Gujarat High Court
M/S Splash Bath Appliances Inc vs Sidbi Bank on 20 October, 2021
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 16433 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed Yes
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S SPLASH BATH APPLIANCES INC.
Versus
SIDBI BANK
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Appearance:
MS HETVI H SANCHETI(5618) for the Petitioner(s) No. 1
MR AMAR N BHATT(160) for the Respondent(s) No. 2
VIPULKUMAR M ASODIYA(8298) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 20/10/2021
ORAL JUDGMENT
1. Rule returnable forthwith. Learned advocate Mr. Vipulkumar M. Asodiya waives service of notice of rule on behalf of respondent no.1. Learned advocate Mr. Amar Bhatt waives service of notice of rule on behalf of Page 1 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 respondent no.2.
2. Having regard to the controversy involved in the present case which lies in a very narrow compass, with the consent of the learned advocates for the respective parties, the matter is taken up for final hearing.
3. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs :
"(a) To issue necessary direction to Respondent No 1, to refund the pre payment charges of Rs. 10,06,246 levied by the bank to the petitioner herein being violative of norms and guidelines prescribed by the RBI.
(b) To pass such other and further orders as may be deem fit and proper."
4. Brief facts of the case are that the petitioner availed financial assistance from respondent no.1 - Small Industrial Development Bank of India (For short "SIDBI") of Rs. 300 lakhs being term loan and Rs. 150 lakhs being Cash Credit facilities as per the Letter of Intent dated 21st March, 2016.
4.1) It is the case of the petitioner that after obtaining loan, the installments were regularly paid. However, as the rate of interest of respondent no.1 - SIDBI was on Page 2 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 the higher side than the Nationalised Bank, the petitioner as per letter dated 7th November, 2017, requested the respondent no.1
- SIDBI to lower the rate of interest to the prevailing rate of interest being charged which was refused by the respondent no.1 - SIDBI. The petitioner therefore, vide letter dated 28th March, 2018 requested to foreclose the loan and cash credit facility obtained by it.
4.2) The petitioner approached the Bank of Baroda for shifting the financial assistance availed by it from respondent no.1
- SIDBI.
4.3) Respondent no.1-SIDBI demanded Rs.3,92,50,797/ including Rs.10,06,245/- towards prepayment charges to issue No Due Certificate to the petitioner. In the letter dated 4th March, 2018 respondent no.1 - SIDBI specified Rs.8,29,245/- as penal interest for prepayment at the rate of 3% on term loan plus GST and Rs. 1,77,000/- towards penal interest for prepayment at the rate of 1% on working capital limit plus GST.
4.4) The petitioner objected to such levy of prepayment charges vide letter dated 8th May, 2018 on the ground that at the time of granting/sanctioning the loan, the respondent Page 3 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 no.1 - SIDBI never informed about the levy of such prepayment charges. It was contended by the petitioner that demand made by respondent no.1-SIDBI was illegal, unauthorised, contrary to the circulars and clarifications issued by respondent no.2 - Reserve Bank of India (For short "RBI").
4.5) The petitioner however was facing huge financial loss on account of higher rate of interest and therefore, it had no option but to pay prepayment charges under protest.
4.6) The petitioner again by letter dated 8th May, 2018 requested respondent no.1 - SIDBI to provide necessary circulars of RBI and details upon which prepayment charges were levied by respondent no.1 - SIDBI which was replied on 23rd May, 2018 by respondent no.1 - SIDBI intimating the petitioner that the objections of the petitioner were not acceptable.
4.7) The petitioner thereafter filed a complaint before the Banking Ombudsman on 15th June, 2018. The Banking Ombudsman however, did not take any action and therefore, the petitioner filed Special Civil Application No.6663/2019 before this Court. This Court by order dated 8th April, 2019 directed the Banking Ombudsman to decide the Page 4 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 complaint made by the petitioner. Pursuant to the order passed by this Court, Banking Ombudsman by letter dated 6th August, 2019 replied that the complaint against respondent no.1- SIDBI is not maintainable as it is not covered under Banking Ombudsman Scheme (BOS), 2006. The petitioner has therefore, filed this petition with the aforesaid prayers.
5. Learned advocate Ms. Hetvi Sancheti for the petitioner submitted that respondent no.1- SIDBI has not disclosed at any point of time, the levy of charges for premature repayment of financial assistance availed by the petitioner. Reference was made to clause (7) of the Letter of Intent dated 21st March, 2016 issued by respondent no.1 - SIDBI which only stipulates that loan shall not be prepaid in full or part before the due date except after obtaining prior approval of SIDBI in writing (which may be granted subject to such conditions as SIDBI may deem fit). The clause further provides that prepayment shall be applied first towards soft loan.
5.1) Learned advocate for the petitioner also referred to the sanction letter issued by respondent no.1 - SIDBI wherein no reference is made with regard to the charges to be levied for premature repayment of the Page 5 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 financial assistance advanced by respondent no.1 - SIDBI.
5.2) Learned advocate thereafter referred to the circular issued by the Reserve Bank Of India (RBI) on 25th November, 2008 stipulating the guidelines on Fair Practices Code for Lenders for disclosing all information relating to processing fees/charges. Reference was also made to the circular dated 12th November, 2010 issued by the RBI to all Scheduled Commercial Banks and all India Financial Institutions. It was submitted that as per the guidelines issued by the RBI which is binding upon the respondent no.1- SIDBI which is an all India Financial Institution, respondent no.1- SIDBI was required to disclose transparently to the borrowers all information about prepayment option and charges, if any, to be levied by respondent no.1- SIDBI.
5.3) Learned advocate for the petitioner further submitted that respondent no.1- SIDBI has not followed the RBI circulars which is binding and therefore respondent no.1- SIDBI could not have levied prepayment charges in the year 2018 when the petitioner approached respondent no.1 - SIDBI for foreclosing the loan advanced by respondent no.1 - SIDBI.
Page 6 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 5.4) Reliance was placed on the decision of Delhi High Court in case of DLF Limited v. Punjab Natinal Bank [W.P(C) No. 8520/2010 dated 27th May, 2011) wherein Delhi High Court in similar facts held that the demand of the bank from the petitioner for prepayment charges was without any basis as the same was never disclosed to the petitioner in the said case by the Punjab National Bank in view of RBI circulars dated 25th November, 2008 and 12th November, 2010. It was further submitted that in view of violation of circulars of the RBI, Delhi High Court entertained the petition holding that it cannot be said that there is no public law element in the case and question involved entails compliance/non- compliance by the respondent bank of the RBI guidelines. It was therefore, submitted that the petition would be maintainable as in similar facts of the present case when respondent no.1 has not adhered to the RBI guidelines and have not complied with the same which is evident from the facts on record.
6. Learned advocate Mr. Amar Bhatt appearing for respondent no.2-RBI relied upon four circulars issued by RBI from 2008 till 2019 which are summarised as under :
"(1) 25/11/2008: The Banks and Financial Institutions are advised to ensure that Page 7 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 all information relating to charges/fees for processing are disclosed in the loan application form.
(2)12/11/2010: The Banks and Financial Institutions are advised to transparently disclose to the borrower all information about the fees/charges payable for processing the loan, the amount of fees refundable if loan is not sanctioned, prepayment option and charges, if any, penalty for repayments, if any, conversion charges for switching loan from fixed to floating rates or vice versa, insistence of any interest reset clause or any other matter which would affect the interest of the borrower. Such information are advised to be displayed on the website of the banks.
(3)07/05/2014: The banks are not permitted to charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers.
(4)02/08/2019: The banks shall not charge foreclosure charges/pre-payment penalty on any floating rate term loans sanctioned, for the purpose other than business, to individual borrowers with or without co-obligants."
6.1) Referring to the above circulars, it was submitted that it is incumbent upon respondent no.1- SIDBI to ensure that all information relating to charges/fees for processing are disclosed in the loan application form including prepayment option and charges if any. It was also pointed out Page 8 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 that respondent no.1- SIDBI is not covered under clause 3(5) of the Banking Ombudsman Scheme, 2006 because it is not included in the Second Schedule of the Reserve Bank of India Act, 1934 and respondent no.1- SIDBI is not a Banking Company, a Corresponding New Bank, a Regional Rural Bank, a State Bank of India or a Subsidiary Bank as defined under section 5 of the Banking Regulations Act, 1949 or a primary cooperative bank. It was submitted that respondent no.1 - SIDBI is All India Financial Institution which is bound to follow circulars and guidelines issued by the RBI from time to time under section 45(L) of the Reserve Bank of India Act, 1934.
7. Learned advocate Mr. Vipulkumar M. Asodiya for respondent no.1- SIDBI submitted that the petition is not maintainable as respondent no.1 - SIDBI has levied the prepayment charges on the basis of the contract and action of respondent no.1- SIDBI is within the contractual terms and conditions agreed between the parties and therefore, the same cannot be the subject matter of a writ petition under Article 226 of the Constitution of India. It was also submitted that the petition can also not be entertained because the matter is based on financial transaction between the parties which is purely of a commercial nature and it involves Page 9 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 disputed questions of fact.
7.1) Learned advocate for respondent no.1- SIDBI submitted that as per clause (7) of Letter of Intent, respondent no.1 - SIDBI has made it clear that the loan shall not be prepaid in full or part before the due date except after obtaining prior approval of respondent no.1- SIDBI in writing which may be granted subject to such conditions as it may deem fit and therefore, as per the conditions imposed by respondent no.1 - SIDBI, the petitioner is bound to pay prepayment charges as levied by respondent no.1- SIDBI.
7.2) It was submitted that respondent no.1 has followed RBI circular dated 12th November, 2010 by providing related information at the time of sanctioning of the loan to the petitioner by disclosing such information on the notice board of the office as well as by publishing such details on the website of respondent no.1- SIDBI at www.sidbi.in. Learned advocate for respondent no.1- SIDBI also referred to Code of SIDBI's Commitment to Micro, Small and Medium Enterprise by referring to paragraph no. 5.3 thereof to submit that respondent no.1- SIDBI does not charge any prepayment charges for loans up to Rs. 50 Lakh Page 10 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 irrespective of whether being taken over/prepaid from own sources and fixed rate or floating rate loans as per clause(g) of paragraph no. 5.3 of the Code of Commitment.
7.3) Reference was also made to clause
(h) of paragraph no.5.3 which stipulates that in case of loans above Rs. 50 Lakh, prepayment charges would be levied in all cases of fixed rate loans and for floating rate loans including working capital limits, prepayment charges would be levied if the account is being taken over by some other bank/financial institutions/NBFCS. etc. Relying upon these two clauses, it was submitted that as respondent no.1- SIDBI has disclosed that prepayment charges would be levied upon the financial assistance advanced by respondent no.1- SIDBI being taken over by some other banks, it amounts to disclosure and compliance of RBI circulars dated 25th November, 2008 and 12th November, 2010 and as such, the petition is liable to be dismissed as there is full disclosure of the fact of levy of prepayment charges by respondent no.1 - SIDBI upon the petitioner in public domain and therefore, it is upon the petitioner to be aware about such charges being levied by respondent no.1 while availing the financial assistance.
Page 11 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 7.4) Learned advocate for respondent no.1- SIDBI also submitted that the charges leveled by respondent no.1- SIDBI is as per the prevailing norms in the banking institutions and therefore, the same cannot be said to be unreasonable and once the petitioner has paid such charges, the petitioner cannot make any grievance as there was a happy ending of the relationship between the petitioner and respondent no.1- SIDBI by payment of all the charges which are required to be paid by the petitioner for foreclosing the loan. It was also submitted that once the petitioner has paid the charges, the petitioner has no right to make any grievance for levy of penal charges for prepayment of loan and hence, the petition is required to be dismissed on this ground.
7.5) Learned advocate for respondent no.1- SIDBI relied upon the following decisions:
i) Decision of Allahabad High Court in case of Vacment Packagings (India) Pvt. Ltd. v.
Pradeshiya Industrial and Investment Corporation of U.P. Ltd1.
ii) Decision of Orissa High Court in case of Mahavir Ice & Cold Storate (P) Ltd. vs. 1 2010 (80) ALR 589 Page 12 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 Small Industries Development Bank of India & Anr2.
iii) Decision of Karnataka High Court in case of Hotel Vrinda Prakash and Ors. v. Karnataka State Financial Corporation and ors.3.
iv) Decision of Madras High Court in case of Hatsun Agro Products Ltd. v. Industrial Development Bank of India (judgment dated 04.10.2009 in C.S. No.513 of 2001) 7.6) Learned advocate for the respondent no.1- SIDBI submitted that Orissa High Court in case of Mahavir Ice & Cold Storate (P) Ltd.(supra) in facts of the said case held that the petitioner ought to have challenged the action of levy of prepayment charges prior to agitating the issue before appropriate forum when it was demanded by respondent no.1- SIDBI. It was submitted that High Court of Orissa has held that merely mentioning that it was not acceptable to the petitioner was not enough as the petitioner accepted the terms, acted upon it and took benefit of the same by getting its tile deeds etc. released, which amounts to acquiescence and the petitioner is therefore, estopped to raise any grievance. It was therefore, submitted that in facts of the case when the 2 AIR 2009 (NOC) 1218 (Ori.) 3 AIR 2007 Kant 187 Page 13 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 petitioner has already paid the prepayment charges, the petitioner is estopped to raise any grievance with regard to levy of such charges by filing the present petition. Reference was also made to the findings of the Orissa High Court to submit that the petitioner in order to get the documents released from the bank made prepayment charges voluntarily and therefore, the bank cannot be said to have acted unreasonably or arbitrarily.
7.7) It was therefore, submitted by the learned advocate for respondent no.1 - SIDBI that petitioner having paid prepayment charges and respondent no.1- SIDBI having disclosed the levy of prepayment charges on the website as well as reference being made in clause (7) of Letter of Intent, the petitioner cannot now make any grievance with regard to levy of prepayment charges by respondent no.1 bank and reliance placed on the circulars of the RBI are already complied with by respondent no.1- SIDBI and therefore, petition is liable to be dismissed.
7.8) It was also submitted by learned advocate for respondent no.1- SIDBI that respondent no.1- SIDBI has advanced loans and on account of foreclosure of the loan, respondent no.1- SIDBI has incurred loss Page 14 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 which is sought to be recovered by levy of prepayment charges so as to see that once the commitment is made by the borrower, such borrower is bound to abide by such commitment and by withdrawing from contract which is entered into for repayment of loan on payment of certain rate of interest, if the borrower is permitted to foreclose such loan before due date, then the financial institution would suffer loss as interest is the only source of income of such financial institution and as such penal interest for prepayment is levied by all financial institutions and banks and therefore, it cannot be said that respondent no.1- SIDBI has illegally levied the prepayment charges upon the petitioner.
8. Having heard the learned advocates for the respective parties, it appears that respondent no.1- SIDBI has advanced financial assistance to the petitioner by sanction letter dated 21st March, 2016 as well as Letter of Intent of the even date by way of term loan as well as working capital facilities.
9. The petitioner vide letter dated 28th March, 2018 i.e. almost after two years requested respondent no.1- SIDBI for foreclosure of the loan as Bank of Baroda was ready to take over Page 15 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 advance facilities at the lower rate of interest. The petitioner was also ready and willing to pay the total outstanding dues with interest and charges, if any, as per the norms of the RBI and Government of India for Micro, Small and Medium Enterprise units under THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006 (MSMED Act). Respondent no.1- SIDBI vide letter dated 4th March, 2018 informed the petitioner that amount of Rs.3,92,50,797/- is due as on 3rd April, 2018 to be remitted in favour of respondent no.1
- SIDBI. The same is bifurcated as under :
S.N Particulars Amount in Rs
1 O/s Term as on 2,34,25,000/-
03.04.2018
2 Accrued interest up 1,60,821/-
03.04.2018
3 Penal Interest for pre- 8,29,245/-
payment @3%+GST@18%
4 Working capital limit 1,44,61,932/-
5 Interest for March 2018 1,39,840/-
6 Interest up to 13,536/-
03.04.2018
6 Penal Interest for pre- 1,77,000/-
payment @1%+GST@18% on
Rs. 1,50,000.00
7 Stock Audit charges+GST 7,962/-
8 Valuation Charges+ GST 13,336/-
9 Renewal Fee of WCl(3 22,125/-
Months)+ GST
Total 3,92,50,797/-
10. It was submitted that petitioner vide
Page 16 of 42
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C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021
letter dated 8th May, 2018 raised the
objection regarding levy of prepayment
charges on term loan and cash credit
facilities as amount of 3,92,50,797/-
included Rs.10,06,245/- towards prepayment
charges on term loan as well as working
capital loan as stated in the aforesaid
table. It was contended on behalf of the
petitioner that no such prepayment charges could be collected by respondent no.1- SIDBI. The petitioner also requested respondent no.1
- SIDBI to clarify and to provide copies of instructions, guidelines etc. for levy of such prepayment charges.
11. Respondent no.1 - SIDBI vide letter dated 23rd May, 2018 in one line informed the petitioner that after careful perusal, the objections and requests made by the petitioner are not acceptable to respondent no.1 - SIDBI.
12. The petitioner thereafter filed a complaint before the office of Banking Ombudsman who returned the complaint vide letter dated 6th August, 2019 on the ground that respondent no.1- SIDBI is not covered under the Banking Ombudsman Scheme (BOS), 2006 and accordingly, the complaint was closed under clause 3(5) of the BOS, 2006.
Page 17 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021
13. On perusal of the documents produced on record by the petitioner as well as the respondent no.1- SIDBI, more particularly, Letter of Intent, sanction letter and Code of SIDBI's Commitment to Micro, Small and Medium Enterprises which according to respondent no.1- SIDBI is available on the website of respondent no.1 - SIDBI at www.sidbi.in, in none of the documents, respondent no.1 - SIDBI has disclosed about levy of penal interest for prepayment charges at 3% with GST on foreclosure of term loan and penal interest for prepayment charges at 1% with GST on foreclosure of working capital limits. Letter of Intent contains clause (7) with regard to premature repayment reads as under :
"PREMATURE REPAYMENT: The loan shall not be prepaid in full of part before the due dates except after obtaining prior approval of SIDBI in writing (which may be granted subject to such conditions as SIDBI may deem fit). Prepayment shall be applied first towards soft loan."
14. The above clause only stipulates that no repayment of the loan shall be made without prior approval of SIDBI in writing subject to such conditions as SIDBI may deem fit. However, no condition is either available on website or in the sanction letter or in the Page 18 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 Letter of Intent issued by SIDBI. The Sanction letter also does not refer to any clause with regard to prepayment of loan advanced by SIDBI.
15. The Code of SIDBI's commitment to Micro, Small and Medium Enterprises which is available on website of SIDBI refers to various clauses for sanction/rejection in paragraph no. 5.3 which reads as under :
"5.3 Sanction/Rejection We will:
a) Not insist on any fixed deposit as 'quid pro-quo' for sanctioning credit facility/ies.
b) While offering you an overdraft, or an increase in your existing overdraft limit, tell you if your overdraft is repayable on demand or otherwise.
c) Put down in writing terms and conditions and other caveats governing credit facilities agreed to and duly certify the same and give you a copy thereof.
d) Supply, at our cost, authenticated copies of all the loan documents executed by you with a copy each of all enclosures quoted in the loan document and the list thereof.
e) Convey in writing the reasons for not acceding to your request for a loan or credit facility.Page 19 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022
C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021
f) Follow a rating system, the parameters of which will be broadly shared with you.
g) No prepayment charges for loans upto Rs.50 lakhs, irrespective of whether being taken over/prepaid from own sources and fixed rate or floating rate loans.
h) In case of loans above Rs.50 lakh, prepayment charges would be levied in all cases of fixed rate loans. For floating rate loans, (including working capital limits) prepayment charges would be levied if the account is being taken- over by some other bank/financial institutions/NBFCS, etc.
(i) Provide you an ammortisation schedule (schedule of repayment of principal and interest for the duration of the loan).
(j) Ensure disbursal of loan sanctioned within two working days from the date of compliance with all terms and conditions governing such sanction.
k) Ensure periodic review and renewal of facility as per terms and conditions in the sanction letter given to you."
16. Except the above paragraph which contains reference to prepayment charges in clause (g) and clause (h) of paragraph no. 5.3, there is no other stipulation or disclosure in the entire document of Code of SIDBI's Commitment with regard to prepayment Page 20 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 charges to be paid by the borrower. In the facts of the case, clause (h) would be relevant as it provides that in case of loans above Rs. 50 lakhs, prepayment charges would be levied in all cases of fixed rate loans and for floating rate loans, including working capital limits, prepayment charges would be levied if the account is being taken over by some other bank/financial institutions. However, how much prepayment charges would be levied and what are the terms and conditions for levy of such repayment charges is nowhere disclosed in the Code of Commitment which is uploaded by SIDBI on the website. The contention of respondent no.1 bank that the above clause(h), is forming part of paragraph no. 5.3 of SIDBI's Commitment which is stated to have been uploaded on website and therefore, the petitioner is supposed to know such clause when the petitioner makes such application for loan is far-fetched to meet with disclosure as per the RBI circulars.
17. The RBI in the year 2008 has issued guidelines on Fair Practice Code for lenders with regard to disclosing all information relating to processing fees and charges. The guidelines issued by RBI on 25th November, 2008 reads as under :
Page 21 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 "November 25,2008 "All Scheduled Commercial Banks / All India Financial Institutions (Excluding RRBs) Dear Sir, Guidelines on Fair Practices Code for Lenders- Disclosing all information relating to processing fees / charges Please refer to our Circular DBOD.No.Leg.BC.65/09.07.005/2006-07 dated March 6, 2007 wherein banks/ Fls were advised that loan application forms in respect of all categories of loans irrespective of the amount of loan sought by the borrower should be comprehensive. It should include information about the fees/charges if any ,payable for processing, the amount of such fees refundable in the case of non acceptance of application, pre-
payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other banks can be made and informed decision can be taken by the borrower.
2. It has come to our notice that some banks levy in addition to a processing fee, certain charges which are not initially disclosed to the borrower. It may be mentioned that levying such charges subsequently without disclosing the same to the borrower is an unfair practice.
3. Banks / FIs are therefore advised to ensure that all information relating to Page 22 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 charges / fees for processing are invariably disclosed in the loan application forms. Further, the banks must inform 'all-in-cost' to the customer to enable him to compare the rates charged with other sources of finance." (emphasis supplied)
18. The aforesaid guidelines were reiterated with more clarification by another circular dated 12th November, 2010 which reads as under:
"November 12,2010 Guidelines on Fair Practices Code for Lenders- Disclosing all information relating to processing fees/charges Please refer to our Circular DBOD. No. Leg. BC. 86 /09.07.005 / 2008-09 dated November 25, 2008 containing guidelines on the captioned subject wherein banks were advised to ensure that all information relating to charges / fees for processing are invariably disclosed in the loan application forms and that banks must inform 'all-in-cost' to the customers to enable them to compare the rates charged with other sources of finance.
2. With a view to bringing in fairness and transparency, banks are advised that they must transparently disclose to the borrower all information about fees / charges payable for processing the loan application, the amount of fees refundable if loan amount is not sanctioned / disbursed, pre-payment options and charges, if any, penalty for Page 23 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 delayed repayments if any, conversion charges for switching loan from fixed to floating rates or vice versa, existence of any interest reset clause and any other matter which affects the interest of the borrower. Such information should also be displayed in the website of the banks for all categories of loan products.
3. In other words, banks must disclose 'all in cost' inclusive of all such charges involved in processing / sanction of loan application in a transparent manner to enable the customer to compare the rates / charges with other sources of finance. It should also be ensured that such charges / fees are non-discriminatory." (emphasis supplied)."
19. As per circular dated 25th November, 2008 issued by the RBI to all the Scheduled Commercial Banks and All India Financial Institutions excluding RRBs, they are advised to ensure that all information relating to charges or fees for processing including prepayment options and charges for the same are to be disclosed in the loan application form. The circular issued on 12th November, 2010 is more specific with regard to such disclosure in a transparent manner to the borrower with regard to all information about fees and charges payable for processing the loan application, the amount of of fees refundable if loan amount is not sanctioned/disbursed, prepayment options and Page 24 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 charges, if any, penalty for delayed repayments, if any, conversion charges for switching loan from fixed to floating rates or vice versa, existence of any interest reset clause and any other matter which affects the interest of the borrower.
20. Considering the above circulars, it is apparent that respondent no.1- SIDBI has failed to disclose the charges which it has levied upon the petitioner vide letter dated 4th March, 2018 directing the petitioner to pay the outstanding dues as on 3rd April, 2018.
21. In such circumstances, the decisions relied upon on behalf of the respondent no.1 bank are required to be considered in detail.
22. The first decision which is relied upon by respondent no.1 in case of Vacment Packagings (India) Pvt. Ltd. (supra) pertains to the terms of contract, more particularly, clause 10 of the agreement referring to premature repayment, wherein it is stipulated that to make any premature repayment of loan or any part thereof, is the right of the respondent Corporation and to adjust such premature repayments with any installments due and the decision in such case is to be final. It was also provided in the said Page 25 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 clause to pay prepayment of the principal sum or part thereof calculated at the rate and in the manner to be decided by the Corporation. Thus the petitioner before Allahabad High Court was bound by terms of clause 10 of the agreement in which the petitioner-borrower agreed to compensate the lender for any loss which it may suffer on premature payment. It is also required to be noted that the said decision is of the year 2010 pertaining to writ petition of the year 1997.
23. Similarly, in case of Mahavir Ice & Cold Storate (P) Ltd.(supra), the Orissa High Court delivered decision on 2.12.2008 in the writ of 1998 with regard to similar facts pertaining to the same clause no.7 of Letter of Intent which is also same in the present case, but this decision is prior to both RBI circulars issued in 2008 and 2010, it is held by Orissa High Court as under:
"8. We fail to understand if it was not acceptable to the Petitioner, it should have challenged the same before some appropriate forum, agitating the issue. Merely mentioning that it was not acceptable to the Petitioner was not enough. Petitioner accepted the terms, acted upon it and took benefit of the same by getting its title deeds etc released, it clearly amounts acquiescence and Petitioner is estopped to raise the grievance. The letter was served upon the Respondent-Bank Dasti.Page 26 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022
C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 It shows that Petitioner wanted to get its documents released at the earliest.
9. Acquiescence, being the principle of equity, must be made applicable where the order has been passed and complied with and the other side has taken the benefit of it. After taking benefit of the order/action/transaction, he cannot be permitted to raise any grievance. A person cannot be permitted to challenge an order merely because he has sustained some loss or failed in the examination etc. Such persons cannot be permitted to turn around and contend later when they found they were not successful, challenging the said order. (vide M/s. Pannalal Binjraj & Ors. Vs. Union of India & Ors., AIR 1957 SC 397; Manak Lal Advocate Vs. Dr. Prem Chand Singhvi & Ors., AIR 1957 SC 425; Maharashtra State Road Transport Corporation Vs. Balwant Regular Motor Service, Amravati & Ors., AIR 1969 SC 329; Dr. G. Sarana Vs. University of Lucknow & Ors., AIR 1976 SC 2428; Major Chandra Bhan Singh Vs. Latafat Ullah Khan & Ors., AIR 1978 SC 1814; Om Prakash Shukla Vs. Akhilesh Kumar Shukla & Ors., AIR 1986 SC 1043; Madan Lal & Ors. Vs. State of Jammu & Kashmir & Ors., AIR 1995 SC 1088; and Utkal University & Ors. Vs. Dr. Nrusingha Charan Sarangi & Ors., AIR 1999 SC 943.
10. In State of Punjab & Ors. Vs. Krishan Niwas, AIR 1997 SC 2349, the Apex Court examined a case where the services of the employee were terminated in exercise of the powers under Article 311 (2) (b) of the Constitution. The Appellate Court reduced the punishment imposed by the Trial Court. In the Departmental Appeal, the order of Page 27 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 dismissed was also converted into that of a lesser punishment. The employee had acted upon it and joined the post. He was held not entitled to challenge the reduced punishment as he was stopped by his conduct.
19. In the rejoinder affidavit such figures have not been disputed. What has been submitted therein that charging such a rate was arbitrary and unreasonable.
The Opposite Party-Bank is not like an ordinary money lender or a Bank which lends money. It only arranges the finance for an individual applicant- borrower from the Government or other financial institution on certain terms which also include the period of repayment. In such a fact situation imposing a condition of extra interest etc. in case of pre-payment can not be held to be arbitrary or unreasonable.
20. However, in the facts and circumstances of the case the Petitioner as explained hereinabove was, willing to get his documents released from the Opposite Party-bank after making pre- payment of the loan amount voluntarily. The Opposite Party-bank had acted in turn and its conduct cannot be held to be unreasonable or arbitrary. The Opposite Party bank had taken a lenient view otherwise the amount of interest could have been more than twelve lakhs.
21. In view of the aforesaid facts and circumstances, Petitioner cannot be permitted to approbate and reprobate and blow hot and cold in the same breath. The recovery had been made in terms of the agreement. Thus, we do not find any Page 28 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 cogent reason to interfere in the matter. The petition lacks merit and is accordingly dismissed."
24. On perusal of the above observations of the Orissa High Court, it is clear that with regard to prepayment charges which were levied by SIDBI upon the petitioner, the petitioner agreed vide letter dated 12.2.1998 for payment of such charges and considering such payment, the Orissa High Court came to the conclusion that conduct of SIDBI cannot be held to be unreasonable or arbitrary. However, at the relevant point of time, circulars issued by RBI making it mandatory for bank on Fair Practice Code to disclose in a transparent manner all information about fees and charges was not available.
25. In case of Hotel Vrinda Prakash and Ors. (supra), the Karnataka High Court has also considered the levy of premium on prepayment of loan which was prior to issuance of circulars issued by the RBI, wherein it is held that such premium can be levied on advance payment or foreclosure of the loan by charging 1% on the outstanding balance and the issue with regard to legality of levy of such premium on repayment of loan was considered as under :
"10. Having regard to the rival contentions of the parties two Page 29 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 contentions arise for consideration in this writ petition.
They are:
(i) Whether the respondents have authority to charge premium for prepayment/ foreclosure of the loan account on the outstanding loan balance amount?
(ii)If it is held that the respondents have such a power whether the petitioners are liable to pay 2% premium on the outstanding balance of the amount?
11. Re. Point no.(i) It is not in dispute that the Corporation borrows funds from the Small Industries Development Bank of India (SIDBI) and also from other financial institutions at the then prevailing interest rate and lends the same to the entrepreneurs. The loan sanctioned bear a fixed rate of interest and being a term loan are contracted to be repaid over a period of time. Likewise, the respondent Corporation also makes commitment with its lenders. The interest rates charged to the borrower is fixed irrespective of whether there is an increase or decrease in interest rates in the general banking sector. In a falling interest regime, in the event of foreclosure of loan, the same amount can be further lent at a lower rate only. In order to protect this risk, a foreclosure premium is charged on premature closure of the loan to take care of the loss. This has been the general practice adopted by all Banks and Financial Institutions. That is why the hypothecation deed itself contains a Page 30 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 clause that borrowers will not be at liberty to repay the outstanding sum in full or in part before due date or dates prescribed for payment except with the prior approval of the Corporation and subject to such terms and conditions as may be stipulated by the Corporation in this behalf at its sole discretion. Petitioners have agreed for the said condition being incorporated in the hypothecation deed and they are bound by the same. There is no challenge to the said clause in the agreement. As per the said clause, the Corporation has the discretion to impose premium on the balance of loan amount.
12 Section 37 of the Indian Contract Act, 1872 provides for the obligation of the parties to the contract. It states that the parties to a contract must either perform, or offer to perform their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law. The petitioners having accepted the terms and conditions of the contract cannot now contend that the action of the respondent Corporation in charging premium is illegal or unlawful.
13. Section 24 of the State Financial Corporations Act, 1951 states that the Board is discharging its function under the Act, shall act on business principles, due regard being had by it to the interests of industry, commerce and the general public. Section 25 of the State Financial Corporation Act, 1951 provides for business which Financial Corporation may transact. Sub- Section (h) of Section 25(1) of the State Financial Corporations Act, 1951 states that Financial Corporation may, Page 31 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 subject to the provisions of the said Act carry on and transact the business of granting loans or advances to, or subscribing to debentures of an industrial concern, repayable within a period not exceeding twenty years from the date on which they are granted or subscribed to, as the case may be. Therefore, the granting of loans or advances is one of the business of the Corporation. As stated above, the Corporation borrows funds from the financial institutions at the prevailing rate of interest. if an account is prepaid/foreclosed when the interest rates are falling, the Corporation may have to suffer loss. To overcome this situation, if a premium is charged on the outstanding loan being prepaid, the same cannot be found fault with. I am of the considered view that the Corporation has the power and authority to levy prepayment/ foreclosure premium.
14. Re.Potnt No.(ii):
Now, let me consider the second point with regard to the rate of prepayment/foreclosure premium the petitioners are liable to pay. Admittedly, petitioners have availed the financial assistance in September 2003 and the hypothecation deed was entered on 20.09.2003. When the petitioners availed the loan, the Corporation was charging prepayment premium upto a maximum of 1% on the outstanding loan account. By a Circular dated 14.05.2005 the said premium was increased to 2%. The question is whether the amended circular is applicable to the loan account of the petitioners. My answer to the said question is in the negative. Petitioners are governed by the Page 32 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 Circular, which was in force when they availed the financial assistance. No doubt, Clause 14 states that foreclosure is subject to prior approval in writing of the Corporation and subject to such terms and conditions as may be stipulated by the Corporation in this behalf on its sole discretion. Though in the circular date] 14.5.2005, it has been mentioned that earlier circulars regarding payment of prepayment premiums have been withdrawn, I am of the view that the petitioners are governed by the circular, which was in force when they borrowed the loan from the Corporation. I am also of the view that Annexure-R2 circular cannot be retrospective in operation.
15. This Court in the case of Smt. Saraswati S. Kamath vs. Union of India, Ministry of Finance, Department of Economic Affairs, New Delhi and others reported in ILR 2002 KAR 575 was considering Rule 9/(A) as amended by Post Office Recurring Deposit (Amendment) Rules, 1999. It has been held that the Rule making Authority does not have power to give retrospective operation to the Rules. Scheme as it existed at the time of making the Deposit permitted premature closure after one year and hence a rule providing otherwise cannot be made operative in respect of such earlier deposits when the said alteration has been brought about by subsequent amendment to the Rule. In the case of Union of India & others Vs. Sudha Thejus & others - AIR 2001 KERALA 6, a Division Bench of Kerala High Court has held that amended Rule 9(A) is not retrospective.
16. Therefore, I am of the view that Page 33 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 Corporation can only charge prepayment/foreclosure premium at 1% on the outstanding balance of loan amount and that the Circular dated 14.05.2005 has no application in so far as the petitioners are concerned.
17. In the result, I pass the following:
ORDER I. It is hereby declared that petitioners are liable to pay 1% premium on the advanced payment/ foreclosure of their loan account with the respondent- Corporation.
II. The respondent-Corporation is directed to close the loan account of the petitioners on payment of 1% premium on the outstanding loan balance amount being prepaid/ foreclosed. If the petitioners have already pad 2% premium on the prepayment/ foreclosure of their loan account, they are entitled for refund of 1% of the premium paid by them from the Corporation.
Writ petition is disposed of
accordingly. No costs."
26. The High Court of Madras in case of
Hatsun Agro Products Ltd.(supra) decided on 4.10.2009 was considering section 3.7 of the general conditions of loan agreement in Civil Suit No. 513/2001 and has held as under :
"39. It cannot be said that no loss of income was suffered by the Defendant, of account of pre-closure, as the Plaintiff, public limited company, voluntarily entered into a contract with the Defendant, a Government undertaking and agreed for the general terms and Page 34 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 conditions, stipulated therein, the Defendant cannot specify the actual loss of income, since it is not related only with the Plaintiff company. When there is no illegality in the terms of contract either on the ground of public policy of otherwise, when there is evidence to show that the contract was entered into by the Plaintiff without coercion, the claim of the Defendant, based on the agreement not to lend the amount claimed by the Plaintiff could be justified in law, accordingly, the third issue is answered."
27. All the above judgments are rendered either prior to 2010 or around that period before issuance of circulars by RBI.
28. The Delhi High Court in case of DLF Limited(supra) had the occasion to consider both the RBI circulars issued in the year 2008 and 2010 in similar facts and the Delhi High Court held that writ petition was maintainable as both the circulars contained a public law element as it relates to compliance/non compliance by respondent bank of the RBI guidelines, as right is created in petitioner as borrower from the bank as per the RBI guidelines and the petitioner had objected prepayment charges levied by the bank in violation of the RBI guidelines. In such facts, the Delhi High Court observed as under :
"16. The question to be thus seen is Page 35 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 whether the challenge by the petitioner to the demand can be said to be in violation of the guidelines of the RBI and the Fair Practices Code policy adopted by the respondent Bank in pursuance to the guidelines of RBI.
17. The RBI vide its guidelines dated 25th November, 2008 did provide that loan application forms in respect of all categories of loans should include information about fees/charges, if any, payable inter alia for pre- payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with the terms and conditions offered by other banks can be made and an informed decision can be taken by the borrower. It also declared that levying such charges subsequently without disclosing the same is an unfair practice. Similarly, the guidelines of 12th November, 2010 reiterated the necessity for disclosure of all charges including of pre-payment options.
18. It thus cannot be said that there is no public law element in the present case. The question involved certainly entails compliance/non- compliance by the respondent Bank of the RBI guidelines and the writ petition is thus found to be maintainable. In terms of the RBI guidelines, a right is created in the petitioner as borrower from the Bank and the petitioner by present petition is found to be resisting a claim of the Bank, which according to the petitioner is in violation by the Bank of the said guidelines. The Apex Court, in Sardar Associates (supra), held a writ petition to be maintainable in such circumstances."Page 36 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022
C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021
29. After considering the facts in detail, Delhi High Court in facts of the said case held as under :
"26. It would thus be seen that there are no disputed questions of fact requiring trial or otherwise a need to relegate the parties to the suit. It may also be mentioned that in the present case it is not the petitioner who is seeking implementation of the contract as was the case in Kerala State Electricity Board. The petitioner is rather impugning the action of the respondent and which action of the respondent Bank in the discussion aforesaid has been found to have no basis, neither under the contract between the parties nor under the law and is rather found to be in violation of the RBI guidelines/instructions binding the conduct and dealings of the respondent Bank.
27. I am also unable to accept the contention of the respondent Bank that the petitioner had accepted the liability for pre-payment charges or in acceptance of the same was seeking waiver thereof. In fact the petitioner in its letter dated 15th September, 2010 clearly intimated the respondent Bank that "as per the Loan Agreement no pre- payment penalty is payable" and vide its letter dated 16th September, 2010 also used the expression "without any pre- payment charges" and it was the respondent Bank only which used the expression "waiver".
28. The respondent Bank as a "State" has Page 37 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 to be a model litigant. It is not expected to take technical pleas encouraging litigation. In the present case, in the facts aforesaid, the attempt of the respondent Bank in not releasing securities worth `1000 crores while its claim against the petitioner is admittedly of `20 crores only, is found to be nothing but an arm twisting practice adopted by loan sharks to compel the petitioner to give in to the demand for pre-payment charges. The Banking activity in the country was nationalized to curb such malpractices and the nationalized Banks cannot be permitted to continue behaving as loan sharks. The Supreme Court in State of Maharashtra Vs. Narayan Vyankatesh Despande (1976) 3 SCC 404 held that State which has public accountability in respect of its actions should not defend all claims and even those which are plainly and manifestly correct, thereby dragging the opposite party in unnecessary litigation. Similarly in State of Maharashtra Vs. Admane Anita Moti (1994) 6 SCC 109 it was held that State should behave like an enlightened litigant and not like an ordinary person and ought not to defend cases only because the vanity of a particular officer is hurt. To the same effect is State of Orissa Vs. Orient Paper & Industries Ltd. (1999) 3 SCC 566. The Supreme Court recently in Urban Improvement Trust, Bikaner v. Mohan Lal (2010) 1 SCC 512 reiterated that statutory authorities ought not to raise frivolous and unjust objections, nor act in a callous and high handed manner and cannot behave like some private litigants. It was further held that such bodies are expected to restitute / restore the wrongs committed, upon being Page 38 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 found so without requiring unwarranted litigation for the same. Reference may also be made to Dilbagh Rai Jarry v. UOI (1974) 3 SCC 554 & Madras Port Trust v. Hymanshu International (1979) 4 SCC 176. Again in Special Land Acquisition Officer Vs. Karigowda (2010) 5 SCC 708 it was reiterated that State as litigant has an obligation to act fairly and for the benefit of public at large and to avoid unnecessary litigation."
30. Considering the above analysis of the facts as well as law on the subject of levy of prepayment charges by respondent no.1- SIDBI on foreclosure of loan account by the petitioner as it involves clear violation of circulars issued by RBI in the year 2008 and 2010, this petition is entertained under Article 226 of the Constitution of India.
31. It is not in dispute that the respondents would fall within the definition of State within the meaning of Article 12 of the Constitution of India as held by the Supreme Court in case of Punjab National Bank v. Astamija Dash4. Moreover, there are no disputed questions of facts in the present case with regard to the levy of prepayment charges. There is also no dispute with regard to the terms of contract between the parties and it is evident from terms of contract that there is no disclosure made by respondent 4 (2008) 14 SCC 370 Page 39 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 no.1- SIDBI with regard to the charges to be levied for prepayment of the loan as discussed here-in-above.
32. Respondent no.1- SIDBI is advancing the financial assistance on all India basis in the course of its banking activity/ business of financing which is under supervision of the RBI and as such respondent no.1 is required to follow and abide by the guidelines issued by the RBI from time to time. Similarly, the Banking Regulation Act, 1949 stipulates various regulations having an element of public policy in it and not only the terms of contract. Therefore, in the facts of the case when respondent no.1 - SIDBI is an All India Financial Institution disbursing financial assistance to all Micro, Small and Medium Enterprise, respondent no.1- SIDBI is bound by the RBI circulars and has to follow the guidelines for transparent disclosure to borrowers pertaining to all information about fees/charges which the respondent no.1- SIDBI would levy while processing the loan and/or during the course of prepayment of loan including prepayment stages and options and charges to be levied, if any, by respondent no.1- SIDBI. From the facts stated here-in-above it is clear that respondent no.1- SIDBI has failed to disclose about the Page 40 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 charges to be levied on prepayment of loan by the borrower.
33. With regard to the contention raised on behalf of the respondent no.1- SIDBI that prepayment charges are levied in the course of banking activities or business of the respondent no.1- SIDBI as it is being levied in all other financial institutions and public sector banks, there cannot be any dispute or any quarrel with regard to power or authority to levy of prepayment charges by respondent no.1- SIDBI, but the same is required to be disclosed. Therefore, only issue which is arising in this petition is with regard to non disclosure of such charges being levied by respondent no.1 - SIDBI as per the guidelines issued by the RBI. Respondent no.1 - SIDBI is not precluded from levy of prepayment charges as it may be required to stop the borrower from shifting from one financial institution to another financial institution, creating unhealthy competition in the financial sector, resulting into loss to the financial institution. However, at the same time the banks and financial institutions are required to caution and inform the borrower with regard to levy of such prepayment charges. Merely mentioning in some clause in one of the paragraphs of the document uploaded on Page 41 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022 C/SCA/16433/2019 JUDGMENT DATED: 20/10/2021 website pertaining to the conduct of SIDBI's Commitment cannot be said to be full and transparent disclosure. Respondent no.1 - SIDBI is required to disclose levy of such prepayment charges specifically in Letter of Intent or sanction letter at the time of sanctioning of the loan, then only there would be a full and transparent disclosure as per the RBI circulars which would be binding upon respondent no.1- SIDBI.
34. In view of the foregoing reasons, the petition succeeds and is accordingly allowed. Levy of prepayment charges by respondent no.1 for foreclosure of loan as stated in letter dated 4th March, 2018 is hereby quashed and set aside and respondent no.1- SIDBI is directed to refund amount of Rs.10,06,246/- to the petitioner within four weeks from the date of receipt of this order.
35. Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 42 of 42 Downloaded on : Mon Jan 17 00:58:30 IST 2022