Telangana High Court
M.Yogam Naidu vs The Bank Of Baroda on 9 March, 2022
Author: Shameem Akther
Bench: Shameem Akther
THE HON'BLE Dr. JUSTICE SHAMEEM AKTHER
WRIT PETITION No.11564 of 2021
ORDER:
The petitioner herein seeks a writ of Mandamus declaring the action of the respondent No.1 Bank in demanding prepayment charges of Rs.52,47,315/- towards Term Loan Account No.18090600003130, vide letter, dated 08.04.2021, for release of mortgaged property as illegal, arbitrary, violative of RBI Circulars, dated 07.05.2014 and 02.08.2019, and consequently direct the respondent No.1 Bank to repay the same with interest @ 14% per annum to the petitioner.
2. Heard Sri N.Vijay, learned counsel for the petitioner, Sri Srinivas Chitturu, learned counsel for respondent Nos.1 and 2 and perused the record.
3. Learned counsel for the petitioner vehemently contended that demanding prepayment charges for closure of term loan and return of documents to the petitioner is illegal and arbitrary. As per the RBI Circulars, dated 07.05.2014 and 02.08.2019, none of the scheduled commercial banks shall charge foreclosure charges/prepayment penalties on any 'floating rate term loan' sanctioned for the purpose other than business, to individual borrowers, with or without co-
Dr.SAJ 2 W.P.No.11564 of 2021 obligant(s). The petitioner is an 'individual borrower' and the loan sanctioned to him is 'floating rate term loan' and not a business loan. Hence, the RBI Circulars, dated 07.05.2014 and 02.08.2019, squarely applies to the case of the petitioner. Further, the respondent Bank issued letter, dated 24.03.2021, specifically mentioning the foreclosure amount and accepted the demand draft of Axis Bank on 06.04.2021 for an amount of Rs.6,19,15,215.14 ps towards liquidation of dues pertaining to the subject term loan. There is no mention of prepayment charges in the said letter, dated 24.03.2021. Hence, the respondent Bank is estopped from demanding prepayment charges and their alleged right of levying prepayment charges is deemed to be waived. Further, the subject term loan sanctioned to the petitioner has been taken over by the Axis Bank. Prepayment charges are not applicable to the loans 'taken over' by another bank. The word 'prepayment' comes into picture when the loan is closed. In the instant case, the loan obtained by the petitioner is not 'closed', but taken over by another bank and hence, it is deemed that the loan still subsists. When final settlement is reached between the petitioner and the respondent Bank without misrepresentation, fraud, or coercion and money is accepted by the respondent bank towards full and final settlement, it is not open to the respondent Bank to make any further Dr.SAJ 3 W.P.No.11564 of 2021 claim/demand against the petitioner. Further, there cannot be two types of calculation of service charges in respect of the same loan, i.e., 'system calculation' and 'manual calculation', which would amount to unfair or restrictive trade practice and ultimately prayed to direct the respondent Bank to repay the prepayment charges of Rs.52,47,315/- to the petitioner with interest @ 14% per annum.
4. On the other hand, learned counsel for respondent Nos.1 and 2 contended that since the petitioner availed term loan for the purpose of real estate project, he does not fall under the category of 'individual borrower'. The petitioner engaged in real estate business with project cost of Rs.1683.79 lakhs, which falls under MSME segment. Since the petitioner along with a co-borrower availed 'business loan' from the respondent Bank, he is not entitled for the benefits of the RBI Circulars, dated 07.05.2014 and 02.08.2019. The respondent Bank has not contravened any of the RBI Circulars. Further, there is a specific clause in the terms and conditions under 'Annexure - D' of the loan sanction letter, dated 10.03.2020, that the petitioner is liable to pay prepayment charges @ 2% per annum on the balance amount of loan and for the residual period of prepayment. Accepting the same, the petitioner and co-borrower signed on each and every paper of the terms and conditions. Hence, the petitioner is bound to pay the prepayment charges. Upon the Dr.SAJ 4 W.P.No.11564 of 2021 amalgamation of Vijaya Bank and Dena bank with the respondent Bank, service charges were revised vide Circular, dated 19.03.2019, which states that certain service charges will be applied through the system and other service charges are to be recovered manually by the branches. The respondent Bank issued another Circular, dated 30.03.2019, categorizing the application of service charge, i.e., system or manual. Upon queries from Regions with regard to applicability of service charges, it was clarified vide Circular, dated 16.04.2019, that the charges indicated under Section XVI for Mid/Large Corporates is also applicable to MSME. Since the petitioner is under MSME Segment, charges as provided under Section XVI for Mid/Large Corporates are applicable. Further, as per Circular, dated 15.06.2019, prepayment charges are to be applied manually, as the system will not calculate the same. Only upon clearing off all the outstanding dues as per the system calculation, prepayment charges will be calculated manually and demanded from the customer. There is lot of difference between 'foreclosure' and 'prepayment'. Foreclosure charges relate to mortgage of immoveable property and is not synonymous for prepayment charges. Prepayment charges are levied by the loan providers to cover up the loss of interest that would otherwise have been paid over time. Further, there is no material to show that the petitioner Dr.SAJ 5 W.P.No.11564 of 2021 informed the respondent Bank that Axis Bank intends to take over the subject loan. The respondent Bank, in good faith, assuming that the petitioner has brought the Axis Bank DD with an intention to pre- close the loan and would pay all the amounts as per the agreed terms and conditions, accepted the DD and appropriated the same to the outstanding loan amount of the petitioner. The respondent Bank did not accept the DD of Axis Bank in 'full and final settlement' of the dues of the petitioner, as alleged. The Axis Bank is a competitor to the respondent Bank and by taking over the subject loan; it took over the profits of the respondent Bank. The relief sought by the petitioner cannot be granted and ultimately prayed to dismiss the writ petition.
5. In the course of submissions, it is brought to the notice of this Court that prior to filing of this writ petition, the petitioner paid the prepayment charges of Rs.52,47,315/-, as demanded by the respondent Bank, under protest.
6. In view of the above rival contentions, the points that arise for consideration in this writ petition are as follows:
1) Whether the respondent Bank is entitled to collect prepayment charges @ 2% per annum on the balance amount of loan and for the residual period of prepayment?
Dr.SAJ 6 W.P.No.11564 of 2021
2) Whether the petitioner is entitled for return of Rs.52,47,315/- paid by him to the respondent Bank towards prepayment charges in respect of Term loan Account NO.18090600003130, with interest @ 14% per annum?
3) To what relief?
POINTS:-
7. The undisputed facts of the case are that vide letter, dated 10.03.2020, the respondent Bank has sanctioned a term loan of Rs.9.75 crores to the petitioner and another, for construction of commercial complex with 2 cellars, ground and four floors in the subject premises situated at Manikonda Jagir Village, Rajendranagar Mandal, Ranga Reddy District, with floating rate of interest, which is to be repaid in 44 monthly instalments starting from April, 2021 till November, 2024. On 06.04.2020, the respondent Bank disbursed initial amount of Rs.1.2 crores and thereafter there was a delay in releasing of loan on various grounds, i.e., want of documents and conclusive proof of expenses incurred by the petitioner etc. The total amount released by the respondent Bank was Rs.6.12 crores over a period of eight months till January, 2021. In spite of delay in receipt of sanctioned loan, the petitioner completed construction of 2 cellars, ground and 4 upper floors totaling to Rs.52,000/- Square Feet in the subject premises. Since there was delay in releasing of loan amount, Dr.SAJ 7 W.P.No.11564 of 2021 the petitioner approached Axis Bank for sanction of Rs.9.75 crores by 'taking over' the loan from the respondent Bank. The Axis Bank, vide letter, dated 22.03.2021, sanctioned credit facility of Rs.9.75 crores to the petitioner and insisted for 'No Due Certificate' from the respondent Bank as the first condition, among other conditions. Accordingly, the respondent Bank issued a letter, dated 24.03.2021, which reads as follows:
"HYDERABAD 24.03.2021
TO WHOM SO EVER IT MAY CONCERN
This is to mention that Mr M YOGAMA NAIDU and Mr M GOVINDA NAIDU availed term loan with a limit of Rs.9,75,00,000/- on 06.04.2020 from our bank, account no. being 18090600003130. Foreclosure amount for the availed term loan is Rs 6,19,15,215.14/- as on today."
8. In view of the aforesaid letter, dated 24.03.2021, the Axis Bank, vide letter, dated 06.04.2021, issued a Demand Draft bearing No.547094, dated 06.04.2021, for Rs.6,19,15,215.14 Ps. in favour of the respondent Bank for appropriating the same to the subject term loan account of the petitioner, being the outstanding dues. In the said letter, dated 06.04.2021, there is a specific mention that the said amount is to be specifically appropriated towards liquidation of dues in the subject term loan account of the petitioner and the said amount should not be appropriated towards set off against any other debt or liability due or owing by the petitioner. Accordingly, the respondent Bank, vide letter, dated 08.04.2021, accepted the Demand Draft of Axis Bank, appropriated the same to the subject Dr.SAJ 8 W.P.No.11564 of 2021 term loan account of the petitioner and called upon the petitioner to deposit prepayment charges of Rs.45,40,500/- for closing the subject term loan account. In response to the said letter, the petitioner addressed a letter, dated 09.04.2021, to the respondent Bank requesting to withdraw the demand of prepayment charges and release the documents in favour of Axis Bank, which has taken over the subject loan, referring to various guidelines of respondent Bank and circulars of RBI. Vide letter, dated 15.04.2021, the respondent Bank, while referring to the terms and conditions of the sanction order, dated 10.03.2020, informed the petitioner that closure of the subject loan account would be processed only if the petitioner pays prepayment charges of Rs.44,46,877/- along with GST of Rs.8,00,438/- (total Rs.52,47,315/-). However, the petitioner, in order to save his creditability and to avoid penal charges from Axis Bank for non-deposit of title deeds, paid the prepayment charges as demanded by the respondent Bank "under protest". Accordingly, the respondent Bank issued a letter, dated 17.04.2021, which reads as follows:
"Hyderabad 17.04.2021
TO WHOMSOEVER IT MAY CONCERN
This is to mention that MR M YOGAM NAIDU and MR M GOVINDASWAMY NAIDU were sanctioned a term loan with a limit of Rs 9,75,00,000/- on 10.03.2020 with account no. 18090600003130. The sanctioned term loan was paid off without any dues on 16.04.2021."
Dr.SAJ 9 W.P.No.11564 of 2021
9. In this writ petition, the petitioner seeks a direction to the respondent Bank to repay the prepayment charges paid by him along with interest @ 14% per annum, contending that the same is illegal, arbitrary and contrary to the Circulars issued by RBI and the subject loan transaction.
10. I have given anxious consideration to the rival submissions. The first and foremost aspect that has to be decided is as to what was the 'type of loan' sanctioned to the petitioner by the respondent Bank. While the petitioner contends that he is an 'individual borrower' and the loan sanctioned to him is 'floating rate term loan' and not a business/commercial loan, it is the contention of the respondent Bank that the petitioner availed 'commercial loan' for the purpose of real estate project and hence, does not fall under the category of 'individual borrower'. Here it is apt to extract relevant portion of sanction order, dated 10.03.2020, which reads as follows:
"We refer to your request in the captioned matter and subsequent discussions we had with you, we are pleased to inform you that your request has been considered favourably under discretionary lending powers of the competent authority and sanctioned the following credit facilities on 07.03.20, subject to annual review and terms and conditions as per Annexure D."
11. Admittedly, there is no mention in the sanction order, dated 10.03.2020, that the petitioner has been sanctioned 'commercial loan' or 'business loan'. While in the 'nature of facility' column contained in the terms and conditions under Annexure-D, it is stated Dr.SAJ 10 W.P.No.11564 of 2021 as 'Term Loan (fresh)', in the above extracted portion of the sanction letter, it is stated that the respondent Bank sanctioned 'credit facilities' to the petitioner. In common parlance, credit facility allows the borrowing entity to take out money over an extended period of time rather than reapplying for loan each time, whenever it needs money. Thus, credit facility lets a person to generate money (loan facility) over an extended period of time. Credit facility can be obtained by mortgaging property with the bank as security. Credit facility can also be sanctioned to individuals. In the instant case, the petitioner along with another person was sanctioned credit facility for constructing a commercial complex in the premises owned by the petitioner, by securing the said premises as primary security and another premises owned by co-applicant as collateral security as mortgage. Hence, the petitioner was sanctioned credit facility by the respondent Bank in individual capacity. Further, it is not the case of the petitioner that he along with co-borrower applied for commercial loan/business loan for constructing a commercial complex in the subject site. Further, it is not the case of the petitioner that he is doing real estate business with the credit facility sanctioned to him by the respondent Bank. In true terms, real estate business means buying and selling property for making profit. In the instant case, the petitioner neither sold nor purchased any property or involved in Dr.SAJ 11 W.P.No.11564 of 2021 any commercial activity with the credit facility sanctioned to him by the respondent Bank. The purpose is to construct a commercial complex in the property owned by him. In any event, the credit facility extended to the petitioner for the said purpose by the respondent Bank cannot be construed as 'commercial loan' or 'business loan'. Under these circumstances, it can be safely held that the petitioner is an 'individual borrower'. Further, there is no dispute that the credit facility sanctioned to him is 'floating rate term loan'.
12. Since it is held that the petitioner is an 'individual borrower', it is apt to extract the relevant portion of the Circular, dated 07.05.2014, issued by RBI to all scheduled commercial banks, which reads as follows:
"Accordingly, it is advised that banks will not be permitted to charge foreclosure charges/prepayment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect."
13. Further, the Reserve Bank of India issued another Circular, dated 02.08.2019, clarifying that the banks shall not charge foreclosure charges/prepayment penalties on any floating rate term loan sanctioned for purposes other than business, to individual borrowers with or without co-obligant(s). It is common knowledge that in the banking industry, the circulars issued by the Reserve Bank of India have a statutory force and will have an overriding effect on the circulars issued by the respective scheduled banks.
Dr.SAJ 12 W.P.No.11564 of 2021
14. Further, as rightly contended by the learned counsel for the petitioner, transfer of the loan amount cannot come within the ambit of 'prepayment', as it has to be deemed as a case of 'takeover' and not 'closure'. Further, no Bank can be allowed to indulge in restrictive trade practice by binding the consumer to go on availing loan from them.
15. Though there is a specific clause in the terms and conditions under 'Annexure-D' of the loan sanction letter, dated 10.03.2020, that the petitioner is liable to pay prepayment charges @ 2% per annum on the balance amount of loan and for the residual period of prepayment, the said clause cannot bind the petitioner in view of the Circular of RBI, dated 02.08.2019 referred above, since it is held that the petitioner is an 'individual borrower'. Further, having appropriated the amount covered by the demand draft of Axis Bank towards foreclosure of the subject loan account of the petitioner, it is not open to the respondent Bank to demand the petitioner to pay prepayment charges. Further, as rightly contended by the learned counsel for the petitioner, in the letter dated 24.03.2021, nothing prevented the respondent Bank to mention the prepayment charges also, beside the foreclosure charges. Only foreclosure charges are mentioned in the said letter. It is settled law that a person may be precluded by his actions or conduct or silence when it is his duty to Dr.SAJ 13 W.P.No.11564 of 2021 speak, from asserting a right which he otherwise would have had. On this ground also, the respondent Bank is not entitled for prepayment charges @ 2% per annum on the balance amount of loan and for the residual period of prepayment.
16. For the foregoing discussion, this Court is of the considered opinion that the petitioner is entitled for repayment of prepayment charges of Rs.52,47,315/- paid by him to the respondent Bank towards Term Loan Account No.18090600003130.
17. Accordingly, the respondent Nos.1 and 2 are directed to repay the prepayment charges of Rs.52,47,315/- paid by the petitioner towards Term Loan Account No.18090600003130, to the petitioner, with interest @ 12% per annum for the period between the date of payment of said amount to the date of repayment as indicated, within a period of sixty (60) days from the date of receipt of a copy of this order.
18. The Writ Petition is, accordingly, allowed.
Miscellaneous petitions, if any, pending in this writ petition, shall stand closed. There shall be no order as to costs.
____________________ Dr. SHAMEEM AKTHER, J 09th March, 2022 Bvv