A bank cannot retroactively demand interest when an agreement explicitly states zero interest.

JUDGMENT

The 1^st petitioner is an eye care hospital, which is run by the 2^nd petitioner, who had obtained a loan from the 1^st respondent Bank for the construction of a hospital building in the year 2005. During 2009, there was an outstanding of around Rs.48 lakhs towards interest. At the request of the petitioner, the loan obtained was restructured by converting the outstanding interest of around Rs.48 lakhs into a separate loan account. A reference to Ext.P1 would show that the aforesaid separate loan account so created did not visualise the petitioners remitting any amount towards interest. It specifically states that the rate of interest would be zero.

2. Later, during 2015, the petitioner decided to shift the term loan obtained from the 1^st respondent to another financial institution, and a request was also made before the 1^st respondent. In reply, the Bank informed the petitioner through Ext.P3 about the outstanding payable by the petitioner, which did not include any interest payable with respect to the additional loan account created as above. However, when the petitioner decided to transfer the loan account to the financial institution as proposed, the 1^st respondent Bank informed the petitioner that it had a liability to pay interest with respect to the additional loan created under Ext.P1. This was intimated through Ext.P5 communication dated 06.08.2015, informing that the interest payable by the petitioner would be Rs.9,77,873/-.

3. The petitioner remitted the aforesaid amount and thereafter made a complaint before the Banking Ombudsman— the 2^nd respondent herein—as evidenced by Ext.P6. The 2^nd respondent, in Ext.P7 hearing minutes, specifically recorded the contention raised by the petitioner and also noticed that the Bank had not included any clause reserving its right to claim interest in Ext.P1, and so much so, the contention raised by the petitioner required consideration. However, the Banking Ombudsman found that this could only be an omission on the part of the 1st respondent Bank and, therefore, directed the Bank to send an apology letter, taking note of its misconduct.

4. On that basis, Ext.P8 letter was forwarded by the Bank to the 2nd respondent herein, and an amount of Rs.1,00,000/- was offered towards compensation, which the petitioner refused to accept. The 2^nd respondent ultimately issued the order at Ext.P15, finding that the deficiency in service, if any, was sought to be compensated by offering Rs.1,00,000/-, which had been refused as noticed above, and therefore, there was no further scope for interference in the matter. Stating so, the complaint filed by the petitioner stood rejected. It is seeking to challenge the aforesaid order that this writ petition has been instituted.

5. I have heard Mrs. Laya Mary Joseph, the learned counsel for the petitioner, as well as Sri. Amal George, the learned Standing Counsel for the 1st respondent herein. 6. The short issue that arises for consideration in this writ petition is with regard to the sustainability or otherwise of the findings contained in Ext.P15 issued by the 2nd respondent herein.

7. The facts are not in dispute. A reference to Ext.P1, on the basis of which the fresh loan account against the outstanding interest on the original term loan was created, would show that the petitioners were not expected to remit any interest on the loan so created. It was only when the petitioner sought to transfer the term loan to another financial institution that the 1^st respondent Bank raised a demand for interest, contending that it had omitted to mention anything about interest in Ext.P1. It is on that basis that the communication at Ext.P5 was issued demanding an amount in excess of Rs.9.77 lakhs as interest from the petitioner.

8. The fact that th