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Judgment
Aggrieved by the order in Consumer Complaint No. 41 of 1999 passed by the Bihar State Consumer Dispute Redressal Commission, Patna (in short the "State Commission"), the Complainant preferred this appeal under Section 19 of the Consumer Protection Act,1986 (in short "the Act"). By the impugned order, the State Commission has dismissed the Complaint on the ground that there was no deficiency on behalf of the OPs in charging interest at quarterly rests as per the terms of the Agreement.
The facts material to the case, are that the Complainant entered into an initial agreement with the Opposite Parties (hereinafter referred to as SBI) for a period of 5 years with an option to SBI for renewal of the lease for a further period of 5 years on mutually agreed terms and conditions. It was averred that according to the terms and conditions of the offer letter, a term loan of 15,00,000/- was sanctioned at 15% p.a. interest. The entire loan amount with the interest was to be liquidated by the Complainant by depositing 87% of the monthly rental proceeds in the loan account within the initial lease period of 5 years. The Complainant consented to the offer letter on 08.11.1990. Subsequently, on 26.03.1991, SBI intimated that the interest rate would be 16% p.a. instead of 15% p.a. The Complainant wrote a letter dated 08.04.1991, asking SBI to modify the agreement as the rent had been settled on the basis of the rate of interest and therefore, this cannot be changed at this stage. The letter also referred to the discussions with the premises officer of SBI, who had confirmed to the Complainant that the rate of interest on the loan for construction of the bank premises will not change. Vide letter dated 08.10.1992, the Complainant was informed that the matter was referred to RBI and the final decision would be taken shortly.
On 05.01.1993, the Complainant wrote to the Chief General Manager, SBI regarding the rate of interest and also referred to the circular dated 18.02.1991, in which it was stated that the rate of interest remain unchanged in respect of advances sanctioned before 16.11.1990. The Complainant pleaded that as the term loan of 15,00,000/- was sanctioned on 05.11.1990, prior to 16.11.1990, the direction given in this circular should be adhered to. The Complainant also wrote to the Governor RBI on 18.02.1994, for which he received a reply from Assistant Chief Officer, RBI confirming that as per the instructions issued by them in May 1994, periodical revision of interest rates should not be made applicable to premises loans and that the rate of interest charged at the time of sanction of loan should remain unchanged till the loan is liquidated. The captioned loan account was liquidated on 03.01.1996, within the initial lease period of 5 years i.e., 09.02.1996, on adjustment of 87% of the monthly rental proceeds. Once again, the Complainant wrote a letter to SBI on 07.07.1998, requesting them to modify the interest rate and charge at 15% p.a. simple interest and refund the excess amount so realized along with the interest at 15% p.a. compounded at quarterly rests.
It was pleaded that SBI deducted an excess amount of 3,01,599.50/- from the Complainant''s monthly rentals during the period 01.02.1996 to 03.10.1996, which was in violation of the guidelines issued by RBI. The Complainant put forth the whole matter before the Governor, RBI vide a petition dated 27.11.1996, for which he received a reply on 14.01.1999, advising the Complainant to seek help from the grievance cell of RBI. On 23.04.1999, the Complainant addressed a letter to the Governor RBI stating that he had approached all the concerned authorities of SBI but received no response. Subsequently, he filed this Complaint before the State Commission seeking direction to SBI to refund the excess amount of 3,01,599.50/- with interest rate at 15%p.a compounded at quarterly rests from 01/02/1996, till 30/6/1999, together with costs of 45,000/- and 5,00,000/- towards compensation for mental agony.
SBI in their Written Version stated that as per clause 6 of the Loan Agreement, the Complainant shall be liable to pay interest at the rate of 15% p.a. with quarterly rests from the date of advance calculated on the daily balance of the amount due. With regard to the liquidation of the term loan of 15,00,000/-, the agreement provided that out of the rental proceeds of the lease premises, 87% shall be deposited in the loan account every month. Subsequently, as per the bank norms, the rate of interest applicable to the term loan as advanced to the complainant was revised from 15% to 16% and an intimation to this effect was sent vide a letter dated 26/03/1991, to which the complainant protested and approached various authorities including RBI, which responded, vide a letter dated 19/10/1994 ''stating that the periodical revision of interest rates should not be made applicable to premises loans and the rate of interest charged at the time of sanction of the loan should remain unchanged till the loan is liquidated....'' The term loan was liquidated on 31/01/1996 and intimation to this effect was sent vide a letter dated 17/10/1996 along with the copy of the statement of account. Meanwhile the Complainant kept pursuing RBI regarding the interest rate and ultimately approached the State Commission on the ground that SBI was not entitled to charge interest on ''quarterly rests''.
The State Commission in its order dated 10.04.2006 held that SBI was not entitled to charge interest at quarterly rests and accordingly directed SBI to calculate interest at 15% p.a. simple interest. As against this order SBI preferred an Appeal before the National Commission, which set aside the order of the State Commission and remanded the matter back for fresh adjudication in accordance with law. This Commission observed as follows:
" In our view the Clauses of Agreements, which are binding on the parties have not received the kind of consideration at the hands of the State Commission, as it was required. The effect of the communication dated 19/10/1994 emanating from the R.B.I. is also required to be considered. That apart counsel for the appellant would assail the order of the State Commission on the strength of a later decision of the Supreme Court in the case of Canara Bank Vs. P.R.N. Upadhyaya & Ors. made in C.A. No. 4286 of 1998 dated 25-08-1998, which has the effect of explaining and over ruling the earlier decision of the Supreme Court in the case of State Bank of Patiala Vs. Harbans Singh Civil Appeal No. : (1994) 1SCR933 on the basis of which the complaint was answered by the State Commission. Effect of this decision also needs to be considered. "
Thereafter, by the Impugned order, the State Commission has dismissed the Complaint on the ground that there was no deficiency of service on behalf of SBI and observed as follows:
" 12. Having given consideration on going through the aforesaid decision of Canara Bank Vs. P.R.N. Upadhyaya & Ors. Reported in AIR 1998 SC 3000, it has been made clear that for loans charging of interest rate premises leased out to Bank loans granted by Banks to its landlord for construction/ renovation of premises are term loans and interest shall be charged at quarterly rests. This preposition of law enunciated by the Hon''ble Apex Court makes it clear that the loan sanctioned to the complainant for construction of the premises and thereby lease it back on rental to the Bank would come within the purview of term loan as is mentioned in the agreement between the parties and fo5r that interest shall be charged at quarterly rest. Relevant portion of the aforesaid judgement are in Para-10,12,14 and 16. No elaborate discussion is required for the simple reason that his ruling will be applicable in the present facts and circumstances of the case and we do feel that proper consideration of the said reasoning has not been given effect to and applying the aforesaid ratio of the Hon''ble Apex Court in the aforesaid decision, the interest charges by the Bank at quarterly rest for term loan towards the repayment for liquidation of loan of the complainant is just and proper and in consonance with their agreement and therefore, we are unable to agree with the earlier finding of this Commission in view of observation of the Hon''ble National Commission and contained guidelines therein as also application of the aforesaid decision of the Hon''ble Apex Court.
For the reasons stated above, we do not find any deficiency on the part of the State bank of India for which it could be summed up that O.P.- State Bank of India has submitted calculation and charged towards liquidation of the loan of the complainant as per terms of the agreement, which is required for calculation of term loan at quarterly rest. "
The Learned Counsel for the Appellant submitted that the State Commission did not appreciate the spirit of the judgement of the Hon''ble Apex Court in Canara Bank Vs. P.R.N. Upadhyaya & Ors. (1998)6 SCC 526 , wherein the Hon''ble Supreme Court, while deciding the case, has refrained from expressing any opinion and has observed as follows:
"Since, we are remanding the complaint for its fresh disposal on merits, we have refrained from expressing any opinion on the effect of various circulars/directions and notifications issued by the Reserve Bank of India on the subject under consideration were not placed before the learned Ombudsman earlier, the same shall be permitted to be brought on the record by the learned Ombudsman and the parties given an opportunity to have their say in regard there to.
The appeal is disposed of in above terms. No costs ."
The Learned Counsel representing SBI submitted that the Complaint was barred by limitation as the loan was liquidated on 03.10.1996, but the Complainant approached the State Commission only on 24.06.1999 after a lapse of more than 2 years from the date of accrual of the cause of action. He further contended that the Complainant had availed a loan of 15,00,000/- for a commercial purpose that is for construction of alternative premises and therefore does not fall within the definition of the Consumer within Section 2(1)(d) of the Act. He submitted that SBI was entitled to charge interest at the rate of 15% p.a. with ''quarterly rests'', as the acceptance letter dated 08.11.1990 is to be read together with clause 6 of the term loan agreement, which specifically stipulates that the borrower shall pay interest on the loan at the rate of 15% p.a. with ''quarterly rests from the date of advance calculated on the daily balance of the amount due''. There is no ambiguity in the agreement or in the acceptance letter and therefore the appeal deserves to be dismissed.
The submission made by the learned counsel for SBI that the Complaint is barred by limitation is untenable as the Complainant is contesting the deduction of 3,01,599.50/- from his rental account during the period 01.02.1996 to 03.10.1996 and has been continuously communicating with both SBI and RBI vide letters dated 07.07.1998,09.09.1998and 27.11.1998 and subsequently filed a Complaint before the State Commission on 24.06.1999. Therefore it cannot be construed that the Complaint was bared by limitation merely because the loan was liquidated on 03.10.1996. The argument of the counsel that it is a commercial loan and therefore the Complaint under the Act is not maintainable is also unsustainable as the loan in question is a premises loan and is not used for running any large scale profit venture to fall within the ambit of ''commercial purpose''.
For better understanding of the case relevant conditions of the offer later dated 08.11.1990 is reproduced as hereunder:
"vi) The initial lease period will be for 5 years with option to the Bank for renewal of lease for further period of 5 years on mutually agreed terms and conditions. The lease will be registered and the cost of stamp, registration fees, etc. in this regard will be equally shared by the Bank and the landlady you.
xii) In this connection, a term loan of Rs. 15 (Fifteen) lacs as demanded by you has also been sanctioned by the Bank to you on usual terms and conditions as laid down by the Bank in this regard. You will have to complete the necessary formalities in this regard. The loan has been sanctioned as a Term Loan at an interest of 15% p.a. The entire amount of loan and its interest will be liquidated by you by depositing at least 87% of the monthly rental proceeds in your loan a/c within the initial lease period for 5 years. You will have a facility of amortisation for four months on loan amount."
Clause 6 of the term loan agreement dated 27.12.1990 reads as follows:
"6. The borrower shall pay the interest on the loan at the rate of 15% per annum with monthly/quarterly rests from the date of the advance calculated on the daily balance of the amount due. Further, the Bank shall be entitled to charge, at its own discretion, enhanced rates of interest on the account either on the entire outstanding for a portion thereof for any default in the payment of principal or interest as aforesaid, for much period as the default continues or for such time as the Bank deems it necessary. Charging of such enhanced rates shall be without prejudice to the Bank''s other rights and remedies under the agreement or otherwise. The said rate of interest would be automatically revised as per the directives which may be given by the Reserve Bank of India to the Bank from time to time and the Borrower agrees to pay the rate of interest as per the directives of the Reserve Bank of India from time to time. Such interest shall be payable with monthly/quarterly or such other rates as may be applicable."
The learned counsel for the Complainant relied on the circulars of RBI dated 26/06/1996, 17/05/1994, and 11/11/1998 and also the guidelines given by the Committee constituted to look into the subject matter under consideration. The learned Ombudsman in his award dated 30/10/1998 has considered all these circulars as per the directions given by the Hon''ble Apex Court in Canara Bank Vs. P.R.N. Upadhyaya & Ors. (1998)6 SCC 526 , and observed as follows:
" Therefore it has now to be seen whether the specific circulars issued on the subject of Premises Loan direct the banks, either expressly or by implication, that interest at quarterly rests only should be charged in case of Premises Loan.
On a detailed and critical analyses of the 11 circulars relied upon and quoted by both the parties and all other circulars issued by RBI on premises loans and the clarifications issued by Reserve Bank of India on specific query raised on the issue by the banks and this office it is observed
That considering the importance of the subject RBI had consolidated all its directives and came out with a fresh and revised guidelines covering all aspects on the subject of Premises Loan including interest to be charged and communicated the same to all the banks vide DBOD No. BLBC 81/C 168(61)- 83 dated 17.10.83 and DBOD No. BLBC 82/C 168(61)- 83 dated 17.10.83.
This Circular while dealing with interest at para 7 nowhere indicated that the interest can be charged with quarterly rests or otherwise;
That the practice of RBI has been to refer to the general circular in the circulars on specified subject like Agricultural Finance; Selective Credit Control etc. No reference to the general circular as applicable and in force on the said date is made in the above Circular of 1983 while giving fresh guidelines on the Premises Loans.
That none of the Circulars later to 1983 or prior to it including the DBOD Circular No. BLBC 60/22.01.0003/94 dated 17.05.94, spelt out that the mode of charging interest should be at quarterly rests or at longer rests;
Apart from the fact that the RBI''s specific circulars also do not direct charging of interest at quarterly rests, RBI''s intention that interest at quarterly rests should not be charged on premises loan is strengthened from the following facts:
RBI at no time has quoted any general circular while clarifying on a specific query made in this regard or otherwise;
RBI was conscious of the fact that the rate of interesthas direct bearing on the rent and recovery and has in fact gone to the extent of advisingbanks not to vary the rate of interest as contracted and thus extended a concession in case of premises loans.
RBI while clarifying that the Supreme Court judgement in Harban''s case is the law of the land would have in the normal course spelt out and referred to the right of the banks to charge interest with quarterly rests but for the said judgment. But RBI did not refer to any such circular or right of the banks.
On the opposite party bank seeking clarification from RBI on 05.09.96, RBI would have immediately clarified that interest at quarterly rests can be charged in case the circulars so permit but the RBI has not given any specific or general directions in this regard admittedly because RBI has not issued any such directions and the circulars do not provide for the same.
On the other hand RBI vide its communications of November, 1995 to this office has nowhere stated that the interest can be charged with quarterly rests in case of premises loan while on the contrary it has clearly indicated that there is no specific instructions or directions issued requiring the banks to charge interest at quarterly rests only on Premises Loans and therefore opined that the banks will not be entitled to charge interest at quarterly rests.
In the light of the observations of the Hon''ble Supreme Court in Civil Appeal No. 4286 of 98 that I am obliged to comply with directions / circulars / notifications issued by Reserve Bank of India etc. I am required to follow the instructions given by the RBI. RBI has in their last communication of November, 1995 clearly stated that the banks will not be entitled to charge interest at quarterly rests, and these instructions have not so far been rescinded, modified or superseded till date.
RBI has clearly indicated in its Circular of 1983 that the loan has to be recovered from the rents. In all cases where the landlords have taken loan for construction of premises (as distinguished from loan for repairs/ modification) the loan is never liquidated from the rents in case the banks are allowed to charge interest at quarterly rests. It would not be the intention of the RBI that the landlord should be in perpetual indebtedness to the bank. Equity and fair play demands that certain laxity and concessions are provided for such landlords.
In fact and in effect RBI had been doing so from time to time during the period subsequent to 1983.
The bank has not placed any other material, circular, guidelines of RBI which direct or compels charging of interest at quarterly rests. In the absence of any other circulars the bank''s contention in this regard therefore has to be rejected.
For all the above reasons and on a careful analysis of all the circulars referred to by the parties and on critical appreciation of its application in the light of the observations made by Hon''ble Supreme Court in Civil Appeal No. 4286 of 98 it is abundantly clear that none of the circulars relied upon by the bank direct charging of interest at quarterly rests only in case of premises loan.
On Principles of equity and on a combined reading of all the circulars and in the absence of any directions from RBI regarding mode of charging interest in the specific circulars on Premises Loans the banks would be justified in charging interest at annual rests instead of simple interest as the bank balances accounts annually and interest rate is prescribed annually.
I answer this issue accordingly and hold that there is deficiency of service on the part of the bank in this regard as provided for under clause 13 (b) of the Banking Ombudsman Scheme,1995.
An award is therefore passed directing the bank
To recast the two loan accounts of the complainants disbursed during the year 1980 and 1986 and closed during the year 1988 and 1989 respectively by applying contractual rate of interest at Annual rests right from the date of disbursement to the date of closure;
To recast the account of the loan disbursed during the year 1991 by charging interest at 15.5% at Annual rests;
To pay interest applicable to term deposits on such final credit balances arrived at if any."
The Learned Counsel for SBI drew our attention to the RBI circular dated 09.03.2002 in which RBI has directed that interest at monthly rests shall be applied in cases of all new term loans and other loans of longer/fixed tenor. Firstly, this circular is subsequent to the offer letter dated 08.11.1990 and loan agreement dated 27.12.1999. Secondly, the circular clearly states that with effect from April 2002, the banks will move over to charging interest at monthly rests and that this would be restricted to Cash-Credit and Over Draft accounts only. This circular cannot be relied upon in the present case as the subject premises loan is of the year 1990 and this circular does not stipulate that it is operative with retrospective effect.
None of the circulars in vogue at the time when the cause of action had arisen i.e. the date on which the agreement was executed 08/11/1990, stipulate that the mode of charging interest should be at quarterly rests. It was never the intention of RBI that the landlord should be in perpetual indebtedness. There are no specific guidelines issued by RBI which prevail upon the Bank to charge interest at quarterly rests in case of premises loans. Even in the subsequent circular dated 11/11/1998, RBI has advised the Bank Board to lay down a separate policy in respect of loan agreement to landlords, who provide to them premises on lease/rental basis. A Working Group was constituted for the purpose of reviewing the policy on hiring and de-hiring the Bank premises. SBI has not filed any policy laid down by their Board with regard to the detailed operational guidelines. In fact, in the summary of recommendations, this working group, suggested that in view of the Hon''ble Supreme Court judgement, the rent which is fixed on the basis of market rates and interest which is being charged on loans at commercial rates, may be delinked and banks may decide the interest to be charged as per the lending directives issued by the RBI. Keeping in view the principle of Equity and specifically all the RBI circulars/ directions considered by the Ombudsman while passing the Award, which has since attained finality, and in the absence of any specific directions given by RBI, to charge interest at quarterly rests on premises loans, we are of the considered opinion that there was deficiency of service on the part of SBI in charging interest at ''quarterly rests''.
Hence, this Appeal is allowed and the order passed by the State Commission is set aside. We direct SBI to refund to the Complainant the excess amount of 3,01,599.50/- with simple interest at 9% p.a. from 01/02/1996 till 30/06/1996, together with costs of 10,000/-. If this amount is not paid within four weeks from the date of receipt of this order, it shall carry interest at 12% p.a. for the same period.