Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(All) 2181

IN THE HIGH COURT OF ALLAHABAD
Mahesh Chandra Tripathi, Prashant Kumar, JJ.
Manmeet Singh – Petitioner
Versus
Union of India and others – Respondent
WRIT - C No. - 22011 of 2023
Decided On : 18-01-2024

Advocates:
Advocate Appeared:
For the Petitioner:Kalpana Sinha, Sr. Advocate
For the Respondent: A.S.G.I., Gaurav Kumar Chand, Himadari Batra, Sumit Kakkar

Banks must adhere to RBI guidelines regarding interest rates and cannot charge excessive rates without borrower consent, ensuring transparency and fairness in lending practices.

Headnote:(A) Banking Ombudsman Scheme, 2006 - Clause 11(3)(c) - Loan Agreement - Variable Interest Rate - The petitioner took a loan of Rs.9,00,000/- at 12.5% interest, but the bank charged Rs.27,00,000/- instead. The Banking Ombudsman closed the complaint without allowing the petitioner to respond. The court found the bank's actions arbitrary and set aside the Ombudsman's order, directing a fresh hearing. (Paras 3, 6, 47)

(B) Jurisdiction - The objection raised by the bank regarding the maintainability of the writ petition was rejected as the Ombudsman's order fell under Article 12 of the Constitution. (Paras 29)

(C) Usurious Interest - The court emphasized that banks must adhere to RBI guidelines and cannot charge excessive interest without proper notice and consent from the borrower. (Paras 34, 42)

Facts of the case:
The petitioner took a loan of Rs.9,00,000/- from the bank at a variable interest rate of 12.5%. After paying the loan, he discovered that the bank charged Rs.27,00,000/-, leading to a complaint to the Banking Ombudsman, which was resolved without his input.

Findings of Court:
The Banking Ombudsman's order was set aside due to procedural violations, and the matter was remanded for a fresh hearing with due process.

Issues: The main issues included whether the bank charged excessive interest and whether the Banking Ombudsman followed proper procedures in resolving the complaint.

Ratio Decidendi: The court ruled that the bank's unilateral changes to the interest rate and failure to provide notice constituted unfair practices, violating the principles of transparency and mutual consent as mandated by RBI guidelines.

Result: Writ petition allowed.

JUDGMENT :

Prashant Kumar, J.

1. Heard Sri Utkarsh Srivastava, learned counsel for the petitioner, Sri Anurag Khanna, learned Senior Advocate assisted by Sri Sumit Kakkar, learned counsel for respondent nos.2 to 4 and Ms. Himadari Batra, learned counsel for respondent no.5.

2. The facts of the case are as follows:-

The petitioner took a loan of 9 lacs rupees from respondent no.5 on 26.12.2006 being “Loan Against Property-Home Saver” at an interest of 12.5% per annum. The repayment was to be made in 144 monthly installment of Rs.12095/-. As per the agreement entered into between the petitioner and respondent no.5-bank, the rate of interest was variable. Clause 16 of the agreement defines variable interest rate. Clause 2.2 of the agreement defines the interest and Clause 2.3 defines the computation of interest. The relevant extract of the agreement is quoted below:-

(a) The rate of interest applicable to the said Loan as on the date of execution of this agreement is as stated in the Schedule thereto, PROVIDED THAT in the event SCB desires to increase or decrease the rate of interest prior to the disbursement of the full loan, the weighted average of the different rate of interest shall become applicable to the Loan forthwith, from the date of such change in the rate of interest.

(b) The variable rate of interest shall be reviewed by SCB at the end of every three months from the month of disbursement and upon review SCB may decide to increase, decrease or remain the interest rate unchanged.

2.3 Computation of Interest

(a) The Bank shall charge interest at the rate specified in the Schedule hereto on the daily outstanding debit balance in the Home Saver Account. The debit balance in the Home Saver Account shall be difference between the Borrowing Limit and the credit balance in the account pursuant to deposits by the Borrower and credit of excess interest paid by the Borrower, as on the date of computation of interest. The Borrowing Limit shall be the Loan amount as per the Schedule hereto, which shall stand reduced with the amount of principle repaid or prepaid by the Borrower from time to time.

16. Variable interest rate

Usually the Bank reviews interest rates every three months from the month of disbursement or the previous review. The first time your interest rate may be eligible for a review will not be before the end of three calendar months from the month of disbursement.

At the time of the review the bank may decide to increase , decrease or leave the interest rate unchanged.

Your have been given a Special offer, SCB may announce Special offers from time to time. You have the option, at the sole discretion of SCB, to change to another Special offer provided you agree to pay a fee of 0.75% of the principal outstanding at the time of exercising the option.

Standard Chartered Bank Home Loan Regular Rate may change from time to time depending on relevant market conditions. This information shall be available on www.standardchartered.co.in or at our Phonebanking helplines.

In case of any unforeseen or extraordinary circumstances or sudden changes in market conditions SCB may at its sole discretion change the rate of interest.”

3. The petitioner, after paying off the entire claimed amount by the Bank, approached respondent no.5 for No Dues Certificate with a request for release of the documents of the property, which was placed as security against the loan amount. The No Dues Certificate was duly issued by the Bank and the papers relating to the property, kept as security, were also returned to the petitioner. After closure of the loan account, when the petitioner checked the bank statement, he realized that the bank has illegally taken Rs.27,00,000/- against the sanctioned loan of Rs.9,00,000/-. As per the installment fixed by the Bank, at the time of sanction of loan if it is calculated @ 12.5 % the total amount due after paying the entire 144 EMIs would have come to Rs.17,41,680/-. The petitioner on 8.6.2019 approached respond