REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7189 OF 2002

Managing Director,

Maharashtra State Financial

Corporation & Ors.

— Appellants

VERSUS

Sanjay Shankarsa Mamarde — Respondent

J U D G M E N T

D.K. JAIN, J.:

1.Challenge in this appeal, filed under Section 23 of the

Consumer Protection Act, 1986 (for short “the Act”), by the

Maharashtra State Financial Corporation (hereinafter

referred to as “the Corporation”), is to the final order, dated 7

th

January, 2002, passed by the National Consumer Disputes

Redressal Commission, New Delhi (for short “the

Commission”) in Original Petition No. 9 of 1995. By the

impugned order, the Commission has accepted the complaint

preferred by the respondent (hereinafter referred to as “the

complainant”) against the Corporation and has directed the

Corporation to pay to the complainant an amount of

Rs.4,84,457/- as compensation, within a period of two months

from the date of the order and in case of default, to pay

interest at the rate of 18% per annum from the date of order

till actual payment.

2.Succinctly put, the material facts giving rise to the present

appeal are as follows:

The complainant approached the Corporation for sanction

of loan for his hotel project at Amravati. As per the project

report, the capital outlay was of Rs.74.45 lakhs. The means of

finance envisaged in the project report were as follows:

i) Proprietor’s capital :Rs.16.80 lakhs

ii) Term loan from

Corporation

:Rs.30.00 lakhs

iii) Special Capital

Incentive from SICOM

:Rs.21.30 lakhs

iv) Unsecured loans :Rs. 6.35 lakhs

Total :Rs.74.45 lakhs

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3.The Complainant’s loan proposal was approved by the

Executive Committee of the Corporation on 27

th

May, 1992,

sanctioning a term loan of Rs.30 lakhs to the complainant.

Accordingly, a sanction letter along with terms and conditions

of the loan was issued to the complainant on 2

nd

July, 1992.

The material conditions of loan were as follows:

“(a)The loan shall be utilised exclusively for the project

as per the scheme approved by MSFC and the

specific purposes for which the same is sanctioned.

(b)The loan shall be disbursed by MSFC in one lump

sum or in instalments as and when the said

purposes are fulfilled or at the entire discretion of

the Corporation or may be refused if in the opinion

of the Corporation, the purpose for which the full

loan has been sanctioned are not properly fulfilled.

(c)The loan will be disbursed either for acquisition of

fixed assets under the said scheme or for

reimbursement of funds utilised for acquisition of

fixed assets taken for security under the said

scheme.

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(d)A minimum margin of 55% over all on fixed assets

shall be maintained during the currency of the loan.

(e)The loan shall be repaid within a period of 8 years

by 13 half yearly instalments commencing from the

end of 2

nd

year of disbursement of the first

instalment of the loan. The amount of each

instalment repayable being about 1/13 of the amount

sanctioned regardless of the amount disbursed.

(f)The interest shall be charged @ 22% p.a. and the

same shall be payable quarterly on the total loan

and the same shall be charged from the date of

disbursement of first instalment of the loan.”

Additionally, it was also agreed that the loan amount

would be disbursed depending on the progress of the work in

accordance with a set time schedule. The progress of the

construction work was required to be evaluated by the valuer

approved by the Corporation.

4.The said conditions were accepted by the complainant.

Pursuant to complainant’s request vide his letter dated 2

nd

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September, 1992, undertaking to bring entire 100% capital;

filing his banker’s confirmation for grant of bridge loan

against subsidy i.e. (SCI) and load sanction letter from MSEB,

before availing of the next disbursement, the first instalment

of the loan of Rs.2,90,000/- was released by the Corporation to

the complainant. On the same day, the complainant issued a

cheque in the sum of Rs.30,000/- towards up-front fees to the

Corporation. However, the said cheque of Rs.30,000/- was

dishonoured when presented for payment. By their letter

dated 15

th

December, 1992, the Corporation intimated the

complainant that despite the release of first instalment of

Rs.2.90 lakhs, he had neither submitted papers for further

disbursements nor reported progress of the project and had

also failed to submit Chartered Accountant’s certificate

showing his investment. Subsequently, a valuation report

dated 7

th

January 1993, showing that a total amount of

Rs.6,97,057/- (Rs.5,02,099/- as per previous valuation +

Rs.1,94,958/- as per present valuation) had been spent on the

construction of the hotel was filed by the complainant.

According to the Corporation, despite the fact that the

complainant had failed to submit complete documents, second

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instalment of Rs.87,000/- was released to him on 19

th

January

1993, after adjusting therefrom the amount of interest due in

terms of the conditions of loan.

5.Vide their letter dated 5

th

March, 1993, the Corporation

requested the complainant to inform them about the progress

of the project and avail the balance loan limit by submitting

valuation report, Chartered Accountant’s certificate towards

further investment made by him for creation of fixed assets.

According to the Corporation, since they had learnt that there

was a proposal for laying a railway line between Amravati and

Narkhed which was likely to affect the hotel project and the

complainant had also defaulted in payment of interest despite

repeated requests by them vide their letters dated 10

th

December 1993 and 24

th

February, 1994, they did not release

further instalments of the loan sanctioned to the complainant.

On the contrary, the stand of the complainant was that

although by June 1993, he had spent Rs.27,25,510/- but no

evaluation was done by the valuer of the Corporation and all

his request for release of further instalments fell on deaf ears.

All the time, the Corporation insisted on a written assurance

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from the railway authorities that the proposed Amravati and

Narkhed railway line would not be passing through the hotel

project site, before releasing the balance loan amount.

6.Finally, vide their letter dated 5

th

September, 1994, the

Corporation informed the complainant that the entire balance

unavailed term loan of Rs.26.23 lakhs had been treated as

cancelled. The said intimation was followed by a legal notice

dated 18

th

October, 1994 by the Advocate of the Corporation,

wherein it was alleged that the complainant had failed to pay

the interest on the amount already disbursed to him; as on

31

st

March, 1994 he was in arrears by more than Rs.1 lakh as

interest and he had also failed to give any alternative

proposal for the hotel project as the project at the existing site

was likely to be affected by new railway track from Amravati

to Narkhed. The complainant was called upon to repay the

entire loan amounting to Rs.5,19,726/-, the outstanding

amount as on 23

rd

September,1994, within fifteen days from

the date of receipt of the said notice.

7.It appears from the impugned order that by his letter dated

15

th

September 1994, the complainant protested to the recall

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of loan sanctioned to him. It is stated that the complainant

pointed out that though a number of instalments of the loan

had fallen due to be paid to the complainant, it was only as

late as on 29

th

July, 1994, that he was asked to submit a letter

from the competent authority regarding the status of the

railway line and that he promptly submitted a certificate

issued by the Commissioner, Amravati Division affirming that

there was no proposal of Amravati – Narkhed line.

8.Having failed to get any favourable response from the

Corporation, on 17

th

January 1995, the complainant filed a

complaint with the Commission. It seems that during the

pendency of the complaint before the Commission, the

Corporation retraced their steps and proposed to renew the

loan on certain conditions, which were not acceptable to the

complainant.

9.As already stated, the Commission has accepted the

complaint and has come to the conclusion that there was no

justifiable ground for the Corporation to deny disbursement of

loan to the complainant. According to the Commission,

having sanctioned the loan and then stopping its

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disbursement without any cause amounted to deficiency in

service on the part of the Corporation. However, keeping in

mind the passage of time, the Commission did not find it

expedient to direct the Corporation to release further

instalments of the loan, sanctioned as far back as in July

1992.

10.Being aggrieved by the award of compensation, the

Corporation has preferred this appeal.

11.We have heard Mr. Santosh Paul, learned counsel appearing

for the Corporation and Mr. Manish Pitale, learned counsel

appearing for the complainant.

12.Learned counsel appearing for the Corporation submitted

that in the instant case there was no deficiency in service as

defined in Section 2(g) of the Act. The learned counsel argued

that the Commission has exceeded its jurisdiction in examining

the administrative decision of the Corporation to recall the loan

as it felt that having regard to the past conduct of the

complainant it was not in the interest of the Corporation to

disburse the balance amount of loan to him. Relying on the

decision of this Court in U.P. Financial Corporation & Ors. Vs.

9

Naini Oxygen & Acetylene Gas Ltd. & Anr.

1

, it was submitted

that unless the action of the Corporation was held to be mala

fide, even a wrong decision taken by it was not open to

challenge as it is not for the Courts or a third party to

substitute its decision, however more prudent, commercial or

businesslike it may be, for the decision of the Corporation.

Reliance was also placed on another decision of this Court in

Haryana Financial Corporation & Anr. Vs. Jagdamba Oil Mills

& Anr.

2

, to contend that in commercial matters the Court

should not risk their judgments for the judgments of the bodies

to whom that task is assigned. It was asserted that since the

Corporation was of a bona fide belief that the entire hotel

project of the complainant may get affected because of the

proposed railway line and further there were defaults on the

part of the complainant to discharge his liability towards

quarterly instalments of interest, the decision of the

Corporation not to disburse further instalments cannot be

termed as mala fide or unreasonable and, therefore, there was

no question of any deficiency in the service of the Corporation

towards the complainant.

1

(1995) 2 SCC 754

2

(2002) 3 SCC 496

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13.Supporting the impugned judgment, learned counsel

appearing for the complainant, on the other hand, submitted

that in the absence of any stipulation in the conditions of loan

for stopping the disbursement on account of default in the

payment of interest on time, the action of the Corporation in

not releasing the remaining instalments on the stipulated dates

not only affected the hotel project, it also caused a huge loss to

the complainant as he was deprived of the special capital

incentive by SICOM. It was argued that the non release of the

instalments on the specious plea that there was a proposal for a

railway line was mala fide inasmuch as there was no such

proposal.

14.The short question arising for consideration is whether the

Commission was correct in holding that there has been

deficiency in service provided by the Corporation to the

complainant on account of their failure to release the balance

loan amount?

15.Clause (o) of Section 2 of the Act defines “service” to

mean:-

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“service” means service of any description

which is made available to potential users and

includes, but not limited to, the provision of

facilities in connection with banking, financing

insurance, transport, processing, supply of

electrical or other energy, board or lodging or

both, housing construction, entertainment,

amusement or the purveying of news or other

information, but does not include the

rendering of any service free of charge or

under a contract of personal service;”

The use of the words ‘any’ and ‘potential’ in the context these

have been used in clause (o) indicates that the width of the

clause is very wide and extends to any or all actual or potential

users. The legislature has expanded the meaning of the word

further by extending it to every such facilities as are available

to a consumer in connection with banking, financing etc.

Undoubtedly, when the bank or financial institutions advance

loans, they do render ‘service’ within the meaning of the clause.

In that behalf, there is no dispute.

16.“Deficiency” under clause (g) of Section 2 of the Act

means:-

“deficiency” means any fault, imperfection,

shortcoming or inadequacy in the quality,

nature and manner of performance which is

required to be maintained by or under any law

for the time being in force or has been

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undertaken to be performed by a person in

pursuance of a contract or otherwise in

relation to any service;”

It is manifest from the language employed in the clause that

its scope is also very wide but no single test as decisive in the

determination of the extent of fault, imperfection, nature and

manner of performance etc. required to be maintained can be

laid down. It must depend on the facts of the particular case,

having regard to the nature of the ‘service’ to be provided.

17. Therefore, in so far as the present case is concerned, in

order to examine whether there was a deficiency in service by

the Corporation, it has to be seen if there was any inadequacy

in the quality, nature and manner of performance which was

required to be maintained by the Corporation in terms of their

letter dated 2

nd

July, 1992, conveying the sanction of loan to the

complainant. As noted above, the Corporation was obliged to

disburse to the complainant a loan of Rs.30 lakhs in

instalments on complainant’s furnishing the progress report of

the project. Although, no specific information with regard to

the actual dates for release of the instalments of the loan

amount are forthcoming, yet it can be gathered from the

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correspondence on record that the loan amount was to be

disbursed periodically (perhaps half yearly), on the basis of the

report of the approved valuer on the progress of the project. It

is evident from Corporation’s letters dated 5

th

March, 1993, 10

th

December, 1993, 24

th

February, 1994 and 29

th

July, 1994 that

the complainant not only failed to furnish the progress report,

he also did not discharge his liability towards interest, as

demanded from him from time to time. As already stated, even

the cheque in the sum of Rs.30,000/- issued by the

complainant to the Corporation on 2

nd

September, 1992

towards up-front fee was returned unpaid by his bankers. In

Corporation’s letter dated 24

th

February, 1994 it was alleged

that the complainant had not only failed to pay interest, it was

also found on inspection on couple of occasions by the Regional

Manager that during the last four months there was no further

progress in implementation of the project. It is significant that

these allegations and details of interest due from the

complainant had not been seriously disputed by the

complainant either before the Commission or in the counter

affidavit filed by him in this appeal. In the background of the

factual scenario as emerging from the material on record, we

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are convinced that there was no shortcoming or inadequacy in

the service on the part of the Corporation in performing its

duty or discharging its obligations under the loan agreement.

The Corporation was constrained not to release the balance

instalments and recall the loan on account of stated defaults on

the part of the complainant himself. Non release of loan

amount was not because of any deficiency on the part of the

Corporation but due to complainant’s conduct and therefore,

the failure of the Corporation to render ‘service’ could not be

held to give rise to claim for recovery of any amount under the

Act.

18. We also find substance in the contention of learned

counsel for the Corporation that unless the action of a financial

institution is found to be mala fide, even a wrong decision

taken by it is not open to challenge, as the wisdom of a

particular decision is normally to be left to the body authorized

to decide. In U.P. Financial Corporation & Ors. Vs. Naini

Oxygen & Acetylene Gas Ltd. & Anr. (supra) this Court had

observed that a Corporation being an independent autonomous

statutory body having its own constitution and rules to abide

15

by, and functions and obligations to discharge, in the discharge

of its functions, it is free to act according to its own right. The

views it forms and the decisions it takes would be on the basis

of the information in its possession and the advice it receives

and according to its own perspective and calculation. In such a

situation, more so in commercial matters, the court should not

risk their judgments for the judgments of the bodies to which

that task is assigned. It was held that: (SCC p. 761, para 21)

“Unless its action is mala fide, even a wrong decision

taken by it is not open to challenge. It is not for the

courts or a third party to substitute its decision,

however more prudent, commercial or businesslike it

may be, for the decision of the Corporation. Hence,

whatever the wisdom (or the lack of it) of the conduct of

the Corporation, the same cannot be assailed for

making the Corporation liable”.

19. Having considered the matter in the light of the

correspondence exchanged between the Corporation and the

complainant, we have no hesitation in holding that there has

not been any deficiency in the service the Corporation was

required to provide to the complainant. In our opinion, the

Commission was not correct in coming to the aforestated

conclusion. We are of the view that the complainant being

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himself a defaulter right from inception of his dealing with the

Corporation, when his cheque in the sum of Rs. 30,000/- got

dishonoured, coupled with persistent defaults in discharging

his liability to the Corporation towards interest, despite

repeated demands, he cannot be permitted to plead at the later

stage that he suffered on account of deficiency in service by the

Corporation because of non-disbursement of balance

instalments of loan by them. As was observed by this Court in

Jagdamba Oil Mills (supra), while not insisting upon the

borrower to honour the commitments undertaken by him, the

Corporation alone cannot be shackled hand and foot in the

name of fairness. Fairness cannot be a one-way street. Where

the borrower has no genuine intention to repay and adopts

pretexts and ploys to avoid payment like in the present case, he

cannot make the grievance that the Corporation was not acting

fairly, even if requisite procedures have been followed.

20. For the foregoing reasons, we allow the appeal; set aside

the order passed by the Commission and dismiss the complaint

filed by the complainant. Amount deposited in terms of order

dated 19

th

July, 2004 shall be released to the Corporation on

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maturity of the fixed deposit. There shall, however, be no order

as to costs.

…………………………….

J.

(D.K. JAIN)

…………………………….J.

(H.L. DATTU)

NEW DELHI;

JULY 9, 2010.

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