Bank Liable for Deficiency in Service for Releasing Loan Payment to Dealer Without Verifying Delivery of Goods to Borrower: State Consumer Disputes Redressal Commission - 2025-09-12

Bank and Dealer Held Jointly Liable for Non-Delivery of Farm Equipment After Sanctioning Loan

Bhopal, MP – The State Consumer Disputes Redressal Commission has ruled that a bank commits a "deficiency in service" when it releases the full loan amount to a supplier without physically verifying the delivery of all goods to the borrower or obtaining a satisfaction certificate. The Commission modified a District Commission order, holding both Allahabad Bank and a tractor dealer jointly liable for failing to deliver crucial agricultural equipment to a farmer.

Case Background

The case revolves around an appeal filed by Mr. Dilip Kumar Tripathi, a farmer, against a 2014 order by the District Consumer Disputes Redressal Commission, Sidhi. In 2009, Mr. Tripathi secured a loan from Allahabad Bank (now Indian Bank) to purchase a tractor and several pieces of agricultural equipment, including a new trolley, cultivator, seed drill, and cage wheel from Anil Motors & Tractors.

The bank disbursed the full amount of ₹6,38,531 directly to the dealer. However, the dealer only delivered a new tractor and an old trolley, promising to provide the remaining equipment within 15 days. The new equipment was never delivered.

The District Commission had found only the dealer, Anil Motors, deficient in service for not supplying the cultivator and ordered it to either deliver the item or refund its cost of ₹29,000 with interest. It also imposed a penalty of ₹3,000 each on the bank and the dealer for causing mental agony. Dissatisfied with this partial relief, Mr. Tripathi appealed to the State Commission, seeking the cost of all undelivered items.

Arguments Presented

Appellant (The Farmer): Mr. Tripathi argued that the District Commission erred by ignoring the non-delivery of the seed drill, cage wheel, and the promised new trolley. He contended that the bank was also negligent, as it released the entire payment to the dealer without ensuring he had received all the items as per the quotation, a standard banking practice. The bank did not possess any 'satisfaction letter' from him confirming receipt of the goods.

Respondents (Bank and Dealer): The Allahabad Bank, represented by its branch manager, argued that it disbursed the loan amount based on the quotation provided and that the transaction was a private matter between the farmer and the dealer. The dealer, Anil Motors & Tractors, remained absent throughout the proceedings at both the District and State Commissions and did not contest the farmer's claims.

Commission’s Findings and Ruling

The State Commission, after reviewing the evidence, including the dealer's invoice (Exh. P-2) which listed all equipment and acknowledged receipt of the full payment, found significant merit in the farmer's appeal.

The bench, comprising Hon’ble Member Sh. D.K. Shrivastava, observed that the burden of proof to show that all items were delivered lay with the dealer, who failed to provide any evidence or even appear in court. The Commission noted, "The tractor agency (Respondent no-2) has not rebutted the evidence of the appellant that he has received only the tractor and an old trolley and not the other equipment."

Crucially, the Commission held the bank equally accountable for its lapse in procedure. The judgment highlighted two key failures by the bank: 1. Failure to obtain a satisfaction certificate: The bank could not produce any document signed by Mr. Tripathi confirming that he had received all the equipment he had taken the loan for. 2. Lack of physical verification: The bank’s Field Officer did not conduct a physical verification of the assets purchased with the loan money before releasing the final payment.

“The Field Officer of Allahabad Bank (Respondent No-1) should have made the payment of the entire consideration amount to the agency (Respondent No-2) only after physically verifying that the said material had been received by the beneficiary/appellant Dilip Kumar Tripathi. In such a situation, in our opinion, it is revealed that both the respondents Allahabad Bank and M/s Anil Motors & Tractors have definitely committed a deficiency in service.”

Final Order and Implications

The State Commission partially allowed the appeal, modifying the District Commission's order. It upheld the finding that Mr. Tripathi was not entitled to relief for the trolley, as he had accepted an old one and failed to prove he had returned it.

However, the Commission ordered Anil Motors & Tractors to: - Provide the undelivered Cultivator (value ₹29,000), Seed Drill (value ₹30,000), and Cage Wheel (value ₹20,000) to the farmer within two months. - Alternatively, refund the total amount of ₹79,000 for the three items. - Pay 8% annual interest on this amount, calculated from the invoice date of December 22, 2009, until the date of payment.

This judgment reinforces the duty of care that banks owe to their borrowers, especially in asset-financing loans. It serves as a precedent that financial institutions cannot absolve themselves of responsibility by merely disbursing funds; they must ensure the loan's purpose is fulfilled, protecting the consumer's interest in the process.