STIPULATED PRE-PAYMENT CHARGES APPLY TO CREDIT FACILITIES CONTINUED BEYOND EXPIRY OF ORIGINAL SANCTION LETTER

The Appellant, an MSME rice trading firm, availed a credit facility from the Respondent Bank via a sanction letter dated 13.11.2019, which officially expired a year later.

Despite the expiration and absence of a formal renewal, the Appellant continued utilizing the facility until March 2021, when it sought to transfer the account to another bank.

The Respondent deducted pre-payment and non-compliance charges totaling approximately Rs. 7.68 lakhs as a condition for releasing collateral.

The Appellant sued for recovery, alleging the charges were unauthorized after the sanction letter's expiration.

The Commercial Court granted a partial summary judgment under Order XIII-A CPC, dismissing the claim specifically regarding the pre-payment charges of Rs. 4,01,200.

The Appellant challenged this dismissal via the present appeal.

1. Whether the terms of an expired sanction letter continue to govern a credit facility if the borrower continues to utilize said facility without a formal renewal.

2. Whether the Trial Court was justified in granting a summary judgment for a portion of the claim while leaving other triable issues for a full-fledged trial.

3. Whether the Appellant had a real prospect of succeeding in its claim for the refund of pre-payment charges.

Order XIII-A of the Code of Civil Procedure (CPC), as amended by the Commercial Courts Act, 2015, which allows for summary judgment if a party has "no real prospect" of succeeding and there is no other compelling reason for a trial.

The court relied on the precedent of Reliance Eminent Trading and Commercial Private Limited v. Delhi Development Authority, which defines summary judgment as an exceptional mechanism for cases where a trial would serve no useful purpose and claims are "fanciful or speculative".

Contract law principles regarding the conduct of parties and the subsistence of terms in an ongoing commercial relationship.

The court reasoned that while the formal term of the sanction letter had ended, the continued use of the credit facility by the Appellant constituted a subsistence of the contractual relationship under the original terms.

The court found that the pre-payment clause in the sanction letter was explicit, stipulating charges if the facility was taken over by another institution.

Since the Appellant admitted to moving the facility to another bank, the "pre-payment" condition was triggered.

The court rejected the argument that because non-compliance charges were deemed a "triable issue," pre-payment charges must also be tried; it clarified that these are distinct, independent claims.

Furthermore, the court noted that the Appellant failed to provide any evidence, such as RBI circulars, to support its claim that such charges were legally prohibited.

The High Court dismissed the appeal and upheld the Trial Court's order.

The court affirmed that summary judgment is appropriate when the controversy rests on undisputed facts or clear questions of law that do not require oral evidence.

All pending applications were disposed of.