JUDGMENT :

(Prayer: Second Appeal has been filed under Section 100 of C.P.C., praying to set aside the decree and judgment in A.S.No.2 of 2007 dated 23.10.2009 passed by the First Additional District Judge of Coimbatore partly reversing the judgment and decree dated 15.09.2005 passed in O.S.No.685 of 2002 on the file of Second Additional Sub Judge of Coimbatore.)

(The case has been heard through video conference)

1. Small Industries Development Bank of India (in short “SIDBI”) is a financial institution under the supervision of Reserve Bank of India. Its object is to provide financial assistance to the Small Scale Sectors. M/s Annamalai Hotels (P) Ltd, sought Rs.160 lakhs term loan from SIDBI for their hotel project and paid 1% upfront fee. In principle, loan was sanctioned, but before the disbursement of the loan, the sanction was withdrawn by SIDBI. The suit for return of upfront fee filed by M/s Annamalai Hotels was decreed by the Trial Court and the same was confirmed by the first Appellate Court. Against the concurrent finding, the present Second Appeal is filed by SIDBI.

2. For sake of convenience, the appellant/defendant the SIDBI (hereinafter be referred as “Bank”) and the respondent/plaintiff M/s Annamalai Hotel (P) Ltd (hereinafter be referred as “Applicant”).

3. On 18/01/1998, M/s Annamalai Hotels (Pvt.) Ltd. applied to the Deputy Manager of SIDBI at Coimbatore to extend term loan of Rs.160 lakhs to meet the part cost of its project of construction of a new hotel complex at Coimbatore. After discussions with the Applicant, on 05/04/1999, the application for financial assistance under project financial scheme was positively considered by SIDBI and informed the Applicant that SIDBI is agreeable, in principle, to grant term loan not exceeding Rs.160 lakhs to meet the project for setting up the hotel complex at the estimated cost of Rs.310 lakhs. In the letter dated 05/04/1999, the applicant was asked to furnish within 30 days the Board of Director resolution agreeable to enter into a Loan Agreement with SIDBI. The Applicant was also asked to provide a statement of anticipated drawals of loans including probable dates(s) and amounts of drawal(s). To this letter, Annexure I carried the special terms and condition. Under Clause 3 of the Annexure I, the Applicant shall pay to SIDBI non – refundable upfront fee of 1% of the sanctioned loan amount at the time of issue of Letter of Intent. Annexure II, the Normal terms and conditions for grant of financial assistance and Annexure III, the proforma for the Board Resolution.

4. As per Clause 3 In annexure I- Special terms and conditions upfront fee of 1% (Rs.1.60 lakhs) of the sanctioned loan amount (Rs.160 lakhs) was paid by the Applicant, on 05/04/1999, through a demand draft and the same was encashed by the Bank. On 10/04/1999 Board resolution was passed authorizing its Director V.Sampath Kumar to sign on behalf of the applicant. However, the Loan Agreement between the parties was not formally entered and the loan amount was not disbursed. Nearly after one year, in response to the Applicant query, the bank on 27/04/2000 informed the Applicant that the subsequent to issue of the letter of intent dated 05/04/1999, it came to their notice certain vital information having direct bearing on the creditworthiness of the company promoters/directors. Information relating to an associate/sister concern had not been disclosed by the company while applying for the term loan or during the discussions. Therefore, they are constrained to cancel the term loan sanctioned vide, letter of intent dated 05/04/1999.

5. In the above circumstance, the applicant has filed the suit against the Bank for refund of Rs.1,60,000/-being the principal. Rs.57,600/- towards interest at the rate of 12% and Rs.9000/- towards Engineer fees paid to get the project report.

6. The Bank resisted the suit, on the ground that the suit is bad for misjoinder of party. The upfront fee collected is non refundable. It is a prerequ