Andhra HC (Pre-Telangana)
Punjab National Bank, Rep. By Its Chief ... vs Gangavaram Port Limited, Rep. By Its ... on 4 July, 2017
Author: N. Balayogi
Bench: N. Balayogi
HONBLE SRI JUSTICE V.RAMASUBRAMANIAN AND HONBLE SRI JUSTICE N. BALAYOGI C.C.C.A.No.27 of 2013 04-07-2017 Punjab National Bank, Rep. by its Chief Manager Large Corporate Branch, Makers Tower E, Ground Floor, Cuffe Parade, Mumbai Gangavaram Port Limited, Rep. by its Authorized Signatory, Manager Administration,Having its Registered Office atHansa Cr Counsel for the Appellant : Mr. Ambadipudi Satyanarayana Counsel for respondents : Mr. Y. V. Ravi Prasad, Senior Counsel <GIST: >HEAD NOTE: ? Cases referred THE HONBLE SRI JUSTICE V. RAMASUBRAMANIAN AND THE HONBLE SRI JUSTICE N. BALAYOGI C.C.C.A.No.27 of 2013 JUDGMENT:
(Per VRS,J.) The Punjab National Bank, which suffered a decree for refund of the upfront fee received by them under a Common Loan Agreement, has come up with the above regular appeal.
2. Heard Mr. Ambadipudi Satyanarayana, learned counsel for the appellant and Mr. Y. V. Ravi Prasad, learned Senior Counsel for the respondent.
3. The respondent herein filed a suit in O.S.No.391 of 2009 on the file of the XIII Additional Chief Judge, City Civil Court, Hyderabad, praying for recovery of a sum of Rs.65,74,493/- together with interest at 18% p.a. The plaint averments on the basis of which the claim was made by the respondent were as follows:
a) That the plaintiff, which is engaged in the development and operation of Gangavaram Port at Visakhapatnam on Built, Operate and Transfer (BOT) basis, applied for project finance facilities from various banks and financial institutions to the tune of more than Rs.1000 crores;
b) That a consortium of banks with the State Bank of India as the lead bank entered into a Common Loan Agreement with the plaintiff on 17.10.2005;
c) That under the said Common Loan Agreement 13 banks agreed to provide to the plaintiff, facilities to the total extent of Rs.1,090 crores;
d) That the appellant-bank, which was one among the consortium agreed to provide facilities to the extent of Rs.100 crores;
e) That the rate of interest for the loan was agreed at a fixed percentage of 8.75% p.a. for all the banks irrespective of the amount financed;
f) That the consortium of banks were entitled to claim exemption under Section 10 (23G) of the Income Tax Act, 1961 for the facilities extended to the plaintiff;
g) That though all the banks were entitled to such exemption, a clause was incorporated in the Common Loan Agreement under Article 6.1 to the effect that even in case of withdrawal of exemption, the plaintiff will not be required to compensate the banks on this score;
h) That under the common Loan Agreement, the plaintiff paid upfront fee to each of the banks, including a sum of Rs.50 lakhs to the appellant Bank ;
i) That after the compliance of certain pre-disbursement commitments fixed under the Common Loan Agreement, the plaintiff made a disbursement request on 20.04.2006 to the appellant-bank, for the release of the first instalment of Rs.10,34,50,000/-;
j) That even the State Bank of India, which was the lead bank and which was called as Lenders Agent conducted due diligence and certified the compliance of pre-disbursement conditions through a letter dated 27.04.2006, advising all the banks forming part of the consortium to release the first instalment;
k) That though all other banks released the first instalment of the loan, the appellant herein did not release the first instalment;
l) That on the other hand, the bank sent a letter dated 09.05.2006 demanding an additional amount of upfront fee equivalent to the Net Present Value of additional interest at 1%;
m) That the demand was made purportedly on the ground that the Income Tax exemption stood withdrawn;
n) That by a letter dated 11.05.2006, the plaintiff reminded the defendant bank of its obligation under the Common Loan Agreement, but the bank did not release the amount;
o) That therefore the plaintiff made a demand for the refund of the upfront fee on the ground that they would have the defendant bank replaced by another bank.
p) That in response to the demand made by the plaintiff for refund of the upfront fee, the bank sent a letter dated 19.02.2007 refunding an amount of Rs.15 lakhs and refusing to return the balance of Rs.35 lakhs;
q) That therefore, the plaintiff issued a legal notice dated 21.04.2007 and came up with the suit for recovery of money.
4. The appellant-bank filed a written statement contending inter alia that the provisional sanction of loan to the tune of Rs.100 crores by the defendant- bank was subject to various terms and conditions contained in the sanction letter and Common Loan Agreement; that the borrower was obliged under the Common Loan Agreement to pay to the respective lenders, an upfront fee of 0.5% of the amount of loan sanctioned; that under the terms of the Common Loan Agreement, the upfront fee is not refundable; that there was actually a delay in the availment of the sanctioned term loan, as the plaintiff-company requested for the first disbursement in May, 2006 due to various reasons such as fishermen agitation, finalising the port operator etc.; that during the intervening period i.e., from June 2005 when the loan was sanctioned, up to June, 2006 when the request for initial disbursement was made, there were so many changes on the economic scenario, like hardening of interest rates, scrapping of Section 10 (23G) of Income Tax Act etc.; that due to the said changes and due to the delay in availing the sanctioned loan, the defendant bank requested the plaintiff to agree for suitable increase in the rate of interest; that when the issue was pending negotiations, the plaintiff highhandedly and unilaterally sent a letter to the bank informing the bank that they have replaced the defendant- bank with IDBI bank; that in view of such a conduct on the part of the plaintiff, they are not entitled to seek refund of the upfront fee; that the refund of Rs.15 lakhs by the defendant was as a matter of concession and indulgence and that therefore, the question of payment of any interest on the same or the question of payment of damages would not arise; that the plaintiff earlier filed a writ petition in W.P.No.13931 of 2007 on the file of this Court seeking the very same relief, but the said writ petition was dismissed by this Court; that the suit is barred by limitation and the payment of Rs.15 lakhs would not save the limitation and that therefore the suit was liable to be dismissed with costs.
5. On the above pleadings, the trial Court framed 8 issues as arising for consideration. They are
1. Whether the plaintiff is entitled for recovery of 65,74,493/- and interest @ 18% per annum on Rs. 35,00,000/- as claimed?
2. Whether the defendant is at liberty to enhance addressed interest @ 1% per annum on the loan amount?
3. Whether the plaintiff is exempted from Section 10(23G) of Income Tax Act in view of the article 6.1 (XXXVI) of the common Loan Agreement?
4. Whether the payment made by the defendant for a tune of Rs.15,00,000/- to the plaintiff towards part payment of Rs.50,00,000/-?
5. Whether the claim of the plaintiff is barred by limitation?
6. Whether the suit is barred by res judicata in view of order of Honble High Court in W.P.No.13931/2007?
7. Whether the plaintiff is entitle for Rs.5,00,000/- towards damages?
8. To what relief?
6. The respondent/plaintiff examined two witnesses on their behalf. PW.1 was the Manager Administration of the plaintiff-company. PW.2 was the Chief Financial Officer of the plaintiff-company. As many as 21 documents were filed by the plaintiffs and they were marked as Exs.A.1 to A.21.
7. On the side of the appellant/defendant-bank, the Chief Manager of the Bank was examined as DW.1. No documents were filed on behalf of the appellant/defendant.
8. After taking into account the oral and documentary evidence and after considering the terms and conditions of the Common Loan Agreement, the trial Court answered issues 1 to 7 holding that the plaintiff was entitled to recover the upfront fee for breach of contract and that the plaintiff was also entitled to interest at 9.75% p.a. Therefore, the trial Court decreed the suit directing the appellant/defendant to pay a sum of Rs.35 lakhs with interest at 9.75% p.a. from 19.02.2007 till the realisation, together with interest at 9.75% p.a. on the amount of Rs.50 lakhs from 17.10.2005 to 19.02.2007. The claim for damages was rejected by the trial Court.
9. Aggrieved by the aforesaid judgment and decree, the defendant-bank has come up with the above regular appeal.
10. The main thrust of the argument of Mr. Ambadipudi Satyanarayana, learned counsel for the appellant-bank is that when the terms of the contract made it clear that the upfront fee is not refundable, it was not open to the respondent/plaintiff to stake a claim for refund. Moreover, the appellant/ defendant, according to the learned counsel, was not guilty of breach of contract. On the contrary, it was the respondent/plaintiff who committed the breach of contract by substituting IDBI Bank in the place of the appellant-bank, even when the negotiations on the demand for increase in the rate of interest were going on. Drawing our attention to the series of correspondence filed as exhibits, it is further contended by the learned counsel for the appellant that the appellant-bank merely suggested a small increase in the rate of interest due to the change in the economic scenario and that after having agreed to negotiate, the respondent/plaintiff, substituted the appellant with the IDBI unilaterally.
11. In response, it was contended by Mr. Y. V. Ravi Prasad, learned Senior Counsel for the respondent/plaintiff that the appellant was only one of the 13 banks, who agreed to extend financial facilities to the plaintiff; that all the banks agreed upon a fixed rate of interest and the same was also incorporated in the Common Loan Agreement; that when none of the remaining 12 banks raised any issue with regard to the so called change of economic scenario, the demand made by the appellant-bank was unreasonable; that it was only on account of one of the 13 banks acting indifferently that the respondent/plaintiff was compelled to replace the appellant-bank with another bank; and that the very repayment of part of the upfront fee was indicative of the weak defence put up by the bank.
12. We have carefully considered to submissions.
13. From the rival contentions and the grounds of appeal, it appears that the following points arise for determination:
(a) Whether in the light of Article 2.9(b) of the Common Loan Agreement, the Court was justified in ordering the refund of the upfront Fee, when the parties had mutually agreed that the same shall be non-refundable?
(b) Whether the breach of the agreement was on the part of the plaintiff, entitling the bank to invoke the non-refundability clause?
(c) Whether the refund of part of the up front Fee by the bank can be taken to be an indication that the upfront Fee was not to be treated as non-refundable? and
(d) Whether the Court below was right in awarding interest?
Point (a):-
14. The first point arising for determination is as to whether in the light of Article 2.9(b) of the Common Loan Agreement, the up front Fee can be treated to be refundable.
15. There can be no doubt about the legal position that parties to a contract are bound by the terms of the contract. Therefore, generally a fee which is prescribed under an agreement to be non-refundable cannot be directed to be refunded. But there are exceptions to this universal rule.
16. The contention of Mr. Ambadipudi Satyanarayana, learned counsel for the appellant/bank, is that the clause regarding non-refundability of the upfront Fee was not a clause in terrorem, but was intended to compensate the bank for blocking funds to the tune of Rs.100 Crores from the date of sanction until the date of disbursement. Though it is not contended by the learned counsel for the appellant nor has it been raised by the bank in the written statement in so many words, we can take it that the bank wanted to treat this upfront Fee as an opportunity cost for making available a sum of Rs.100 Crores at all times (on call) from the date of sanction of the loan till disbursement.
17. At the outset, it should be pointed out that there is no pleading to the effect that the upfront fee was intended to compensate the Bank for keeping an amount of Rs.100 crores available for disbursement. Moreover, if it was actually an opportunity cost, the bank should have normally used the expression commitment fee. We can take judicial notice of the fact that in banking parlance, what is charged by lending institutions for blocking a quantum of funds and making them available for the borrowers to withdraw at any time they want, is commitment fee.
18. Let us ignore for the present, the nomenclature used and take it that the upfront Fee was intended as a compensatory cost for making available a sum of Rs.100 Crores for the benefit of the borrower. Even if we treat the upfront Fee paid by the respondent in such a manner, the same would become non-refundable only if anyone or more of the following two conditions are satisfied:
(i) That the bank, in fact, kept locked a sum of Rs.100 Crores for a specified duration of time and hence they became entitled to appropriate the upfront Fee.
(ii) That there was no breach of the contractual obligations on the part of the bank, but only a breach on the part of the borrower.
19. Therefore, we have to test on the basis of the evidence available on record as to whether the bank satisfies anyone or more of the above conditions, to enable them to invoke Article 2.9(b).
20. In order to find an answer to the above question, it is necessary to take note of the time line of events, which is as follows:
i) The Common Loan Agreement was entered into between the plaintiff and the consortium of banks on 17-10-2005. This Common Loan Agreement was marked as Ex.A-1.
ii) The first ever correspondence that emanated from the plaintiff company was dated 20-4-2006 (marked as Ex.A-2), whereby the plaintiff wanted the first disbursement to be made on 01-5-2006, from all the 13 banks. The amount of disbursement sought from various banks ranged from Rs.2.58 Crores to Rs.22.24 Crores. The amount of disbursement sought from the appellant bank was Rs.10.34 Crores.
iii) The lead bank, namely, the State Bank of India (termed as Lenders Agent) sent a reply dated 27-4-2006 (marked as Ex.A-3) informing all the members of the consortium that the date of disbursement would be 10-5-2006 and that the conditions precedent to disbursement as indicated in Article-V of the Common Loan Agreement have been satisfied, subject to certain issues raised in the letter dated 25-4-2016.
iv) By a Lending Confirmation Notice (marked as Ex.A-4) dated 08-5-
2006, the State Bank of India informed all other banks, in terms of Article 2.5.2(b) of the Common Loan Agreement that the conditions precedent to the disbursement as per Article-V of the Common Loan Agreement have been either satisfied or waived by the Senior Lenders. Therefore, the State Bank of India requested all members of the consortium to make disbursement as per Ex.A-2.
v) But instead of making a disbursement as requested by the lead banker, the appellant bank seems to have started negotiations, first on 08-5-2006 orally and then recording the same in a letter dated 09-5-2006 marked as Ex.A-5. The contents of Ex.A-5 are relevant and hence they are extracted as follows:
Please refer to the telephonic talk we had on 8.5.2006 regarding rate of interest on the Term Loan of Rs.10000 lakh sanctioned by the bank to part-finance the cost of development of the Gangavaram Port.
During the course of discussion, it was indicated that the Term Loan was sanctioned by the bank in June, 2005. Since then, the interest rates have hardened and the Income-tax benefit under Section 10 (23G) of the Income-tax Act has been withdrawn. In this backdrop, the rate of interest approved by the bank i.e. 8.75% (fixed) for construction period and 8.75% (linked with BPLR) thereafter for a loan with tenor of 14 years is unremunerative. It has, therefore, become imperative for the bank to have a re-look to the rate of interest in the present scenario.
You have appreciated the banks viewpoint in this regard and have consented to pay upfront the additional amount equivalent to NPV of additional interest @ 1% for the loan period.
I request you to confirm the above understanding to enable us to process the request received from the branch for amendment in terms and conditions of the existing sanction.
vi) By a reply dated 11-5-2006 (marked as Ex.A-6), the Chairman and Managing Director of the plaintiff expressed willingness to call on the Chairman and Managing Director of the appellant bank for resolving the issue.
vii) By a separate letter of the same date (filed as Ex.A-7), the plaintiff company also highlighted Article 6.1(A)(xxxvi) of the Common Loan Agreement, as per which, an enhancement of the rate of interest cannot be claimed due to non-availability of Income-tax exemption.
viii) It appears that there was no further correspondence after 11-5-2006 for a full period of about 25 days and hence by a letter dated 06-6- 2006 (marked as Ex.A-8), the plaintiff company refused to accept the demand for increase of the rate of interest. Under this letter, the plaintiff also sought refund of the upfront Fee, on the ground that the appellant bank failed to honour its commitments under the Common Loan Agreement.
ix) After a lull for about 4 months, the plaintiff company sent another letter dated 18-10-2006 (marked as Ex.A-9), again demanding refund of the upfront Fee.
x) The aforesaid letter was followed by another letter dated 22-11-2006 (marked as Ex.A-10) and a further letter dated 13-02-2007 (marked as Ex.A-11).
xi) In response to all the aforesaid 3 letters, the bank sent a communication dated 19-02-2007 (filed as Ex.A-12), enclosing a Demand Draft for Rs.15 lakhs, without raising a little finger about the validity of the demand for refund. Since the contentions of the appellant bank are required to be tested on the strength of the contents of this communication (filed as Ex.A-12), they are reproduced as follows:
This bears reference to your letter requesting for refund of up front fee of Rs.50 lacs paid for the term loan of Rs.100 crores sanctioned by our Bank.
We are pleased to inform that on our recommendations, our authorities have permitted to refund Rs.15 lacs.
We enclose herewith our Demand Draft No.SXA 534834 dated 19/2/07 for Rs.15 lacs being the amount of refund of up front fees.
xii) But thereafter the Bank did not pay the balance, forcing the plaintiff to send a letter dated 28-02-2007 (marked as Ex.A-13) followed by a legal notice dated 21-4-2007 (marked as Ex.A-14). Thereafter, the suit was filed on 25-3-2009.
21. Keeping in mind the story as it unfolds from the aforesaid correspondence, if we have a look at the written statement filed by the bank, it is seen that the justification for the demand of enhanced rate of interest was pleaded by the bank in para-8 of the written statement. In para-8 of the written statement, it was claimed by the bank that there was delay in the plaintiff company availing the sanctioned term loan due to various reasons such as fishermen agitation, finalisation of the Port Operator etc., and that during this period of delay, the economic scenario changed to the disadvantage of the bank.
22. In other words, what is pleaded by the bank in the written statement is that due to the delay on the part of the plaintiff in availing the disbursement, the conditions of the finance market changed considerably to the disadvantage of the bank. But if this is so, the conditions of the finance market, had changed not only for the appellant bank but also for 12 other banks which formed part of the consortium. Neither the letter dated 27-4-2006 (marked as Ex.A-3) nor the letter dated 08-5-2006 (marked as Ex.A-4), sent by the State Bank of India makes any mention either about the change of the market conditions or about the delay on the part of the plaintiff in seeking disbursement. Therefore, it is clear that the pleadings in para-8 of the written statement were made as an after thought, only as a ruse to raise the rate of interest without any actual justification there for.
23. We should also point out that the bank never pleaded in the written statement that they blocked an amount of Rs.100 Crores to be disbursed to the plaintiff and that therefore the non-refundability of the upfront Fee was traceable to the opportunity cost.
24. In any case, there is no evidence on record either oral or documentary on the side of the bank to show that the bank kept aside a huge amount of Rs.100 Crores for being utilised by the plaintiff at any point of time. Therefore, it is not possible for us to accept the theory now sought to be floated in the form of an argument.
25. Coming to the contention revolving around the non-refundability clause, it should be pointed out that under Section 39 of the Contract Act, whenever a party to a contract refuses to perform or disables himself from performing his promise in entirety, the promisee may put an end to the contract, unless he has signified his acquiescence. Sometimes an indication given by one of the parties to a contract which is to be performed at a future date, that he may not be willing to perform his part of the agreement, is called anticipatory breach. Though this expression anticipatory breach is not accepted on the ground that there can be no breach in praesenti of an obligation which is to be performed in future, the principle underlying the same is nevertheless accepted.
26. In the case on hand, at the time when the performance of the contract was demanded by the plaintiff company, by seeking disbursement of the first instalment of loan, the appellant bank alone acted completely differently from the way the other 12 banks reacted. Though it is argued by Mr. Ambadipudi Satyanarayana, learned counsel for the bank, that the bank never refused to perform their part of the obligations and that therefore Section 39 of the Contract Act would not apply, it is clear from the letters marked as Exx.A-5 to A-12 that the bank never indicated their willingness to perform their obligations. On the contrary, the bank refunded part of the up front Fee. Therefore, in the light of the correspondence and in the light of the refund of part of the up front Fee, it is not open to the bank now to fall back upon Article 2.9(b). Hence point
(a) arising for consideration has to be answered against the appellant. Point (b):
27. The second point arising for determination in this appeal is as to whether the breach of the agreement was on the part of the plaintiff entitling the bank to invoke the non-refundability clause.
28. As we have pointed out earlier, the case on hand does not strictly fall under the category of breach of an obligation in praesenti. The case may fall under Section 39 and is somewhat in the nature of an anticipatory breach. As we have indicated in the time line of events, the Common Loan Agreement was entered into on 17.10.2005. The plaintiff became entitled for the disbursement of the first instalment of the loan with effect from 01.05.2006/10.05.2006. The lead bank certified the compliance of pre-disbursement conditions, by their letter dated 27.04.2006. A lending conformation notice was also issued by the lead bank, viz., the State Bank of India, under Ex.A.4 dated 08.05.2006, to all the 12 banks including the plaintiff requesting all the banks to make disbursement.
29. It was at that time that the appellant-bank made a request for revising the terms of the contract. What the appellant-bank did by their letter Ex.A.5 dated 09.05.2006 was to seek alteration of the terms and conditions of the contract. In other words, the appellant-bank wanted a novation. It is true that the appellant-bank did not say in so many words in their letter Ex.A.5 dated 09.05.2006 that they will not comply with the terms of the Common Loan Agreement (Ex.A.1). But the bank kept quiet without responding to any of the subsequent letters of the plaintiff under Exs.A.7 to A.11.
30. Even when the plaintiff made a categorical refusal to comply with the demand for increasing the rate of interest, under Ex.A.8 dated 06.06.2006, the Bank kept quite. The last portion of Ex.A.8 dated 06.06.2006 reads as follows:
It is almost a month over the due date of disbursement and we note that till date PNB has not disbursed its share of Rs.10.345 crs.
We have also received a letter from PNB (referred in 8 above) asking the Company to consent and remit an upfront additional amount equivalent to NPV of additional interest @ 1% for the loan period. The reasons cited for seeking the increase in the interest rate was general hardening of the interest rates and the withdrawal of benefits u/s 10 (23G).
We have contested this unreasonable demand (vide our letter referred in 9 above) of increasing the interest rate by 1% on the grounds that the CLA executed with all Banks including PNB categorically mentions that the applicable interest rate will be 8.75% p.a., which is FIXED during construction period. Also, the Article 6.1 (A) XXXVi) of CLA clearly mentions that the Borrower shall not be required to pay on account of non-availability of exemption under the section 10 (23G) in the event such non-availability is not owing to an act of omission or default on part of the Borrower. Therefore, the demand of PNB to increase the interest rate cannot be entertained.
By failing to timely disburse the loan amount, PNB has failed to comply with the provisions of Common Loan Agreement executed by it. This leaves us with no choice, other than replacement of PNB. In view of this you are requested to immediately return the upfront fees of Rs.50 lakhs already remitted to PNB.
31. At least in response to Ex.A.8, dated 06.06.2006, the Bank could have sent a reply stating that they are prepared to perform their obligations under the Common Loan Agreement without seeking alteration of the terms of the contract. But they did not do so.
32. After Ex.A.8, dated 06.06.2006, the plaintiff sent three more letters under Ex.A.9 dated 18.10.2006, Ex.A.10 dated 22.11.2006 and Ex.A.11 dated 13.02.2007. The bank never even responded to these letters from October, 2006 till February, 2007. But at last, the Bank came up with the only response under Ex.A.12 dated 19.02.2007 that they were refunding an amount of Rs.15 lakhs. Even in this Ex.A.12, the bank never indicated their desire to perform their part of the obligations under the Common Loan Agreement, as per its original terms.
33. The conduct of the bank from June, 2006 up to February, 2007 shows very clearly that they were not willing to perform their obligations under the Common Loan Agreement, as per the original terms and conditions. Their intention, as reflected by their long silence and by their response under Ex.A.12, is very clear to the effect that unless the plaintiff agreed for revising the terms of the Common Loan Agreement, the bank was unwilling to perform its obligations. Therefore, it is a very clear case of the bank refusing to perform its obligations as per the original terms. Hence the conclusion is inescapable that the breach was on the part of the bank. Hence Point (b) is also answered against the appellant holding that the plaintiff was not on breach and that the bank, which refused to perform its obligations, cannot fall back upon the non-refundability clause.
Point (c):
34. The third point arising for consideration is as to whether the refund of part of the upfront fee by the bank can be taken to be an indication that the upfront fee was not to be treated as non-refundable.
35. The answer to this question is not too difficult to find. As we have pointed out in the discussion under Point (b), the demand made by the appellant-bank on 09.05.2006 under Ex.A.5, for revisiting the terms of the contract, was turned down very clearly at least by Ex.A.8 dated 06.06.2006. Under Ex.A.8 dated 06.06.2006 the plaintiff also demanded refund of the upfront fee of Rs.15 lakhs. After keeping quiet to all the correspondence made from 06.06.2006 up to 13.02.2007 under Exs.A.8 to A.11, the bank chose to refund an amount of Rs.15 lakhs under Ex.A.12, dated 19.02.2007. We have already extracted the contents of Ex.A.12 dated 19.02.2007. In the said letter, the bank did not either protest the action of the plaintiff in replacing it with IDBI bank or challenged the demand for refund of the upfront fees. There is not even a whisper in Ex.A.12 dated 19.02.2007 that the plaintiff was not lawfully entitled to the refund of the upfront fees. It is not stated in Ex.A.12 that the bank was refunding a sum of Rs.15 lakhs, only as a gesture of goodwill. It is also not stated in Ex.A.12 that the amount of Rs.15 lakhs was offered either for purchasing peace or as full and final settlement of the claim of the plaintiff.
36. Therefore, the payment of Rs.15 lakhs, without an indication that the same was for the purpose of closing the issue once and for all, cannot but be taken as a pointer to the effect that the upfront fee was never treated by the bank as non-refundable. Hence Point No.(c) is also answered against the appellant-bank.
Point (d):
37. The last point arising for determination is as to whether the Court below was right in awarding interest at 9.75% p.a. on the amount of Rs.35 lakhs, from 19.02.2007 till realisation and awarding interest at 9.75% p.a., on the amount of Rs.50 lakhs from 17.10.2005 to 19.02.2007.
38. There are two issues that would arise with respect to Point (d). The first is with respect to the rate of interest awarded by the Court below and the second is with respect to the interest awarded for the period from 17.10.2005 to 19.02.2007, on the total amount of Rs.50 lakhs.
39. Insofar as the rate of interest is concerned, the trail Court arrived at the rate of interest at 9.75% on the ground that under Article 2.9 of the Common Loan Agreement, the borrower was made liable to pay default interest at 1% p.a., on the entire outstanding amount of loans, over and above the agreed rate of interest at 8.75%. Therefore, the trial Court thought fit to take this default interest to arrive at the rate of 9.75%.
40. But we do not think that the reasoning adopted by the Court below is correct. Article 2.9 of the Agreement imposes an obligation upon the borrower to pay default interest, in the event of the defaults enlisted under the Article. The refusal of the bank to refund the upfront fee cannot be termed as an act of default covered by Article 2.9. As we have pointed out earlier, the earliest occasion for the bank to comply with the terms of the Common Loan Agreement, arose in the first week of May, 2006. But by their letter Ex.A.5 dated 08.05.2006, the bank sought to revisit the terms of the contract. It is from that date, viz., 9.05.2006 that a difference of opinion between the parties arose, leading to the plaintiff replacing the appellant-bank with IDBI and seeking refund of the upfront fee under Ex.A.8 dated 06.06.2006. It is true that from 06.06.2006, the bank kept quiet until 19.02.2007. But the refusal of the bank to refund the upfront fee cannot by any stretch of imagination be termed as a default entitling the plaintiff to default interest. All that the Court below could have done is to award interest at the same rate as the bank would have charged on any disbursement made by them under the Common Loan Agreement. In other words, if the bank had made disbursement of any amount under the Common Loan Agreement, the plaintiff would have paid (assuming that they were prompt) interest only at the rate of 8.75%. Therefore, the Court below was wrong in awarding interest at 9.75%.
41. Similarly the Court below was wrong in awarding interest on the entire amount of Rs.50 lakhs from 17.10.2005 to 19.02.2007. From 17.10.2005 up to 9.05.2006, the contract was alive and the very right of the plaintiff to seek enforcement of the contract arose only in the first week of May, 2006. Therefore, the question of calculating interest from 17.02.2005 did not arise, when the contract was alive up to 09.05.2006.
42. Moreover, in cases of this nature, the liability to pay interest would arise only from the date of the demand for refund. Earliest date on which a demand for refund of the upfront fee was made was 06.06.2006 under Ex.A.8. This was followed by subsequent demands under Exs.A.9 to A.11 dated 18.10.2006, 22.11.2006 and 13.02.2007. In none of these letters, any demand was raised by the plaintiff for refund of the upfront fee together with the interest. Therefore, we do not think that the plaintiff is entitled to interest on the amount of Rs.50 lakhs from 17.10.2005 to 19.02.2007.
43. Therefore, we hold on the Point (d)
1. That the plaintiff is not entitled to any interest on the amount of Rs.50 lakhs from 17.10.2005 to 19.02.2007; and
2. That the plaintiff is entitled only to interest at 8.75% p.a., from 19.02.2007 till realisation, on the amount of Rs.35 lakhs. Conclusion:
44. In the result, the appeal is partly allowed and the judgment and decree of the Court below are modified to the following effect.
1. The respondent/plaintiff will be entitled to a decree for recovery of a sum of Rs.35 lakhs from the appellant-bank.
2. That the respondent/plaintiff will also be entitled for recovery of simple interest at the rate of 8.75% p.a., from 19.02.2007 till the date of realisation on the amount of Rs.35 lakhs; and
3. That the respondent/plaintiff will be entitled to proportionate costs through out.
4. That all other claims of the plaintiff would stand rejected.
45. As a sequel, miscellaneous petitions pending in this appeal, if any, shall stand closed. There shall be no order as to costs.
__________________________ JUSTICE V. RAMASUBRAMANIAN __________________ JUSTICE N. BALAYOGI 4th July, 2017