VIVEK AUTOMOBILES LTD. Vs. LORD KRISHNA BANK LTD.

JUDGEMENT

(1.) THERE is hardly any dispute insofar as facts of the case are concerned. To understand the question of law raised by the appellant, the factual background, in nutshell, may first be noted:

(2.) THE appellant is a car dealer, who is having agency of Fiat cars. The respondent No. 2 herein wanted to purchase Fiat Palio. The respondent No. 1 is Lord Krishna Bank (hereinafter referred to as 'the Bank'). The respondent No. 2 approached the Bank for financing the said car. The car loan for a sum of Rs. 4,87,000/ - was sanctioned by the Bank on 15.5.2002, which was to carry interest @ 13.5% p.a. compounded monthly or such other rates as may be notified by the Bank from time - to -time. The respondent No. 2 was to add margin money of Rs. 1,21,844/ - as the total cost of the vehicle was Rs. 6,08,844/ -. The respondent No. 2 executed and delivered the loan and security documents in favor of the Bank, which included Vehicle Loan -cum -Hypothecation Agreement and demand draft, both dated 15.5.2002. The Bank prepared pay order dated 15.5.2002 for a sum of Rs. 4,87,000/ - in the name of the appellant herein. This pay order accompanied letter dated 15.5.2002 addressed to the appellant informing that the respondent No. 2 was financed by the Bank and accordingly request was made to the appellant to endorse the lien/hypothecation of the Bank in the records of the appellant, i.e. invoice, registration certificate, etc. Form -34 for recording the lien/hypothecation of the Bank for necessary action and compliance was also enclosed. The appellant vide its letter dated 15.5.2002 acknowledged the receipt of the pay order as well as the aforesaid documents. The appellant was, thus, required to furnish and submit the registration particulars of the vehicle to the Bank after its purchase by the respondent No. 2, as per the terms and conditions of the loan agreement. Loan was to be repaid in 48 monthly Installments of Rs. 13,186/ - p.m. and interest was payable as and when due. When the Bank did not receive monthly Installments, as agreed, after the first Installment, it wrote letters dated 1.7.2002 and 18.7.2002 to the appellant asking them not to deliver the car to the respondent No. 2 without obtaining the prior consent/NOC from the Bank and also requested for refund of the amount, i.e. Rs. 4,87,000/ -. In response, the appellant wrote letter dated 1.8.2002 to the respondent No. 2, with a copy to the Bank, informing that the respondent No. 2 had not taken the delivery of the car but had withdrawn/taken away amount of Rs. 4,00,000/ - out of Rs. 4,87,000/ - and left behind a sum of Rs. 87,000/ - with the appellant. The Bank, in these circumstances, filed a suit for recovery of the amount impleading the buyer as the defendant No. l and the appellant as the defendant No. 2. Decree in the sum of Rs. 4,87,000/ - with interest i.e. for a total sum of Rs. 5,54,445/ - was prayed against both the defendants jointly and severally with costs along with interest compounded quarterly from 15.5.2002 till the date of filing of the suit. The decree of mandatory injunction was also prayed directing the appellant to refund/release the amount of Rs. 87,000/ -, which was still lying with it, along with interest.

(3.) THE appellant has filed this appeal challenging the said judgment and decree. Here also, the respondent No. 2 has not appeared and is proceeded ex parte. The defense set up by the appellant in the Trial Court, which was pressed in the appeal also, is that the appellant has no privity of contract with the Bank. It is the respondent No. 2 who had come to the appellant for purchase of car and had deposited the pay order in question and when the respondent No. 2 expressed his intention not to buy the car at that time and wanted his money back, the appellant had no option but to refund the amount to the respondent No. 2. It was submitted that the appellant had no knowledge as to whether the car in question was financed by the Bank and the deal was materialised between the appellant and the respondent No. 2 and the Bank was nowhere in the picture. The submission of the appellant, in these circumstances, is that there was neither any action nor legal obligation on the part of the appellant to refund the money to the Bank. It was contended that the Bank acted in contravention of the RBI directives 'Know Your Customer -KYC', which came into force with effect from 11.9.2000 as per which it ought to have intimated to the appellant that it was financing the purchase of the car by the respondent No. 2. It was alleged that if the Bank did not verify the antecedents of the customer and proceeded to sanction the loan, it was the Bank which was to be blamed for its negligence and the consequent loss suffered by it. The remedy of the Bank, in these circumstances, was against the respondent No. ' 2 and there was no reason to fasten the appellant with this liability, that too when the loss was suffered by the Bank due to its negligence and failure. It was, thus, submitted that the judgment of the Trial Court passing decree against the appellant as well was clearly erroneous and unsustainable in law. Learned Counsel for the appellant, in addition, also submitted that no official of the Bank approached or came to the appellant for delivering the pay order in question and had not at all offered the papers to the respondent No. 2 even as per its own case. It was further submitted that on this pay order there was no endorsement or indication that it was towards the loan granted to the respondent No. 2 for purchase of the car and in the absence of any such endorsement the appellant could not have imagined that the car was being financed by the Bank.