The central legal point established in the judgment is that the definition of 'individual borrower' as per RBI circulars does not encompass sole proprietors of businesses, and therefore they are not eligible for waiver of foreclosure charges.

JUDGMENT

(Prayer: Writ Petition filed Under Article 226 of the Constitution of India, to issue a Writ of Certiorarified Mandamus, calling for the records relating to the communication of the 3rd respondent dated 25.4.2017, quash the same and consequentially forbear the 2nd and 3rd respondent from insisting payment of foreclosure penalty.)

The writ on hand has been instituted, questioning the validity of the communication of the third respondent dated 25.04.2017.

2. The writ petitioner states that he is the sole Proprietor of M/s.Murugan Idli Shop. The writ petitioner is a businessman and running a business in the name and style of “Murugan Idli Shop”, which is sole proprietary concern. The petitioner is assessed to tax. The third respondent/Bank had sanctioned two term loan accounts with a limit of Rs.10 Crore by taking over the outstanding loan of the petitioner with Fullerton India Credit Company Limited. The term loan agreement dated 06.03.2014 was signed by the petitioner in his capacity as the sole proprietor of “Murugan Idli Shop”. In April 2017, there was an outstanding of Rs.8,25,55,000/-. The petitioner approached the third respondent / IDBI Bank with the proposal to shift his Banking to HDFC Bank. As per which, the HDFC Bank would take over the outstanding loan of the petitioner. The third respondent / IDBI Bank sought to levy foreclosure penalty at 2% of the OD Limit, plus service tax and on the outstanding term loan amount amounting to Rs.21,33,365/-.

3. Relying on the Reserve Bank of India (RBI) Circular, the petitioner made a request on 06.04.2017, seeking waiver of foreclosure charges. However, the third respondent / IDBI Bank declined to accept the request, which resulted institution of the present writ petition.

4. The learned counsel for the writ petitioner mainly contended that the petitioner is an individual and the Sole Proprietor of M/s.Murugan Idli Shop, which is a brand name. Therefore, he is falling under the category of an “individual borrower” within the meaning of the RBI circular and thus, entitled to avail the benefit of waiver of foreclosure charges. The learned counsel for the petitioner further states that he has given consent to recover the foreclosure charges with a hope that the documents deposited will be released without prejudice to the writ petition pending during the relevant point of time. However, it was not initially released and pursuant to the interim order granted by this Court, documents were released subsequently.

5. May that as it be. The 1st respondent / Reserve Bank of India filed a counter affidavit, stating that the circular dated 7th May 2014 issued by the Reserve Bank of India, it was advised inter-alia that ''banks will not be permitted to charge foreclosure charges/pre-payment penalties on all floating rate term loans sanctioned to “individual borrowers”, with immediate effect''. Reserve Bank of India vide circular dated August 2, 2019, clarified that ''banks shall not charge foreclosure charges / pre-payment penalties on any floating rate term loan sanctioned, for purposes other than business, to “individual borrowers” with or without co-obligant(s)''. This circular has, however, no retrospective effect.

6. The learned counsel appearing on behalf of the 1st respondent / Reserve Bank of India reiterated that the waiver of foreclosure charges are applicable only to the “individual borrowers” and in the present case, the borrower is “M/s.Murugan Idli Shop”, represented by its sole proprietor and therefore, entity cannot be construed as an “individual borrower” within the meaning of the circular issued by the Reserve Bank of India, more so, the proprietary concern of the petitioner is falling under the category of Small Medium Enterprise (SME) and therefore, in any event, the writ petitioner cannot be construed as an “individual borrower” and therefore, not eligible to avail the benefits of waiver of foreclosure charges.

7. The learned counsel appearing on behalf of the respondent