1. The Ratnakar Bank Limited had advanced certain facilities to the respondent M/s. Star Conduit (India) and others, partnership firm of which the respondent Nos. 2 to 7 were the partners. Since there were defaults in repayment of the loan, the appellant Bank filed suit for recovery of Rs. 45,20,725.94 before the Civil Judge (Senior Division), Sangli where it was numbered as Special Civil Suit No. 116/93. The defendants/respondents filed their written statement in the Civil Court at Sangli and further raised counter claim. When the evidence in that suit on behalf of the appellant Bank was over, the matter came to be transferred to Debts Recovery Tribunal, Mumbai, in the first instance where it was numbered as O.A. No. 277/99 and thereafter to Debts Recovery Tribunal, Aurangabad, camping at Pune, where it was numbered as O.A. No. 420/P/2001. After hearing both the sides, the Presiding Officer, Debts Recovery Tribunal, Aurangabad camping at Pune recorded his findings on the issues framed in that suit and passed impugned judgment and order on 19.7.2001. By this order, the claim of the appellant Bank was ' directed to be recalculated on the basis of interest being charged at the respective rates on yearly basis/rests. Certain expenses claimed by the Bank towards CGS fees came to be rejected. Equally, the counterclaim filed by the defendants/respondents was also dismissed. That is how, feeling aggrieved by the order regarding interest to be calculated on yearly basis/rests instead of quarterly rests as well as disallowing the claim for CGS fees, the appellant has preferred this appeal.
2. On behalf of the respondents a statement was made that separate appeal has been filed by the respondents in regard to rejection of their counter claim but that is yet to be numbered and registered. Although it was prayed that, that appeal should also be heard along with the present appeal, in view of the fact that counter claim being distinct one and not connected with the prayers made in this appeal and, that appeal being recently filed, was not taken up for hearing along with this appeal. Thus, in this appeal by the appellant Bank the claim is restricted only to the interest, based on quarterly rests as well as amount of expenses.
3. Mr. Murchite for the appellant Bank submitted that the Presiding Officer has not properly considered entire documents filed by the appellant Bank and simply relied upon sanction letter as also pro-note executed by the defendants/respondents in favour of the appellant Bank and came to the conclusion that interest could not be charged on quarterly rests. He submitted that there are other documents namely loan agreement, deed of hypothecation and deed of mortgage, which clearly indicate rate of interest being charged on quarterly rests and the Presiding Officer was thus in error in reducing the claim of the appellant Bank. It was submitted that in view of Section 21A of the Banking Regulation Act as well as decision in State Bank of India v. Yasangi Venkateswara Rao, the Presiding Officer was not entitled to reopen the account and reduce the interest from quarterly rests to yearly rests. It was also submitted that the amount deposited to the account of the defendants for payment of CGC scheme from time to time could be recovered by the Bank and the Presiding Officer was not correct in the holding that it was liability of the Bank to pay such expenses and Bank cannot recover the same from the respondents. That is how, it was submitted that the order of the Presiding Officer is required to be modified and corrected.
4. As against this, Mr. Dhage appearing for the respondents submitted that the Presiding Officer has relied upon circular of Reserve Bank of India, which was made applicable in the year 1977 to the agricultural loans and there is clause in the last paragraph of this circular that the same position would be applicable in respect of Small Scale Industries and the respondents is a Small Scale Industry unit and, therefore, the Presiding Officer was justified in directing the appellant Bank to calculate interest on yearly basis. It was submitted that under the circular, it was the liability of the appellant to bear expenses of CGC scheme and that is how, the Presiding Officer has rightly disallowed the claim of the Bank in that behalf. Under Section 21A of the Banking Regulation Act as well as ratio of the decision in case of Yasangi Venkateswara Rao, say that interest or the claim of the Bank cannot be allowed to he reopened on the ground that the rate of interest is excessive or usurious. That is however not the position here, contention of the defendants is that interest on quarterly rests was never agreed upon and thus what is disputed is the contract between the parties regarding rate of interest, but not on the ground that it was excessive or usurious. Therefore, submission advanced relying upon Section 21A of the Banking Regulation Act as well as decision in case of Yasangi Venkateswara Rao, is not sound. Nevertheless, I find considerable force in the submission of Mr. Murchite, that other documents executed by the defendants would carve out interest rate stipulated in the documents on the quarterly basis/rests. One decision of the Bombay High Court has been brought to my notice to the effect that issuance of sanction letter and acceptance thereof by the borrower brings out concluded contract and therefore, the Bank is not entitled to charge interest relying upon subsequent documents executed by the borrower. This decision would be found reported in II (1999) BC 250= 1999(1) All MR 556, The Sangli Bank Limited v. Krishna Investment Pvt. Limited and Ors. However, it would be seen that, the sanction letter is issued by the Bank on the basis of proposal made by the borrowers/defendants and at the most the sanction letter may amount to promise. That promise in the from of sanction letter itself provides that terms and conditions would be settled in the documents to be executed by the borrowers. When that is executed by the borrowers, it is an agreement contract between the parties. Thus, execution of loan documents on the basis of sanction letter cannot be said to be subsequent acts after conclusion of contract between the parties. Sanction letter merely provides what type of loan is sanctioned and execution of other documents in that behalf on the terms and conditions stipulated therein. Thus, entire transaction is one contract between the parties and, therefore, even though that sanction letter or pro-note did not mention any specific term about charging of interest, other documents namely loan agreement, mortgage deed etc. clearly show that the defendants had agreed to pay interest on quarterly rests. Furthermore, there is accepted practice now well settled by the decisions that the Bank can charge interest on quarterly rests. As such, I find that the Presiding Officer has not properly considered this aspect and simply on the basis of sanction letter jumped to the conclusion that the Bank was not entitled to charge interest on quarterly rests. As such, direction of the Tribunal to submit fresh accounts on the basis of yearly rests cannot be sustained and will have to be modified to the effect that the Bank shall submit calculations on the basis of quarterly rests up to the date of filing of the unit.
5. So far as CGC fees are concerned, though it is a liability of the Bank to pay initially that amount but there can be contract between the parties to the effect that such amount shall be reimbursed by the defendants to the appellant Bank. In the present case also the respondents had agreed to pay such expenses to the appellant Bank. Any contract of this sort cannot be said to be in violation of provisions of law because the scheme fixes primary liability for payment of such amount on Bank and there is nothing to prohibit the Bank from recovering the same from the borrowers. There are two decisions relied upon by the appellant and those are 1994 CC 9 (State Bank of India v. Vishwanath and Anr.) and II (1997) BC 144 of the Karnataka High Court (Ram Estate v. Corporation Bank). Equally therefore, the Presiding Officer was in error in disallowing the claim towards CGC fees.
6. On behalf of the respondents, my attention was invited to one circular of Reserve Bank of India of the year 1977, upon which the Tribunal has relied upon. I have gone through this circular but it has not been shown that the said circular still holds good and that expression used therein also covers the claim of charging interest on yearly basis as it done in case of agricultural loans. It is primary contract between the parties regarding rate of interest which is binding and unless it is shown that the same was prohibited by any directives of the Reserve Bank of India, the claim in that behalf, cannot be disallowed.
7. I am, therefore, of the opinion that order of the Presiding Officer will have to be modified and substituted by directing calculations of the claim of the appellant Bank till the date of filing of the suit on the basis of quarterly rests, as also including amount of CGC expenses. The Presiding Officer, Debts Recovery Tribunal, Aurangabad camping at Pune, is directed to proceed in accordance with these directions.
It appears that the properties of the defendants have been attached before judgment, and that attachment is continued further. Accordingly, the appeal is disposed of with no order as to costs.