NDLI: Canara Bank Vs. P.r.n. Upadhyaya and Ors.

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Banking Regulation Act 35 and 35A 1949-Section 21
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Act(s) Referred	Banking Regulation Act (10 of 1949)
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Allowed
Headnote	Banking Regulation Act, 1949-Section 21, 35-Circulars issued by Reserve Bank of India-Held, Statutory in nature and required to be complied with by the banks.S.35A-Banking Ombudsman-Appointed by virtue of the scheme framed under the section-Duties-Held, to regulate the working of the banks and to issue directions to carry out the circular and directions issued by the Reserve Bank of India.Words & Phrases-Term Loan-Meaning of in the context of banking law and practice.The appellant-bank sanctioned loans of Rs. 80,000 on 12.1.1980, Rs. 25,000 on 21.2.1986 and Rs. 2,00,000 on 22.2.1991 in favour of respondent no. 3 for construction of strong rooms which were to be taken on lease by the appellant after construction/renovation. In respect of loans granted on 12.1.1980, 21.2.1986 and 22.2.1991, respondent no. 3 executed Demand Promissory Notes undertaking to pay interest at the rate of 5% above the Reserve Bank of India rate of interest with minimum rate of interest @ 14% per annum compounded quarterly, 7.5% above the R.B.I. rate of interest with minimum rate of interest @ 17.5% per annum compounded quarterly and 7.5% above the R.B.I. rate of interest with minimum rate of interest @ 17.5% per annum compounded quarterly, respectively. The two loans granted in the.year 1988 and 1986 were, after payment, closed in 1988 and 1989 respectively. Interest in respect of those loans was debited at the contractual rate with quarterly rests. The appellant - bank also debited interest with quarterly rests in respect of the loan of Rs. two lacs and irrespective of the higher contractual rate of interest, the bank debited interest only at the rate of 15% per annum in view of its Head Office Circular no. 379/90 and no. 90/91. Respondent nos. 2 to 5 filed a complaint before the Banking Ombudsman in August, 1996 assailing the action of the appellant - bank in charging interest at the contractual - rate with quarterly rests in respect of the loans granted in the year 1980 and 1986 and also for debiting interest with quarterly rests in respect of the loans granted in 1991. The respondents sought a direction from the Banking Ombudsman to the appellant - bank to recast the interest debited in all the loan accounts by debiting interest at simple rate and to adjust the excess amount charged by way of higher interest to the loan account granted in 1991 and to pay the balance amount, if any, to the respondents. The contention of the appellant - bank before the Banking Ombudsman was that its action was based on various circulars issued by the Reserve Bank of India from time to time including the circulars dated 1.4.1981, 7.3.1986 and 17.5.1994. The Banking Ombudsman relying upon the judgment in State Bank of Patiala v. HarbanS Singh, [1994] 3 SCC 495 allowed the complaint of respondent nos. 2 to 5 and directed the appellant - bank to recast the two loan accounts for the year 1980 and 1986 which stood closed in 1988 and 1989 respectively. The Banking Ombudsman held that (i) the loans granted by banks to their landlords for construction/renovation of premises which the banks take on lease or rent later on, cannot be termed as "Term Loans", and (ii) interest could not be charged by the banks in respect of such loans at quarterly rests and that the appellant bank could only charge simple interest at the rate of not more than 15% in respect of the loan granted to a landlord. Against the aforesaid award dated 26.2.1997 made by the Bank Ombudsman the appellant - bank has filed this appeal. The contention of the appellant - bank was that communications dated March 13, 1976, April 1, 1991, April 18, 1991 and March 7, 1986 issued by Reserve Bank of India clearly indicate that the loans advanced by banks to landlords for construction/renovation of premises to be taken by the banks for its use on lease/rent were required to be treated as "Term Loans" and the banks were entitled to charge interest at the minimum rate of 15% per annum compounded with quarterly rests.
Judge	Honble Dr. Justice A.S. Anand
Neutral Citation	1998 INSC 319
Petitioner	Canara Bank
Respondent	P.r.n. Upadhyaya And Ors.
SCR	[1998] Supp. (1) S.C.R. 93
Judgement Date	1998-08-25
Case Number	4286

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