2) To be referred to the Reporters or not? Yes/No
3) Whether judgment should be reported in the Digest Yes/No Present:- For the appellants : Sh.ADS Sukhija, Advocate for Ms.R.K. Sukhija, Advocate For the respondent : Sh.Munish Bhardwaj, Advocate JUSTICE PARAMJEET SINGH DHALIWAL, PRESIDENT The instant appeal has been filed by the appellants- opposite parties (in short OPs), against the order dated 24.01.2020 passed by District Consumer Disputes Redressal Forum, Ferozepur (now District Commission) (hereinafter referred as, the District First Appeal No.170 of 2020 Commission), whereby the complaint of the complainant was allowed in the following terms:-
9. In view of what has been discussed above, the present complaint is allowed with Rs.5,000/- as consolidated compensation for mental agony, pain and harassment as well as litigation expenses. The opposite parties are directed to refund Rs.1,01,115/- as charged by them as foreclosure charges alongwith interest @9% per annum from the date of its payment till its realization. This order is directed to be complied with within a period of thirty days from the date of receipt of its copy
2. It would be apposite to mention that hereinafter the parties will be referred, as have been arrayed before the District Forum. Facts of the complaint
3. Complainant preferred Consumer Complaint under the Consumer Protection Act against the OPs before the District Commission claiming the refund of Rs.1,01,115/- from OP No.1 alongwith interest @18% p.a. and compensation of Rs.20,000/- for mental agony, pain and harassment and Rs.11,000/- as litigation charges. Brief facts for disposal of the present appeal are that the complainant got a limit with OP No.1 and was issued loan account No. 13459000000046 in his name. Thereafter OP No.1 transferred the said loan account to OP No.2 i.e. earlier it was at Faridkot Branch and lateron it was changed to Ferozepur City Branch and the complainant was directed to deal with OP No.2. It has been pleaded First Appeal No.170 of 2020 that as per the directions of OP No.1, the complainant started dealing with OP No.2 and followed the instructions as issued by OPs No.1&2. Thereafter, the complainant deposited the entire amount by way of repayment of loan and when NOC and original documents were demanded by the complainant, the OPs told that they will charge extra amount @4% as foreclosure charges on the principal outstanding amount of Rs.85,691/- alongwith GST @18% i.e. Rs.15,424/- totaling Rs.1,01,115/-. It was told that NOC will be issued only if the needful will be done. The complainant deposited the said amount under pressure and only thereafter, OPs issued NOC certificate i.e. after clearance of the loan amount by depositing aforesaid foreclosure charges. As per Clause (g) of the agreement, the consumer is not liable to pay prepayment of fixed rate loans where the loan amount is upto Rs.50 Lac without levying any prepayment penalty. Inspite of this fact, 4% foreclosure charges alongwith GST has been charged illegally and arbitrarily by the OPs and this is factually a pressurizing tact on the part of OPs. The complainant demanded refund of the same from the OPs but they refused to refund the same. Charging of such an amount is unfair trade practice and deficiency in service on the part of OPs and the consumer complaint was filed seeking relief as aforesaid.
4. In response to the notice, OPs filed their joint written statement taking preliminary objections that the complaint is false, frivolous and vexatious. Ram Paul Bajaj, Mr. Rohin Bajaj, Ms. Veena Rani and M/s Ram Pal & Sons through its proprietor had applied for loan of Rs.26,00,000/- by submitting loan application with the OPs on First Appeal No.170 of 2020 the terms and conditions mentioned therein. It was a business loan, disbursed to the complainant firm on deposit of various documents but infact it is a sole proprietorship firm. As per the loan agreement, all the terms and conditions of the loan agreement are binding on the parties. OPs have rightly and legally charged foreclosure charges and GST as per Clause 24(A) of the sanction letter. It is clearly mentioned in the agreement that prepayment within three years after 12 months from the date of full disbursement of loan, the foreclosure charges plus the applicable service tax are levied and will be treated as outstanding including any part prepayment made in the financial year. If the loan amount is repaid within 3 years, after 12 months of the disbursement of loan, the foreclosure charges would be 4% of the outstanding amount alongwith applicable service tax etc. Accordingly, the OPs Bank had claimed the said amount as foreclosure charges. Loan was agreed to be repaid in 120 equal monthly installments of Rs.37,302/- commencing from 04.07.2017. The complainant has paid the amount before the dates fixed for the repayment of loan, as such, the Bank had also suffered a loss. It is pleaded that there is no deficiency in service on their part and OPs acted as per the terms of the loan agreement and denying all other allegations of the complaint prayed that the complaint deserves to be dismissed with costs. Evidence tendered by the parties
5. The complainant tendered in evidence his own affidavit Ex.C-1 and documents i.e. NOC dated 4.5.2019 Ex.C-2, Cancellation Certificate dt. 4.5.2019 Ex. C-3, letter regarding foreclosure charges dt. 24.04.2019 Ex. C-4, Account details Exs.C-5 to C-7, Code of First Appeal No.170 of 2020 Banks Commitment to Micro ad Small Enterprises Ex.C-8. On the other hand, OPs tendered in evidence affidavit of Amandeep Dhawan, Branch Manager as Ex.OPs-1 and documents i.e. list of documents Ex.OPs-2, letter of sanction of Business Loan dated 18.5.2017 Ex.OPs-3, Business Loan Agreement Ex.OPs-4, Declartion-cum-Undertaking Ex.OPs-5, copy of Aadhar Card Ex.OPs-
6 and NOC letter dated 04.05.2019 Ex.OPs-7. Findings of the District Forum
6. Learned District Forum, after going through the same and hearing learned counsel on their behalf, allowed the complaint, as stated above. Hence, this appeal by the OPs. Contentions of the Applicant
7. I have heard learned counsel for the parties and have carefully gone through the records of the case as well as written arguments filed by the learned counsel for both the parties.
8. Learned counsel for the appellants/OPs vehemently contended that the OPs proceeded as per the loan agreement and charged the foreclosure charges as well as applicable service tax but the District Commission has wrongly discussed the provisions of Code of Banks Commitment of Micro and Small Enterprises - August, 2015, and did not discuss as to how it was applicable in the case in hand, because the complainant would not fall within the definition of an enterprise as given in Section 2(e) of The Micro Small and Medium Enterprises Development Act, 2006 and only is doing the work of retail sale of vegetables. It is further averred that this is not a fixed rate of interest loan as is clear from the loan agreement as well First Appeal No.170 of 2020 as sanction letter, rather it was a business loan, which falls within the definition of commercial.
9. On the other hand, learned counsel for the respondent/complainant contended that the complainant had cleared the loan well in advance and demanded NOC as well as original documents from the OPs, but OPs illegally charged 4% foreclosure charges on the principal outstanding amount as well as GST @18% on the said amount, which the complainant paid under pressure and thereafter, NOC letter was issued to the complainant. It is further contended that the District Commission has rightly passed the order by applying the provisions of Code of Banks Commitment to Micro and Small Enterprises and the stand of the OPs that the business of the complainant does not qualify to be included within the scope of Enterprises is not tenable because Enterprise means an industrial undertaking or a business concern or any other establishment by whatever name called, engaged in the manufacture or production of goods in any manner pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951) or engaged in providing or rendering any service or services and as the complainant is engaged in the business of providing service of supplying vegetables, therefore, the case of the complainant falls within above definition. He has further contended that as the loan of the complainant is below Rs.50 Lac, therefore, complainant is entitled to repay the loan amount without levying any prepaying penalty on it. First Appeal No.170 of 2020
10. I have given my thoughtful consideration to the contentions raised by the learned counsel for the parties.
11. It is an admitted case that the complainant had taken a business loan and had been paying the installments regularly to the OPs. Thereafter, the complainant intended to pay the entire loan amount and the same was paid by him to the OPs. However, when NOC and other documents were demanded by him, OP No.2 directed the complainant to pay an additional amount of Rs.85,691/- as foreclosure charges @4% on the principal outstanding amount and Rs.15,424/- as GST @18%, totaling Rs.1,01,115/-, only then NOC will be issued.
12. The only question which needs to be determined is that whether foreclosure charges as charged by the OPs on account of the fact that the loan amount has been paid in advance are payable by the complainant or not?
13. It is an admitted fact that the loan of the complainant is less than Rs.50 Lacs i.e. Rs.26,00,000/-. It is also an admitted fact that there was no default in repayment of installments. Only fault of the complainant is that he is making the entire payment well in advance. It needs to be noticed that Banks are waiving the loan of lacs of rupees of the persons, who are not even paying the installments of loan and rescheduling the loan account as per their convenience and the person who is regularly paying the installments and making repayment of the balance loan amount, is burdened with penalty of foreclosure charges i.e. 4% of the outstanding amount alongwith service tax (GST) @18%, which is apparently unfair trade First Appeal No.170 of 2020 practice on the part of OPs and is not sustainable in the eyes of law. So far as pre-payment/foreclosure charges are concerned, RBI has firstly issued Circular No. RBI/2011-12/589 DBOD No. Dir. BC. 107 / 13.03.00/2011-12 dated 5.6.2012 to all the Scheduled Commercial Banks under which it was decided that the bank will not be permitted to charge foreclosure charges/pre-payment penalties on Home Loans on floating interest rate basis and thereafter issued Circular No. RBI/2014-15/121 DNBS (PD).CC.No.399/03.10.42/ 2014-15 dated 14.7.2014 in which reference to letter/Circular No. DNBS (PD) CC No. 80/03.10.042/2005-06 dated 28.9.2006 has been given, in which it has been mentioned that as a measure of customer protection and also in order to bring in uniformity with regard to prepayment of various loans by borrowers of banks and NBFCs, it is advised that NBFCs shall not charge foreclosure charges/pre-payment penalties on all floating rate term loans sanctioned to individual borrowers with immediate effect. Learned counsel for the appellants could not rebut any of the abovesaid Circulars vide which Banks/NBFCs are restricted to charge pre-payment charges from the loanees. Law on the said subject also supports the contention of the respondent that Bank is not entitled to raise penalty on payment of loan amount in advance. In this regard, we find support from the judgment of the Calcutta High Court, which relates to the similar issue as in this case also proprietorship firm obtained the loan from the Bank of Baroda and in the said case question raised was whether sole proprietorship firm cannot be considered to be an individual borrower. After discussing the point, the Calcutta High Court held in the said W.P. First Appeal No.170 of 2020 No.5521 (W) of 2017 Devendra Surana Vs. Bank of Baroda & Ors., decided on 12.12.2018, that a natural person and sole proprietorship firm are the same legal entity as liability of the sole proprietorship firm is that of the natural person carrying on business under its name. The sole proprietorship firm of a natural person and the natural person owning the firm do not enjoy the benefit of being treated as separate legal entities. They are the one and the same legal entity.
14. Another question that loan in question is Business Loan and transaction is commercial in nature and complainant does not fall within the definition of consumer is also discussed in the abovesaid judgment. The relevant part of the judgment is reproduced as under:- Reserve Bank of India, when it is advising the banks, by its circular dated May 7, 2014, not to charge any foreclosure charges/prepayment penalties on all floating term loans sanctioned to individual borrowers, with immediate effect, it is not distinguishing between an individual borrower who has obtained the term loan for business exploitation or otherwise. Term loans are granted by banks, both for purchasing a home as also for commercial activities. There being no such distinction in the circular dated May 7, 2014, I am not minded to read the definition of 'consumer' as obtaining in the Consumer Protection Act, 1993 into such circular. They operate in different spheres.
15. In another part of the judgment, the Court has observed that the demand of foreclosure charges by the Banks is contrary to the circulars/instructions of the Reserve Bank of India and held as under:- First Appeal No.170 of 2020 In the facts of the present case, the petitioner having foreclosed the credit facilities enjoyed by the petitioner from the respondent no. 1 in October 2016, such foreclosure is governed by the circular dated May 7, 2014 issued by Reserve Bank of India. With effect from May 7, 2014 therefore, the respondent no.1 is not entitled to charge any foreclosure charges/prepayment penalties on floating rate term loan sanctioned to individual borrower such as the petitioner. The foreclosure happening subsequent to the circular dated May 7, 2014, the demand of the respondent no. 1 for foreclosure charges/prepayment penalties, is contrary to such circular, and therefore is without any basis. As noted above, by virtue of the interim order dated March 17, 2017, the respondent no. 1 deposited a sum of Rs. 13.35 lakhs with the respondent no. 1 as security for the prepayment charges and for issuance of the 'no due' certificate. The interim order dated March 17, 2017 put the respondent no.
1 upon notice that, should the decision of the respondent no. 1 to charge prepayment penalties found incorrect upon final hearing of the writ petition, interest as charged in respect of the credit card defaults, would be directed to be paid in respect of the deposit made in terms of such order until the refund thereof. Attention of the Court has not been drawn to any order of the Court modifying such order. In such circumstances, the respondent no. 1 having been found not to be entitled to the prepayment charges and having received the sum of Rs. 13.35 lakhs in terms of the interim order dated March 17, 2017, the respondent no. 1 will proceed to refund the sum of Rs. 13.35 lakhs received from the petitioner, along with interest, calculated at the rate at which interest is calculated for credit card defaults, commencing from the date of receipt of the sum of Rs. 13.35 lakhs from the petitioner, till the date of refund thereof to the petitioner. First Appeal No.170 of 2020 Since the direction is for refund of money, the petitioner, amongst other reliefs, is at liberty to execute this order as a decree of the Court. W.P. No. 5521 (W) of 2017 is disposed of accordingly.
16. Further even the RBI guidelines also states that if the loan is of small amount and not comes in the larger scale loan even then part-payment charges cannot be imposed upon the borrower.
17. It also needs to be noticed that firstly the Banks allure the customers by providing loan at lower interest rate and once the loan has been disbursed to the customer, borrower/customer has no option but to bow down to the cheating clutches of the Bank because of pre-payment/foreclosure penalty imposed by the Bank i.e. unfair trade practice and restrictive trade practice of the Bank. Fact regarding pre-payment charges was suppressed by the Banks when the loan was sanctioned to the complainant/customer and no proper information was provided to the borrower/customer at the time of completing the loan advance formalities. In case any agreement has been executed between the parties by way of mis-representation and terms and conditions have not been made to understand to the borrower then those are not applicable. In this regard, a reference can be made to judgment of the Honble Supreme Court reported as M/s Modern Insulator Ltd. versus Oriental Insurance Co. Ltd., I (2000) CPJ 1.
18. Another point, which needs consideration is that how much amount the Bank earns from pre-payment penalties? In this regard, it is observed that different banks charge different rate of interest against pre-payment charges i.e. between 1-2% to higher First Appeal No.170 of 2020 rates and in the present case, the appellants-Bank demands 4% as pre-payment charges on the principal outstanding amount alongwith GST @18%. This act of the appellants put adverse effect on the borrower and a restriction has been imposed upon the borrower barring him to pay the loan amount in advance and this condition creates a barrier in the way of the borrower for early closer of the loan and to relieve him from the burden of interest as on if he has money to repay the loan amount.
19. The appellants-Bank has indulged in restrictive trade practice as per Section 2(1)(nnn) of the Consumer Protection Act, 1986, which means a trade practice which tends to bring about manipulation of price or its conditions of delivery or to affect flow of supplies in the market relating to goods or services in such a manner as to impose on the consumers unjustified costs or restrictions.
20. In the present time, when the number of options are available to the customers to avail the services of Banks, then it is important that the Banks should provide fair deals to the customers and also provide consistent and accurate information regarding the agreement/contracts. Customer mobility and choice is essential to stimulate retail-banking competition but, here, consumers are tied to their bankers due to the existence of pre-payment penalty charge. There appears to be no financial calculation to establish that prepayment charge of 4% is reasonable and justified as the concept of 'time value for money' is not recognized by these Bank.
21. It is evident that banks are unreasonably charging foreclosure amount as the consumer is bound to pay more first in First Appeal No.170 of 2020 terms of interest portion in the initial months of the payments and later he is made to pay in terms of pre-payment charges, if he decides to foreclose; for better options. As this practice is fleecing the consumers and also it is not generating any economic value to the development and restricting the consumer to exercise the right of freedom to choose other Bank for the loan.
22. Since all Banks are imposing prepayment penalty, it indicates of a concerted action leading to suspicion of cartelization. In fact, many Banks have already admitted that this practice is being adopted by them to stop their customers to switch over from one Bank to another when he has an option to avail the loan at reducing rate of interest. Customers were prevented from significantly reducing their property debts.
23. When spare money is available with the borrower, paying off loan amount early often is a good choice.
24. The contention of the learned counsel for the appellants that the logic behind penalty of pre-payment charges, is that they need to charge the holding cost of funds. Suppose a person pays- back the entire loan amount to the bank, they will have to hold this returned money for some time before they can invest it elsewhere and fetch a return on that investment. I am not inclined to accept this contention of the appellants as customers remain in the queue of the Banks to get the loan, if the banks are providing the loan at reasonable rate of interest, they can easily get the customers to avail the loan and even otherwise, only for this reason consumer cannot be burdened with unreasonable term of the contract. First Appeal No.170 of 2020
25. The consumers main goal at the time of taking the loan is that he make himself debt free from the said loan at the earliest and for that he tries to repay the loan amount as early as possible from his sources.
26. In view of the above discussion, I am of the view that the District Commission has rightly directed the opposite parties (appellants) to refund the amount of Rs.1,01,115/- charged by them as foreclosure charges to the complainant alongwith interest @9% per annum from the date of its payment till its realization alongwith Rs.5,000/- as consolidated compensation for mental agony, pain, harassment and litigation expenses. I do not find any merit in the appeal filed by the appellants, hence, the same is dismissed. Costs are made easy.
27. The appellants had deposited a sum of Rs.25,000/- at the time of filing of the appeal. This amount, along with interest which has accrued thereon, if any, shall be remitted by the Registry to the District Commission forthwith. The complainant may approach the District Commission for the release of the above amount and the District Commission may pass the appropriate order in this regard after the expiry of limitation period in accordance with law. (JUSTICE PARAMJEET SINGH DHALIWAL) PRESIDENT November 02, 2020. First Appeal No.170 of 2020