Patna High Court
Sri Ram Krishna Cold Storage And Ice ... vs State Bank Of India And Ors. on 22 August, 2003
Equivalent citations: 2003(3)BLJR1829
Author: Aftab Alam
Bench: Aftab Alam
ORDER Aftab Alam, J.
1. The petitioner is a company incorporated under the Indian Companies Act, 1956 and it is represented before this Court through its Managing Director Arvind Kumar son of Ramadhin Kumar (deceased). The petitioner company seeks a direction to the State Bank of India (Respondent No. 1) and its officers (respondents 2 and 3) to disburse the loan amount of Rs. 96.50 lacs sanctioned earlier in its favour. The claim for release of the money is based on the principle of equitable estoppel and the case was mainly argued relying upon a decision of the Supreme Court in the Gujarat State Financial Corporation v. Lotus Hotels Pvt. Limited, AIR 1983 SC 848. The facts of the case were, therefore, tailored to fit into the ratio of the decision in Lotus Hotel.
2. On behalf of the petitioner it is stated that it intended to set up a Cold Storage & Ice Factory at Village Birpur in district of Begusarai. With that object it made an application to the State Bank of India on 22-6-2000 for a term loan of Rs. 99.81 lakhs. It appears that on the petitioner's application the Local Office of the Bank prepared a "Note For the Assistant General Manager, which was signed by Manager (SIB) and the Chief Manager. At Annexure-2 is a copy of this note which is undated. Then on 4-8-2000 the Assistant General Manager (P.E.C.C.), at the local Head Office of the Bank, prepared the "Technical Feasibility and Economic Viability Study Report'. In this report it was found that the project was technically feasible and economically viable. It was further observed that in the area where the unit was intended to be set up "the Economic and Geographical scenario' for Cold Storage was quite encouraging. A copy of this report is at Annexure-3.
3. The Bank sanctioned a medium term loan for Rs. 96.50 lakhs to the petitioner and the sanction letter, addressed to the Managing Director of the petitioner company was issued by the Chief Manager on 4-5-2001. A copy of the sanction letter is at Annexure-1 from which it appears that the sanction of the loan was subject to many conditions. It is stated on behalf of the petitioner that it accepted the terms and conditions mentioned in the sanction letter and executed a number of documents to comply with the conditions of the loan but the loan money was not released in its favour. As the loan money was not released to the petitioner even after many requests he came to this Court in this writ petition.
4. In this case the Bank filed a counter-affidavit making it clear that it had no intention of giving loan to the petitioner. It was stated on behalf of the Bank that the medium term loan was sanctioned in good faith but it later transpired that the petitioner had made a number of misrepresentations and false statements in regard to many material issues. The alleged misrepresentations and false statements made by the petitioner and the reasons for refusing to grant loan are stated in the counter-affidavit but to that we shall advert a little later.
5. Mr. Amrendra Sharan, Sr. Advocate appearing for the petitioner submitted that the allegations of misrepresentations/making false statements were baseless and the reasons assigned by the bank for not granting loan to the petitioner were equally unfounded. Moreover, Mr. Sharan further submitted that the Bank could not be allowed to back out of the agreement on principles of equitable/promissory estoppel. Learned counsel submitted that acting upon the promise made by the bank in the sanction letter, dated 4-5-2001 the petitioner had altered its position and had incurred huge expenses and other substantial financial liabilities and now the refusal to grant loan by the Bank would be highly prejudicial to its interests. Elaborating upon this aspect of the matter Mr. Sharan invited my attention to the undated note prepared by the Chief Manager for the Asstt. General Manager. In the note, under the heading 'Position of Civil Construction' it was observed:
"On spot inspection conducted by us on 14th June, 2000, it was found that the promoters have taken several positive steps and made under noted progress:
(i) Foundation of two chamber competed
(ii) Entire structural work including brick work with plastering upto 3rd floor is ready.
(iii) As per Audited Balance Sheet (enclosed), a total expenditure already incurred is comes to about Rs. 50.00 lacs including building construction material lying on the site, which seems to be correct as per our site inspection. The completion of civil work is about 60% and by a reputated C.A. firm has been confirmed as per book of the unit, Rs. 50.00 lacs has been spent so far."
6. In the same note undere the heading 'Miscellaneous Fixed Asset' it was observed as follows:
"The company has allocated Rs. 10.50 lacs on account of electrical installations including the cost of 125 KVA D.G. set the expenditure appears to be genuine and is well supported by estimates & quotations."
7. Mr. Sharan submitted that one of the reasons given by the Bank for denying the loan to the petitioner was that there was no approach road to the unit in question. In this regard in the Bank's counter-affidavit it is stated that the promoters had made wrong and misleading statement in regard to the approach road to the unit; that in fact the approach road to the unit was so narrow that a vehicle could not ply or reach the premises of the proposed unit It was further stated in the counter-affidavit that in the absence of an approach road, sufficiently wide for plying/moving of heavy vehicles the profitability, efficiency and consequently the viability of the unit would be open to serious doubts. It was also stated that the lands forming the approach road to the unit were under serious dispute and the Bank had in its possession the documents relating to the dispute with regard to the approach road.
8. Mr. Sharan submitted that the objection by the Bank was without any substance. He invited my attention to a registered deed of gift dated 7-12-1998 (Annexure-11 to the rejoinder affidavit filed by the petitioner) by which Arvind Kumar, the Managing Director of the company donated about 15 kathas of land in favour of the Governor of Bihar for construction of an approach road connecting the proposed unit to the main road. He also invited my attention to what he described as the sanction order for construction of the approach road (copy at Annexure-13). The so-called sanction order is nothing more than a proposal for earth-filling and brick-soling over a stretch of 1600 ft from Birpur Middle School to the P.W.D. road. The proposal is of the year 1998-99. It was pointed out to Mr. Sharan that the proposal was of the year 1998-99 but apparently there was no appraoch road till today. At this, Mr. Sharan stated that if the loan amount is released the petitioner is willing to construct a sufficiently wide approach road at his own cost and expenditure. He, however, did not say anything about the land forming the approach road being subject to disputes, as alleged in the Bank's counter-affidavit. It is not very difficult to execute a deed of gift in respect of land(s) which may be under serious dispute.
9. Mr. Sharan also submitted that the allegation by the Bank that the petitioner had shown highly exaggerated and inflated value of its assets and in fact the value of its assets was very low was equally unfounded and baseless. In this regard also he invited my attention to certain reports by valuers.
10. In these facts and circumstances, Mr. Sharan submitted that the Bank was estopped from withdrawing its solemn promise to give the loan already sanctioned by it on the principle of equitable estoppel. He cited a number of decisions in which the principle was developed and applied to the given facts of the respective cases; the decisions cited by him are as follows:
(i) 1948(2) All England Report 767, Robertson v. Minister of Pensions
(ii) 1956(1) All England Report 256, Central London Property Trust Ltd v. High Trees House Ltd.
(iii) AIR 1968 SC 718, The Union of India and Ors. v. Anglo Afghan Agencies etc.
(iv) AIR 1971 SC 1021 (Century Spinning & Manufacturing Co. Ltd. and Anr. v. The Ulhasnagar Municipal Council and Anr.)
v) AIR 1979 SC 621 ( Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. and Ors.)
11. But he mainly relied upon the Supreme Court decision in Lotus Hotels which according to him fully covered the facts of this case. It was pointed out to him that the Principle of promissory estoppel is based on the equitable consideration that on the basis of a promise made by one party, the other materially alters its position, incurs expenses and liabilities and makes third party commitments and having regard to the altered position of the other party, the first party cannot be allowed to resile from its promise. It was further pointed out to him that the instances of expenses made by the petitioner as cited by him (from the undated note of the Chief Manager) related to a period before the issuance of the sanction letter. Though those expenses are disputed by the Bank in the counter-affidavit filed by it, even assuming that the expenses were actually incurred by the petitioner, those related to a period long before the sanction of the loan, Any expenses incurred in the hope of getting the loan or for inducing the Bank to grant the loan cannot form the basis of promissory estoppel and for invoking the principle the petitioner must show that the expenses were relateable to the promise made by the Bank or at least were incurred after the promise made by the Bank. Mr. Sharan was, therefore, asked to point out expenses and liabilities incurred and commitments made by the petitioner, if any, after the issuance of the sanction letter on 4-5-2001.
12. Mr. Sharan promptly replied that the petitioner had to spend Rs. 15,15,000/- for executing the deed of redemption on 4-6-2001, that being the first condition enumerated in the sanction letter. Apart from the deed of redemption, the petitioner had also executed (i) a general agreement for the grant of medium term advances and hypothecation of movables, book debts and other assets, (ii) a letter of undertaking not to create any further charge over its properties and (iii) a mortgage deed in favour of the Bank. Admittedly the total expenses incurred by the petitioner in executing all the documents, other than the deed of redemption, would be no more than a few hundred rupees and undeniably the petitioner will not be bound by the commitments made in those deeds for the simple reason that the loan money was never released by the Bank.
13. As regards the expense of Rs. 15,15,000/-, said to have been incurred by the petitioner in executing the deed of redemption, a closure scrutiny of the relevant materials reveals some interesting points. It appears that the petitioner company had offered certain properties by way of primary security for repayment of the loan applied for. The properties carried a mortgage earlier created in favour of Arvind Kumar, the Managing Director of the Company. The Bank would naturally accept those properties as security against repayment of its loan only on their being released from the mortgage. It was in those circumstances that a deed of redemption, dated 4-6-2001 was executed between the company and its own Managing Director, purportedly on payment of Rs. 15,15,000/- by the former to the latter.
14. I find it very difficult to accept the deed of redemption as evidence of any real or substantial expense incurred by the petitioner company on the basis of the promise of loan by the Bank. Further, it appears to me that if a scrutiny is made the company and its affairs would appear to be a purely internal arrangement of a single family.
15. Apart from the deed of redemption, there is absolutely no material to show any expenses7liabilities incurred or commitment made by the petitioner company.
16. In these facts and circumstances I find no application of the decision of Lotus Hotels to this case. In the Lotus Hotels the principle of promissory estoppel was invoked on the finding that the respondent (the loanee) had incurred huge expenditure and suffered liabilities to set up a Hotel and if the appellant Financial Corporation was not held to its promise the loanee would be put in a very disadvantageous position. As seen above, the factual position in this case is quite different.
17. Another important consideration in the Lotus Hotels decision was that the loan was sanctioned by the Gujarat State Financial Corporation Limited and the Corporation had entered into the agreement to advance the loan in performance of the statutory duty cast on it by the statute under which it was created and set up. The same consideration would not apply to the State Bank of India.
18. I have, therefore, no hesitation in holding that the decision in Lotus Hotels does not apply to the facts of this case and the petitioner is not in a position to invoke the principle of equitable/promissory estoppel.
19. Mr. Sharan further submitted that the denial of loan by the Bank after issuance of the sanction letter was totally arbitrary and violative of Article 14 of the Constitution. He also submitted that before sanctioning the loan the Bank had already satisfied itself on the basis of its internal reports that supported the investments made by the petitioner and the Bank was also satisfied in regard to the security offered by the petitioner for repayment of loan. He also submitted that after the sanction of the loan there was no material change in the facts and circumstances that would disentitle the petitioner from getting the loan money.
20. These submissions are fully controverted by the reasons assigned by the Bank that are enumerated in different sub-paragraphs of paragraph 10 of the Bank's counter-affidavit. From the Bank's affidavit it appears that the note and the report at Annexures 2 and 3 respectively were not made faithfully and correctly and were misleading; that the Bank had made an error of judgment in issuing the sanction letter but thereafter a number of facts came to light that put the reputation and credibility of the petitioner under serious doubts. The reasons given by the Bank cannot be said to be unfounded, groundless or arbitrary and, therefore, the Bank's decision not to give loan to the petitioner cannot be interfered within a writ proceeding.
21. On hearing counsel for the parties and on a careful consideration of the materials on record, I find no merit in this writ petition. It is accordingly dismissed but with no order as to costs.