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2012 Supreme(Mad) 3646
High Court of Judicature at Madras
P. JYOTHIMANI & P. DEVADASS, JJ.
Kotak Mahindra Bank Ltd. Rep. by its Manager
Versus
Mahaveer Chand Dhoka & Others
O.S.A.No.140 of 2012 & M.P.No.1 of 2012
Decided On : 24-08-2012
Advocate Appeared:
For the Appellant:S.S. Rajesh, Advocate.
For the Respondents:R1 to R6, Santhannaraman, Advocate.
Ratios
a. Alteration of rate of interest by the bank on the loans lent by it in accordance with the contract between them would be valid and the Court would not interfere with it.
b. Bank and the borrowers are bound by the rate of interest fixed by the RBI in its master circulars.
Headnote:(A)Arbitration and Conciliation Act, 1996(26 of 1996)-Sec.34-Arbitration-Award-Banking-Interest-Reasonableness-Court-Interference-Natural justice-Respondent had obtained housing loan from the appellant and the agreement enabled the bank to revise the interest rate after three years-After three years, when the bank had informed the steep upward revision of the interest rate, respondent challenged it and the dispute was referred to an arbitrator-After referring the RBI circular which revised the PLR etc., the arbitrator had upheld the revision against which the borrower had preferred writ petition-When the single judge had set aside the award by stating that the revision was against the principles of natural justice and the circular of the RBI was not produced before the arbitrator, bank had preferred appeal-While the bank had contended that the circular was produced before the arbitrator and the agreement provided for revision of interest rate and binding upon the borrower, respondent resisted it-Held, the agreement between the parties specifically provided for the revision of interest rate and the RBI circular in that regard was binding upon the parties-As the appellant bank had produced the RBI circular before the arbitrator and it was referred by him, and the agreement between the parties enabled the revision of interest rate by the bank, action of the bank was upheld and the order of the single judge was interfered-Appeal was allowed and the award of the arbitrator was upheld.
(B)Constitution of India-Art.226-Banking-Interest-Reasonableness-Court-Interference-Natural justice-Alteration of rate of interest by the bank on the loans lent by it in accordance with the contract between them would be valid and the Court would not interfere with it.
But, the terms and conditions of the Loan Agreement, particularly as to the rate of interest and the reason thereon stares at them. So, they cannot argue as against the said terms and conditions of the Loan Agreement, to which they have consented to. It is purely a matter of contractual terms and in pursuance of that only the hike in the rate of interest has been made by the Bank. This has been referred to by the Arbitrator in his award. Para 44
(C)Banking Companies Regulation Act, 1949(10 of 1949)-Sec.35A, 36- Banking-Interest-RBI-Master circular-Bank and the borrowers are bound by the rate of interest fixed by the RBI in its master circulars.
The appellant is a Banking Company. It has to run his Banking business strictly in accordance with the provisions of the Banking Regulation Act, 1949. The RBI is one of the watchdogs of the finance and economy of the nation. It controls and regulates the credit policy of the country by issuing circulars, directives also as to the charging of interest on the various advances granted by the Banks and Financial Institutions. They cannot defy it. So, not only the lenders but, also the Borrowers are bound by RBI’s directives and circulars. Para 45
P. Devadass, J.
The first respondent, namely, Kotak Mahendra Bank Ltd., Chennai, in O.P.No.678 of 2010, aggrieved by the Fair Order and Decretal Order of the learned Single Judge dated 15.02.2012 setting aside the Arbitrator's award dated 04.05.2010, has directed this Original Side Appeal.
2. Let us notice the circumstances that led to the filing of this intra-Court Appeal.
3. Appellant is a Banking Company. It gives various kinds of loans. One of it is Property Loan. It is also known as Home Finance. On 29.12.2005, Respondents 1 to 6 (petitioners 1 to 6 in O.P.No.678 of 2010) were sanctioned a property loan of Rs.51 Lakhs. There are two modes of charging the interest. One is, fixed interest. The other one is, adjustable interest rate (AIR). However, there is concession of 1%. Under the second mode, the interest will remain fixed for 12 quarters, namely, for 36 months. Thereafter, the revision will take place. The respondents 1 to 6/borrowers have opted to the second mode. The interest is at 9.5% p.a. (10.5% p.a. less 1%). The loan is to be repaid in 60 monthly installments at Rs.1,07,110/-each commencing from 1.2.2006 to 1.1.2011. It is inclusive of the interest amount. On 29.12.2005, a Loan Agreement embodying the above terms and conditions was executed. Accordingly, the borrowers started paying the installments.
4. After the 12 quarters, on 06.10.2008, the Bank sent letter informing the borrowers the revision of interest from 9.5% p.a. to 15.75% p.a. (16.75% p.a., less 1%) with effect from 01.10.2008. Accordingly, the installment due together with enhanced rate of interest was demanded. This was objected to by the borrowers on the ground that without any basis, authority and contrary to the Loan Agreement unilaterally the rate of interest has been increased.
5. However, the Bank had brushed aside this on the ground that it has the power of revision in the Loan Agreement and it had also done it in accordance with the statutory circulars of Reserve Bank of India (RBI).
6. Thus, the controversy between them is as to the increase of interest from 9.5% p.a. to 15.75% p.a. from 01.10.2008.
7. In pursuance of the Loan Agreement, to resolve this controversy, the Bank appointed Mr.P.Valliappan, Advocate (2nd Respondent in O.P.No.678 of 2010 and 7th Respondent in the O.S.A.) as sole Arbitrator.
8. Before the Arbitrator, disputing the increase in the rate of interest, the borrowers have filed their detailed claim petition. The Bank has filed its detailed counter justifying the increase in the rate of interest. The claimants have filed 12 documents as Ex.C.1 to Ex.C12. The Bank had filed 5 Master Circulars issued by RBI as to the charging of interest on advances as Ex.R1 to Ex.R5.
9. The Arbitrator among other issues had one specific issue as to the rate of interest payable by the claimants. The Arbitrator after referring to the Loan Agreement, the option exercised by the borrowers and the power of the Bank to revise the rate of interest, answered the issue that the borrowers cannot question the hike in the rate of interest, dismissed their claim petition and passed the award accordingly.
10. In the circumstances, the borrowers have filed O.P.No.678 of 2010 under Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the award reiterating the very same contentions that they have raised before the Arbitrator as to the increase made in the rate of interest. The Bank sought to sustain the award referring to the provision for revision of rate of interest in the Loan Agreement and also the RBI Master Circulars.
11. On 15.02.2012, the learned Single Judge passed the impugned order, allowing the Original Petition, setting aside the award holding that the sudden increase in the rate of interest on the strength of some R.B.I. circulars, which were not produced before the Arbitrator is improper, thus, the award has been passed in violation of principles of natural justice.
12. As stated at the out set, aggrieve
