REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2774 OF 2010 (Arising out of SLP(C) No. 16323 of 2006)

The Chairman-cum-Managing Director, Rajasthan Financial Corporation and Anr.                 ……….Appellants

Versus

Commander S.C. Jain (Retd.) & Anr.                          .……..Respondents

O R D E R

H.L. DATTU, J.

   The petitioner has sought leave to appeal against the order  

passed  by  the  National   Consumer  Disputes  Rederessal  

Commission,  New  Delhi  (for  short  `National  Commission’)  

wherein  and  whereunder  it  has  directed  the  appellant  to  pay  

compensation to the tune of Rs.1,50,000/- along with interest at the  

rate of 12 per cent from the date of filing of petition in favour of  

the respondent.  Leave granted.

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    FACTS:

2)         The Respondent  had applied for loan on 03.03.1990 to the  

Rajasthan Financial Corporation (in short `Corporation’) for  setting  

up  a  manufacturing  unit  of  plastic  doors,  windows  etc.  The  

Corporation after considering the request made, had sanctioned term  

loan  of  Rs.18,000/-  for  machinery  and  also  Rs.1,26,000/-  as  the  

working capital limit for the said business. As per the sanction letter,  

the Corporation was to provide only 75 per cent of the purchase price  

to the respondent and the remaining share, i.e., 25 per cent was to be  

contributed by the respondent. The sanction letter also provided that if  

the concern has purchased machinery in accordance with the scheme  

and full payment has been made, 90 per cent of the admissible amount  

of  loan  will  be  released  on  the  basis  of  the  statement  of  account  

prescribed for the purpose, duly supported by bills and receipts and  

balance after valuation of machines. The period of repayment of the  

loan was eight years in quarterly installments.  The first installment  

was to be due on the first day of 18th month reckoned from the date of  

first disbursement of loan against fixed assets. Further as per the terms  

of  the  sanction  letter  one  of  the  important  terms  was  that  the  

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machinery should be purchased from authorized dealer and of Wolf  

make or from M/s Rally India Ltd.

3)           On  29.06.1990,  the  respondent  requested  the  appellant  

-Corporation for more time to complete the formalities of submitting  

the loan documents in order to enable the appellant to disburse the  

loan amount. The loan document was, however, executed in favour of  

the appellant on 05.07.1990. The appellant -Corporation requested the  

respondent to submit bills and receipts of plant and machinery as well  

as  raw  material  so  that  the  parties  could  proceed  with  the  loan  

agreement. Thereafter, in a short period, the bills were submitted and  

it was apparent from the bills submitted that the name of the firm in  

whose favour the bills were originally issued was struck off and the  

respondent firm’s name was inserted in its place. Thus the appellant -  

Corporation asked the respondent to submit correct bills.

4)           Thereafter on 26.07.1990, the respondent again submitted the  

bills in the name of Kailash Udhyog and not in the name of his own  

business, i.e., Fauji Kutir Udhyog. The appellant - Corporation was  

forced to dishonor the bills as the name indicated in them were not as  

per the requirement and new bills were asked to be submitted.  Later,  

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on 04.05.1991 the respondent submitted a bill of Nita Udyogic Vastu  

Bhandar Private Limited dated 21.08.1989 for a sum of Rs.10,200/-  

representing the purchase price of drill machine etc., prior to the date  

of  sanction  of  the  loan  and  its  disbursement.  Another  bill  of  

Rs.17,800/- dated 29.12.1989 which represented saw machines with  

two  HP  motors  with  accessories  etc.  was  also  submitted.  Due  to  

repeated submission of wrong bills by the respondent, the appellant  

addressed  a  letter  to  the  respondent  stating  that  the  bills  were  

unacceptable  for  two reasons,  firstly,  Nita  Udyogic  Vastu  Bhandar  

Private Limited is a family concern and the respondent is in gainful  

employment in the concern. Secondly, Nita Udyogic Vastu Bhandar  

Private Limited is not an authorized dealer for Wolf make machine or  

M/s rally India Ltd. The appellant also informed that the machines  

were  old  as  per  the  internal  checkup  done  by  the  appellant  -  

Corporation.  The  respondent  was  given  another  chance  as  the  

appellant informed the respondent that though the loan agreement was  

time  barred,  his  case  could  be  considered  favourably  only  if  he  

submits the bills from authorized dealer or manufacturer. The correct  

and  accurate  bills  were  to  be  submitted  within  one  month  from  

31.05.1991. The respondent submitted bills from the authorized dealer  

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of  Wolf  portable  machine,  i.e.,  Heerex  Corporation  amounting  to  

Rs.19,797.75/- against which a sum of Rs.2000/-, as advance was paid  

to the respondent. The respondent was, therefore, asked to submit a  

receipt  for Rs.3172.75 denoting his  contribution of  25 per  cent,  in  

order to avail the sum of Rs.14,625/-. In spite of such a request the  

respondent never submitted the receipt. The appellant - Corporation  

sent a cheque of Rs.14,625/- favouring the authorized dealer Heerex  

Corporation, to Fauji Kutir Udyog along with a request to send the  

receipt  to  the  Corporation  for  the  amount  so  paid.  An  additional  

request  was  also  made  as  regards  the  receipts  showing  the  

respondent’s  share  of  Rs.3172.75/-.  Another  correspondence  was  

addressed to the respondent requesting him to fulfill all other terms  

and conditions of the loan agreement, including a condition to create  

assets in the ratio of 1:1.10 as stipulated in Clause 5 of the Special  

Terms  and  Conditions  annexed  with  the  loan  agreement.  The  

respondent thereafter made a representation whereby he claimed that  

the Corporation was under liability to pay a sum of Rs.3,375/- as the  

balance amount of sanctioned loan by considering his earlier bill of  

Nita Udyog Vastu Bhandar Private Limited which was rejected by the  

appellant stating it to be untenable as the Nita Udyog Vastu Bhandar  

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was not an authorized dealer.  

5)           On  19.12.1991,  the  respondent  requested  the  appellant  

-Corporation for disbursement of the loan against the raw materials  

without submitting any supporting documents showing the details of  

the expenditure. The appellant - Corporation addressed two separate  

letters  dated  26.12.1991  and  02.11.1992  asking  the  respondent  to  

submit the details of the consumption of quantity of raw materials and  

the stock position update along with sales made.  

     PROCEEDINGS BEFORE THE CONSUMER FORUM:

6)           The respondent moved the District Consumer Commission with  

a  complaint  of  deficiency  of  service  and  also  prayed  for  the  

disbursement of Rs.3,375/-. The plea of the respondent was dismissed  

by  the  District  Consumer  Commission  on  the  principle  that  his  

application  is  not  maintainable  as  the  dispute  in  a  loan  agreement  

between the debtor and creditor does fall within the jurisdiction of the  

Consumer forum.  

7)           Due to the repeated failure on part of the respondent to submit  

the  details  of  the  material  purchased  and  consumed,  the  appellant  

finally cancelled the unavailed loan, on 08.09.1992 and informed the  

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same to respondent. The respondent replied to the said communication  

stating that he had already initiated the proceedings before the State  

Consumer Commission, Jaipur on 15.07.1992.  

8)           The State Commission allowed the appeal vide order dated  

12.12.1994 and remanded the matter back to the District Forum. The  

District forum dismissed the complaint on 02.12.1995 holding that the  

respondent  was unable  to show the details  of  the  purchased goods  

from authorized dealer and that M/s Nita Udyog Vastu Bhadar Private  

Limited  is  their  own  concern  which  was  closed  much  before  the  

issuance of the bill, thus failing to show that he was entitled to the  

sum of Rs.3,375/-.  Further, the appeal was entertained by the State  

Commission as the respondent sought to file certain documents. The  

matter  was  remanded back  to  the  District  Forum vide  order  dated  

21.03.2003. The District  Consumer  Forum dismissed the complaint  

along with costs vide order date 31.01.2004 stating that there was no  

deficiency in service as the bills presented by the respondent were of a  

firm which was non-existent.  

9)           The respondent being aggrieved by the order of the District  

forum, preferred appeal before the State Consumer Commission. The  

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State  Commission  refused  to  entertain  the  appeal  vide  order  date  

02.09.2004.  Thereafter,  the  review petition  filed  by  the  respondent  

was  also  rejected  by  the  State  Commission  vide  order  dated  

09.09.2004.

REVISION PETITION BEFORE THE NATIONAL CONSUMER DISPUTES  REDRESSAL COMMISSION:

10)           The respondent being aggrieved by the decision of the State  

Consumer  Commission  preferred  a  Revision  Petition  before  the  

National  Consumer  Disputes  Redressal  Commission.  The  National  

Commission considered revision on two counts. Firstly, as regards the  

non-release  of  the  balance  amount  of  Rs.3,375/-  as  against  the  

machinery  and secondly,  the non-release  of  the  balance amount of  

Rs.81,000/- from the sanctioned amount of Rs.1,26,000/- for working  

capital  limit.  As  regards  the  first  point,  the  National  Commission  

considered the contention of the appellant - Corporation whereby it  

was  stated  that  the  amount  of  Rs.3,375/-  was  not  released  as  the  

respondent did not comply with the terms spelled out in the letter of  

sanction. However, the National Commission concluded on this point  

that  there  was  no  specific  obligation  pointed  out  by  the  appellant  

-Corporation which is said to be left unfulfilled by the respondent. As  

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regards the second point, the National Commission cited a para from  

the letter dated May 04, 1991 addressed by the appellant - Corporation  

to the respondent whereby it  is pointed out that the bills submitted  

were not the correct one as they were issued in name of firm Kailash  

Udyog and the respondent had fraudulently replaced there name in the  

bills. Therefore, the National Commission observed that the appellant  

-Corporation “cannot be held to be deficient in rendering services” in  

the  said  loan  agreement.  Further,  it  is  important  to  note  that  the  

National Commission has specifically pointed out that the prayer in  

the original complaint was only for release of Rs. 3,375/- and only at a  

later stage, i.e., when the matter was remanded back to the District  

Forum by the State Commission vide order dated 21.03.2003, that the  

respondent  filed  another  complaint  with  regard  to  the  amount  for  

working  capital  thereby  seeking  direction  to  release  the  sum  of  

Rs.81,000/-.  Further, the peculiar observation made by the National  

Commission  is  that  the  respondent  have  claimed  compensation  

“without any corresponding profit and loss statement or any affidavit  

in support of such a demand”.

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11)           However, the National Commission has directed the appellant -  

Corporation to pay compensation of Rs.1,50,000/- with interest at the  

rate of 12 per cent from the date of filling of complaint. The cost is  

also awarded to the tune of Rs 10,000/-.

APPEAL FROM THE DECISION OF THE NATIONAL CONSUMER DISPUTES  REDRESSAL COMMISSION:

12)           The appellant - Corporation has sought appeal on the ground  

that the National Commission has erred in awarding the compensation  

with  interest,  inspite  of  holding  that  there  was  no  deficiency  in  

rendering the service to the respondent. It is also contended by the  

appellant  -  Corporation  that  they  have  fully  discharged  obligation  

under the loan agreement and there was nothing outstanding for which  

it could be held responsible and, in fact, it is the respondent who had  

failed  to  carry  out  its  obligation  as  they  had  repeatedly  submitted  

incorrect and fraudulent receipts.  

13)           It is pertinent to mention that the appellant - Corporation had  

repeatedly requested the respondent to submit the bills of the purchase  

of the machinery of Wolf make, or from M/s Rally India Ltd. in order  

to  disburse  the  amount  sanctioned for  the  machinery  which  in  the  

‘Sanction Letter’  dated 3.3.1990 appears  to be        “Rs.18,000/-  

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against fixed assets”(Annexure P-1).  However, it is on record and is  

observed by the District Commission and State Commission that the  

respondent  has  constantly  submitted  wrong  receipts.   The  District  

Consumer Forum has observed in the order dated 31.01.2004 that the  

Nita Udyogic Vastu Bhandar (P) Ltd from whom the respondent claim  

to  have  purchased  the  machinery  and  the  bills  so  produced  dated  

29.12.1989 are clearly fraudulent as this concern stood closed since  

March 1989. This fact was reiterated by the State Commission in its  

order dated 02.09.2004. Therefore, we find no hesitation to conclude  

that National Commission failed to appreciate that the respondent had  

repeatedly acted fraudulently in providing the bills and receipts to the  

appellant - Corporation.  

14)           Secondly, the National Commission though has held that there  

is no deficiency in service as regards the disbursement of the balance  

loan amount of Rs.81,000/-, have gone ahead to award compensation  

to the tune of Rs.1,50,000/- with interest of 12 per cent.

15)           For deciding whether the respondent ought to be awarded  

compensation, it is important to consider the meaning of deficiency as  

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provided under section 1(g)  of  the  Consumer Protection  Act,  1986  

(hereinafter referred to as ‘the Act’):

(g)  "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  undertaken  to  be  performed  by  a   

person  in  pursuance  of  a  contract  or  otherwise  in  

relation to any service;

16)           Further, the Consumer Protection Act also provides that the  

important component of the complaint by the ‘consumer’ on the basis  

of  which  the  compensation  is  decided,  is  that  there  should  be  

‘deficiency’ in the service provided or goods sold to the concerned  

consumer. The definition of ‘complaint’ is provided under section 1(c)  

of the Act :

(c) "Complaint'' means any allegation in writing made  

by a complainant that-

(i)  An  unfair  trade  practice  or  a  restrictive  trade   

practice  has  been  adopted  by  any  trader  or  service   

provider;

(ii) The goods bought by him or agreed to be bought by   

him  suffer  from  one  or  more  defects;

(iii)  Service hired or availed of or agreed to be hired   

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or  availed  of  by  him suffer  from deficiency  in  any  

respect;

(iv) a trader or the service provider, as the case may  

be,  has  charged  for  the  goods  or  for  the  service  

mentioned  in  the  complaint,  a  price  in  excess  of  the   

price in excess of the price-

(a)  fixed  by  or  under  any  law for  the  time  being  in   

force;

(b) displayed on the goods or any package containing  

such goods;

(c) displayed on the price list exhibited by him by or   

under  any  law  for  the  time  being  in  force;

(d) agreed between the parties;

(v)  goods which will  be hazardous to  life  and safety  

when used are being offered for sale to the public;-

(A) in contravention of any standards relating to safety   

of such goods as required to be complied with, by or   

under any law for the time being in force;

(B) if the trader could have known with due diligence   

that the goods so offered are unsafe to the public;

(vi)  service  which  are  hazardous  or  likely  to  be   

hazardous to life and safety of the public when used,   

are being offered by the service provider which such   

person  could  have  known  with  due  diligence  to  be  

injurious to life and safety.

17)           It is also important to note the following provision of the Act:

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Section 14. FINDING OF THE DISTRICT FORUM.  

(1) If, after the proceeding conducted under section 13,   

the  District  Forum  is  satisfied  that  the  goods   

complained  against  suffer  from  any  of  the  defects   

specified in the complaint or that any of the allegations   

contained  in  the  complaint  about  the  services  are  

proved,  it  shall  issue an  order  to  the  opposite  party   

directing him to do one or more of the following things,   

namely :-

(a) to remove the defect pointed out by the appropriate   

laboratory  from  the  goods  in  question;   

(b)  to  replace  the  goods  with  new  goods  of  similar   

description which shall be free from any defect;  

(c)  to return to the complainant the price, or,  as the   

case  may be,  the  charges  paid  by  the  complainant;   

(d)  to pay such amount as may be awarded by it  as   

compensation to the consumer for  any loss or injury   

suffered by the consumer due to the negligence of the   

opposite party;

(e) to remove the defects or deficiencies in the services   

in question;  

(f)  to  discontinue  the  unfair  trade  practice  or  the   

restrictive trade practice or not to repeat them;

(g) not to offer the hazardous goods for sale;  

(h)  to  withdraw  the  hazardous  goods  from  being   

offered for sale;  

(i) to provide for adequate costs to parties.

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18)           Thus, it is clear that the Act has provided provision for  

correcting the shortcomings in the service or goods provided by  

way  of  awarding  compensation  or  other  means  specified  in  the  

provision above mentioned only when the Consumer Forum comes  

to the conclusion that there is ‘deficiency’ in service provided or  

goods sold. The loss suffered by the respondent for the reason of  

not being able to start the unit cannot be the basis for awarding the  

compensation specifically when the respondent was at fault for the  

non release of the balance loan amount. Therefore, when there is  

no deficiency found on the part of the appellant - Corporation, it  

cannot be asked to pay compensation.  

19)             In the light of the above discussion, the impugned order  

cannot  be  sustained.   Accordingly,  it  is  set  aside.   Appeal  is  

allowed.  No order as to costs.  

                                                                                                             .. …………………………J.

                                                                        [ P. SATHASIVAM ]

                                                                       ….…………………………J.                                                                           [ H.L. DATTU ]

New Delhi, March 26, 2010.

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