Karnataka High Court
Dalvkot Bio Fuels Private Limited vs Canara Bank on 5 March, 2025
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
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NC: 2025:KHC:9382
WP No. 14978 of 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 5TH DAY OF MARCH, 2025
BEFORE
THE HON'BLE MR JUSTICE M.NAGAPRASANNA
WRIT PETITION NO. 14978 OF 2024 (GM-RES)
BETWEEN:
DALVKOT BIO FUELS PRIVATE LIMITED
REGISTERED UNDER COMPANIES ACT, 2013
NO.87, 'SAI KESHAVA', SEEGEHALLI,
HOSKOTE KADUGODI MAIN ROAD,
BANGALORE - 560 067
REP. BY ITS DIRECTOR MRS. KALPAJA D A
...PETITIONER
(BY SRI. BIPIN HEGDE, ADV. FOR
SRI. SAMARTH SHREEDHAR, ADVOCATE)
AND:
CANARA BANK
REPRESENTED BY MANAGER
UNDER THE BANKING COMPANIES (ACQUISITION AND
TRANSFER OF UNDERTAKINGS) ACT, 1970
MID CORPORATE BRANCH,
Digitally signed NO.206 AND 207, NORTH BLOCK,
by NAGAVENI MANIPAL CENTRE, DICKENSON ROAD,
Location: High BENGALURU - 560042
Court of
Karnataka ...RESPONDENT
(BY SRI. SHETTY VIGNESH SHIVARAM, ADVOCATE)
THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE
CONSTITUTION OF INDIA PRAYING TO A) SET ASIDE THE
COMMUNICATION DATED 24/05/2024 BEARING REF. NO. CB6993.
MCB-S, DBPL.36/2024-25 SDN ISSUED BY THE RESPONDENT BANK,
WHEREIN AN ARBITRARY AND ILLEGAL AMOUNT OF RS.
3,08,12,476.27 HAS BEEN DEMANDED AS CHARGES TOWARDS
CONCESSION IN RATE OF INTEREST (ROI), FOR THE PERIOD
BETWEEN 24/05/2023 TO 23/05/2024, OVER AND ABOVE THE SUM
OF RS. 1,05,37,647.06/- LEVIED AS THE 2 PERCENT PENALTY FOR
PRE-CLOSURE OF THE LOAN OBTAINED BY THE PETITIONER
ANNEXURE-A AND ETC.
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NC: 2025:KHC:9382
WP No. 14978 of 2024
THIS PETITION, COMING ON FOR ORDERS, THIS DAY, ORDER
WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR JUSTICE M.NAGAPRASANNA
ORAL ORDER
The petitioner is before this Court calling in question a communication dated 24.05.2024 issued by the respondent - Canara bank (hereinafter referred to as 'the Bank' for short) demanding an amount of Rs.3,08,12,476/- as charges towards Concession in Rate of Interest, as the petitioner has pre-closed the loan that was secured from the hands of the respondent - Bank.
2. Heard the learned counsel Sri.Bipin Hegde, appearing for the petitioner and the learned counsel Sri. Shetty Vignesh Shivaram, representing the Canara Bank.
3. The facts, in brief, germane are as follows:
The petitioner is said to be a customer of respondent - Canara bank and had availed several loans at intermittent intervals. The issue in the lis is with regard to financial assistance applied by the petitioner for an amount of Rs.85 -3- NC: 2025:KHC:9382 WP No. 14978 of 2024 Crores for setting up of a Greenfield, Grain and Molasses based 80 KLPD capacity Ethanol manufacturing unit. The Bank did not release the entire Rs.85/- Crores but restricted the amount to Rs.53/- Crores. The petitioner then represents contending that the entire amount has not been released and the loan is restricted to Rs.53 Crores.
4. A communication then emerges that the amount of loan is restricted to Rs.53 Crores and the Rate of Interest at which it was granted earlier is enhanced by 1%. The petitioner then again represents to the Bank submitting that the increase in rate of 1% is over and above what other banks would grant to the customers in identical circumstances. The representation goes unheeded. The petitioner then secures loan from another financial institution and clears the entire dues i.e., the loan amount that was taken from the Canara Bank. The Bank does not release the documents in favour of the petitioner that was kept as security at the time of grant of loan, notwithstanding the fact that the entire loan was cleared. Representations are made by the petitioner for release of the documents. Then comes the impugned communication that the petitioner is to pay Rs.3.8 Crores of the remaining rate of interest, as a -4- NC: 2025:KHC:9382 WP No. 14978 of 2024 concessional Rate of Interest was granted to the petitioner. It is at that juncture, the petitioner is before this Court, in the subject petition.
5. Learned counsel Sri.Bipin Hegde, taking this Court through the documents appended to the petition would seek to demonstrate that at no point in time, the petitioner was indicated that the loan that is being granted was for a subsidized Rate of Interest or a concessional Rate of Interest.
What was granted was what was prevailing at the relevant point in time, as interest, on all loans that are to be granted.
The learned counsel would further submit that the Bank did not heed to reduction in the rate of interest, notwithstanding the reduction in the amount that was claimed. He would further submit that the sanction letters of initial sanction of Rs.85/- Crores or a subsequent sanction of Rs.53/- Crores does not indicate at any point that the interest that was being charged from the hands of the petitioner was for a reduced rate. He would further submit that the documents appended to the statement of objections are not the ones that are signed by the petitioner, but they are their own documents.
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6. Learned counsel for the Bank would refute the submissions of the learned counsel for the petitioner in raising a threshold bar that the petition is not entertainable, as it is in a realm of contract between the petitioner and the Bank and the petitioner has to be relegated to a competent Civil Court to agitate his rights or should approach the Banking Ombudsman against the grievance that is now projected. He would submit that the petitioner is well aware of the fact that he was granted reduced rate of interest at the time when the loan was sanctioned and cannot now project ignorance, as he is a regular customer in the Bank and the Bank had to heed to the concessional rate of interest so that they would get some business from the hands of the petitioner. It is therefore, the learned counsel submit that the petition be dismissed, as nothing survives in the petition, except for the petitioner to approach the Civil Court or the Banking Ombudsman, as the case would be.
7. I have given my anxious consideration to the contentions of respective learned counsel and have perused the material on record.
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8. The afore-narrated facts, dates link in the chain of events, are the matter of record. The petitioner on 08.02.2022 is sanctioned certain finance. The total amount of finance applied by the petitioner was Rs.85/- Crores, but what was disbursed was Rs.53/- Crores. This is an undisputed fact, as it is a matter of record. The petitioner represents after the aforesaid short disbursement, that the rate of interest should be reduced. The representation, reads as follows:
" Bengaluru
28.01.2023
To
The Chief Manager
Canara Bank, Mid Corporate Branch #34, Ist Main Road, Seshadripuram, Bengaluru- 560020 Dear Sir, Sub- Term Loan of Rs.85.00 crore-
Cancellation of Unavailed limits amounting to Rs.32.00 crore With respect to DCCO Extension sanction dated 21.11.2022, M/s Daivkot Biofuels Private Limited, we hereby submit the following;
The in principle sanction for term loan of Rs.85 crores and working capital of Rs.8 crores was accorded to our company during June 2021. The project appraisal study was completed during October 2021 and regular sanction was conveyed -7- NC: 2025:KHC:9382 WP No. 14978 of 2024 during Feb 2022. Subsequently, first disbursement of Rs.53.00 crore was made in March 2022 only. There has been a huge time delay of nine months between in principle sanction and first disbursement.
Post first disbursement in March 2022, almost another 11 months have passed without any further disbursement of term loan from the bank side. Though the company has been in dire need of funds for execution and completion of the project within our expected time period, there has been no support/ response from the bank side.
In the absence of term loan disbursement from the bank side, the company and its promoters were forced to arrange outside funds at higher Rate of Interest. After submission of innumerous documents/details/ justification from our side, the DCCO extension sanction was communicated on 16.11.2022. We were expecting a disbursement of Rs.20.00 crore from the sanctioned term loan limits of Rs.85.00 crore.
Company has been further letdown due to the fact that, instead of showing any real intention for disbursement, bank in unison with Lenders Independent Engineer (M/s SJA Technical Consultants Private Ltd) was continuously delaying the disbursement by demanding for more and more documents/ clarifications. Even after nearly 2 months of DCCO sanction communication, no disbursement has been effected from the bank side.
Moreover, we would like to bring to your notice that, the promoters have incurred the maximum share in the project cost exceeding Rs.200.00 crore. The bank share has been very much on the lower side at Rs.53.00 crore as against the sanctioned Rs.85.00 -8- NC: 2025:KHC:9382 WP No. 14978 of 2024 crore. The delay on the part of bank funding has been made good by promoters funds. We are also very sorry to inform you that, despite collecting upfront charges of Rs.1.18 crore and quarterly LIE fees of Rs.1.50 lakhs per quarter since March 2022 till Sep 2022, the bank has not fully made available the TL portion of Rs.85.00 crore. The LIE appointed by the bank M/s SJA Technical Consultants has been making very unreasonable demands since beginning. Despite the project progressing at satisfactory levels and our various written clarifications/ explanations with documentary evidence, LIE has been insisting on the unreasonable compliances like Turnkey Agreement, Avante Garde Agreement, Roles and Responsibilities of Mr. Indraprakash, Technical Director, Marketing Arrangements even before project completion etc. We are sorry to note that, instead of supporting/ guiding project progress and completion, the LIE has been engaged in negative propaganda against the company, directors and project since the time of their appointment. We are also unhappy with the excess fees charged by the LIE at Rs.1.50 lakhs per quarter plus OPE. The company has taken efforts for the unit visit of LIE by arranging the flight tickets from Bengaluru to Vizag along with the to and fro journey from Vizag airport to the unit.
Another aspect we would like to highlight is that, company has promptly serviced all the interest payments due to the bank. As on date, there are nil overdues in our TL account.
We would like to bring to your kind attention that, project is now more than 95% completed with more than Rs.130.00 crores being infused by the promoters. Presently, trial run has started. We are very much confident of commencing the commercial production by Ist week of March 2023. Presently we -9- NC: 2025:KHC:9382 WP No. 14978 of 2024 are in discussion with pharmaceutical, OMC companies etc for sale of ethanol. Orders to the tune of Rs.20.00 crore are to be finalized shortly. Also, company has obtained all operational approvals from the various government departments.
We are very much thankful to the higher officials of Canara Bank at Circle Office and Head Office, for the innumerable terms and conditions imposed on the company making term loan disbursement all the more difficult.
Regarding working capital limits of Rs.8.00 crore sanctioned to the company, our Board of Directors shall be meeting shortly to discuss on the matter and shall be intimated to the bank shortly.
Also, we would like to inform that, we will be making only the pre-agreed LIE fees of Rs.45,000/- per quarter till the commencement of commercial operations as communicated to company vide branch letter dated 09.02.2022 and also inform you that as our company trial production started, there is no need further payment required to pay the LIE.
In view of the above circumstances, company Board of Directors has decided not to avail further term loan funding from the bank. We request you to kindly cancel the unavailed limits of Rs.32.00 crore from our sanctioned limits of Rs.85.00 crore.
For M/s Dalvkot Biofuels Private Limited"
9. What comes about after the representation is another sanction letter for an amount of Rs.53/- Crores that is
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NC: 2025:KHC:9382 WP No. 14978 of 2024 disbursed and the interest is increased by 1.75 %. The sanction letter reads as follows:
" SANCTION LETTER
सेवा म / To,
The Mariaging Director
M/s. Dalvkot Biofuels Private Limited (DBPL) 118, Farm House, D.No.87, Hoskote to Kadugodi Road, Seegehalli, Bengaluru-560067, Bengaluru, Karnataka -560067 य महोदय / महोदया / Dear Sir / Madam, वषय /Sub: M/s Dalvkot Biofuels Private Ltd- Sanction of review and reset of the existing Term Loan of Rs.85.00 crore sanctioned to the Company and continue the outstanding liability of Rs.53.00 crore on existing terms & conditions.
Your Ref: Request Letter dated 28.01.2023 further email/ letter correspondences We are pleased to inform you that the Competent Authority has sanctioned the review and reset of the existing Term Loan of Rs.85.00 crore sanctioned to the Company and continue the outstanding liability of Rs.53.00 crore on existing terms & conditions as mentioned below;
Nature Amount Existing Permitted
of limit ROI ROI
Term Rs. 53.00 crore after 9.00% 10.35% p.a
loan cancellation of p.a One year
unavailed limits of One year MCLR i.e.
Rs.32.00 crore out of MCLR 8.60 % (Mar
total sanctioned TL 7.25% 2023) +
limits of Rs.85.00 crore. (Jan 1.75%.
2022) +
1.75%.
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NC: 2025:KHC:9382
WP No. 14978 of 2024
Modifications permitted in the terms and conditions are as under:
a) Permitted cancellation of unavailed portion of term loan amounting to Rs.32.00 crore out of term loan of Rs.85.00 crore sanctioned vide orders of ED-CAC dated 28.01.2022.
b) Permitted further 6 months time period till 01.10.2023 for obtention of letter of Intent from OMC and entering into tripartite agreement between OMC, bank and company as against existing condition of prior to 01.04.2023.
c) Permitted 6 months time from date of DCCO for transferring the APIIC land where the unit is functioning at Achutapuram, Vishakhapatnam in the name of the company.
All other Existing sanction terms as communicated vide our earlier letters dated 08.02.2022 & 21.11.2022 and accepted by company shall continue. Any breach of the terms and conditions will be considered as unauthorized."
10. The petitioner then represents again contending that the rate of interest that is charged by the bank is on the higher side and seeks its reduction by the following representation:
" Date: 23.12.2023
To
The Chief Manager,
Canara bank,
MCB Seshadripuram,
Bangalore.
Dear Sir,
Sub: Interest rate on Term Loan/ Working Capital - reg.
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NC: 2025:KHC:9382 WP No. 14978 of 2024 We have obtained a Term Loan from your Bank for an amount of Rs.53,00,00,000/-(Rupees Fifty-Three Crores only) under loan account bearing number 17300268583 at @9% per annum rate of Interest. Currently, we are paying the interest rate @10.36%, we are paying the interest regularly. The Instalments payment starts from 1" April 2024.
It has come to our knowledge that other reputed banks are offering the term loan at an Interest rate @8.75% which is 1.61% lower than what you are charging us.
We have been a loyal customer to your esteemed bank. We have always tried to honor our commitments to you in a timely manner. However, we are disheartened to note that we are being charged at a higher rate than what other Banks are charging.
We thank you for sanctioning the proposed working capital. If the rate of Interest is @10.36%, we will be put in to losses by paying more by way of Interest.
Therefore, we humbly request your goodself to reduce the interest rate on the term loan from 10.36% to 8.75% at par with other reputed banks.
Thanking you,"
The Bank did not heed to the representation of the petitioner.
11. The petitioner then secures finance from other financial institutions and pre-closes the loan. Pre-closure of the loan is an admitted fact. The communications that emerge
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NC: 2025:KHC:9382 WP No. 14978 of 2024 after the pre-closure seeking the release of the property documents read as follows:
" Date:04.05.2024
To
The Chief Manager,
Canara Bank,
MCB Branch, Seshadripuram, Bangalore-560020 Dear Sir, Sub: Request to release the Documents-reg. Ref: Property No:3487, HAL 2nd Stage, Bangalore.
With reference to the above, we would like to inform that, we have kept our director's property situated in Indiara Nagar as security till the receipt of Registered Land Documents of our company Dalvkot Biofuels Private Limited. The Land is registered and the documents received by bank in the month of March 24. Hence, we request you to release the Property documents and clearance from the mortgage authorities.
We are herewith authorizing Mr. B Siva Sankara Babu, to collect the property documents from the Bank. His signature is attested below.
Kindly do the needful & oblige.
Thanking you, Yours faithfully, For Dalvkot Biofuels Private Limited, "
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NC: 2025:KHC:9382
WP No. 14978 of 2024
" Date:23.05.2024
To
The Chief Manager,
Canara Bank
MCB Branch,
Bangalore.
Subject: Request for closure of Term Loan Account No: 173000268583 - reg.
Dear Sir, With reference to the above, we would like to inform you that, we are sanctioned Rs.53,00,00,000/- towards term loan by your bank. In this regard we would like to inform you that the interest charged on term loan is 10.36%. We made a request for reduction in Interest. As there is no reduction till now, we have approached AXIS Bank, for the Term Loan, which is already transferred to our current Account no: 120000847018. Kindly transfer the same to our Term Loan Account and close our term loan Account no:173000268583. If any Interest due against till today can be debited to our current account.
Hence, we request that all transactions and activities related to this account be ceased immediately.
Thanking you.
Yours faithfully, For Dalvkot Biofuels Private Limited"
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NC: 2025:KHC:9382 WP No. 14978 of 2024
12. What comes about, is the impugned communication. The impugned communication reads as follows:
"सेवा म / To, The Managing Director M/s. Dalvkot Biofuels Private Limited (DBPL) 118, Farm House, D.No.87, Hoskote to Kadugodi Road, Seegehalli, Bengaluru- 560067. य महोदय / महोदया / Dear Sir / Madam, वषय / Sub: M/s Dalvkot Biofuels Private Limited- Takeover of Credit Facilities Our Sanction Ref:
1. CB6993:MCBS: DBPL: 175:2021-22 dated 08.02.2022
2. CB 6993: MCB-S: DBPL:91:2022-23:SDN dated 21.11.2022
3.CB 6993: MCB-S: DBPL: 194:2022-23:SDN dated 31.03.2023
4.CB6993:MCB-S: DBPL: 164a:2023-24:SDN dated 30.12.2023 Company Ref:
1. Letter dated 22.05.2024 for closure of OD account
2. Letter dated 23.05.2024 and cheque no 163908 for closure of Term loan Axis Bank Ref:
Email dated 22.05.2024 and transaction for Rs.52.68 crore re dated 22.05.2024 (AXOBR14375337824) We are in receipt of company letters dated 22.05.2024 and 23.05.2024 for takeover of credit facilities from our bank by Axis Bank.
In the above regard, we wish to bring the following important sanction terms and conditions which has been duly accepted by the company/promoters;
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NC: 2025:KHC:9382 WP No. 14978 of 2024
a) Prepayment penalty- 2% of the prepaid amount (loans prepaid from own sources will not attract prepayment/ pre-closure charges)
b) Recovery of Concessional ROI- In case where the account is taken over by other Banks/FIs, concessions in ROI/ Charges extended for the last one year shall be recovered before closure.
The applicable charges on the above conditions are as follows;
2% Prepayment Penalty on outstanding Rs.1,05,37,647.06 TL principal Concessional ROI for last one year from Rs.3,08,12,476.27 24.05.23 to 23.05.2024 Total Rs. 4,13,50,123.33 We shall be charging the above mentioned amount of Rs.4.14 crore to the term loan account. Closure shall be permitted and other formalities like release of title deeds, execution of Release deed with SRO, Charge Satisfaction with ROC etc shall be executed post clearing the entire dues by the company. Company/ promoters is hereby directed to fund the Current Account with additional Rs.4.14 crore prior to take over of credit facilities to Axis Bank.
Kindly acknowledge receipt.
भवद य / Yours faithfully, SANDEEP D NAIR संद प डीनायर. / Sandeep D. Nair बंधक / Manager"
13. The Bank has now withheld the property documents of the petitioner on the score that an amount of Rs.4,13,50,123.33/- each to be paid on account of concessional rate of interest for the last one year i.e., between 24.05.2023
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NC: 2025:KHC:9382 WP No. 14978 of 2024 to 23.05.2024, the date on which the petitioner pre-closes the loan. The impugned order demands two kinds of funds. One 2% pre-payment penalty on the outstanding principal. The learned counsel for the petitioner agrees that 2% pre-payment penalty is payable and he is willing to pay. The bone of contention is now with regard to Rs.3.8/- Crores that is charges by the bank.
14. The learned counsel for the Bank submits that it is a matter of contract and the petition should not be entertained. The submission is noted only to be rejected. The respondent - Canara Bank is a State under Article 12 of the Constitution of India. Its actions should pass under Article 14 of the Constitution of India. A perusal at the afore-quoted communications or the loan documents would clearly indicate that at no point in time in any of the sanction letters it was indicated to the petitioner that the rate of interest given to the petitioner was on a reduced amount or a concessional rate of interest. Without indicating to the petitioner that the interest was at a particular rate, at that point in time, the Bank cannot now turn around and charge the interest at a different rate and
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NC: 2025:KHC:9382 WP No. 14978 of 2024 demand for Rs.3.8 Crores for release of the appropriate documents to the petitioner. The learned counsel Sri.Vignesh S. Shetty further submits that he has filed a detailed affidavit as to what was the prevailing rate of interest and justified the demand.
15. The sanction letters not having indicated any of these facts cannot now be supplemented by way of filing of an affidavit before the Court justifying the stand. What is not found in the sanction letter, pursuant to which the petitioner was granted finance, cannot spring by way of statement of objections, affidavits. Therefore, none of the submissions of the learned counsel for the respondent would merit any acceptance. The petition deserves to succeed on a plain and simple reading of the sanction letters, which does not indicate that the interest was on a reduced rate at the time when the amount was sanctioned.
16. The petition thus deserves to succeed with the prayers sought to be granted. Therefore, the following:
ORDER
i) The writ petition is allowed;
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ii) The communication dated 24.05.2024 bearing Ref No.CB6993:MCB-S:DBPL:36:2024-25:SDN issued by the respondent Bank is set aside;
iii) The respondent - Bank is directed to release the title deeds of the property bearing No.3487, 14th main, HAL 2nd Stage, Indiranagar, Bangalore, subject to payment of 2% penalty only;
iv) The respondent - Bank is directed to consider the petitioner's letter dated 23.05.2024 for pre-closure of loan without insisting/demanding on additional interest, penalty, unsubstantiated and hidden charges for the pre-closure of the loan account.
Ordered accordingly.
Sd/-
______________________ JUSTICE M.NAGAPRASANNA KG List No.: 1 Sl No.: 38