Back
2025 Supreme(Online)(KAR) 2372
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
MR JUSTICE M.NAGAPRASANNA, J
Dalvkot Bio Fuels Private Limited – Appellant
Versus
Canara Bank Represented By Manager – Respondent
WRIT PETITION NO. 14978 OF 2024 (GM-RES)
Advocate Appeared:
For the Appellant :SRI. BIPIN HEGDE, ADV. FOR SRI. SAMARTH SHREEDHAR, ADVOCATE
For the Respondent:SRI. SHETTY VIGNESH SHIVARAM, ADVOCATE
The court ruled that a bank cannot impose undisclosed charges for a concessional interest rate not stated in loan documents, affirming the need for transparency in contractual obligations.
Headnote:(A) Constitution of India - Article 12 and Article 14 - Banking Regulation Act, 1949 - The petitioner challenged the demand for Rs.3,08,12,476/- by the Bank for charges related to a concessional rate of interest after pre-closing a loan. The court found that the Bank failed to indicate any concessional rate in the sanction letters, thus invalidating the demand. (Paras 14, 15)
(B) Contractual Obligations - The court emphasized that the actions of the Bank, being a State under Article 12, must adhere to the principles of fairness and transparency as mandated by Article 14. (Paras 14, 15)
Facts of the case:
The petitioner secured a loan of Rs.53 Crores from the Bank for an ethanol manufacturing unit but faced issues with disbursement and interest rates. After pre-closing the loan, the Bank demanded additional charges for a concessional rate of interest that was never disclosed.
Findings of Court:
The court ruled that the Bank's demand for additional charges was unjustified as the sanction letters did not indicate any concessional rate of interest. The petitioner was only liable for a 2% pre-payment penalty.
Issues: The main issues were whether the Bank could demand additional charges for a concessional rate of interest not disclosed in the loan documents and the legality of the Bank's actions under constitutional provisions.
Ratio Decidendi: The court held that the Bank, as a State entity, must act fairly and cannot impose undisclosed charges on the petitioner, emphasizing that contractual obligations must be clear and transparent.
Result: The writ petition is allowed; the Bank's communication is set aside, and the petitioner is directed to pay only the 2% penalty.
ORAL ORDER
The petitioner is before this Court calling in question a communication dated 24.05.2024 issued by the respondent - Canara bank (hereinafter referred to as 'the Bank' for short) demanding an amount of Rs.3,08,12,476/- as charges towards Concession in Rate of Interest, as the petitioner has pre-closed the loan that was secured from the hands of the respondent - Bank.
2. Heard the learned counsel Sri.Bipin Hegde, appearing for the petitioner and the learned counsel Sri. Shetty Vignesh Shivaram, representing the Canara Bank.
3. The facts, in brief, germane are as follows:
The petitioner is said to be a customer of respondent - Canara bank and had availed several loans at intermittent intervals. The issue in the lis is with regard to financial assistance applied by the petitioner for an amount of Rs.85 Crores for setting up of a Greenfield, Grain and Molasses based 80 KLPD capacity Ethanol manufacturing unit. The Bank did not release the entire Rs.85/- Crores but restricted the amount to Rs.53/- Crores. The petitioner then represents contending that the entire amount has not been released and the loan is restricted to Rs.53 Crores.
4. A communication then emerges that the amount of loan is restricted to Rs.53 Crores and the Rate of Interest at which it was granted earlier is enhanced by 1%. The petitioner then again represents to the Bank submitting that the increase in rate of 1% is over and above what other banks would grant to the customers in identical circumstances. The representation goes unheeded. The petitioner then secures loan from another financial institution and clears the entire dues i.e., the loan amount that was taken from the Canara Bank. The Bank does not release the documents in favour of the petitioner that was kept as security at the time of grant of loan, notwithstanding the fact that the entire loan was cleared. Representations are made by the petitioner for release of the documents. Then comes the impugned communication that the petitioner is to pay Rs.3.8 Crores of the remaining rate of interest, as a concessional Rate of Interest was granted to the petitioner. It is at that juncture, the petitioner is before this Court, in the subject petition.
5. Learned counsel Sri.Bipin Hegde, taking this Court through the documents appended to the petition would seek to demonstrate that at no point in time, the petitioner was indicated that the loan that is being granted was for a subsidized Rate of Interest or a concessional Rate of Interest. What was granted was what was prevailing at the relevant point in time, as interest, on all loans that are to be granted. The learned counsel would further submit that the Bank did not heed to reduction in the rate of interest, notwithstanding the reduction in the amount that was claimed. He would further submit that the sanction letters of initial sanction of Rs.85/- Crores or a subsequent sanction of Rs.53/- Crores does not indicate at any point that the interest that was being charged from the hands of the petitioner was for a reduced rate. He would further submit that the documents appended to the statement of objections are not the ones that are signed by the petitioner, but they are their own documents.
6. Learned counsel for the Bank would refute the submissions of the learned counsel for the petitioner in raising a threshold bar that the petition is not entertainable, as it is in a realm of contract between the petitioner and the Bank and the petitioner has to be relegated to a competent Civil Court to agitate his rights or should approach the Banking Ombudsman against the grievance that is now projected. He would submit that the petitioner is well aware of the fact that he was granted reduced rate of interest at the time when the loan was sanctioned and cannot now project ignorance, as he is a regular customer in the Bank and the Bank had to heed to the concessional rate of interest so that they would get some business from the hands of the petitioner. It is therefo
