National Consumer Disputes Redressal
Hdfc Bank Ltd. vs Kishore R. Worah on 3 April, 2006
Equivalent citations: 3(2006)CPJ40(NC)
ORDER
P.D. Shenoy, Member
1. This is a case wherein HDFC Bank had sold the shares pledged by the borrower when the latter had over-drawn beyond his authorized limits on several occasions. The issue involved in this case is whether the action of the Bank in selling a part of the pledged shares to make good the deficit in borrowing power and the margin when the borrower had overdrawn in excess of the eligible limits, amounts to deficiency of service. The answer is No. The complaint in brief as under:
2. The complainant had applied for loan against shares to HDFC Bank, (hereinafter referred to as the Bank), Chembur Branch. The opposite party the Bank sanctioned loan to the tune of Rs. 5,00,000 against security of shares. The drawing power granted was to the extent of 65% of value of shares. An agreement to that effect was executed between the parties. The grievance of the complainant are that the opposite party failed to supply him the copy of the said agreement though demanded repeatedly. The complainant has also alleged the lack of transparency in communication between the opposite party and the complainant in respect of determining the market value of the said shares. It is further alleged by the complainant that sometime in May 2000 the opposite party arbitrarily reduced the drawing power from 65% to 60% without obtaining approval from the complainant. It is also alleged by the complainant that on 21.9.2001 which was a Friday, the opposite party Bank called upon the complainant to pay Rs. 38,325.17 within 2 days. The opposite party also threatened to sell the shares in case of non-payment of the said amount. According to the complainant the said amount was above minimum margin. The complainant however, paid Rs. 5,000 on 22.9.2001 on the next day, leaving the balance of Rs. 3,315.17 and in spite of payment of the said amount the opposite party sold the shares worth Rs. 1,40,481 on 26.9.2001 which were deposited with the Bank as security.
3. The case of the complainant is that the said sale of shares is in excess of their demand which was made on 23.9.2001 and is in breach of contract/agreement entered into between the parties. The opposite party ought to have given 7 days' notice as required under the agreement. It is also pointed out that the opposite party never demanded the excess amount. The amount demanded was only to the extent of Rs. 3,315.17 as on 23.9.2001. The complainant came to know the said fact only when he received the statement from the opposite party. The complainant, therefore, has filed this complaint claiming the following reliefs:
1. To produce the agreement entered with complainant and the entire loan file executed by opponent Bank with the complainant.
2. To credit to the complainant's account restoring all shares sold (e.g. ACC and Colgate Ltd.)
3. To give Rs. 10,000 as compensation for the great mental torture caused and harassment undergone on account of sale of shares.
4. To pay interest 24% on sale of shares done without notice e.g. on Rs. 1,40,481 from the date of sale 26.9.2001 to the time of payment.
5. Any other grant of relief as this Forum deems fit.
Order of the Fora below.
4. The District Forum after hearing the parties and going through the records has partly allowed the complaint in the following terms vide order dated 26.4.2005:
The opposite parties are directed to purchase 300 shares of Colgate Ltd., and 562 shares of ACC in the name of the complainant at its own cost within the period of one month and retain the same with it as security for the over drawing facilities granted to the complainant, if the complainant has been availing of said facilities.
If however, the complainant ceased to have such facilities, the opposite party shall hand over the said shares to the complainant immediately.
The opposite parties are further directed to pay the amount equivalent to the amount to the dividend and bonus, if any declared by the said companies viz., Colgate Ltd. and ACC on the shares within one month from the date of the order. The complainant to repay the sum of Rs. 1,10,166 along with the interest, if any, paid on the said amount to the opposite party within one week's time from today. The opposite parties are at liberty, if the said amount is still lying in the account of the complainant to debit the said amount in the account of the complainant. The opposite party shall bear the cost of the proceedings and shall pay Rs. 250 as cost to the complainant.
5. The State Commission after hearing the parties dismissed the appeal of the Bank holding that:
The bank without waiting for expiry "of 7 days from the date of intimation sold the shares. The bank acted in contravention of the terms and conditions of the agreement. The breach of the agreement is deficiency in service. The bank failed to honour its own commitment given in writing. Therefore, the finding of the District Consumer Forum with regard to deficiency in service is correct. Impugned order passed by the District Consumer Forums does not at all suffer from any illegality. No interference is called for.
6. Dissatisfied and aggrieved by the order of the State Commission the HDFC Bank has filed this revision petition.
Case of the Revision Petitioner:
7. The account of the respondent had an over draft facility for a sum of Rs. 2,50,000 and the drawing power granted to the respondent was 65% of the value of shares as on date of the withdrawal. An agreement was signed between the parties which entitled the bank to demand an additional amount from the respondent in case of fall in the value of shares. Subsequently in accordance with the fresh guidelines issued by the Reserve Bank of India (RBI) the drawing power of the respondent was reduced from 65% to 60% of the value of the shares pledged by him which meant 40% compulsory margin was required to be maintained by all bankers. In the year 2001 the value of the shares fell steeply and consequently the account of the respondent was over drawn above the permissible limit for three successive months. The petitioner bank, therefore, exhorted the respondent several times to regularize his account and accordingly issued communications dated 28th April, 2001, 14th May, 2001, 9th June, 2001, 7th July, 2001 and 21st July, 2001 finally. As for all intents and purposes, the petitioner's demand made in terms of Clause 12(ii) of the agreement was not heeded by the respondent, the revision petitioner issued a final reminder by way of telegram on 21st September, 2001 informing the respondent about the excessive drawal of the account by Rs. 38,350. Respondent was also told that if the account was not regularized by the evening of 23rd September, 2001 shares will be sold. On 2&th September, 2001 the shares were sold for Rs. 1,40,481. As on that date Rs. 56,426 was owed by the respondent to the petitioner.
Submissions of the learned Counsel for the revision petitioner.
8. The learned Counsel submitted that the respondent had to maintain certain margin at all times for having taken over draft facility against the shares. Repeated letters by the bank asking to make good the deficit did not yield any positive response from the respondent. The telegram sent was only a final reminder. Accordingly, more than seven days notice was given to make good the deficit. As at all times the respondent has to maintain 40% margin whenever over drawal take place, the amount required to make good the deficit is 2Vi times the overdrawn amount. To prove this contention he has given certain calculations.
9. He specially drew our attention to the communication from the HDFC Bank to the respondent dated 28th April, 2001 as against the permissible drawing power is Rs. 2,28,670 and the current outstanding is Rs. 2,55,252.94 and excess was Rs. 27,252.94, He was informed as follows:
You are informed to regularize the account by pledging additional securities as per Bank's approved list or fund the account within seven days of receipt of this communication. If your account is not regularized within the said period without any prejudice to the bank's rights as per the agreement, we will proceed with the sale of any/ all securities to cover the deficit your account. Please inform us your e-mail address for a immediate update on your current limit.
The respondent has not denied the receipt of this letter and also the subsequent correspondence.
Submission of the learned Counsel for the respondent:
10. The learned Counsel for the respondent laid stress on the Clause 12(ii) of the Loan-Agreement-cum-Guarantee signed between the parties which he quoted:
If at any time the value of the said securities falls so as to create a deficiency in the margin requirement specified by the bank from time to time or if there is an excess over the overdraft facility limit, the borrower shall within seven days of notice from the bank, deposit with the back additional security in the form of cash or such other securities which may be acceptable to the bank, failing which the bank may at its discretion sell, dispose of or realize any or all of the securities then held by the bank without liable for any loss or damage or diminution in value sustained thereby.
11. He pointed out that in the telegram which was issued to him by the revision petitioner less than seven days notice was given to him before the sale of the shares. The telegram is dated 21.9.2001 calling upon the complainant to make good the deficit in over draft account and the shares were sold on 26.9.2001 without waiting for the expiration of seven days' notice which means a clear cut deficiency of service. Accordingly, both the lower Fora have upheld his complaint. Secondly, he submitted that as against the deficit of only Rs. 38,350, the bank has sold Rs. 1,40,000 worth blue chip shares causing heavy loss and mental agony to the complainant/respondent.
12. He further submitted that the bank had no business to sell the shares much above the shortage in security.
Findings:
13. The main issue raised by the learned Counsel for the respondent is that he was given less than seven days' notice as stipulated in Clause 12(ii) of the loan agreement-cum-guarantee, before the shares were sold. He was issued a telegram on 21.9.2001 and before the expiration of seven days notice the bank unilaterally sold the shares:
14. Clause 12 Sub-clauses (i) to (iii) reads as follows:
In the event that the borrower creates a pledge/mortgage of the securities in favour of the bank and the bank advances monies to the borrower under the over draft facility in the manner set out in this agreement then it is agreed by and between the parties that:
The bank may at any time require the borrower to change the securities pledge/mortgaged. Such change in the securities would, inter alia, include withdrawal of existing securities, substitution, replacement of fresh securities addition of additional securities etc. Such withdrawal may be of any of the securities, pledged/mortgaged, whether belonging to or held in the name of the borrower or guarantor. Such withdrawal may be due to the borrower alone (by instructions given by the borrower in writing) and the guarantor, hereby agreed that withdrawal as aforesaid shall be deemed to have been done with the guarantor's consent and concurrence and the bank shall be entitled to act in accordance with such instructions from the borrower.
If at any time the value of the said securities falls so as to create a deficiency in the margin requirement specified by the bank from time to time or if there is an excess over the overdraft facility limit, the borrower shall within seven days of notice from the bank, deposit with the bank additional security in the form of cash or such other securities which may be acceptable to the bank, failing which the bank may at its discretion sell, dispose of or realize any or all of the securities then held by the bank without liable for any loss or damage or diminution in value sustained thereby.
In case of expiry of the term or in case the borrower fails to make any payment due to the bank in respect of the overdraft facility, the Bank would have the full rights to sell dispose of or realize the said securities after giving the borrower, notice of not less than 7 (seven) days, on such terms and for such price that the bank deems fit, and apply the net proceeds towards the satisfaction of the balance outstanding in the overdraft accounts including charges.
15. In our view it is wrong to construe that the telegram dated 21.9.2001 was the notice under this clause. In fact, it was the last reminder. Letters were sent earlier to him by giving more than seven days time to make good the loss in deficit. The first notice dated 28.4.2001 mentions about the details of excess over drawal and the statement of value of shares pledged. The relevant portion of the letter reads as follows:
You are informed to regularize the account by pledging additional securities as per Bank's approved list or fund the account within seven days of receipt of this communication. If your account is not regularized within the said period without any prejudice to the bank's rights as per the agreement, we will proceed with the sale of any / all securities to cover the deficit your account. Please inform us your e-mail address for an immediate update on your current limit.
16. Another letter dated 14.5.2001 in which he was requested to regularized the account by funding or pledging additional shares within 10 days from the date of this letter. The next notice dated 26.5.2001 also mentions the same thing. The notice dated 9.6.2001 states as follows:
You are informed to regularize the account by pledging additional securities or fund the account within seven days from the date of this communication. If our account is not regularized within the said period, without any prejudicate to the bank's rights as per the agreement, we will e proceed with the sale of any/all securities to cover the excess in your account.
17. This statement is repeated in the notice dated 7.7.2001 and also on 21.7.2001. In response to the deficit to the tune of Rs 27,252, Rs. 2,252, Rs. 19,252, Rs. 20,252, Rs. 31,290 and Rs. 18,290, the respondent had deposited only Rs. 10,000, Rs. 5,000, Rs. 5,000, Rs. 5,000, and Rs. 5,000, on 9.5.2001, 4.6.2001, 11.6.2001, 13.7.2001 and 26.7.2001 respectively as per the bank statement submitted by the respondent which is clearly indicative of the fact that the respondent did not make good the deficit and hence, the notice were issued to him in the form of letters which are not in dispute. Through these letters the bank had given move than seven days notice. As a final reminder the telegram was sent. This generous act cannot be termed as deficiency of service. Therefore, we hold that the bank had given him adequate notice before they sold his shares.
18. The second limb of the argument of the learned Counsel for the respondent is that the bank sold Rs. 1,40,000 worth blue chip shares. It is clear from the record that on the date of the sale by the bank, the account of the complainant was overdrawn by Rs. 56,426 including accrued interest. The respondent's Advocate contended that the sale of blue chip shares was far in excess of the over draft limit which is a blatant violation go the agreement by the bank.
19. In the affidavit filed on behalf of HDFC Bank before the State Commission a workout of 60:40 margin narrated in the sample quoted below is mentioned:
Share value is Rs. 1,000 Available loan is Rs. 600 Margin money is Rs. 400
20. If the shares value has been reduced to Rs. 800 then the withdrawing power (i.e., 60%) shall also reduce to Rs. 480 and, therefore, the difference between Rs. 480 and Rs. 600 shall be the overdrawn amount i.e., Rs. 120 and to recover the said Rs. 120 as overdrawn amount, the Bank has to sell 2.5 times of the value of the overdrawn amount i.e., the value of the share of Rs. 300, the workout of the same is as under:
Value of the shares : Rs. 800
Original Drawing Limit : Rs. 600
Present Drawing Limit : Rs. 480
Excess Drawn : Rs. 120
21. If the share of the value of Rs. 120 is sold for the recovery of overdrawn amount of Rs. 120 then the value of the total share reduced to Rs. 680 and to maintain the 60:40 margin, the drawing limit also reduced and for the value of 680 shares, the drawing limit is Rs. 408 (60% of Rs. 680). If that is so, there is a further overdrawn amount to the extent of Rs. 72 (i.e., limit of Rs. 480 less: the present limit of Rs. 408). This is an overdrawn amount, ever and above the permissible limit. It has to be recovered forthwith, therefore, for the recovery of Rs. 120, the sale of the value of shares of Rs. 120 is not sufficient. The correct way is to sell 2.5 times of the shares i.e., to recover Rs. 120 the Bank has to sell the shares of the value of Rs. 300. The work out is:
____________________________________________________________________ Value of the shares Rs. 800 Sale of shares Rs. 300 Drawing Limit Rs. 480 Remaining Shares Rs. 500 Margin money Rs. 320 Drawing limit Rs. 300 Actual Drawn Rs. 600 Margin Money Rs. 200 _____________________________________________________________________
22. Overdrawn (600-480) = Rs. 120 + Rs. 180 (i.e., difference amount Rs. 300 = Rs. 180). Hence Rs. 300 has to be adjusted out of the sale of the shares of the value of Rs. 300. Thus, under the RBI guidelines, the margin of 40% can only be maintained by selling 2.5 times of the shares of the overdrawn amount, and there is no alternative calculation except the borrower brings equal amount of shares or cash to regularize the account.
23. Even in the present case, the appellants by selling the share value of Rs. 1,40,481 have adjusted the equal amount of over drawn created by sale of the said shares as the quantum of shares has been reduced, thereupon there is a proportionate reduction in the drawing power and after the sale of the said shares, the drawing limit of the respondents has been reduced to Rs. 99,396 and the outstanding in the respondent's loan account was Rs. 96,000.
24. In the circumstances, the respondents still have to pay a sum of Rs. 96,000 to the appellants to settle his loan account.
25. We cannot find fault with the above analysis as for any OD Account based on pledging of shares 40% margin has to be maintained as per the RBI guidelines, and, therefore, whenever there is an overdrawal on the loan account there is a deficit in the margin and was simultaneously increased so as to make good the deficit in the margin. It is not enough, if one sells the shares worth of OD amount, because as by doing so, the deficit in the margin cannot be made good to the required extent.
26. Arguing for a moment that the bank had sold the shares above the permissible limit, it cannot be said that this was done by the bank without any authority. The contract between the parties clearly stipulates that if at any time the value of the pledged securities falls so as to create a deficiency in the margin requirement specified by the bank from time to time if there is an excess over the over draft facility limit and if the borrower fails to deposit with the bank the additional security in the form of cash or such other securities which may be acceptable to the bank and which the bank may at its discretion sell, dispose of or realize am/ or all of the securities then held In/ the bank without being liable for any loss or damage or diminution in value sustained thereby.
(Emphasis supplied)
27. It is clear from the above clause of the agreement that the bank has exercised in this case due caution and circumspection and has acted within the ambit of powers occurring to the bank as a result of the contract i.e., loan agreement-cum-guarantee signed by the borrower. In view of the above, the revision petition is allowed, orders passed by lower Fora are set aside and complaint dismissed. No order as to cost.
28. When the case came up for hearing on 15.12.2005 this Commission had ordered as follows:
Shri Kennedy prays for another date as the arguing Counsel has fallen sick.
Shri Jariwala states that he has come from Mumbai to defend this revision petition by air and the respondent too has come from Mumbai by Rajdhani Express. Though case is postponed to 13th March, 2006 for argument but subject to payment of Rs. 20,000 as cost which will be remitted by the petitioner-Bank to the respondent within a fortnight.
29. Against this the learned Counsel had moved an application on behalf of the petitioner with a request for partial waiver of the cost. After going through the application, the learned Counsel for revision petitioner had not disputed that the learned Counsel has come by air and the respondent came by Rajdhani Express and has stayed in a hotel. We do not find any merit in this application for partial waiver of the cost. Accordingly, this application is rejected.