Delhi High Court
Vivek Automobiles Ltd. vs Lord Krishna Bank Ltd. And Anr. on 26 April, 2007
Equivalent citations: III(2007)BC481
Author: A.K. Sikri
Bench: A.K. Sikri, Aruna Suresh
JUDGMENT A.K. Sikri, J.
1. There is hardly any dispute insofar as facts of the case are concerned. To understand the question of law raised by the appellant, the factual background, in nutshell, may first be noted:
2. The appellant is a car dealer, who is having agency of Fiat cars. The respondent No. 2 herein wanted to purchase Fiat Palio. The respondent No. 1 is Lord Krishna Bank (hereinafter referred to as 'the Bank'). The respondent No. 2 approached the Bank for financing the said car. The car loan for a sum of Rs. 4,87,000/- was sanctioned by the Bank on 15.5.2002, which was to carry interest @ 13.5% p.a. compounded monthly or such other rates as may be notified by the Bank from time- to-time. The respondent No. 2 was to add margin money of Rs. 1,21,844/- as the total cost of the vehicle was Rs. 6,08,844/-. The respondent No. 2 executed and delivered the loan and security documents in favor of the Bank, which included Vehicle Loan-cum-Hypothecation Agreement and demand draft, both dated 15.5.2002. The Bank prepared pay order dated 15.5.2002 for a sum of Rs. 4,87,000/- in the name of the appellant herein. This pay order accompanied letter dated 15.5.2002 addressed to the appellant informing that the respondent No. 2 was financed by the Bank and accordingly request was made to the appellant to endorse the lien/hypothecation of the Bank in the records of the appellant, i.e. invoice, registration certificate, etc. Form-34 for recording the lien/hypothecation of the Bank for necessary action and compliance was also enclosed. The appellant vide its letter dated 15.5.2002 acknowledged the receipt of the pay order as well as the aforesaid documents. The appellant was, thus, required to furnish and submit the registration particulars of the vehicle to the Bank after its purchase by the respondent No. 2, as per the terms and conditions of the loan agreement. Loan was to be repaid in 48 monthly Installments of Rs. 13,186/- p.m. and interest was payable as and when due. When the Bank did not receive monthly Installments, as agreed, after the first Installment, it wrote letters dated 1.7.2002 and 18.7.2002 to the appellant asking them not to deliver the car to the respondent No. 2 without obtaining the prior consent/NOC from the Bank and also requested for refund of the amount, i.e. Rs. 4,87,000/-. In response, the appellant wrote letter dated 1.8.2002 to the respondent No. 2, with a copy to the Bank, informing that the respondent No. 2 had not taken the delivery of the car but had withdrawn/taken away amount of Rs. 4,00,000/- out of Rs. 4,87,000/- and left behind a sum of Rs. 87,000/- with the appellant. The Bank, in these circumstances, filed a suit for recovery of the amount impleading the buyer as the defendant No. l and the appellant as the defendant No. 2. Decree in the sum of Rs. 4,87,000/- with interest i.e. for a total sum of Rs. 5,54,445/- was prayed against both the defendants jointly and severally with costs along with interest compounded quarterly from 15.5.2002 till the date of filing of the suit. The decree of mandatory injunction was also prayed directing the appellant to refund/release the amount of Rs. 87,000/-, which was still lying with it, along with interest.
3. The respondent No. 2 herein (defendant No. 1 in the said suit) did not appear and was proceeded ex parte. The appellant contested the suit. Both the parties led their evidence and vide impugned judgment and decree dated 24.12.2005, the learned ADJ has decreed the suit passing decree in the following terms:
In the result, the suit of the plaintiff Bank succeeds. I, therefore, pass a decree for a sum of Rs. 5,54,445/- in favor of the plaintiff and against the defendants jointly and severally with costs. I also pass a decree of mandatory injunction directing the defendant No. 2, its representatives, assigns, agents, employees, etc. to refund/release the amount of Rs. 87,000/- lying with the defendant No. 2 along with interest @ 16% per annum compounded quarterly from 15.5.2002 till the date of filing of the suit i.e. 13.1.2004 and also to pay the interest on the said amount @ 12% from the date of filing of the suit its realisation (sic). Decree sheet be prepared accordingly. File be consigned to record room.
4. The appellant has filed this appeal challenging the said judgment and decree. Here also, the respondent No. 2 has not appeared and is proceeded ex parte. The defense set up by the appellant in the Trial Court, which was pressed in the appeal also, is that the appellant has no privity of contract with the Bank. It is the respondent No. 2 who had come to the appellant for purchase of car and had deposited the pay order in question and when the respondent No. 2 expressed his intention not to buy the car at that time and wanted his money back, the appellant had no option but to refund the amount to the respondent No. 2. It was submitted that the appellant had no knowledge as to whether the car in question was financed by the Bank and the deal was materialised between the appellant and the respondent No. 2 and the Bank was nowhere in the picture. The submission of the appellant, in these circumstances, is that there was neither any action nor legal obligation on the part of the appellant to refund the money to the Bank. It was contended that the Bank acted in contravention of the RBI directives "Know Your Customer-KYC", which came into force with effect from 11.9.2000 as per which it ought to have intimated to the appellant that it was financing the purchase of the car by the respondent No. 2. It was alleged that if the Bank did not verify the antecedents of the customer and proceeded to sanction the loan, it was the Bank which was to be blamed for its negligence and the consequent loss suffered by it. The remedy of the Bank, in these circumstances, was against the respondent No. ' 2 and there was no reason to fasten the appellant with this liability, that too when the loss was suffered by the Bank due to its negligence and failure. It was, thus, submitted that the judgment of the Trial Court passing decree against the appellant as well was clearly erroneous and unsustainable in law. Learned Counsel for the appellant, in addition, also submitted that no official of the Bank approached or came to the appellant for delivering the pay order in question and had not at all offered the papers to the respondent No. 2 even as per its own case. It was further submitted that on this pay order there was no endorsement or indication that it was towards the loan granted to the respondent No. 2 for purchase of the car and in the absence of any such endorsement the appellant could not have imagined that the car was being financed by the Bank.
5. We may also note at this stage that on the basis of the pleadings, following issues were framed by the Trial Court:
(1) Whether the plaintiff has ever acted in contravention of RBI directives?
OPD-2 (2) Whether the plaintiff has advanced the car loan to the defendants after following the due procedure as per Banking rules? Onus on parties.
(3) Whether the plaintiff is entitled to decree for a sum of Rs. 5,54,445/- against the defendants?
OPP (4) Whether the plaintiff is entitled to interest, if yes to what rate and to what amount?
OPP (5) Relief.
6. The first two issues were taken up together observing that they are interconnected. From the evidence on record, the Trial Court noted that the respondent No. 2 herein had signed and executed the loan and security documents, i.e. Vehicle Loan-cum-Hypothecation Agreement and demand promissory note, which are Ex. PW-1/4 and PW-1/6 respectively vide irrevocable power of attorney, all dated 15.5.2002, which is Ex. PW-1/7. The respondent No. 2 had also authorised the Bank as his attorney for obtaining the delivery, sale, transfer, etc of the Fiat Palio car to be purchased by the respondent No. 2. The discussion of the Trial Court in the impugned judgment indicates that along with the pay order in the sum of Rs. 4,87,000/-, a letter dated 15.5.2002 informing the appellant that the said car intended to be purchased by the respondent No. 2 was financed by the Bank. Form-34 was also enclosed for recording lien/hypothecation of the Bank. The appellant had acknowledged the same vide its letter dated 15.5.2002 (Ex. PW-1/9). The knowledge of the appellant about the loan transaction was, thus, attributed on the following basis:
(a) Ex, PW-1/9, which is a letter of the Bank, shows that it is duly received by the appellant as there is a stamp of the appellant with signatures of some official. In this letter the Bank has stated as under:
Enclosed please find P.O. No. 1565 for Rs. 4,87,000/- being the payment for the above vehicle to be delivered to Mr. Mohinder Singh Kohli, Prop. of M/s Data Swift, B-168, Fateh Nagar, New Delhi-18.
Since we have financed the vehicle, request you to endorse our Bank's hypothecation clause in the invoice and registration certificate. We are enclosing duly signed form No. 34 for registration purpose.
Please acknolwedge receipt for payment.
(b) The pay order for Rs. 4,87,000/-, which was given to the appellant, contained the following endorsement:
On account of M/s. Data Swift, Pro. M.S. Kohli, Car Loan.
(c) By subsequent letter dated 1.7.2002 by the Bank to the appellant, which is Ex. PW-1/14, while requesting the appellant not to deliver the vehicle without Bank's NOC/consent letter, it was subsequently mentioned that the booking of the car had been made against the finance made by the Bank and the proposed car stands hypothecated to the Bank. It was also stated that in case the car is delivered without NOC/consent letter of the Bank, the appellant would be doing the same at its own risk and responsibility. Vide letter dated 18.7.2002 (Ex. PW-1/15), the appellant was requested by the Bank to refund the amount in question.
No doubt, by this time the booking had been cancelled and payment made and, therefore, letter dated 1.7.2002 may not be relevant. But findings at (a) and (b) above would show that the appellant had sufficient knowledge that the car was financed by the Bank.
7. In view of the aforesaid documentary evidence it is too naive on the part of the appellant to pretend that it had no knowledge about the finance given by the Bank of the proposed car to be purchased by the respondent No. 2 and that the amount was not given by the Bank. It is also important to note that as per the appellant, the respondent No. 2 cancelled the booking on 20.5.2002 and asked for the refund of the amount. These findings of the learned Trial Court could not be shaken by the Counsel for the appellant.
8. With regard to the RBI guidelines, the learned Trial Court rightly concluded that the appellant herein had not produced a single document to show that there was any violation by the Bank of the guidelines issued by the RBI or the Bank had not followed the rules while sanctioning loan to the respondent No. 2. Further, the Bank had categorically informed the appellant about the financing of the car vide its letter dated 15.5.2002. This letter, along with other documents like Form-34 etc., would be sufficient to prove that the appellant was aware of the loan given by the Bank and also of the lien/hypothecation, but still chose to return the amount to the respondent No. 2.
9. Thus, we confirm the finding of the learned Trial Court holding that the appellant had the knowledge that the car in question was financed by the Bank to the respondent No. 2 and the Bank had lien/hypothecation over the said car. It was also within the knowledge of the appellant that sum of Rs. 4,87,000/- is given by the Bank. These facts having established on record, we have to consider as to whether the submission of the appellant that there was no privity of contract between the appellant and the Bank and, therefore, there is no liability of the appellant is a valid submission.
10. Learned Counsel for the appellant relied upon the judgment of this Court in the case of The New Bank of India Ltd. v. Union of India and Ors. AIR 1978 NOC 282 (Del.). We fail to understand as to how this judgment would help the appellant in the wake of the aforesaid findings. That was a case where a firm of construction contractors had entered into a contract with the Union of India. The appellant Bank had financed the construction work of the contractors. The said contractors had given irrevocable power of attorney in favor of the Bank giving the Bank the exclusive right to receive the payment due to the contractors from the Government so long as the contractors remained indebted to the Bank. In respect of two bills the Government, however, made payment to the contractors directly and under these circumstances the Bank had filed a suit against the Union of India claiming the said payment. This suit was dismissed against which the appellant Bank had filed the appeal. Dismissing the appeal as well the Division Bench held that since the contract in question was being executed by the contractors, the liability of the Government was to make payment to the contractors. However, the contractors had assigned this right to the Bank and, therefore, the Bank was acting as agent to recover the money directly for its own benefit from the debtor of the contractors. This amounted to an assignment of the debt due to the creditor-contractors from the debtor-Government to the third party, namely, the Bank by means of irrevocable power of attorney. However, its form was still that of an agency and in such a case the principal, i.e. the contractor, was still not precluded from receiving the payment from its debtor.
11. The position in the present case obviously is quite different. Here money itself did not belong to the respondent No. 2. But, in fact, it belonged to the Bank which had financed the same. There was no relationship of principal and agent between the respondent No. 2 and the Bank. Money was given by the Bank and the appellant was duly informed about this. Thus, this money belonged to the Bank. In such a situation, Sections 70 and 72 of the Indian Contract Act, 1872 would be more relevant and would govern the legal position. The Supreme Court in the case of K.S. Satyanarayana v. V.R. Narayana Rao , applied these provisions in some what similar circumstances. That was a case where a suit for recovery of the amount alleged to be paid by the plaintiff to the two defendants as the sale consideration of the property was filed. The first defendant was the owner of the property who had entered into an agreement to sell with the second defendant for the entire house for a sum of Rs. 12,85,000/- further authorising in writing the second defendant to enter into any sale agreement of the said property with anyone. On the strength of that writing, second defendant had entered into an agreement with the plaintiff/appellant in respect of the first floor of the said property for a total consideration of Rs. 5,50,000/-. The plaintiff had also given earnest money of Rs. 2,00,000/- by means two cheques of Rs. 1,00,000/- each given to each of the defendants. The sale agreement, however, fell through. The plaintiff did not go for specific performance of the agreement to sell but demanded his money back. While the second defendant repaid him Rs. 50,000/-, the first defendant refused to return the money showing that the agreement, breach whereof was alleged, was between the plaintiff and the second defendant and he was not privity to the same. Though this contention was accepted by the Courts below and the suits were dismissed, the plaintiff succeeded in the Supreme Court. Applying the provisions of Sections 70 and 72 of the Indian Contract Act, 1872, the Supreme Court held that once the first defendant had admitted having received Rs. 1,00,000/- from the plaintiff, he could not have retained that money on the spacious plea that there was no privity of contract between him and the plaintiff. The Apex Court observed that the plaintiff could not have paid to the first defendant a sum of Rs. 1,00,000/- but for the agreement to sell in respect of the ground floor of his property and even if the contention of the first defendant were to be accepted, even the amount of Rs. 1,00,000/- had been given by the plaintiff under some mistake. In any case, it was not a payment gratuitously made and, therefore, doctrine of undue inducement would squarely apply in a case like this.
12. In Mahabir Kishore and Ors. v. State of Madhya Pradesh , again applying the principle of unjust enrichment, the Court held that the principle of unjust enrichment requires: first, that the defendant has been 'enriched' by the receipt of a 'benefit'; secondly, that this enrichment is "at the expense of the plaintiff; and thirdly, that the retention of the enrichment be unjust. This justifies restitution. Enrichment may take the form of direct advantage to the recipient's wealth such as by the receipt of money or indirect one for instance where inevitable expense has been saved.
13. In the present case, money in question belonged to the Bank, which was given to the appellant as per the finance agreement by the Bank with the respondent No. 2. Had the car been sold the appellant would have been under a legal obligation to ensure that the said car is duly hypothecated with the Bank to protect the interest of the Bank. However, when the appellant came to know that the respondent No. 2 did not intend to buy the car and had cancelled the booking, knowing fully well that the money was financed against the car by the Bank, it should have been refunded to the Bank only and not to the respondent No. 2. If such a practice is allowed, it would lead to fraudulent transactions.
14. There is yet another aspect of the matter which would indicate that the appellant is not that innocent as it pretends to be. Once the booking was cancelled, why the respondent No. 2 asked for refund of Rs. 4,00,000/- and not the entire amount of Rs. 4,87,000/- and why the appellant refunded Rs. 4,00,000/- only and retained Rs. 87,000/- with it? It shows that there is something more, which has happened between the appellant and the respondent No. 2, than what meets the eye. In any case, such a conduct of the respondent No. 1 (even if it is presumed that the respondent No. 2 is to be blamed solely) should have alarmed the appellant. However, the appellant chose to return the money of Rs. 4,00,000/- to the respondent No. 2 merrily keeping the balance amount of Rs. 87,000/- with it.
15. We are, therefore, in agreement with the conclusion of the learned Trial Court that the appellant would also be jointly and severally liable to make payment of the amount in question to the Bank. Decree is, thus, validly passed against the appellant as well. The present appeal is devoid of any merits and is, accordingly, dismissed with costs.