M.H.KHAN vs A.P.STATE MINORITIES FINANCE CORPORATION LTD.

THE complainant is carrying on business in manufacturing of deep-well hand pumps under the name and style of M/s. Himaira Engineering Enterprises in Unit No. 54, Industrial Guild, Mallepalle, Hyderabad, and was registered as a Small Scale Industry. He filed the above complaint to direct the opposite parties i.e. (1) A.P. State Minorities Finance Corporation Limited, Hyderabad; (2) State Bank of India, Local Head Office, Hyderabad; and (3) State Bank of India, Mallepalle Branch, Hyderabad to pay a sum of Rs. 10,00,000/- by way of damages or compensation for their failure to render adequate and proper service to the complainant in compliance with the directions issued by the Government.

THE complainant, who belongs to a minority community, applied on 21.3.86 to the first opposite party i.e. the Minorities Finance Corporation for financial assistance to be arranged from approved banks. THE Minorities Finance Corporation on 29-4-86 i.e. the document No. 2 in the list of documents serial No. 3 filed by the opposite party No. 1 recommended to the State Bank of India, New Mallepalle Branch, the third opposite party to sanction a sum of Rs. 37,000/- towards machinery and equipment and Rs. 1,00,000/- towards working capital. By the letter dated 29-4-86, the third opposite party informed the first opposite party that it agreed to provide credit facilities as recommended and requested the opposite party No. 1 to provide margin money. As could be seen from documents 4, 5, 6 and 7 filed by the first opposite party after taking bond from the guarantors and an undertaking given by the complainant to create a second charge on 19-8-86 it gave a cheque for Rs. 34,250/- to third opposite party towards margin money. Accordingly, the bank, the third opposite party granted limits of Rs. 37,000/- and Rs. 1,00,000/- (Rs. 1,37,000/-) towards machinery and equipment and working capital respectively. On 20.8.86 the bank addressed a letter to the first opposite party requesting for recommendation for sanction of an additional sum of Rs. 6,300/-. On 26.8.86 the third opposite party wrote a letter i.e. the document No. 9 in the serial filed to the first opposite party stating that the request of the complainant to secure additional machinery is genuine and will help in increasing his business income and they agreed in principle to finance the said amount if the first opposite party agrees to release 25% of margin money for purchasing machinery. By proceedings dated 3.11.1986 the first opposite party approved the recommendation of the third opposite party and agreed to provide margin money of Rs. 15,750/- and a sum of Rs. 6,300/- is to be borne by the complainant. THEy have also taken the necessary pains and wrote a letter on 20.11.86 to the third opposite party enclosing a cheque for margin money of Rs. 15,750/- and a sum of Rs. 6,300/- is to be borne by the Bank. THE Bank released the further loan. It is the case of the complainant that he furnished personal security and hypothecated the machinery in the workshop including the newly purchased machinery also and also created equitable mortgage of the house of one Mr. M.A. Basith. When the said Basith died, the third opposite party informed the complainant on 4.4.87 calling upon him to furnish fresh security by way of guarantee for the loan and it took about 10 months to complete the legal process and furnished a fresh security with legal representatives of Mr. Basith. But according to the complainant, in the meanwhile the Government insisted upon the supply of Deep Well hand pump of ISI standard and as the price of the machinery has gone up, the complainant needed additional funds towards working capital and therefore, he wrote on 16.10.1987 to the third opposite party and addressed a letter on 5.1.88 and another letter on 25.5.88 (which was not filed) requesting for additional loan. But the third opposite party by its letter dated 4.6.88 wrote to the complainant stating that in December, 1986 loan was sanctioned, and that on 4.4.87 it was reported that Mr. Basith died. So the complainant could not complete formalities since September, 1987, i.e. for a period of 6 months. Thus, there was a delay of six months on the part of the complainant. It also further stated that at the time of sanctioning of the loan the Bank was informed that the complainant had received orders from the Panchayat Raj department and continue to receive orders. But surprisingly the Bank found that the complainant was still trying to get orders to the product. THE Bank, therefore, requested the complainant to finalise arrangements for the sale of products atleast to the outside parties. Again, on 24.9.88, the bank wrote to the complainant stating that huge amount is outstanding and that the complainant shifted even without informing the bank to manufacture air coolers instead of the well pumps for which the loan as sanctioned. It is, therefore, the case of the complainant that the Government of Andhra Pradesh by its letter dated 16.10.87 addressed the bank to refinance and reschedule the payment of arrears of loan amount, but the Bank did not refinance and also reschedule the loan repayment. THE complainant, alleging that there is deficiency on the part of the opposite parties in not refinancing or rescheduling the loan repayment, thereby the complainant suffered a loss of Rs. 10 lakhs, the complainant filed the above case. In arriving at a sum of Rs. 10 lakhs by way of compensation, he calculated that he would have supplied atleast 50 pumps per month to the Government and would have received a profit of Rs. 577.38Ps. per pump and calculating at that rate for a period of three years, he estimated the loss of profit at Rs. 10,38,940/-, but confined his claim to Rs. 10,00,000/-. In the counter filed by the first opposite party, it was stated that it provided necessary margin money. It was further stated that there is no provision under which the first respondent could provide margin money loan for refinancing sick unit and denied the allegation that non-release of margin money is due to malafide intention to destroy the unit and the complainant has not repaid a single instalment and that the entire margin money advanced to the complainant is due to the first opposite party.

The second and third opposite parties filed a counter stating that they financed money to the complainant by extending credit facilities to prosecute the unit and also providing working capital. But, the unit could not make any headway in the manufacture of hand pumps. Although, it was claimed at the time of granting of loan that he Panchayatraj Department is going to purchase all the pumps to be manufactured by the complainant, it insisted for ISI mark and as the complainant could not get the same, the Panchayatraj did not purchase the pumps. It was also stated that the complainant without informing the bank diversified its activity and started manufacturing of air coolers. He did not care to route the sale proceeds received from M/s. Asian Electronics through the bank. It was their plea that as there is huge outstanding amounts and as the complainant did not pay the dues the bank has filed a suit, O.S. No. 251/90 against the complainant and his guarantors for a sum of Rs. 2,37,076.14 Ps. in the Court of the 3rd Additional Judge, City Civil Court, Secunderabad and for sale of hypothecated properties and also third parties'' properties mortaged to the bank. As a counter blast subsequent to the filing of the suit, the complainant instituted these proceedings. It is their case that in view of the failure of the complainant to manufacture and sell hand pumps and having regard to his conduct in diversifying the activity to air coolers, without informing the bank, as the dues to the bank mounted up and as there is no application there is no obligation on the part of the second and third opposite parties to consider refinance or reschedule of payment of loan. Moreover, it was also stated that the General Manager, District Industries Centre, Musheerabad is not competent person to direct the bank or to state that the unit of the complainant has become sick and to direct the bank to refinance or reschedule the payment of arrears of loan. It is the discretion of the bank having regard to the performance of the complainant either to refinance or reschedule payment of the loan amount. Having regard to the dismal performance of the complainant, the bank is not under the obligation to refinance or reschedule the loan amount repayment. Hence there is no deficiency of service on the part of the bank.

THE only question that arise for consideration is whether any deficiency of service is there on the part of the opposite parties in not refinancing or rescheduling the repayment of the loan amount. So far as the first opposite party is concerned it has taken a stand that there is no provision whereby the first opposite party can provide margin money for refinancing or rescheduling payment of bank loan. The complainant is not able to show that there is any such provision under which the first respondent can provide margin money in case of refinance or rescheduling of loan repayment. It, therefore, cannot be said that there is deficiency of service on the part of the opposite party No. 1.

WITH regard to second and third opposite parties, it is their stand that they have already filed a suit for recovery of the money and the same is pending before the Civil Court. It is also their stand that the General Manager, District Industries Centre, Musheerabad is not the competent person to declare any industrial unit as a sick unit or to direct the bank to refinance or to resschedule payment of the loan. It is exclusively in the discretion of the bank having regard to the performance of the debtor either to refinance or to reschedule the loan. It is their case that having regard to the dismal performance of the complainant as he failed to repay a single instalment, and on a mis-representation made to the bank that all the hand pumps manufactured will be purchased by the Panchayatraj Department, although he has not any confirmed order in that regard, the bank advanced monies. It also advanced further amount as it was under the impression that the complainant had confirmed orders of supply of hand pumps to the Panchayatraj Department. As it turned out that the Panchayat Raj Department did not purchase hand pumps from the complainant, the complainant diversified his activity without the knowledge of the bank, to manufacture air coolers. It is also further stated that it is merely a discretion of the bank either to refinance or to reschedule the loan and hence it cannot be said that there is deficiency of service. We are inclined to agree with the submission that the bank has entirely the discretion having regard to the performance of the borrower either to refinance or to reschedule the loan amount. It is not necessary to refer to various decisions of the National Commission, wherein they took the view that grant or release of loan is in the discretion of the bank and it is for the bank to decide whether to grant loan or to release the balance of the loan having regard to the various circumstances including financial capacity to repay the loan etc. It is suffice to refer to the order of the National Consumer Disputes Redressal Commission in Ram Kripal Bhargava v. Union Bank of India & Others, II (1992) CPJ 429 (NC). wherein it was held as follows:- "It, is for the Bank to decide whether a particular party is eligible for credit within the framework of the credit policy laid down by the Government of India and the Reserve Bank of India viz., whether the project to be financed is viable, he would be borrower is creditworthy, the history of his past performance as a borrower in honouring his obligations for repayment of his loan liabilities, the obligation of the Bank to provide credit where improvement works are undertaken by a farmer from his own resources even though such items or works may be eligible for Bank credit, entitlement of a farmer to credit where there is admitted delay on the part of the farmer to undertake the sowing operations in time. More importantly, for providing further credit, it is for the Bank to satisfy itself whether there has been a bonafide crop loss due to vagaries of weather and whether a borrower is a defaulter or not. It will not be open to the Commission to substitute its judgment for the decisions to be taken by the banks for giving bank credit. If there is any evidence or proved abuse of exercise of their authority for giving credit by Bank Officials. Redress has to be sought from the officers of the Bank in their higher echleons, the Reserve Bank of India and the Government of India who have laid down the guidelines and norms of Bank of credit. The Commission cannot overlook the fact that the financial viability of the banks would be seriously affected and the whole credit system will collapse if it is not ensured that the amounts advanced will be recovered in overwhelming majority of the cases and defaults are kept to the minimum. It will be for the bank to decide the risks it should undertake balancing its interests and the need for promotion of agriculture."

We are satisfied that there is no deficiency of service on the part of the opposite parties 2 and 3. The Counsel for the appellant invited our attention to certain passages in Banking Law and Practice in India in Chapter 21 at page 598 wherein certain guidelines were laid down with regard to sick units and its revival. But it was also made clear that it is not always possible to revive all sick units. It depends on facts of each case. Moreover, there is no material to show in the instant case that the complainant''s unit was declared as a sick unit, after following due procedure in law for declaring the industrial units as sick units. We are satisfied that the bank has taken all the relevant factors into consideration in refusing to refinance or reschedule the payment of the loan amount. We, therefore, hold that since a suit is pending for recovery of amount from the complainant and as there is no deficiency of service, the complaint is liable to be dismissed with costs of Rs. 500/- to the first opposite party and Rs. 500/- to the opposite parties 2 and 3 together. I.A. No. 619/93 was filed by the complainant to implead the Industrial Development Bank of India in short IDBI, as the fourth opposite party to the consumer dispute. In the affidavit it was stated in para 6 that the Reserve Bank of India has directed the opposite parties 2 and 3 to refer the case of sick units of I.D.B.I for assistance and advise, when they formulated rehabilitation programmes where long term loans can be considered for the sick units. Hence, according to the complainant, the IDBI is a proper and necessary party to the C.D. On receiving notice the I.D.B.I. filed a counter stating that it is not concerned in any way with the claim of the complainant and therefore it is not a necessary party to be impleaded as fourth opposite party. The first as well as the 2nd and 3rd opposite parties filed counters opposing the petition. Since no relief is claimed against the IDBI and as it is not concerned with the feasibility or otherwise of refinance or reschedule of loan by opposite parties 1 to 3 we are satisfied that the proposed party is not a necessary or proper party for adjudicating the claim of the complainant in these proceedings. Hence the petition is liable to be dismissed. In the result, the complaint is dismissed with a direction to the complainant to pay a sum of Rs. 500/- towards the costs of the first opposite party and Rs. 500/- to the opposite parties 2 and 3 together. C.D.I.A. No. 619/93 filed by the complainant to implead IDBI as the fourth opposite party is dismissed without costs. Complaint dismissed.