State Consumer Disputes Redressal Commission
M/S Vansh Poultry Farm vs Bank Of Baroda on 24 October, 2024
Daily Order STATE CONSUMER DISPUTES REDRESSAL COMMISSION, UNION TERRITORY, CHANDIGARH Appeal No. 199 of 2023 Date of Institution 11.08.2023 Date of Decision 24.10.2024 M/s Vansh Poultry Farm, Village Shazadpur, District Ambala, Haryana through its Partner Smt. Anju Rani, resident of House No.829, Sector-4, Panchkula. Appellant/Complainant. V e r s u s 1] Bank of Baroda, Head Office: Baroda Bhavan, R. C. Dutt Road, Alkapur, Baroda 390007 through its Chairman/Managing Director. 2] Bank of Baroda, Regional Office: SCO No.62-63, First Floor, Bank Square, Sector 17-B, Chandigarh through its Regional Manager. 3] Bank of Baroda, Regional Office: SCO No.62-63, First Floor, Bank Square, Sector 17-B, Chandigarh through its Branch Manager. ...Respondents/Opposite Parties. BEFORE: JUSTICE RAJ SHEKHAR ATTRI, PRESIDENT. MR. RAJESH K. ARYA, MEMBER
Argued by:
Sh. Devinder Kumar, Advocate for the appellant.
Sh. Vishal Ahuja, Advocate for the respondents.
PER RAJESH K. ARYA, MEMBER This appeal has been filed by the complainant - M/s Vansh Poultry Farm (appellant herein) against order dated 21.07.2023 vide which, its Consumer Complaint No.205 of 2021 has been dismissed by District Consumer Disputes Redressal Commission-I, U.T., Chandigarh (in short 'District Commission').
2] The case of the appellant/complainant before the Ld. District Commission was that he wanted to expand its poultry farm and for the said purpose, he applied a loan with the respondents/opposite parties to the tune of ₹125.00 lakh, which was sanctioned vide letter dated 14.11.2017. Out of the sanctioned amount of ₹125.00 lakh, respondent No.3 released ₹49.75 lakh only to the appellant for the purpose of construction of building and for getting some other machinery etc. Since the respondents failed to release the entire sanctioned loan amount, so the appellant approached HDFC Bank Limited for getting loan with a view to complete the ongoing project of expansion of poultry farm. After completion of all documentary formalities, HDFC Bank agreed to take over the remaining liability of loan amount and disbursed the remaining loan to respondent No.3 on behalf of the appellant firm, thereby taking over the entire liability of remaining loan of the appellant with HDFC Bank. It was further stated that the respondent annoyed with the decision of the appellant to shift the loan to HDFC bank debited a sum of ₹5,22,349.42 on 4.11.2019 as pre-payment charges from the account of the appellant. Against the said alleged illegal and arbitrary act of the respondents, the appellant sent many requests for the refund of the debited amount and also sent legal notice but to no avail, which led to the filing of consumer complaint before the Ld. District Commission.
3] On the other hand, the respondents contested the consumer complaint by filing their reply, specifically denied that they were bound to release the entire sanctioned loan amount of ₹125 lakh to the complainant. It was further stated that the further advancement of loan amount was dependent of compliance of the terms and conditions of the sanction. It was further stated that the appellant admittedly failed to increase the number of birds, which was evident from their letter Annexure OP-1/2. It was further stated that the appellant was repeatedly requested to comply with the terms and conditions but the appellant kept on delaying the matter on one pretext or the other and later flatly refused to comply and as such, the respondents were constrained to stop further advancement. It was denied that the respondents debited any amount illegally and arbitrarily from the account of the appellant. It was further stated that the prepayment charges were debited as per the prevalent rates and the appellant intentionally concealed the fact that ₹1,65,843/- were refunded to them.
4] Being aggrieved by dismissal of its consumer complaint by the Ld. District Commission, the appellant has assailed the order on the ground that the appellant's firm is a small enterprises under MSME and as per the RBI Guidelines, the respondents cannot charge the foreclosure charges/pre-payment charges from the MSME customer but by ignoring the said guidelines, the respondents charged a sum of ₹5,22,349.22 from the appellant. It has further been stated that the respondents are bound to follow the said RBI guidelines but they ignored and violated the same. It has further been stated that the Ld. District Commission has failed to consider this fact while passing the impugned order. It has further been stated that the RBI Circular dated 07.05.2014, relied upon by the Ld. District Commission, is not applicable to MSME Firm. Lastly prayer for setting aside the impugned order and allowing its consumer complaint has been made by the appellant.
5] On behalf of the respondents, their Counsel argued that the appellant is indulged in commercial activity; the issue with regard to MSME has been raised by the appellant for the first time in appeal before this Commission; the appellant is not a MSME enterprises and as such, the respondents rightly charged pre-payment charges as per sanction letter and banking guidelines issued by the Reserve Bank of India. He has further argued that the Ld. District Commission rightly dismissed the consumer complaint of the appellant after proper appreciation of facts and evidence on record. The respondents relied upon the judgment of Hon'ble National Consumer Disputes Redressal Commission, New Delhi in case titled 'M/S PRESTINE HOSPITALS & RESEARCH CENTER PVT. LTD. Versus HEAD OF THE ICICI BANK LTD.', First Appeal No.2009 of 2019 decided on 06.09.2024. Lastly, the respondents prayed for dismissal of the appeal.
6] We have heard the Ld. Counsel for the parties and have gone through the record very carefully.
7] The only question to be decided by us in appeal is as to whether the respondents could charge pre-payment charges from the appellant? However, since an objection has been raised by the respondents with regard to the dispute involved being of commercial in nature, it is significant to mention here that to prove this objection that the respondents placed on record of Ld. District Commission copies of applications submitted by the complainants and its two sister concerns namely Sanjeev Poultry Farm and Daksh Poultry Farm for Advances/Loan and they had stood as personal guarantor to each other and are also partners. It may be stated here that no doubt, they are the partners with each other and put guarantees as such, this would not mean that they are not doing their businesses for earning livelihood by way of self employment. Moreover, in the opening paragraph of the complaint, the complainant had specifically averred that the complainants are Partner of M/s Vansh Poultry Farm and are running the said poultry for the last many years to earn their livelihood by self employment. Thus, the respondents have failed to substantiate this objection of their by way of cogent and convincing evidence. Our this view is supported by the observations made by the Hon'ble National Commission in Kavit Ahuja vs. Shipra Estates, I (2016) CPJ 31. However, the judgment in case M/S PRESTINE HOSPITALS & RESEARCH CENTER PVT. LTD., (supra), relied upon by the respondents, can extend no help to them being distinguishable on facts as in that case, the representative of the hospital, acting as Directors, duly signed the loan documents and the relationship between the complainant and opposite partly in that case was strictly "business to business" and the transaction fell within the ambit of a commercial purpose. However, in the instant case, there is a specific averment made in the complaint that the poultry farm, being run by the appellant, is purely for earning livelihood by means of self employment. As such, objection taken in this regard stands rejected.
8] Now coming to the contention of the appellant that appellant's firm is a small enterprise under MSME and as per the RBI Guidelines, the respondents could not charge the foreclosure charges/ pre-payment charges from the MSME customer, it may be stated here that the issue with regard to the appellant being is a small enterprise under MSME has come up in appeal for the first time and this Commission afforded sufficient opportunity to both the parties to put forth their submissions supported by any documentary evidence in this regard. The appellant argued that their registration under the MSME Act provides them with certain protections under the RBI Guidelines, including exemption from foreclosure charges/pre-payment penalties. Moreover, the appellant filed an affidavit dated 20.02.2024 alongwith MA/197/2024, in appeal, wherein, it has been testified that the complainant's firm is a Small Enterprises under MSME and the respondents are well aware about this fact and as per RBI Guidelines, they cannot charge the foreclosure charges/pre-payment charges from the MSME customer but still, while ignoring the guidelines of the RBI, the respondents charged a sum of ₹5,22,349.22. They also sought direction to the respondents, by moving aforesaid application (MA/197/2024), to file an affidavit with regard to foreclosure charges. However, the respondents did not file any affidavit and rather filed reply to the application, wherein in Para 5, the respondents denied the status of the appellant as MSME Enterprise. In this regard, it may be stated here that the plea of the respondents that the appellant is not MSME is not tenable in view of documentary evidence on record. Per document, at Page 66 of the District Commission record, placed on record by the appellant alongwith its written arguments, it is crystal clear that the appellant is a small manufacturing under MSME. Thus, the plea of the respondents that the status of the appellant is not MSME stands rejected. MA/197/2024 stands disposed of accordingly.
9] Now coming to the issue with regard to the charging of pre-payment charges by the respondent from the appellant, it may be stated here that the appellant has relied on the "Code of Bank's Commitment to Micro and Small Enterprises," which prohibits banks from charging such fees to MSEs. It may also be stated here that the prohibition on banks charging pre-payment or foreclosure charges to borrowers under the Micro, Small, and Medium Enterprises (MSME) category is primarily governed by guidelines issued by the Reserve Bank of India (RBI) and the Code of Bank's Commitment to Micro and Small Enterprises (MSEs). This Code was formulated by the Banking Codes and Standards Board of India (BCSBI) and is adopted by member banks to ensure fair practices in dealings with MSEs. Lending Clause 5.3 of Code of Bank's Commitment to Micro and Small Enterprises, 2015 (this document also on record of Ld. District Commission at Pages 67-70), being relevant is extracted as under:-
"5.3 Sanction / Rejection We will:
a. to g. xxxxxx h. Permit prepayment of floating rate loans without levying any prepayment penalty."
The Reserve Bank of India, as the regulatory authority for banking institutions in India, issues guidelines from time to time to ensure the smooth functioning of the banking sector and to protect the interests of borrowers. These guidelines specifically address the manner in which banks should treat prepayment of loans by borrowers, including MSMEs, under different interest rate regimes (fixed and floating). However, the Code is a set of principles and practices that banks voluntarily commit to, with a view to providing better services to MSME borrowers. Clause 5.3 of this Code states that banks shall not charge prepayment penalties on loans provided to MSME borrowers if the interest rate on such loans is floating. This Clause is aimed at encouraging transparency and providing relief to MSME borrowers, acknowledging their typically more vulnerable financial position compared to larger enterprises. It is intended to reduce the financial burden on these borrowers when they decide to prepay their loans. It is a key provision aimed at offering greater financial flexibility to MSE borrowers. It allows MSEs to prepay their floating-rate loans without the imposition of any prepayment penalty. This clause is part of a broader effort to ensure fair and supportive banking practices for MSEs, reflecting the principles of transparency and customer-centricity. It further explicitly permits borrowers classified as MSEs to prepay such floating-rate loans without being subjected to a prepayment penalty. This provision further ensures that MSEs can take advantage of positive changes in their cash flow situations to reduce their outstanding debt without incurring additional costs. Not only this, this provision is an essential measure that supports the financial health and growth of MSEs. By permitting the prepayment of floating-rate loans without a prepayment penalty, it offers MSEs the flexibility to manage their debt effectively, capitalize on favorable financial conditions and strengthen their business operations. This clause aligns with the RBI's broader vision of creating a supportive environment for MSEs ensuring that they can thrive without facing unnecessary financial burdens. In the instant case, the appellant has provided satisfactory evidence that it is a small enterprise as defined under the MSME Act. This status qualifies the appellant for certain protections under the Code. As per the Code, banks are not permitted to levy foreclosure charges or pre-payment penalties on loans provided to entities classified as Micro and Small Enterprises (MSEs). While RBI guidelines are regulatory and enforceable, the Code is a commitment made by banks to adhere to certain standards of conduct in their dealings with MSMEs. The core principle here is that a commitment, once voluntarily made by a bank through the Code, cannot be disregarded or overridden by subsequent regulatory instructions if the latter does not explicitly negate or replace the commitment. This is especially relevant when the Code's provisions are more favorable to the borrower, as is the case with the waiver of prepayment charges under floating rate loans. The purpose of the RBI's guidelines regarding prepayment charges is to establish a uniform framework and to ensure that banks act in a fair and non-discriminatory manner. However, the RBI guidelines do not specifically overrule or alter the commitments made by banks under the Code. When the regulatory framework does not expressly override such commitments, banks are expected to honor their voluntary undertakings, particularly when those commitments serve the interests of MSME borrowers and provide additional relief.
10] In view of above, we are of the concerted view that the RBI guidelines pertaining to the charging of prepayment fees on floating rate loans do not override the commitments made by banks under Clause 5.3 of the Code. The respondents are, therefore, required to adhere to their voluntary commitment not to charge prepayment fees on floating rate loans provided to MSME borrowers (appellant), as stipulated in Clause 5.3 of the Code.
11] In view of the above findings, the imposition of foreclosure charges/pre-payment charges by the respondents on the appellant is deemed unlawful and contrary to the protections granted to small enterprises under the MSME Act, RBI Guidelines and the Code of Bank's Commitment to Micro and Small Enterprises, which the respondents are liable to refund to the appellant.
12] Per record, it is proved and admitted by the appellant during the pendency of this appeal that out of the total claimed amount of ₹5,22,349.42, an amount of ₹1,65,843/- was refunded by the respondents and received by the appellant before filing the consumer complaint. This further stands corroborated from Annexure C-2 i.e. statement of account, which transpires that an amount of ₹5,22,349.42 was first credited in the account of the appellant on 18.02.2020 and then, a debit of ₹3,76,506.42 was made on 18.02.2020 itself towards excess amount received. Thereafter, on 27.02.2020, the respondents made another credit of ₹20,000/- towards reversal of the excess amount debited. As such, the appellant is entitled to refund of ₹3,56,506.42 only, which the respondents are liable to pay alongwith interest. We are also of the concerted view that the appellant has also suffered mental agony and harassment, for which, it is also entitled to compensation and litigation costs.
13] For the reasons recorded above, the appeal is accepted. The impugned order is set aside. The consumer complaint is partly allowed and the respondents/opposite parties, jointly and severally, are directed as under:-
(i) to refund an amount of ₹3,56,506.42 to the appellant/complainant alongwith interest @6% per annum from the date of deduction/receipt of the same, within a period of 30 days from the date of receipt of certified copy of this order, failing which, thereafter, they shall be liable to pay the said amount alongwith penal interest @9% p.a. from the date of default i.e. after expiry of stipulated period of 30 days' till realization.
(ii) to pay compensation to the tune of ₹50,000/- for causing mental agony and harassment to the appellant/complainant and also cost of litigation to the tune of ₹25,000/- within a period of 30 days from the date of receipt of a certified copy of this order, failing which, thereafter, they shall be liable to pay the said amounts alongwith interest @9% p.a. from the date of default i.e. after expiry of stipulated period of 30 days' till realization.
14] Certified copies of this order be sent to the parties free of charge forthwith.
15] File be consigned to Record Room after completion. Pronounced 24.10.2024 [JUSTICE RAJ SHEKHAR ATTRI] PRESIDENT (RAJESH K. ARYA) MEMBER Ad/-