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TMI Blog1998 (4) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... etition, started construction of a building, named, 'Sheohar Sadan'. It applied to the Syndicate Bank ('the bank', hereinafter) for a loan of rupees twelve lacs. (Rs. 12,00,000/-) for the construction of a portion of that building. The application for loan was accompanied with the proposal that the portion of the building (first and second floors) for the construction of which the loan was applied for would be leased back to the bank for setting up there the Patna Branch of the bank. The bank accepted the proposal and sanctioned the loan and its Dy. General Manager by his letter dated 25.1.1984 (Annexure-1) informed the Manager, Patna Branch that the proposal for shifting the Patna Branch premises and to establish a 'B' class currency chest attached to the branch was accepted by the Board of the bank on the terms and conditions recommended by the Branch Manager which were enumerated in that letter, The Branch Manager, patna Branch then wrote letter dated 22.5.1984 (Annexure 1/A) informing the firm regarding the acceptance of their proposal and reproducing the terms and conditions as contained in the letter of the Dy General Manager. The term concerning the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usly deducted from it @ ₹ 18,000.00 per month for a period of 10 years towards the liquidation of the loan. The amount so deducted was shown in the deposits column of the firm's loan account No. ML 1/84. 8. On the basis of the Company's application dated 15.10.1984 the building on 10.3.1988 whereunder loan account No. ML 1/84 standing in the name of the partnership firm M/s. Sheohar Construction was closed and its balance was transferred, on the same terms and conditions as earlier, to the loan account being account No. OSL ML 1/88 in the name of the petitioner company. On that day, 10.3.1988 a fresh agreement was entered into and executed on behalf of the petitioner-company and the bank. 9. It will be useful here to take a look at some of the clauses of this 'Articles of Agreement'. Clauses 3 of the agreement was as follows: In consideration of a sum of ₹ 10,90,802/41 to be paid by the bank as mentioned in the First Schedule hereto. The Borrower/s hereby confirms/confirm having agreed to repay to the bank the principal sum of ₹ 10,90,802/41 in instalments on the due dates mentioned in the Second Schedule hereto. The borrower/s agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er than 15 % as stipulated in the term of repayment of the loan. The petitioner company protested and drew the attention of the bank to those irregularities and their charging of interest at a higher rate. It wrote letters, sent a number of reminders and its representative(s) also personally met the bank's officials in this regard. Its letters were acknowledged by the bank and from time to time assurance was given to look into the matter, there was some internal correspondence too in the bank on this matter but the irregularities in the loan A/c were not rectified to the petitioner's satisfaction. 13. Finally when the 10 years period for the repayment of the loan was at its fag ends the petitioner company received a letter dated 2.6.1994 (Annexure-14) from the Branch Manager of the bank. This letter stated that with reference to the petitioners' earlier letters and representations the Branch Manager was directed to inform that according to the Equated Monthly Instalment Factors Chart (A copy of which was enclosed with the letter), the equated monthly instalments (inclusive of interest) for repayment of a loan of ₹ 12,00,000 at 15% interest per annum over a peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther words, bear with the deduction) till objections raised by it were finally decided by the concerned officials in the bank. 16. As there was no end in sight to the monthly deductions by the bank even at this stage, the petitioner came to this court with this writ petition. 17. In pursuance of the notice issued by the court the respondent bank filed a counter affidavit on 13.3.1997. In this counter affidavit after questioning the maintainability of the writ petition it justified the rent adjustments which were on going even on the date of filing the counter affidavit. A copy of the complete Loan A/c was also enclosed as Annexure-B which showed an outstanding amount of ₹ 1,60,546 after the last adjustment of ₹ 18,000/-was made on 28.2.1997. The rent adjustments being made even after the period of 10 years for the repayment of the loan were justified mainly on two grounds. One, that the Government of India had introduced Interest Tax, w.e.f. 1.10.1991 through Finance Bill No. 2/91. Following the introduction/revival of interest tax the Bank had issued circular, dated 30.10.1991 in terms of which interest at the rate of 1/2% was payable on the outstanding loan due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.3.1990 the interest amount on the outstanding balance was calculated @ 18% for which there was admittedly no sanction. Later, on 25.9.1990 the interest amount on the outstanding balance was once again calculated (r) 15% but no adjustments were made for the excess charge made earlier. There were other irregularities also in the account. 21. Taking full advantage of the aforesaid lacunae in the bank's counter affidavit, which was apparently filed without much application of mind Mr Navaniti Prasad Singh severely criticised the bank's stand. In the affidavit filed on behalf of the petitioners in reply to the bank's counter affidavit it was pointed out that the interest tax w.e.f. 1.10.1991 was levied @3% and not @ 1/2 as stated incorrectly in the bank's counter affidavit. However, with regard to the interest tax it was submitted that its payment was primarily the liability of the bank as it was a tax imposed on the interest receivable by a bank by virtue of Section 4 of the Act. it was further stated that even assuming that the interest tax was payable by the loanees, the petitioners, the annual tax liability on that account would come to only ₹ 6,480/- per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the payment made towards loan dues as well as the interest charged as per the terms of the loan agreement was recast. A photo copy of the recast A/c was enclosed as Annexure-C. According to the recast A/c there was a negative balance of ₹ 2346.67 in the petitioner's Loan A/c as on 31.7.1997 after readjustment of the monthly rent of ₹ 18,000/- on that date. The only feature of the recast account is that the interest has been calculated at the rate of 15% with quarterly rest, i.e. by compounding interest at intervals of three months. 26. It is thus evident that the bank has dropped the stand taken in the earlier counter affidavit filed by it and has come out with a new case in the supplementary counter affidavit filed on its behalf. 27. A question now arises regarding the validity of charging interest with quarterly rest on a loan advanced for construction of the premises which, in terms of the proposal under which loan was given, was to be leased back to the bank. It has been noted above that in the letter dated 22.5.1984 (Annexure-1 A) by which the firm, the original loanee, was informed about the sanction of the loan and its terms and conditions, there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appear to have intended to charge quarterly rest. The Reserve Bank at nowhere indicated that the term of the buildings to lease back to the commercial banks should be intended to be charged with interest with quarterly rest. On the other hand, they have reduced sufficiently from time to time even the lending rate of interest in favour of landlords/lessors. 8. It is true, as contended by Shri Goel, learned Senior Counsel, that the State Bank of Patiala, Head Office while addressing the letter to the Manager of the State Bank of Patiala at Tripurari Sadan, Patiala (Annexure P-6) have referred to the rate of interest at 15% per annum plus interest tax with quarterly rest. But in the light of the directions given by the Reserve Bank which the commercial banks are bound to follow and the bank itself adopted that policy and reduced the rate of interest, the liability to pay quarterly rest is obviously illegal. The trial court and the district court, therefore, are quite right in limiting the liability of the respondent only to pay simple interest on the loan advanced by the bank at 15% p.a without quarterly rest. We do not find any illegality warranting interference. 31. It may be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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