Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2009 Supreme(Raj) 1905

RAJASTHAN HIGH COURT AT JODHPUR BENCH
Prakash Tatia, Vineet Kothari, JJ.
Bikaner Woollen Mills Private Limited - Appellant
Versus
Rajasthan Financial Corporation & Ors. - Respondent
D.B. Civil Special Appeal No. 392 of 1999. (Against the order dated 17.2.1999. passed by the learned Single Judge in S.B. Civil Writ Petition No. 6160 of 1992.)
Decided On : 28-04-2009

Advocates:
For the Appellant:S.D. Vyas, Advocate.
For the Respondents RFC:S.G. Ojha, Advocate.

The main legal point established in the judgment is that a party cannot be penalized for the other party's failure to fulfill contractual obligations, and the court emphasized the importance of adhering to the terms of the loan agreement.

Headnote:
RFC - Loan Agreement - Companies Act, 1956 - [Clause 9, Clause 3(i)] - The court discussed the loan agreement between the appellant and RFC, focusing on the provisions related to obtaining refinance from IDBI and charging interest. The court emphasized that the RFC could only disburse the loan after obtaining refinance from IDBI, and the appellant was entitled to concessional rate of interest if refinance was made available by IDBI. The court highlighted the RFC's failure to show non-compliance with the conditions for charging higher interest and concluded that the appellant was not responsible for the RFC's failure to obtain refinance, thus ruling in favor of the appellant.
Fact of the Case:

The appellant, a private limited company, applied for a loan from RFC, which was duly sanctioned with a condition for concessional interest if refinance was made available by IDBI. The RFC disbursed the loan without obtaining refinance and later demanded higher interest due to non-compliance with conditions.
Finding of the Court:

The court found that the RFC failed to obtain refinance from IDBI despite its prior sanction, and the appellant was not responsible for the RFC's failure. The court held that the appellant was entitled to concessional interest and ruled in favor of the appellant.
Issues: The main issue was whether the RFC could charge higher interest due to its failure to obtain refinance from IDBI, despite the appellant's compliance with the loan agreement.
Ratio Decidendi: The court emphasized that the RFC could only disburse the loan after obtaining refinance from IDBI and highlighted the RFC's failure to show non-compliance with the conditions for charging higher interest. The court concluded that the appellant was not responsible for the RFC's failure to obtain refinance, thus ruling in favor of the appellant.
Final Decision: The appeal of the appellant was allowed, and the court held that the RFC was entitled to only concessional interest and not to the enhanced rate of interest as demanded by the RFC.

JUDGMENT

1. - Heard learned counsel for the parties.

2. The appellant-petitioner's writ petition to challenge the demand of higher rate of interest raised by the respondent- Rajasthan Financial Corporation (for short "RFC") was dismissed by the learned Single Judge vide impugned order dated 17.2.1999. The petitioner's writ petition was dismissed only by observing that the Court did not find any reason to interfere with the notice issued by the RFC.

3. The facts which are not in dispute are that the petitioner- a private limited company registered under the Companies Act, 1956, applied for loan of Rs. 60 lacs, which was duly sanctioned by the respondent-RFC and was communicated to the petitioner appellant vide letter dated 17/18.10.1989. There was a condition for finance that if refinance will be made available by the Industrial Development Bank of India (for short "the IDBI"), the RFC will charge interest @ 3.5% per annum above the refinance rate and the current rate of interest was kept 14%. To give effect to the contract for loan, a deed in the form of loan agreement was executed between the parties- the appellant borrower and the RFC, the copy of which is placed on record as Annexure 4 in the writ petition.

4. The clause 9 provides for obtaining refinance from the IDBI,which is as under:-

"9. REFINANCE:

That in case the Corporation decide to refer the case for obtaining refinance facilities from IDBI the Borrower agreed to give such information and execute such documents as may be necessary in this connection at their own cost. Any modification or/and addition in terms of loan as may be stipulated by IDBI while sanctioning refinance shall be applicable to the loan. If refinance is applied for by the Corporation, the disbursement in the cases of loan exceeding Rs. 10.00 lacs shall be made after refinance has been sanctioned by the IDBI."

5. For charging interest as per clause (3), the appellant-petitioner was entitled to concessional rate of interest if refinance is made available to IDBI. Clause 3(i) is as under:-

"3. INTEREST

(I) Concessional Rate ( other than soft loan.) If refinance is made available by the IDBI the Corporation will charge interest @ 31/2 p.a. above the refinance rate, presently 14% p.a. from implementation period i.e. Upto July 1991 and 15% p.a. for the period thereafter.
OR

DG Set Loan

15%/17.5% p.a. provided the monthly instalments are paid in time."

6. The loan was disbursed to the petitioner-appellant by the respondent-RFC and advanced Rs. 41.47 lacs against the loan of Rs. 60 lacs and the first loan amount was disbursed on 30.11.1990 of Rs. 34.28 lacs, then on 14.3.1991 of Rs. 3.48 lacs, then on 11.4.1991 of Rs. 2 lacs, then on 30.12.1991 of Rs. 1.71 lacs, in total 41.47 lacs. As per clause 9 of the loan agreement, the loan could have been disbursed to the appellant-petitioner only after obtaining the sanction of refinance by the IDBI as the appellant petitioner loan amount was exceeded Rs. 10 lacs. As per respondent-RFC's own letter dated 22.11.19909 ( Annex.5), the IDBI sanctioned refinance by communication dated 31.7.1990 and the RFC conveyed the appellant that now the concessional rate of interest @ 14% will be chargeable to the loan transaction w.e.f. 31.7.1990. However, in this letter, it has been mentioned that this sanction of refinance is subject to additional terms and conditions which are indicated in the letter itself. It has been also conveyed that compliance of these conditions may be submitted to the Manager or the concerned branch of the RFC. The conditions are as under:-

"1. That the date of sanction of refinance will automatically lapse after 24 months from the date of refinance sanction.

2. That Co./Unit and/or promoter is not in default towards any Financial Institution/Bank.

3. In case of non-availability of Central/State Subsidy the financial gap shall be met out by the promoters from their own sources. No institutional finance shall be made available on this account.

4. Refinance assistance

Click Here to Read the rest of this document