Contractual conditions imposed by the bank after agreement are void for violating the Indian Contract Act's principles, rendering the non-refundable fee clause invalid.

JUDGMENT :

RMT. TEEKAA RAMAN, J.

1(a). The defendants are the appellants herein.

1(b). The respondent/plaintiff filed a Suit in O.S.No.201 of 2010 for refund of Front End Fees viz., Rs.12,00,000/-, Based upon the request made by the Respondent/Plaintiff to the Defendant/Bank under Ex.Al dated 08.01.2007, a sanction letter was given, sanctioning six crores for the construction of the building, wherein the service charges (Front End Fees) at the rate of 1.5% with split up figures are mentioned. Initially all the required documents have been given, subsequently, certain documents have been found to be defective.

1(c). Since the original Managing Trustee viz., Kanthasamy died, the trust deed has to be redrafted and finally under Ex.A2 dated 14.03.2007, payment was received by the Plaintiff and he was paid Rs.8,00,000/- by way of cheque dated 31.03.2007.

1(d). Subsequently, another amount of Rs.4,00,000/- has also been paid (Ex.A9). As per Ex.A8/sanction letter was given and on 10.08.2007 (under Ex.AS) the plaintiff has expressed his unwillingness to get along with the loan process and proceedings has been completed and by communication dated 08.03.2008, the plaintiff was asked to execute the deed of hypothecation of movables to 3 I Infotec Trusteeship Services Limited.

2. Learned counsel for the appellant submitted that it is only for movables and not for immovables and this has triggered the plaintiff to withdraw the consent and accordingly, as per Ex-A15, the plaintiff informed the Bank to not to proceed further and asked for refund.

3. After trial, the learned District Judge has held that the clause contained in sanction letter and deed of hypothecation are contrary to Section 23 of the Indian CONTRACT ACT and accordingly ordered refund and hence the Appeal.

4. For the sake of convenience, the parties are referred to as per their ranking before the trial Court.

5. The defendant Bank filed this appeal on the ground that the Front End Fees is unrefundable and the trial Court has committed error in granting the decree. Reliance is placed upon the letter of the plaintiff dated 12.03.2008 (Ex.P13).

6(a). The learned Senior Counsel Mr.K.Doraisamy appearing for the respondent/plaintiff could contend that at each stage of the process of the loan, new advantage in a hidden formula has been introduced and at the end of the completion before sanctioning of the loan as sought for by the respondent/plaintiff, a new condition has been incorporated to the effect that the plaintiff school has to execute a mortgage in favour of a third party which is projected as a security trustee by the defendant bank for the benefit of the bank till the loan is unpaid.

6(b). No such condition has ever been made either at the proposal or during the process of the proposal and by calling upon the respondent/plaintiff to execute a equitable mortgage of the school property to a third party through an agreement is against the provisions of the Indian CONTRACT ACT and hence he has filed a suit for recovery of the amount of Rs.12,00,000/-, which is captioned as 'Front End Fees' to the bank.

6(c). According to the learned Senior Counsel the so called caption of “non-refundable was introduced” only in the “middle of the process” of the application and not at the commencement of the completion of the formalities. He made submissions in support of the judgment of the trial court.

7. Before the trial Court following issues have been framed:

1. Whether the plaintiff is entitled for ecovery of amount with interest thereon?

2. Whether the plea of the defendant that the amount is non-refundable since it is a Front End Fees is true, valid and binding upon the parties