Bombay High Court
Central Bank Of India vs Manipur Vasant Kini on 27 July, 1999
Equivalent citations: AIR1999BOM409, 2000(1)BOMCR215, [2000]102COMPCAS412(BOM), 2000(1)MHLJ744, AIR 1999 BOMBAY 409, (1999) 4 ALLMR 217 (BOM), 2000 (1) ARBI LR 421, 1999 (4) ALL MR 217, (2000) 1 ARBILR 421, (2000) 102 COMCAS 412, (2000) 1 MAH LJ 744, (2000) 1 BANKCAS 604, (2000) 2 ICC 728, (2000) BANKJ 151, (2000) 4 CIVLJ 647, (2000) 3 COMLJ 239, (2000) 3 BANKCLR 549, (2000) 1 BOM CR 215, 1999 (3) BOM LR 358, 1999 BOM LR 3 358
Author: F.I. Rebello
Bench: F.I. Rebello
ORDER F.I. Rebello, J.
1. The plaintiff Bank, on an application by the defendant had issued to the defendant a Credit Card. It is the contention of the plaintiff that the defendant has used the Card. However, he has failed and neglected to pay the amounts due and payable to the bank in terms of the agreement between the bank and the defendant. The agreement, it is contended, are the terms and conditions which the defendant agreed to abide by at the time he applied for the card. It is contended that a holder of a card can purchase goods/material by using the card and without actual payment of money. The bank in turn reimburses the seller for the value for which the card was used. The card contains an upper limit to the extent which it can be used. As per the terms and conditions on failure to pay the amount within the stipulated date the holder of a card has to pay a service charge depending on the contract or as per the policy followed by the bank from time to time. The amount so payable, it is contended, is, therefore, under an agreement which is a liquidated amount and, therefore, the suit is maintainable as a summary suit.
2. On behalf of the defendants it is contended that the suit as filed cannot be maintained as a summary suit as the use of credit facility is in the nature of a cash credit facility given by a bank. Amounts in an account in cash credit facility is in nature of a Current Account and no interest is payable on it. It is contended that in so far as the service charge is concerned, it is in the nature of a penalty under section 74 of the Indian Contract Act, 1872 and the bank will have to prove the same. It is also contended that the interest charged is usurious and consequently the provisions of Usurious Loans Act will be attracted. Merely by labelling it as a service charge would not make it a service charge, as service charges are liable to be taxed under the Service Tax Charges Act. Under the said Act the banks are required to pay the advance tax and the tax deducted at source has to be debited to the account of the credit card holder. For all these reasons, it is contended that the use of a card does not constitute an agreement in writing to pay debt or liquidated amount and as such the suit cannot be treated as a summary suit and the defendant is entitled to unconditional leave to defend.
3. As the nature of the challenge to the maintainability of the suit as a summary suit itself was in issue and considering the fact that many banks/financial institutions are issuing credit cards, notice was issued to all those who desired to be heard. Arguments have been advanced on behalf of some banks, which has also been taken into consideration for deciding the issue.
4. On behalf of the Citibank N.A., who are plaintiffs in the Summons for Judgment No. 825 of 1998 in Summary Suit No. 3318 of 1998, it is contended that the question of maintainability of a suit as a summary suit depends on the facts and material on record in each case and as the facts and material in each case may not be similar no generalization can be made in relation to claims arising out of the use of credit cards. Terms of issue of the credit cards, any contract/agreement between the parties, the relevant correspondence if any between the parties, will have to be considered in each case for grant of relief and as such no general rule can be laid down. It is contended, that in their suit the contractual provisions and material on record are such that the suit is maintainable as a summary suit.
5. Mr. Bookwala, who appeared for Bank of Baroda contends that there are three contracts in the use of a Credit Card. A contract between the bank and the seller; Bank and the holder of a credit card and the holder of the credit card and seller. It is contended that the 2nd contract is a contract in writing and the third contract becomes a contract in writing when the holder of the credit card signs the purchase slip. He has referred to the judgment in Re Charge Card Services Ltd., 1998(3) All.E.R. Reports, 702 to point out as to the nature of contracts that are entered into in the case of dues of a Credit Card.
Other Counsel have also argued. Attention was also invited to a judgment of this Court in respect of what is known as Khata Pete 'contract and how it was construed in the case of M/s. Manekchande Mohanlal Poonawala v. Shah Bhimji Kundanmal & Company, 1971(69) Bom.L.R. 370. The documentation and the agreement form which a credit card holder must sign before he is issued a card has been also been adverted to. Reference has also made to the Slip signed by the buyer i.e. the holder of the card, purchasing the goods whereby he undertakes to pay the amount. With the above background the issue now needs to be decided.
5-A. Dealing with the contention that the issue cannot be generalized, it is true that in some cases there may be admissions by the user of the card themselves as to the amount due and payable. Notice, however, was issued was whether use of a credit card constitutes an agreement in writing for recovery of a debt or liquidated amount and as such whether a summary suit can be filed. Before dealing with the contention raised on behalf of the defendant reference needs to be made to the judgment in the case of Re Charge Card Services Ltd., (supra) as it has an important bearing on the issue in question. In that case the Court of Appeal in England was considering proceedings arising from voluntary winding up of the company. The company was issuing what was known as "Fuel Cards". These cards are in the nature of credit cards. The company had entered into agreements with various garages, who used to sell fuel. The holder of the fuel card could go to one of the garages and by using the card purchase fuel. He did not have to pay any money for the purchase of such fuel. The company would pay the charges to the garage. The card holder in turn had to pay the money to the company. Proceedings were filed for voluntary winding up of the company. At the time of voluntary winding up the company had not paid monies due to various garages. Similarly, large number of holders of cards had to pay amounts to the company. Such amounts were collected. The owners of the garages moved the Court to contend that the amount collected from the card holders should be payable to them as they had the right to directly recover the amount from the card holders. The Court of Appeal was considering the judgment arising out of the findings given by the trial Court that the garage holders could not sue for recovery of the amount and the money belonged to the company and it was the company who was bound and liable to pay the garages. In this context Sir Nicolas Browne-Wilkinson of the Court of Appeal referred to what are the normal features of a credit card. The features of a credit card which were enumerated are reproduced as under :---
"(A) There is an underlying contractual scheme which predates the individual contracts of sale. Under such scheme, the suppliers have agreed to accept the card in payment of the price of goods purchased; the purchasers are entitled to use the credit card to commit the credit card company to pay the suppliers.
(B) That underlying scheme is established by two separate contracts. The first is made between the credit company and the seller; the seller agrees to accept payment by use of the card from anyone holding the card and the credit company agrees to pay to the supplier the price of goods supplied less a discount. The second contract is between the credit company and the cardholder; the card holder is provided with a card which enables him to pay the price by its use and in turn agrees to pay the credit company the full amount of the price charged by the supplier.
(C) The underlying scheme is designed primarily for use in over-the-counter sales, i.e. sales where the only connection between a particular seller and a particular buyer is one sale.
(D) The actual sale and purchase of the commodity is the subject of a third bilateral contract made between buyer and seller. In the majority of cases, this sale contract will be an oral, over-the-counter sale. Tendering and acceptance of the credit card in payment is made on the tacit assumption that the legal consequences will be regulated by the separate underlying contractual obligations between the seller and the credit company and the buyer and the credit company.
(E) Because the transactions intended to be covered by the scheme would primarily be over-the-counter sales, the card does not carry the address of the card holder and the supplier will have no record of his address. Therefore the seller has no obvious means of tracing the purchaser save through the credit company.
(F) In the circumstances, credit cards have come to be regarded as substitutes for cash; they are frequently referred to as "plastic money".
(G) The credit card scheme provides advantages to both seller and purchaser. The seller is able to attract custom by agreeing to accept credit card payment. The purchaser, by using the card, minimises the need to carry cash and obtains at least a period of free credit during the period until payment to the card company is due."
These are features of a credit card in England. I do not think that they are any different in India. Those features, therefore, can be gainfully applied when dealing with the issue herein. The Court of Appeal held that underlying a credit card or charge card transaction was a contractual scheme consisting of three separate bilateral contracts between (a) the credit company and the supplier (b) the credit company and the card holder and (c) the card holder and the supplier.
6. Let us now look at some specific features of the cards herein. In the case of Citibank, the agreement provides for purchase. By this agreement the card member can use the credit card to pay for charges incurred at selected Member establishments accepting Master Card/Visa credit cards. It then provides that payments are to be made to Citibank by the card holder plus some other incidentals as set out therein. After using the card a Slip must be signed for the value of the purchase. In so far as Central Bank is concerned, it is provided that when the card is used at one of the member establishments of the bank the card holder must affix his signature on the charge slips presented by the member establishments showing the amount payable by him. Even if this is not there for some reason, the card holder shall remain liable to pay the bank such amount which becomes due on the use of his Central card.
What, therefore, is contemplated is (1) that the plaintiff and others like the plaintiff issues the card. Before issuing the card they have entered into agreements with various sellers who are described as members, where the card can be used. In other words there is a contract between the bank and the member whereby such member agrees to accept the card and honour it; (2) the holder of the card can use such card at any establishment of a member. On using the card he must sign the voucher or slip for the use of the card and the amount for which the card is used without any payment to the seller and (3) The card holder is bound to make payments to the bank on a bill for the amounts being sent to him.
7. This being the nature of the various contracts, will the provisions of Order XXXVII, Rule 2 of the Code of Civil Procedure as amended by this Court apply. To maintain a suit as a summary suit it must be based on a Negotiable Instrument and/or it must be to recover debt or liquidated money payable by the defendant arising on a written contract or on an enactment where the sum sought to be recovered is a fixed sum of money or in the nature of a debt. As set out earlier the holder of a card when he uses the card agrees to comply with the conditions and terms when he appends his signature to the application. In most of the cases he agrees to make payments. In the event there are disputes he has to raise such a dispute as is contemplated by the provision for setting dispute under the terms and conditions. In some cases such conditions may not exist. The question, however, is whether this would constitute a contract in writing between the plaintiff and the defendant. To my mind it is clear that there is a contract in writing in existence between the bank and the holder of credit card by which he agrees to pay the amounts in respect of the use of the card for which he has signed the voucher. In the first instance by applying for a card and signing the form he agrees to abide by the terms and conditions for the use of a card. Secondly, when he signs the slip at the seller he acknowledges the amounts due and payable. Thirdly, by using the card he does not pay the seller but in terms of the accepted conditions whilst applying for the card agrees to pay the said amount to the bank with other charges which may be levied.
8. Considering the above, can it be said that the transaction is in the nature of a cash credit facility as contended by the defendant and as such the suit cannot be tried as a summary suit. On behalf of the defendant his learned Counsel has filed submissions to show how the grant of Cash Credit Facility and the use of a credit card are similar and/or have similar trappings. It is contended that in so far as cash credit facility the Apex Court in the case of Raneegunj Coal Association Ltd. and another v. Union of India & others, A.I.R. 1990 S.C. 1987 has held that money deposited by the banks in cash credit account would not attract any interest and that Cash credit account is in the nature of a current account and no interest is payable in the account. The question is whether the service charge is interest on the principal amount due and payable.
It will, therefore, be necessary to discuss the nature of the service charge which is claimed on failure to pay the amounts after a specified period. A learned Single Judge of this Court in the case of Bank of India v. M/s. Shah Engineering Equipment Co. & another, in Summons for Judgment No. 133 of 1996 in Summary Suit No. 2480 of 1995 was dealing with the contention on behalf of the defendants that the claim towards interest cannot be claimed under the contract. The contention was that the service charge was in fact an interest charged by the bank to the user of the card. The learned Single Judge seems to have accepted the contention that the service charge is in fact interest which is claimed from the user of a card. The question is whether in fact the service charge claimed is interest. In so far as banks are concerned, they are subject to the provisions of the Banking Regulation Act, 1949. They would be subject to the directions issued by the Reserve Bank of India under section 21 of the Act. However, in the agreement itself what the parties agreed is not the payment of interest, but payment of service charge. The service charge is not payable as a matter of course. It is payable only in the event the amounts are not paid within a particular time and on the amount due and outstanding. At the first blush it may be reasonable to contend that ultimately it is an amount payable on failure to pay the principal and as such in fact it is nothing but interest payable on the principal amount. The fact, however, remains that between the bank and the holder of the card, parties have agreed that the amount they are paying is service charge. If that be so parties have understood the charge as a service charge. Once they have so understood it is the term of the contract that will have to be followed and not a judicial interpretation of what possibly it might be. In this case the contract as described is service charge. If it is held to be a service charge, it is then argued that the service charge is payable under Service Tax Charges Act and certain formalities have to be complied with. The mere fact that the bank may not be complying with the formality if any, in law they are bound to comply, does not and will not be a reason to hold that it is not a service charge. In my opinion, at the highest on failure to comply with the said provisions of the Service Tax Charges Act penal consequences, may follow. However, it would not cease to be a service charge.
9. It is also contended that the service charge is a penalty under section 74 of the Indian Contract Act or attracts the provisions of the Usurious Loans Act. As I have already held the service charge is not interest or tax. It is an amount charged during the repayment of the amount outstanding for services rendered. It is not interest. Therefore, Usurious Loans Act would not apply.
As pointed out earlier, even if it is construed that the terms and conditions themselves may not spell out a written contract for a debt or liquidated amount nevertheless on the holder of the card using, and signing the voucher/slip at the sellers result in a contract in writing under which an ascertained or liquidated amount becomes due and payable. Once this be so, under the terms and conditions of the use of the Credit Card the card holder has agreed to pay the amount payable, on notice being served. If there be a dispute regarding the user of a card that dispute will not be in respect of maintainability of the suit as a summary suit, but at the highest would be an issue as to whether the defendants are entitled to conditional leave or unconditional leave. That does not determine the character of the suit.
10. Having said so, I am clearly of the opinion that the suit based on the use of credit card is maintainable as a summary suit.
11. Coming to the facts of the present case the question is whether the defendant has raised triable issues. In the affidavit in reply filed on behalf of the defendant, it is contended that the monthly statements or accounts were not furnished at any point of time. Then it is contended that the terms of the credit card as annexed to the plaint were not signed by him. The plaintiffs, however have explained that in so far as the defendant is concerned at the relevant time it was the earlier terms and conditions. Nothing, however, turns on that aspect. There is another averment that the defendant has not been using the credit card since the month of August, 1994. The statement of claim i.e. the statement of account is at Exh. J to the plaint. The said statement shows that the credit card was last used on 28th August, 1994. The subsequent entries are only in respect of service charges. Once the bank is prima facie able to show what they are charging is upto August, 1994 and it is the case of the defendant himself that the Card was stopped from August, 1994, to my mind there are no serious triable issues.
12. However, considering the contention that the accounts were not submitted, conditional leave is granted to the defendant to defend the suit on the defendant depositing a sum of Rs. 75,000/- within four weeks from today. On such deposit suit to be transferred to list of commercial causes. The defendant No. 1 shall file his written statement within 12 weeks from today. The parties will file affidavit of documents within eight weeks thereafter. Inspection and discovery will be completed within eight weeks thereafter.
13. On such deposit being made the Prothonotary & Senior Master to invest the said amount in any Nationalised Bank initially for one year and thereafter to renew the same for further equal periods until further orders.
14. On defendant's failure to deposit as aforesaid, liberty to the plaintiffs to apply for further orders.
15. Summons for judgment disposed of accordingly. In the circumstances of the case there shall be no order as to costs.
16. Certified copy expedited.
17. Order accordingly.