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2014 DIGILAW 154 (GAU)

Bahani Tea Co. v. State of Assam

2014-02-06

BIPLAB KUMAR SHARMA

body2014
JUDGMENT Biplab Kumar Sharma, J. 1. Both the writ petitions raising the same issue have been heard analogously and are being disposed of by this common judgment and order. The challenge in this writ petition is the refusal on the part of the respondent Bank to waive 1% commission on sale proceeds of tea. Such a condition was incorporated in the agreement dated 1.3.2004 entered into by and between the petitioner and the respondent Bank. The particular clause in the agreement is Clause No. 38, which reads as "1% (One percent) on Gross Sale Proceeds of tea". According to the petitioners, such a clause in the agreement is opposed to the banking norms. Referring to the provision of the Banking Regulation Act, 1949 and also the Indian Contract Act, 1872, the petitioners have contended that such a clause in the agreement is beyond the purview of banking transaction and is opposed to consideration and objects, which are lawful. 2. In the counter-affidavit filed by the respondent No. 9, the factual back ground involved in the case have been narrated. On perusal of the said affidavit, it appears that the petitioners had availed finance both for working capital and term loan from the bank for almost last 40 years. However, the finance availed by the petitioners during the year 2000, 2001, 2004 and 2005 remained unpaid and became Non Performing Asset (NPA) in the year 2006. As stated in the said affidavit, as on 31.12.2005, the principal outstanding amount of the petitioner company involved in W.P. (C) No. 151/2012 stood at Rs. 1,12,58,744.54 and the interest upto the said period was of Rs. 24,84,425.36/-. 3. In the aforesaid backdrop the Bank being approached by the petitioner vide application dated 8.9.2009, decided to convert such default amount to a Special Tea Term Loan (STTL) and the decision was communicated to the petitioner vide the Annexure-7 letter dated 30.10.2009. Be it stated here that the petitioners have been obtaining loan from the respondent Bank in respect of their tea business. By the said letter dated 30.10.2009, the irregular portion of the principal outstanding amount as on 31.12.2005 with interest at benchmark rate of 10% and the interest outstanding as on 31.12.2005 were converted to STTL to be repaid in 8 years. Certain other terms and conditions were also laid down to the converted STTL. 4. By the said letter dated 30.10.2009, the irregular portion of the principal outstanding amount as on 31.12.2005 with interest at benchmark rate of 10% and the interest outstanding as on 31.12.2005 were converted to STTL to be repaid in 8 years. Certain other terms and conditions were also laid down to the converted STTL. 4. As stated in the affidavit, several tea gardens like that of the petitioner had availed huge amount of loans from the respondent Bank and defaulted in repayment, which stood at Rs. 250.80 crores, as a result of which and on account of huge default a large amount of public money got blocked and the bank was not in a position to further add to the burden by further allowing finance to tea gardens. 5. Referring to the restructuring under STTL, the respondent Bank has contended in their affidavit that the plea taken in the writ petition is barred by the principles of waiver and acquiescence. It has also been stated that the STTL guidelines were reviewed and remodeled with the approval of the NABARD and the revised guidelines have been made applicable uniformly to all eligible defaulters including the petitioner. The petitioner was sanctioned STTL facility as per the revised guidelines vide Bank's letter dated 30.10.2009, the terms of which were accepted by the petitioner and consequently an agreement dated 19.4.2010 was also executed. In the affidavit, the respondent Bank has also referred to the writ petition being W.P. (C) No. 4379/2007 that was filed by the petitioner involved in W.P. (C) No. 151/2012 challenging the notice that was issued as per the provision of SARFAESI Act, 2002 when there was default on repayment of loan. 6. In view of the subsequent developments referred to above, and execution of agreement dated 19.4.2010, the petitioner agreed to withdraw all pending cases filed against the respondent Bank and accordingly withdrawn the writ petition on 25.11.2011. The respondent Bank has contended that these aspects of the matter having not been mentioned in the writ petition, there is withholding of material facts from the Court. 7. The respondent Bank has contended that these aspects of the matter having not been mentioned in the writ petition, there is withholding of material facts from the Court. 7. Particularly dealing with the grievance raised by the petitioners in respect of levy of 1% commission of sale proceeds of tea, it has been stated in the affidavit that all the tea borrowers including the petitioner having agreed to the said clause cannot now resile back from the said position incorporated in the agreement, more particularly when they have been extended with the benefit of STTL facility. According to the respondents, the petitioners have raised the issue to make further gain after availing the benefit of STTL. In the affidavit, it has also been stated that both the RBI and the NABARD in their regular inspection of the bank never raised any objection with regard to levy of 1% commission of sale proceeds. Finally, the respondent Bank in its affidavit has urged the following: 10. That while denying the correctness of the statements made in paragraphs 17, 18, 19, 20, 21, 22, 23, 24, 25 and 26, the deponent begs to reiterate and reaffirm the statements made in the proceeding paragraphs. That in addition to the above, the deponent submits that the writ petition is devoid of any merit and is liable to be dismissed firstly on account of the fact that the terms of the STTL that has been uniformly applied to all concerned parties is not under challenge. Secondly, the conduct of the petitioner is hit by the doctrine of waiver and acquiescence. Thirdly, a defaulter who has been given maximum benefit even at the cost of the bank cannot now challenge the terms of the agreement, which if allowed shall further affect the interest of the bank, which is the custodian of public money. Moreover, the issue involved is relating to a commercial transaction and the petitioner has agreed to the terms of the STTL, which protects the interest of the bank. As such, this Hon'ble Court may be pleased to dismiss the aforesaid petition with appropriate costs. 8. In the affidavit-in-opposition filed by the respondent No. 10, it has been stated thus: 5. That the petition as filed is misconceived and devoid of merits. RBI is not a proper or necessary party in the dispute between the petitioner and respondent No. 2. 8. In the affidavit-in-opposition filed by the respondent No. 10, it has been stated thus: 5. That the petition as filed is misconceived and devoid of merits. RBI is not a proper or necessary party in the dispute between the petitioner and respondent No. 2. The issue involved in the petition is charging of 1 (one) % commission on the petitioner company on the sale proceeds of the tea leaves by the respondent No. 2. The loan sanction letter dated 21.4.2003 provides for 1 (one) % commission on gross sale proceeds of tea. RBI is not aware of the transaction between the petitioner and respondent No. 2 and the alleged charging of 1% commission on the sale proceeds of the tea leaves. RBI has not issue any circular or guidelines in this behalf. The dispute arises out of a commercial transaction between the petitioner and respondent No. 2 in which RBI is not a necessary party. Hence the name of RBI is liable to be deleted from the array of respondents. 9. That as regards the contents of paragraph 16 of the petition, it is stated that the RBI has not issued and instructions or guidelines to the State Co-operative Banks or District Central Cooperative Banks in the matter of levying 1% commission on the sale proceeds on tea leaves by respondent No. 2. The only circular issued by RBI, in exercise of powers conferred under Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, pertains to abolition of Minimum Lending Rate (MLR) for Cooperative Banks in order to provide greater flexibility to Co-operative Banks in a competitive environment. The said Circular contained in RPCD No. RF.DIR 593/07.38.02/2001-2 dated 29.04.2002 only allows Co-operative Banks the freedom to determine their lending rates taking into account their cost of funds, transactions costs etc. with the approval of their Managing Committee and subject to adherence of transparency. 15. That with regard to the issue as raised in the writ petition, namely, charging of 1 (one) % commission on the petitioner company on the proceeds of the tea leaves by the respondent No. 2, it is submitted that as appearing from the loan sanction letter dated 21.4.2003 as Annexure-IX of the writ petition, condition No. 38 thereof provides for 1(one) % commission on gross sale proceeds of tea. Further, RBI would like to place on record that RBI has not issued any instruction to State Co-operative Banks or District Central Co-operative Banks as alleged by the petitioner in the petition. The only circular issued by the Reserve Bank of India, in exercise of powers under Section 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, pertains to the abolition of the Minimum Lending Rate (MLR) for Co-operative Banks in a competitive environment. The said circular contained in RPCD No. RF.DIR593/07.38.02/2001-02 dated 29.04.2002 only allows Co-operative Banks the freedom to determine their lending rates taking into account their cost of funds, transactions costs etc with the approval of their Managing Committee and subject to adherence and transparency. 9. In the affidavit-in-reply filed by the petitioner against the affidavit-in-op-position of the respondent Bank, while reiterating and reaffirming the stand taken in the writ petition, it has been stated that whatsoever be the reason for levying 1% commission on sale proceeds, the same must be within the parameters and yardsticks of the RBI guidelines and the Banking Regulation and cannot be beyond that. As regards the plea of waiver, estoppels, acquiescence raised by the respondent Bank, the petitioners have contended that the said principle cannot operate against law. 10. I have heard Mr. D. Das, learned senior counsel, assisted by Mr. R. Sinha, learned counsel for the petitioners as well as Mr. D. Saikia, learned Additional Advocate General, Assam along with Mr. P.N. Goswami, learned Standing Counsel, Apex Bank and Mr. M. Bhuyan, learned Standing Counsel, RBI. I have also considered the entire materials on record. 11. Mr. Das, learned senior counsel for the petitioners placing reliance on the two decisions of the Apex Court, reported in (2011) 10 SCC 300 , Phulchand Exports Ltd. v. O.O.O. Patriot and (2012) 1 SCC 718 , Union of India v. Colonel L.S.N. Murthy & Anr. has argued that the particular clause in the agreement being opposed to the condition laid down in Section 29 of the Indian Contract Act, irrespective of being signatory of the agreement by the representative of the petitioners, the same cannot have any binding affect. He further submits that the respondent Bank while sanctioning the particular STTL could not have imposed the particular condition, which is opposed to a valid contract. 12. Countering the above argument, Mr. D. Saikia, learned Addl. He further submits that the respondent Bank while sanctioning the particular STTL could not have imposed the particular condition, which is opposed to a valid contract. 12. Countering the above argument, Mr. D. Saikia, learned Addl. Advocate General, Assam referring to the aforesaid stand taken in the counter-affidavit, submits that there is nothing to prevent the bank from levying 1% commission on gross sale proceeds. He further submits that the petitioners having accepted the particular clause in the agreement and also the facilities under the STTL, cannot now turn around the said position so as to question the particular clause. He has placed reliance on two decisions of the Apex Court reported in (1981) 1 SCC 537 (Ms. New Bihar Biri Leaves Co. & Ors. v. State of Bihar & Ors.) and (2010) 10 SCC 1 (ICICI Bank Ltd. v. Official Liquidator of APS Star Industries Ltd. & Ors.) He has also referred to the provisions of the Banking Regulation Act, 1949, more particularly, Sections 6, 20 and 56. 13. Mr. M. Bhuyan, learned Standing Counsel, RBI in reference to the stand taken in the counter-affidavit submits that while it is true that the RBI has not issued any circular or guidelines in respect of the aforesaid levy of 1% commission on gross sale proceeds of tea, but the transaction between the petitioner and the respondent Bank involves a commercial transaction and thus RBI is not a necessary party. 14. Section 23 of the Indian Contract Act, 1872 specifies considerations and objects of which are lawful and which are not. For a ready reference, the said section is quoted below: 23. What considerations and objects are lawful, and what not.--The consideration or object of an agreement is lawful, unless-- It is forbidden by law, or Is of such a nature that, if permitted, it would defeat the provisions of any law; or Is fraudulent; or Involves or implies injury to the person or property of another; or The Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void. 15. Part-II of the Banking Regulation Act, 1949 deals with the business of banking companies. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void. 15. Part-II of the Banking Regulation Act, 1949 deals with the business of banking companies. Section 6 thereof stipulates the forms of business in which banking companies may engage in addition to the business of banking, one of which is business on bank transaction on commission and investment. Section 6(1)(c) provides for contracting for public and private loans and negotiating and issuing the same. Section 6(1)(n) empowers the bank for doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company. Section20 of the Act deals with restriction on loans and advances. Referring to the provisions thereof, it is the stand of the respondent Bank that there is no restriction imposed on the bank debarring it from levying 1% commission on gross sale proceeds. 16. Section 56 of the Banking Regulation Act, 1949 has been referred to by the learned Additional Advocate General, Assam to submit that the Act is applicable to the co-operative society banks. Be it stated here that the respondent Bank is a co- operative society bank. 17. In Phulchand Exports Ltd. (supra), the Apex Court referring to the provisions of Section 23 of the Indian Contract Act, 1872 held thus: The transactions covered by Section 23 are the transactions where the consideration or object of such transaction is forbidden by law or the transaction is of such a nature that, if permitted, would defeat the provisions of any law or the transaction is fraudulent or the transaction involves or implies injury to the person or property of another or where the Court regards it immoral or opposed to public policy. Whether a particular transaction is contrary to a public policy would ordinarily depend upon the nature of transaction. Where experienced businessmen are involved in a commercial contract and the parties are not of unequal bargaining power, the agreed terms must ordinarily be respected as the parties may be taken to have had regard to the matters known to them. 18. Mr. Where experienced businessmen are involved in a commercial contract and the parties are not of unequal bargaining power, the agreed terms must ordinarily be respected as the parties may be taken to have had regard to the matters known to them. 18. Mr. Das, learned senior counsel for the petitioner referring to the aforesaid observation of the Apex Court has argued that the particular clause impugned in this proceeding is contrary to the public policy and the respondent Bank in its business transaction could not have incorporated the same. In Colonel L.S.N. Murthy (supra) also, referring to the aforesaid provision of the Indian Contract Act, 1872, the Apex Court observed that if the consideration or objects of an agreement defeat the provisions of law then the agreement would be void. 19. The relevant provisions of the Banking Regulation Act, 1949 have been referred to. Section 6 of the Act empowers the bank to engage itself in any one or more of the businesses indicate therein, which are in addition to the business of banking, one of which is business transaction on commission. Section 6(1)(c) empowers the bank to go for negotiation in respect of providing public and private loans. Section 6(1)(n) empowers the bank to do all other things as are incidental or conducive to the promotion or advancement of the business of the company. The question that falls for consideration of this Court is as to whether the particular clause in the agreement which has been referred to above is opposed to any public policy or can be termed as unlawful. 20. In ICICI Bank Ltd. (supra), the Apex Court in reference to the aforesaid Act of 1949 emphasized on the need to interpret the Act keeping in mind not only the framework of the banking law as it stood in 1949 but also the growth and the new concepts that have emerged in the course of time. In paragraphs 37 and 43 of the said judgment, it has been observed thus: 37. The point we are trying to make is that apart from the principal business of accepting deposits and lending the said 1949 Act leaves ample scope for the banking companies to venture into new business subject to such business being subject to the control of the regulator viz. RBI. The point we are trying to make is that apart from the principal business of accepting deposits and lending the said 1949 Act leaves ample scope for the banking companies to venture into new business subject to such business being subject to the control of the regulator viz. RBI. In other words, the 1949 Act allows banking companies to undertake activities and business as long as they do not attract prohibitions and restrictions like those contained in Sections 8 and9. In this connection we need to emphasize that Section 6(1)(n) enables a banking company to do all this as are incidental; or conducive to promotion or advancement of the business of the company. Section 6(1) enables banking companies to carry on different types of businesses. Under Section 6(1), these different types of businesses are in addition to business of banking viz. core banking. The importance of the words "in addition to" in Section 6(1) is that even if different businesses under Clauses (a) to (o) are shut down, the company would still be a banking company as long as it is in the core banking of accepting deposits and lending so that its main income is from the spread or what is called as 'interest income'. Thus, we may broadly categorize the functions of the banking company into two parts viz. core banking of accepting deposits and lending and miscellaneous functions and services. Section 6 of the BR Act, 1949 provides for the form of business in which banking companies may engage. Thus, RBI is empowered to enact a policy which would enable banking companies to engage in activities in addition to core banking and in the process it defines as to what constitutes "banking business". 43. One more aspect needs to be kept in mind. In this batch of cases we are dealing with assets in the hands of the banks. NPAs are "account receivables". The impugned guidelines show that RBI considers inter se NPA assignment between banks to be a tool for resolving the issue of NPAs and in the interest of banking policy under Section 21 of the BR Act, 1949. The object is to minimize the problem of credit risk. The corporate debt restructuring as a matter of banking policy cannot be treated as "trading". One has to keep in mind the object behind enactment of the BR Act. 1949. The object is to minimize the problem of credit risk. The corporate debt restructuring as a matter of banking policy cannot be treated as "trading". One has to keep in mind the object behind enactment of the BR Act. 1949. Thus, the said guidelines fall under Section 21 of the 1949 Act. These guidelines are a part of credit appraisal mechanism. Thus, in our view the impugned guidelines are not ultra vires the BR Act, 1949. Dealing in NPAs as part of the credit appraisal mechanism and as a part of restructuring mechanism falls within Section 21 read with Section 35Aof the Act. Hence, it cannot be said that "transfer of debts/NPAs" inter se between banks is an activity which is impermissible under the 1949 Act. The BR Act, 1949 is an Act enacted to consolidate and amend the law relating to banking. Thus, while interpreting the act one needs to keep in mind not only the framework of the banking law as it stood in 1949 but also the growth and the new concepts that have merged in the course of time. 21. In the instant case, there is no dispute that when the agreement was entered into by and between the parties, the impugned clause was very much there. Although it was argued that with the striking of SITL deal, the earlier contract stood obliterated with the execution of the new agreement in 2010, but on perusal of the provisions of the new agreement, it cannot be said that the STTL agreement obliterates the earlier agreement which incorporated the particular clause. The STTL agreement was arrived at by and between the parties in view of the situation that had emerged because of non-payment of outstanding dues. Certain concessions were provided to the petitioner which they have also availed of. 22. Above apart, the petitioners themselves having acknowledged the existence of the earlier agreement vide their letter dated 28.9.2011, for which a prayer was made for rephrasing of STTL scheme and waiver of 1% commission on tea proceeds. In was in reference to the said letter, the respondent Bank issued the impugned letter dated 4.11.2011, by which in reference to the particular clause in the earlier agreement, the prayer for waiver of 1% commission on gross sale proceeds was rejected. In was in reference to the said letter, the respondent Bank issued the impugned letter dated 4.11.2011, by which in reference to the particular clause in the earlier agreement, the prayer for waiver of 1% commission on gross sale proceeds was rejected. Thus, it cannot be said that the STTL agreement providing certain benefits to the petitioners towards liquidation of the loan amount obliterated the earlier agreement. The earlier agreement is the parent agreement, which still holds the field. 23. The decision of the Apex Court in M/s. New Bihar Biri Leaves Co. (supra) has been referred to by the learned Additional Advocate General, Assam to bring home his point of argument that the plea raised in the writ petition is barred by the principle of waiver, estoppels and acquiescence. In the said decision, the Apex Court dealing with the particular instrument held, that a party to an instrument or transaction cannot take advantage of one part of a document or transaction and reject the rest. In paragraph 48 of the judgment, the Apex Court has held thus: 48. It is a fundamental principle of general application that if a person of his own accord, accepts a contract on certain terms and works out the contract, he cannot be allowed to adhere to and abide by some of the terms of the contract which proved advantageous to him and repudiate the other terms of the same contract which might be disadvantageous to him. The maxim is qui approbate non-re-probate (one who approbates cannot reprobate). This principle, though originally borrowed from Scots Law, is no firmly embodied in English Common Law. According to it, a part to an instrument or transaction cannot take advantage of one part of a document or transaction and reject the rest. That is to say, no party can accept and reject the same instrument or transaction. 24. In the instant case, the parent agreement was entered into by and between the parties way back in 2004 and to be precise on 1.3.2004 and the subsequent agreement on the basis of the STTL scheme was arrived at on 2010 (19.4.2010). The petitioners after availing of the benefits under the said STTL agreement raised the question of non-applicability of the impugned clause in the parent agreement. 25. Although Mr. The petitioners after availing of the benefits under the said STTL agreement raised the question of non-applicability of the impugned clause in the parent agreement. 25. Although Mr. Das, learned senior counsel for the petitioners has strenuously argued that in absence of any provision either in the Banking Regulation Act, 1949 or any circular of the RBI, the respondent Bank is not empowered to levy the particular commission, but as submitted by Mr. Saikia, learned Addl. Advocate General, Assam, there is also no bar either in the said Regulation or in any circular or document of the RBI and/or NABARD. On the other hand the provisions of Banking Regulation Act, 1949 referred to above, empower the respondent Bank to levy commission and to negotiate in respect of any public or private loan. Section 6(1)(n) also empowers the bank for doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company. 26. From the materials on record, it appears that the particular loan facility is being provided by the respondent Bank to the tea companies. This facility is being provided to the tea companies over the years and while availing the facility, the tea companies including the petitioner agreed to the impugned clause. The said clause was incorporated in the parent agreement having regard to the nature of the loan that was provided to the tea companies for the particular purpose. If in such circumstances, the respondent Bank in its wisdom decided to impose the particular clause, I am of the considered opinion that the same cannot be termed as arbitrary and contrary to the provisions of the Indian Contract Act, 1872. Nothing has been brought on record to show that such condition in the agreement is opposed to the public policy. Needless to say that ratio of any decision will have to be understood in the background of the fact situation of each and every case. The decisions, on which Mr. Das, learned senior counsel for the petitioner has placed reliance, render no help to the case of the petitioners. For all the aforesaid reasons, I do not find any merit in the writ petition and accordingly, it is dismissed. However, there shall be no order as to costs.