REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   7189 OF 2002   

Managing Director,  Maharashtra State Financial  Corporation & Ors.

— Appellants

VERSUS

Sanjay Shankarsa Mamarde — Respondent

J U D G M E N T

D.K. JAIN, J.:

1.Challenge  in  this  appeal,  filed  under  Section  23  of  the  

Consumer Protection Act,  1986 (for  short  “the Act”),  by the  

Maharashtra  State  Financial  Corporation  (hereinafter  

referred to as “the Corporation”), is to the final order, dated 7th  

January,  2002,  passed  by  the  National  Consumer  Disputes  

Redressal  Commission,  New  Delhi  (for  short  “the  

Commission”)  in  Original  Petition  No.  9  of  1995.   By  the  

impugned order, the Commission has accepted the complaint

preferred by the respondent (hereinafter referred to as “the  

complainant”)  against  the Corporation and has directed the  

Corporation  to  pay  to  the  complainant  an  amount  of  

Rs.4,84,457/- as compensation, within a period of two months  

from  the  date  of  the  order  and  in  case  of  default,  to  pay  

interest at the rate of 18% per annum from the date of order  

till actual payment.  

2.Succinctly put, the material facts giving rise to the present  

appeal are as follows:

The complainant approached the Corporation for sanction  

of  loan for his hotel  project  at Amravati.   As per the project  

report, the capital outlay was of Rs.74.45 lakhs.  The means of  

finance envisaged in the project report were as follows:

i) Proprietor’s capital : Rs.16.80 lakhs ii) Term loan from  

Corporation : Rs.30.00 lakhs

iii) Special Capital  Incentive from SICOM

: Rs.21.30 lakhs  

iv) Unsecured loans : Rs. 6.35 lakhs Total : Rs.74.45 lakhs

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3.The  Complainant’s  loan  proposal  was  approved  by  the  

Executive Committee of  the Corporation on 27th May, 1992,  

sanctioning  a term loan of  Rs.30  lakhs to  the complainant.  

Accordingly, a sanction letter along with terms and conditions  

of the loan was issued to the complainant on 2nd July, 1992.  

The material conditions of loan were as follows:

“(a) The loan shall be utilised exclusively for the project  

as  per  the  scheme  approved  by  MSFC  and  the  

specific purposes for which the same is sanctioned.

(b) The loan shall be disbursed by MSFC in one lump  

sum  or  in  instalments  as  and  when  the  said  

purposes are fulfilled or at the entire discretion of  

the Corporation or may be refused if in the opinion  

of  the Corporation,  the purpose  for  which the full  

loan has been sanctioned are not properly fulfilled.

(c) The loan will be disbursed either for acquisition of  

fixed  assets  under  the  said  scheme  or  for  

reimbursement  of  funds  utilised  for  acquisition  of  

fixed  assets  taken  for  security  under  the  said  

scheme.

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(d) A minimum margin of 55% over all on fixed assets  

shall be maintained during the currency of the loan.

(e) The loan shall be repaid within a period of 8 years  

by 13 half yearly instalments commencing from the  

end  of  2nd year  of  disbursement  of  the  first  

instalment  of  the  loan.   The  amount  of  each  

instalment repayable being about 1/13 of the amount  

sanctioned regardless of the amount disbursed.

(f) The interest  shall  be  charged @ 22% p.a.  and the  

same shall  be  payable  quarterly  on  the  total  loan  

and  the  same  shall  be  charged  from  the  date  of  

disbursement of first instalment of the loan.”

Additionally,  it  was  also  agreed  that  the  loan  amount  

would be disbursed depending on the progress of the work in  

accordance  with  a  set  time  schedule.  The  progress  of  the  

construction work was required to be evaluated by the valuer  

approved by the Corporation.   

4.The  said  conditions  were  accepted  by  the  complainant.  

Pursuant  to  complainant’s  request  vide  his  letter  dated  2nd  

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September, 1992, undertaking  to bring entire  100% capital;  

filing  his  banker’s  confirmation  for  grant  of  bridge  loan  

against subsidy i.e. (SCI) and load sanction letter from MSEB,  

before availing of the next disbursement, the first instalment  

of the loan of Rs.2,90,000/- was released by the Corporation to  

the complainant.  On the same day, the complainant issued a  

cheque in the sum of Rs.30,000/- towards up-front fees to the  

Corporation.   However,  the  said  cheque  of  Rs.30,000/-  was  

dishonoured  when  presented  for  payment.  By  their  letter  

dated  15th December,  1992,  the  Corporation  intimated  the  

complainant  that  despite  the  release  of  first  instalment  of  

Rs.2.90  lakhs,  he  had  neither  submitted  papers  for  further  

disbursements nor reported progress of  the project  and had  

also  failed  to  submit  Chartered  Accountant’s  certificate  

showing  his  investment.  Subsequently,  a  valuation  report  

dated  7th January  1993,   showing  that  a  total  amount  of  

Rs.6,97,057/-  (Rs.5,02,099/-  as  per  previous  valuation  +  

Rs.1,94,958/- as per present valuation)  had been spent on the  

construction  of  the  hotel  was  filed  by  the  complainant.  

According  to  the  Corporation,  despite  the  fact  that  the  

complainant had failed to submit complete documents, second  

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instalment of Rs.87,000/- was released to him on 19th January  

1993, after adjusting  therefrom the amount of interest due in  

terms of the conditions of loan.  

5.Vide  their  letter  dated  5th March,  1993,  the  Corporation  

requested the complainant to inform them about the progress  

of the project and avail the balance loan limit by submitting  

valuation report,  Chartered Accountant’s  certificate  towards  

further investment made by him for creation of fixed assets.  

According to the Corporation, since they had learnt that there  

was a proposal for laying a railway line between Amravati and  

Narkhed which was likely to affect the hotel project and the  

complainant had also defaulted in payment of interest despite  

repeated  requests  by  them  vide  their  letters  dated  10th  

December 1993 and 24th  February, 1994, they did not release  

further instalments of the loan sanctioned to the complainant.  

On  the  contrary,  the  stand   of  the  complainant  was  that  

although by June 1993,  he had spent Rs.27,25,510/-  but no  

evaluation was done by the valuer of the Corporation and all  

his request for release of further instalments fell on deaf ears.  

All the time, the Corporation insisted on a written assurance  

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from the railway authorities that the proposed Amravati and  

Narkhed railway line would not be passing through the hotel  

project site, before releasing the balance loan amount.   

6.Finally,  vide  their  letter  dated  5th September,  1994,  the  

Corporation informed the complainant that the entire balance  

unavailed  term loan  of  Rs.26.23  lakhs  had been treated  as  

cancelled.  The said intimation was followed by a legal notice  

dated 18th October, 1994 by the Advocate of the Corporation,  

wherein it was alleged that the complainant had failed to pay  

the interest on the amount already disbursed to him; as on  

31st March, 1994 he was in arrears by more than Rs.1 lakh as  

interest   and  he  had  also  failed  to  give  any  alternative  

proposal for the hotel project as the project at the existing site  

was likely to be affected by new railway track from Amravati  

to Narkhed.  The complainant was called upon to repay the  

entire  loan  amounting  to  Rs.5,19,726/-,  the  outstanding  

amount as on 23rd September,1994, within fifteen days from  

the date of receipt of the said notice.   

7.It appears from the impugned order that by his letter dated  

15th September 1994, the complainant protested to the recall  

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of loan sanctioned to him.  It is stated that the complainant  

pointed out that though a number of instalments of the loan  

had fallen due to be paid to the complainant, it was only as  

late as on 29th July, 1994, that he was asked to submit a letter  

from  the  competent  authority  regarding  the  status  of  the  

railway  line  and  that  he  promptly  submitted  a  certificate  

issued by the Commissioner, Amravati Division affirming that  

there was no proposal of Amravati – Narkhed line.   

8.Having  failed  to  get  any  favourable  response  from  the  

Corporation,  on 17th January  1995,  the complainant  filed  a  

complaint  with  the  Commission.   It  seems that  during  the  

pendency  of  the  complaint  before  the  Commission,  the  

Corporation retraced their steps and proposed to renew the  

loan on certain conditions, which were not acceptable to the  

complainant.   

9.As  already  stated,  the  Commission  has  accepted  the  

complaint and has come to the conclusion that there was no  

justifiable ground for the Corporation to deny disbursement of  

loan  to  the  complainant.   According  to  the  Commission,  

having  sanctioned  the  loan  and  then  stopping  its  

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disbursement  without  any  cause  amounted  to  deficiency  in  

service on the part of the Corporation.  However, keeping in  

mind  the  passage  of  time,  the  Commission  did  not  find  it  

expedient  to  direct  the  Corporation  to  release  further  

instalments  of  the  loan,  sanctioned  as  far  back  as  in  July  

1992.  

10.Being  aggrieved  by  the  award  of  compensation,  the  

Corporation has preferred this appeal.   

11.We have heard Mr. Santosh Paul, learned counsel appearing  

for  the  Corporation  and  Mr.  Manish  Pitale,  learned  counsel  

appearing for the complainant.  

12.Learned counsel  appearing for  the Corporation submitted  

that in the instant case there was no deficiency in service as  

defined  in Section 2(g) of the Act. The learned counsel argued  

that the Commission has exceeded its jurisdiction in examining  

the administrative decision of the Corporation to recall the loan  

as  it  felt  that  having  regard  to  the  past  conduct  of  the  

complainant  it was not  in the interest  of the Corporation to  

disburse  the  balance  amount  of  loan  to  him.  Relying on the  

decision of this Court in U.P. Financial Corporation & Ors. Vs.  

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Naini Oxygen & Acetylene Gas Ltd. & Anr.1, it was submitted  

that unless the action of the Corporation was held to be  mala  

fide,  even  a  wrong  decision  taken  by  it  was  not  open  to  

challenge  as  it  is  not  for  the  Courts  or  a  third  party  to  

substitute its decision,  however more prudent,  commercial  or  

businesslike  it  may  be,  for  the  decision  of  the  Corporation.  

Reliance was also placed on another decision of this Court in  

Haryana Financial Corporation & Anr. Vs. Jagdamba Oil Mills  

&  Anr.2,  to  contend  that  in  commercial  matters  the  Court  

should not risk their judgments for the judgments of the bodies  

to whom that task is assigned.  It was asserted that since the  

Corporation  was  of  a  bona  fide belief  that  the  entire  hotel  

project  of  the  complainant  may  get  affected  because  of  the  

proposed railway line and further there were defaults on the  

part  of  the  complainant  to  discharge  his  liability  towards  

quarterly  instalments  of  interest,  the  decision  of  the  

Corporation  not  to  disburse  further  instalments  cannot  be  

termed as mala fide or unreasonable and, therefore, there was  

no question of any deficiency in the service of the Corporation  

towards the complainant.  1 (1995) 2 SCC 754 2 (2002) 3 SCC 496

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13.Supporting  the  impugned  judgment,  learned  counsel  

appearing for the complainant, on the other hand,  submitted  

that in the absence of any stipulation in the conditions of loan  

for  stopping  the  disbursement  on  account  of  default  in  the  

payment of interest on time, the action of the Corporation in  

not releasing the remaining instalments on the stipulated dates  

not only affected the hotel project, it also caused a huge loss to  

the  complainant  as  he  was  deprived  of  the  special  capital  

incentive by SICOM.  It was argued that the non release of the  

instalments on the specious plea that there was a proposal for a  

railway  line  was  mala  fide inasmuch  as  there  was  no  such  

proposal.    

14.The short question arising for consideration is whether the  

Commission  was  correct  in  holding  that  there  has  been  

deficiency  in  service  provided  by  the  Corporation  to  the  

complainant on account of their failure  to release the balance  

loan amount?   

15. Clause  (o)  of  Section  2  of  the  Act  defines  “service”  to  

mean:-

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“service”  means  service  of  any  description  which is made available to potential users and  includes,  but not limited  to,  the provision of  facilities in connection with banking, financing  insurance,  transport,  processing,  supply  of  electrical or other energy, board or lodging or  both,  housing  construction,  entertainment,  amusement or the purveying of news or other  information,  but  does  not  include  the  rendering  of  any  service  free  of  charge  or  under a contract of personal service;”

The use of the words ‘any’ and ‘potential’ in the context these  

have been used in clause (o)  indicates  that  the width of  the  

clause is very wide and extends to any or all actual or potential  

users. The legislature has expanded the meaning of the word  

further by extending it to every such facilities as are available  

to  a  consumer  in  connection  with  banking,  financing  etc.  

Undoubtedly, when the bank or financial institutions advance  

loans, they do render ‘service’ within the meaning of the clause.  

In that behalf, there is no dispute.   

16. “Deficiency”  under  clause  (g)  of  Section  2  of  the  Act  

means:-

“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  

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undertaken to  be  performed  by a  person in  pursuance   of  a  contract  or  otherwise  in  relation to any service;”

It is manifest from the language employed in the clause that  

its scope is also very wide but no single test as decisive in the  

determination of the extent of fault, imperfection, nature and  

manner of performance etc. required to be maintained can be  

laid down.  It must depend on the facts of the particular case,  

having regard to the nature of the ‘service’ to be provided.  

17. Therefore, in so far as the present case is concerned, in  

order to examine whether there was a deficiency in service by  

the Corporation, it has to be seen if there was any inadequacy  

in the quality, nature and manner of performance which was  

required to be maintained by the Corporation in terms of their  

letter dated 2nd July, 1992, conveying the sanction of loan to the  

complainant.  As noted above, the Corporation was obliged to  

disburse  to  the  complainant  a  loan  of  Rs.30  lakhs  in  

instalments on complainant’s furnishing the progress report of  

the project.  Although, no specific information with regard to  

the  actual  dates  for  release  of  the  instalments  of  the  loan  

amount  are  forthcoming,  yet  it  can  be  gathered  from  the  

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correspondence  on  record   that  the  loan  amount   was  to  be  

disbursed periodically (perhaps half yearly), on the basis of the  

report of the approved valuer on the progress of the project.  It  

is evident from Corporation’s letters dated 5th March, 1993, 10th  

December, 1993, 24th February, 1994 and 29th July, 1994 that  

the complainant not only failed to furnish the progress report,  

he  also  did  not  discharge  his  liability  towards  interest,  as  

demanded from him from time to time.  As already stated, even  

the  cheque  in  the  sum  of  Rs.30,000/-   issued   by  the  

complainant   to  the  Corporation  on  2nd September,  1992  

towards up-front fee was returned unpaid  by his bankers.  In  

Corporation’s letter dated 24th February, 1994  it was alleged  

that  the complainant had not only failed to  pay interest, it was  

also found on inspection on couple  of occasions by the  Regional  

Manager that during the last four months there was no further  

progress in implementation of the project. It is significant that  

these  allegations  and  details  of  interest  due  from  the  

complainant  had  not  been  seriously  disputed  by  the  

complainant  either  before  the  Commission  or  in  the  counter  

affidavit filed by him in this appeal.  In the background of the  

factual scenario as emerging from the material on record, we  

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are convinced that there was  no  shortcoming  or inadequacy in  

the service  on the part of the  Corporation in performing its  

duty or discharging its obligations under the loan agreement.  

The  Corporation  was  constrained  not  to  release  the  balance  

instalments and recall the loan on account of stated defaults on  

the  part  of  the  complainant  himself.   Non  release  of  loan  

amount was not because of any deficiency on the part of the  

Corporation but due to complainant’s conduct and  therefore,  

the failure of the Corporation to render ‘service’  could not be  

held to give rise to claim for recovery of any amount under the  

Act.

18. We  also  find  substance  in  the  contention  of  learned  

counsel for the Corporation that unless the action of a financial  

institution  is  found  to  be  mala  fide,  even  a  wrong  decision  

taken  by  it  is  not  open  to  challenge,  as  the  wisdom  of  a  

particular decision is normally to be left to the body authorized  

to  decide.  In  U.P.  Financial  Corporation  &  Ors.  Vs.  Naini  

Oxygen & Acetylene Gas Ltd. & Anr. (supra) this Court had  

observed that a Corporation being an independent autonomous  

statutory body having its own constitution and rules to abide  

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by, and functions and obligations to discharge, in the discharge  

of its functions, it is free to act according to its own right.  The  

views it forms and the decisions it takes would be on the basis  

of the information in its possession and the advice it receives  

and according to its own perspective and calculation.  In such a  

situation, more so in commercial matters, the court should not  

risk their judgments for the judgments of the bodies to which  

that task is assigned.  It was held that: (SCC p. 761, para 21)

“Unless its action is mala fide, even a wrong decision  taken by it is not open to challenge.  It is not for the  courts  or  a  third  party  to  substitute  its  decision,  however more prudent,  commercial  or businesslike it  may be,  for  the decision of  the Corporation.   Hence,  whatever the wisdom (or the lack of it) of the conduct of  the  Corporation,  the  same  cannot  be  assailed  for  making the Corporation liable”.

19.  Having  considered  the  matter  in  the  light  of  the  

correspondence  exchanged  between  the  Corporation  and  the  

complainant, we have no hesitation in holding that there has  

not  been  any  deficiency  in  the  service  the  Corporation  was  

required  to  provide  to  the  complainant.  In  our  opinion,  the  

Commission  was  not  correct  in  coming  to  the  aforestated  

conclusion.   We are  of  the  view that  the  complainant  being  

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himself a defaulter right  from  inception of his dealing with the  

Corporation, when his cheque in the sum of    Rs. 30,000/- got  

dishonoured,  coupled  with  persistent  defaults  in  discharging  

his  liability  to  the  Corporation  towards   interest,  despite  

repeated demands, he cannot be permitted to  plead at the later  

stage that he suffered on account of deficiency in service by the  

Corporation  because  of  non-disbursement  of  balance  

instalments of loan  by them.  As was observed by this Court in  

Jagdamba  Oil  Mills  (supra),  while  not  insisting  upon  the  

borrower to honour the commitments undertaken by him, the  

Corporation  alone  cannot  be  shackled  hand  and  foot  in  the  

name of fairness.  Fairness cannot be a one-way street.  Where  

the  borrower  has  no  genuine  intention  to  repay  and  adopts  

pretexts and ploys to avoid payment like in the present case, he  

cannot make the grievance that the Corporation was not acting  

fairly, even if requisite procedures have been followed.  

20. For the foregoing reasons, we allow the appeal; set aside  

the order passed by the Commission and dismiss the complaint  

filed by the complainant.  Amount deposited in terms of order  

dated 19th July, 2004 shall be released to the Corporation on  

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maturity of the fixed deposit. There shall, however, be no order  

as to costs.  

……………………………. J.

(D.K. JAIN)

                              …………………………….J.  (H.L. DATTU)

NEW DELHI; JULY 9, 2010.

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