THOMAS AND CO Vs. UCO BANK

JUDGEMENT

(1.) This appeal is preferred against the judgment and decree in O.S. No. 565 of 1993 on the file of the Sub Court, Ernakulam. Plaintiff in the suit is the UCO Bank. Defendants are the appellants. First defendant is the Firm engaged in marine products. Defendants 2 and 3 are partners of the Firm and defendants 4 and 5 are guarantors of the loan. The loan was granted for the purpose of constructing two mechanised fishing boats. The loan was granted after executing the loan agreement, hypothication deed, guarantee agreement and memorandum of title deeds evidencing creation of equitable mortgage of A schedule properties belonging to defendants 2 and 3 onwards. The boats and accessories described in the B schedule were also hypothecated to the plaintiff bank as collateral security. As per the loan agreement, defendants had agreed to repay the loan in 60 equal monthly instalments at the rate of Rs. 10,834/- for each boat commencing from February, 1991. Defendants further agreed to pay interest at the rate of 2.5% per annum over the RBI rate with minimum of 12.5% with quarterly rests at such rates as may be notified to borrower from time to time in the event of such default till payment and to pay 2% penal interest in case of default in the payment of any one instalment. The defendants further agreed to pay guarantee fee calculated at the rate of 1.5% per annum on the outstanding amount every year. On the above terms, the defendants availed of the loan. The defendants committed default in remitting the monthly instalments. Despite the repeated requests, defendants did not clear the liability. Hence, the suit was filed for the balance amount payable under the loan.

(2.) Defendants filed a joint written statement. The loan transaction was admitted. According to the defendants, the loan was applied under the refinance scheme of NABARD for agricultural loans. As against the loan application of Rs. 37.05 lakhs for the construction of 4 mechanised boats, the plaintiff sanctioned only Rs. 13 lakhs for two boats and out of the sanctioned loan amount of Rs. 13 lakhs, plaintiff disbursed only Rs. 6,43,196.98 for the first boat and Rs. 3,20,532/- for the second boat. Contrary to the agreement, the plaintiff delayed payment of loan amount for the construction of the second boat. The balance amount was not disbursed despite repeated requests, thereby defendants were considerably prejudiced. Several communications were sent to the plaintiff in this regard. But they did not respond. In the meanwhile, material and labour costs shot up considerably beyond the estimated limit. So, the defendants were constrained to raise funds from other sources by paying heavy interest and thus defendants suffered huge loss. It was further stated that the interest charged is high. The plaintiff is not entitled to charge penal interest. The defendant had repaid an amount of Rs. 44,300/-.

(3.) On the basis of the above pleadings, relevant issues were raised. So far as the loss suffered by the defendants on account of the nondisbursement of the entire amount, as stated by the defendants, the court below took the view that there was no evidence. Further, there was no counter claim and hence the court below answered the issue against the defendants. Regarding the grant of interest, it found that interest at the rate of 12.5% is reasonable. It also found that the defendants are liable to pay guarantee fee, as per the agreement. Thus, the suit was decreed for recovery of an amount of Rs. 14,85,692.63 with future interest at the rate of 12.5% per annum from the date of suit till realisation and cost of the suit by the sale of plaint AB schedule properties and from the defendants.