Maharashtra State Finan.Corp. & Ors. Vs. Sanjay Shankarsa Mamarde  INSC
474 (9 July 2010)
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 7189 OF
2002 Managing Director, -- Appellants Maharashtra State Financial Corporation
Sanjay Shankarsa Mamarde -- Respondent
Challenge in this appeal, filed under Section 23 of the Consumer
Protection Act, 1986 (for short "the Act"), by the Maharashtra State
Financial Corporation (hereinafter referred to as "the Corporation"),
is to the final order, dated 7th January, 2002, passed by the National Consumer
Disputes Redressal Commission, New Delhi (for short "the Commission")
in Original Petition No. 9 of 1995. By the impugned order, the Commission has
accepted the complaint preferred by the respondent (hereinafter referred to as
"the complainant") against the Corporation and has directed the
Corporation to pay to the complainant an amount of Rs.4,84,457/- as
compensation, within a period of two months from the date of the order and in
case of default, to pay interest at the rate of 18% per annum from the date of
order till actual payment.
Succinctly put, the material facts giving rise to the present
appeal are as follows:
complainant approached the Corporation for sanction of loan for his hotel
project at Amravati. As per the project report, the capital outlay was of
Rs.74.45 lakhs. The means of finance envisaged in the project report were as
Proprietor's capital : Rs.16.80 lakhs ii) Term loan from : Rs.30.00 lakhs
Corporation iii) Special Capital : Rs.21.30 lakhs Incentive from SICOM iv)
Unsecured loans : Rs. 6.35 lakhs Total : Rs.74.45 lakhs 2 3.The Complainant's
loan proposal was approved by the Executive Committee of the Corporation on
27th May, 1992, sanctioning a term loan of Rs.30 lakhs to the complainant. Accordingly,
a sanction letter along with terms and conditions of the loan was issued to the
complainant on 2nd July, 1992.
The material conditions of loan were as follows:
The loan shall be utilised exclusively for the project as per the scheme
approved by MSFC and the specific purposes for which the same is sanctioned.
loan shall be disbursed by MSFC in one lump sum or in installments as and when
the said purposes are fulfilled or at the entire discretion of the Corporation
or may be refused if in the opinion of the Corporation, the purpose for which
the full loan has been sanctioned are not properly fulfilled.
loan will be disbursed either for acquisition of fixed assets under the said
scheme or for reimbursement of funds utilised for acquisition of fixed assets
taken for security under the said scheme.
minimum margin of 55% over all on fixed assets shall be maintained during the
currency of the loan.
loan shall be repaid within a period of 8 years by 13 half yearly installments
commencing from the end of 2nd year of disbursement of the first installment of
the loan. The amount of each installment repayable being about 1/13 of the
amount sanctioned regardless of the amount disbursed.
interest shall be charged @ 22% p.a. and the same shall be payable quarterly on
the total loan and the same shall be charged from the date of disbursement of
first installment of the loan."
it was also agreed that the loan amount would be disbursed depending on the
progress of the work in accordance with a set time schedule. The progress of
the construction work was required to be evaluated by the valuer approved by
The said conditions were accepted by the complainant.
to complainant's request vide his letter dated 2nd 4 September, 1992,
undertaking to bring entire 100% capital;
his banker's confirmation for grant of bridge loan against subsidy i.e. (SCI)
and load sanction letter from MSEB, before availing of the next disbursement,
the first installment of the loan of Rs.2,90,000/- was released by the
Corporation to the complainant. On the same day, the complainant issued a
cheque in the sum of Rs.30,000/- towards up-front fees to the Corporation.
However, the said cheque of Rs.30,000/- was dishonoured when presented for
payment. By their letter dated 15th December, 1992, the Corporation intimated
the complainant that despite the release of first installment of Rs.2.90 lakhs,
he had neither submitted papers for further disbursements nor reported progress
of the project and had also failed to submit Chartered Accountant's certificate
showing his investment. Subsequently, a valuation report dated 7th January
1993, showing that a total amount of Rs.6,97,057/- (Rs.5,02,099/- as per
previous valuation + Rs.1,94,958/- as per present valuation) had been spent on
the construction of the hotel was filed by the complainant.
to the Corporation, despite the fact that the complainant had failed to submit
complete documents, second 5 installment of Rs.87,000/- was released to him on
19th January 1993, after adjusting therefrom the amount of interest due in
terms of the conditions of loan.
Vide their letter dated 5th March, 1993, the Corporation requested
the complainant to inform them about the progress of the project and avail the
balance loan limit by submitting valuation report, Chartered Accountant's
certificate towards further investment made by him for creation of fixed
to the Corporation, since they had learnt that there was a proposal for laying
a railway line between Amravati and Narkhed which was likely to affect the
hotel project and the complainant had also defaulted in payment of interest
despite repeated requests by them vide their letters dated 10th December 1993
and 24th February, 1994, they did not release further installments of the loan
sanctioned to the complainant.
contrary, the stand of the complainant was that although by June 1993, he had
spent Rs.27,25,510/- but no evaluation was done by the valuer of the Corporation
and all his request for release of further installments fell on deaf ears.
time, the Corporation insisted on a written assurance 6 from the railway
authorities that the proposed Amravati and Narkhed railway line would not be
passing through the hotel project site, before releasing the balance loan
Finally, vide their letter dated 5th September, 1994, the
Corporation informed the complainant that the entire balance unavailed term
loan of Rs.26.23 lakhs had been treated as cancelled. The said intimation was
followed by a legal notice dated 18th October, 1994 by the Advocate of the
Corporation, wherein it was alleged that the complainant had failed to pay the
interest on the amount already disbursed to him; as on 31st March, 1994 he was
in arrears by more than Rs.1 lakh as interest and he had also failed to give
any alternative proposal for the hotel project as the project at the existing
site was likely to be affected by new railway track from Amravati to Narkhed.
The complainant was called upon to repay the entire loan amounting to
Rs.5,19,726/-, the outstanding amount as on 23rd September,1994, within fifteen
days from the date of receipt of the said notice.
It appears from the impugned order that by his letter dated 15th
September 1994, the complainant protested to the recall 7 of loan sanctioned to
him. It is stated that the complainant pointed out that though a number of installments
of the loan had fallen due to be paid to the complainant, it was only as late
as on 29th July, 1994, that he was asked to submit a letter from the competent
authority regarding the status of the railway line and that he promptly
submitted a certificate issued by the Commissioner, Amravati Division affirming
that there was no proposal of Amravati - Narkhed line.
Having failed to get any favourable response from the Corporation,
on 17th January 1995, the complainant filed a complaint with the Commission. It
seems that during the pendency of the complaint before the Commission, the
Corporation retraced their steps and proposed to renew the loan on certain
conditions, which were not acceptable to the complainant.
As already stated, the Commission has accepted the complaint and
has come to the conclusion that there was no justifiable ground for the
Corporation to deny disbursement of loan to the complainant. According to the
Commission, having sanctioned the loan and then stopping its 8 disbursement
without any cause amounted to deficiency in service on the part of the
Corporation. However, keeping in mind the passage of time, the Commission did
not find it expedient to direct the Corporation to release further installments
of the loan, sanctioned as far back as in July 1992.
Being aggrieved by the award of compensation, the Corporation has
preferred this appeal.
We have heard Mr. Santosh Paul, learned counsel appearing for the
Corporation and Mr. Manish Pitale, learned counsel appearing for the
Learned counsel appearing for the Corporation submitted that in
the instant case there was no deficiency in service as defined in Section 2(g)
of the Act. The learned counsel argued that the Commission has exceeded its
jurisdiction in examining the administrative decision of the Corporation to
recall the loan as it felt that having regard to the past conduct of the
complainant it was not in the interest of the Corporation to disburse the
balance amount of loan to him. Relying on the 9 Naini Oxygen & Acetylene
Gas Ltd. & Anr.1, it was submitted that unless the action of the
Corporation was held to be mala fide, even a wrong decision taken by it was not
open to challenge as it is not for the Courts or a third party to substitute
its decision, however more prudent, commercial or businesslike it may be, for
the decision of the Corporation.
was also placed on another decision of this Court in & Anr.2, to contend
that in commercial matters the Court should not risk their judgments for the
judgments of the bodies to whom that task is assigned. It was asserted that
since the Corporation was of a bona fide belief that the entire hotel project
of the complainant may get affected because of the proposed railway line and
further there were defaults on the part of the complainant to discharge his
liability towards quarterly installments of interest, the decision of the
Corporation not to disburse further installments cannot be termed as mala fide
or unreasonable and, therefore, there was no question of any deficiency in the
service of the Corporation towards the complainant.
2 SCC 754 2 (2002) 3 SCC 496 10
Supporting the impugned judgment, learned counsel appearing for
the complainant, on the other hand, submitted that in the absence of any
stipulation in the conditions of loan for stopping the disbursement on account
of default in the payment of interest on time, the action of the Corporation in
not releasing the remaining installments on the stipulated dates not only
affected the hotel project, it also caused a huge loss to the complainant as he
was deprived of the special capital incentive by SICOM. It was argued that the
non release of the installments on the specious plea that there was a proposal
for a railway line was mala fide inasmuch as there was no such proposal.
The short question arising for consideration is whether the
Commission was correct in holding that there has been deficiency in service
provided by the Corporation to the complainant on account of their failure to
release the balance loan amount?
Clause (o) of Section 2 of the Act defines "service" to
mean:- 11 "service" means service of any description which is made
available to potential users and includes, but not limited to, the provision of
facilities in connection with banking, financing insurance, transport,
processing, supply of electrical or other energy, board or lodging or both,
housing construction, entertainment, amusement or the purveying of news or
other information, but does not include the rendering of any service free of
charge or under a contract of personal service;"
of the words `any' and `potential' in the context these have been used in
clause (o) indicates that the width of the clause is very wide and extends to
any or all actual or potential users. The legislature has expanded the meaning
of the word further by extending it to every such facilities as are available
to a consumer in connection with banking, financing etc.
when the bank or financial institutions advance loans, they do render `service'
within the meaning of the clause.
behalf, there is no dispute.
"Deficiency" under clause (g) of Section 2 of the Act
means:- "deficiency" means any fault, imperfection, shortcoming or
inadequacy in the quality, nature and manner of performance which is required
to be maintained by or under any law for the time being in force or has been 12
undertaken to be performed by a person in pursuance of a contract or otherwise
in relation to any service;"
manifest from the language employed in the clause that its scope is also very
wide but no single test as decisive in the determination of the extent of
fault, imperfection, nature and manner of performance etc. required to be
maintained can be laid down. It must depend on the facts of the particular
case, having regard to the nature of the `service' to be provided.
Therefore, in so far as the present case is concerned, in order to
examine whether there was a deficiency in service by the Corporation, it has to
be seen if there was any inadequacy in the quality, nature and manner of
performance which was required to be maintained by the Corporation in terms of
their letter dated 2nd July, 1992, conveying the sanction of loan to the
complainant. As noted above, the Corporation was obliged to disburse to the
complainant a loan of Rs.30 lakhs in installments on complainant's furnishing
the progress report of the project. Although, no specific information with
regard to the actual dates for release of the installments of the loan amount
are forthcoming, yet it can be gathered from the 13 correspondence on record
that the loan amount was to be disbursed periodically (perhaps half yearly), on
the basis of the report of the approved valuer on the progress of the project.
It is evident from Corporation's letters dated 5th March, 1993, 10th December,
1993, 24th February, 1994 and 29th July, 1994 that the complainant not only
failed to furnish the progress report, he also did not discharge his liability
towards interest, as demanded from him from time to time. As already stated,
even the cheque in the sum of Rs.30,000/- issued by the complainant to the
Corporation on 2nd September, 1992 towards up-front fee was returned unpaid by
his bankers. In Corporation's letter dated 24th February, 1994 it was alleged
that the complainant had not only failed to pay interest, it was also found on
inspection on couple of occasions by the Regional Manager that during the last
four months there was no further progress in implementation of the project. It
is significant that these allegations and details of interest due from the
complainant had not been seriously disputed by the complainant either before
the Commission or in the counter affidavit filed by him in this appeal. In the
background of the factual scenario as emerging from the material on record, we
14 are convinced that there was no shortcoming or inadequacy in the service on
the part of the Corporation in performing its duty or discharging its
obligations under the loan agreement.
Corporation was constrained not to release the balance installments and recall
the loan on account of stated defaults on the part of the complainant himself.
Non release of loan amount was not because of any deficiency on the part of the
Corporation but due to complainant's conduct and therefore, the failure of the
Corporation to render `service' could not be held to give rise to claim for
recovery of any amount under the Act.
We also find substance in the contention of learned counsel for
the Corporation that unless the action of a financial institution is found to
be mala fide, even a wrong decision taken by it is not open to challenge, as
the wisdom of a particular decision is normally to be left to the body
authorized Oxygen & Acetylene Gas Ltd. & Anr. (supra) this Court had
observed that a Corporation being an independent autonomous statutory body
having its own constitution and rules to abide 15 by, and functions and obligations
to discharge, in the discharge of its functions, it is free to act according to
its own right. The views it forms and the decisions it takes would be on the
basis of the information in its possession and the advice it receives and
according to its own perspective and calculation. In such a situation, more so
in commercial matters, the court should not risk their judgments for the
judgments of the bodies to which that task is assigned. It was held that: (SCC
p. 761, para 21) "Unless its action is mala fide, even a wrong decision
taken by it is not open to challenge. It is not for the courts or a third party
to substitute its decision, however more prudent, commercial or businesslike it
may be, for the decision of the Corporation. Hence, whatever the wisdom (or the
lack of it) of the conduct of the Corporation, the same cannot be assailed for
making the Corporation liable".
Having considered the matter in the light of the correspondence
exchanged between the Corporation and the complainant, we have no hesitation in
holding that there has not been any deficiency in the service the Corporation
was required to provide to the complainant. In our opinion, the Commission was
not correct in coming to the aforestated conclusion. We are of the view that the
complainant being 16 himself a defaulter right from inception of his dealing
with the Corporation, when his cheque in the sum of Rs. 30,000/- got
dishonoured, coupled with persistent defaults in discharging his liability to
the Corporation towards interest, despite repeated demands, he cannot be
permitted to plead at the later stage that he suffered on account of deficiency
in service by the Corporation because of non-disbursement of balance installments
of loan by them. As was observed by this Court in Jagdamba Oil Mills (supra),
while not insisting upon the borrower to honour the commitments undertaken by
him, the Corporation alone cannot be shackled hand and foot in the name of
fairness. Fairness cannot be a one-way street. Where the borrower has no genuine
intention to repay and adopts pretexts and ploys to avoid payment like in the
present case, he cannot make the grievance that the Corporation was not acting
fairly, even if requisite procedures have been followed.
For the foregoing reasons, we allow the appeal; set aside the
order passed by the Commission and dismiss the complaint filed by the
complainant. Amount deposited in terms of order dated 19th July, 2004 shall be
released to the Corporation on 17 maturity of the fixed deposit. There shall, however,
be no order as to costs.
..................................J. (D.K. JAIN)
..................................J. (H.L. DATTU)
JULY 9, 2010.