Case Note & Summary
The petitioner, Canara Bank, a body corporate constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, filed a writ petition challenging an order dated 10th September 2013 passed by the Debt Recovery Appellate Tribunal (DRAT). The bank sought a declaration that it is entitled to commission at the rate of 3% of the value of guarantees issued by it in favour of the Prothonotary and Senior Master at the request of M/s. Shah Thakur and Sons. The respondents included the DRAT, M/s. Manish Estate Private Limited (respondent No.2), M/s. Shah Diagnostics Institute Private Limited (respondent No.3), and individual guarantors (respondent Nos.4 to 7). Respondent No.2 was the owner of an immovable property in Mumbai, which was mortgaged with the petitioner as security for repayment of facilities sanctioned to respondent No.3, a sister concern of respondent No.2. The legal issue was whether the bank is entitled to commission on guarantees issued to the court. The petitioner argued that as per standard banking practice and its terms, it is entitled to 3% commission. The respondents contended that the guarantees were issued in favour of the court and no commission was agreed upon. The court analyzed the terms of the guarantees and held that the bank is entitled to commission as per its standard terms. The court reasoned that the bank's right to commission arises from the contract of guarantee and the fact that the guarantee was issued in favour of a court does not extinguish that right. The court allowed the petition, set aside the DRAT order, and declared that the petitioner is entitled to commission at 3% on the value of the guarantees.
Headnote
A) Banking Law - Commission on Guarantees - Entitlement to Commission - Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 - The petitioner bank issued guarantees in favour of the Prothonotary and Senior Master at the request of its customer. The bank claimed commission at 3% as per its standard terms. The Debt Recovery Appellate Tribunal denied the claim. The High Court held that the bank is entitled to commission as per its standard terms and the tribunal erred in denying it. (Paras 1-10) B) Banking Law - Guarantee Commission - Standard Terms and Conditions - The court held that when a bank issues a guarantee at the request of a customer, it is entitled to charge commission as per its standard terms. The fact that the guarantee was issued in favour of a court does not alter the bank's right to commission. (Paras 5-8) C) Banking Law - Debt Recovery Appellate Tribunal - Jurisdiction - The court held that the Debt Recovery Appellate Tribunal has jurisdiction to decide disputes regarding commission on guarantees issued by banks. However, the tribunal must correctly apply the law and cannot deny a legitimate claim without proper reasoning. (Paras 3-4)
Issue of Consideration
Whether the petitioner bank is entitled to commission at the rate of 3% on the value of guarantees issued by it in favour of the Prothonotary and Senior Master at the request of M/s. Shah Thakur and Sons.
Final Decision
The petition is allowed. The order dated 10th September 2013 passed by the Debt Recovery Appellate Tribunal is set aside. It is declared that the petitioner is entitled to commission at the rate of 3% of the value of the guarantees issued by it in favour of the Prothonotary and Senior Master at the request of M/s. Shah Thakur and Sons.
Law Points
- Bank's right to commission on guarantees
- Interpretation of guarantee terms
- Jurisdiction of Debt Recovery Appellate Tribunal
- Applicability of Banking Companies (Acquisition and Transfer of Undertakings) Act
- 1970
