Bank Of India vs M/S Brindavan Agro Industries Pvt … on 28 February, 2020


Supreme Court of India

Bank Of India vs M/S Brindavan Agro Industries Pvt … on 28 February, 2020

Author: L. Nageswara Rao

Bench: L. Nageswara Rao, Hemant Gupta

                                                                     REPORTABLE

                            IN THE SUPREME COURT OF INDIA

                                 CIVIL APPELLATE JURISDICTION


                       CIVIL APPEAL NO. 1720 OF 2020
                (ARISING OUT OF SLP (CIVIL) NO. 2007 OF 2019)


BANK OF INDIA                                                      .....APPELLANT(S)

                                               VERSUS

M/S. BRINDAVAN AGRO INDUSTRIES PVT.
LTD.                                                           .....RESPONDENT(S)




                                      JUDGMENT

HEMANT GUPTA, J.

1. The challenge in the present appeal is to an order passed by the

National Consumer Disputes Redressal Commission 1 on 10th May,

2018 whereby an appeal filed by the appellant 2 against the order

of State Consumer Disputes Redressal Commission 3 dated 13th July,

2016 remained unsuccessful.

2. The respondent4 was maintaining an account with the appellant

Bank at its branch in Agra. The Consumer applied for a loan on 15 th

October, 2011. The Consumer sought the following credit facilities:

“1. Enhancement of Working Capital Limit from Rs. 10

1 for short, ‘NCDRC’
2 for short, ‘Bank’
3 for short, ‘SCDRC’
4 for short, ‘Consumer’

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crore to Rs. 20 crore;

2. Sanction of ECB/SCL/INR term loan of Rs. 40 crore;

3. Sanction of LC Limit of Rs. 25 crore.”

3. As per the Bank, the application submitted by the Consumer was

handed over to Credit Processing Unit 5 at New Delhi on 4th

November, 2011 pending submission of the valuation/search report

of the properties to be mortgaged and Techno Economic Viability 6

study. The officers of the Bank visited the site but on 6 th

December, 2011, the Consumer revised its credit requirement as

under:

“1. Enhancement of Working Capital Limit from Rs. 10
crore to Rs. 20 crore;

2. Sanction of Term loan of Rs. 40 crore in the form of
ECB;

3. Sanction of LC Limit of Rs. 25 crore for deferred
payment credit for 3 years on withdrawn basis;

4. LC Limit of Rs. 4 crore for import of raw material from
time to time.”

4. Such request was also forwarded to CPU immediately. However,

soon thereafter, on 17th December, 2011, the Consumer again

revised its credit requirement reducing the LC limit to Rs.19 crores

from Rs.25 crores. Such revised request is as under:

“1. Term Loan in form of ECB for Rs. 40 Crore.

2. Working capital limit enhancement from Rs. 10 Crore
to 20 Crore.

5    for short, ‘CPU’
6    for short, ‘TEV’

                                                                                       2

3. LC Limit of Rs. 19 Crore Against Deferred payment
credit of machine purchasing from SACMI for the Period
of Three (3) years on drawn down Basis.

4. Regular LC Limit of Rs. 4 Crore for time to time
import of Machinery/Raw Etc.”

5. On 30th December, 2011, the Bank debited the account of the

Consumer by an amount of Rs.27,41,165/- being 50% of the

applicable processing fees including the TEV study and service tax

charges. On 24th January, 2012, the final proposal for sanction was

submitted by the CPU at New Delhi to the Head Office at Mumbai

which had the requisite authority to approve the sanction of such

high value loans. But, on 9 th February, 2012, the Consumer

objected to the deduction of processing fees as the Bank could only

do so after the loan was sanctioned. The Consumer sought a

refund of the said amount on the ground of suffering losses, owing

to the alleged delay of the Bank in sanctioning the credit facilities

and that the Consumer had got the credit facilities from other

banks. Such request was reiterated vide e-mail dated 22 nd

February, 2012. However, on 17 th March, 2012, the credit facilities

were sanctioned within three months from the final modified

request. When the officers of the Bank approached the Consumer

with the sanction letter for the credit facilities requested, the

Consumer showed the sanction letters issued by other Banks i.e.

HDFC Bank and ICICI Bank.

6. On 6th August, 2013, the Consumer filed an application under

3
Section 17 of the Consumer Protection Act, 1986 7. This application

which was allowed by the SCDRC on 13 th July, 2016 directing the

Bank to pay a sum of Rs.27,41,165/- along with interest @9% from

the date of filing the complaint till the date of payment. The

appeal before the NCDRC against such order remained

unsuccessful.

7. Learned counsel for the Bank pointed out that the procedure for

sanction of loan is detailed in the Bank’s Circular dated 20 th April,

2005 which is available on the website of the Bank as well. It is

mandatory to obtain a TEV study report in all new industrial

projects, diversification projects and accounts where restructuring

(Other than CDR) is proposed and where the total fund based

limits/exposure (including liabilities likely to get devolved in the

case of existing accounts) is equal to and above the threshold limit

of Rs. 500 lacs. The term “Total Fund Based Limits” includes both

term loan and Working Capital Limit. It is further submitted that in

case of a new account with the Bank, the “Total Fund Based

Limits”, for the purpose of applicability of TEV study as well as for

charging of Appraisal Fees, will be the “Aggregate Fund Based

Limits” sought by the proponents vide their application. In the

case of an existing account holder with the Bank, subject to the

various clauses of exceptions listed herein below, the applicability

of TEV study will be decided by:



        (a)      If the aggregate fund based facilities was below Rs500 lacs earlier

7    for short, ‘Act’

                                                                                  4

(whereby no TEV Study had been carried out in the account so far)
and on account of additional limit sought now the aggregate fund
based limit is reaching Rs. 500 lacs or above, then a TEV Study
would be necessary notwithstanding the extent of increase being
sought at present.

(b) If the aggregate fund based facilities is already Rs. 500 lacs or
above, when an increase in fund based facility is sought, TEV study
need to be carried out normally only when the additional quantum
of limits is Rs. 500 lacs or above. Nevertheless, in restructuring
cases the applicability will be irrespective of additional limit and in
accounts with Credit Rating “A” or below the Zonal
Manager/General Manager, HO may specifically seek TEV Study
irrespective of the additional quantum.

8. It is further pointed out that upon receipt of Project papers from the

proponents, the Branches should ensure the following before

sending them to the designated TAC for techno economic appraisal:

(a) The Branch should decide on the acceptability of the proponents
as well as the project in all other angles other than techno-eco-
nomic angle and only if the proposition is otherwise found accept-
able. TEV study should be sought. In other words, if the TEV study
observes that the project is technically feasible and economically
viable, the branch should be in readiness to submit a proposal for
consideration at appropriate level. This pre-scrutiny on all other
angles is necessary since TEV study involves time and cost not
only to the proponent but for the Bank also.

(b) In cases where obtention of administrative clearance is a pre-requi-

site for consideration of a credit proposal as per extent
policy/guidelines, such clearance should be obtained prior to mak-
ing reference for TEV study.

(c) All normal terms and conditions of Bank for entertaining such
credit business, such as rate of interest, security/collateral secu-
rity, personal guarantees, margins, incidence of other processing
costs, time frame for decision etc. should be discussed with the
proponents and only upon their acceptance of the terms, TEV
study should be resorted to.

(d) Upfront portion of Appraisal Fees, as explained in later paragraph,
should be collected (or earmarked in the deposit account of a new
proponent/existing advance account of an existing customer with
us) and should be confirmed by the Branch while forwarding pa-
pers for TEV study.

5

(e) In order to avoid any time delay in the process of TEV study, all pa-

pers needed for such study should be preferably obtained from the
proponents in one go, verified by the Branch for completeness, and
then sent to TAC/TAD, as the case may be, for commencement of
study.

9. It is further pointed out that appraisal fees for TEV study is different

from the “Processing Fees” and is required to be charged in

applicable cases over and above the processing fees. The

appraisal fee is to be recovered from industrial constituents

seeking aggregate fund based limits of Rs. 30 lakhs and above

whether such cases are referred to TAD/TAC or fall under exempted

category. Appraisal being an internal matter, exemption from

applicability of TEV study does not mean exemption from payment

of appraisal fee because in such cases also there is always an

implied appraisal/assessment at the Branch level. The appraisal

fee is chargeable at the time of considering fresh/additional fund

based limits. The fee will be charged on the basis of aggregate

fund based limits applied for by the proponent at the time of first

appraisal. The same will be on the basis of only incremental fund

based limits applied for in respect of subsequent appraisals. The

appraisal fee is to be recovered as per fee structure given and is

exclusive of out of pocket expenses like travelling/lodging/boarding

etc. incidental to carrying out inspection(s).

10. It is also submitted that 50% of the appraisal fee should be

collected upfront on the basis of aggregate fund based limits

applied for (except in respect of restructure cases, where the

6
collection can be back ended). The balance is to be paid/adjusted

on the basis of actual fund based limits sanctioned thereafter. In

case of non sanction of limits by the Bank after TEV appraisal for

its own reasons, 60% of the upfront fee charged is to be refunded

(60% of 50% applicable fee collected). Retention of 40% upfront

fee is aimed at recovery of the cost of efforts put in by the Bank

and its employees in getting viability study conducted.

11. Learned counsel for the Bank also refers to communication dated

22nd August, 2005 by its Head Office to the Branches. The letter is

reproduced as under:

“Revenue Loss due to delay in Recovery of Processing
Charges

As per extant guidelines processing charges are
required to be recovered before the request for facilities
is processed (50% of applicable charges in the cases
involving TEV study and 100% in others. These
processing charges are not refundable even if the
requested limits are not considered by the Bank, except
in case of Technical evaluation study.

2. Of late we are coming across instances wherein
prospective borrowers are not paying the processing
charges in the beginning. After obtaining a sanction
letter, they are shopping around for better interest rates
and availing credit facilities from the most banks
offering at cheapest rates. This results in wasted efforts
by our Bank at various levels. We are required to waive
the completely such unpaid processing charges.

3. To avoid such possibilities, it has now been decided
that branches should invariably recover the agreed
processing charges at the time of accepting the request
for consideration. In case of canvassed account, the
processing charges may be recovered at least before
handing over the sanction letter. In other words, the
sanction letter should not be given to the customer
without ensuring that Bank has received the processing

7
charges. It, therefore, follows that Bank would not
consider in future waiver of un-recovered processing
charges, in the normal course.

4. Please bring the contents of this circular letter to the
attention of all staff members for strict compliance.”

12. Learned counsel for the Bank also refers to the letter dated 15 th

October, 2011 by the Consumer seeking credit facility with the

request on behalf of the Consumer to give concession of 50% on LC

charges, processing charges, inspection charges etc. and fully

waive DD charges and commitment charges.

13. In this background, the final proposal for sanction was submitted by

the CPU on 24th January, 2012 to the Head Office of the Bank. Soon

after the letter was sent by the CPU, the Consumer communicated

that it was promised that the sanction would be received by 4 th

February, 2012 but since the Consumer had not received the

sanction letter, it sought reversal of the amount debited in view of

the fact that it got sanctions from other banks with attractive rate

of interest and the other terms and conditions. The credit facilities

were sanctioned on 17th March, 2012.

14. Learned counsel for the Consumer, on the other hand, contended

that the Circular of the Bank dated 20 th April, 2005, to which the

reliance has been placed by the learned counsel for the Bank, was

never brought to the notice of the Consumer, therefore, the

conditions mentioned in such Circular will not bind the Consumer.

It is also contended that the Bank had taken extra-ordinarily long

8
time to sanction the loan which compelled the Consumer to take

credit facilities from the other Banks. It is also contended that

amount of Rs.27,41,165/- was debited to the account of the

Consumer without its consent and knowledge and, therefore, the

order passed by the SCDRC and NCDRC does not warrant any

interference in the present appeal.

15. The learned NCDRC held that the services of the Bank availed for

cash credit limits do not disentitle the respondent/complainant

from becoming a ‘consumer’ under the Act. It further held that

even though the Consumer had changed its loan demand three

times, the Consumer had requested to pay 50% processing and

other charges, and the total amount of Rs.27,41,165/- that was

debited including PPC charges and Rs.18.25 lakhs as TEV study

charges. Further, as the Bank had agreed to refund Rs.9.16 lakhs,

it meant that the Bank had considered to take only Rs.18.25 lakhs

as TEV charges. Additionally, the Consumer had requested for 50%

discount on processing and other charges to which the Bank never

disagreed, hence it was presumed that the Bank had agreed to the

concession sought. Therefore, the Bank should have charged only

1/4th of the TEV charges i.e. Rs.4,56,250/-. Similarly, with regard to

PPC charges, the Bank at one time agreed to waive off these

charges of Rs.9.16 lakhs subject to the Consumer paying the TEV

charge in full. But now, it was found that the Bank was entitled to

only Rs.4,56,250/- as TEV charge, therefore, on the same analogy,

1/4th of the PPC charge i.e. Rs.2,29,000/- was found to be allowed to

9
be deducted by the Bank. Hence, the Bank was entitled to debit

total of only Rs.6,85,250/- (Rs.4,56,250/- + Rs.2,29,000/-).

Resultantly, the Bank was directed to refund Rs.20,55,915/- to the

Consumer and the interest rate was modified from 9% p.a. to 7%

p.a.

16. We find that the reasoning given by the learned NCDRC is de hors

the proposal as well as Circular of the Bank and is, in fact, based on

ipse dixit of the NCDRC. The Consumer had sought a waiver of

50% of all charges in the request letter dated 15 th October, 2011.

As per the sanction letter dated 17th March, 2012, the following

were the charges claimed from the Consumer:

         Particulars                                       Amount in Rs.
         Processing charges including ST                       4963000
         Documentation Charges                                    20000
         Inspection Charges (Per Quarter)                          5000
         Charges    for  creation    of   the                     70000
         mortgage
         TEV                                                    1825000
         Total                                             6883000 + S.T.


17. The total charges, thus, payable were Rs.68,83,000/- plus service

tax. Even if, the 50% concession is conceded to the Consumer, still

the amount to be charged is much more than Rs.27,47,165/-. As

per the tariff mentioned in the sanction letter, TEV charges are

Rs.18,25,000/- whereas processing charges are to the tune of

Rs.49,63,000/-. Obviously, the Consumer had to pay charges for

availing credit facilities of which the Consumer was in knowledge of

and, therefore, sought a waiver of 50% of the charges. It is the

Consumer who revised the requirement of credit facilities three

10
times and the Bank sanctioned credit facilities on 17 th March, 2012

i.e. within almost three months from the final modified request.

18. The Consumer admittedly was an old customer of the Bank who

applied to avail credit facilities of more than Rs.40 crores and it is

unbelievable that it was unaware of the procedure and the

Circulars of the Bank. The ignorance of the procedure and the

Circular of the Bank dated 20th April, 2005 cannot be accepted.

The Consumer was aware of the processing charges and had

sought a waiver of the processing charges, therefore, the

processing charges had been debited by the Bank on 30 th

December, 2011 in terms of authority given by the Consumer on

19th January, 2011 (Annexure P/3 in the appeal paper-book).

19. Thus, we find that orders passed by the NCDRC and SCDRC are

liable to be set aside. We may say that though, the Bank agreed to

refund Rs.9.16 lakhs from the processing charges through email

dated 29th June 2012 but the Consumer had not accepted such

proposal in its e-mail dated 24 th July, 2012. Therefore, we find that

the Consumer is entitled to refund of Rs.9.16 lakhs only in terms of

the decision of the Bank communicated to the Consumer rather

than waiver of TEV charges in its entirety. The request was to give

concession of 50% of all charges, therefore, it is the cumulative

amount of charges which is to be taken into consideration and not

the charges under a particular head.

20. Consequently, we find that the orders of SCDRC and NCDRC suffer

11
from patent illegality and, thus, are set aside. Accordingly, the

appeal is allowed. However, the Bank is directed to refund a sum

of Rs.9.16 lakhs within two months from the date of this order.

………………………………………J.

(D.Y. CHANDRACHUD)

………………………………………J.

(HEMANT GUPTA)

NEW DELHI;

FEBRUARY 28, 2020.

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