M/S Raja Fat & Feeds PVT LTD And Anr vs. Axis Bank LTD And Ors

Held

The Court held that the pre-disbursement conditions No. 5 and 6 were not merely procedural but were imposed for commercial expediency. Condition No. 5 aimed to ensure all business transactions were routed through the respondent-bank, and Condition No. 6 was to facilitate this by requiring the closure of accounts with other banks. The Court rejected the petitioners' argument that disbursement waived these conditions, stating that the agreement was a commercial transaction where both parties agreed to the terms, and one cannot selectively adhere to advantageous terms while repudiating disadvantageous ones, citing the principle of 'qui approbat non reprobat' from New Bihar Biri Leaves Co. v. State of Bihar. The Court clarified that Clause 6 provided a reasonable period (until 31.12.2015) for closure, and the penalty in Clause 7 applied for the period of default beyond this date. The Court also noted that the Banking Ombudsman had already reduced the penalty. Therefore, no interference was warranted under Article 226. The Court dismissed the writ petition but directed the bank to release the title deeds upon payment of penal charges and GST.

Facts

The petitioners, M/s Raja Fat & Feeds Pvt. Ltd. and another, filed a writ petition challenging an order dated 18.10.2017 by Axis Bank Ltd. imposing a penalty of 2% per annum for non-compliance with pre-disbursement conditions. They also challenged an order dated 09.04.2018 by the Banking Ombudsman, which reduced the penalty to 1% per annum. The petitioners sought the release of mortgaged industrial property documents. The credit facilities of Rs. 495.59 lakhs each were sanctioned on 27.07.2015, with renewal until 2017-18. The grievance stemmed from the alleged violation of pre-disbursement conditions No. 5 (routing all business transactions through Axis Bank) and No. 6 (closing current accounts with other banks by 31.12.2015).

Key Issues

1. Whether pre-disbursement conditions No. 5 and 6, agreed upon by the parties for availing cash credit facilities, were merely procedural and could be waived by the bank upon disbursement of funds? 2. Whether the imposition of a penalty under Clause 7 for non-compliance with conditions 5 and 6 was justified, even if the credit amount was disbursed? Petitioner's arguments: The petitioners contended that pre-disbursement conditions No. 5 and 6 were purely procedural and not meant to be implemented after the credit amount was disbursed. They argued that by disbursing the credit, the bank had waived these conditions. Revenue/State's arguments: The judgment does not record specific arguments from the respondents (Axis Bank, Banking Ombudsman, RBI) beyond the court's own analysis of the conditions and the reliance on the Supreme Court's decision in New Bihar Biri Leaves Co. v. State of Bihar.