The court held that a bank's demand for additional interest on a loan cannot be enforced if the borrower did not provide the required undertaking, rendering the contract effectively frustrated due to intervening legal injunctions.

ORDER :

1. The instant writ petition is directed against the communication dated 12.02.2015 issued by the respondent-Bank, whereby the petitioner has been called upon to remit a sum of Rs.92,88,300/- towards interest and penalty, allegedly on account of violation of the terms and conditions of the loan agreement.

2. The case of the petitioner is that he is a medical practitioner by profession. With the intention of constructing a residential house, the petitioner purchased Site No.12 (Old No.10/A), Magrath Road, Ashok Nagar, Bangalore, from one Vikram Malhotra under a registered Sale Deed dated 30.08.2002. In order to finance the said purchase, the petitioner approached the respondent-Bank for a loan. Upon consideration of the application of the petitioner, the respondent-Bank sanctioned a sum of Rs.1.50 Crore, with interest as agreed between the parties, for the purchase of the schedule property.Thereafter, the petitioner commenced construction of a building on the said property.

2.1 One Mr. Asha John Divianathan impleaded the petitioner in RFA No.1001/2001 and sought a temporary injunction restraining the petitioner from alienating the property or proceeding with construction thereon. This Court, by order dated 07.04.2005, granted an interim injunction restraining the petitioner from putting up any construction. The said RFA pertained to a challenge to the gift deed executed in favour of the petitioner’s vendor, namely, Vikram Malhotra. The said gift deed, which related to the schedule property purchased by the petitioner, was challenged by Mr. R.P. David. By judgment and order dated 01.10.2009, this Court upheld the validity of the gift deed and, consequently, the sale deed executed in favour of the petitioner. Aggrieved by the said judgment, Mr. Asha John Divianathan preferred Special Leave Petition No.31217/2009 before the Hon’ble Supreme Court, wherein, by order dated 04.12.2009, the Hon’ble Court directed that status quo be maintained by the parties. The petitioner’s application seeking vacation of the interim order came to be rejected. Upon grant of special leave, the matter came to be numbered as Civil Appeal No.9546/2010. During the pendency of the said appeal, the petitioner filed an application seeking early hearing, citing contractual obligations.

3. The respondent-Bank, by communication dated 29.09.2014, demanded a sum of Rs.9,28,300/-, being 2% penalty, on the ground that the petitioner had failed to commence construction within the agreed period. In response, the petitioner submitted a detailed reply dated 10.11.2014, drawing the attention of the respondent-Bank to the status quo order passed by the Hon’ble Supreme Court and asserting that the non-commencement of construction was due to circumstances beyond his control. The petitioner further contended that the delay did not amount to a violation of the terms and conditions of the loan agreement. Notwithstanding the same, the respondent-Bank issued a demand notice dated 27.11.2014, calling upon the petitioner to remit a sum of Rs.9,28,300/-. The petitioner, once again, submitted a reply dated 06.02.2015, reiterating the compelling reasons for the delay in commencement of construction. However, the respondent-Bank, by final communication dated 12.02.2015, insisted upon payment of Rs.9,28,300/-, disregarding the petitioner’s e