Appeal (CAD) (MD).No.2 of 2025

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT

Reserved on : 28.04.2026Pronounced on : 23.06.2026

CORAM:

THE HONOURABLE MR.JUSTICE N.ANAND VENKATESH

and

THE HONOURABLE MR.JUSTICE K.K.RAMAKRISHNAN

Appeal (CAD) (MD).No.2 of 2025

M/s.Kovilpatti Lakshmi Roller,

Flour Mills Limited,

Registered Office at 75/8,

Benares Cape Road,

Gangaikondan – 627352,

Tirunelveli,

Represented by its Company Secretary,

S.Piramuthu. ... Appellant / Plaintiff

Vs.

M/s.Canara Bank,

having its Head Office at

112, JC Road, Bengaluru,

Karnataka – 560002 and its Branch at

52C/41/13,

Ettayapuram Rajah Building,

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Appeal (CAD) (MD).No.2 of 2025

Tirunelveli Junction,

Tirunelveli – 627001,

through its Chief Manager. ... Respondent / Defendant

PRAYER: Appeal – Commercial Appellate Division has been filed under

Section 13 of the Commercial Courts Act, to set aside the judgment and

decree dated 05.11.2024 made in O.S.No.148 of 2021 (Commercial Original

Suit) on the file of the learned Principal District Judge, Tirunelveli and to

allow the above appeal.

For Appellant : M/s.N.Krishnaveni,

Senior Counsel

for Mr.P.Thiyagarajan

For Respondent : Mr.N.Dilip Kumar

J U D G M E N T

(Judgment of the Court was made by K.K.RAMAKRISHNAN,J. )

The Appeal – Commercial Appellate Division has been filed by the

appellant/plaintiff to set aside the judgment and decree dated 05.11.2024

made in O.S.No.148 of 2021 (Commercial Original Suit) on the file of the

learned Principal District Judge, Tirunelveli and to allow the above appeal.

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2. For the sake of convenience and better appreciation of the facts, the

parties are referred to according to their rank before the Trial Court.

3. The brief averments of the plaint are as follows:

3.1. The plaintiff is a public limited company having two distinct

business divisions, namely, the flour mill division and the engineering

division. The plaintiff had availed working capital facilities from the

defendant bank in the year 1963 to the tune of Rs.29.70 crores. The said

working capital limit was being renewed periodically every year. Out of the

said limit of Rs.29.70 crores, a sum of Rs.28.70 crores was availed for the

flour mill division and a sum of Rs.1 crore was availed for the sheet metal

division.

3.2. In the year 2018, the defendant bank unilaterally increased the rate

of interest on the working capital loan from 11.10% to 13.70% with effect

from 02.05.2018 through the sanction memorandum dated 13.04.2018.

Since the other banks, particularly HDFC Bank, were charging only 10.30%

interest, the plaintiff, by communications dated 28.05.2018 and 10.01.2019,

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requested the defendant bank to reduce the rate of interest. However, the

defendant failed to consider the said request.

3.3. According to the plaint, the respondent bank neither responded to

the plaintiff's request nor reduced the rate of interest. In the meantime, the

validity period of the sanction memorandum dated 13.04.2018 expired and

the process for renewal of the working capital facilities for the financial

year 2019–2020 commenced. The plaintiff once again requested the

respondent bank to reduce the rate of interest.

3.4. The plaintiff would further aver that, although the respondent

bank had expressed its willingness to consider a reduction in the rate of

interest through its communications, no reduction was granted.

Consequently, the plaintiff submitted a further representation seeking

reduction of the interest rate. In the said communication dated 20.12.2018

the plaintiff also expressed its intention to adopt a multiple banking

arrangement involving other banks, including HDFC Bank and Axis Bank,

and proposed a reduction of its working capital exposure with the

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respondent bank from 29.70 crores to approximately 13.50–14.50 crores.

3.5. Thereafter, the respondent bank issued a sanction memorandum

dated 06.05.2019, valid up to 09.04.2020, whereby the rate of interest for

the working capital facilities was reduced to 11.50%, broadly in line with

the rates prevailing in the earlier years. However, the said sanction

memorandum contained a specific condition that, in the event of the credit

facilities being taken over by another bank, the concession in the rate of

interest extended during the preceding year would be recovered from the

borrower before closure of the account. The said condition formed part of

the sanction terms conveyed to the plaintiff.

3.6. The plaintiff never accepted the Sanction Memorandum and sent a

communication dated 03.06.2019 requesting deletion of the aforesaid

clause. According to the plaintiff, although the Sanction Memorandum bore

the date 06.05.2019, the acceptance containing the endorsement “accepted

subject to the offer letter dated 03.06.2019” was obtained only after June

2019. The plaintiff thereafter addressed further communications requesting

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deletion of the aforesaid condition relating to recovery of the interest

concession upon transfer of the account to another bank. Simultaneously,

the plaintiff continued to seek reduction of the rate of interest.

3.7. While matters stood thus, the subsequent renewal period

approached. During the outbreak of the COVID-19 pandemic, the

respondent bank sanctioned additional facilities to the plaintiff, including a

term loan and ad hoc working capital assistance. The plaintiff also decided

to discontinue its Sheet Metal Division and requested the respondent bank

to release the collateral securities proportionate to the liabilities pertaining

to the said division.

3.8. According to the plaint, discussions continued between the

parties concerning reduction of the rate of interest, release of securities,

restructuring of banking arrangements and other related issues. During this

period, the respondent bank sanctioned a term loan of 2.77 crores and ad

hoc temporary working capital facilities of 2.95 crores under a sanction

dated 22.04.2020.

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3.9. The plaintiff would further contend that, since the respondent

bank did not favorably consider its requests regarding release of a portion of

the collateral securities and reduction of the rate of interest, it ultimately

decided to close its loan accounts with the respondent bank. Accordingly, on

08.09.2020, the plaintiff settled the outstanding liabilities and sought

closure of the accounts. However, the respondent bank allegedly declined to

release the title deeds and issue the closure certificate insisting the plaintiff

to pay the differential interest amount claimed under the condition

incorporated in the sanction memorandum dated 06.05.2019. The bank also

demanded commitment charges in respect of certain facilities that had been

sanctioned but not availed by the plaintiff.

3.10. The plaintiff requested waiver of the differential interest and

commitment charges on the ground that the facilities had not been utilized

and also that the demands were otherwise unjustified. The respondent bank,

however, declined the request. Due to the necessity of obtaining the title

deeds and closure certificate in order to secure credit facilities from other

banks offering finance at substantially lower rates of interest, the plaintiff

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paid the amounts demanded under protest. After obtaining the discharge

documents, release of securities and closure certificate, the plaintiff shifted

its banking arrangements to another financial institution. Thereafter,

claiming that the amounts collected towards differential interest pursuant to

the condition contained in the sanction memorandum dated 06.05.2019 and

the commitment charges were illegal and not recoverable in law, the

plaintiff instituted the present suit seeking recovery of the said amounts

together with consequential reliefs.

4. The brief averments of the written statement filed by the

defendants are as follows:-

4.1. The defendant bank filed a written statement denying the

allegations made in the plaint and contended that the plaintiff was liable to

pay the commitment charges as well as the differential interest in view of

the specific clauses contained in the sanction memorandum dated

06.05.2019, which had been accepted by the plaintiff. According to the

defendant, the reduction in the rate of interest was granted subject to the

condition that, in the event of takeover of the loan account by another bank,

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the plaintiff would be liable to pay the said charges.

4.2. The defendant further contended that, since the loan facilities had

been sanctioned and enjoyed by the plaintiff, the commitment charges were

legally recoverable. It was also stated that the defendant had made the claim

strictly in accordance with the contractual terms agreed upon between the

parties. Hence, the defendant prayed for dismissal of the suit. On the basis

of the pleadings, the learned Trial Judge framed necessary issues and

proceeded the trial.

5. On the side of the plaintiff, one witness was examined as P.W.1 and

documents were marked as Exhibits A1 to A13. On the side of the defendant

bank, the Branch Manager was examined as D.W.1. However, no document

was marked on the side of the defendant.

6. The learned Trial Judge, upon consideration of the oral and

documentary evidence available on record, dismissed the suit filed by the

plaintiff/appellant holding that, in terms of the contractual conditions, the

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defendant bank was entitled to recover the differential interest as well as the

commitment charges. The learned Trial Judge further held that, since the

loan facilities had been availed and enjoyed by the plaintiff, the levy of

commitment charges was justified. Aggrieved by the said judgment and

decree dated 05.11.2024, the plaintiff has preferred the present appeal

before this Court.

7. Submission of the learned Senior Counsel appearing for the

appellant:

7.1. The learned Senior Counsel for the appellant/plaintiff would

submit that the Court below failed to properly appreciate the specific and

consistent case of the plaintiff. According to the plaintiff, the respondent

bank had no legal authority to demand the differential interest on the basis

of the sanction memorandum dated 06.05.2019, since the said condition was

never unconditionally accepted by the plaintiff. The learned Senior Counsel

appearing for the plaintiff/appellant would submit that the rider clause

incorporated in the sanction memorandum dated 06.05.2019 is contrary to

the fundamental principles governing the law of contracts and is also

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opposed to public policy. According to the learned Senior Counsel, the said

rider clause is, therefore, void and unenforceable in law. immediately upon

receipt of the sanction memorandum, the plaintiff, by letter dated

03.06.2019, specifically objected to the disputed condition and requested

deletion of the same. the signature also obtained in the sanction

memorandum dated 06.05.2019 after the receipt of communication dated

03.06.2019 and therefore, according to the learned Senior Counsel

appearing for the appellant, it cannot be construed as unconditional

acceptance of the disputed clause, particularly when the plaintiff had

already recorded his protest and reservation through the communication

dated 03.06.2019.

7.2. The learned Senior Counsel would further submit that under

Section 7 of the Indian Contract Act, 1872, acceptance must be absolute and

unqualified in order to result in a concluded contract. In the present case,

the plaintiff never accepted the disputed condition relating to recovery of

the differential interest. On the contrary, the communications placed on

record clearly establish that the plaintiff consistently opposed the said

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condition. Therefore, the alleged acceptance amounted only to a counter-

offer which, in law, would not result in a concluded acceptance. It is further

submitted that even in the earlier sanction communication issued prior to the

sanction memorandum dated 06.05.2019, no such condition regarding

recovery of differential interest was incorporated and the rate of interest was

prescribed only at 11.70%. Subsequently, the respondent bank unilaterally

introduced the disputed clause in the sanction memorandum dated

06.05.2019. Even thereafter, the plaintiff, through subsequent

communications, reiterated that he can never agree to such a condition.

7.3. The learned Senior Counsel would submit that such unilateral

recovery, without lawful consensus ad idem between the parties, is opposed

to the fundamental principles governing contracts and is also against public

policy. Hence, the disputed clause itself is unenforceable in law.

Accordingly, it is contended that the claim made by the respondent bank

towards the alleged differential interest is legally unsustainable and the

learned trial Judge failed to properly consider the above vital aspects in the

correct perspective.

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7.4.The learned Senior Counsel appearing for the plaintiff further

submitted that the finding of the learned trial Judge that there existed a

binding contract between the plaintiff and the defendant bank merely on the

basis of continuation of banking transactions from May 2019 to September

2020 is legally unsustainable. According to the learned Senior Counsel for

the plaintiff, in terms of Section 7 of the Indian Contract Act, it was

incumbent upon the defendant Bank to respond to the plaintiff's various

communications seeking deletion of the clauses contained in the Sanction

Memorandum dated 06.05.2019. It is contended that, in the absence of any

such response, there was an implied acceptance of the plaintiff's request for

deletion of the said clauses. The learned Senior Counsel further submitted

that, notwithstanding the plaintiff's communications, the defendant Bank

continued the existing credit facilities and sanctioned the further term loan

and working capital loan extension without insisting upon an unconditional

acceptance of the subsequent Sanction Memorandums. Such conduct,

according to the learned Senior Counsel, amounts to acceptance by conduct

of the plaintiff's counter-offer. Consequently, the parties stood governed by

the modified terms proposed by the plaintiff and not by the original terms

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contained in the Sanction Memorandum dated 06.05.2019. Therefore, the

defendant Bank has no cause of action to recover commitment charges,

interest, or any other amount founded upon the clauses contained in the

Sanction Memorandum dated 06.05.2019.

7.5. Subsequently, a different term loan proposal was processed by the

bank. However, the plaintiff never accepted nor appropriated the said loan.

On account of the conditions imposed by the bank, including refusal to

release the collateral securities and refusal to reduce the rate of interest, the

plaintiff did not proceed with the said transaction. Therefore, according to

the learned Senior Counsel, the finding of the learned trial Judge runs

contrary to the pleadings and evidence adduced by the bank. The learned

trial Judge erroneously shifted the burden of proof upon the plaintiff by

holding that, unless the plaintiff expressly refused to accept the loan, the

subsequent transactions amounted to acceptance of the terms of the

Sanction Memorandum. The learned Senior Counsel would further contend

that, under Section 7 of the Indian Contract Act, 1872, an acceptance must

be absolute and unqualified in order to result in a concluded contract. If the

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offeree varies the terms of the proposal or expressly refuses to accept any of

its conditions, such response amounts to a counter-offer and not an

acceptance. In such circumstances, it is for the proposer, namely the

respondent Bank, either to accept or reject the counter-offer. Where the

proposer acts upon the counter-offer without rejecting it, there is an implied

acceptance of the modified terms, thereby resulting in a concluded contract

on the basis of the counter-offer.Developing the above submission, the

learned Senior Counsel would argue that the Bank, by its subsequent

conduct, accepted the counter-proposal made by the plaintiff/appellant. The

subsequent sanction memoranda did not reiterate or insist upon the disputed

rider clause. On the contrary, the Bank proceeded to sanction and disburse

the loan facilities, thereby clearly evincing its intention to act upon the

modified terms. Consequently, the original rider clause contained in the

sanction memorandum dated 06.05.2019 stood waived or abandoned by

conduct. The learned trial Judge failed to appreciate that the plaintiff had

already furnished substantial securities, the value of which exceeded the

working capital limits sanctioned by the defendant Bank. In such

circumstances, the mere continuation of banking transactions could not be

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construed as an unconditional acceptance of the disputed terms of the

Sanction Memorandum.

7.6. It was further contended that the bank sought to recover only the

differential interest on the strength of the sanction memorandum dated

06.05.2019 and the conditions incorporated therein. The Court below erred

in extending the applicability of the said sanction memorandum to the

subsequent continuation of the account till September 2020, despite the

absence of signature of the plaintiff in the said sanction memorandums.

7.7. The learned Senior Counsel also assailed the further finding of the

trial Court that the continuance of banking transactions for about sixteen

months itself established acceptance of the contractual terms. According to

him, several communications had been addressed by the plaintiff objecting

to the conditions imposed by the bank and at no point of time did the

plaintiff agree to the revised terms. The transaction in question related to the

2020 term loan, which was never accepted by the plaintiff. The bank

unilaterally sanctioned the loan and credited the amount into the plaintiff’s

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account. However, the plaintiff never utilized the said amount in view of the

onerous conditions imposed by the bank.

7.8. The learned Senior Counsel would therefore submit that, in the

absence of any concluded acceptance of the original sanction memorandum

containing the disputed rider clause, the respondent Bank cannot

subsequently seek to enforce the said clause or claim the differential rate of

interest on its basis. It is further submitted that, notwithstanding the

plaintiff's repeated communications, the Bank sanctioned and disbursed

additional loan facilities without obtaining the plaintiff's consent. According

to the learned Senior Counsel, the plaintiff had specifically requested the

Bank to release the securities furnished in respect of Metal Sheet Company

and to issue the necessary permission to enable the plaintiff to avail

additional credit facilities from a third-party bank. However, the respondent

Bank neither acceded to those requests nor resolved the disputes that had

arisen between the parties.

7.9. The learned Senior Counsel would also point out that, in several

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instances, the Bank sanctioned and disbursed loan facilities without

obtaining the plaintiff's signature on the relevant sanction memoranda. In

certain cases, the signatures were obtained only after a considerable lapse of

time, while in other cases no signatures were obtained at all. According to

the learned Senior Counsel, this conduct was attributable to the strained

relationship that had developed between the parties, particularly after the

plaintiff requested closure of the loan accounts and objected to the Bank's

refusal to release the securities. On the above submissions, the learned

Senior Counsel prayed that the appeal be allowed by setting aside the

judgment and decree of the learned Trial Judge.

7.10. To substantiate his submissions, the learned Senior Counsel

appearing for the plaintiff relied upon number of precedents.

8. Submission of the learned Counsel appearing for the bank:

8.1. Per contra, the learned counsel appearing for the bank submitted

that the learned trial Judge had correctly appreciated the entire sequence of

events between the parties. According to the learned counsel, the plaintiff

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had continuously transacted with the respondent bank from 2019 till

September 2020 and had maintained customer relationship with the bank for

more than sixteen years. Having continued such business relationship, the

plaintiff cannot now contend that there was no agreement between the

parties.

8.2. The learned counsel further submitted that the conduct of the

plaintiff amounted to acceptance and appropriation of the facilities extended

by the bank and that the plaintiff cannot subsequently reprobate the same. It

was also contended that once the conditions were incorporated in the

sanction memorandum dated 06.05.2019, the bank became entitled to

recover the differential rate of interest.

8.3. The learned counsel for the bank further submitted that though

the plaintiff had purportedly accepted the sanction subject to the letter dated

06.06.2019, the said conditional acceptance was never accepted by the

bank. At the same time, the plaintiff never expressly declined the sanction

granted under the memorandum dated 06.05.2019. Hence, according to the

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bank, the plaintiff remained liable to pay the differential interest consequent

upon closure of the change -over account and transfer of dealings to another

bank.

8.4. Insofar as the claim for commitment charges is concerned, the

learned counsel submitted that the loan had already been sanctioned and the

sanctioned amount remained in the plaintiff’s account till September 2020.

Therefore, according to the bank, the facility stood duly sanctioned and kept

available to the plaintiff, thereby entitling the bank to recover commitment

charges.

8.5. The learned counsel for the bank finally submitted that the

conditions imposed under the sanction memorandum were not opposed to

public policy, as they were in consonance with the guidelines issued by the

Reserve Bank of India. Hence, there was no legal basis to hold the said

conditions to be void on the ground of public policy. On the above

submissions, the learned counsel prayed for confirmation of the judgment

and decree passed by the trial Court.

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8.6. The learned counsel for the bank mainly advanced his

submissions on two grounds. Firstly, he contended that the judgments relied

upon by the bank have consistently held that where acceptance of a contract

is clear, unequivocal, and reflected through conduct, there is no necessity

for independent proof that the acceptance was qualified and absolute.

According to the learned counsel, Section 7 of the Indian Contract Act

contemplates that acceptance may be expressed in a usual and reasonable

manner. In the present case, following the ordinary banking procedure, the

loan was sanctioned at the concessional rate of interest of 11.5%, subject to

the conditions incorporated in the sanction memorandum dated 06.05.2019.

8.7. According to the learned counsel, despite receipt of the sanction

memorandum and continuance of banking transactions thereafter, the

plaintiff never unequivocally repudiated the said conditions. Hence, the

plaintiff cannot subsequently contend that there was no concluded contract

between the parties. In this regard, the learned counsel relied upon several

precedents to contend that acceptance may be inferred from the conduct of

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the parties and surrounding circumstances.

8.8. The learned counsel further submitted that the second limb of

Section 7(2) of the Indian Contract Act has no application to the facts of the

present case and that only the first limb governing absolute and unqualified

acceptance would apply. According to him, once the plaintiff accepted the

benefit of concessional interest without rejecting the facility itself, the

plaintiff cannot selectively repudiate the conditions subject to which such

concessional rate had been granted. Therefore, according to the learned

counsel, the learned trial Judge rightly dismissed the suit, for which reliance

was also placed on several judicial precedents.

8.9. The learned counsel for the bank further submitted that the bank

was fully justified in levying commitment charges once the loan amount had

been sanctioned and earmarked in favour of the plaintiff. Merely because

the plaintiff did not ultimately utilize the sanctioned amount, the same

cannot disentitle the bank from claiming commitment charges. According to

the learned counsel, once an application was made by the plaintiff and the

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loan was sanctioned by the bank, the liability to pay commitment charges

automatically arose. The subsequent refusal of the plaintiff to avail the

facility on account of disagreement with certain conditions would not

absolve the plaintiff from such liability. In support of the said contention,

the learned counsel also relied upon several documents and precedents.

8.10. The learned counsel appearing for the respondent bank also cited

several judgments of the Hon’ble Supreme Court and various High Courts,

including this Court:

9. This Court shall now consider the rival submissions advanced on

either side, the materials placed on record, and the precedents relied upon by

the respective parties.

10. In this appeal, the following points arise for determination:

i) Whether the clause incorporated in the Sanction

Memorandum dated 06.05.2019 is valid, binding, and

enforceable against the plaintiff?

ii) Whether there was a valid acceptance of the terms

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and conditions contained in the Sanction Memorandum

dated 06.05.2019, and consequently, whether the

defendant Bank is entitled to claim the differential rate

of interest on the basis of the said memorandum?

11. Discussion on the question “Whether the clause incorporated in

the Sanction Memorandum dated 06.05.2019 is valid, binding, and

enforceable against the plaintiff?”:

11.1. This is a classic case of oppression and commercial coercion

employed by a nationalized bank under the guise of its absolute supervisory

powers over a helpless borrower. The appellant had been maintaining

banking relations with the respondent bank since 1963 and had been

availing working capital facilities on a yearly basis without committing even

a single default. Even according to the bank, the appellant was one of its

most valued customers. However, the appellant’s entire business came to a

standstill because of the arm-twisting methods adopted by the banking

authorities by imposing conditions opposed to public policy, thereby

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destroying a banking relationship that had subsisted smoothly for more than

fifty years.

11.2. Since the entire claim of the respondent bank is founded upon

the rider clause incorporated in the sanction memorandum dated

06.05.2019, marked as Exhibit A10, it is necessary to briefly examine the

plaintiff's case. The plaintiff has specifically pleaded in para 8 of the plaint

that the rider clause had no legal effect. Hence ,this Court is required to

examine the plaintiff's contention regarding the validity of the rider clause

and for proper appreciation of the controversy, this Court has extracted

rider clause in the sanction memorandum dated 06-05-2019 which reads as

“HO cir 133/2019: In case where the account is taken over by

other banks/FIs, concessions in Rol/ Charges extended for the

last one year to be recovered before closure. (This shall be part

of the sanction conveying letter and accepted by the

borrower.)”

11.3. In the present case, the rate of interest charged by the respondent

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bank was abnormal and exorbitant in comparison with other Banks .

Therefore,the borrower, who had not committed even a single default for

several decades, was constrained to shift his account to another bank solely

because the other bank offered credit facilities at a substantially lower rate

of interest and he made frequent request to allow multiple banking

operations with Axis bank etc on the account of sufficiency of security.

Despite holding valuable title deeds and securities the value of which was

several times more than the working capital loan facilities , the bank

authorities adopted unfair and oppressive practices to enforce a condition

which is ex facie opposed to public policy.

11.4. It is always open to a borrower to approach any financial

institution or bank of his choice for availing credit facilities. The right to

carry on occupation, trade, and business under Article 19(1)(g) of the

Constitution of India includes the freedom to choose a financial institution

of one’s choice for availing credit facilities. Significantly, the penal clause

imposing prepayment charges for shifting the account to another bank did

not find place in the earlier sanction memoranda issued to the borrower

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during the longstanding banking relationship prior to the sanction

communications issued during January 2018 and January 2019 and the same

was introduced only after the plaintiff had expressed their intention to

switch over to other bank on the account of exorbitant interest.

11.5.The penal condition imposing 2% prepayment charges merely

because the borrower intended to shift the account to another bank is not

only unconscionable, but also opposed to public policy. A borrower cannot

be compelled to continue with a particular bank against his commercial

interest, particularly when other financial institutions are willing to extend

credit facilities at substantially lower rates of interest. The right of a

borrower to approach another bank for better financial terms forms part of

legitimate commercial freedom and cannot be curtailed by oppressive

contractual stipulations. Furthermore, this court takes judicial notice of the

RBI Fair Practices Code adopted by the respondent Canara Bank, which

mandates transparency, fairness, and non-coercive banking practices in

dealing with borrowers.which also insists to treat the customers as guests.

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11.6.Further, the conduct of the respondent bank in withholding the

original title deeds and other valuable documents, despite the borrower not

having committed any wilful default, amounts to an unfair banking practice.

The retention of documents solely to prevent the borrower from shifting the

account to another bank clearly reflects arbitrary and coercive conduct

contrary to the RBI Fair Practices Code and established banking norms.

11.7.Therefore, in the above circumstances, the imposition of a

condition restraining the borrower from shifting the account, coupled with a

penal clause demanding 2% prepayment charges, despite repeated

objections raised by the borrower through emails and communications

acknowledged by the bank officials, amounts to imposition of an

unconscionable condition opposed to public policy, violative of the RBI

Fair Practices Code adopted by the respondent Canara Bank and contrary to

the constitutional guarantee under Article 19(1)(g) of the Constitution of

India, namely the right to carry on occupation, trade, and business, which

includes the freedom to choose a financial institution of one’s choice for

availing credit facilities. Therefore, the claim made by the respondent bank

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on the basis of such a condition is wholly unsustainable and unenforceable

in law. Accordingly, this Court is inclined to set aside the said demand and

constrained to hold that the respondent bank is not entitled to enforce the

penal clause and recover difference of interest as stated in their claim dated

25.09.2020 as in EX.A.21.

12. Discusion on the question “Whether there was a valid acceptance

of the terms and conditions contained in the Sanction Memorandum dated

06.05.2019, and consequently, whether the defendant Bank is entitled to

claim the differential rate of interest on the basis of the said

memorandum”?

12.1. Now the next controversy which revolves around Exhibit A10,

namely, the sanction memorandum dated 06.05.2019 is the question

whether the plaintiff had accepted the rider clause so as to constitute a

concluded and binding contract between the parties and for proper

appreciation of the controversy, this Court has extracted the relevant portion

of the communication of plaintiff dated 06-06-2019 and rider clause as well

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as the endorsement made by the plaintiff while accepting the sanction

memorandum dated 06-05-2019:

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The material content of the letter dated 03.06.2019 which reads as follows:

Reply from the plaintiff dated 3

rd

June, 2019:

Sl.

No.

Page

No.

Particulars Corrections / Deletion / Remarks

43

HO Cir 133/2019: In case where

the account is taken over by other

Banks/FIs, concessions in

ROI/Charges extended for the last

one year to be recovered before

closure

KLRF does not agree for this

condition. Please delete this clause

We request you to kindly consider our request and accord your approval at

the earliest.

Kindly note that the company has accepted your sanction letter subject to

aforesaid corrections/deletions required to be made therein. This letter is

also part and parcel of the documents be executed by the Company to avail

the working capital facilities.”

12.2. Even prior to the communication of the plaintiff dated

06.16.2019, the plaintiff sent request on 10.01.2019 which reads as follows:

“ We wish to thank you for the revised sanction

memorandum dated 5

th

January 2019 reducing the interest rate

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from 13.70% to 11.45% per annum.

We refer our letter dated 25

th

Jun 2018, 20

th

Dec 2018 and 3

rd

January 2019 requesting for NOC from Canara Bank for

introducing Axis Bank as a third banker.

We have requested for the interest rate reduction with effect

from 2

nd

May 2018 but we have received the approval for

revised interest on 5th January 2019. Such inordinate delays

have seriously impacted our operations adversely.

As mentioned in our earlier letters HDFC is charging 10.45%

p.a. on our OCC account. We have received an offer from Axis

bank at 10.05% per annum.

We have been instructed by our board of directors to avail the

most competitive rates and hence we would like to bring in Axis

Bank as a third banker and avail Rs.15 Crores working capital

facilities from them. But we will continue to avail Rs. 14.50

Crores (Flour mill division Rs.13.50 Crs and Sheet Metal

division Rs.1.00 Cr) from Canara Bank.

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Hence, we request you to kindly issue a No Objection

Certificate for the new multiple banking arrangement including

Axis Bank and HDFC Bank.”

12.3. To consider whether the above terms constitute a valid

acceptance in terms of Section 7 of the Indian Contract Act, 1872, the

provisions of Section 7 of the contract extracted hereunder:

“In order to convert a proposal into a promise the

acceptance must—

(1)be absolute and unqualified;

(2)be expressed in some usual and reasonable manner,

unless the proposal prescribes the manner in which it is

to be accepted.

If the proposal prescribes a manner in which it is to be

accepted, and the acceptance is not made in such manner,

the proposer may, within a reasonable time after the

acceptance is communicated to him, insist that his

proposal shall be accepted in the prescribed manner, and

not otherwise; but, if he fails to do so, he accepts the

acceptance”

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12.4. A reading of Section 7 makes it clear that, in order to convert a

proposal into a promise, the acceptance must be absolute and unqualified. In

the present case, the materials on record indicate that right from the stage

when the respondent bank enhanced the rate of interest, the plaintiff was

exploring the possibility of shifting its banking arrangements to other

institutions offering credit at lower rate of interest. The bank unilaterally

sanctioned the loan vide sanction memorandum dated 6th May 2019

subject to the Rider Clause . However, immediately upon receipt of the

sanction memorandum, the borrower/plaintiff addressed a communication

dated 03.06.2019 seeking deletion of the said Rider Clause. Significantly,

the plaintiff's signature was not obtained on the date of issuance of the

sanction memorandum. The signature was obtained only subsequently, after

the plaintiff had already communicated its objections to the rider clause vide

the communication dated 03.06.2019 with the following response:

“accepted subject to our letter June 3,2019”. In such circumstances, it

cannot be conveniently presumed that there was an unconditional

acceptance of all the terms contained in the sanction memorandum and it is

abundantly clear that his acceptance was conditional upon deletion of the

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Rider Clause. Such a response cannot prima facie be construed as an

unconditional acceptance; rather, it partakes the character of a counter-offer.

In commercial transactions, once a counter-offer is made, the original offer

does not attain finality unless the counter-offer is accepted or otherwise

dealt with by the offeror.

12.5. In this regard, it is relevant to extract the following principles

of Hon'ble Supreme Court Deokar Exports Private Limited -vs- New India

Assurance Company Limited reported in (2008) 14 SCC 598 relating to

counterproposal and the legal consequences flowing from a counterproposal

and the modes by which such a proposal may be accepted or rejected:

“13. A policy of insurance is a contract based on an offer (proposal)

and an acceptance. The appellant made a proposal. The respondent

accepted the proposal with a modification. Therefore, it was a counter-

proposal. The appellant had three choices. The first was to refuse to accept

the counter-proposal, in which event there would have been no contract.

The second was to accept either expressly or impliedly, the counter-

proposal of the respondent (that is, the respondent's acceptance with

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modification) which would result in a concluded contract in terms of the

counter-proposal. The third was to make a counter-proposal to the counter-

proposal of the respondent in which event there would have been no

concluded contract unless the respondent agreed to such counter-counter-

proposal.

12.6. From the above, it is clear that in the case of a counterproposal,

three possible courses are available to the original proposer First, the

proposer may reject to the counterproposal. In such an event, no consensus

ad idem arises between the parties and consequently no concluded contract

comes into existence.

Secondly, the proposer may expressly or impliedly accept the

counterproposal. Upon such acceptance, the original proposal stands

superseded and a concluded contract emerges on the terms contained in the

counterproposal.

Thirdly, where a counterproposal is made to the counter proposal

and it has not been accepted by the party, then again, the original proposer

can not say that concluded contract exists.

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12.7. Applying the above principles to the present case, once the

borrower expressly communicated its unwillingness to accept the rider

clause and sought its deletion, the Bank was required either to reject the

counterproposal or to communicate its insistence upon the rider clause.

However, the Bank did neither. Any response varying the terms of the

proposal or imposing further conditions would amount only to a counter-

offer. The conduct of the parties requires examination in the light of the

principles governing offer, acceptance and counter-offer.

12.8. The communications exchanged between the parties

demonstrate that the borrower had specifically conveyed through repeated

email communications that he was willing to continue the banking

relationship only upon reduction of the rate of interest and removal of the

penal clause relating to shifting of the account to another financial

institution. The sanction letter itself clearly disclosed that the sanction was

“subject to” the borrower’s request made in the letter dated June, 2019.

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12.9. The usage of the expression “subject to” creates a strong

presumption that the parties never intended to enter into an immediately

binding and concluded contract without the pending issues between them

being expressly resolved. In view of above circumstances, a duty was cast

upon the respondent Canara Bank either to expressly reject the counter-offer

made by the borrower or to refuse continuation of the facility unless the

borrower unequivocally accepted the disputed conditions.

12.10. Thereafter, the Bank neither rejected the said condition nor

reiterated the applicability of the rider clause while extending and operating

the loan facility. A reading of the rider clause in the sanction memorandum

bears the date 06.05.2019, the endorsement made by the plaintiff, and the

subsequent events, particularly the ad hoc extension of working capital

facilities granted under the sanction memorandum dated 22.04.2020 and

sanctioning of two more terms loans without reiterating the said rider

condition amounts “to implied acceptance of the counterproposal”.

12.11. The subsequent conduct of the parties clearly demonstrates that

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the bank acted upon the plaintiff's conditional acceptance. The continued

conduct of the parties, coupled with the silence of the bank authorities in

not expressly rejecting the borrower’s objections and counter-offer, gives

rise to a deemed acceptance of the modified terms proposed by the

borrower. Therefore, this Court finds that the principle of sub silentio

squarely applies to the facts of the present case. By their conduct and

silence, the bank authorities must be deemed to have accepted the counter-

offer made by the borrower seeking deletion of the oppressive penal clause.

12.12.Therefore, the bank is legally deemed to have accepted the

plaintiff's request for deletion of the Rider Clause. Accordingly, this Court

holds that there was an implied acceptance of the borrower's

counterproposal and a concluded contract came into existence without the

rider clause. Accordingly, this Court holds that the Rider Clause was never

intended to be operative between the parties and was not acted upon. The

borrower had never unconditionally accepted the said condition. The

principle of acquiescence and implied acceptance of borrower's

communication dated 3-6-2019 to delete the rider clause would operate

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against the bank in the facts of the present case Consequently, the bank is

not entitled to rely upon the said Rider Clause for claiming differential

interest. Any demand founded solely upon the Rider Clause is legally

unsustainable. Hence, the bank has no right to recover the difference in

interest on the basis of the said Rider Clause.

12.13. Once the borrower had discharged the liability and closed the

transaction, the respondent bank could not thereafter invoke a disputed and

unconcluded condition to retain amounts or claim additional charges.

Therefore, the dismissal of the suit filed by the borrower seeking refund of

the excess interest and penal charges suffered from serious legal infirmity.

Consequently, this Court is inclined to set aside the findings of the Court

below and grant appropriate relief in favour of the borrower.

13. Discussion on the question of “Whether the defendant Bank is

entitled to recover commitment charges when the loan amount was

unilaterally credited to the plaintiff's account without obtaining the

plaintiff's signature in token of acceptance of the Sanction Memorandum

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dated 22.04.2020, 09.09.2020, etc.?”:

13.1. So far as the commitment charges are concerned, the materials

available on record clearly establish that, even prior to the issuance of the

Sanction Memorandum and also subsequent to the Sanction Memoranda

dated 22.04.2020, 09.09.2020 and other relevant dates, the borrower had

specifically communicated to the respondent Canara Bank that he would

avail the proposed loan facility only on the condition that the land and

building pertaining to the sheet metal division is released from the list of

collateral securities. The relevant communications are as follows:

13.1.1. The relevant portions of Ex.A12, being the copy of the

information communicated by the plaintiff to the defendant Bank through e-

mail regarding the resolutions passed on 14.02.2020, read as follows:

“ 8.The board of directors of Kovilpatti Lakshmi Roller

Flour Mills limited has taken policy decision to give only the

respective division's property as collateral security for the

facilities provided. Hence, we request you to release the sheet

metal division's land & buildings situated at

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Periyanaickenpalayam, total extent of 7.45 acres, given as

collateral security for the working capital facilities.”

13.1.2. The relevant portions of Ex.A17 dated 22.05.2020, being the

copy of the e-mail sent by the plaintiff to the General Manager, Canara

Bank, Madurai, requesting the Bank to take up the matter with the

appropriate authority, read as follows:

“As explained in our various letters and meetings we

would like to request you to reduce the interest rates in line with

the market rates. Presently we have been charged 11.70% p.a.

which is very high as compared to market rates. We understand

that other companies are availing loans at 9.00% p.a for their

facilities.

Canara Bank has sanctioned a term loan of Rs.77 Lakhs

to KLRF for the office modernization at Gangaikondan. Also,

we have received the sanction letter for WCDL of Rs.2.95 crores

from Canara Bank, Sheet metal division's land has been

included as a collateral security in both these sanction letters.

As already communicated, we would like to avail both these

loans subject to removal of Sheet Metal Division's land as

collateral security.

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Sheet metal unit of the company will be leased and hence

we do not want to renew the sanctioned limit of Rs. 100 Lakhs

for this unit. Hence, we request you to release the sheet metal

property as collateral security.”

13.1.3. The relevant portions of Ex.A19 dated 09.06.2020, being the

copy of the e-mail addressed by the plaintiff to the General Manager,

Canara Bank, Madurai, reiterating its earlier request, read as follows:

“ As explained in our various letters and meetings we

would like to request you to reduce the interest rates in line

with the market rates. Presently we have been charged 11.70%

p.a. which is very high as compared to market rates: We

understand that other companies are availing loans at 9.00%

p.a. for their facilities.

Canara Bank has sanctioned a term loan of Rs.77 Lakhs

to KLRF for the office modernization, at Gangaikondan. Also,

we have received the sanction letter for WCDL of Rs.2.95

crores from Canara Bank. Sheet metal division's land has been

included as a collateral security in both these sanction letters.

As already communicated, we would like to avail both these

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loans subject to removal of Sheet Metal Division's land as

collateral security.

Sheet metal unit of the company will be leased and hence

we do not want to renew the sanctioned limit of Rs. 100 Lakhs

for this unit. Hence, we request you to release the sheet metal

property as collateral security.

KLRF's cash credit limit was due for renewal on 4th

April 2020 for which we have received temporary extension till

30th June 2020. We would like request you to send us the

renewal for the year 2020-21 with the reduced interest rates

after excluding sheet metal division's land as collateral

security.

Considering our long relationship with Canara bank, we

hope you will consider our requests and approve. If you need

further clarifications, we may have the conference call.”

The borrower had insisted upon such release in view of the fact that the

earlier dues had already been settled without any default and that the yearly

working capital facilities had been regularly serviced for several decades.

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13.2.The respondent bank, however, did not agree to the said

condition. On the contrary, without obtaining unequivocal and

unconditional acceptance from the borrower, the bank proceeded to

unilaterally sanction and temporarily extend the loan facilities. The

borrower, consistently voicing his objection, ultimately remitted and closed

the entire liability without availing the facility.

13.3. In this case, it is an admitted case of the bank and also finding

of learned trial judge that the Bank sanctioned all the loans unilaterally vide

sanction memorandums without obtaining consent signature of plaintiff and

hence the transactions without signature did not confer any cause of action

to claim Commitment charges. Therefore, the very foundation for levy of

commitment charges is absent in the present case. Commitment charges can

arise only when there exists a concluded contract and when the borrower,

after accepting the sanctioned facility, fails to utilise the same in accordance

with the agreed terms. In the absence of unconditional acceptance by the

borrower, no binding contractual obligation arose so as to enable the

respondent bank to levy commitment charges.

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14. Discussion on the concept of approbate and reprobate:

The learned Counsel appearing for the bank contended that once the

plaintiff had availed the loan at a concessional rate of interest subject to the

condition that, in the event of transfer of the account to another bank, the

concessional benefit would stand withdrawn and differential interest would

become recoverable, the plaintiff cannot subsequently protest that condition.

According to the learned counsel, such a contention would amount to

rewriting a concluded bilateral contract. He further submitted that a party

cannot approbate and reprobate, namely, accept the beneficial portion of the

contract while rejecting the burdensome portion. Hence, he prayed for

confirmation of the judgment of the court below.

14.1. Per contra, the learned Senior counsel appearing for the

plaintiff submitted that the impugned stipulation was obtained by force,

coercion, and economic duress, and therefore the plaintiff is legally entitled

to challenge the offending clause without repudiating the entire transaction.

According to her, the bank occupied a dominant and advantageous

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bargaining position, whereas the plaintiff, being financially dependent upon

the working capital facilities for continuation of business, was placed in an

utter disadvantageous position. The bank was also keeping custody of all

original title deeds and security documents of the plaintiff. In such

circumstances, the plaintiff had no other alternative except to submit

unwillingly to the unilateral demand imposed by the bank and make

payment under protest.

14.2.The learned counsel further submitted that the apparent consent

of the plaintiff was not free consent within the meaning of the Indian

Contract Act, but consent was obtained under commercial compulsion and

economic coercion. The bank, taking advantage of its dominant position,

allegedly exerted illegitimate commercial pressure and threatened unlawful

injury to the plaintiff’s economic interests by withholding the release of

securities and denying continuation of essential banking facilities.

Therefore, the consent obtained for incorporation of the disputed clause

stood vitiated by economic duress and undue influence. Such acceptance,

according to the learned counsel, cannot be construed as voluntary assent in

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the eye of law.

14.3. This Court finds considerable force in the said submission. When

consent to a contractual stipulation is procured by economic coercion,

commercial compulsion, or abuse of dominant bargaining position, the

resultant consent ceases to be free consent. In such cases, it is always open

to the aggrieved party to impeach that particular stipulation which was

incorporated by use of duress, without necessarily repudiating the entire

contract.

14.4. The said principle has been recognized by the Hon’ble Supreme

Court in Central Inland Water Transport Corporation Ltd. v. Brojo Nath

Ganguly reported in AIR 1986 SC 1571, wherein the Apex Court held that

unfair and unreasonable contractual terms imposed by a party enjoying

superior bargaining power are liable to be struck down. The same principle

was elaborately considered by the Bombay High Court in the judgment

reported in AIR 1992 Bombay 309, wherein it was observed that it is open

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to the victim of duress to impugn that part of the transaction or stipulation

which had been incorporated by use of coercive pressure.

14.5. Therefore, the contention of the learned counsel for the bank that

the plaintiff cannot selectively challenge a clause in a concluded bilateral

contract cannot be accepted in the peculiar facts and circumstances of the

present case. If a particular stipulation has been imposed by exerting

economic duress, undue influence, or coercive commercial pressure, the

affected party is legally entitled to repudiate that offending portion and seek

recovery of the amount wrongfully recovered by the bank.

15. Discussion on the trial court finding:

15.1.Since the plaintiff's response amounted to a counter-offer, a

corresponding duty arose on the part of the respondent bank either to reject

the counter-offer and decline the facility or to expressly communicate its

acceptance of the modified terms. The learned Trial Judge, however, appears

to have proceeded on the premise that the burden was upon the plaintiff to

reject the facility altogether. Such an approach, in the considered view of

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this Court, overlooks the legal consequences flowing from a qualified

acceptance under Section 7 of the Contract Act. Without considering the

principles governing acceptance under Section 7 of the Indian Contract Act,

the learned Judge proceeded solely on the basis that there existed a

continuing lender–borrower relationship between the parties pursuant to the

sanction memorandum dated 06.05.2019. On that basis, the learned Judge

held that there was an implied acceptance of the terms contained in the

sanction memorandum. Such a finding was rendered without identifying any

positive act on the part of the plaintiff either accepting the rider clause or

otherwise signifying assent to the modified terms. Mere continuation of the

loan relationship or availing of the facility, in the facts and circumstances of

the present case, cannot by itself constitute implied acceptance, particularly

when the plaintiff had specifically communicated his objection to the rider

clause and had accepted the sanction memorandum only subject to the

conditions contained in his letter dated 03.06.2019.

15.2.The said finding is fundamentally contrary to the settled

principles governing acceptance and counter-offer under Section 7 of the

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Indian Contract Act. Once the plaintiff had proposed a variation to the rider

clause, the original proposal could not be treated as accepted unless the

bank expressly or impliedly assented to such variation. In the absence of

such assent, no concluded contract incorporating the disputed rider clause

could have legally come into force Therefore, this Court is unable to concur

with the finding of the learned Judge that there was an implied acceptance

of the rider clause. Consequently, the finding of the learned Judge on this

aspect is liable to be set aside.

15.3.Furthermore, the learned Judge failed to appreciate that the

subsequent conduct of the parties clearly indicates an unequivocal

acceptance of the plaintiff's counter-proposal contained in the

communication dated 03.06.2019. Applying the principles of implied

acceptance and acceptance sub silentio, the conduct of the bank in

proceeding with the transaction without rejecting the plaintiff's stipulation

amounts to absolute assent to the modified terms proposed by the plaintiff.

Once the plaintiff had accepted the sanction memorandum subject to the

deletion or modification of the rider clause, the said communication legally

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constituted a counter-proposal. The subsequent acts of the bank, viewed in

their entirety, demonstrate a clear acceptance of such counter-proposal. In

such circumstances, the contractual relationship between the parties could

only be governed by the terms emerging from the counter-proposal and its

subsequent acceptance. Therefore, this Court is unable to agree that the rider

clause continued to form part of the contract between the parties. On the

contrary, the materials available on record indicate that the rider clause

stood superseded by the plaintiff's counter-proposal, which was accepted by

the bank through its conduct and silence coupled with subsequent

performance.

15.4.The learned counsel appearing for the Bank would contend that

the case is covered under Section 7(2) of the Indian Contract Act, 1872,

which provides that where a proposal does not prescribe the manner in

which it is to be accepted, the acceptance may be expressed in some usual

and reasonable manner. According to the learned counsel, it is the routine

practice of the Bank to grant renewal and ad hoc facilities on the same terms

and conditions that existed earlier, and therefore the rider clause contained

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in the sanction memorandum dated 06.05.2019 must be deemed to have

been accepted by the plaintiff.

15.5.This Court is unable to accept the said contention. Firstly, as

already discussed in the preceding paragraphs, the sanction memorandum

dated 06.05.2019 did not amount to a valid acceptance of the alleged rider

clause so as to constitute a concluded contract between the parties.

Secondly, except making a bald assertion that the subsequent credit facilities

were sanctioned on the same terms and conditions, the Bank has failed to

adduce any acceptable evidence to establish the existence of such a usual

and reasonable practice. On the contrary, the officials examined on behalf of

the Bank have categorically admitted in their evidence that the plaintiff had

not affixed his signature in any of the documents relating to the subsequent

ad hoc credit facilities or term loan transactions. No material has been

produced to show that the alleged condition was expressly carried forward

and accepted by the plaintiff on each subsequent occasion. In the absence of

any documentary evidence, this Court cannot presume the continuation of

such a condition merely on the basis of the Bank's bare assertion.

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15.6.Further, the records explicitly disclose that prior to the year

2018, no such condition was ever incorporated in any of the sanction

memoranda issued by the Bank. It is also relevant to note that another

financial institution, namely HDFC Bank, held a pari passu charge over the

assets along with Canara Bank. In such circumstances, the contention that

the alleged rider clause formed part of a usual and reasonable banking

practice, or that it stood automatically incorporated into the subsequent

transactions, is wholly unsustainable. Accordingly, the submission of the

learned counsel for the Bank that the case falls within the ambit of Section

7(2) of the Indian Contract Act is entirely misconceived.

16. Conclusion:

Accordingly, the Commercial Appellate Division stands allowed with

cost by setting aside the judgment and decree dated 05.11.2024 made in

O.S.No.148 of 2021 (Commercial Original Suit) on the file of the learned

Principal District Judge, Tirunelveli, and the plaintiff is entitled for decree

for the amount of Rs.46,75,422/- with interest at the rate of 7.5% from the

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date of plaint till the date of recovery.

[N.A.V, J.] & [K.K.R.K,J.]

23.06.2026.

NCC : Yes/No

Index : Yes/No

Internet : Yes/No

pal

To

1.The Principal District Judge,

Tirunelveli.

2.The Record Keeper,

Vernacular Section,

Madurai Bench of Madras High Court,

Madurai.

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Appeal (CAD) (MD).No.2 of 2025

N.ANAND VENKATESH, J.

and

K.K.RAMAKRISHNAN, J.

pal

PRE-DELIVERY JUDGMENT made in

Appeal (CAD) (MD).No.2 of 2025

Dated: 23.06.2026

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