The principle of fair play and fair practice in financial transactions, and the obligation of banks to disclose charges to the borrower at the time of availing the facility.

JUDGMENT :

Vibhu Bakhru, J.

The petitioner has filed the present petition impugning an action of the respondent (Andhra Bank - hereafter 'the Bank') in debiting a sum of Rs.68,93,783/- in the petitioner's current account maintained with the Bank. The petitioner also seeks recovery of the said amount along with interest. The Bank had debited the said amount as commission charges for the unexpired period of a bank guarantee that was surrendered by the petitioner.

2. The petitioner claims that the Bank had not informed the petitioner that any such charges would be payable at the time of the issuance of the bank guarantee and therefore, levy of such charges is illegal and contrary to the guidelines issued by the Reserve Bank of India (RBI). The Bank disputes that same and claims that it is entitled to levy such charges.

3. Mr Srinivasan, learned counsel appearing for the Bank referred to a letter dated 04.06.2011 sent by the Bank and submitted that by the said communication, the petitioner was duly informed of the condition to levy such charges.

4. In view of the above, the question that arises for consideration of this Court is whether the Bank is entitled to charge commission on the unexpired period of the bank guarantee furnished by it.

5. The aforesaid controversy arises in the context of the following facts:

5.1 On 14.02.2007, the petitioner incorporated M/s Athena Chhattisgarh Power Pvt. Ltd. (ACPPL) as a special purpose vehicle (SPV) for the development and implementation of a Thermal Power Project at Singhitarai in the State of Chhattisgarh. Another company - East Coast Energy Pvt. Ltd. - was also incorporated as a SPV for the development of a Thermal Power Project at Kakarapalli in the State of Andhra Pradesh. The petitioner required non-fund based financial assistance in connection with the aforesaid projects. The Bank agreed to provide the non-fund-based facility and sanctioned a facility upto a limit of Rs.25 crores for furnishing a bank guarantee for the purpose of bidding for sale of power, transmission system and fuel linkage. The said facility could also be utilized for the issuance of bank guarantees on behalf of SPVs incorporated for the execution of the projects. The aforesaid terms were stated in the sanction letter dated 08.07.2009. The said letter specified various terms and conditions, including the margin required (20%), as well as the tenure of the bank guarantee. The said facility was to be secured by the first charge on future receivables of the petitioner as well as personal guarantee of one of the Promoters/Directors of Athena Infra Projects Pvt. Ltd. The sanction letter further specified that the processing charges for the issuance of a bank guarantee would be Rs.3,12,500/- plus service tax as applicable, which would be paid up-front. Insofar as the commission is concerned, the sanctioned letter indicated that the same would be "as per guidelines".

5.2 The petitioner and the Bank also entered into a Composite Agreement dated 04.08.2009, for a sum of Rs.25 crores carrying an interest at the applicable PLR of 12% + spread of 3.5% per annum. Thus, the petitioner was liable to pay 15.5% per annum on the loan amount and an additional 2%, if the amount remained overdue.

6. Mr. Srinivasan, learned counsel appearing for the Bank explained that the said Composite Agreement would become effective only if the bank guarantee furnished by the Bank was invoked. In such an event, the amount paid to the beneficiary would constitute a loan to the petitioner on the terms as specified in the Composite Agreement.

7. The petitioner states that the Bank had informed it that the Commission for the Bank Guarantee would be at the rate of 0.5% per quarter (equivalent to 2% per annum).

8. On 24.02.2010, ACPPL entered into a Bulk Power Transmission Agreement with Power Grid Corporation of India Ltd. (PGCIL) for evacuation of power from