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High Court Of Delhi
GWALIOR ISPAT PRIVATE LIMITED - Appellant
Versus
STATE BANK OF INDIA - Respondent
Civil 1641 of 1994
Decided On : 05/11/1994
CONTRACT LAW - LOAN AGREEMENT - INTERPRETATION - ENFORCEABILITY - WRIT JURISDICTION - DOCTRINE OF PROMISSORY ESTOPPEL - LEGITIMATE EXPECTATION - PUBLIC SECTOR BANK - CONTRACTUAL OBLIGATIONS - JUDICIAL REVIEW - SCOPE OF JUDICIAL REVIEW - CONTRACTUAL POWER - UNILATERAL TERMINATION - ADMINISTRATIVE LAW PRINCIPLES - APPLICABILITY.
Fact of the Case:
Petitioner, a company, applied for a term loan from the respondent bank for a project. The loan agreement was executed, and a portion of the loan was disbursed. However, the respondent later refused to release further disbursements and communicated to the petitioner that it was unable to support the project further. The petitioner challenged this decision, arguing that the respondent was obliged to aid the country's socio-economic development and could not arbitrarily withdraw support, thereby killing the unit. The petitioner also claimed that the respondent was bound to disburse the entire loan amount based on the doctrine of promissory estoppel and that its legitimate expectation was defeated by the respondent's actions.
Finding of the Court:
The court held that the loan agreement between the petitioner and the respondent was a simple banking transaction and not a statutory contract. Therefore, the relationship between the parties was governed entirely by the terms of the contract. The court further held that the writ jurisdiction could not be extended to consider arguments based on the doctrine of promissory estoppel, legitimate expectation, or the duty of the respondent to abide by the terms of the loan agreement. These arguments were foreign to testing the exercise of the contractual power by the respondent under the writ jurisdiction.
Issues: 1. Whether the loan agreement between the petitioner and the respondent was a statutory contract or a simple banking transaction. 2. Whether the writ jurisdiction could be extended to consider arguments based on the doctrine of promissory estoppel, legitimate expectation, or the duty of the respondent to abide by the terms of the loan agreement.
Ratio Decidendi: 1. The court held that the loan agreement between the petitioner and the respondent was a simple banking transaction and not a statutory contract. Therefore, the relationship between the parties was governed entirely by the terms of the contract. 2. The court further held that the writ jurisdiction could not be extended to consider arguments based on the doctrine of promissory estoppel, legitimate expectation, or the duty of the respondent to abide by the terms of the loan agreement. These arguments were foreign to testing the exercise of the contractual power by the respondent under the writ jurisdiction.
Final Decision: The court rejected the writ petition, holding that the respondent was entitled to terminate the loan agreement in accordance with its terms and that the petitioner's arguments based on the doctrine of promissory estoppel, legitimate expectation, and the duty of the respondent to abide by the terms of the loan agreement were not cognizable under the writ jurisdiction.
( 1 ). The petitioner seeks a direction to the respondent not to abandon petitioner s project midway, as conveyed in the communication dated 16-10-1993 (Annexure 20 ). Petitioner also seeks a direction to the respondent to continue to support petitioner s project. According to the petitioner, it applied for a term loan of Rs. 95 lakhs on 18th November, 1988 and on 18th August 1989, respondent Bank sanctioned a loan of Rs. 120 lacs; (the letter Annexure 2, also stated that the detailed terms and conditions applicable to the facility may be obtained from the Nehru Place Branch of the Bank ). Petitioner purchased a land in Punjab. A joint term loan agreement was executed by the petitioner and the respondent on 22nd June, 1990 (Annexure 3 ). Petitioner states that Rs. 25 lacs were disbursed to it towards the loan on 19-8-1990. The loan agreement provides for the waiver of loan disbursements. It seems another Rs. 20 lacs was released to the petitioner by the respondent on 21-12-1990. Thereafter the respondent refrained from releasing further amounts; but on 28-8-1991 the petitioner was informed that further disbursement was permitted.
( 2 ) ABOVE letter permitted further disbursement (Annexure 4) and refers to a few conditions to be satisfied by the petitioner, such as submitting the necessary papers connected with the insurance cover; expediting the project and adherence to the standard covenants in the terms and conditions of sanction etc. It seems acheque issued to the Insurance Company by the petitioner was dishonoured by the respondent. There was also delay in the release of further disbursements. On 10-12-1992, request of the petitioner for a bridge loan was refused by the respondent; according to the petitioner this came in the way of the petitioner from obtaining a subsidy of Rs. 30 lacs from the Punjab Government.
( 3 ) WE may note here, that the petitioner has not pointed out the terms of the loan agreement under which the bridge loan could have been sought by the petitioner. Thereafter the petitioner approached Canbank Financial Services Ltd. for the bridge loan who wanted a copy of approval note; petitioner sought this from the respondent; but the respondent did not oblige. Petitioner persisted for the bridge loan from the respondent. But, on 16-10-1993 the respondent wrote (as per Annexure 20) stating that. at no stage sanction/grant of a bridge loan was considered, as the respondent did not give such bridge loans. Thereafter, petitioner sought the disbursement of the loan again and again and requested the respondent to implement the project.
( 4 ) IN the writ petition, at para 35, petitioner avers that on 16-10-1993 respondent stated "we are unable to support the project further". In the opening paragraph the the respondent stated that the respondent examined the report of the Consultancy Cell and the entire gamut of the projected operations of petitioner s unit and other related issues and that on the basis of the findings respondent was unable to support the protect further. The 2nd para refers to the bridge loan sought by the petitioner.
( 5 ) ACCORDING to the petitioner, respondent being a "public Sector National Instrument" was obliged to aid the country s "socio-economic development" and it cannot arbitrarily withdraw support midway, "thereby killing the unit". Withdrawal of the support by the respondent is attacked as arbitrary and whimsical. The learned counsel also argued that the legitimate expectation of the petitioner was defeated by tile respondent Bank. and that the respondent was bound to disburse the entire loan amount on the basis of the doctrine of promissory, estoppel.
( 6 ) SEVERAL decisions were cited, having a bearing on the above propositions advanced by the learned counsel.
( 7 ) BEFORE considering these propositions, the nature of the transaction between the petitioner and the respondent shall have to be identified. The loan agreement between the parties is not a statu
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