2003 (10) TMI 396 - HC - Companies Law

Summary

Issues:
Dispute between a Banker and its customer regarding credit facility and change in company directors.

Analysis:
The judgment revolves around a dispute between a Bank and its customer regarding a credit facility and a change in company directors. The petitioner, a company, had a credit facility with the Bank, but the Bank called for additional security and a fresh bank guarantee due to suspicions about the change in directors not being informed to them. The petitioner approached the Court, expressing concerns about abrupt banking transaction halts causing harm to both parties. The Court passed an interim order allowing the petitioner to continue operating the account upon fulfilling specific conditions, including providing personal guarantees from the Managing Director and family members.

The Bank later recalled the loan, emphasizing the necessity to safeguard public money and stating that the Court cannot compel them to maintain the credit facility. The petitioner sought an amendment to challenge the loan recall notice. The petitioner relied on a Supreme Court decision to argue for a limited role of the Court when a nationalized bank deprives a customer of banking services. The petitioner proposed a solution where credit facilities would be reinstated upon meeting certain conditions and negotiations between the parties.

On the other hand, the Bank contended that it was within its rights to recall the loan due to lack of confidence after the change in directors. The Bank argued that it had acted lawfully and that there was no need for the Court to intervene in directing the continuation of credit facilities. The Court emphasized that the relationship between the Bank and customer is contractual, and the Bank's prudence in assessing the need for security and credit facilities should be respected. The Court highlighted the importance of negotiation between the parties to resolve the issue rather than court intervention.

Ultimately, the Court declined to interfere further in the matter, stating that it is for the petitioner to negotiate with the Bank to continue the credit facility. The Court encouraged settlement through mutual negotiations between the parties, leaving them to pursue their legal rights through other proceedings or negotiations. The judgment underscores the significance of contractual obligations and negotiation in resolving disputes between a Bank and its customer, emphasizing the limited role of the Court in such matters.