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PATNA HIGH COURT
Aftab Alam, J.
Kayne Construction Private Limited
Versus
Syndicate Bank
Civil Writ Jurisdiction Case No. 1090 of 1997 ;
Decided On : APRIL 01, 1998
LOAN - UNAUTHORISED DEDUCTIONS - REFUND - INTEREST - CALCULATION - BANK'S LIABILITY - INDIAN CONTRACT ACT, 1872 - SECTION 22 - RESERVE BANK OF INDIA CIRCULAR - INTEREST TAX ACT, 1974 - SECTION 4 - STATE BANK OF PATIALA AND ANR. V/S. HARBANS SINGH - (1996) 6 SCC 711 - I.T.C. LIMITED V/S. G.J. FERNANDIS - (1994) 6 SCC 686 - Held, the bank's action in making endless deductions, heedless of the petitioners' protests, amounted to taking unfair advantage of its dominant position. The bank's insistence on charging interest with quarterly rest is also contrary to the term of repayment of the loan as contained in the agreement and in violation of the decision of the Supreme Court in State Bank of Patiala. The petitioners' loan would be deemed to have been fully satisfied on payment of the 120th monthly instalment of Rs. 18,000.00 at the end of 10 years on September 15/30, 1994, plus the additional amount on account of interest tax on the outstanding dues w.e.f. 1.10.1991 till 15.9.94.
Fact of the Case:
The petitioners sought appropriate writs, orders, or directions commanding the respondent bank and its functionaries to forbear from making any unauthorized deductions and/or refund the amount unauthorizedly deducted in purported liquidation of the loan of Rs. 12,00,000.00 advanced by the bank to the petitioners' predecessor in interest for the construction of the premises for being leased back to the bank.
Finding of the Court:
The court found that the bank's action in making endless deductions from the petitioners' account was against the terms of the agreement, contrary to the stand taken by the bank itself from time to time, and in violation of the circulars issued by the Reserve Bank of India and the law laid down by the Supreme Court in the light of those circulars.
Issues: 1. Whether the bank's action in making endless deductions from the petitioners' account was authorized? 2. Whether the bank was entitled to charge interest with quarterly rest on the loan advanced to the petitioners? 3. Whether the petitioners were entitled to a refund of the excess amount deducted by the bank?
Ratio Decidendi: 1. The court held that the bank's action in making endless deductions from the petitioners' account was unauthorized as it was against the terms of the agreement, contrary to the stand taken by the bank itself from time to time, and in violation of the circulars issued by the Reserve Bank of India and the law laid down by the Supreme Court. 2. The court held that the bank was not entitled to charge interest with quarterly rest on the loan advanced to the petitioners as it was contrary to the term of repayment of the loan as contained in the agreement and in violation of the decision of the Supreme Court in State Bank of Patiala. 3. The court held that the petitioners were entitled to a refund of the excess amount deducted by the bank.
Final Decision: The court allowed the petition and directed the bank to recast the petitioners' account in the light of its direction and to refund the excess amount deducted by it with interest.
Aftab Alam, J.
1. The petitioners seek appropriate writ(s), order(s) or direction(s) commanding the respondent bank and its functionaries to forbear from making any unauthorised deductions and/or refund the amount unauthorisedly deducted in purported liquidation of the loan of Rs. 12,00,000.00 advanced by the bank to the petitioners predecessor in interest for the construction of the premises for being leased back to the bank. According to the petitioners, the action of the bank in making endless deductions from the petitioners account is against the terms of the agreement, contrary to the stand taken by the bank itself from time to time and in violation of the circulars issued by the Reserve Bank of India and the law laid down by the Supreme Court in the light of those circulars. In other words, the action of the bank is highly high handed, unreasonable and arbitrary.
2. A partnership firm under the name and style of M/s. Sheohar Construction, the Predecessor in interest of petitioner No. 1 in this writ petition, started construction of a building, named, Sheohar Sadan. It applied to the Syndicate Bank (the bank, hereinafter) for a loan of rupees twelve lacs. (Rs. 12,00,000.00 ) for the construction of a portion of that building. The application for loan was accompanied with the proposal that the portion of the building (first and second floors) for the construction of which the loan was applied for would be leased back to the bank for setting up there the Patna Branch of the bank. The bank accepted the proposal and sanctioned the loan and its Dy. General Manager by his letter dated 25.1.1984 (Annexure-1) informed the Manager, Patna Branch that the proposal for shifting the Patna Branch premises and to establish a B class currency chest attached to the branch was accepted by the Board of the bank on the terms and conditions recommended by the Branch Manager which were enumerated in that letter, The Branch Manager, patna Branch then wrote letter dated 22.5.1984 (Annexure 1/A) informing the firm regarding the acceptance of their proposal and reproducing the terms and conditions as contained in the letter of the Dy General Manager. The term concerning the repayment: of the loan (as mentioned at serial No. 10 in the letter of the Dy. General Manager and at serial No. 9 in the letter written to the firm by the Branch Manager was as follows:
Loan - Rs. 12.00 lacs at 15% interest per annum against the security of equitable mortgage of land and building. Repayment at Rs. 18,000.00 per month to be liquidated within the first lease period of 10 years...
(emphasis added)
3 It is thus evident that according to the term of repayment, the loan of Rs. 12,00,000.00 was to be liquidated (on payment of a total sum of Rs. 21,60,000.00 ) in monthly instalments of Rs. 18,000.00 spread over a period of ten years or 120 months. It is also significant to note here that the term of repayment did not mention the charging of interest with quarterly rest, that is. the compounding of interest at intervals of three months.
4. The firm, by its letter dated 23.5.1984 (Annexure-2) gave its consent to the terms and conditions stipulated by the bank. In Clauses 13 of that letter it specifically accepted the term of re-payment of the loan as quoted above.
5. The loan amount of Rs. 12 lacs was disbursed to the firm in six instalments with the final instalment of Rs. 4 lacs being paid on 12.9.1984.
6. The portion of the building for the construction of which the loan was obtained was constructed and was ready for occupation on 16.8.1984 and the bank took possession of the premises on 15.9.1984.
7. Shortly thereafter the partnership firm got dissolved and its assets and liabilities were taken over by the company, petitioner No. 1 in this writ petition The petitioner company then made an application to the bank on 15.10.1984 requesting it to transfer the firms liability to its name. After the bank moved into the leased premises there was some delay in the d
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