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IN THE HIGH COURT OF KERALA AT ERNAKULAM
A.MUHAMED MUSTAQUE, SHOBA ANNAMMA EAPEN, JJ.
Canara Bank, Represented By Its Assistant General Manager – Appellant
Versus
Sajith S., S/o Surendran A – Respondent
WA NO. 248 of 2023, WA NO. 151 of 2023
Decided on : 28-02-2023
Fact of the Case:
The Bank sanctioned education loans to students based on their applications but deducted certain amounts. The students sought a direction for the full loan amount.Finding of the Court:
The Court found that the Bank had sanctioned the requested loan amounts for most students. However, in one case, the Bank had not provided the full amount without stating a reason. The Court directed the Bank to disburse the balance amount to that student.Issues:
Whether the Bank was justified in deducting amounts from sanctioned education loans.Ratio Decidendi:
The Court held that unless there are valid reasons stated in sanction memoranda, banks must disburse the entire loan amount as requested by students.Final Decision:
Writ Appeal No.248/2023 was allowed, and Writ Appeal No.151/2023 was partly allowed with directions for disbursement of the balance loan amount to one student.JUDGMENT :
SHOBA ANNAMMA EAPEN, J.
The common judgment dated 21.12.2022 rendered by the learned Single Judge, allowing WP(C) Nos.15376/2022 and 25719/2022, is the subject matter of challenge in these intra court appeals filed under Section 5(i) of the Kerala High Court Act, 1958.
2. The appellants in WA No.248/2023 are respondents 3 to 6 and the additional 8th respondent in WP(C) No.15376/2022. Respondents 1 to 5 are the writ petitioners and respondents 6 to 8 are respondents 1, 2 & 7 in WP(C) No.15376/2022.
3. The appellants in WA No.151/2023 are respondents 3 to 5 in WP(C) No.25719/2022. Respondents 1 to 4 are the writ petitioners and respondents 5 to 7 are respondents 1, 2 & 6 in WP(C) No.25719/2022.
4. The appellants in both appeals are hereinafter referred to as, “the Bank”. The writ petitioners in both the writ petitions, who are respondents 1 to 5 in WA No.248/2023 and respondents 1 to 4 in WA No.151/2023, are hereinafter referred to as, “the party respondents”.
5. The party respondents are pursuing full time course and Post Graduate Programme in Management (PGDM) in the Sadanam Institute of Commerce and Management Studies in Palakkad District. They were admitted to the course on the basis of All India MAT/KMAT/CAT scores apart from the entrance/screening procedure by conducting attitude tests, group discussion and interview. The total fee for the course is Rs.3,75,000/-. Since they are from financially poor families, for pursuing the education, they applied for educational loan from the appellants/respondent bank. It was alleged that though an amount of Rs.3,75,000/-was applied for by the party respondents, the Bank sanctioned only a lesser amount after deducting the margin amount. Hence, they have approached this Court seeking for a direction to disburse the full amount of Rs.3,75,000/- applied for by them as education loan.
6. The Bank filed a statement, stating that deduction from the sanctioned amount is not towards margin money, but, it is strictly in accordance with the Model Education Loan Scheme for pursuing higher education in India and abroad published by the Indian Bank Association and the Master Circular issued by the bank adopting the Scheme. The learned Single Judge, after hearing both sides, allowed the writ petition directing the Bank to disburse the balance amount due towards the education loan of Rs.4,00,000/-sanctioned to the party respondents. It is challenging this, the Bank has come up in appeal.
7. Heard the learned Standing Counsel for the Bank, the learned counsel for party respondents, and the learned Deputy Solicitor General of India.
8. The learned Standing Counsel for the Bank submitted that the margin money or loan margin is the portion of the loan, which is to be paid by the students towards own contribution while availing an educational loan. It was further submitted that the Bank has not insisted on any margin money since the educational loan applied for by the party respondents was below Rs.4,00,000/-. It was also submitted that the Bank has to abide by the guidelines issued by he Reserve Bank of India being statutory in nature that has made the capping of 20% for each segment of the fees based on the Model Education Loan Scheme which is issued as per the guidelines of Reserve Bank of India and Government of India.
9. The learned counsel for the party respondents submitted that the Bank is duty bound to disburse the entire amount sanctioned and they are not entitled to deduct any amount towards margin money or loan margin since the loan amount applied was below Rs.4,00,000/-.
10. During the time of hearing of the appeal, the Bank was directed to produce the loan application as well as the sanction advice. The Bank produced Annexures A1 to A10 along with IA No.2/2023 in WA No.248/2023 and Annexures A1 to A8 along with IA No.1/2023 in WA No.151/2023, which are the loan applications submitted by the party respondents and the sanction memoranda of the Bank.
11. On a perusal of Annexures A1 to A10 in W
Banks must disburse the entire loan amount as requested by students unless valid reasons are stated in sanction memoranda.
Banks are not permitted to cap educational expenses under the Model Education Loan Scheme; full disbursement of sanctioned funds is mandated.
Educational loans must primarily benefit the student, and cannot be denied based on the co-applicant's credit score, as it contradicts the scheme's purpose.
As per section 22(3)(e) of Banking Regulations Act, 1949, banking licence has been given to State Bank of India for due performance of public interest while carrying on banking business.
Court mandates bank to sanction educational loan upon verification of required academic marks.
The main legal point established in the judgment is the requirement for the respondent bank to consider the brochure that permitted the educational loan without security for the specific institution,....
For educational loans, the repayment possibilities are to be decided not on the financial position of the parents but solely on the projected future earnings of the students on employment after educa....
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