State Bank of India vs SAMUEL S. CHAUDHURY

THE State Bank of India, opposite party in C.D. Case No. 38 of 1994 of the District Forum, Gajapati is the appellant in this appeal. THE District Forum having directed the State Bank of India, the present appellant to settle the loan account of the complainant as regards the rate of interest and for issuance of clearance certificate to him after settling the loan accounts, the present appeal has been filed.

THE complainant (respondent in this appeal) admittedly obtained a loan of Rs. 10,275/- for purchase of a scooter from the State Bank of India. According to him, the rate of interest payable on the said loan was fixed @ 15% per annum. During the course of repayment of the loan in instalments, he has alleged that sometime in August/September, 1992, he came to learn that the outstanding loan shown against him was a loan much higher amount and much beyond the actual dues payable by him. On enquiry he further came to learn that the rate of interest has been increased to 23.25% per annum of which he had no intimation or knowledge. He has also alleged that there has been some discussion with the Bank in this connection and since no clearance certificate was given to him after lump sum amount was paid to the Bank, he approached the District Forum praying for direction to the Bank to be issued by the Forum to pay a sum of Rs.15,000/- as compensation and also to issue a clearance certificate. A prayer was also made that the excess amount paid by the complainant should be refunded to him with interest. The present appellant filed the show cause denying the complainant allegations. Their case was that the complainant having taken the loan of Rs. 10,275/- on executing a term loan agreement hypothecating his vehicle and executing the mortgage deed by his guarantor, he defaulted in payment of the instalments as stipulated. The further complaint of the appellant in the counter was that the complainant having confirmed the balance amount due to Bank on 21.11.1992 who having executed the revival letter to save limitation acknowledging his debt, the aforesaid allegations of the complainant have no relevance. They indicated in the counter as to how much was the loan amount after deduction of the payments were calculated and they justified their stand that the rate of interest having been enhanced by the directives of the Reserve Bank of India, the complainant was also bound to pay interest at the enhanced rate. It was further alleged that the complainant had agreed to pay interest at the enhanced rate from time to time and, therefore, he was estopped from challenging that excess interest as not recoverable.

The District Forum taking into consideration of all the materials on record, held that the excess interest beyond that stipulated in the agreement is not realisable from the complainant. If further held that the Bank was guilty of deficiency in service inasmuch as the complainant was not informed about the enhancement of the rate of interest. It, therefore, directed the Bank to settle the loan calculating the dues of the complainant at the agreed rate of interest and issue the clearance certificate after the dues are settled. It also directed that in the event the amount is not settled within 30 days from the receipt of the order of the Forum, the complainant would be en titled to get Rs.10/-per day from the Bank from the date of receipt of this order till the date of payment. Hence this appeal.

THIS case was heard in part on 28.8.1996 at the Headquarters of the Commission. On that date, the dispute was pointed out by both parties. It stands admitted that the stipulation at the time of payment of loan was that the interest would be calculated at the rate of 15% per annum with quarterly rests. It was claimed by the learned Counsel appearing for the appellant that the rate of interest chargeable on the loan was enhanced from time to time as per the Guidelines of the Reserve Bank of India and ultimately the dispute arises as the rate of interest had become 23.25% per annum. The Commission wanted to know as to whether the enhancement of the rate of interest by the Reserve Bank of India, if any, would apply to a subsisting loan and whether the contract stipulating that the loan shall be payable with higher rate of interest without specifying the rate at which it would be payable would be enforceable in contract. At the time of hearing, the learned Counsel for the appellant produced before us the loan agreement in support of his contention that they told that the rate of interest was initiated at 15% per annum. It permitted to take into consideration the rising and falling thereof. Clause 7 of the said agreement is quoted below for ready reference. "7. The borrower shall also pay interest on the amount of the loan at the rate of PA percent below the State Bank of Advance Rate with a minimum of 15 percent rising and falling therewith effective rate --% calculated on the daily balance of the loan amount with quarterly rests subject to enhancement as hereinafter provided".

We find that though the aforesaid stipulation provides for enhancing the rate of interest, no further indications find place therein limiting the range for all the period within which the enhanced rate of interest would be claimable. It is to be examined whether such an agreement is enforceable which is vague in nature. The other aspect which assumes equally more importance, is that, Clause-7 of the said agreement is subject to the procedure provided in the agreement itself. The next clause, i.e. Clause-8 is to the following effect. "8. The Bank shall, at any time, be entitled to give notice to the borrower of its intention to charge and may thereafter charge interest at such higher rate than the rate herein- before mentioned as the Bank may specify."

It requires the Bank to send notice to the complainant of its decision to collect higher charge and thereafter charge interest at such higher rate than agreed to by the opposite party. It may be mentioned here that the rate of interest payable @ 23.25% per annum is a matter of contract. The borrower at the time of taking loan agreed to pay interest at a higher rate with a further stipulation that he would be bound to pay higher rate of interest provided, he gets notice of such enhancement of rate of interest. Such a clause as Clause-8 has been introduced in the loan agreement which according to us is prospective for the reason that the borrower on the receipt of notice of enhancement of rate of interest would be in a position to exercise option either to liquidate the loan or to continue the transaction on payment of higher rate of interest. Thus, in our considered view the liability to pay the rate of interest at the stipulated rate would be dependent and subject to issuance of communication to the borrower as per the Clause- 8 of the loan agreement.

DURING the course of hearing we wanted to know as to whether the Bank had sent any such communication to the complainant as and when the rate of interest was enhanced by the directives of the Reserve Bank of India. We have been given a chart by the learned Counsel appearing for the appellant that after the grant of loan on 21.11.1989 there has been gradual enhancement at the rate of interest from 15% to 23.25% per annum at regular intervals. From 1.1.1990, the rate of interest chargeable becomes 16.5%, from 1.9.90 it became 17.5%, from 4.7.91 it became 21%, from 1.10.91 it became 21.75%, from 9.10.1991 it became 23.25%. The chart, however/shows that thereafter the rate of interest was decreased. From 1.9.1994 it became 17.25% per annum. But the learned Counsel appearing for the appellant expressed his inability to produce any document showing compliance of the requirement of Clause-8. He, however, relied upon two letters received from the complainant, one dated 12.10.1992 and other dated 20th January, 1993. According to him the aforesaid two letters contain the acquiscence of the complainant to pay back the loan at a higher rate of interest and, therefore, it was urged by him that compliance of Clause-8 becomes redundant. The letter dated 12.10.1992 sent by the complainant to the Bank gives the detail description of the background relating to denying their higher interest. He has stated in the said letter that on 6.10.1992 one Mr. B. Syamsundar Rao who visited him in connection with the loan transaction, had a discussion for quite some time. He further stated in the said letter that Mr. Syamsundar Rao admitted during the discussion that it was the fault of the Bank not to inform him at regular intervals about the increase in interest rates. He also expressed that in the said letter while giving out the increase in the rate of interest, he could have liquidated the loan earlier. What has been relied upon by the learned Counsel for the appellant is the following sentence which finds mention in the aforesaid letter of the complainant which reads as follows : "At the end of the discussion I told him that I am ready to liquidate the loan on Bank terms, but withdraw my A/Cs from SBI at appropriate time. At this juncture, he handed over to me statement of the Bank on the loan dated 29.9.1992".

The contents of the aforesaid sentence as already stated are that the complainant was not happy at the unilateral enhancement of the rate of interest without intimation to him. The aforesaid statement in our opinion was made by the complainant out of disgust and anguish on Bank. The letter dated 20th January, 1994 reads as follows : "Please recall our discussions at my residence and in your office regarding the above subject. I have decided to pay the interest, as it is deemed fit, within 3 or 4 days. This is for your information. Yours sincrely, Sd/- Dr. Samuel".

The learned Counsel appearing for the appellant relies on the concluding line where the complainant has said that he has decided to pay the interest, as it is deemed fit, within 3 or 4 days. The aforesaid statement according to him is a further acquiescence and acknowledgement to pay back the loan money with interest as charged by Bank. The arguments advanced by the learned Counsel for the appellant ignores one important aspect that the question for consideration in this case is as to whether higher rate of interest is recoverable under law from the borrower if a borrower does not permit realisation of higher rate of interest. The mere acquiescence or acknowledgement of the complainant would not itself create the liability against him. The aforesaid two letters nowhere indicate that the complainant was agreeable to pay higher rate of interest. In the first letter of reference dated 12.10.1992, the complainant merely expressed that if he knew about the increased rate of interest, he would have liquidated the loan amount earlier and he would not have been required to pay such huge amount of interest. He also told in the said representation to the Bank that he was ready to liquidate the loan on Bank terms, but withdraw his accounts from the SBI thereafter. This does not amount to a supplementary agreement between the parties or even an admission to pay interest at a higher rate than that was stipulated in the loan agreement. The next letter of reference does not even speak of the demanded rate of interest which merely gives out that he has decided to pay interest as deemed fit within a short period of time. In our considered opinion, the liability to pay higher rate of interest would have been appropriated against the complainant only when he was informed about the rise of rate of interest as per the Clause-8 of the loan agreement. The Bank could not demand or realise interest at higher rate than that was agreed to at the time of granting loan. It was next argued by the learned Counsel for the appellant that according to the norm of the Bank every borrower and account holder is informed about the credit and debit of the borrowers periodically and the same must be taken to be putting the borrower to notice that his liability was calculated at a rate other than the agreed rate of interest. This argument also does not persuade us to accept that it amounts to compliance of Clause-8 of the loan agreement. It has not known as to whether or not the complainant was being given periodical or account as shown to us. It is difficult for a borrower to gather knowledge about the rate of interest at which it is being calculated as it is common knowledge that an organisation like the State Bank of India normally would not claim what is not legally due. The learned Counsel appearing for the appellant also urged that the consumer dispute filed before the District Forum was barred by limitation inasmuch as the loan was granted on 21.11.1989 and, therefore, the cause of action or aberration during the course of transaction must have originated from that date. He submitted that as the case was filed before the District Forum on 8.12.1994, it was clearly barred by limitation.

IT was, however, contended by the respondent who is present in person that he came to know the charging of higher rate of interest only in August/September, 1992. When he found after inquiries that the outstanding loan was higher than the amount due. From the averments made in the complaint petition we do not hesitate to hold that the cause of action would have arisen on the date of loan transaction. Rather it arose subsequent thereof when the complainant came to know of the demand of higher rate of interest. Had intimation been given to the complainant as and when the rate of interest was varied, the cause of action evidently would have arisen from the date of such intimation. But this is a case where no such intimation had ever been given by the Bank to the complainant. In the premises, the cause of action would arise for disputing the demand when it came to the knowledge of the complainant that the rate of interest is higher than the stipulated rate in the agreement. IT is unnecessary to mention here that initially the Consumer Protection Act did not provide any limitation for filing the consumer disputes before the Forum constituted thereunder. Therefore, we used to take the view that general law applicable would also govern the limitation for filing of consumer disputes before the Consumer Forum. Section-24A was introduced in the Consumer Protection Act with effect from 18.6.1993 providing the period of limitation for consumer disputes to be filed within two years. IT, however, provided that in appropriate cases, limitation can be condoned by the Forum. Admittedly, by the date when the cause of action for the present dispute arose, there was no limitation provided in the Consumer Protection Act. Admittedly, Section 24A introduced by the aforesaid amendment has no retrospective effect. Therefore, the cause of action having arisen some time in August/September, 1992, the case was not barred by limitation as the date of filing of the complaint petition is admittedly 18.12.1994.

THE learned Counsel for the appellant relying on some decisions of different State Commissions and National Commission, urged that this case is not to be entertained by the Consumer Forums inasmuch as it involves complicated question of law and fact which requires voluminous evidence which the Civil Court is competent to decide. He has referred a decision of State Commission, Karnataka reported in III (1995) CPJ 432=IX 1995 (3) CPR. M/s. Ganesh Mahal v. THE Manager, Karnataka Bank Ltd. & Another, in which the State Commission has opined that the dispute involved in the said case necessarily requires recording of voluminous evidence of numerous transactions and in such event proper remedy is to approach Civil Court. In the said case also one of the grievances of the complainant was that the opposite party charged increased rate of interest without any notice and consent of the complainant. He also challenged the method of calculating the interest and claimed that the excess amount of Rs. 3,22,363/- has been collected by the opposite party unauthorisedly. THE State Commission of Karnataka relying on the decision of the National Commission reported in I (1995) CPJ 1 (NC)=1995 (1) CPR 247. Omega Packaging Pvt. Ltd. v. Central Bank of India and Others, held that the proper remedy for the complainant is to approach the Civil Court and not the Consumer Forum. THE decision of the National Commission which was relied in that case is to the following effect : "Where complaint alleging excess interest charged by Bank on transactions involved a number of entries requiring evidence of numerous transactions, there cannot be satisfactory adjudication of issue in time bound proceeding under Consumer Protection Act and complainant is at liberty to approach Civl Court.

In the case at hand the question of challenging several entries in the Bank account is in dispute. THE simple question for consideration is as to whether or not the Bank would demand the rate of interest higher than the stipulated rate in the agreement. As already stated the loan agreement itself stipulates that the Bank would raise the rate of interest on due intimation to the borrower. Thus, the question for determination in such case would be as to whether intimation was at all given by the Bank to the borrower or in the event no intimation was given, the simple conclusion would be that the Bank was not entitled to the higher rate of interest. THE question of calculation or the question of different entries made in different Bank terms does not arise for consideration in such cases. What the National Commission decided in the above-mentioned case and followed by the Karnataka State Commission is not a mechnical formula to be applied in every case where there is a dispute as to the rate of interest, each case should be decided in the background and parameters of the disputes. THE learned Counsel appearing for the appellant also referred to the aforesaid decision of the National Commission where the National Commission has been pleased to observe as stated above. THE basis of such conclusion by the National Commission was the transaction with the Bank or transactions involving a number of entries requiring voluminous evidence of numerous transactions. In the present case we are not required to go into any transaction or any entry made by the Bank with relation to loan transaction. We are not going to quantify the liability or outstanding dues, if any, of the complainant arising out of the loan transaction. We are merely concerned with as to whether the Bank has been deficient in rendering due service which evidently is within the purview of definition of service as defined in the Consumer Protection Act. If a particular rate of interest is not chargeable by the Bank against the loan and the Bank has charged the same, then in our opinion it would come within, the purview of definition of service and amounts to deficiency in service on the part of the Bank. In this context we are of the clear view that the complainant had a genuine grievance against the present appellant which was entertainable within the scope of the Consumer Protection Act. It has been next contended by the learned Counsel for the appellant that what had been prayed for by the complainant before the District Forum, is not available to be granted in view of the provisions of Section 14 of the Consumer Protection Act. He has urged that issue of clearance certificate by the Bank would depend upon the settlement of account of a borrower with the Bank and it is improper on the part of the Consumer Forum to direct for clearance certificate which according to him is not a service within the Banking transactions. He has also urged that the claim of compensation by the complainant is arbitrary and without any basis and no evidence has been adduced in support thereof. In this view of the matter, we are not concerned with .what has prayed for or what is pleaded. The substance of the allegation is apparent from a close reading of the complaint petition. His grievance in essence is that the Bank is charging higher rate of interest than what is realisable under law. This we have already said that it amounts to deficiency in service as such demand has not been stipulated by the terms of the agreement. Thus, the direction to issue a clearance certificate may not be within the purview of the Consumer Forum, but it was within the jurisdiction of the Forum to give direction to the opposite party that in which account every borrower is entitled to avail of the services of the Bank. The District Forum has not allowed any compensation for the deficiency in service on the part of the Bank. They having filed an appeal against the aforesaid decision of the District Forum, the question of allowing compensation to the complainant/respondent is beyond the scope of this appeal. Confining ourselves to the scope of this appeal, we confirm the order of the District Forum to the extent that the appellant-Bank do settle the loan account of the complainant within a period of one month from the date of receipt of this order indicating his upto date liability. It would be open for the Bank to realise the outstanding dues if any in accordance with law and it would also be open to the complainant for liquidation of the loan in the legal process as is provided under law. We, therefore, modify the order of the District Forum to the aforesaid extent and dispose of the appeal accordingly. Order modified.