State Consumer Disputes Redressal Commission
The Narayana Educational Society vs The Ing Vysya Bank Ltd. on 16 September, 2011
BEFORE THE A BEFORE THE A.P STATE CONSUMER DISPUTES REDRESSAL COMMISSION AT HYDERABAD. CC 36 of 2010 Between: The Narayana Educational Society D.No. 12/72, Harinathapuram Nellore. Rep. by R. Koteswara Rao Secretary. *** Complainant And The ING Vysya Bank Ltd. KCV Spectrum D.No. 15/320, Ground Floor Brindavanam, Nellore Rep. by its Branch Manager. *** Opposite Party Counsel for the Complainant: M/s. V.B. Subrahmanyam Counsel for the Respondents: M/s. A. Raghavaiah CORAM: HONBLE SRI JUSTICE D.APPA RAO, PRESIDENT. & SMT. M. SHREESHA, MEMBER
FRIDAY, THE SIXTEENTH DAY OF SEPTEMBER TWO THOUSAND ELVEN ORAL ORDER: (Per Honble Sri Justice D. Appa Rao, President) ***
1) The complainant an educational society filed this complaint u/s 17(a)(1) of the Consumer Protection Act against the opposite party ING Vysya bank for refund of Rs. 99,27,000/-
with interest @ 18% p.a., collected towards take over charges and costs.
2) The case of the complainant in brief is that it is a society registered under Societies Registration Act. Its main object is to impart education by establishing educational institutions, achieved through substantial investments/expenditure. It has approached the opposite party bank for providing financial facilities like over draft (OD), bank guarantee, term loan etc. After satisfying with the security furnished by it the opposite party bank sanctioned term loan amounting to Rs. 86.25 lakhs as on 2.9.2009.
However it has been collecting unconscionable, usurious interest amounting to Rs. 90 lakhs. In order to improve the growing investment demands of professional colleges it requested the opposite party bank to enhance the loan facility to Rs. 35 crores on which the bank expressed its inability. Since the priorities of investments cannot be postponed it has approached the Indian Bank, Nellore which has readily accepted subject to creation of Pari Passu in its favour. It has also agreed by its letter dt. 19.9.2009 not only to take over the liabilities but also enhance the financial assistance to the complainant to a tune of Rs. 170 crores. By its letter dt. 29.8.2009 the same was communicated to the opposite party bank. Contrary to the terms of the agreement, the opposite party by its letter dt. 2.9.2009 called upon to pay 2% on the sanctioned amount viz., Rs. 99,27,000/- as pre-closure takeover charges. This is illegal, and untenable. Taking advantage of its dominant position it was made to pay huge amount. It has issued legal notice for which a reply was given with false and untenable grounds. Bank guarantees were issued after taking commission and none of the bank guarantees was encashed by them. Therefore no liability arises in that regard. Alleging that this amounts to dishonest, and deficiency in service sought for refund of Rs. 99,27,000/-
with interest @ 18% p.a., and costs.
3) The opposite party bank resisted the case. It alleged that the complainant cannot be termed as consumer carrying on commercial activity and that the Commission has no jurisdiction to decide the matter in a summary manner. Credit policy of the bank differs from bank to bank in sanction/enhancement of loans. Simply because another bank has come forward to enhance the loan limits it does not mean that it negated the request of the complainant. As it found the track record of the complainant in regard to repayment of the loan amounts is not satisfactory and as per repayment based classification made by the loan review department and the accounts of the complainant having verified shows irregularity more frequently it did not extend the facility of enhancement of loan limits. Clause-37 of the sanction letter dt. 9.1.2008 signed by the complainant along with guarantors clearly empowers the bank to collect 2% take over charges/interest. It is nothing to do with take over clause. The Indian Bank through its letter dt. 19.9.2009 not only confirmed taking over but also enhanced financial assistance to the complainant for a sum of Rs. 170 crores. It may be stated that the complainant has developed its business all over the country with the help of finance extended to it. As per the terms and conditions through its letter dt. 2.9.2009 it called upon the complainant to pay 2% on sanctioned loan which comes to Rs. 99,27,000/- towards takeover charges. In fact the complainant agreed to pay Rs. 90 lakhs exclusive of service tax towards full and final settlement of take over charges. Therefore the complainant is estopped from questioning the same. For the notice issued it has given correct and proper reply. More over it is a contractual obligation, and therefore it does not come under the provisions of the Consumer Protection Act. It has collected take over charges on over drafts, term loans etc. Since the bank guarantees were already given to the beneficiaries as per the requirement of the complainant it was under obligation to pay the amounts to the said authorities as and when demanded without any demur or protest. Therefore the allegation of the complainant that as they are not encashed it has no liability is not tenable. In fact the transferee bank gives counter guarantee to the transferor bank. It clearly establishes that the sanctioned limits under bank guarantees are also covered by liabilities. Therefore it was entitled to collect 2% towards take over charges besides exclusive services charges towards full and final settlement by virtue of letter dt. 2.2.2009. There was no cause of action for the complainant to file the complaint.
Therefore it prayed for dismissal of the complaint with costs.
4) The complainant in proof of its case filed the affidavit evidence of its General Manager and got Exs. A1 to A34 marked while the opposite party bank filed the affidavit evidence of its Regional Head and got Exs. B1 to B3 marked.
5) The points that arise for consideration are :
I. Whether collection of 2% take over charges is illegal and improper?
II.
Whether the complainant is amenable to the jurisdiction of this Commission?
III.
To what relief?
6) It is an undisputed fact that the complainant Naryana Educational Society is a society registered under Societies Registration Act vide Ex. A1. It is also not in dispute that the complainant society has been established with object of establishment of educational institutions. Evidently the society is not running on charitable basis. In the very complaint it is averred the complainant society has also set up a quality bench mark in imparting education in the professional colleges established and run by it. These high objectives and implementation thereof are achieved through substantial investment/expenditure every year.
It is an income tax assessee evidenced from proceedings of Chief Commissioner of Income Tax, Hyderabad. What all it reflects was that the surplus should not be utilized for non-educational purposes. Whatever be the nature of its object the fact remains that it has been running the educational institution, by collecting fee etc. from its students. It is not a case where it was availing services of the bank not for commercial purpose within the meaning of Section 2(1)(d)(ii) of the Consumer Protection Act. It is availing bank services for establishment of professional colleges etc. It does not come under exclusion clause that services availed by it exclusively for the purpose of earning livelihood by means of self-employment.
7) Before considering the question whether the complainant could be termed as consumer vis--vis the bank, the important question to be considered is whether collecting 2% of takeover charges/interest is contrary to the terms of the agreement. Admittedly the complainant had approached the opposite party bank for financial assistance which in turn has extended the financial assistance under three heads viz., Over draft, term loans and bank guarantees etc. vide Exs. A2 to A8 and A17. When it sought for enhancement of loan facility the opposite party bank did not agree, on the ground that the repayment track record of the complainant was not satisfactory. Its loan review department was against granting enhancement of loan facility.
8) It is also not in dispute that the complainant has approached the Indian Bank, Nellore to provide financial assistance which has agreed to sanction subject to creation of Pari Passu in its favour. On the request of the complainant, the opposite party bank while pre-closing the debt and transferring the takeover liability to Indian Bank collected Rs.
99,27,000/- towards takeover charges on the sanctioned loan amount. The complainant entered into credit arrangement letter Ex. B1 dt.
9.1.2008 empowering the bank under Clause-37 to collect takeover charges/interest. This was signed by the complainant along with its guarantors. In the light of above clause the bank had collected the above said amount. The complainant contends that though over draft limits up to 21.50 lakhs was sanctioned the liability never exceeded, and therefore the bank could not have collected the above said charges, and it amounts to illegal enrichment. The collection of these charges on the sanctioned amount is illegal. It contends that though sanctioned over draft limit was Rs. 21.50 lakhs however it was permitted up to a maximum limit of Rs. 10 crores only. Levying of takeover charges ought not to be on over draft limits but on the actual liability.
9) Secondly the bank guarantees were issued against security. It has paid bank guarantee commission whenever bank guarantees were issued. None of the bank guarantees was encashed. They are alive. Therefore no liability was created on that ground.
10) The learned counsel for the complainant contends Ex. B3 letter amounts to novation of contract, and therefore no charges could be levied on the term loan. When the bank intends to charge Rs. 102.22 lakhs on the ground sanctioned loan was Rs. 38.58 crores, SOD limit was Rs. 111.50 crores and the bank guarantee was Rs. 20 crores, it looks as though there was settlement between the parties vide Ex. B3 dt. 2.9.2009 by the very complainant addressed to opposite party bank. It had categorically agreed to pay the takeover charges. Since the very complainant has admitted in its letter it is estopped from taking these contentions in the complaint. For benefit we reproduce the letter:
Taking into consideration of our long standing relationship, we are agreeing to pay the amount of Rs. 90 lakhs (excluding ST) which was arrived at during our discussions as full and final settlement towards take over charges.
(emphasis ours) Clause-37 would undoubtedly empower the opposite party bank to collect takeover charges/interest. It is not on the amounts that were utilized by the complainant vide Ex. B1 credit arrangement letter dt.
9.1.2008 which we have adverted to earlier. In the light of letter of complainant Ex. B1 the complainant is not entitled to state that it was not liable to pay takeover charges. The contention that the bank was in a dominant position and therefore it subscribed to the said letter cannot be countenanced. When the agreement provides for collecting these charges by no stretch of imagination it could be held that they are illegal, penal and unjust.
It has nothing to do with original contract nor can it be construed as novation. We do not subscribe to the contention of the complainant in this regard.
11) Coming to the question whether the complainant could be termed as consumer evidently the complainant is an educational society. The learned counsel for the complainant relied the following decisions to support his contention that it is amenable to the jurisdiction of this Commission.
i) He relied Laxmi Engineering Works Vs. PSG Industrial Institute reported in (1995) 3 SCC 583.
- Their Lordships in the above said decision considering the fact that the machine which the appellant purchased not for use by himself exclusively for the purpose of earning his livelihood by means of self employment disallowed the claim holding that he was not a consumer. We do not see any relevancy to the facts of the case.
ii) Karnataka Power Transmission Corporation Vs. Ashok Iron Works Pvt. Ltd. reported in (2009) 3 SCC 240 - Their Lordships after considering the definition of person u/s 2(1)(d) r/w Sec. 2(1)(m) of the Consumer Protection Act observed that the legislature never intended to exclude a juristic person like company from the operation of the enactment. However, since question of supply of electricity by the electricity board to the consumer could be termed as sale of goods or not was raised. Their Lordships opined that the supply of electricity to consumer is a service. However, since Section 2(1)(d)(i) & (ii) excludes the service for commercial purpose, considered the expression but does not include a person who avails of such services for any commercial purpose. However, since the controversy pertained to prior to the said amendment their Lordships remanded the matter to be considered in the light of pre-amended law.
iii) Madan Kumar Singh Vs. Dist. Magistrate, Sultanpur reported in (2009) 9 SCC 79. That was a case where the complainant had purchased the tractor for his livelihood by means of self-employment, and therefore it was opined that he was a consumer. It was clarified that buyers of goods or commodities for self consumption in economic activities in which they are engaged would be consumers as defined in the Act. There is no quarrel as to the proposition of law.
iv) Standard Chartered Bank Ltd. Vs. Dr. B. N. Raman reported in (2006) 5 SCC 727 - It was a case where an NRI who stayed in Libya placed with the appellant bank US $ 500 in the FCNR account for certain period @ 9% interest p.a. The complainant claimed the deposit together with interest @ 18% p.a. The bank opposed the complaint on the ground that the matter cannot be adjudicated by the consumer fora. Their Lordships considering the fact that the banks provide or render service/facility to its customers or even non-customers they attract the jurisdiction of the consumer fora.
v) Vimal Chandra Grover Vs. Bank of India reported in (2000) 5 SCC 122
- That was a case filed by a person against the bank for grant of over draft facility etc.
vi) Aditanar Educational Institution Vs. Additional Commissioner of Income Tax reported in (1977) 3 SCC 346 - That was a case where their Lordships considered the exemption u/s 10(22) of the Income Tax Act. We do not see how the said decision has any bearing to the question to be determined in this case.
12) The fact remains that the complainant is an educational institution operating the amounts running into crores. In order to establish some more institutions. It is not a case where it was running on charity or a charitable institution. Most of the decisions that were relied were not relevant to the case on hand.
13) The Honble Supreme Court in Birla Technologies Ltd. Versus Neutral Glass and Allied Industries Ltd. reported in CDJ 2010 SC-1177 held:
that the goods sold by the appellant to the respondent/complainant amounted to `goods' and that such goods were purchased for commercial purpose of earning more profits, there could be no dispute that even the services which were offered had to be for the commercial purpose. Nothing was argued to the contrary. On the one count that under Section 2(1)(d)(i), the goods have been purchased for commercial purposes and on the second count that the services were hired or availed of for commercial purposes. The matter does not come even under the Explanation which was introduced on the same day i.e. on 15.3.2003 by way of the amendment by the same Amendment Act, as it is nobody's case that the goods bought and used by the respondent herein and the services availed by the respondent were exclusively for the purpose of earning the respondent's livelihood by means of self-employment. In that view, it will have to be held that the complaint itself was not maintainable in toto CDJ 2010 SC 1177 In the light of authoritative pronouncement of the Honble Supreme Court and in the teeth of admitted commercial activity undertaken by the complainant, it cannot be termed as consumer as defined under the Consumer Protection Act.
14) No doubt the complainant filed proceedings of Chief Commissioner of Income Tax dt. 30.6.2008 notifying the complainant for the purpose of sub-clause (iv) of clause (23C) of Section 10 of the Income Tax Act.
The Commissioner had made it clear that it had to file Income Tax Returns.
A number of conditions were imposed.
The assessee will apply its come, or accumulate for application, wholly and exclusively to the objects for which it is established.
The assessee will not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewelry, furniture or any articles as the Board may, by notification in the Official Gazette, specify) for any period during the previous years relevant to the assessment years 2008-2009 onwards otherwise than in any one or more of the forms of modes specified in sub-section (5) of Section 11.
This notification will not apply in relation to any income being profits and gains of business, unless the business is incidental to the attainment of the objectives of the assessee and separate books of accounts are maintained in respect of such business.
The assessee will regularly file is return of income before the Income Tax Authority in accordance with the provisions of the Income Tax Act, 1961.
That in the event of dissolution, its surplus and the assets will be given to a charitable organization with similar objective.
That the surplus from the educational institutions should not be utilized for non-educational purposes.
So long the activity does not come under the purview of Section 2(1)(d)(ii) of the Consumer Protection Act it cannot be said that it was not for commercial purpose.
15) Observing cases of this nature being filed before the Consumer Fora the Honble Supreme Court in Synco Industries Vs. State Bank of Bikaner reported in AIR 2002 SC 568 held:
Given the nature of the claim in the complaint and the prayer for damages in the sum of Rupees fifteen crores and for an additional sum of Rupees sixty lakhs for covering the cost of travelling and other expenses incurred by the appellant, it is obvious that very detailed evidence would have to be led, both to prove the claim and thereafter to prove the damages and expenses. It is, therefore, in any event, not an appropriate case to be heard and disposed of in a summary fashion. The National Commission was right in giving to the appellant liberty to move the Civil Court. This is an appropriate claim for a Civil Court to decide and, obviously, was not filed before a Civil Court to start with because, before the Consumer Forum, any figure in damages can be claimed without having to pay court fees. This, in that sense, is an abuse of the process of the Consumer Forum.
16) We do not see any merits in the complaint. In the result the complaint is dismissed with costs computed at Rs. 10,000/-. Time for compliance four weeks.
1) _______________________________ PRESIDENT
2) ________________________________ MEMBER APPENDIX OF EVIDENCE Witnesses examined for Complainant: None Witness examined for opposite parties: None Documents marked for complainant:
Ex A-1 Certificate of incorporation dated : 30.6.1999 Ex A-2 Sanction letter of opposite party granting Term Loan with conditions Dated 29.12.2001.
Ex A-3 Sanction letter of opposite party granting Term Loan with conditions Dated 11.10.2004 Ex A-4 Sanction letter of opposite party granting Term Loan with conditions Dated 11.04.2005.
Ex A-5 Sanction letter of opposite party granting Term Loan with conditions Dated 27.12.2005.
Ex A-6 Sanction letter of opposite party granting Term Loan with conditions Dated 16.03.2007.
Ex A-7 Sanction letter of opposite party granting Term Loan with conditions Dated 09.01.2008.
Ex A-8 Sanction letter of opposite party granting Term Loan with conditions Dated 29.12.2003.
Ex A-9 Letter of confirmation by Indian Bank dated 19.9.2009 Ex A-10 Letter addressed by the opposite party to the complainant demanding to pay 2% of take over charges.
Ex A-11 Legal notice got issued on behalf of the complainant dated : 21.10.2009 Ex A-12 Reply notice by the opposite party dated : 11.11.2009 Ex A-13 Minutes of the complainant dated : 27.8.2009 Ex A-14 Letter addressed by the complainant to the opposite party dated : 18.9.2009.
Ex A-15 Letter confirming the No dues of the complainant by the opp.party dated : 5.9.2009 Ex A-16 Acknowledgement of Legal notice dated 24.10.2009 Ex A-17 Sanction letter of opp.party granting Term loan with conditions dt: 19.7.2001.
Ex A-18 Letter addressed by the Complainant requesting the Indian Bank, Trunk Road, Nellore for issue of Guarantee dated : 5.9.2009 Ex A-19 Statement Bank Guarantee issued by Indian Bank, Trunk Road, Nellore dated : 7.9.2009.
Ex A-20 Letter addressed by the complainant requesting the Indian Bank Trunk Road , Nellore for issue of Guarantee dated : 20.03.2010.
Ex A-21 Statement of Account issued by the opposite party to the complainant for the period 15.2.2006 to 15.2.2006.
Ex A-22 Statement of Account issued by the opposite party to the complainant for the period 10.3.2006 to 10.3.2006.
Ex A-23 Statement of Account issued by the opposite party to the complainant for the period 13.5.2006 to 13.5.2006.
Ex A-24 Statement of Account issued by the opposite party to the complainant for the period 14.2.2007 to 14.2.2007.
Ex A-25 Statement of Account issued by the opposite party to the complainant for the period 26.3.2007 to 26.3.2007.
Ex A-26 Statement of Account issued by the opposite party to the complainant for the period 11.6.2007 to 11.6.2007.
Ex A-27 Statement of Account issued by the opposite party to the complainant for the period 02.7.2007 to 02.7..2007.
Ex A-28 Statement of Account issued by the opposite party to the complainant for the period 11.3.2008 to 11.3.2008.
Ex A-29 Statement of Account issued by the opposite party to the complainant for the period 31.3.2008 to 31.3.2008.
Ex A-30 Statement of Account issued by the opposite party to the complainant for the period 23.6.2008 to 23.6.2008.
Ex A-31 Statement of Account issued by the opposite party to the complainant for the period 26.2.2009 to 26.2.2009 Ex A-32 Statement of Account issued by the opposite party to the complainant for the period 19.9.2009 to 19.9.2009 Ex A-33 Letter addressed by the Indian Bank, Trunk Road, Nellore to the opposite party dated : 19.,9.2009 Ex A-34 Counter Guarantee issued by the Indian Bank, Trunk Road, Nellore to the opposite party dated : 19.9.2009.
Documents marked for Opposite Party:
Ex B-1 Sanction letter dated : 9.1.2008 Ex B-2 Letter addressed by complainant to opposite party dt : 29.8.2009 Ex B-3 Letter addressed by complainant to opposite party dt : 02.09.2009
1) _______________________________ PRESIDENT
2) ________________________________ MEMBER 16/09/2011 *pnr UP LOAD O.K.