STATE BANK OF INDIA vs A.G.I. Switches

THIS Revision Petition arises out of the order of the State Consumer Disputes Redressal Commission for Union Territory, Chandigarh, whereby the State Commission had come to the conclusion that the petitioner, State Bank of India, was guilty of deficiency in service and had ordered the said petitioner to pay to the complainant a sum of Rs. 2.00 lakhs by way of compensation for the loss of business, reputation and mental harassment suffered by the complainant alongwith interest at the rate of 12% per annum from the date of filing of the complaint i.e. 16th July, 1997 plus Rs. 1,000/- as costs.

ACCORDING to the complainant they were enjoying various facilities such as cash-credit (hypothecation), book-debts and M.T.L. facilities aggregating Rs. 7,70,000/-. The said facilities were secured , inter alia, by equitable mortgage on land and buildings of M/s. Ahuja General Industries and personal guarantees of all the Directors of the complainant/ respondent. Various loan documents were executed by the complainant including Letter of General Undertaking, agreeing, inter alia, to adhere to the financial discipline and also not to change its Constitution without written consent of the petitioner-Bank. In the loan documents i.e. "Agreement for Cash Credit" executed by the complainant it is clearly stated that "that the Bank. shall not be required to make or continue advances on the said Cash Credit Account otherwise than at the Bank''s discretion and in no circumstances to an amount at any one time exceeding with interest thereon the sum of Rs. 2,00,000/- (Rupees two lakhs only) or the sum stated in any separate hypothecation of goods in connection with the said account whichever sum may be less''. It is also stated "that the Borrower will carry on business efficiently and will furnish and verify all statements, reports, accounts, documents and information and will also execute all documents and do all acts and things which the Bank may require to give effect hereto and the Borrower authorises the Bank and each of the agents and nominees as Attorney for and in the name of the Borrower to do whatever the Borrower may be required to do hereunder. Similarly, in "the Agreement for Cash Credit against Hypothecation of Goods", it is provided in Clause 3, "That the Bank shall not be required to make or continue advances on the said Cash Credit Account otherwise than at the Bank''s discretion and in no circumstances to an a mount at any one time exceeding with interest thereon the sum of Rs. 3,00,000/- (Rupees three lakhs only) or a sum equal to ... ...per cent of the normal current market value of the said goods whichever sum may be the less". And Clause 8 provides "That the borrower will submit to the Bank monthly or - - - - as may be required stock statement with list of current insurance policies and amounts attached - - by certificates of its Officer/ Director and /or Manager for the time being that the quantities and amount stated are correct and that all stocks are fully covered by insurance and will also furnish and verify all statements, reports, returns, certificates and information and will also execute all documents and do all acts and things which the Bank may require to give effect hereto and the borrower authorises the Bank and each of its Agents and Nominees as Attorney for and in the name of the borrower to do whatever the borrower may be required to do hereunder". And Clause 10 which is as follows : "That nothing herein shall prejudice any rights or remedies of the Bank in respect of any present or future security guarantee obligation or decree for any indebtedness or liability of the borrower to the Bank. Clause 12 says : "That in consideration of the Bank agreeing at the request of the said guarantors to grant accommodation to the borrower and as part of the security thereof the said guarantors personally guarantee to the Bank the sufficiency from time-to-time of the quantity and value of the goods hereby hypothecated on the terms hereof and agree that the Bank shall be free without reference or notice to the said guarantors to grant time to and make any arrangement with the borrower or any party liable and to vary, renew, release, realise and deal with the said good and any securities obligation or decrees aforesaid as the Bank may think fit without impairing the obligations of the said guarantors to the Bank in respect of his guarantee or otherwise and also that if the said guarantors be more than one individual all shall be bound hereby jointly and severally and if a firm or members of a Firm and Firm and all members from time-to-time thereof shall be bound hereby jointly and severally notwithstanding any changes in the Constitution or style thereof and whether such firm consists of or be reduced to one individual at any time". According to the petitioner-Bank the respondent-complainant had disentitled itself to the continued facilities and any relief in its complaint. It is submitted that : (i) The projections in the forecast on the basis whereof facilities were granted by the Bank were sales of the order of about 24 lakhs per month, whereas the same, even according to the complainants vide their letter of 17th February, 1993, were nowhere near that figure. The month-wise sales given in the said letter are far below the projected figure, (ii) That one of the guarantors and a former Director Shri M.L. Ahuja had intimated the Bank even earlier on September 11,1993, requesting them to stop operation of the Bank account which is alleged to have resulted in temporary suspension of the operation of the account, (iii) While the account was being operated the Bank was served with a letter of 4th January, 1994 by two partners of Ahuja General Industries. The partners who had signed were M.L. Ahuja and D.R. Ahuja whereby they withdrew the said letter of guarantee executed by them in favour of the Bank, (iv) Another letter was received by the Bank on March 18, 1994, requesting the Bank to temporarily suspend operations on the account to facilitate negotiations. This letter was signed by one Mr. S.R. Ahuja on behalf of the Ahuja General Industries, (v) Although the guarantors had ceased to be directors of the respondent Company in 1991 but their personal guarantee continued to be in force which was withdrawn/revoked in January, 1994 which means that no advances made thereafter would not be backed by the said guarantee. The said Shri Ahuja was also a party to the notice in January, 1994 revoking the guarantee furnished by the firm guaranteeing the dues of the petitioner by the respondent Company wherein that M.L. Ahuja was also a partner, (vi) There are on record several letters whereby the Bank has been requesting for the various statements such as statements of hypothecated stocks and other statements relating to its securities, (vii) Finally, the petitioner filed a suit for recovery on or about 18th May, 1995, which was decreed on 22nd November, 1997. The complaint in the present case was filed on 3rd April, 1996 i.e. subsequent to the institution of the suit and was resorted to as a counter-blast to the petitioner''s suit.

THERE does not appear to be on record any document whereby the complainant had complied with the said requests of the Bank which alongwith failure to achieve projected sales clearly show that the complainant was not adhering to the norms of financial discipline. There is also no evidence on record which proves that before its account became sticky the respondent at any time had sought and the Bank having denied or declined full-utilization of the facilities sanctioned.

IT may be noticed that the Directors who furnished personal guarantees at the time the facilities were sanctioned in January, 1990, were S/Shri S.R. Ahuja, M.L. Ahuja and D.R. Ahuja. The case of the petitioner is that the customer had neither maintained financial discipline nor had substituted the guarantees'' and securities after two of the important securities in the hands of the Bank viz., the personal guarantee of the Directors and that of the partnership firm who had, through its partners, stood guarantor and had in such capacity deposited the title deeds of their property with intention to create equitable mortgage thereon to secure the limits being enjoyed by the respondent Company. It is quite clear that continuing the facilities, apart from being within the discretion of the Bank, was very much dependent upon the continued availability of the collateral securities. In case the facilities were frozen following the failure of the respondent to maintain financial discipline and withdrawal of the guarantees which are not promptly substituted, the action of Bank cannot be described as arbitrary or unreasonable. Counsel for the respondent tried to draw our attention to some internal circular of Reserve Bank of India wherein norms of collateral security/third party guarantee have been spelt out and it is proposed that wherever the quantum of financial assistance does not exceed in the case of technically qualified persons and experienced craftsmen Rs. 2 lakhs and in all other small scale units upto Rs. 5,000/-, no proposal should be turned down for want of collateral security/third party guarantee if the proposal is otherwise in order. Those provisions are clearly not applicable or attracted in the present case, because of the simple reason that the aggregate limits being availed of by the respondents were more than Rs. 7 lakhs and it was not a case of considering the proposal but one where the facilities were already being enjoyed and such facilities were secured by various securities which were in jeopardy following withdrawal of guarantees. Furthermore, there appears to be no substance in the allegation that the accounts were in fact temporarily frozen from 11th to the 15th September, 1993. From the statements of account filed by both the parties were find that during this period also certain transactions in the account of the party had taken place. There is no evidence brought on record wherefrom it could be concluded that any cheque had been dishonored or facility blocked on account of such alleged temporary freeze. On the contrary we find that a cheque for Rs. 4,285/- was duly encashed through clearing on 13th September which was during the period of alleged temporary freeze. On 16th September also an amount of Rs. 30,000/- was drawn by the complainant in cash. A lot has been made by the Directors present in the Bank having to persuade the Bank to release Rs. 30,000/- to enable the parties to disburse salary on that day. But, no material has been brought on record about dishonour of any cheques or any loss having resulted which could be made the basis for any claim of compensation in favour of the complainant. Not only that, we find that there is also no challenge to the Bank''s case that the respondent was not observing financial discipline.

WE cannot also lose sight of the fact that the Bank, after recalling the loan, had instituted a suit for recovery on or about 18th May, 1995 and it is only after such institution of the suit that the respondent filed its complaint dated 27th March, 1996, on 3rd April, 1996 before the District Forum, Faridabad. This complaint appears to be in the nature of counter-blast to the suit filed by the Bank. We are informed that suit of the petitioner Bank was decreed on 22.11.1997before the dismissal of the complaint by District Forum on 29.12.1997.

THE case of the Bank is that apart from the fact that the complainant in 1993 had attained sales of only Rs. 8.82 lakhs against the projections of Rs. 24 lakhs, but it had been consistently incurring losses and the accumulated losses as on 31.3.1993 came to Rs. 6.02 lakhs whereas the complainant Company had a capital base of only Rs. 74,000/- which means that the accumulated losses were several times its share capital. In the light of the facts discussed above, we are unable to agree with the conclusions reached by the State Commission with regard to the temporary freeze of the account in September, 1993, and not allowing full utilisation of the sanctioned limit to the complainant. We are also not in a position to accept the contention of the respondent-complainant that the petitioner-Bank should not have informed Haryana Financial Corporation (H.F.C.) of the freeze on the account affected by the Bank on 30th March, 1994 which was the correct position. This communication could not be faulted because earlier in that month only the respondent had obtained a certificate from the petitioner Bank for H.F.C. regarding the respondent''s credit worthiness. By its telegram the Bank merely rectified its mistake. This by itself could not amount to deficiency in service.

THE award of compensation in the facts of the present case also cannot be sustained for want of any evidence of loss alleged to have been sustained by the respondent-complainant. Even in the case of a deficiency in service, compensation could not have been awarded for loss of business, reputation and mental harassment in the absence of any evidence on record proving the quantum of such loss. In this connection a reference be made to Section 73 of the Contract Act which provides as under : "73. Compensation for loss or damage caused by breach of contract -When a contract has been broken, the party who suffers breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the Breach. ... ... ... ... ... ... .... Explanation : In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account." We find that the above provisions of law have not been kept in mind by the State Commission while awarding compensation of Rs. 2 lakhs with interest thereon which does not appear to be based on any legal evidence. Therefore, on this account also impugned order cannot be sustained. In this connection a reference be made to a decision of this Commission in the case ofNew India Assurance Company Limited v. Adarsh Bazar Consumer Store, First Appeal No. 230 of 1993 reported as I (1996) CPJ 286 (NC). There while speaking for the Bench S.S. Chadha, J., Member, had observed as under : "The State Commission, however, erred in directing the Insurance Company to pay Rs. 40,000/- as extra compensation on account of loss to the complainant in its business. The complainant did not lead any evidence or had laid any factual foundation to establish the actual loss caused in the business of the complainant or expected future loss of business, much less to the extent of Rs. 40,000/-. The grant of interest at the rate of 18% per annum on the amount of actual loss suffered is sufficient compensation. There is no warrant to grant additional compensation of Rs. 40,000/- as business loss on account of non-payment of the claim to the complainant expeditiously." ï¿ 1/2In that case also the order for grant of compensation was to the extent of Rs. 40,000/- was set aside.

THE complainant cannot be permitted to take advantage of its own wrong by firstly not adhering to the financial discipline and trying to take advantage of its counter-blast in response to Bank''s suit for recovery and claiming compensation without leading adequate evidence of any loss. From the aforesaid facts it is clear that the complainant itself was responsible for the Bank not continuing with the disbursement of the remaining part of the loan and there was no deficiency of service on the part of the petitioner-Bank. In the light of above discussion the impugned order cannot be sustained. Therefore, this revision petition succeeds and the order of the State Commission is set aside with costs through which are quantified at Rs. 10,000/-. Ordered accordingly.