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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
Shameem Akther, J.
M.Yogam Naidu - Petitioner
Versus
The Bank of Baroda – Respondent
Writ Petition No.11564 of 2021
Decided On : 09-03-2022
Mandamus - Prepayment Charges - RBI Circulars - [INDIVIDUAL BORROWER, FLOATING RATE TERM LOAN, RBI CIRCULARS 07.05.2014, 02.08.2019]
Fact of the Case:
The petitioner sought a writ of Mandamus to declare the respondent Bank's demand for prepayment charges as illegal and arbitrary. The respondent Bank demanded prepayment charges for the closure of a term loan, which the petitioner argued was in violation of RBI Circulars 07.05.2014 and 02.08.2019. The petitioner paid the charges under protest and sought their repayment with interest.
Finding of the Court:
The court held that the petitioner, an individual borrower, was entitled to repayment of the prepayment charges as the loan was a floating rate term loan and not a business loan. The court emphasized the statutory force of RBI Circulars and the overriding effect they have on bank circulars. It also noted that the loan transfer should be deemed a 'takeover' and not 'closure', and the respondent Bank was estopped from demanding prepayment charges after accepting the amount from the Axis Bank.
Issues: 1) Entitlement of the respondent Bank to collect prepayment charges. 2) Entitlement of the petitioner for the return of prepayment charges. 3) Relief sought by the petitioner.
Ratio Decidendi: The court held that the petitioner, as an individual borrower, was entitled to repayment of the prepayment charges as per RBI Circulars, and the respondent Bank was estopped from demanding the charges after accepting the amount from the Axis Bank.
Final Decision: The court directed the respondent Bank to repay the prepayment charges to the petitioner with interest at 12% per annum within 60 days. The writ petition was allowed, and there was no order as to costs.
ORDER :
The petitioner herein seeks a writ of Mandamus declaring the action of the respondent No.1 Bank in demanding prepayment charges of Rs.52,47,315/-towards Term Loan Account No.18090600003130, vide letter, dated 08.04.2021, for release of mortgaged property as illegal, arbitrary, violative of RBI Circulars, dated 07.05.2014 and 02.08.2019, and consequently direct the respondent No.1 Bank to repay the same with interest @ 14% per annum to the petitioner.
2. Heard Sri N.Vijay, learned counsel for the petitioner, Sri Srinivas Chitturu, learned counsel for respondent Nos.1 and 2 and perused the record.
3. Learned counsel for the petitioner vehemently contended that demanding prepayment charges for closure of term loan and return of documents to the petitioner is illegal and arbitrary. As per the RBI Circulars, dated 07.05.2014 and 02.08.2019, none of the scheduled commercial banks shall charge foreclosure charges/prepayment penalties on any ‘floating rate term loan’ sanctioned for the purpose other than business, to individual borrowers, with or without co-obligant(s). The petitioner is an ‘individual borrower’ and the loan sanctioned to him is ‘floating rate term loan’ and not a business loan. Hence, the RBI Circulars, dated 07.05.2014 and 02.08.2019, squarely applies to the case of the petitioner. Further, the respondent Bank issued letter, dated 24.03.2021, specifically mentioning the foreclosure amount and accepted the demand draft of Axis Bank on 06.04.2021 for an amount of Rs.6,19,15,215.14 ps towards liquidation of dues pertaining to the subject term loan. There is no mention of prepayment charges in the said letter, dated 24.03.2021. Hence, the respondent Bank is estopped from demanding prepayment charges and their alleged right of levying prepayment charges is deemed to be waived. Further, the subject term loan sanctioned to the petitioner has been taken over by the Axis Bank. Prepayment charges are not applicable to the loans ‘taken over’ by another bank. The word ‘prepayment’ comes into picture when the loan is closed. In the instant case, the loan obtained by the petitioner is not ‘closed’, but taken over by another bank and hence, it is deemed that the loan still subsists. When final settlement is reached between the petitioner and the respondent Bank without misrepresentation, fraud, or coercion and money is accepted by the respondent bank towards full and final settlement, it is not open to the respondent Bank to make any further claim/demand against the petitioner. Further, there cannot be two types of calculation of service charges in respect of the same loan, i.e., ‘system calculation’ and ‘manual calculation’, which would amount to unfair or restrictive trade practice and ultimately prayed to direct the respondent Bank to repay the prepayment charges of Rs.52,47,315/- to the petitioner with interest @ 14% per annum.
4. On the other hand, learned counsel for respondent Nos.1 and 2 contended that since the petitioner availed term loan for the purpose of real estate project, he does not fall under the category of ‘individual borrower’. The petitioner engaged in real estate business with project cost of Rs.1683.79 lakhs, which falls under MSME segment. Since the petitioner along with a co-borrower availed ‘business loan’ from the respondent Bank, he is not entitled for the benefits of the RBI Circulars, dated 07.05.2014 and 02.08.2019. The respondent Bank has not contravened any of the RBI Circulars. Further, there is a specific clause in the terms and conditions under ‘Annexure – D’ of the loan sanction letter, dated 10.03.2020, that the petitioner is liable to pay prepayment charges @ 2% per annum on the balance amount of loan and for the residual period of prepayment. Accepting the same, the petitioner and co-borrower signed on each and every paper of the terms and conditions. Hence, the petitioner is bound to pay the prepayment charges. Upon the amalgamation of Vijaya Bank and Dena bank with the respondent Bank
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