Standard Chartered Bank v. Chitra Utsav Video Pvt. Ltd.

What happened

The bank issued an indicative term sheet on 23 May 2012 for a Rs. 270 million facility with a processing fee of 1 per cent plus service tax, and the borrower the same day handed over a cheque for Rs. 13,50,000 with a covering letter calling it a mobilisation fee refundable after deducting expenses if the loan was not approved. A facility letter dated 20 July 2012 sanctioned Rs. 255 million, and clause 5 made the processing fee payable upfront and non-refundable. The borrower's board resolved on 7 August 2012 and its signatory accepted the letter on 8 August 2012, after raising concerns by emails of 26 and 31 July 2012. Disbursement was ready by 29 August 2012 but was held up because the borrower did not supply three letters from Syndicate Bank. On 10 September 2012 it asked for a refund, which the bank refused on 12 September 2012; a further Rs. 3,00,000 was paid in May 2013 through a group company, making Rs. 16,50,000. The trial court decreed the suit with 9 per cent interest to the decree and 6 per cent after. The respondent stopped appearing in 2024 and was heard ex parte.

Questions before the court

• Is the borrower entitled to a refund of the processing fee when the sanctioned loan was not disbursed?

Why the court ruled this way

The borrower accepted the facility letter with full knowledge of clause 5 after deliberating in its board and after the disclosure of the terms it now complained of, so its plea of acceptance in good faith before hidden lacunae failed (paragraphs 55 to 60). Oral assurances are barred by sections 91 and 92 of the Indian Evidence Act and by Bharathi Knitting Co. and Roop Kumar v. Mohan Thedani, and the witness admitted that no document showed any agreement to refund (paragraphs 61 to 66). The covering letter of 23 May 2012 was never exhibited or proved, it came about two months before the facility letter, and the borrower's own emails never referred to it, so it merged into the facility letter; the further payment of May 2013 confirmed the processing fee (paragraphs 67 to 76). The conditions precedent were the borrower's obligation and the trial court's finding on them was not challenged, so the maxim that no one may take advantage of his own wrong applied; Bank of India v. Brindavan Agro Industries supports retention of appraisal charges (paragraphs 77 to 90). The RBI circulars deal with disclosure where an application is not accepted, here the application was accepted and the 2015 circular came later (paragraphs 91 to 96).

Controlling point

The processing fee was non-refundable under clause 5 of the accepted facility letter, and the borrower, having failed the conditions precedent, could not claim it back.

Order and next steps

The appeal was allowed, the judgment and decree dated 31 July 2020 were set aside and the suit was dismissed; pending applications were disposed of.

Practical implications

A borrower disputing a bank's non-refundable processing fee should show a proved, binding term that makes it refundable; an earlier cover letter or oral assurance will not displace a signed facility letter.

Limits of this ruling

• The Court decided on a disclosed fee, an accepted facility letter and the borrower's own failure on the conditions precedent, in a case heard ex parte; it did not hold that a bank may keep a fee that was not disclosed or where the bank itself rejected the application.