State Consumer Disputes Redressal Commission
Icici Home Finance Ltd. vs Sanjeev Sharma on 4 August, 2017
2nd Additional Bench
STATE CONSUMER DISPUTES REDRESSAL COMMISSION,
PUNJAB, CHANDIGARH
First Appeal No. 13 of 2017
Date of Institution : 09.01.2017
Date of Reserve : 26.07.2017
Date of Decision : 04.08.2017
1. ICICI Home Finance Company Limited, through its Branch
Manager, Ground Floor, SCF-12 & 13, Improvement Trust,
Shopping Area, Moga - 142 001
2. ICICI Bank Limited, through its Branch Manager, Ground
Floor, SCF-12 & 13, Improvement Trust, Shopping Area, Moga -
142 001
....Appellants/Ops
Versus
Sanjeev Sharma, aged 43 years s/o Sh. Rajinder Kumar s/o Sh.
Piare Lal r/o House No. 655, G.T. Road, Moga.
....Respondent/Complainant
First Appeal against the order dated
2.11.2016 of the District Consumer
Disputes Redressal Forum, Moga.
Quorum:-
Shri Gurcharan Singh Saran, Presiding Judicial Member.
Shri Rajinder Kumar Goyal, Member
Present:-
For the appellants : Sh. Sandeep Suri, Advocate
For the respondent : Sh. P.S. Dhaliwal, Advocate
First Appeal No. 13 of 2017 2
GURCHARAN SINGH SARAN, PRESIDING JUDICIAL MEMBER
ORDER
The appellants/Ops (hereinafter referred as OPs) have filed the present appeal against the order dated 2.11.2016 passed by the District Consumer Disputes Redressal Forum, Moga (hereinafter referred as the District Forum) in consumer complaint No. 115 dated 1.7.2016 vide which the complaint filed by the complainant was allowed and Ops were directed to overhaul the loan account of the complainant by charging interest as charged by Nationalised Bank as per the guidelines of RBI issued from time to time. Ops were further directed to pay Rs. 3,000/- as litigation expenses to the complainant. It was further ordered to comply with the order within a period of one month.
2. Complaint was filed by the complainant under the Consumer Protection Act, 1986 (in short 'the Act') against the Ops on the averments that complainant took a loan against property to the tune of Rs. 5,50,000/- from Op No. 1 vide loan agreement dated 30.6.2005 and was disbursed to the complainant on 16.8.2005 through Op No. 2. The amount was duly repayable by the complainant to Op No. 1 alongwith interest @ 9.75% per annum in 120 monthly installments from October, 2005 to September, 2015. Complainant got opened with Op No. 2 saving bank account No. 023701504329 and the repayment of the aforesaid loan was to be enrooted through this saving bank account. The complainant paid to Op No. 1 all the 120 monthly installments regularly w.e.f. October, 2005 to September, 2015. In First Appeal No. 13 of 2017 3 October, 2015 when the complainant approached Op No. 1 for obtaining No Due Certificate and original title deed. Instead of giving the documents, to the utter surprise and shock of the complainant, he was told by the concerned official that this aforesaid home loan account is still in subsistence and complainant was given repayment schedule in which the installments were increased from 120 to 222 i.e. upto March, 2024. This act of Op No. 1 is unilateral and detrimental to the economic interests of the complainant, which constituted deficiency in service. As per the regulations of the RBI and National Housing Companies, it is essential for Ops to inform the complainant before hand regarding any changes/modifications, which are required to be made in the facility availed. Time and again numbers of circulars have been issued by the RBI and National Housing Companies. It is necessary for the Ops to follow these guidelines. Alleging deficiency in service on the part of Ops, complaint was filed before the District Forum seeking directions against the Ops as under:-
(i) to settle the loan account of the complainant with interest @ 9.75% per annum and to refund the excess amount, if any, deposited by the complainant;
(ii) to pay to the complainant Rs. 50,000/- on account of mental tension caused to him;
(iii) to pay to the complainant Rs. 25,000/- on account of litigation expenses;First Appeal No. 13 of 2017 4
(iv) to issue to the complainant 'No Dues Certificate' in respect of the aforesaid loan in question;
(v) to return to the complainant original title deed.
3. Upon notice, complaint was contested by Ops. They filed their written reply taking preliminary objections that the Forum has got no jurisdiction to try and entertain the complaint as complicated questions of law and facts are involved, which cannot be decided in the summary procedure, therefore, the matter be referred to the Civil Court; the complaint is time barred; the complainant is stopped to file the present complaint by his own act and conduct.. The loan of Rs. 5,50,000/- was advanced to the complainant by Op No. 1 on floating rate of interest under which rate of interest is not fixed and varies from time to time with the changes in the economic environment and resultant changes in the borrowing cost of the bank. RBI from time to time and as per the loan agreement executed by the complainant, the floating rate of interest was increased and decreased accordingly. On merits, advancement of the loan to the complainant on floating rate of interest was admitted. The floating rate of interest is subject to change as per the guidelines of Reserve Bank of India from time to time and complainant was bound to repay it on such changed rate of interest. As per the agreement, the rate of interest was agreed @ 9.75% p.a. and amount was duly repayable in 120 monthly installments. For calculating the floating rate of interest, the bench mark rate is adopted, which in the present case is floating reference rate (FRR), under that interest payable by the First Appeal No. 13 of 2017 5 complainant was determined by adding margin percentage with such FRR. In the present case, the margin is 1%. It remained fixed throughout the pendency of the loan whereas FRR is subject to change, which is reviewed from time to time. The final rate of interest offered to the borrower is a function of the bench mark rate i.e. FRR and the margin associated with the loan. The appropriation of EMIs towards interest and principal amount solely depends upon the rate of interest applicable to the borrower. As per statement of loan account, he was to repay 220 monthly installments whereas he had paid only 129 installments, therefore, 91 EMIs are still outstanding. Therefore, the complainant was not entitled to the No Due Certificate. The rate of interest was enhanced as per the term of the agreement. The following table elucidate the changes in the rate of interest since the inception of the loan account:-
FRR Margin Rate of Impace by %age i.e.
Interest increase/decrease.
9.25 1 10.25 Increase by 0.50%
9.75 1 10.75 Increase by 0.50%
10.25 1 11.25 Increased by 0.50%
10.75 1 11.75 Increased by 0.50%
11.75 1 12.75 Increased by 1%
12.75 1 13.75 Increased by 1%
13.50 1 14.50 Increased by 0.75%
14.25 1 15.25 Increased by 0.75%
13.75 1 14.75 decreased by 0.50%
13.25 1 14.25 decreased by 0.50%
12.75 1 13.75 decreased by 0.50%
13.25 1 14.25 Increased by 0.50%
13.75 1 14.75 Increased by 0.50%
14.00 1 15.00 Increased by 0.25%
14.50 1 15.50 Increased by 0.50%
15.00 1 16.00 Increased by 0.50%
15.25 1 16.25 Increased by 0.25%
15.75 1 16.75 Increased by 0.50%
First Appeal No. 13 of 2017 6
15.50 1 16.50 decreased by 0.25%
15.75 1 16.75 Increased by 0.25%
15.50 1 16.50 decreased by 0.25%
15.45 1 16.45 decreased by 0.05%
15.10 1 16.10 decreased by 0.35%
From the table it is clear that whenever there was change in FRR, the rate of interest was accordingly increased and decreased and complainant was fully informed about such changes through following references:-
Date of Letter Number of Installment amount Installments Revised 1.4.2006 113 to 117 Rs. 7193/-
19.7.2006 114 to 123 Rs. 7193/-
27.1.2007 117 to 121 Rs. 7193/-
10.4.2007 118 to 141 Rs. 7193/-
28.8.2008 135 to 144 Rs. 7193/-
1.1.2009 142 Rs. 7020/-
1.7.2009 136 Rs. 6730/-
4.9.2010 127 Rs. 6730/-
29.1.2011 130 Rs. 6730/-
15.4.2011 127 to 137 Rs. 6730/-
8.7.2011 134 to 142 Rs. 6730/-
10.10.2011 139 to 153 Rs. 6730/-
7.7.2012 144 to 140 Rs. 6730/-
17.10.2013 125 to 128 Rs. 6730/-
1.7.2015 107 to 104 Rs. 6730/-
12.1.2016 98 to 96 Rs. 6730/-
Therefore, there was no deficiency in services on the part of Ops. Complaint is without merit, it be dismissed.
4. Before the District Forum, the parties were allowed to lead their respective evidence.
5. In support of his allegations, the complainant had tendered into evidence his affidavit Ex. C-1 and documents Exs. C-2 to C-7. On the other hand, Ops had tendered into evidence First Appeal No. 13 of 2017 7 affidavit of Dapinder Singh Kaler, Legal Manager Ex. Ops-1 and documents Exs. Ops-2 to 20.
6. After going through the allegations in the complaint, written version filed by the Ops, evidence and documents brought on the record, the complaint was allowed as referred above.
7. Aggrieved with the order passed by the learned District Forum, the appellants/Ops have filed the present appeal.
8. We have heard the learned counsel for the appellants Sh. Sandeep Suri, Advocate and learned counsel for the respondent Sh. P.S. Dhaliwal, Advocate.
9. It has been argued by the counsel for the Ops that the order passed by the District Forum is illegal, null and void and is liable to be set-aside. The loan was allowed by the Ops to the complainant to the tune of Rs. 5,50,000/- and it was at a floating rate of 9.75%. The floating rate is fixed according to FRR + margin. In the present case, margin was 1% and at the time of sanctioning of the loan, FRR was 8.75%, therefore, it was fixed at 9.75% but lateron FRR had changed from time to time, which has been referred above in the table. Accordingly, the floating rate was changed. It was argued by the counsel for the Ops that according to Section 21-A of the Bank Regulation Act, rate of interest charged by the Banking Company, subject to scrutiny by the Court. In this regard, he has referred to the judgment of Hon'ble Supreme Court in 1994 (3) SCALE 46 "Corporation Bank Vs. D.S. Gowda and Anr." and has referred to restriction, which reads as under:-
First Appeal No. 13 of 2017 8
"Restriction - whether in view of insertion of Section 21-A Courts are precluded from subjecting transactions entered into between banks and borrowers from scrutiny with view to give relief - Court cannot reopen any account maintained by bank relating to transaction with its customers on ground that rate of interest being charged is excessive - Section 21-A restricted such power of Court - but if rate observed in violation of RBI direction then Court disallow such excess interest and can give relief to party."
10. No doubt that under Section 21-A of the Banking Regulation Act, the Courts does not have the right to go for scrutiny of the rates fixed by the Bank but in view of the judgment relied upon by the counsel for the Ops i.e. "Corporation Bank Vs. D.S. Gowda and Anr." (supra), it has been mentioned that if rate observed is in violation of RBI direction then Court disallow such excess interest and then can give relief to the party. Therefore, the right of the bank to fix the rate of interest is not arbitrarily but subject to RBI instructions. Role of the RBI has been defined under Section 35A of the Banking Regulation Act, 1949, which provides as under:-
"35-A. Power of Reserve Bank to give directions.-- (1) Where the Reserve Bank is satisfied that -
(a) in the public interest; or
(aa) in the interest of banking policy; or
(b) to prevent the affairs of any banking company being
conducted in a manner detrimental to the interests of First Appeal No. 13 of 2017 9 the depositors or in a manner prejudicial to the interests of the banking company; or
(c) to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions. (2) The Reserve Bank may, in representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancellation shall have effect."
and that question came up for consideration before the Hon'ble Apex Court in the case "Central Bank of India Vs. Ravindra & Ors.", (2002) 1 SCC 367 wherein the Hon'ble Supreme Court observes as under:-
"50. Though we have answered the question of law before us, but we cannot leave the matter at that alone without sounding notes of caution, lest our view of the law should be misconstrued and misapplied. Before we do so, it would be appropriate to refer to the decision of this Court in 'Corporation Bank v. D.S. Gowda' in some detail.
51. The Banking Regulation Act, 1949 empowers the Reserve Bank, on it being satisfied that it is necessary or expedient in the public interest or in the interest of depositors First Appeal No. 13 of 2017 10 or banking policy so to do, to determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular and when the policy has been so determined it has a binding effect. In particular, the Reserve Bank of India may give directions as to the rate of interest and other terms and conditions on which advances or other financial accommodation may be made. Such directions are also binding on every banking company. Section 35-A also empowers the Reserve Bank of India in the public interest or in the interest of banking policy or in the interests of depositors (and so on) to issue directions generally or in particular, which shall be binding with effect from 15-2-1984. Section 21-A has been inserted in the Act, which takes away power of the court to reopen a transaction between a banking company and its debtor on the ground that the rate of interest charged is excessive. The provision has been given an overriding effect over the Usury Loans Act, 1918 and any other provincial law in force relating to indebtedness."
11. In para No. 55 of the judgment, it was further observed as under:-
"(5) The power conferred by sections 21 and 35-A of the Banking Regulation Act, 1949 is coupled with duty to act.
The Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, First Appeal No. 13 of 2017 11 having statutory force, in the interest of the public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. The Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. For such transaction which are not squarely governed by such circulars, the RBI directives may be treated as standards for the purpose of deciding whether the interest charged is excessive, usurious or opposed to public policy.
and ultimately, the Hon'ble Apex Court laid down the law as under:-
"(a) the Apex Court has noticed instances of unscrupulous, unfair and unhealthy dealings without generalising the same.
The Court has specifically observed that instances of unscrupulous, unfair and unhealthy dealings can be multiplied. But such issues are left open to be adjudicated upon in appropriate cases as and when they actually arise First Appeal No. 13 of 2017 12 for decision. The present case is an instance of charging usurious rate of interest, which is unfair trade practice.
(b) The Banking Regulation Act, 1949 empowers the Reserve Bank to lay down the policy in the public interest and it has binding effect on the banks. The Reserve Bank of India is entitled to give directions as to rate of interest to be charged and other terms and conditions on which advances or other financial accommodation may be made.
(c) The power conferred by sections 21 and 35-A of the Banking Regulation Act, 1949 is coupled with the duty to act. The Apex Court considered the RBI as a watchdog of finance and economy of the nation, and presumed that it ought to be aware of the relevant factors including the prevailing credit conditions, which would invite its policy decision.
(d) Charging of interest should be reasonable. Further, penal interest can be charged only once for one period of default and, therefore, cannot be permitted to be capitalized. It would be opposed to public policy.
(e) The Court has specifically stated that unscrupulous banks may resort to charging of interest even on monthly rests. It is, therefore, required to be clarified that such unscrupulous banks should not be permitted to charge interest on credit cards on monthly rests.
(f) The Court has observed that most of the banks press into service long-running documents wherein the borrowers First Appeal No. 13 of 2017 13 fill in the blanks, at times without caring to read what has been provided therein, and bind themselves by the stipulations articulated by the best of legal brains. In our view, such practice also would be an unfair trade practice.
(g) Further, despite our repeated suggestion, the learned Counsel for the RBI failed to find out what could be considered as usurious rate of interest on the basis of which the RBI had issued circulars to banks. There was no response except to say that with regard to rate of interest RBI has deregulated the same."
12. This RBI has issued its circulars from time to time, how the rate of interest is to be charged. In its circular No. DBOD.Dir.BC.5/13.03.00/2006-07 dated 1.7.2006, the loans up to Rs. 2 lakh carry the prescription of not exceeding the Benchmark Prime Lending Rate (BPLR) and on loans above Rs. 2 lakh, banks are free to determine the rate of interest subject to BPLR and spread guidelines. In the same circular dated 1.7.2006, it has been mentioned how the interest rate of loans are to be fixed, is referred as under:-
"Banks have the freedom to offer all categories of loans on fixed or floating rates, subject to conformity to their Asset- Liability Management (ALM) guidelines. In order to ensure transparency, banks should use only external or market- based rupee benchmark interest rates for pricing of their floating rate loan products. The methodology of computing the floating rates should be objective, First Appeal No. 13 of 2017 14 transparent and mutually acceptable to counterparties. Banks should not offer floating rate loans linked to their own internal benchmarks or any other derived rate based on the underlying. This methodology should be adopted for all new loans. In the case of existing loans of longer /fixed tenure, banks should reset the floating rates according to the above method at the time of review or renewal of loans accounts after obtaining the consent of the concerned borrower/s."
13. It was argued by the counsel for the respondent/complainant that methodology of computing the floating rate should be objective, transparent and mutually acceptable means consent of the consumer, in case any rate is enhanced by the bank from the agreed rate of interest. It was argued by the counsel for the Ops that it is applicable at the time of renewal of loss in which the consent of the borrower is required. Even if it is taken the loan case of the borrower is reviewed when the rate of interest is increased. This question has been settled by the Hon'ble Supreme Court of India in its judgment "ICICI Bank Ltd. Versus Maharaj Krishan Datta and Ors." Civil Appeal No. 5928 of 2015, decided on 3.8.2015, and the order was passed by the Hon'ble National Commission on the following facts:-
"(a) The complainants/respondents herein availed home loan to the extent of Rs. 13,35,100/- from the Appellant bank for purchase of a flat in Zirakpur. The loan was sanctioned vide letter dated 14.11.2005 and it carried an interest @ 7.25% per annum. Later, it was confirmed by the bank that w.e.f. First Appeal No. 13 of 2017 15
April, 2006 the loan would carry an interest @ 7.75% per annum. (b) It was further case of the complainants/respondents that an additional loan of Rs. 3,00,000/- was sanctioned on 30.10.2006 with an obligation to pay interest @ 8.75% per annum. The grievance expressed by the Respondents was that instead of charging interest at the agreed rate, the bank had charged the same @ 11.25% per annum for the period from 01.04.2007 to 31.03.2008, besides charging interest during pre-EMl period @ 9.5% per annum. Hence, the complainants/respondents filed a complaint before the District Forum, alleging deficiency in the service provided by the Appellant bank to them. (c) Such complaint was resisted by the Appellant bank on the ground that loan was sanctioned on the floating rate of interest, which at the time of sanction was 8.75% per annum and could be enhanced as per the guidelines issued by the Reserve Bank of India and in accordance with the agreement between the parties. (d) The District Forum passed an order in the matter directing the Appellant bank to charge interest @ 7.25% per annum till 31.03.2006 and thereafter @ 7.75% per annum from 01.04.2006 to 30.10.2006 and thereafter @ 8.75% per annum. It further directed that the enhanced rate of interest shall not be more than the rate at which loan is advanced to the new borrowers. It further directed to pay a compensation, as a result whereof, the bank preferred an appeal before the First Appeal No. 13 of 2017 16 State Commission. The State Commission, by its order dated 19.03.2010, permitted the Appellant bank to vary the rate of interest only as per the variation allowed by the Reserve Bank of India from time to time, granting the complainants benefit of minus 1.5% of the FRR. (e) the State Commission held that in view of the agreement between the parties, payment of interest @ minus 1.5% of the prevalent FRR, which could be reset by the bank based on the guidelines issued by the Reserve Bank of India. It was further held that the intimation of such resetting should be given to the complainants/constituents. The State Commission also affirmed the payment of compensation as well as the cost of litigation as assessed by it. In these circumstances, the Appellant bank filed a Revision Petition before the National Commission and the National Commission dismissed the said petition."
14. In para No. 10 of the above judgment, it was observed by the Hon'ble Supreme Court that they find that the grounds advanced before us by Mr. P. Chidambaram, learned senior counsel, in our opinion, have to be accepted and accordingly we allow the appeal, set aside the order so passed by the National Commission and confirmed the order so passed by the State Commission, in which it was held that intimation of resetting of the interest should be given to the complainant. There is another judgment of the Hon'ble National Commission "M/S IDBI Bank Ltd. & Anr. vs Subhash Chand Jain & Anr.", decided on 15 First Appeal No. 13 of 2017 17 October, 2012 in which, it was observed that the concept of floating rate of interest flows from the regulation of rate of interest by the RBI guidelines and not arbitrarily by the service provider without informing or telling the reasons for increasing the rate of interest. Counsel for the Op has also relied upon the judgment of the Hon'ble Supreme Court in "Syndicate Bank versus R. Veeranna and others" (2003) 2 Supreme Court Cases 15 that if agreement makes express provision for enhancement of rate of interest, bank need not put borrower on notice. But the regulation of the RBI has come in the year 2006, it has been held by the Hon'ble Supreme Court in the judgment "ICICI Bank Ltd. Versus Maharaj Krishan Datta and Ors." (supra). In that circumstances, this judgment cannot be relied upon.
15. Counsel for the Op contended that with the change in the rate of interest, the intimations EXs. Op-3 to Op-18 were sent to the complainant. No doubt that Ops have placed these documents on the record but how these were intimated to the complainant has not been referred either in the written statement and no mode of intimation has been referred in the letter itself. No postal receipt has been placed on the record how it was sent. No extract of the dispatch register of the Bank has been placed on the record that on various dates these letters were dispatched to the complainant. However, on the basis of these documents, it cannot be observed that these letters were actually sent to the complainant. However, this fact fortifies our view that whenever there is change in the floating rate of interest, the bank is required First Appeal No. 13 of 2017 18 to give a notice to the borrower, that is why these letters were referred by the Ops on the record, although it is a different matter that they have not been able to prove on the record how these notices were sent to the complainant.
16. It was further argued by the counsel for the Ops that originally the installment was of Rs. 7193/- and on 7.12.2008 the rate of interest was 15.25% and w.e.f. 7.1.2009 it was reduced to 14.75% and then to 13.75% and then the installment rate was reduced to Rs. 6730/-, therefore, in case the complainant paying the less amount then it will be in the knowledge that the rate of interest can vary. However, it is pertinent to mention here that originally the rate of installment was Rs. 7193/- and when the rate of installment was decreased to Rs. 6730/- w.e.f. 7.8.2009, according to the bank statement Ex. Op-2/19, the rate of interest was 13.75, certainly, it was 4% more than the original rate of interest. In case at 9.75 rate of interest, the installment was Rs. 7193/-, counsel for the Op has failed to make it clear that when rate of interest was more than the agreed rate of interest then under what circumstances, the installment was decreased from Rs. 7193/- to Rs. 7020/- and then to Rs. 6730/-. The statement shows that the installment has been reduced and at no stage, it was increased. In case the installment at any stage would have been increased then to some extent it could be said that the complainant was aware of the increased rate of interest but in case the installment is going down then how it can be presumed that the rate of interest is going up and it was in the knowledge of First Appeal No. 13 of 2017 19 borrower. Therefore, on the basis of decreased installment, no inference can be taken that increase or decrease in the rate of interest was in the knowledge of the complainant.
17. In the nutshell, we are of opinion that the Bank is at liberty to fix the rate of interest according to the instructions of RBI. However, the bank is required to put the borrower on notice as and when the rate of interest is increased so that he may have choice to continue his account with the bank in the enhanced rate of interest. In the present case, the rate of interest was increased from 9.75% to 16.75%. In case the intimation would have been given to the complainant/borrower then it was his discretion whether to continue the loan account with the Ops or not. By not doing so, the Ops are deficient in service. In this context, the order passed by the District Forum is justified.
18. Sequel to the above, we do not see any merit in the appeal and the same is dismissed with no order as to costs.
19. The appellant No. 2 had deposited an amount of Rs. 1500/- with this Commission in the appeal. This amount along with interest accrued thereon, if any, shall be remitted by the registry to the concerned District Forum, after the expiry of 90 days, from the despatch of the certified copy of the order to the parties; subject to stay, if any, by the higher Fora/Court; for the release of the above amount and the District Forum may pass the appropriate order in this regard.
20. The appeal could not be decided within the statutory period due to heavy pendency of Court cases.
First Appeal No. 13 of 2017 20
21. Order be communicated to the parties as per rules.
(GURCHARAN SINGH SARAN) PRESIDING JUDICIAL MEMBER (RAJINDER KUMAR GOYAL) MEMBER August 04, 2017.
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