The court ruled that contractual obligations regarding pre-payment charges are enforceable, and cannot be overridden by the Code designed for MSMEs.

JUDGMENT :

SANJEET PUROHIT, J.

FACTUAL BACKGROUND

1. The present Civil Misc. Appeal is preferred against the judgment and decree dated 10.05.2023 passed by the learned Commercial Court No.2, Jodhpur, in Civil Original Suit no. 64/2021 (NCV No. 74/2020), whereby the suit so filed by the appellant-plaintiff for recovery of sum of Rs. 5,52,000/-, being the amount recovered by the respondent Bank towards prepayment charges, came to be dismissed.

2. The suit has been preferred with following facts:-

2.1 It is mentioned in the plaint that the appellant, for the purpose of expansion of its business activities, approached the respondent bank, seeking credit facilities. Upon due consideration, the respondent Bank issued a sanction/acceptance letter dated 22.12.2015 allowing following credit facilities in favour of the appellant-plaintiff:

(i) Fund Based Working Capital Limit – Rs.50,00,000/- (enhanced to Rs.62,50,000/-).

(ii) Term Loan – Rs.2,76,00,000/- for establishment of a new turbine mill.

2.2. The sanction letter contained detailed terms and conditions, including stipulation that pre-payment charges at the rate of 2% would be levied on the limit/outstanding amount, whichever was higher, in the event the account was taken over by another bank or financial institution. At the same time, a hypothecation agreement was executed between the parties and Clause 5(ii) of the said agreement also specifically provided for levy of pre-payment charges at the rate of 2% in case of premature closure of the loan. It was averred that the respondent-Bank is admittedly signatory to the Code of Bank’s Commitment to Micro and Small Enterprises (hereinafter referred to as “the Code”), which provides for pre-payment of loan without levy of prepayment penalty in case of borrower being MSME, therefore, the condition of prepayment charges contained in the sanction letter as well as hypothecation agreement being contrary to the “Code” which is invalid.

2.3. It was further pleaded that appellant repaid the entire loan amount prior to the completion of the agreed loan period, however, the respondent bank levied a sum of Rs.5,52,000/- towards pre-payment charges.

2.4. Questioning the said levy, the appellant addressed representations to the respondent Bank between May and June 2018, seeking exemption from pre-payment charges by placing reliance upon the Code.

2.5. Appellant also referred to the information supplied by the respondent Bank under Right to Information Act, 2005, through its communication dated 18.08.2018 stating that no pre-payment charge is permissible on temporary loans obtained by MSMEs. However, the respondent-Bank has refused to waive the pre-payment charges and the same were paid by the appellant-plaintiff.

2.6. It is also contended that appellant approached the authorities under the Banking Ombudsman Scheme, 2006, but the complaint was rejected vide order 18.03.2019.

2.7. In this factual background, the appellant-plaintiff prefrred the suit for recovery of Rs.,5,52,000/- so also seeking declaration that Clause 5 (ii) of the Hypothecation agreement is illegal.

3. The suit was contested by the respondent-Bank by way of filing a written statement stating therein that the prepayment charges have been levied strictly in accordance with terms and conditions of hypothecation agreement executed between the parties and in consonance with the guidelines issued by the Reserve Bank of India, which is fortified by the order of the Banking Lokpal rejecting the complai