Failure To Notify Borrower Of Floating Interest Rate & EMI Changes Is Deficiency In Service & Unfair Trade Practice: Odisha State Consumer Commission - 2025-01-09

Reliable Legal Information.

SBI Ordered to Pay ₹76 Lakh for 'Unfair Trade Practice' in Senior Advocate's Home Loan Case

Cuttack, Odisha: The State Consumer Disputes Redressal Commission in Odisha has directed the State Bank of India (SBI) to pay a total of ₹76 lakhs in compensation to a senior advocate for "deficiency in service" and "unfair trade practice." The Commission, presided over by Hon’ble Dr. Justice D.P. Choudhury, found that the bank failed to properly notify the borrower about changes in the floating interest rate and corresponding EMI adjustments for over a decade, leading to the wrongful declaration of his home loan account as a Non-Performing Asset (NPA).

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Background of the Dispute

The complainant, Yasobant Das, a senior advocate practicing in the Supreme Court, had taken a home loan of ₹1 crore from SBI in September 2009. According to the loan agreement, the interest rate was fixed for the first three years and would then switch to a floating rate. Das consistently paid a monthly EMI of ₹1,00,000 via ECS from 2009 to 2021.

The issue arose when Das was suddenly informed that his loan account had been declared an NPA as of March 31, 2020. This was followed by a legal notice in August 2021 demanding an outstanding payment of ₹1,12,75,011.98. Das contended that the bank had unilaterally increased the interest rates over the years without providing him with the mandatory notice stipulated in the loan agreement. This failure, he argued, deprived him of his right to pre-close the loan if he disagreed with the revised rates.

Arguments from Both Sides

Complainant's Arguments: Mr. Das argued that SBI committed two major deficiencies:

1. It failed to provide any notice regarding the numerous changes in the floating interest rate since 2012.

2. It never communicated any change in the EMI amount, continuing to accept ₹1,00,000 per month for 12 years without flagging any shortfall.

He asserted that the bank’s own agreement required it to notify the borrower of any interest rate change, which would give the borrower 15 days to either accept the new rate or opt for pre-closure. The bank’s sudden demand for over ₹1.12 crore and the classification of his account as an NPA, despite regular EMI payments, constituted an unfair trade practice and caused him significant mental agony.

SBI's Defense: The State Bank of India countered that under the loan agreement, a borrower is "deemed to have notice" of interest rate changes if they are displayed on the branch notice board, published on the bank's website, or reflected in the statement of account. The bank argued that Das, being an educated professional, should have been aware of the floating rate mechanism and was responsible for ensuring his EMI covered the interest component. They claimed the NPA classification was a result of a statutory audit and was in line with RBI guidelines due to the accumulated overdue amount.

Commission's Findings and Legal Reasoning

The Commission, led by President Dr. Justice D.P. Choudhury, meticulously analyzed the loan agreement and found significant lapses on the part of SBI.

Key Excerpts from the Judgment: The Commission observed:

"Unless the EMI is conveyed by virtue of agreement then the fault cannot lie with the borrower

– complainant for non-payment of increased EMI. When increase of EMI is not conveyed with the rate of interest, then the borrower

– complainant cannot be found with fault for non-payment of same so as to have a charge of cumulative interest by which the complainant suffers."

The court found no evidence that SBI had ever sent the statement of account to the complainant or otherwise notified him of the 24 interest rate changes that occurred over the years. The bench noted the bank's silence for nearly a decade while accepting the fixed EMI amount.

"The Banking institution is supposed to maintain a good faith with the customer... when the OP remains silent for years and accepted the EMI as paid by the complainant and suddenly comes with a huge amount which is more than the principal, definitely there is some deficiency in service on the part of the OPs as well as unfair trade practice adopted by them."

The Commission ruled that the bank’s conduct violated the terms of its own "unfair contract" under Section 2(46)(vi) of the Consumer Protection Act, 2019, by imposing an unreasonable obligation on the consumer. Declaring the account of a senior citizen and advocate as NPA without following due procedure was deemed a gross violation of his right to dignity under Article 21 of the Constitution.

Final Verdict and Implications

The State Commission allowed the complaint and issued the following directives to the State Bank of India:

1. Remove Deficiency: Lift the NPA classification from the complainant's loan account immediately.

2. Compensation: Pay ₹60,00,000 for the loss and suffering caused by the deficiency in service and unfair trade practice.

3. Punitive Damages: Pay ₹15,00,000 in punitive damages.

4. Litigation Costs: Pay ₹1,00,000 towards the cost of litigation.

The total amount of ₹76 lakhs is to be paid within 45 days, failing which it will attract interest at 9% per annum from the date the complaint was filed. This judgment serves as a strong reminder to banking institutions of their duty to maintain transparency and communicate effectively with borrowers, especially regarding changes in floating rate loans.