Delhi High Court Sets Aside Refund Order For Non-Refundable Processing Fee In Undisbursed Loan Case

The Delhi High Court has held that a borrower who has accepted a facility letter expressly stipulating that the processing fee is non-refundable cannot subsequently seek its refund merely because the loan was never disbursed, particularly where the disbursal failed due to the borrower's inability to satisfy the conditions precedent.

Justice Neena Bansal Krishna allowed an appeal filed by Standard Chartered Bank and set aside the trial court's decree directing the bank to refund the processing fee along with interest to a borrower who had sought a commercial loan facility.

“In the present case, the Appellant/Defendant Bank conducted its due diligence, obtained its internal credit approvals, sanctioned the facility for Rs. 255 million, executed the loan documents, and was ready to disburse by 29.08.2012 as recorded in Ex. CW1/11. The mere fact that the disbursement of the principal amount could not be effected, for a reason attributable to the Respondent/Plaintiff, does not give rise to any failure of consideration for the Processing Fee,” the bench observed.

The dispute arose after the respondent approached the bank for a Lease Rental Discounting (LRD) facility against its commercial property in Gurugram.

Following appraisal of the proposal, the bank issued a Facility Letter sanctioning the loan subject to specified terms and conditions, including payment of a processing fee expressly described as "non-refundable."

The borrower accepted the Facility Letter, paid the stipulated processing fee and executed the loan documents.

However, the loan was ultimately not disbursed as the borrower failed to fulfil the conditions precedent required under the Facility Letter.

The borrower thereafter sought refund of the processing fee, contending that an earlier communication from the bank indicated that the amount would be refunded if the bank did not approve the transaction.

The trial court accepted the borrower's plea and directed a refund.

Challenging the decision, the bank argued before the High Court that the contractual relationship between the parties was governed by the subsequently accepted Facility Letter, which specifically provided that the processing fee was non-refundable.

Allowing the appeal, the High Court held that once the borrower voluntarily accepted the Facility Letter, its terms became binding and superseded all prior negotiations and communications.

As such, the Court allowed the bank's appeal and set aside the decree directing refund to the borrower.

For Appellant: Advocate Amol Sharma,