M/S Pearson Drums And Barrels Pvt Ltd Vs General Manager, Consumer Education And Protection Of Cell Of RBI: RBI Is State Under Article 12 Of The Constitution Of India

DATE: 10th March, 2021

JUDGES: Sabyasachi Bhattacharya

PARTIES

• M/s Pearson Drums and Barrels Pvt. Ltd. (PETITIONER)
• General Manager, Consumer Education and Protection Cell of RBI (RESPONDENT)

SUBJECT: In the present case the court is dealing with a petition regarding dispute between the petitioner and IndusInd bank over refund of processing fee paid by the petitioner to the bank, pursuant to a prospective loan facility.

AN OVERVIEW

1. In the following judgement, the high court is hearing a petition filed by a company which is an MSME and supplies barrels mainly to oil sector and other sectors too. One of the respondents granted sanction worth Rs. 25.05 crore to the petitioner mentioning that a processing fee of 0.60 percent of the total sanction facility, along with applicable rates and taxes, has to be paid by the petitioner to avail of the financial assistance.
2. The petitioner subsequently deposited Rs.14,27,850 as processing fees. It was submitted by the petitioner that the Bank had assured that in case by any reason the sanction did not go through from its end, it would refund the fee.
3. After that, a fresh sanction of credit limits was issued in favour of the petitioner which added a condition that the processing fee would be non-refundable post acceptance of the sanction letter.
4. However, the petitioner sought refund of the processing fees of Rs.14,27,850 against delay and non-receipt of final sanction letter to which the respondent bank told the petitioner that the processing fee was non-refundable as per the sanction.
5. The petitioner approached the RBI with a complaint of non-refund of processing fee to which the RBI stated that the processing fees were non-refundable as per the terms and conditions of the sanction letter of the concerned bank. After this incident, RBI Kolkata suggested that the dispute should be settled with the respondent waiving 50% of the processing fee
6. Aggrieved, the petitioner filed writ petition asking for 100% refund and interest. The petitioner contended that it was mentioned in the e-mail that if sanction did not go through from the bank’s end, the bank would refund the processing fee. Further, the petitioner stated that the fresh sanction was delayed and defeated the purpose of credit causing the petitioner refused to accept the fresh sanction. Therefore, the bank failed to adhere to the terms and conditions of in-principle sanction. It was further contended that non-refundability clause was added in the fresh sanction and since there was no acceptance of the fresh sanction, there also could not arise any question of post-acceptance non-refundability of the processing fees.
7. On the other hand the respondent contended that it was decided in SLIIC sub-committee to provide 75% refund of processing fee which was not binding on the bank. The revival and rehabilitation of MSME framework by RBI contemplated only advisory decisions of sub-committee. The IndusInd bank submitted that it was clear in the e-mail that the petitioner had to pay processing fee which would be refunded only if the sanction did not go through bank’s end. However, the petitioner refused to accept the sanction.
8. It was further submitted that the fresh sanction indicated that the processing fee would be non-refundable pot-acceptance. Since the petitioner refused to accept the sanction, no liability is cast upon the petitioner to return the processing fees.

IMPORTANT PROVISIONS

CONSTITUTION OF INDIA

• Article 12- Definition In this part, unless the context otherwise requires, the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.

ISSUES: Following are the issues in the present case:

• Whether the writ petition is maintainable or not?
• Whether the recommendations of SLIIC Sub-Committee is binding on the bank or not?
• Whether the sanction went through from the bank’s end or not?
• Whether thethe decision of the IndusInd Bank and that of the Consumer Education & Protection Cell of the Reserve Bank of India is correct or not?

ANALYSES OF THE JUDGEMENT

• In the present case while referring to the first issue the court stated that RBI is the instrumentality of the state and it comes within the meaning of state under article 12 of Constitution of India. Also, the question raised by the petitioner in the writ is not restricted to personal grievance and has a wider connotation insofar as the liabilities of the banks in respect of processing fee. Thus, the court held that the writ is maintainable and rejected the objections regarding maintainability.
• The court further observed that, since the processing fee was charged in the present case as a percentage of the total sanction facility, there is prima facie presumption that such fees contemplated the entire processing charges up to the finalization of the sanction of loan and not merely restricted to the initial consideration by the bank which in the present case has not been rebutted by the respondent bank.
• Also, the court stated that the additional clause in the fresh sanction was never accepted by the petitioner and thus cannot be binding on the petitioner as far as processing fee in concerned.
• While referring to the issue that the sanction went through from bank’s end or not, the court observed that the variance between the fresh and in-principle sanctions is sufficient ground to come to a finding that the petitioner was not at fault but it was the Bank which issued a fresh sanction on terms different from the in-principle sanction, thereby seeking a novation of the offer for all practical purposes. Thus, it was held that the sanction did not go through from bank’s end.
• The court regarding SLIIC sun-committee recommendation stated that it is true that there is no-binding effect of such recommendations, but, on a perusal of the entire material on record, the Bench same to a finding that the IndusInd Bank, while discharging its public duty which is within the domain of the State to discharge, acted de hors its own promise of refund on which the petitioner had acted. This debars the bankfrom refusing to refund the processing fees through the principle of estoppel.
• Further, the court stated that the Bank cannot now resile from its stand, the in-principle sanction letter and the e-mail asking for processing fees, that the entire processing fees would be refunded in the event the sanction did not go through from the end of the bank "by any reason". Therefore, in the present case, the reason was that the Bank sought a novation of the in-principle sanction agreement by issuance of a fresh sanction on deviated terms. Therefore, , the decision of the IndusInd bank and that of the Consumer Education & Protection Cell of the RBI to refuse the petitioner's claim for refund of entire processing fees was set aside.

CONCLUSION

• The court in the present case has rightly observed that the private banks cannot seek refuge of being non-State actors, for the purpose of challenging maintainability of a writ petition against them, as their functions pertain to discharge of public duties. It did not take the view similar to what was held in the judgement referred by the respondents, i.e; Federal Bank Limited Vs. Sagar Thomas and others in which it was held that private financial institutions may be performing public duties but can't be considered 'State' under article 12 of Constitution.
• Even if the bank is private, the function that it performs is public in nature and it cannot flee from its liability to discharge the public duty. Moreover, the sanction was issued in order to provide credit facility to an MSME company, which was defeated. Therefore, it is rightly held by the court that the respondent is liable to refund the entire processing fee along with interest of 6% and discharge its public duty.

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