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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
M.S. Ramachandra Rao,Harminder Singh Madaan, JJ.
Guru Nanak Engineering Works – Appellant
Versus
Reserve Bank Of India & Ors. – Respondents
CWP No.19472 of 2020 (O&M)
Decided On : 09-08-2022
Interest Rate - MSME Unit - SARFAESI Act, 2002 - BPLR, MCLR - The court discussed the charging of interest by the bank, the classification of the loan account as NPA, and the excessive interest charged to the petitioner. It highlighted the legal provisions related to interest rates, the RBI directives, and the obligations of the bank to provide transparent information about interest rates to the borrower. The court found that the bank had charged excessive interest without authority and directed the bank to adjust the same against the outstanding amount claimed by it. The court also set aside the notice issued under Section 13(2) of the SARFAESI Act, 2002, and directed the bank to classify the account of the petitioner as 'standard' and inform the CIBIL accordingly. Additionally, the bank was directed to pay costs to the petitioner.
Fact of the Case:
The petitioner, a MSME Unit, challenged the excessive interest charged by the bank, the classification of its loan account as NPA, and sought relief from the court.
Finding of the Court:
The court found that the bank had charged excessive interest without authority, wrongly classified the loan account as NPA, and failed to comply with RBI directives. It directed the bank to adjust the excessive interest against the outstanding amount, set aside the notice issued under Section 13(2) of the SARFAESI Act, 2002, and directed the bank to classify the account as 'standard' and inform the CIBIL. The court also ordered the bank to pay costs to the petitioner.
Issues: The issues included the charging of excessive interest by the bank, the classification of the loan account as NPA, and the petitioner's claim for relief.
Ratio Decidendi: The bank's failure to provide transparent information about interest rates, non-compliance with RBI directives, and arbitrary classification of the loan account as NPA led to the court's decision in favor of the petitioner.
Final Decision: The Writ Petition was allowed, the notice under Section 13(2) of the SARFAESI Act, 2002 was set aside, the declaration of the loan account as NPA was also set aside, and the bank was directed to adjust the excessive interest against the outstanding amount. The bank was further directed to classify the account as 'standard', inform the CIBIL, and pay costs to the petitioner.
JUDGMENT
M.S. Ramachandra Rao, J. - Background facts The petitioner is a MSME Unit registered with Ministry of MSME, Government of India vide Udyog Adhaar No. 825467027442 vide Registration Certificate dt.20.04.1999. It is a sole proprietory concern engaged in the business of manufacturing of agricultural equipments/ construction equipments/road sweeper machines.
2. Respondent No.3 Bank ( for short 'the Bank') had extended facilities to the petitioner since 2006 in the form of Cash Credit/Agricultural Limit vide Annexure P-3 amounting to 30 Lakhs @ interest rate of Basic Prime Lending Rate (BPLR) plus Term Premia which was 11.25% at the time of sanction of the said Limit.
3. The said Limit was provided by the Bank against the primary security of hypothecation of the fixed assets of the petitioner amounting to 4.88 Lakhs at the time of sanction of the limit, and closing stock of machinery of 40 Lakhs. Two collateral securities of constructed factory land and building measuring 4 Kanals, and another measuring 2 Kanals, 15 Marlas, were also furnished by the petitioner.
4. It is the contention of the petitioner that the Bank was not providing documents relating to rate of interest it charged, and trusting the Bank, whatever demands were raised, the petitioner was paying the same.
5. According to the petitioner, interest rate kept varying from 11.25% to 16%, and the Bank was not providing any information to the petitioner on what basis such interest was being levied, and so it stopped dealing with the Bank for some time.
6. The petitioner was served with a demand notice dt.29.04.2015 (Annexure P-4) issued under Section 13(2) of the SARFAESI Act, 2002 demanding 46,93,061/- in which it was informed that it's account was classified as Non Performing Asset (NPA) on 31.03.2015.
7. Vide Annexure P-5 application dt.04.05.2015 filed under Right to Information Act, 2005, the petitioner asked the Bank for relevant documents showing how the interest is overdue against it. It also sought copies of the sanction letter and all loan documents which had been got executed by its proprietor, the rate of interest charged from the petitioner, the account statement from the year 2006 to 31.03.2015, details of OTS Scheme, rate of interest applicable to agricultural loans, and rests applicable to such loans.
8. On 11.05.2015, the petitioner also replied to the notice dt.29.04.2015 issued to him under Sec.13(2) of the Act stating that for the previous 9 years, high rate of interest was being charged by the Bank. It demanded reversal of the excess interest charged and it wanted to regularize the account after settlement of the dues.
9. The Bank replied on 14.05.2015 and contended that the loan was sanctioned under SSI Category and not as Special Agricultural Loan as claimed by the petitioner, that the rate of interest applicable at the time of sanction of the facility was 11.25% subject to change from time to time with the RBI guidelines, and the petitioner had never complained of the same in the past and is raising this issue only now.
10. Petitioner replied on 15.05.2015 reiterating its complaint about charging of excessive interest, and expressing its willingness to regularize the account, and asked the Bank to reverse the excess interest claimed and disclose the exact overdue amount to the petitioner so that it can deposit the same.
11. On 16.05.2015, the Bank wrote to the petitioner that the OTS amount of 33 Lakhs offered by the petitioner is on lower side, and the petitioner should improve the same so that it can be considered by the competent authority.
12. The petitioner then sought a meeting with the Circle Head or AGM of the Bank through a letter dt.26.05.2015, and in that meeting petitioner alleges that it was asked to deposit 8-10 Lakhs in the Bank, and the Bank would then regularize the account and would consider refunding the excess compound interest in penal charges levied upon the petitioner.
13. The petitioner then deposited 4 Lakhs on 02.06.2015 and
The court's discretionary jurisdiction under Article 226 is not absolute and should be exercised judiciously.
A bank can revise interest rates based on internal ratings without prior notice if contractually permitted, but parties may contest such revisions in appropriate proceedings.
Banks must adhere to RBI guidelines regarding interest rates and cannot charge excessive rates without borrower consent, ensuring transparency and fairness in lending practices.
Banks are under a statutory obligation to comply with the RBI's Resolution Framework (R.F) 2.0 and consider applications for restructuring of MSME loans in accordance with its provisions.
The classification of loan accounts as non-performing assets must be borrower-wise, not facility-wise, and a guarantor cannot evade liability due to another borrower's defaults.
The classification of loan accounts as borrower-wise under the SARFAESI Act is upheld, emphasizing that a guarantor cannot evade liability due to another borrower's NPA status.
Point of law: If a particular case falls in the exceptions carved out and there are no disputed questions of facts arising for consideration, it is not necessary to relegate the parties to avail the ....
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