Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Del) 989

2024:DHC:10004
IN THE HIGH COURT OF DELHI AT NEW DELHI
SWARANA KANTA SHARMA, J.
SGS Infratech Ltd. – Appellant
Versus
Punjab and Sind Bank – Respondent
C.S. (OS) No. 2541 of 2014
Decided On : 24-12-2024
Advocates Appeared :
For the Appellants : Rajeev Mehra, Ekta Kalra Sikri, Ajay Pal Singh, Vikalp Mudgal, Dinesh Gandhi, Prakhar Khanna
For the Respondents : Sudhir Makkar, Girish Verma, Raghav Verma, Mehak Nagar, Umesh Jayant, Aadhya S.

Mr. Rajeev Mehra, Senior Advocate with Mr. Ekta Kalra Sikri, Mr. Ajay Pal Singh, Mr. Vikalp Mudgal, Mr. Dinesh Gandhi and Mr. Prakhar Khanna, Advocates; Mr. Sudhir Makkar, Senior Advocate with Mr. Girish Verma, Mr. Raghav Verma, Ms. Aadhya S., Ms. Mehak Nagar, Advocates and Mr. Umesh Jayant, Chief Manager, PSB.

Banks must adhere to the terms of sanction letters and cannot unilaterally alter interest rates without borrower consent, constituting a breach of contract.

Headnote:(A) Companies Act, 1956 - Recovery of loan - Banking Regulation Act, 1949 - Sections 21, 21A, and 35A - Dispute over interest rates charged by defendant bank on loan sanctioned to plaintiff company - Plaintiff sought recovery of ₹2,24,89,361/- along with interest for excess charges - Court found that defendant bank unilaterally altered interest terms contrary to sanction letter, violating contractual obligations. (Paras 1, 33, 76, 80)

(B) Banking Regulation - Interest Rates - The court emphasized that banks must adhere to agreed terms in sanction letters and cannot unilaterally change interest rates without borrower consent. (Paras 60, 72)

(C) Contractual Obligations - The court ruled that the defendant bank's actions constituted a breach of contract, justifying the plaintiff's claim for recovery. (Paras 74, 76)

Facts of the case:
The plaintiff company entered into a loan agreement with the defendant bank for ₹25 crores to finance the purchase of a commercial mall. Disputes arose over the interest rates charged, with the plaintiff alleging excessive charges contrary to the original sanction letter.

Findings of Court:
The court found in favor of the plaintiff, determining that the defendant bank had charged excess interest and ordered a refund of ₹2,04,30,669/- with interest at 9% p.a. from the date of filing the suit.

Issues: The main issues were whether the plaintiff was entitled to recover the claimed amount and whether the suit was filed by an authorized person.

Ratio Decidendi: The court held that the defendant bank's unilateral changes to the interest rate violated the terms of the sanction letter, constituting a breach of contract.

Result: The suit is decreed in favor of the plaintiff.

JUDGMENT :

SWARANA KANTA SHARMA, J.

1. This is a suit for recovery instituted by the plaintiff SGS Infratech Limited [hereafter „plaintiff company‟], against the defendant Punjab and Sind Bank [hereafter „defendant bank‟], Digitally Signed seeking recovery of Rs. 2,24,89,361/- along with interest of Rs. 67,46,808/-, along with pendente lite and future interest at the rate of 18% per annum.

THE PLAINTIFF’S CASE

2. The plaintiff company is a public limited company incorporated under the Companies Act, 1956, engaged in the business of construction and similar activities. It is also involved in developing and acquiring commercial properties, earning income either through the sale or rental of such properties. In 2006, the plaintiff company decided to purchase a commercial mall namely Magnum Mall [hereafter „the Mall‟], a fully constructed property with certain shops being rented out, for a total sale consideration of Rs. 147 crores.

3. To finance this purchase, the plaintiff company approached Indian Overseas Bank [hereafter „IOB‟] for financial assistance of Rs. 130 crores. IOB agreed to provide Rs. 80 crores and advised the plaintiff company to seek the remaining Rs. 50 crores from other financial institutions or banks. Consequently, the plaintiff company sought assistance from the defendant bank and Punjab National Bank [hereafter „PNB‟] for Rs. 25 crores each. Both the banks agreed, and based on their confirmations, the plaintiff company re-approached IOB, which issued a sanction letter dated 05.09.2006, sanctioning Rs. 80 crores. The repayment was to be made in 115 installments starting November 2006. To secure this financial assistance, the plaintiff company created securities in favor of IOB.

4. Upon receiving the sanction letter from IOB, the plaintiff company approached the defendant bank and PNB for their respective sanction letters. After conducting due diligence, the defendant bank sanctioned financial assistance of Rs. 25 crores through a sanction letter dated 26.10.2006, while PNB issued its sanction letter on 15.11.2006. The terms of the sanction letter from the defendant bank mirrored those in the IOB‟s sanction letter. All three banks, being nationalized, were governed by the guidelines, circulars, and instructions of the Reserve Bank of India [hereafter „RBI‟].

5. Clause 2 of the defendant bank‟s sanction letter specified that the Rs. 25 crore loan would be repaid in 115 equal monthly installments starting one month after the first installment, with interest to be serviced separately as charged. Clause 4(a) provided that the loan would be secured by an equitable mortgage of the Magnum Mall on a pari passu basis. Clause 8(b) stipulated that the loan would be released through IOB, and Clause 8(e) acknowledged that the title deeds of the Mall would be held in IOB‟s custody. Relevant clauses of the sanction letter dated 26.10.2006, cited in the plaint, are set out below:

“Clause 2:

“115 EMI of Rs. 21.75 Lacs to commence from one month after the first disbursement, interest to be serviced separately as and when charged."

Clause 4 (a):

“Commercial security of Magnum Mali CTS No. 231 Moledina Road, Bund Garden, 0pp. Dorabjee's Stores, Camp Pune to equitable mortgage on pari passu basis with Digitally Signed iOB/PNB. iOB for their term loan of Rs. 80 Crores/ PSB for their term loan of Rs. 25 Crores/ and PNB for their term loan of Rs. 25 Crores.”

Clause 8(b):

“Term loan is to be released through iOB only after full tie- up of lease rentals through tripatriate Agreement with IOB and full tie up of remaining amount of term loan from PNB.”

Clause 8(e):

“The title deeds of the property being purchased are received by IOB and mortgage is created on pari-passu basis after compliance of ail statutory requirements /obtaining of Government clearances/NOC etc.”

6. The plaintiff company also created several additional securities in favor of the defendant bank. Further, clause 3 of the sanction letter dated 26.10.2006 outlined the terms under which