KIRAN STEEL SALES vs RATNAKAR BANK LTD

IN this complaint, the complainant has sought compensation towards his loss of reputation due to dis-honour of the cheques issued by him made by the opposite party-Bank as under: (a) the respondents be directed to pay Rs.2,10,000/- as detailed in para 6 above towards damages; . (b) future interest at 18% p.a. on the amount so awarded by way of damages; (c) costs of this proceedings; and (d) such other reliefs as this Hon''ble Commission deems fit be awarded."

THE complainant a business firm is one of the constituents of the opposite party, M/s. Rathnakar Bank Ltd., Hubli Branch. It is the case of the complainant that the opposite party-Bank sanctioned a cash credit facility of Rs. 8 lakhs to the complainant on 5.-31991. The complainant had availed this facility to the extent of Rs. 4 lakhs by 10-3-1991.

It is the further case of the complainant that he had placed an order for supply of about 100 tonnes of iron with M/s. Steel Sales and Supplies, Hubli, and had paid a sum of Rs.1,50,000/- to it on 11-3-1991 and on the same day issued a cheque, as per Ex. C-5, for sum of Rs.1 lakh in favour of M/s. Steel Sales and Supplies, Hubli, towards the price of the goods for which he had placed orders with it. The opposite party did not honour the said cheque, Ex.C-5 and returned it with endorsement, as per Ex.C-6, that is, "referred to Drawer" even though there was sufficient funds available with the opposite party-Bank to honour the said cheque of Rs.1 lakh. The opposite party-Bank, negligently, with a view to harm the reputation of complainant No.1, did not honour the said cheque.

THE complainant had issued another self-cheque for a sum of Rs.15,000/on 16-31991, as per Ex.C-7, even the said cheque was not honoured by the opposite party-Bank, as per Ex. C-8. The complainant, nextly averred, that the dis-honouring of these two cheques is a gross negligent act amounting to deficiency of service on the part of the opposite party-Bank.

THE complainant, on the basis of these averments, sought the damages of Rs. 2,05,000/-towards actual loss sufferred by him due to the cancellation of the order for steel placed with M/s. Steel Sales and Supplies, Hubli and a sum of Rs. 50,000/- towards loss of reputation. The opposite party-Bank, filed its statement of objections and admitted the fact that it had sanctioned cash credit facility to the complainant to the extend of Rs. 8 lakhs on 5-3-1991. It also admitted the fact that two cheques issued by the complainant, on 11-3-1991 and 16-3-1991, as per Ex. C-5 and C-7, were not honoured. The opposite party further averred that the cash credit facility sanctioned in favour of the complainant was on his hypothecation of the stock in trade and pledging of the shop premises. The complainant after the cash credit facility was sanctioned on 5-3-1991, within a period of 5 days, had drawn considerable sum to the extent of Rs. 2,65,000/- but had not submitted the statement of stocky trade to the opposite party-Bank, as require by the order of sanction, so the cheques, issued by the complainant as per Ex. C5 and C-7, could not be honoured as he had failed to fulfill the mandatory condition of order of sanction of cash credit facility. The opposite party, further averred that, there was no negligence on the part of the opposite party in not honouring the cheques issued by the complainant, as the complainant did not furnish the stock statement of the stock in trade.

THE opposite party, on the basis of these averments, sought the complaint to be dismissed as there was no deficiency in service on the part of the opposite party-Bank.

DURING the course of enquiry, the complainant examined himself as CW-1 and got Exs. C-l to C-8 marked in evidence. The opposite party examined RW-1 the Bank Manager, and got Ex. R-l to R-5 marked in evidence. We have heard the learned Counsel for the parties and perused the records.

Having regard to the pleadings of the parties, the only point that arises for our consideration is "whether the opposite party committed any deficiency of service in not honouring the cheques, Exs. C-5 and C-7 issued by the complainant?"

IT is not disputed that the opposite party-Bank sanctioned a cash credit facility to the extent of Rs. 8 lakhs in favour of the complainant on 5-3-1991. IT is also not disputed that the complainant, from the said date onwards, began to draw the amounts from the said cash credit facility account and till about 10-3-1991, had drawn a sum to the extent of Rs. 2,65,000/- from the said account. The complainant issued a cheque, Ex. C-5, in favour of M/s. Steel Sales & Supplies, Hubli, for a sum of Rs.1 lakh and another self cheque, as per Ex.C-7 for a sum of Rs.15,000/-on 16-3-1991 Both these cheques were not honoured by the opposite party-Bank.

IT is the case of the complainant that the act of not honouring these two cheques by the opposite party, even though there were sufficient funds available, is a negligent act and in consequence of which he had sufferred actual loss in sum of Rs. 2,05,000/- as order placed by him for the purchase of steel with M/s. Steel Sales and Supplies, Hubli, was cancelled and he was obliged to purchase the steel from a different firm at a higher price. He has also claimed a sum of Rs.50,000/- towards loss of his reputation. It is the case of the opposite party-Bank that these two cheques were not honoured as the complainant had not furnished the stock statement of the stock in trade which was hypothecated with the Bank for the loan, that is, cash credit facility, which was sanctioned in favour of the complainant. The complainant has in his evidence, admitted the fact that the stock in trade was hypothecated by him to the cash credit account. The complainant, has in this regard in his evidence, stated thus: "We had hypothecated the stock in trade to the cash credit account.... I was required to submit the statement of stocks to the opposite party-Bank by the month end. I had not furnished the account of the stock to the Bank. The Bank did not give me any notice regarding diversion of funds. The Bank did not give me any notice regarding the non-supply of statement of accounts of stock in trade."

The complainant, has further stated, in his evidence, thus : "On 5-3-1991 when the operation of the cash credit account commenced, I had not given the statement of account of the stock in trade. I had drawn an amount of Rs.3 lakhs within a period of 5 days from, 5-3-1991. The cash credit facility that was extended to our firm was on the basis of hypothecation of stock in trade. It is true that every month at the end, we give the statement of the accounts of the stock in trade as a routine."

FROM the evidence of the complainant, it is clear that stock in trade was hypothecated towards loan of cash credit facility which was sanctioned in his favour. The complainant has also admitted that though from 5-3-1991 to 10-31991, he had drawn in a sum of Rs. 3 lakhs in the said loan account, but had not furnished the statement of stock in trade that was hypothecated by him with the opposite party-Bank towards the said cash credit facility account.

THE opposite party examined its Manager, as RW-1. THE RW-1 has in this regard, stated thus: "At the commencement of the account the constituent has to furnish the stock statement and thereafter he has to furnish the stock statement on the last Friday of each month.. THE complainant commenced operating the account on 5-3-1991, even though the complainant had not submitted the stock statement on 5-3-1991, we still allowed to operate the account as CW1 was the shareholder of the Bank and the old customer of the bank and he told us that he would submit the stock in trade statement within 2 or 3 days. As CW-1 the complainant Firm was in need of money and as they promised to submit the statement of stock in trade, we permitted them to operate the account. On 11-3-1991, we informed the complainant not to operate the accounts until the statement of stock in trade is submitted as he had not submitted the statement of stock in trade till then."

Rw-1, has in this regard, further stated thus: "It is not true to suggest that the statement of the stock in trade was to be furnished by the complainant only at the end of the month after disbursement of the loan It is not true to suggest that it was not necessary for the complainant to furnish the statement of stock in trade on or before the date on which the cheques were dishonoured. It is not correct to suggest that the complainant represented that he would furnish the statement of stock in trade later and requested to encash the cheques."

It is clear from the evidence of RW-1 that the opposite party-Bank permitted the complainant to seperate the account of the cash credit facility even though he had not furnished the stock in trade statement hypothecated with the Bank as the complainant was a share-holder of the Bank and was its old customer.

IT is also clear from this evidence of the complainant and the opposite party that the opposite party-Bank did not permit the complainant to operate the account and draw amounts from the cash credit facility account as the complainant failed to furnish the statement of stock in trade hypothecated to it for the cash credit facility. Having regard to these facts and in the circumstances of the case, we are unable to accept the plea of the complainant that the act of the opposite party in not honouring the cheques, Exs. C-5 and C-7, is a negligent act which had amounted to deficiency in service.

THE National Commission in Essex Farms (Pvt.) Ltd., and Another v. Punjab National Bank and Another, reported in Volume I (1992) CPJ 111 (NC), while considering such a circumstance, has observed, thus: "It is in the discretion of the Bank to determine whether credit has to be allowed to a party to the extent of sanctioned limits, keeping in view how the party is discharging his obligations towards the Bank such as repayment of the credit and interest thereon, provision of adequate and acceptable security and the management of the scheme /project or the activity for which credit has been agreed to be provided by the Bank. Again the Bank has to satisfy itself that the assets which are offered as security are good and free from encumbrance, the title of the party in the goods or property is clear and that the valuation of the assets is just and fair. It is for the Bank to determine whether the party''s credit worthiness and if so the extent to which it should be allowed credit and against what security. THE refusal of the Bank to enhance the existing sanctioned limits of credit or even to continue to grant credit to the extent of the limits already sanctioned cannot and does not constitute a breach of bank''s obligations towards its debtors. It is primary duty of the Bank to ensure that the money of the deposits which it invests in the form of credit is safe."

Therefore, it is clear that it is the discretion of the Bank to determine whether the credit has to be allowed to a party to the extent of sanctioned limits, keeping in view how the party is discharging his obligations towards the Bank such as furnishing of the statement of stock in trade on the hypothecation of which the credit was agreed to be provided by the Bank. In the present case, admittedly, the complainant had not furnished the statement of the stock in trade hypothecated to the Bank even though he started to draw the amount from the said loan account from 5-3-1991, the date of its sanction. Therefore, the refusal of the Bank to continue to grant the credit to the extent of the limits sanctioned does not constitute an act of negligence on the part of the Bank and it does not amount to deficiency of service.

THEREFORE, having regard to the facts and in the circumstances, as narrated above, we are of the opinion that the complainant has not established any act of negligence on the part of the opposite party-Bank and the deficiency of service on its part. ORDER In the result, therefore, this complaint fails and it is dismissed. Parties are directed to bear and pay their own costs. Complaint dismissed.