The Calcutta High Court has held that where a borrower obtains a loan from a bank for purchase of machinery from a supplier chosen by the borrower, the borrower’s obligation to repay the loan to the bank arises from the borrower-lender contract and is not defeated by the supplier’s alleged failure to supply the machinery, unless the bank had undertaken responsibility for such supply or acted in breach of a statutory or contractual obligation.
Further, the Court clarified that when the alleged non-supply is disputed and turns on contested facts such as delivery and authenticity of signature on challans, those issues cannot be adjudicated in writ jurisdiction under Article 226 and must be pursued through appropriate legal proceedings against the supplier.
A Single Judge Bench of Justice Ajay Kumar Gupta found that the loan of Rs. 4.39 lakhs had been sanctioned for setting up the rolling mill and that the machines were hypothecated to the Bank. It observed that the Bank was only a lender of the loan amount and had issued the cheque in favour of the supplier on the basis of the petitioner’s own request and quotation. The Bench noted that the petitioner had written to several authorities regarding non-supply but had not informed the private respondent no. 6 accordingly, while the delivery challan on record reflected her signature acknowledging receipt of the remaining machinery.
The Bench held that the agreement was between borrower and lender, and that the Bank could not be made responsible for alleged non-supply of machinery by the supplier as per the quotation furnished by the petitioner. If the supplier had failed to deliver, the petitioner could take steps against the supplier in accordance with law, but could not avoid repayment of the loan and accrued interest on that basis.
The Bench further observed that the real dispute was a commercial dispute between the petitioner and the private respondent supplier, and that the foundational issue whether the diesel oil engine had actually been supplied was a seriously disputed question of fact, especially because the respondents relied on a delivery challan allegedly signed by the petitioner while the petitioner alleged forgery.
The Bench expressly found no arbitrariness or illegality in the Bank’s actions, since the Bank had merely sanctioned and disbursed the loan in terms of the quotation and request furnished by the petitioner. It therefore, rejected the petitioner’s contention that repayment liability should not arise because of the supplier’s alleged default, holding that liability to repay a loan arises from the contract between borrower and lender and is not contingent on performance by a third party unless specifically provided otherwise.
Briefly, the petitioner applied for financial assistance to establish a bell metal rolling mill at Buglidih, Purulia, in the name of M/s United Re-Rolling Mills under a rural employment scheme routed through the District Industries Centre, Purulia. The project was approved and based on the quotation submitted by the petitioner for machinery, the West Bengal State Cooperative Agriculture and Rural Development Bank issued an account payee cheque for Rs. 4.39 lakhs in favour of the private respondent, Jagannath Engineering, for supply of machinery to the petitioner.
The machinery listed in the judgment comprised: (i) sheet rolling mill with accessories, (ii) circle cutting machine with complete parts, and (iii) diesel oil engine with complete standard accessories. The petitioner’s case was that only the first two items valued at Rs. 2.92 lakhs were supplied, that they were defective, and that the diesel oil engine was never delivered.
The District Industries Centre requested the supplier to supply the due machine/parts, and the petitioner also approached the Bank. On 23 August 2006, the Bank Manager requested the supplier to supply the diesel oil engine. The Bank later informed the that if the unit was not installed, it would be compelled to recover the loan, since the cheque had already been issued in favour of the supplier on the basis of the petitioner’s own request and quotation.
The petitioner contended that because the remaining machinery had not been supplied, she could not start the mill and therefore was not liable to repay the loan amount or interest. The Bank’s defence was that the petitioner had chosen the supplier, submitted the quotation herself, and requested issuance of the delivery order; the Bank was only financing the machinery purchase.
Appearances:
Advocates Gokul Chandra Chakraborty and Aditya Shit, for the Petitioner
Advocate Malay Kumar Roy, for the Respondent no.3
Advocates Sukumar Bhattacharyya, Subhangi Bhattacharyya, and Piyali Show, for the Respondent no.6
