Chandigarh

StateCommission

CC/126/2019

M/s Naresh Steel Furniture - Complainant(s)

Versus

Kotak Mahindra Bank - Opp.Party(s)

Parminder Singh Adv.

21 Sep 2022

ORDER

STATE CONSUMER DISPUTES REDRESSAL COMMISSION,

U.T., CHANDIGARH

 

Consumer Compliant No.	:	126 of 2019
Date of Institution	:	15.05.2019
Date of Decision	:	21.09.2022

 

 

 

 

 

M/s Naresh Steel Furniture through Naresh Goyal, Proprietor, 135, Industrial Area, Phase II, Chandigarh.

……Complainant.

Versus

1]      Kotak Mahindra Bank, 27 BKC, C-27, G Block, Bandra Kurla Complex, Bandra East, Mumbai through its Chairman and Managing Director.

2]      The Chairman and Managing Director, Kotak Mahindra Bank, 27 BKC, C-27, G Block, Bandra Kurla Complex, Bandra East, Mumbai.

3]      Kotak Mahindra Bank, SCO No.830, NAC, Manimajra Branch, Chandigarh through its Branch Manager.

4]      The Branch Manager, Kotak Mahindra Bank, SCO No.830, NAC Manimajra Branch, Chandigarh.

…..Opposite Parties.

BEFORE:   JUSTICE RAJ SHEKHAR ATTRI, PRESIDENT.

                MR. RAJESH K. ARYA, MEMBER

Present:-     

Sh. Parminder Singh, Advocate for the complainant.

Sh. Yogesh Jain, Advocate and Sh. Devinder Rattan, Advocate for the opposite parties.

 

PER  RAJESH  K. ARYA, MEMBER

Facts of the case:-

                   Briefly stated the facts are that the complainant firm in order to run the manufacturing of steel furniture approached ING Vysya Bank to avail credit limit through cash credit facility in the year 2014. The said Bank allowed the cash credit facility up-to Rs.20 Lakhs against collateral security of industrial plot/unit situated at Dera Bassi, which was then extended up-to Rs.46 Lakhs vide sanction letter No.542A dated 07.03.2015, Annexure C-1, at the agreed date of 10.80% + 3.05% = 13.85% with clear instructions that in case, if there is any revision of rate of interest by Reserve Bank of India (in short ‘RBI’), then it would be intimated to the complainant firm and then it would be charged accordingly. The complainant firm was paying regular EMI from its another Account in State Bank of India to ING Vysya Bank without any default whatsoever. On 01.04.2015, ING Vysya Bank merged with the opposite parties – Kotak Mahindra Bank. It has further been stated that after merger, the complainant firm started facing difficulty as the officials of the opposite parties Bank were not cordial and the cheques were not cleared despite having sufficient amount and credit facility.

2.                It has further been stated that the opposite parties Bank started harassing the complainant firm by charging higher rate of interest from 13.60% to 15.60% without giving any reasons and without any intimation or justification of any sort. It has further been stated that the complainant firm has utilized the CC limit within its sanction limit as per banking norms but the opposite parties Bank have not followed even single term and conditions of the sanction letter, RBI guidelines and charged higher rate of interest as well as penal interest against the agreed rate of interest as per contract.  As per the complainant firm, the opposite parties Bank have charged a total amount of Rs.3,83,425/- as an excess interest at various times. The complainant raised his grievance before the opposite parties vide letters dated 21.07.2017, Annexure C-3, letter dated 04.08.2017, Annexure C-4, legal notice dated 11.09.2017, Annexure C-5 followed by another legal notice dated 28.12.2018, Annexure C-6, but of no avail. The complainant firm has sought refund of the aforesaid amount of Rs.3,83,425/- alongwith interest @18% p.a. besides claiming compensation of Rs.3 Lakhs on account of harassment, humiliation and for adopting unfair trade practice by the opposite parties and Rs.50,000/- as litigation charges.

3.                The opposite parties Bank, in their joint reply, while admitting the factum matrix of the case, raised the following preliminary objections:-

(i)       There is no privity of contract between the parties to the dispute, which can be enforced under the provisions of Consumer Protection Act, 1986 (in short ‘the 1986 Act’);

(ii)      that the civil rights of the parties cannot be adjudicated by way of summary procedure as proper forum for the same is Civil Court and further complicated questions of facts and law are involved, thus, the complaint is liable to be dismissed and;

(iii)     that the complaint is liable to be dismissed as the complainant – firm is not a consumer in view of specific provision as contemplated u/s 2(1)(d)(ii) of the 1986 Act as it is involved in commercial activity by way of commercial transaction as per admitted sanction letter, Annexure C-1.

4.                However, on merits, it has been denied that any overriding instructions were given with respect to the alleged rate of interest by the RBI and as per RBI, the individual Bank can have its own rate of interest. It has further been stated that under the documents or the financial discipline, the rate of interest was duly displayed on the notice board of the opposite parties Bank. It has further been stated that the rate of interest charged in the account was also reflected in the account statement issued to the complainant firm from time to time. It has further been stated that the opposite parties Bank has charged interest as per the documents executed and the credit policy of the Bank. However, it has been denied that the rate of interest was charged unilaterally and arbitrarily. It has further been stated that during the period, when the cash credit facility was availed by the complainant firm, no protest was ever made/lodged by the complainant firm. It has further been stated that the rate of interest as applicable to the borrower in State Bank of India is different to the rate of interest charged by the private Bank as per the policy framed by RBI. However, it has been denied by the opposite parties that for cash credit facility, repayment is based on instalments.  

5.                It has further been stated that as per financial discipline, the cash credit facility is allowed to the firm on the basis of the drawing power available in the account on the basis of stock statement submitted by the borrower and the borrower has to route the transactions through the account only, which the complainant firm flouted by paying the EMIs from another account in another Bank i.e. State Bank of India. It has further been stated that the cheques are cleared only on the basis of available drawing power. While denying any wrong act on the part of their officials, the opposite parties Bank have stated that since in the present case, the drawing power was not available, consequently, the opposite parties Bank were not under any obligation to clear the cheques as claimed. It has further been stated that since there was default in routing the transactions through the account, the opposite parties Bank was legally entitled to charge penal interest as agreed by the complainant firm. It has further been stated that the complainant firm has failed to place on record any document to show that protest was ever lodged with the opposite parties Bank and for that matter the erstwhile ING Vysya Bank. It has further been stated that the complainant firm’s only letter, which was written, was after the account was closed by depositing the outstanding dues. It has further been stated that the complainant firm be put to strict proof of the allegations made in the complaint. It has further been stated that raising of dispute qua the interest charged in the account is an afterthought with ulterior motive to drag the opposite parties Bank into unwarranted litigation. Lastly, prayer for dismissal of the complaint has been made by the opposite parties Bank.

6.                The complainant firm filed rejoinder, wherein, it reiterated the averments made in the complaint and repudiated those as stated in the written statement of the opposite parties Bank.

7.                The parties led evidence in support of their case.

8.                We have heard the Ld. Counsel for the parties and have also gone through the documentary evidence and written arguments of the parties very carefully.

9.             Objection regarding No privity of contract.

                   As regard the objection raised by the opposite parties Bank that there is no privity of contract between the parties to the dispute, which can be enforced under the provisions of Consumer Protection Act, 1986 (in short ‘the 1986 Act’), it may be stated here that the objection is totally vague in view of Credit Arrangement Letter dated 07.03.2015, Annexure C-1 as per which, the said credit facility was subject to certain terms and conditions as annexed with the said letter as Annexure-1. Thus, the said terms and conditions are binding upon the parties, who are privy to the same. The objections being tenable stands rejected.

10.              Objection regarding complicated questions involved.

                   With regard to the objection raised by the opposite parties Bank that the civil rights of the parties cannot be adjudicated by way of summary procedure as proper forum for the same is Civil Court and further complicated questions of facts and law are involved, it may be stated here that it is a simple case of deficiency in providing service on the part of the opposite parties as they failed to clear the cheques presented by the complainant and on the other hand,   started charging higher rate of interest from 13.60% to 15.60% without giving any reasons and without any intimation or justification of any sort. In our considered opinion, the Bank is rendering service by providing overdraft facilities to a customer which is not without consideration. Bank is charging interest and other charges as well in providing the services. Provision for overdraft facility is certainly a part of the banking and its service within the meaning of clause (o) of section 2 of the Act. The complainant, therefore, falls within the definition of consumer. Our this view is supported by law laid down by the Hon’ble Supreme Court in Vimal Chandra Grover vs Bank Of India on 26 April, 2000 (Appeal (civil)  15701 of 1996. Relevant part of the said order is reproduced hereunder:-

“....8. We think that the argument that the appellant is not a consumer or that the bank is not rendering service is an argument in desperation. No such plea was raised before the National Commission. Overdraft limit prescribed by the bank was not without consideration. Bank is rendering service by providing overdraft facilities to a customer which is not without consideration. Bank is charging interest and other charges as well in providing the service. Provision for overdraft facility is certainly a part of the banking and its service within the meaning of clause (o) of section 2 of the Act. In ordinary parlance 'banking' is a business transactions of a bank (The Concise Oxford Dictionary). 'Banking' is defined in the Black's Law Dictionary. It is as under :

"The business of banking, as defined by law and custom, consists in the issue of notes payable on demand intended to circulate as money when the banks are banks of issue, in receiving deposits payable on demand; in discounting commercial paper; making loans of money on collateral security; buying and selling bills of exchange; negotiating loans, and dealing in negotiable securities issued by the government, state and national and municipal and other corporations. Mercantile Bank v. New York 121 US 138, 156; 7 S Ct. 826; 30 L.Ed. 895; Prudence Co., In re. DCNY, 10F. Supp. 33, 36."……”

11.              Objection regarding complainant not a consumer.

                   Qua the objection that the complaint is liable to be dismissed as the complainant – firm is not a consumer in view of specific provision as contemplated u/s 2(1)(d)(ii) of the 1986 Act as it is involved in commercial activity by way of commercial transaction as per admitted sanction letter, Annexure C-1, it may be stated here that this objection is not sustainable in the eyes of law and as such, is liable to be rejected, in view of  principle of law laid down in Tosoh India Pvt. Ltd. (Formerly Lilac Medicare Pvt. Ltd.) Vs. Ram Kumar & 3 Ors., Revision Petition No. 2833 of 2018, decided on  06 Jan 2020, wherein the Larger Bench of the Hon’ble National Commission has laid down following preposition of law, under which, consumer complaints are admissible in respect of commercial units:-

“…….(a)     Only a person engaged in large scale commercial activities for the purpose of making profit is not a consumer;

(b)     There should be a direct nexus between the large scale commercial activities in which a person is engaged and the goods purchased or the services hired or availed by him, before he can be excluded from the purview of the term ‘consumer’.  Therefore any goods purchased or the services hired or availed even by a person carrying on business activities on a large scale for the purpose of making profit will not take him out of the definition of the term ‘consumer’, if the transaction of purchases of goods or hiring or availing of services is not intended to generate profit through the large scale commercial activity undertaken by him and does not contribute to or form an essential part of his large scale commercial activities.

(c)     What is crucial for the purpose of determining whether a person is a ‘consumer’ or not is the purpose for which the goods were purchased or the services were hired or availed and not the scale of his commercial activities.

 (d)    The explanation below Section 2(1)(d) of the Consumer Protection Act is clarificatory in nature

(e)     A person purchasing goods or hiring or availing services for a consideration, for the purpose of earning his livelihood by way of self-employment is a ‘consumer’ within the meaning of Section 2(1)(d) of the Consumer Protection Act.

 (f)     It is not necessary that a person should be working alone in the commercial activity undertaken by him for earning his livelihood and his family members and / or a few employees can assist him in his commercial venture.  Such assistance by his family members or by a few employees engaged by him does not convert his business or profession into a commercial activity on a large scale, for the purpose of making profit and therefore, does not exclude him from the purview of the term ‘consumer’.”

Further, under similar circumstances, in Sunil Kohli and anr. Vs. M/s Purearth Infrastructure Ltd., Civil Appeal nos.9004-9005/2018, decided on 01.10.2019, the Hon’ble Supreme Court while interpreting the legal term of consumer, has categorically observed as under:-

 “As laid down by this Court in Laxmi Engineering Works, the explanation to Section 2(1)(d) of the Act clarifies that “in certain situations, purchase of goods for “commercial purpose” would not yet take the purchaser out of the definition of expression ‘consumer’. If the commercial use is by the purchaser himself for the purpose of earning his livelihood by means of self-employment, such purchaser of goods is yet a ‘consumer’”. This Court went on to observe that what is “Commercial Purpose” is a question of fact to be decided in the facts of each case.

To similar effect are the observations of this Court in Cheema Engineering Services wherein it was observed in para 6 thus:

“6. In other words, the Explanation excludes from the ambit of commercial purpose in sub-clause (i) of Section 2(1)(d), any goods purchased by a consumer and used by him exclusively for the purpose of earning his livelihood by means of self-employment. Such purchase of goods is not a commercial purpose. The question, therefore, is whether the respondent has been using the aforesaid machine for self-employment? The word “self-employment” is not defined. Therefore, it is a matter of evidence. Unless there is evidence and on consideration thereof it is concluded that the machine was used only for self- employment to earn his livelihood without a sense of commercial purpose by employing on regular basis the employee or workmen for trade in the manufacture and sale of bricks, it would be for self-employment. Manufacture and sale of bricks in a commercial way may also be to earn livelihood, but “merely earning livelihood in commercial business”, does not mean that it is not for commercial purpose. Self-employment connotes altogether a different concept, namely, he alone uses the machinery purchased for the purpose of manufacture by employing himself in working out or producing the goods for earning his livelihood.

‘He’ includes the members of his family. Whether the respondent is using the machine exclusively by himself and the members of his family for preparation, manufacture and sale of bricks or whether he employed any workmen and if so, how many, are matters of evidence. The burden is on the respondent to prove them. Therefore, the Tribunals were not right in concluding that the respondent is using the machine only for self-employment and that, therefore, it is not a commercial purpose. The orders of all the Tribunals stand set aside. The matter is remitted to the District Forum. The District Forum is directed to record the evidence of the parties and dispose of it in accordance with law within a period of six months from the date of the receipt of this order.” The issue therefore is whether the evidence on record is suggestive or indicative of the fact that the premises in question were booked by the complainants with the intention of self-employment or self-use.

The affidavit of evidence as quoted above clearly points that the complainants wanted to dispose of the property in DENMARK and wanted to come down to Delhi to start a business. It is for this purpose that the premises in question were booked. The evidence also discloses that the Complainant no.1 was not employed any more in DENMARK and as a matter of fact, he was serving RED CROSS, a charitable organization. In the circumstances, it cannot be ruled that the case of the Complainants would not come within the definition of “consumer” as defined under the provisions of the Act.”

In this view of the matter, objection taken by the opposite parties in this regard stands rejected. 

On merits of the case:-

12.              Now coming to the merits of the case, the sole grievance of the complainant firm is that the opposite parties Bank charged higher rate of interest from 13.60% to 15.60% i.e. against the agreed rate of interest and also against the terms and conditions of the sanction letter & RBI guidelines, without giving any reasons and without any intimation or justification of any sort and thus, total amount of Rs.3,83,425/- has been charged as an excess interest at various times. Perusal of record transpires that initially vide Credit Arrangement Letter dated 07.03.2015, Annexure C-1, the erstwhile Bank i.e. ING Vysya accorded approval of Credit Facility (CC-SIT/BD) in favour of the complainant i.e. M/s Naresh Steel Furniture to the extent of 46 Lakhs against the existing credit facility of Rs.20 Lakhs, subject to conditions mentioned therein and compliance with the detailed terms and conditions facility wise in Annexure-1 including the General Covenants. The Rate of Interest to be charged, as per Annexure-1 appended to the said Credit Arrangement Letter, was fixed as under:-

                             “13.85% i.e. IVBR+3.05 (IVBR as on date is 10.80%)”

The said cash credit facility was for the working capital purpose and the primary security hypothecated were stocks & book debts. It may be stated here that all the interest rates were floating one as mentioned in Clause 8 of General Covenants of Credit Arrangement Letter dated 07.03.2015, Annexure C-1, which being relevant, is extracted hereunder:-

“8.     The rate of interest on the loan is normally levied and recovered monthly, unless otherwise specified in this Credit Arrangement Letter/Annexure. All interest rates are floating unless clearly expressed as Fixed. The base to which it may be pegged can be IVBR (ING Vysya Reference Rate) or LIBOR or MIBOR or RBI rate as the case may be. Interest rates are liable to change as and when the base rate changes and any communication (E-mail, telex, letter etc.) made in this regard shall be treated as an intimation made in this regard.

The margin (above or below the IVBR) is based on the current Credit Risk Rating of the borrower, and any downward revision of the Risk Rating is liable to have the effect of increasing the effective rate of interest, even without any change in IVBR. The revision shall be notified in the company/firm at the time of revision.”

13.              It is an admitted fact that the erstwhile Bank i.e. ING Vysya Bank got merged into the opposite parties Bank i.e. Kotak Mahindra Bank w.e.f. 01.04.2015 and it is subsequent to merger, that the opposite parties started charging high rate of interest from 13.60% to 15.60% without informing the complainant, which, as alleged by the complainant, was totally wrong and arbitrary. There is nothing on record to disprove the contention raised by the complainant that any consent was ever called for by the opposite parties from the complainant when the rate of interest was enhanced by the opposite parties subsequent to the merger of erstwhile Bank i.e. ING Vysya Bank into Kotak Mahindra Bank. Even no intimation qua enhancement in rate of interest was given to the complainant by the opposite parties. After merger of ING Vysya Bank into opposite parties Bank, the opposite parties were not only under obligation but it was their bounden duty to inform the complainant as regards the change in the rate of interest as and when there was change in MCLR. Neither any consent was called for by the opposite parties for charging higher rate of interest from the complainant nor the complainant ever consented to the same at any stage post merger. The opposite parties unilaterally changed the terms and conditions upon merger and started charging higher rate of interest as per their MCLR rate. We are of the view that in the garb of change or variation in MCLR resulting into charging higher rate of interest, the opposite parties cannot override the actual terms and conditions of Credit Arrangement Letter, Annexure C-1 and also cannot rewrite their own terms and conditions. Merger of the erstwhile Bank i.e. ING Vysya Bank into Kotak Mahindra Bank cannot brush aside the actual terms and conditions of Credit Arrangement Letter, Annexure C-1. Those terms and conditions would still prevail and enforced and no new term or condition can be subtracted or added thereto unless consented by the borrower/complainant.

14.              In our considered view, post merger, the opposite parties ought to have charged the rate of interest as per the terms and conditions governing the actual credit arrangement, which was 13.85% i.e. IVBR+3.05 (IVBR as on date is 10.80% and not beyond that. By charging rate of interest as high as 15.60% and that too without any intimation at any stage given to the complainant or without obtaining any consent, the opposite parties are definitely deficient in rendering service and also indulged into unfair trade practice.

15.              For above deficiency in rendering service and indulgence into unfair trade practice, proved on record, the opposite parties are liable to refund the amount of Rs.3,83,425/-, which they charged as interest, in excess, from the complainant, post merger of  erstwhile ING Vysya Bank with the opposite parties. Besides this, the opposite parties are also held liable to compensate the complainant on above account.

Relief granted:-

16.              For the reasons recorded above, the complaint is partly allowed with costs. The opposite parties are, jointly and severally, held liable and directed as under:-

1. to refund the amount of Rs.3,83,425/- to the complainant within a period of 30 days from the date of receipt of certified copy of this order, failing which, the opposite parties shall pay interest on the aforesaid amount @9% p.a. (simple) from the date of passing of this order till actual realization.
2. to pay a consolidated amount of Rs.75,000/- as compensation to the complainant for deficiency in rendering service, indulgence into unfair trade practice & litigation expenses, within a period of 30 days from the date of receipt of certified copy of this order, failing which, the opposite parties shall pay interest on the aforesaid amount @9% p.a. (simple) from the date of passing of this order till actual realization.

17.              File be consigned to the Record Room after completion.

Pronounced.

21.09.2022.

[RAJ SHEKHAR ATTRI]

PRESIDENT

 

 

 

(RAJESH K. ARYA)

MEMBER

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