and the said act\/business
\ndoes not constitute any service by any stretch of imagination.\n<\/p>\n
(2).  Complainant has
\nnot fulfilled various terms & conditions before release of funds on the
\nbasis of sanctionletter.\n<\/p>\n
(3).  Granting or
\nnon-granting of a loan is purely a commercial decision to be taken by the banks
\nand therefore the complaint is not maintainable.\n<\/p>\n
 \u00a0 <\/p>\n
 FINDINGS:\n<\/p>\n
\u00a0 <\/p>\n
(I) Whether the Complainant is
\nconsumer? And, whether the complaint is maintainable?\n<\/p>\n
\u00a0 <\/p>\n
  In
\nour view the contention of the banks that complaint is not maintainable under
\nthe Consumer Protection Act<\/a>, 1986 is misconceived. The Complainant has availed
\nthe services of the banks by paying charges\/fees. As stated above, at the
\ninitial stage, for appraisal report, the Complainant was required to pay Rs.6
\nlakhs to the State Bank of Hyderabad and Rs.4.77 lakhs, i.e. 1% of the proposed
\nterm loan to be sanctioned, to the State Bank of India.\n<\/p>\n
\u00a0 <\/p>\n
  Section
\n2(o)<\/a> gives the meaning to the word service and it, inter alia, includes,
\nservice in connection with the banking. Similarly, consumer would mean
\n[(2(d)(ii)] any person, inter alia, who
\navails of any service for consideration. For this purpose, we would refer to
\nthe following facts:\n<\/p>\n
\u00a0 <\/p>\n
(i).  The
\nComplainant approached the Opposite Party Banks for sanction of loan in June,
\n1993.\n<\/p>\n
(ii).  On
\n17.8.93 first appraisal report was prepared.\n<\/p>\n
(iii).  On
\n14.12.93 to 4.11995 – sanction letters were issued by different banks.
\nConditions were imposed.\n<\/p>\n
(iv).  Basing
\non the said sanction letters the Complainant acquired 530 acres of land and
\nalso all the clearances as required by the banks.\n<\/p>\n
 (v).  On
\n7.4.94 there was an anonymous letter.\n<\/p>\n
(vi).  14.6.94
\nConsortium meeting. Additional conditions were imposed.\n<\/p>\n
(vii). 12.9.94
\n: Prospectus of public issue was issued for Rs.3.55 crores.\n<\/p>\n
\u00a0 <\/p>\n
  The
\nBanks imposed conditions twice, i.e. once on 14.12.1993 and again on 14.6.1994.
\nAnd, after a considerable period of three months, they allowed the Complainant
\nto go for public issue. Surprisingly, Dena Bank, a Member of the Consortium has
\nissued a sanction letter after the public issue, i.e. on 04.01.1995.\n<\/p>\n
\u00a0 <\/p>\n
  Aforesaid facts
\nwould certainly establish that the Complainant availed of the services of the
\nRespondents for taking loan from them. The Complainant was asked to go ahead
\nwith the project on the basis of the appraisal reports and was also asked to
\nissue prospectus of public issue. Hence, If there is deficiency in service by
\nthe bank in disbursing the loan despite it being sanctioned the complaint will
\nbe maintainable. After sanction of the bank loan, if the loan is not disbursed,
\nthe Complainant may suffer irreparable loss. Because, on the promise of the
\nbank to sanction and disburse the loan amount, the Complainant will proceed in
\nestablishing his business or the contemplated activity. That would be frustrated if the loan is not
\ndisbursed on due dates or at appropriate time and that the Complainant may
\nsuffer irreparable loss.\n<\/p>\n
\u00a0 <\/p>\n
  Therefore,
\nthe contention of the Banks that Petitioner is not a consumer within the
\nmeaning of Sec.2(d)(ii) or that the complaint is not maintainable under the Act
\nis without any substance.\n<\/p>\n
\u00a0 <\/p>\n
  The
\naforesaid question is dealt with by the Apex Court in Viswalakshmi Sasidharan
\n(Mrs.) and Ors. Vs. Branch Manager, Syndicate Bank, Belgaum, (1997) 10 SCC 173.
\nIn that case, Petitioners have taken loan from the Syndicate Bank, on two
\naccounts : one for a sum of Rs.1,50,000\/- and the other for Rs.3 lakhs; bank
\ndisbursed a sum of Rs.1.47 lakhs and
\nthe balance amount was not released in
\nfavour of the Petitioner. For deficiency in service a complaint was filed for
\ndamages. That complaint was finally dismissed by the National Commission. Against that order an S.L.P. was filed. In
\nthat backdrop, the Apex Court observed that, if pursuant to the contract the
\nbank did not disburse the amount, it furnishes right to complaint of deficiency
\nin service and to seek redressal under the Consumer Protection Act<\/a>. The Court
\nalso observed that mere filing of suit by the bank for recovery of the amount
\nmay not be an absolute bar on the Commission to go into the question of
\ndeficiency in service for the reason that the issue before the Civil Court is
\nnot the deficiency in service unless that is specifically raised as a defence
\nin the suit.\n<\/p>\n
\u00a0 <\/p>\n
  Further,
\nin the case of Gujarat State Financial Corporation Vs. M\/s. Lotus Hotels Pvt.
\nLtd. (1983) 3 SCC 379, M\/s. Lotus Hotels Pvt. Ltd. approached the Gujarat State
\nFinancial Corporation for a loan of Rs.30 lacs for business of hotels. Loan of
\nRs.29.93 was sanctioned on certain
\nterms and conditions. The terms and conditions were accepted by the
\nCompany. The Corporation thereafter
\nresolved not to disburse the loan to the Company. Hence, the Company filed a Writ Petition for mandamus to the
\nCorporation to disburse the promised loan to the Company. In that petition mandamus was issued
\ndirecting the Gujarat State Financial Corporation (G.S.F.C.) to disburse the
\npromised loan to the Company in accordance with the agreement. While dismissing the appeal, the Apex Court
\nheld that the agreement to advance the loan was entered into in performance of
\nthe 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
\nincurred expenses, suffered liabilities to set up a hotel and presumably, if
\nthe loan was not forthcoming Respondent may not have undertaken such a huge
\nproject. The Court therefore held that the principle of promissory estoppel
\nwould certainly estop the Corporation from backing out of its obligation arising
\nfrom the solemn promise. The officer of the G.S.F.C. cannot arbitrarily on his
\nmere whim ignore his promise on some undefined and undisclosed ground of
\nnecessity or change the conditions to the prejudice of the person who had acted
\nupon such representation and put himself in a disadvantageous position.\n<\/p>\n
\u00a0 <\/p>\n
 Nodoubt, the aforesaid case
\nis with regard to jurisdiction of the High Court to issue writ of mandamous but
\nsimilar principle would be applicable to find out deficiency in service by a
\nbank in not disbursing the loan which
\nwas sanctioned and on such promise the Complainant has proceeded further
\nand has invested a large amount. The
\nofficers of the Banks cannot commit breach of the contract or promise to give
\nloan arbitrarily or mala fide or oblique motive.\n<\/p>\n
\u00a0 <\/p>\n
  In
\nview of the above discussion we hold that the complaint is maintainable.\n<\/p>\n
\u00a0 <\/p>\n
II.  Services for Commercial
\nPurposes:\n<\/p>\n
 The
\nlearned Counsel for the Banks submitted that even if the complaint for
\ndeficiency in service is maintainable, the present complaint is not
\nmaintainable because the loan was sanctioned or the services of the banks were
\nhired for commercial purpose, i.e. for establishing aqua culture. It is true
\nthat after amendment of the Act there
\nis an exclusion in the definition of the word consumer in Section 2(1)(d)(ii)<\/a>
\nto the effect that hiring of services does not include a person who hires of
\nsuch services for any commercial purpose. But, the said exclusion clause came
\ninto force w.e.f. 15.3.2003 and would not have any retrospective effect. The
\ncomplaint, in the present case, was filed in the year 1996. Therefore, the effect of Amendment, in the
\nfacts of the present case, is not required to be dealt with in this complaint.\n<\/p>\n
\u00a0 <\/p>\n
\u00a0 <\/p>\n
III. Regarding deficiency in
\nservice, it can be divided into three parts:\n<\/p>\n
.(a). whether
\nrefusal to release the sanctioned loan was arbitrary or is based on undisclosed
\nground?\n<\/p>\n
.(b). whether
\nin the facts of the case, refusal to release the loan amount is deficiency in
\nservice?\n<\/p>\n
.(c). Even if
\nit is justifiable, whether the Complainant is entitled to damages for the loss
\nsuffered by him, as for two years he was asked to proceed ahead with the
\nproject?\n<\/p>\n
\u00a0 <\/p>\n
 (a) Whether refusal to release the sanctioned
\nloan was arbitrary or is based on undisclosed ground?\n<\/p>\n
  For
\ndeciding the first part, we would refer to the submission made by the learned
\nCounsel for the Complainant that the Complainant had complied with all the
\nconditions laid down by the Banks for grant of the loan. However, for mala fide and extraneous
\nconsiderations the loan was not disbursed. It was a wilful and deliberate act
\nof malice on the part of the concerned officers of the bank. The investigative and appraisal report and
\nthe minutes of the meeting held by Consortium no where suggested for withdrawal
\nof the sanctioned loan. It is contended
\nthat  <\/p>\n
1.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe promoters who had originally contributed the land
\ntransferred the same to the Company and the Title Deeds were pledged to the
\nBanks.\n<\/p>\n
2.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe promoters equity of Rs. 4.75 crores was invested.\n<\/p>\n
3.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe Public Issue was completed and shareholders contributed a
\nsum of Rs. 2.30 Crores. The Manager to the Public Issue was the lead bank; i.e.
\nState Bank of Hyderabad. Respondents 3
\n& 5 acted as Co managers for a fee.\n<\/p>\n
4.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nNo Objection certificate from the Land Ceiling Authorities and
\nthe Pollution Control Board were duly obtained and furnished to the Banks.\n<\/p>\n
5.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe sanctions from the Marine Product Export Development
\nAgency was duly obtained and submitted.\n<\/p>\n
6.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe land for the canal was duly purchased and a canal for the
\nintake of water was constructed.\n<\/p>\n
7.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe buildings for the hatchery and feedmill were duly
\nconstructed and the complainant incurred an expenditure of Rs. 8.5 crores on
\nthe project which had under its employment 120 personnel at the relevant time,
\njust when the loan was to be released.\n<\/p>\n
\u00a0 <\/p>\n
  Therefore, the
\nlearned Senior Counsel Mr. Sudhir Chandra submitted that doctrine of res
\nipsa loquitor (facts speak for themselves) would be applicable and that
\nfrom the admitted and irrefutable facts which are borne out by admissions and
\ndocuments of the Respondent Banks, it can be held that the act of refusal to
\ndisburse was utterly malicious intent.\n<\/p>\n
\u00a0 <\/p>\n
 For damages, he
\nreferred to :-\n<\/p>\n
.(1).   The Appraisal Report and the Prospectus
\nissued by the State Bank of Hyderabad to the public issue show that loss of
\nprofits for the year 2001 would amount to Rs. 46.03 crores.\n<\/p>\n
.(2)   The
\ncost of overrun in order to complete the project would come to Rs. 27.72
\ncrores.\n<\/p>\n
.(3)   Advances forfeited for other contracts
\ncome to Rs. 2.18 corres; and <\/p>\n
.(4)   Complainant
\nhas incurred expenditure of Rs. 1.78 crores for administration.\n<\/p>\n
\u00a0 <\/p>\n
  As against this, on
\nbehalf of the banks, it was pointed out that a number of proceedings were
\npending against Shri G.Venkateswarlu, the Managing Director. He had suppressed
\nthe material facts at the time of applying for the loan. In the written version
\nfiled by the State Bank of Hyderabad, it has been averred that on the basis of
\nthe said information, the proposed Consortium Banks got the matter investigated
\nby M\/s. J. B. & Co., Chartered Accountants. The relevant part of the written version is reproduced below:\n<\/p>\n
\u00a0 <\/p>\n
(i)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nThe land to be used for Aqua culture was
\nstill agricultural land and permission had not so far been granted by the
\nGovernment\/concerned authorities to convert the use thereof for aqua-culture.\n<\/p>\n
(ii)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nCertain portion of land to be mortgaged with
\nthe proposed Consortium Banks was Benami and since all 19 Shareholders in whose
\nname the land stood were to be made as Guarantors, the said condition could not
\nbe fulfilled by the complainant.\n<\/p>\n
(iii)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nInvestigations revealed existence of 5 more
\nAssociate firms\/Companies about which none of the proposed Consortium Banks had
\nany information\/knowledge as the same was never provided by the complainant and
\nits promoters.\n<\/p>\n
(iv)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nI.D.B.I.\/I.C.I.C.I. had large overdues and
\nthey had decided to recall the advances from RCOPL. A copy of I.D.B.I. letter dated 11.4.1996 addressed to the Govt.
\nof India is produced on record.\n<\/p>\n
(v)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nAs a consequence of Income Tax raid the
\ncomplainant Company and its Managing Director were required to pay a large
\ncapital gains\/stamp duty to the extent of Rs.115.00 lacs out of which only a
\nsmall amount had been paid so far.\n<\/p>\n
(vi)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nM.M.T.C. had informed that RCOPL was not
\nreliable and M.M.T.C. had initiated criminal proceedings against the said firm.\n<\/p>\n
\u00a0 <\/p>\n
  M\/s.\n<\/p>\n
J.B. & Co., Chartered Accountants, have further pointed out that the R.B.I.
\nvide its letter dated 10.6.1996 (R-1\/4) had informed all the Banks and
\nFinancial Institutions about the interim order dated 24th August,
\n1995 passed by Honble Supreme Court in a Public Interest Litigation in Writ
\nPetition No. 561 of 1994 whereby all the State Governments and Union
\nTerritories were directed not to give fresh licences\/permission for setting
\nup\/establishment of any Aqua Farms in their respective territories till further
\norders.\n<\/p>\n
\u00a0 <\/p>\n
  It
\nis also pointed out that :\n<\/p>\n
.(i).\n<\/p>\n
 432 acres of land was purchased only by
\n19 persons for just Rs. 20.86 lacs and those
\n19 persons were either family members, friends and\/or employees of Shri
\nG.Venkateswarlu. Further, acquisition
\nof the lands by the company was
\nagainst the provisions of land ceiling applicable in the State of Andhra
\nPradesh.\n<\/p>\n
.(ii). Subsequently, it was revealed that most of
\nthe land acquired by the complainant was the land allotted to landless persons
\nlong back by the Government for cultivation purposes and the acquisition of
\nland was on the basis of forged signature of the real owners.\n<\/p>\n
.(iii). Shri G. Venkateswarlu had cheated the State
\nBank of India for a sum of Rs. 7.00 crores.\n<\/p>\n
(iv). Income-tax
\nDeptt. had raided the factory and the books of RCOPL were seized.\n<\/p>\n
\u00a0 <\/p>\n
 Further, by letter dated
\n19.1.1996 the State Bank of Hyderabad requested to carry out special audit (i)
\nto inquire into the purchase of lands; and (ii) to inquire into the details of
\nthe raid conducted on the Promoter, its
\ntwo Directors, etc. The Auditors have, inter
\nalia, reported as under:\n<\/p>\n
 The
\ninvestigation Department of Income Tax, Hyderabad conducted search and seizure
\noperations during February 1995, on the offices and premises of the Promoter
\nDirectors of the Company and also M\/s. Raghunath Cotton and Oil Products Ltd.
\nShri G.Venkateswarlu appears to have admitted and made a disclosure of
\nconcealed and unaccounted income under Sec.132(1) of the Income Tax Act<\/a>, 1961
\nin his name and also in the names of his family members, relatives and friends
\nto the tune of Rs.249 lacs. The consequent tax liability on Shri
\nG.Venkateswarlu is estimated to be of the order of Rs.115 lacs including
\ninterest accrued and due thereon.\n<\/p>\n
Our
\nverification of documents and also access to the appraisal report of the
\nInvestigation Department of Income Tax reveal that the promoter director, Shri
\nG.Venkateswarlu appears to have acquired the lands for the then market value
\nagainst cash payments and managed to register them quoting a lower value as
\napparently he could not explain the sources of the said investment. In
\norder to account for his investment in the Company and to match the required
\npromoters contribution to quantify for the Public Issue, the promoter has
\nchosen to employ this method of admission and dissolution of partnership to
\ntransfer the immovable properties at the market value. We have in fact
\nsecured a copy of the Registered Document bearing Docu. No. 3215 of 1994
\nwhich justifies that the current market
\nvalue is about Rs.50,000\/- per acre in Maddipadu Village. Also the market value
\nof the land at Ethamukkala Village is estimated at Rs.40,000\/- per acre as
\ncertified by the Sub-Registrar of Assurances, Ongole. Manifestly the Promoter
\nDirector has chosen this method of utilise the unaccounted money for buying the
\nabove mentioned lands and for more fully securing the title to the property. He
\nhas also attempted to avoid capital gains tax under the pretext of classifying
\nthem as agricultural lands and incidental stamp duty arising out of the
\ntransfer of immovable property.\n<\/p>\n
The
\nbalance tax liability of about Rs.91 lacs is in arrears to the Department. The
\nbank may have to ascertain the sources of Shri G.Venkateswarlu to meet the
\narrears of tax liability before granting any disbursement from the loan under
\nconsideration..\n<\/p>\n
\u00a0 <\/p>\n
Thereafter,
\nit gave the following findings:\n<\/p>\n
(i)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nWe are of the view that the Promoter Director, Shri
\nG.Venkateswarlu, with a view to introduce his unaccounted cash into the
\nbusiness, has chosen to adopt the colourable exercise of understating the
\nmarket value of the lands and also transferred them through the partnership
\nprocess discussed above. However, the Encumbrance Certificates secured by
\nus, establish that the lands are free from encumbrance apart from conveying a
\nclear, valid and marketable title to the Company. The allotment of shares done to meet the consideration for
\nacquiring the lands also appears to be reasonable.\n<\/p>\n
(ii)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0
\nWe are of the opinion that the Bank must be cautious to
\nascertain the sources of Shri G.Venkateswarlu to meet the balance tax liability
\nof Rs.91 lacs arising out of his disclosure of Rs.250 lacs as concealed income.
\nThe bank also has to verify the credentials of either sister concerns to
\navoid any possible diversion of funds in future.\n<\/p>\n
\u00a0 <\/p>\n
  From
\nthe aforesaid audited report and the allegations made it would be difficult to
\nhold that the decision taken by the Banks not to disburse the sanctioned loan
\nwas in any way arbitrary or unjustified. In short, from the Special Audit and
\nthe submissions, it appears that the Banks were asked to be cautious and to
\nascertain the source of Shri G.Venkateswarlu to meet the balance tax liability
\nand has to verify the credentials of other sister-concerns to avoid any
\npossible diversification of funds in future; (ii) there was use of unaccounted
\ncash for purchase of the lands; (iii) there was income tax raid and disclosure
\nof unaccounted income; (iv) unverified allegation was with regard to cheating
\nof SBI to the tune of Rs.7 crores by Shri Venkateswarlu; (v) allegation was
\nthat land was allotted to landless people long back by the Government for
\ncultivation purposes; (vi) information given by MMTC with regard to the
\nconcern, RCOPL; (vii) interim order passed by the Supreme Court in Public
\nInterest Litigation whereby State
\nGovernments were directed not to give fresh licences\/permissions for setting up
\nof any aqua forms and hence, the R.B.I. vide letter dated 10.9.1996 directed
\nthe Banks to keep in view the orders of the Supreme Court and await its final
\ndecision on new aqua-culture units; (viii) large overdues of IDBI and ICICI
\nfrom RCOPL; and (ix) after the first appraisal report, State Bank of Travencore
\nand Catholic Cyrian Bank have withdrawn from the Consortium indicating the
\nBanks were having doubt at that stage.\n<\/p>\n
\u00a0 <\/p>\n
  From the audit
\nreport it is apparent that :\n<\/p>\n
(i).   the entire dealings of the main
\nPromoter of the Company, Shri G.Venkateswarlu have become suspecious.\n<\/p>\n
(ii).   From the admitted facts it is apparent
\nthat the term loan agreed to be disbursed by the banks was to the tune of
\nRs.23.85 Crores. It is virtually 75% of the total estimated outlay for making
\nthe project functional. Contemplated equity was Rs.8.30 Crores (i.e. Rs. 4.75
\nCrores + Rs.3.55 Crores). Admittedly the Marine Products Export Development
\nAgency (MPEDA) has not released the subsidy. So, before releasing such a large
\namount if the Banks have carried out special audit of the functioning of the
\nCompany wherein Mr.G.Venkateswarlu was the Managing Director, and arrived at
\nthe conclusion that loan is not required to be disbursed, it cannot be said to
\nbe unjustified one. That decision is based upon various factors including the
\nviability of the project and recovery of such large funds.\n<\/p>\n
\u00a0 <\/p>\n
 (b)
\n The next question is whether in the
\nfacts of the case refusal to release loan amount is deficiency in service?\n<\/p>\n
  Conditions
\nstipulated, as pointed out by the Complainant, inter alia, provide for personal
\nguarantee of Directors, mortgage of land purchased by the Company, NOC under
\nthe Land Ceiling Act<\/a>, bio-data of all promoters and additional conditions, such
\nas, approval to be obtained from the Government and public agencies. It would
\nbe difficult in this case to arrive at the conclusion that the aforesaid
\nconditions are complied with by the Complainant. The word deficiency is defined under Sec. 2(1)(g) to mean any
\nfault, imperfection, shortcoming or inadequacy in the quality, nature and
\nmanner of performance which is required
\nto be maintained by or under any law for the time being in force or has been
\nundertaken to be performed by a person in pursuance of a contract or otherwise
\nin relation to any service. Considering this provision it cannot be held that
\nthere was any fault or shortcoming in the nature and manner of performance
\nwhich was undertaken to be performed by
\nthe banks in pursuance of a contract in relation to disbursement of loan.\n<\/p>\n
 Further, if the banks arrive
\nat the conclusion that it would be difficult to recover the disbursed loan, it
\ncannot be compelled to disburse the same. Therefore, presuming that there was
\nbreach of contract by the banks, direction to release the funds on the basis of
\nsanctioned loan cannot be issued. This would be in conformity with Section 14<\/a>
\nof the Specific Relief Act, 1963, which, inter alia, provides that contracts
\nfor non-performance of which
\ncompensation is an adequate remedy cannot be specifically enforced.
\nClause (b) of Section 14<\/a> further provides that a contract, which is in its nature determinable, also cannot
\nbe specifically enforced. In this view
\nof the matter, the first prayer for a direction to the banks to release the
\nfunds on the basis of the sanctioned loan is required to be rejected.\n<\/p>\n
\u00a0 <\/p>\n
  It was next
\ncontended that after second appraisal report, there was no question of
\nobtaining the auditors report in January 1996.
\nIn our view, considering various allegations made against
\nMr.G.Venkateswarlu this submission is unjustified. If there is an error,
\nintentional or unintentional, in the previous appraisal reports, or the decision
\ntaken by the Banks, subsequent finding of error would not debar the banks to
\nreconsider the decision or would not prevent the banks in refusing to disburse
\nthe loan.\n<\/p>\n
\u00a0 <\/p>\n
(c) Even if it is
\njustifiable, whether the Complainant is entitled to damages for the loss
\nsuffered by him, as for two years he was asked to proceed ahead with the
\nproject?\n<\/p>\n
\u00a0 <\/p>\n
 Lastly,
\nit is contended by the learned Senior Counsel for the Complainant that for one
\nor the other reasons, the bank officers assured the Complainant that loan would
\nbe disbursed. On the basis of their assurances, the Complainant Company was
\nrequired to invest large amounts by constructing canals and they were also
\nrequired to spend large amount in purchasing the land and to get the necessary
\ncertificates from the Revenue Authorities. The Banks were having the first
\nappraisal report on 18.8.1993. The Banks were knowing about the financial
\nposition of RCOPL. Despite this, the project was cleared for sanctioning the
\nloan. The Complainant was asked to proceed ahead with the public issue. Because of the withdrawal after two years by
\nthe banks not only the Complainant but also the subscribers of the public issue
\nhave suffered. For this deficiency in service, the banks should be directed to
\npay the costs incurred by the Company in making construction as well as paying
\nwages to the labourers.\n<\/p>\n
\u00a0 <\/p>\n
 We
\nfind much force in the aforesaid contention, as it is blow hot and cold
\nattitude of the officers of the banks.\n<\/p>\n
\u00a0 <\/p>\n
 In
\nthe present case, it cannot be disputed that after having appraisal reports
\nbanks have decided to sanction the loan. Thereafter, again, on verification of
\nthe allegations, the banks decided to proceed ahead with the grant of loan and
\nthe Complainant was asked to proceed further in purchasing the lands as well as
\nin proceeding ahead with the project. In these circumstances, Complainant has
\nsuffered loss. For this loss, whether banks should compensate the Complainant
\nor not?\n<\/p>\n
\u00a0 <\/p>\n
  In our view, there
\nis no reason why the concerned officers who submitted the first appraisal
\nreport have not bothered about the financial position of RCOPL. Thereafter,
\nsanction letters were issued from 14.12.1993 onwards by various banks. An
\nanonymous letter was received on 7.4.1994 stating that the various
\nirregularities alleged to have been committed by Shri G.Venkateswarlu. Those were considered by the Consortium
\nMeeting which are recorded in letter dated 14.6.1994. Firstly, on 30.9.1993 M\/s. J.S.Rao & Associates, Chartered
\nAccountants were appointed by the Consortium Banks to have scrutiny of transfer
\nof funds between the Complainant and the RCOPL. Again the Consortium meeting
\nwas held on 24.3.1995. The allegations
\nwere looked into and banks decided to proceed further with the grant of loan.
\nThereafter, further Consortium meeting was held on 30.12.1995. There also the
\nbanks have decided to go ahead with the project. Nodbout, the State Bank of
\nTravencore and the Catholic Syrian Bank
\nwithdrew their decision to grant loan. But, the banks were expected to
\nverify at the initial stage whether the project was viable; if viable, whether
\nthe Directors could be relied upon before sanctioning the loan. That was not
\ndone. These facts indicate that for one or other reasons, the bank officers
\ncleared the project and asked the Complainant to proceed further. It is
\napparent that they have failed to discharge their duties for the reasons best
\nknown to them. It is the allegation of the Complainant that refusal to release
\nthe sanctioned loan was mala-fide.\n<\/p>\n
As such, in these proceedings, though it will be difficult to arrive at
\nthe conclusion that the said decision was mala-fide, but it certainly reveals
\nserious lapses and deficiency on the part of the officers of the concerned
\nbanks in discharge of their duties.\n<\/p>\n
\u00a0 <\/p>\n
  It is quite possible
\nthat public at large might not have subscribed to the shares if it was not
\nstated that State Bank of Hyderabad was the lead bank.\n<\/p>\n
\u00a0 <\/p>\n
  Hence,
\neven though we have arrived at the conclusion that the banks were entitled to
\nrepudiate the contract for justifiable reasons, the delay in taking such
\ndecision and in the meantime asking the Complainant to proceed ahead with the
\nproject has caused heavy loss to the Complainant. The loss claimed by the Complainant is for implementing the project,
\nfor commencing the civil works, for recruitment of senior officers, for
\nplacement of orders for machinery and components, for release of advances to
\nvarious contractors, besides spending large amount for obtaining Government
\nclearances and the amount incurred for public issue. On this account, the
\nComplainant has claimed large amount of Rs.8.5 crores, which
\nwe are not inclined to grant in view of various facts stated above. It
\nis also quite possible that public at large might not have subscribed for the
\nshares if it was not stated that the State Bank of Hyderabad was the lead bank
\nand the State Bank of Travencore and the Bank of Maharashtra were Co-Managers
\nto the public issue. Hence, even though this is not a fit case for grant of
\ncompensatory compensation\/damages, but grant of nominal compensation is fully justified for the deficiency in
\nservice arising out of repeatedly obtaining appraisal reports\/verifications and
\ngiving assurances, and thereafter not disbursing the funds. Hence we direct the
\nState Bank of Hyderabad which has
\naccepted to be the lead Bank as mentioned in the prospectus by the Complainant
\nto pay Rs.10 lakhs as nominal compensation and also refund the amount of Rs.6
\nlakhs which was charged as fees for
\nappraisal report, because the appraisal report
\nwas in favour of the Complainant. Respondent Nos. 2 and 4, i.e. the
\nState Bank of India and the Dena Bank are directed to pay Rs.2 lakhs and the
\nRespondent Nos. 3, 5 and 6 are directed to pay Rs.1 lakh each to the
\nComplainant towards nominal compensation.\n<\/p>\n
\u00a0 <\/p>\n
  It
\nwould be for the Banks to recover the aforesaid amounts from the concerned
\nofficers who have committed faults or who were deficient in discharge of their
\nduties, for known or unknown reasons.\n<\/p>\n
\u00a0 <\/p>\n
  The
\noriginal petition is disposed of in the above terms. The State Bank of Hyderabad is directed to pay Rs.10,000\/- by way
\nof costs to the Complainant.\n<\/p>\n
\u00a0 <\/p>\n
J <\/p>\n
(M.B.SHAH) <\/p>\n
PRESIDENT <\/p>\n
\u00a0 <\/p>\n
\u00a0 <\/p>\n
.\n<\/p>\n
(RAJYALAKSHMI RAO) <\/p>\n
MEMBER.\n<\/p>\n
\u00a0 <\/p>\n
\u00a0 <\/p>\n
..J.\n<\/p>\n
(S.N.KAPOOR) <\/p>\n
MEMBER <\/p>\n
\u00a0 <\/p>\n","protected":false},"excerpt":{"rendered":"
National Consumer Disputes Redressal M\/S. Aquadev India Ltd vs State Bank Of Hyderabad And Ors. on 2 September, 2004 NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI \u00a0 \u00a0 ORIGINAL PETITION NO.154 OF 1996 \u00a0 M\/s. Aquadev India Ltd. Complainant \u00a0 Versus \u00a0 State Bank of Hyderabad and Ors. Opp. Parties […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-256747","post","type-post","status-publish","format-standard","hentry","category-judgements"],"yoast_head":"\nM\/S. 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