REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.    1720        OF 2020 (ARISING OUT OF SLP (CIVIL) NO. 2007 OF 2019)

BANK OF INDIA .....APPELLANT(S)

VERSUS

M/S. BRINDAVAN AGRO INDUSTRIES PVT.  LTD. .....RESPONDENT(S)

J U D G M E N T

HEMANT GUPTA, J.

1. The challenge in the present appeal is to an order passed by the

National Consumer Disputes Redressal Commission1 on 10th May,

2018 whereby an appeal filed by the appellant2 against the order

of State Consumer Disputes Redressal Commission3 dated 13th July,

2016 remained unsuccessful.

2. The respondent4 was maintaining an account  with the appellant

Bank at its branch in Agra. The Consumer applied for a loan on 15th

October, 2011.  The Consumer sought the following credit facilities:

“1.  Enhancement of Working Capital Limit from Rs. 10

1  for short, ‘NCDRC’ 2  for short, ‘Bank’ 3  for short, ‘SCDRC’ 4  for short, ‘Consumer’

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crore to Rs. 20 crore;

2. Sanction of ECB/SCL/INR term loan of Rs. 40 crore;

3. Sanction of LC Limit of Rs. 25 crore.”

3. As per the Bank, the application submitted by the Consumer was

handed  over  to  Credit  Processing  Unit5 at  New  Delhi  on  4th

November, 2011 pending submission of the valuation/search report

of the properties to be mortgaged and Techno Economic Viability6

study.   The  officers  of  the  Bank  visited  the  site  but  on  6 th

December, 2011, the Consumer revised its credit requirement as

under:

“1.  Enhancement of Working Capital Limit from Rs. 10 crore to Rs. 20 crore;

2.  Sanction of Term loan of Rs. 40 crore in the form of ECB;

3.  Sanction  of  LC  Limit  of  Rs.  25  crore  for  deferred payment credit for 3 years on withdrawn basis;

4. LC Limit of Rs. 4 crore for import of raw material from time to time.”

4. Such request was also forwarded to CPU immediately.  However,

soon  thereafter,  on  17th December,  2011,  the  Consumer  again

revised its credit requirement reducing the LC limit to Rs.19 crores

from Rs.25 crores.  Such revised request is as under:

“1.  Term Loan in form of ECB for Rs. 40 Crore.

2.  Working capital limit enhancement from Rs. 10 Crore to 20 Crore.

5  for short, ‘CPU’ 6  for short, ‘TEV’

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3.  LC Limit of Rs. 19 Crore Against Deferred payment credit of machine purchasing from SACMI for the Period of Three (3) years on drawn down Basis.  

4.  Regular  LC  Limit  of  Rs.  4  Crore  for  time  to  time import of Machinery/Raw Etc.”

5. On  30th December,  2011,  the  Bank  debited  the  account  of  the

Consumer  by  an  amount  of  Rs.27,41,165/-  being  50%  of  the

applicable processing fees including the TEV study and service tax

charges.  On 24th January, 2012, the final proposal for sanction was

submitted by the CPU at New Delhi to the Head Office at Mumbai

which had the requisite authority to approve the sanction of such

high  value  loans.   But,  on  9th February,  2012,  the  Consumer

objected to the deduction of processing fees as the Bank could only

do  so  after  the  loan  was  sanctioned.   The  Consumer  sought  a

refund of the said amount on the ground of suffering losses, owing

to the alleged delay of the Bank in sanctioning the credit facilities

and  that  the  Consumer  had  got  the  credit  facilities  from other

banks.  Such  request  was  reiterated  vide  e-mail  dated  22nd

February, 2012.  However, on 17th March, 2012, the credit facilities

were  sanctioned  within  three  months  from  the  final  modified

request.  When the officers of the Bank approached the Consumer

with  the  sanction  letter  for  the  credit  facilities  requested,  the

Consumer showed the sanction letters issued by other Banks i.e.

HDFC Bank and ICICI Bank.   

6. On  6th August,  2013,  the  Consumer  filed  an  application  under

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Section 17 of the Consumer Protection Act, 19867.  This application

which was allowed by the SCDRC on 13th July, 2016 directing the

Bank to pay a sum of Rs.27,41,165/- along with interest @9% from

the  date  of  filing  the  complaint  till  the  date  of  payment.   The

appeal  before  the  NCDRC  against  such  order  remained

unsuccessful.  

7. Learned counsel for the Bank pointed out that the procedure for

sanction of loan is detailed in the Bank’s Circular dated 20 th April,

2005 which is available on the website of the Bank as well.  It is

mandatory  to  obtain  a  TEV  study  report  in  all  new  industrial

projects, diversification projects and accounts where restructuring

(Other  than  CDR)  is  proposed  and  where  the  total  fund  based

limits/exposure  (including  liabilities  likely  to  get  devolved in  the

case of existing accounts) is equal to and above the threshold limit

of Rs. 500 lacs.  The term “Total Fund Based Limits” includes both

term loan and Working Capital Limit.  It is further submitted that in

case  of  a  new  account  with  the  Bank,  the  “Total  Fund  Based

Limits”, for the purpose of applicability of TEV study as well as for

charging  of  Appraisal  Fees,  will  be  the  “Aggregate  Fund  Based

Limits”  sought  by  the  proponents  vide  their  application.   In  the

case of an existing account holder with the Bank, subject to the

various clauses of exceptions listed herein below, the applicability

of TEV study will be decided by:

(a) If the aggregate fund based facilities was below Rs500 lacs earlier

7  for short, ‘Act’

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(whereby no TEV Study had been carried out in the account so far) and on account of additional limit sought now the aggregate fund based  limit is reaching Rs. 500 lacs or above, then a TEV Study would be necessary notwithstanding the extent of increase being sought at present.

(b) If  the aggregate fund based facilities is already Rs.  500 lacs or above, when an increase in fund based facility is sought, TEV study need to be carried out normally only when the additional quantum of limits is Rs. 500 lacs or above. Nevertheless, in restructuring cases the applicability will be irrespective of additional limit and in accounts  with  Credit  Rating  “A”  or  below  the  Zonal Manager/General  Manager,  HO may specifically  seek  TEV Study irrespective of the additional quantum.  

8. It is further pointed out that upon receipt of Project papers from the

proponents,  the  Branches  should  ensure  the  following  before

sending them to the designated TAC for techno economic appraisal:

(a) The Branch should decide on the acceptability of the proponents as well as the project in all  other angles other than techno-eco- nomic angle and only if the proposition is otherwise found accept- able. TEV study should be sought. In other words, if the TEV study observes that the project is technically feasible and economically viable, the branch should be in readiness to submit a proposal for consideration at appropriate level.  This pre-scrutiny on all other angles is necessary since TEV study involves time and cost not only to the proponent but for the Bank also.  

(b) In cases where obtention of administrative clearance is a pre-requi- site  for  consideration  of  a  credit  proposal  as  per  extent policy/guidelines, such clearance should be obtained prior to mak- ing reference for TEV study.

(c) All  normal  terms  and  conditions  of  Bank  for  entertaining  such credit business, such as rate of interest, security/collateral secu- rity, personal guarantees, margins, incidence of other processing costs, time frame for decision etc. should be discussed with the proponents  and  only  upon  their  acceptance  of  the  terms,  TEV study should be resorted to.  

(d) Upfront portion of Appraisal Fees, as explained in later paragraph, should be collected (or earmarked in the deposit account of a new proponent/existing advance account of an existing customer with us) and should be confirmed by the Branch while forwarding pa- pers for TEV study.  

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(e) In order to avoid any time delay in the process of TEV study, all pa- pers needed for such study should be preferably obtained from the proponents in one go, verified by the Branch for completeness, and then sent to TAC/TAD, as the case may be, for commencement of study.  

9. It is further pointed out that appraisal fees for TEV study is different

from  the  “Processing  Fees”  and  is  required  to  be  charged  in

applicable  cases  over  and  above  the  processing  fees.   The

appraisal  fee  is  to  be  recovered  from  industrial  constituents

seeking aggregate fund based limits  of  Rs.  30 lakhs  and above

whether such cases are referred to TAD/TAC or fall under exempted

category.  Appraisal  being  an  internal  matter,  exemption  from

applicability of TEV study does not mean exemption from payment

of  appraisal  fee  because  in  such  cases  also  there  is  always  an

implied appraisal/assessment at the Branch level.   The appraisal

fee is chargeable at the time of considering fresh/additional fund

based limits.  The fee will  be charged on the basis of aggregate

fund based limits applied for by the proponent at the time of first

appraisal.  The same will be on the basis of only incremental fund

based limits applied for in respect of subsequent appraisals.  The

appraisal fee is to be recovered as per fee structure given and is

exclusive of out of pocket expenses like travelling/lodging/boarding

etc. incidental to carrying out inspection(s).  

10. It  is  also  submitted  that  50%  of  the  appraisal  fee  should  be

collected  upfront  on  the  basis  of  aggregate  fund  based  limits

applied  for  (except  in  respect  of  restructure  cases,  where  the

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collection can be back ended).  The balance is to be paid/adjusted

on the basis of actual fund based limits sanctioned thereafter.  In

case of non sanction of limits by the Bank after TEV appraisal for

its own reasons, 60% of the upfront fee charged is to be refunded

(60% of 50% applicable fee collected). Retention of 40% upfront

fee is aimed at recovery of the cost of efforts put in by the Bank

and its employees in getting viability study conducted.

11. Learned counsel for the Bank also refers to communication dated

22nd August, 2005 by its Head Office to the Branches.  The letter is

reproduced as under:

“Revenue Loss due to delay in Recovery of Processing Charges

As  per  extant  guidelines  processing  charges  are required to be recovered before the request for facilities is processed (50% of  applicable charges in the cases involving  TEV  study  and  100%  in  others.   These processing  charges  are  not  refundable  even  if  the requested limits are not considered by the Bank, except in case of Technical evaluation study.

2.   Of  late  we  are  coming  across  instances  wherein prospective  borrowers  are  not  paying  the  processing charges  in  the beginning.   After  obtaining a  sanction letter, they are shopping around for better interest rates and  availing  credit  facilities  from  the  most  banks offering at cheapest rates.  This results in wasted efforts by our Bank at various levels.  We are required to waive the completely such unpaid processing charges.

3.  To avoid such possibilities, it has now been decided that  branches  should  invariably  recover  the  agreed processing charges at the time of accepting the request for consideration.   In  case of  canvassed account,  the processing charges may be recovered at least  before handing over the sanction letter.   In other words, the sanction  letter  should  not  be  given  to  the  customer without ensuring that Bank has received the processing

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charges.   It,  therefore,  follows  that  Bank  would  not consider  in  future  waiver  of  un-recovered  processing charges, in the normal course.

4.  Please bring the contents of this circular letter to the attention of all staff members for strict compliance.”

12. Learned counsel for the Bank also refers to the letter dated 15th

October,  2011  by  the  Consumer  seeking  credit  facility  with  the

request on behalf of the Consumer to give concession of 50% on LC

charges,  processing  charges,  inspection  charges  etc.  and  fully

waive DD charges and commitment charges.

13. In this background, the final proposal for sanction was submitted by

the CPU on 24th January, 2012 to the Head Office of the Bank. Soon

after the letter was sent by the CPU, the Consumer communicated

that it  was promised that the sanction would be received by 4th

February,  2012  but  since  the  Consumer  had  not  received  the

sanction letter, it sought reversal of the amount debited in view of

the fact that it got sanctions from other banks with attractive rate

of interest and the other terms and conditions.  The credit facilities

were sanctioned on 17th March, 2012.

14. Learned counsel for the Consumer, on the other hand, contended

that the Circular of the Bank dated 20th April, 2005, to which the

reliance has been placed by the learned counsel for the Bank, was

never  brought  to  the  notice  of  the  Consumer,  therefore,  the

conditions mentioned in such Circular will not bind the Consumer.

It is also contended that the Bank had taken extra-ordinarily long

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time to sanction the loan which compelled the Consumer to take

credit  facilities  from the other  Banks.   It  is  also  contended that

amount  of  Rs.27,41,165/-  was  debited  to  the  account  of  the

Consumer without its consent and knowledge and, therefore, the

order  passed  by  the  SCDRC  and  NCDRC  does  not  warrant  any

interference in the present appeal.

15. The learned NCDRC held that the services of the Bank availed for

cash  credit  limits  do  not  disentitle  the  respondent/complainant

from becoming a ‘consumer’ under the Act.   It  further held that

even though the Consumer had changed its  loan demand three

times, the Consumer had requested to pay 50% processing and

other  charges,  and the  total  amount  of  Rs.27,41,165/-  that  was

debited including PPC charges and Rs.18.25 lakhs as TEV study

charges.  Further, as the Bank had agreed to refund Rs.9.16 lakhs,

it meant that the Bank had considered to take only Rs.18.25 lakhs

as TEV charges.  Additionally, the Consumer had requested for 50%

discount on processing and other charges to which the Bank never

disagreed, hence it was presumed that the Bank had agreed to the

concession sought.  Therefore, the Bank should have charged only

1/4th of the TEV charges i.e. Rs.4,56,250/-.  Similarly, with regard to

PPC  charges,  the  Bank  at  one  time  agreed  to  waive  off  these

charges of Rs.9.16 lakhs subject to the Consumer paying the TEV

charge in full.  But now, it was found that the Bank was entitled to

only Rs.4,56,250/- as TEV charge, therefore, on the same analogy,

1/4th of the PPC charge i.e. Rs.2,29,000/- was found to be allowed to

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be deducted by the Bank.  Hence, the Bank was entitled to debit

total  of  only  Rs.6,85,250/-  (Rs.4,56,250/-  +  Rs.2,29,000/-).

Resultantly, the Bank was directed to refund Rs.20,55,915/- to the

Consumer and the interest rate was modified from 9% p.a. to 7%

p.a.

16. We find that the reasoning given by the learned NCDRC is de hors

the proposal as well as Circular of the Bank and is, in fact, based on

ipse dixit of the NCDRC.  The Consumer had sought a waiver of

50% of all charges in the request letter dated 15th October, 2011.

As per the sanction letter dated 17th March,  2012,  the following

were the charges claimed from the Consumer:

Particulars Amount in Rs. Processing charges including ST 4963000 Documentation Charges 20000 Inspection Charges (Per Quarter) 5000 Charges  for  creation  of  the mortgage

70000

TEV 1825000 Total 6883000 + S.T.

17. The total charges, thus, payable were Rs.68,83,000/- plus service

tax.  Even if, the 50% concession is conceded to the Consumer, still

the amount to be charged is much more than Rs.27,47,165/-.  As

per  the tariff  mentioned in  the sanction  letter,  TEV charges are

Rs.18,25,000/-  whereas  processing  charges  are  to  the  tune  of

Rs.49,63,000/-.  Obviously, the Consumer had to pay charges for

availing credit facilities of which the Consumer was in knowledge of

and, therefore, sought a waiver of 50% of the charges.  It is the

Consumer  who  revised  the  requirement  of  credit  facilities  three

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times and the Bank sanctioned credit facilities on 17th March, 2012

i.e. within almost three months from the final modified request.   

18. The Consumer admittedly was an old customer of the Bank who

applied to avail credit facilities of more than Rs.40 crores and it is

unbelievable  that  it  was  unaware  of  the  procedure  and  the

Circulars  of  the  Bank.  The  ignorance  of  the  procedure  and  the

Circular  of  the Bank dated 20th April,  2005 cannot  be accepted.

The  Consumer  was  aware  of  the  processing  charges  and  had

sought  a  waiver  of  the  processing  charges,  therefore,  the

processing  charges  had  been  debited  by  the  Bank  on  30th

December, 2011 in terms of authority given by the Consumer on

19th January, 2011 (Annexure P/3 in the appeal paper-book).

19. Thus, we find that orders passed by the NCDRC and SCDRC are

liable to be set aside. We may say that though, the Bank agreed to

refund Rs.9.16 lakhs from the processing charges through email

dated 29th June 2012 but  the  Consumer had not  accepted such

proposal in its e-mail dated 24th July, 2012. Therefore, we find that

the Consumer is entitled to refund of Rs.9.16 lakhs only in terms of

the decision of  the Bank communicated to the Consumer rather

than waiver of TEV charges in its entirety.  The request was to give

concession of  50% of all  charges, therefore,  it  is  the cumulative

amount of charges which is to be taken into consideration and not

the charges under a particular head.   

20. Consequently, we find that the orders of SCDRC and NCDRC suffer

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from patent illegality  and,  thus,  are set aside.   Accordingly,  the

appeal is allowed.  However, the Bank is directed to refund a sum

of Rs.9.16 lakhs within two months from the date of this order.

.............................................J. (D.Y. CHANDRACHUD)

.............................................J. (HEMANT GUPTA)

NEW DELHI; FEBRUARY 28, 2020.

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