Bank's discretion in fixing and revising credit limits based on customer's performance and financial parameters.

JUDGMENT

(Prayer: This Civil Suit has been filed, under Order VII Rule 1 of CPC and Order IV Rule 1 of the Original Side Rules, for the reliefs as stated therein.)

1. This Civil Suit has been filed, seeking a judgment and decree, directing the Defendants to pay a sum of Rs.2,17,22,637/- together with interest at the rate of 18% p.a. from the date of the plaint till payment in full is made and for costs.

2. The case of the Plaintiff, in a nutshell, as set out, in the plaint is as follows:-

a) The Plaintiff Company was incorporated in the year 1990 under the Companies Act, 1956. The Plaintiff Company was appointed as Sole National Distributors for Siemens Mobile Phone and Accessories on 19.10.2001. The Plaintiff Company approached the 2nd Defendant Bank for a loan of Rs.600 lakhs. The Defendants agreed to grant the Plaintiff Company a Letter of Credit/Cash credit facilities for Rs.600 lakhs on communication of the documents, namely, demand promissory note, letter of continuing security, hypothecation of stocks/book debts, personal guarantee of Lalchand Munoth, Jaswant Munoth, Bharat Munot and Vikas Munot, letter of credit applications and also mortgaging the Company-s property at No.343, Triplicane High Road, III Floor, Chennai-5, measuring 2755 sq.ft. held in the name of Munoth Investments Limited (presently known as Munoth Communication Limited) towards collateral security.

b) The 2nd Defendant sanctioned a combined limit of Letter of Credit/Cash Credit of Rs.300 lakhs on 06.12.2001. The cash margin for the non fund based limit Letter of Credit was 50% and for Cash Credit, the margin was 25% (stock). The Plaintiff made a representation to the 2nd Defendant that they were not keen in utilizing the limits sanctioned to them, as it was not sufficient to operate. It was promised that the entire Rs.600 lakhs would be disbursed within one month of utilizing the initial limit of Rs.300 lakhs. The said combined Letter of Credit/Cash Credit facility was utilised on 15.04.2002. The Plaintiff Company executed documents and created a charge with the Registrar of Companies for Rs.600 lakhs as required by the Bank.

c) The Plaintiff Company was importing phones from Siemens on usance Letter of Credit (30 days) and it was able to sell the phones and pay the Bank within 30 days, resulting in Cash Credit being used rarely. Morever, as the Plaintiff Company was opening Letter of Credit continuously, the Company was provided a cash margin of Rs.150 lakhs (Clause 4 of Sanction Letter, dated 06.12.2001- Cash Margin of Rs.150 lakhs should be available on permanent basis as Letter of Credits are required to be opened on a continuous basis). The Cash Credit facility was secured by hypothecation of stocks, personal guarantee and equitable mortgage.

d) In July 2002, the 2nd Defendant increased the combined Letter of Credit/Cash Credit limits to Rs.450 lakhs and the cash margin from the non fund based limit (Letter of Credit) was reduced to 35% and for cash credit, the margin was released at 25% (stock). As per the sanction order, the combined Letter of Credit/Cash Credit limit of Rs.450 lakhs was secured by (1) deed of promissory notes, (2) hypothecation of inventory and receivables and (3) cash margin of 35% of Letter of Credit Limits, equitable mortgage of properties amounting to Rs.138.87 lacs.

e) The Company was enjoying a combined Letter of Credit/Cash Credit limit. For the Letter of Credit portion a cash margin of 35% was to be provided and for Cash Credit a margin 25% (stock) was to be provided apart from hypothecation of stocks. Monthly stock statements to avail Cash Credit limits were submitted regularly and the required 25% margin (stock) was maintained. The Plaintiff Company wanted to utilize the limits of Rs.600 lakhs, for which, it executed documents and created a charge with the Registrar of Companies, as required by the 2nd Defendant Bank. The 2nd Defendant asked the Plain