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Judgment
THE complainant - M/s. Global Granimarmo Ltd."secured a loan in Italian currency LIT 506,400,000 whose then rupee equivalent was Rs. 49.90 lakhs in 1987 from the Opp. Party No.1 Rajasthan State Industrial Development & Investment Corporation Ltd. (RIICO)"for import of granite processing machinery from Italy.
UNDER this scheme of Foreign Currency Assistance of the I.D.B.I, such foreign currency loans are refinanced by the I.D.B.I. in terms of convertible foreign exchange " In this case it was refinanced with US $ 3,66,990.22 and Japanese Yen 5,990,459. Under the scheme of Foreign Currency Assistance, the borrowers are also entitled to book forward contracts through the I.D.B.I, on roll over basis so as to obtain forward cover against the exchange risks. Consequently, the complainant applied on 7th April, 1989 to the Opposite Party No. 1"R.I.I.CO."for conversion of the loan in Indian rupees by way of forward booking against exchange rate fluctuation. The rupee equivalent of the foreign currency loan in 1989 amounted to Rs. 49.94 lakhs only. The Complainant moved the Opposite Party R.I.I.CO"on 7th April, 1989 for conversion of the loan in Indian rupees and hedging/forward booking against exchange rate fluctuations. There was delay in processing this application for conversion arranging forward cover for nearly two years and by this time the rupee had depreciated in terms of US $ and Japanese Yen and consequently the rupee equivalent of the foreign currency loan had gone up by over 50 lakhs as would be evident from the data given in the table below:
WE find that there is merit in the contention of the complainant that hedging was one of the devices to be adopted in the loan transaction as per the policy of the I.D.B.I. and the Central Government, and it was obligatory on the part of the Opposite Party No.1"R.I.I.C.O. to secure hedging of the complainant''s loan as early as possible. It is a part of the bank''s service to provide hedging of loans against exchange fluctuations if the borrowers so desire. The banking, policies permit such forward cover being granted or obtained, especially when there is a provision for refinancing of the loan by the I.D.B.I. According to the complainant he is not only paying interest on the loan obtained from the R.I.I.C.O but also service charges for the loan and as such he had paid consideration for the rupee to be rendered by HUGO.
AN increase in the rupee equivalent of the loan liability by Rs. 50 lakhs was bound to affect adversely the financial viability of the granite project and as such it was in the interests of the Opposite Party"R.I.I.C.O."itself to protect the borrower against such an increase in the loan liability by securing forward cover against foreign exchange fluctuation. We find from a perusal of the reply of the Opposite Party"R.I.I.C.O."to the complaint petition as well as from the pleadings at the hearing and from the written submission of the parties that the attitude of the R.I.I.C.O. towards obtaining foreign exchange cover was indifferent and apathetic. When it was pointed out to the Counsel for the R.I.I.C.O. that it was in its own interest also to ensure that the loan liability of the borrower did not go up because of rupee depreciation and that this did not affect adversely the financial viability of the borrowers as this will, in turn adversely affect repayment oft he loan to R.I.I.C.O., the reaction of the Counsel for the R.I.I.C.O. did not exhibit any anxiety or concern to avoid any increase in the loan liability of the borrower as a result of the currency depreciation. In its written submission also the Opposite Party"R.I.I.C.O."has maintained that it had no obligation even to guide the borrower whether it would be desirable for him to obtain forward cover against exchange risks disregarding, its own self interest in such a hedging. We, therefore, hold that there has been deficiency in service on the part of the Opposite Party R.I.I.C.O. towards its client M/s. Global Granimarmo Ltd."and that the loan liability had gone up by over Rs. 50 lakhs because of delay in arranging forward foreign exchange cover. The rate of interest charged by R.I.I.C.O. on the loan granted by it to the complainant has not been clearly specified in the paper book but it appears to be 24% simple interest. The R.I.I.C.O. is, therefore, liable to compensate the Complainant by a sum of Rs. 50,07,609/-the avoidable increase in the principal amount on account of depreciation of the rupee " with interest at the same rate which it is charging the borrower till the date of the payment of the compensation of Rs. 50.07 lakhs. The complaint is allowed as above. There is no order as to costs.