Pre-payment penalties are impermissible for loans issued under the GECL Scheme which protects borrowers from arbitrary charges.

ORDER :

1. While W.P. No.19596/2023 has been filed by the petitioner assailing the letter of the 1st respondent calling upon the petitioner to pay pre-closure charges and also direct the 1^st respondent to return the deposit of Rs.25,00,000/- (Rupees Twenty Five Lakhs only) lying with the 1^st respondent, W.P. No.32421 of 2023 has been filed by the petitioner to direct the 1st respondent to refund the sum of Rs.52,56,458/- which has been levied/debited towards various charges and penalties in respect of the account of the petitioner with the 1st respondent bank upon transfer of the loan account to Federal Bank.

Facts in W.P. No.19596/2023 :

2. The petitioner is a CRISIL-A rated company which had its banking with Canara Bank, Tirupur, since the year 2005 and it has an unblemished track record with the bank. Till recently, the petitioner was continuing its operations with the 1st respondent, but since the operations were not feasible, the petitioner was constrained to move its account to M/s.Federal Bank during February, 2023. The petitioner was enjoying a working capital of Rs.40 Crores and had two Guaranteed Emergency Credit Line (for short ‘GECL’) loans to the tune of Rs.8 Crores and Rs.4.5 Crores respectively, in all totalling to a forward contract loan amount of Rs.50 Crores.

3. It is further averred that by January, 2023, all the dues payable to the 1^st respondent amounting to Rs.50.72 Crores were paid in full and the mortgaged properties by way of collateral securities were requested to be returned along with the cancellation of Memorandum of Deposit of Title Deeds (for short ‘MODT’). At this point of time, the 1st respondent called upon the petitioner to pay 2% as penal charges on the outstanding amount for pre-closing the GECL loans availed by it. It is further averred that GECL loan was granted to eligible borrowers, on account of COVID-19 and the entire scheme is drawn by the 2nd respondent, who guaranteed the loan that is offered by its Member Lending Institutions (for short ‘MLI’) to eligible customers. The operational guidelines of the Emergency Credit Line Guarantee Scheme made it very clear that there would be no penal charges if the borrower chose to pre-pay the entire liability. In fine, it was made clear that if the borrower wishes to close the GECL loan account before its intended date of closure, there could be no pre-payment penalty.

4. It is further averred that loans were cleared in full on 25.1.2023 but the 1st respondent, in blatant violation of the guideline issued by the 2nd respondent, which is binding on the 1^st respondent, had demanded 2% as pre-payment penalty charges, which works out to around Rs.24 Lakhs and inspite of the petitioner questioning the rationale behind such levy by pointing out that it cannot be claimed under the scheme as such a clause does not form part of the conditions of sanction, yet, the 1st respondent has been insistent on payment of the said amount and has neither reverted back to the petitioner nor released the documents and the MODT.

5. It is further averred that the 1^st respondent has been demanding the said penal interest in deviation of their own terms of sanction, which provides for penal interest only in four contingent scenarios, which is not attracted to the case of the petitioner. The terms and conditions of the sanction do not provide for charging of pre-payment penalty on a borrower, excluding the four contingent situations and the petitioner has not committed default or fell within the four scenarios and, therefore, is not required to pay the pre-payment p