BANK OF INDIA versus M/S. BRINDAVAN AGRO INDUSTRIES PVT. LTD. on 28 February 2020

[2020] 3 S.C.R. 1071

BANK OF INDIA

v.

M/S. BRINDAVAN AGRO INDUSTRIES PVT. LTD.

(Civil Appeal No. 1720 of 2020)

FEBRUARY 28, 2020

[DR. DHANANJAYA Y CHANDRACHUD ANDHEMANT GUPTA, JJ.]

Consumer Protection Act, 1986: Grievance of consumerregarding processing fees charged by Bank – In the instant case,the consumer-respondent by its letter dated 15.10.2011 requestedfor credit facility to the appellant-Bank with concession of 50% onLC charges, processing charges, inspection charges etc. and fullwaiver of DD charges and commitment charges – However,consumer, subsequently, revised its credit requirement three times –On 30.12.2011, the Bank debited the account of consumer byRs.27.41 lacs being 50% of the applicable processing fees includingthe TEV study and service tax charges – Consumer sought refundof said amount on the ground of suffering losses, owing to thealleged delay of the Bank in sanctioning the credit facilities – On17.03.2012, the credit facilities were sanctioned – When Bankapproached the consumer with the sanction letter for credit facilities,consumer showed sanction letters issued by other Banks – Consumerfiled an application under s.17 of the Consumer Protection Act,1986 – This application was allowed by the SCDRC directing theBank to pay Rs.27.41 lacs – Appeal before the NCDRC againstsaid order remained unsuccessful – Appeal by Bank – Plea of Bankthat the procedure for sanction of loan detailed in the Bank’sCircular dated 20.04.2005 is available on the website of the Bankwhich provides that it is mandatory to obtain a TEV study report inall new industrial projects, diversification projects and accountswhere restructuring (other than CDR) is proposed and where thetotal fund based limits/exposure (including liabilities likely to getdevolved in the case of existing accounts) is equal to and above thethreshold limit of Rs. 500 lacs; the term “Total Fund Based Limits”includes both term loan and Working Capital Limit – It further pointedout that appraisal fees for TEV study is different from the “Processing

1071

A

B

C

DE

F

G

H

AFees” and is required to be charged in applicable cases over andabove the processing fees – Held: As per the tariff mentioned in thesanction letter, TEV charges were Rs.18.25 lacs whereas processingcharges were to the tune of Rs.49.63 lacs – The consumer had topay charges for availing credit facilities of which the consumerwas in knowledge of and, therefore, sought a waiver of 50% of theBcharges in letter dated 15.10.2011 – It is the consumer who revisedthe requirement of credit facilities three times and the Banksanctioned credit facilities on 17.03.2012 i.e. within almost threemonths from the final modified request – The ignorance of theprocedure and the circular of the Bank dated 20.04.2005 cannotCbe accepted – The consumer was aware of the processing chargesand had sought a waiver thereof and, therefore, the processingcharges had been debited by the Bank on 30.12.2011 in terms ofauthority given by the consumer on 19.01.2011 – Though, the Bankagreed to refund Rs.9.16 lakhs from the processing charges throughemail but the consumer had not accepted such proposal – Therefore,Dthe consumer is entitled to refund of Rs. 9.16 lakhs only in terms ofthe decision of the Bank communicated to the consumer rather thanwaiver of TEV charges in its entirety – The request was to giveconcession of 50% of all charges, therefore, it is the cumulativeamount of charges which is to be taken into consideration and notEthe charges under a particular head – Orders of SCDRC andNCDRC suffer from patent illegality and are set aside.

Allowing the appeal, the Court

Conclusion

Allowing the appeal, the Court

HELD: 1. The reasoning given by the NCDRC is de horsthe proposal as well as circular of the Bank and is, in fact, basedFon ipse dixit of the NCDRC. The consumer had sought a waiverof 50% of all charges in the request letter dated 15[th] October,2011. The total charges payable were Rs. 68,83,000/- plus servicetax. Even if, the 50% concession is conceded to theconsumer, still the amount to be charged is much more thanGRs. 27,47,165/-. As per the tariff mentioned in the sanction letter,TEV charges are Rs. 18,25,000/- whereas processing chargesare to the tune of Rs. 49,63,000/-. Obviously, the consumer hadto pay charges for availing credit facilities of which the consumerwas in knowledge of and, therefore, sought a waiver of 50% ofthe charges. It is the consumer who revised the requirement ofH

credit facilities three times and the Bank sanctioned creditfacilities on 17[th] March, 2012 i.e. within almost three months fromthe final modified request. [Paras 16-17][1080-D, F-H]

2. The consumer admittedly was an old customer of theBank who applied to avail credit facilities of more than Rs.40crores and it is unbelievable that it was unaware of the procedureand the circulars of the Bank. The ignorance of the procedureand the circular of the Bank dated 20[th] April, 2005 cannot beaccepted. The consumer was aware of the processing chargesand 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 on19[th] January, 2011. [Para 18][1081-A-B]

3. The orders passed by the NCDRC and SCDRC sufferfrom patent illegality and are liable to be set aside. Though, theBank agreed to refund Rs.9.16 lakhs from the processing chargesthrough email dated 29[th] June 2012 but the consumer had notaccepted such proposal in its e-mail dated 24[th] July, 2012.Therefore, that the consumer is entitled to refund of Rs.9.16 lakhsonly in terms of the decision of the Bank communicated to theconsumer rather than waiver of TEV charges in its entirety. Therequest was to give concession of 50% of all charges, therefore,it is the cumulative amount of charges which is to be taken intoconsideration and not the charges under a particular head. [Para 19][1081-C-D]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1720of 2020.

From the Judgment and Order dated 10.05.2018 of the NationalConsumer Disputes Redressal Commission at New Delhi in First AppealNo. 994 of 2016.

Neeraj Sharma, Adhish Rajvanshi, Ms. Kamana Pradhan,Mrs. Bela Maheshwari, Advs. for the Appellant.

Rajesh Chadha, Nikhil Jain, Advs. for the Respondent.

A

B

C

D

E

F

G

H

1074SUPREME COURT REPORTS

AThe Judgment of the Court was delivered by HEMANT GUPTA, J.

1. The challenge in the present appeal is to an order passed by theNational Consumer Disputes Redressal Commission[1] on 10[th] May, 2018whereby an appeal filed by the appellant[2] against the order of StateBConsumer Disputes Redressal Commission[3] dated 13[th] July, 2016remained unsuccessful.

2. The respondent[4] was maintaining an account with the appellantBank at its branch in Agra. The Consumer applied for a loan on 15[th]October, 2011. The Consumer sought the following credit facilities:C

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

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

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

3. As per the Bank, the application submitted by the Consumerwas handed over to Credit Processing Unit[5] at New Delhi on4[th] November, 2011 pending submission of the valuation/search reportof 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, theEConsumer revised its credit requirement as under:

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

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

F3. Sanction of LC Limit of Rs. 25 crore for deferred paymentcredit for 3 years on withdrawn basis;

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

4. Such request was also forwarded to CPU immediately.

GHowever, soon thereafter, on 17[th] December, 2011, the Consumer again 1 for short, ‘NCDRC’

2 for short, ‘Bank’

3 for short, ‘SCDRC’

4 for short, ‘Consumer’

5 for short, ‘CPU’H6 for short, ‘TEV’

revised its credit requirement reducing the LC limit to Rs.19 crores fromRs.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 20Crore.

3. LC Limit of Rs. 19 Crore Against Deferred payment creditof 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 ofMachinery/Raw Etc.”

5. On 30[th] December, 2011, the Bank debited the account of theConsumer by an amount of Rs.27,41,165/- being 50% of the applicableprocessing fees including the TEV study and service tax charges. On24[th] January, 2012, the final proposal for sanction was submitted by theCPU at New Delhi to the Head Office at Mumbai which had the requisiteauthority to approve the sanction of such high value loans. But, on 9[th]February, 2012, the Consumer objected to the deduction of processingfees as the Bank could only do so after the loan was sanctioned. TheConsumer sought a refund of the said amount on the ground of sufferinglosses, owing to the alleged delay of the Bank in sanctioning the creditfacilities and that the Consumer had got the credit facilities from otherbanks. Such request was reiterated vide e-mail dated 22[nd] February,2012. However, on 17[th] March, 2012, the credit facilities were sanctionedwithin three months from the final modified request. When the officersof the Bank approached the Consumer with the sanction letter for thecredit facilities requested, the Consumer showed the sanction lettersissued by other Banks i.e. HDFC Bank and ICICI Bank.

6. On 6[th] August, 2013, the Consumer filed an application underSection 17 of the Consumer Protection Act, 1986[7]. This application whichwas allowed by the SCDRC on 13[th] July, 2016 directing the Bank to paya sum of Rs.27,41,165/- along with interest @ 9% from the date of filingthe complaint till the date of payment. The appeal before the NCDRCagainst such order remained unsuccessful.

7. Learned counsel for the Bank pointed out that the procedurefor sanction of loan is detailed in the Bank’s Circular dated 20[th] April, 7 for short, ‘Act’

A

B

C

DE

F

G

H

A2005 which is available on the website of the Bank as well. It is mandatoryto obtain a TEV study report in all new industrial projects, diversificationprojects and accounts where restructuring (Other than CDR) is proposedand where the total fund based limits/exposure (including liabilities likelyto get devolved in the case of existing accounts) is equal to and abovethe threshold limit of Rs. 500 lacs. The term “Total Fund Based Limits”Bincludes both term loan and Working Capital Limit. It is further submittedthat in case of a new account with the Bank, the “Total Fund BasedLimits”, for the purpose of applicability of TEV study as well as forcharging of Appraisal Fees, will be the “Aggregate Fund Based Limits”sought by the proponents vide their application. In the case of an existingCaccount holder with the Bank, subject to the various clauses of exceptionslisted herein below, the applicability of TEV study will be decided by:

(a) If the aggregate fund based facilities was below Rs. 500 lacsearlier (whereby no TEV Study had been carried out in theaccount so far) and on account of additional limit sought nowDthe aggregate fund based limit is reaching Rs. 500 lacs orabove, then a TEV Study would be necessary notwithstandingthe extent of increase being sought at present.

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

8. It is further pointed out that upon receipt of Project papersfrom the proponents, the Branches should ensure the following beforesending them to the designated TAC for techno economic appraisal:

G(a) The Branch should decide on the acceptability of theproponents as well as the project in all other angles otherthan techno-economic angle and only if the proposition isotherwise found acceptable. TEV study should be sought. Inother words, if the TEV study observes that the project istechnically feasible and economically viable, the branch shouldHbe in readiness to submit a proposal for consideration at BANK OF INDIA v. M/S. BRINDAVAN AGRO INDUSTRIESPVT. LTD. [HEMANT GUPTA, J.]

appropriate level. This pre-scrutiny on all other angles isnecessary since TEV study involves time and cost not onlyto the proponent but for the Bank also.

A

(b) In cases where obtention of administrative clearance is apre-requisite for consideration of a credit proposal as perextent policy/guidelines, such clearance should be obtainedBprior to making reference for TEV study.

(c) All normal terms and conditions of Bank for entertaining suchcredit business, such as rate of interest, security/collateralsecurity, personal guarantees, margins, incidence of otherprocessing costs, time frame for decision etc. should bediscussed with the proponents and only upon their acceptanceof the terms, TEV study should be resorted to.

C

(d) Upfront portion of Appraisal Fees, as explained in laterparagraph, should be collected (or earmarked in the depositaccount of a new proponent/existing advance account of anexisting customer with us) and should be confirmed by theBranch while forwarding papers for TEV study.

D

(e) In order to avoid any time delay in the process of TEV study,all papers needed for such study should be preferably obtainedfrom the proponents in one go, verified by the Branch forcompleteness, and then sent to TAC/TAD, as the case maybe, for commencement of study.

E

9. It is further pointed out that appraisal fees for TEV study isdifferent from the “Processing Fees” and is required to be charged inapplicable cases over and above the processing fees. The appraisal feeis to be recovered from industrial constituents seeking aggregate fundbased limits of Rs. 30 lakhs and above whether such cases are referredto TAD/TAC or fall under exempted category. Appraisal being an internalmatter, exemption from applicability of TEV study does not meanexemption from payment of appraisal fee because in such cases alsothere is always an implied appraisal/assessment at the Branch level.The appraisal fee is chargeable at the time of considering fresh/additionalfund based limits. The fee will be charged on the basis of aggregatefund 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 limitsapplied for in respect of subsequent appraisals. The appraisal fee is to F

G

H

Abe recovered as per fee structure given and is exclusive of out of pocketexpenses like travelling/lodging/boarding etc. incidental to carrying outinspection(s).

10. It is also submitted that 50% of the appraisal fee should becollected upfront on the basis of aggregate fund based limits applied forB(except in respect of restructure cases, where the collection can beback ended). The balance is to be paid/adjusted on the basis of actualfund based limits sanctioned thereafter. In case of non sanction of limitsby the Bank after TEV appraisal for its own reasons, 60% of the upfrontfee charged is to be refunded (60% of 50% applicable fee collected).Retention of 40% upfront fee is aimed at recovery of the cost of effortsCput in by the Bank and its employees in getting viability study conducted.

11. Learned counsel for the Bank also refers to communicationdated 22[nd] August, 2005 by its Head Office to the Branches. The letteris reproduced as under:

D“Revenue Loss due to delay in Recovery of Processing Charges As per extant guidelines processing charges are requiredto 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 ifEthe requested limits are not considered by the Bank, except incase of Technical evaluation study.

2. Of late we are coming across instances wherein prospectiveborrowers are not paying the processing charges in the beginning.After obtaining a sanction letter, they are shopping around forFbetter interest rates and availing credit facilities from the mostbanks offering at cheapest rates. This results in wasted efforts byour Bank at various levels. We are required to waive the completelysuch unpaid processing charges.

3. To avoid such possibilities, it has now been decided that branchesshould invariably recover the agreed processing charges at thetime of accepting the request for consideration. In case ofcanvassed account, the processing charges may be recovered atleast before handing over the sanction letter. In other words, thesanction letter should not be given to the customer without ensuringthat Bank has received the processing charges. It, therefore, G

H

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 attentionof all staff members for strict compliance.”

12. Learned counsel for the Bank also refers to the letter dated15[th] October, 2011 by the Consumer seeking credit facility with the requeston behalf of the Consumer to give concession of 50% on LC charges,processing charges, inspection charges etc. and fully waive DD chargesand commitment charges.

13. In this background, the final proposal for sanction was submittedby the CPU on 24[th] January, 2012 to the Head Office of the Bank. Soonafter the letter was sent by the CPU, the Consumer communicated thatit was promised that the sanction would be received by 4[th] February,2012 but since the Consumer had not received the sanction letter, itsought reversal of the amount debited in view of the fact that it gotsanctions from other banks with attractive rate of interest and the otherterms and conditions. The credit facilities were sanctioned on 17[th] 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 whichthe reliance has been placed by the learned counsel for the Bank, wasnever brought to the notice of the Consumer, therefore, the conditionsmentioned in such Circular will not bind the Consumer. It is also contendedthat the Bank had taken extra-ordinarily long time to sanction the loanwhich compelled the Consumer to take credit facilities from the otherBanks. It is also contended that amount of Rs.27,41,165/- was debitedto the account of the Consumer without its consent and knowledge and,therefore, the order passed by the SCDRC and NCDRC does not warrantany interference in the present appeal.

15. The learned NCDRC held that the services of the Bank availedfor cash credit limits do not disentitle the respondent/complainant frombecoming a ‘consumer’ under the Act. It further held that even thoughthe Consumer had changed its loan demand three times, the Consumerhad requested to pay 50% processing and other charges, and the totalamount of Rs.27,41,165/- that was debited including PPC charges andRs.18.25 lakhs as TEV study charges. Further, as the Bank had agreedto refund Rs.9.16 lakhs, it meant that the Bank had considered to take A

B

C

D

EF

G

H

Aonly Rs.18.25 lakhs as TEV charges. Additionally, the Consumer hadrequested for 50% discount on processing and other charges to whichthe Bank never disagreed, hence it was presumed that the Bank hadagreed to the concession sought. Therefore, the Bank should havecharged only 1/4[th] of the TEV charges i.e. Rs.4,56,250/-. Similarly, withregard to PPC charges, the Bank at one time agreed to waive off theseBcharges of Rs.9.16 lakhs subject to the Consumer paying the TEV chargein full. But now, it was found that the Bank was entitled to onlyRs.4,56,250/- as TEV charge, therefore, on the same analogy, 1/4[th] ofthe PPC charge i.e. Rs.2,29,000/- was found to be allowed to be deductedby the Bank. Hence, the Bank was entitled to debit total of onlyCRs.6,85,250/- (Rs.4,56,250/- + Rs.2,29,000/-). Resultantly, the Bank wasdirected to refund Rs.20,55,915/- to the Consumer and the interest ratewas modified from 9% p.a. to 7% p.a.

16. We find that the reasoning given by the learned NCDRC is dehors the proposal as well as Circular of the Bank and is, in fact, basedDon ipse dixit of the NCDRC. The Consumer had sought a waiver of50% of all charges in the request letter dated 15[th] October, 2011. As perthe sanction letter dated 17[th] March, 2012, the following were the chargesclaimed from the Consumer:

F

17. The total charges, thus, payable were Rs.68,83,000/- plusservice 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 perthe tariff mentioned in the sanction letter, TEV charges areRs.18,25,000/- whereas processing charges are to the tune ofGRs.49,63,000/-. Obviously, the Consumer had to pay charges for availingcredit facilities of which the Consumer was in knowledge of and,therefore, sought a waiver of 50% of the charges. It is the Consumerwho revised the requirement of credit facilities three times and the Banksanctioned credit facilities on 17[th] March, 2012 i.e. within almost threeHmonths from the final modified request.

18. The Consumer admittedly was an old customer of the Bankwho applied to avail credit facilities of more than Rs.40 crores and it isunbelievable that it was unaware of the procedure and the Circulars ofthe Bank. The ignorance of the procedure and the Circular of the Bankdated 20[th] April, 2005 cannot be accepted. The Consumer was awareof the processing charges and had sought a waiver of the processingcharges, therefore, the processing charges had been debited by the Bankon 30[th] December, 2011 in terms of authority given by the Consumer on19[th] January, 2011 (Annexure P/3 in the appeal paper-book).

19. Thus, we find that orders passed by the NCDRC and SCDRCare liable to be set aside. We may say that though, the Bank agreed torefund Rs.9.16 lakhs from the processing charges through email dated29[th] June 2012 but the Consumer had not accepted such proposal in itse-mail dated 24[th] July, 2012. Therefore, we find that the Consumer isentitled to refund of Rs.9.16 lakhs only in terms of the decision of theBank communicated to the Consumer rather than waiver of TEV chargesin 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 takeninto consideration and not the charges under a particular head.