LexSTATE BANK OF PATIALA AND ANR. versus HARBANS SINGH
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STATE BANK OF PATIALA AND ANR. A v. HARBANS SINGH FEBRUARY 14, 1994 [K. RAMASWAMY AND B.L. HANSARIA, JJ.) B Banking Services-'Tenn Loan' for construction of building with a con- -< dition to lease to the lending bank-Rate of interest-Also quarterly rest-Directions by Reserve Bank of India-Held: Loan not for commercial purpose-+Ience no quarterly rest pennissible-fnterest only at the rate of 15%. c Words & Phrases: 'Tenn Loan'-Meaning of-In the context of Banking services. The respondent landlord obtained loan from the appellant bank and D constructed a building for the business of the appellant. The interest + charged was 16% per annum with quarterly rests thereon. The respondent filed a suit challenging the liability, and the trial court reduced the rate of interest to ~5% per annum and also set aside the liability of quarterly rest. On appeal, the same was confirmed. 'The second appeal preferred by the bank having been dismissed in limine by the High Court, the bank E preferred the present appeal. On behalf of the appellants, it was contended that the word 'term loan' would include not only the loan advanced for commercial pnrposes, but also the loans advanced to landlords for construction of building to lease back to the lending bank for their commercial purpose, which loan F carried liability to pay interest at quarterly rest. Dismissing the appeal, this Court HELD: 1. In view of the directions by the Reserve Bank of India issued G to all banks on 18.4.1991 there is no liability of the landlord, who had talq:n loan for constructing the premises and leasing back to the bank for com- ~ mercial purpose, to pay interest at more than 15% and he need not pay interest at quarterly rest. The letter of Reserve Bank dated March 13,1976 also indicates that the obligation to pay quarterly rest was not with refer- ence to the loans taken by the landlords for construction of the premises but H 933 934 SUPREME COURT REPORTS [1994) 1 S.C.R. A for commercial purpose. The word 'term loan' was used for the commercial purpose and it did not include the loan advanced to the landlords for ........ construction of the buildings. 'Term loan' would mean the loan advanced for commercial purposes and not the loans given to the landlords for construction of the buildings to lease back for the use by the bank itself. It B was not so intended would be clear from para 1 (ii) of the letter dated 18.4.1991 relied on by the bank. It would indicate that in respect to commer- cial loans, they appear to ha\'e intended to charge quarterly rest. The Reserve Bank at nowhere indicated that the term loans given to the landlords for construction of the buildings to lease back to the commercial ").. banks should be intended to be charged with interest with quarterly rest. On c the other hand, they ha\'e reduced sufficiently from time to time even the lending rate of interest in favour of landlords/lessors. [937-E-H; 938-A] 2. No doubt the Head Office while addressing the letter to the Manager of the appellant bank had referred to the rate of interest at 15% D per annum plus interest tax with quarterly rest. But in the light of the direction given by the Reserve Bank which the commercial banks are bound to follow and the bank itself adopted that policy a reduced the rate of ..._ interest, the liability to pay quarterly rest is obviously illegal. [938-B, C] CIVIL APPELLATE ~RISDICTION: Civil Appeal No. 1690 of E 1994. From the Judgment and Order dated 28.5.93 of the Punjab & Haryana in R.S.A. No. 1165 of 1993. S.P. Goyal and Mrs. Amita Gupta for the Appellants. + F M.S. Gujral and S.K. Bandopadhyay for the Respondent. The following Order of the Court was delivered: 1. Leave granted. This appeal arises against the order of the High G Court of Punjab & Haryana in Second Appeal No. 1165/93 dated May 28, 1993 dismissing the appeal of the appellant in limine. The respondent is the landlord who obtained loan from the appellant and constructed a building for the business of the appellant in ground floor of the premises ~ bearing No. 55 at Tripurari Sadan, Patiala. The appellant charged interest @ 16% per annum with quarterly rests thereon. Impugning the liability. H the respondent laid the suit and the trial court reduced the rate of interest r + STATE BANK OF PA TIALA v. HARBANS SINGH 935 to 15% p.a. and also set aside the liability of quarterly rest. On appeal it A was confirm
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