Punjab

Ludhiana

CC/16/356

Ramesh Kumar - Complainant(s)

Versus

Cholamandalam Ins.&Finance Co. - Opp.Party(s)

N.S.Rana Adv.

04 Jun 2021

ORDER

DISTRICT CONSUMER DISPUTES REDRESSAL COMMISSION, LUDHIANA.

                                                Complaint No: 356 dated 11.05.2016.                                                       

                                                Date of decision: 04.06.2021. 

 

1. Ramesh Kumar Verma son of Sh. Haray Ram
2. Luxmi Verma w/o. Sh. Ramesh Kumar Verma, both residents of House No.1, Opp. Sai Baba Mandir, Balaji Farm House, Ludhiana.

                                                                             ..…Complainants

                             Versus

Cholamandalam Investment & Finance Co. Ltd., Feroze Gandhi Market, Ludhiana through its Manager.                                                                                                                                                                …..Opposite party 

Complaint under Consumer Protection Act.

QUORUM:

SH. K.K. KAREER, PRESIDENT

MS. JYOTSNA THATAI, MEMBER

 

COUNSEL FOR THE PARTIES:

For complainants            :         Sh.  N.S. Rana, Advocate.

For OP.                          :         Sh. Rishi Bansal, Advocate.

ORDER

PER K.K. KAREER, PRESIDENT

1.                Shorn of unnecessary details, the case of the complainants is that they jointly applied for a loan against property of Rs.1,70,00,000/-, which was sanctioned by the OP. Out of the sanctioned amount, an amount of Rs.14,00,000/-  was disbursed on 20.02.2014 and an amount of Rs.1,49,81,662/- was disbursed to the complainant on 07.04.2014 and the said amount was credited in the account of the complainants on 09.04.2014. Prior to disbursement of the entire loan amount, the OP withdrew an installment of Rs.2,38,972/- on 05.04.2014 whereas the loan was disbursed on 09.04.2014. When the complainants confronted the OP with this and requested to refund the interest on the amount of Rs.1,49,81,662/-, the officials of the OP calculated the interest @13.50%, according to which a sum of Rs.2,54,893.50NP was liable to be refunded to the complainants, but the OP refunded only a sum of Rs.2,00,000/- and remaining amount of Rs.54,893.50NP was still outstanding. Another amount of Rs.48,945/- was deducted from the disbursed amount on the pretext of insurance premium, but no insurance policy was ever supplied to the complainant. Therefore, the amount of Rs.48,945/- is also recoverable from the OP. Feeling aggrieved from the illegal acts of the OP, the complainant arranged money and requested  the foreclosure on 20.09.2015. The OP issued the foreclosure letter on 13.10.2015. On receiving the foreclosure letter, the complainant came to know that the OP had charged 2% as processing fee whereas there was no contract between the parties to that effect and the amount of Rs.3,87,600/-  charged on account of 2% processing fee is also required to be refunded by the OP to the complainant. From the foreclosure letter, the complainants further came to know that the OP had charged the amount of Rs.7,29,388.16NP as foreclosure charges whereas according to the guidelines of Reserve Bank of India, no such amount could be charged and the OP are bound to refund the amount of Rs.7,29,388.16NP. In all, the OP is liable to refund a sum of Rs.14,00,826.66NP. The aforesaid acts of the OP amount to deficiency of service and unfair trade practice. In the end, it has been requested that the complaint be allowed and the OP be directed to refund the amount of Rs.14,00,826.66NP with interest @24% per annum  along with compensation of Rs.2,00,000/-.

2.                The complaint has been resisted by the OP. In the written statement, the OP has pleaded that the loan was advanced to the complainant in accordance with an agreement executed between the parties and the Consumer Commission has no jurisdiction to intervene unless the contract is unconscionable or opposed to public policy. It has further been pleaded that complainants No.1 and 2 availed loan along with their firm M/s. Bajrang Kheti Bari Centre through Ramesh Kumar Verma and Sons (HUF), but the HUF has not been impleaded as party. Even otherwise the complainants are not          consumers as the loan in question was availed of for business purposes. The notification/circular dated 14.07.2014 regarding levy of foreclosure charges issued by the Reserve Bank of India is applicable to the individual borrower whereas the loan in this case was availed by the complainants and their firm M/s. Bajrang Kheti Bari Centre through Ramesh Kumar Verma and Sons (HUF). On merits, it has been pleaded that the loan for Rs.1,70,00,000/- sanctioned in favour of the complainants payable in 144 monthly installments of Rs.2,38,972/- each. Prior to availing the loan facility from the OP, the complainants had availed of the loan against their property from Punjab National Bank, but this fact has not been disclosed by the complainants. At the time of taking over the loan of Punjab National Bank, the payment of Rs.14,00,000/- was released initially on 20.02.2014. The complainants had to provide the security documents, which were retained by the Punjab National Bank and the said security documents were supplied to the OP in the month of April 2014. Therefore, the remaining amount of Rs.1,49,81,662/- was disbursed on 05.04.2014. The installment of Rs.2,38,972/- was taken by the OP on 05.04.2014 as the initial payment of Rs.14,00,000/- was released on 20.02.2014. According to the OP since the initial amount of Rs.14,00,000/- was disbursed on 20.02.2014 and the remaining amount of Rs.1,49,81,662/- was disbursed on 05.04.2014 on furnishing of security documents, first monthly installment was deducted on 05.04.2014. However, to avoid the dispute, the OP returned the amount of Rs.2,00,000/- on proportionate basis.

3.                It is further pleaded in the written statement that a sum, of Rs.48,495/- was deducted on account of insurance premium as at the time of sanctioning the loan, the property of the complainants was insured with Cholamandalam MS insurance and one time premium of Rs.48,495/- was paid for the all 12 years of the term loan. Therefore, the OP is not liable to refund the amount of Rs.48,495/-. The OP has further submitted that the complainants foreclosed the loan amount as they again wanted to shift the loan from the OP to some other financial institution.  It has further been denied by the OP that they are liable to refund the amount of Rs.3,87,600/- charged as processing fee at the time of sanctioning of the loan. According to the OP, the processing and administrative fee are charged as per terms of the loan agreement and the sanctioned letter. Similarly, the OP imposed a foreclosure charges of Rs.7,26,696/- as per the terms of agreement and not in derogation of the circular of the Reserve Bank of India. The said circular is applicable only to the loan sanctioned to the individual borrowers and loans obtained by the company or a firm as a borrower or co-borrower is outside the purview of the said circular. It has further been denied if the OP has illegally withheld a sum of Rs.14,00,826.66NP. The rest of the allegations leveled in the complaint have been denied as wrong and a prayer for dismissal of the complaint has also been made.

4.                In evidence, the complainant submitted his affidavit as Ex. CA along with documents Ex. C1 to Ex. C6 and closed the evidence.

5.                On the other hand, the OP submitted affidavit Ex. RA of Sh. Suresh Rangra, Collection Executive of OP along with documents Ex. R1 to Ex. R5 and closed the evidence.

6.                We have gone through the arguments advanced by the counsel for the parties and have also gone through records.

7.                During the course of arguments, the counsel for the complainants has argued that the OP has illegally charged a sum of Rs.2,54,893.50NP at the very outset out of which they later on refunded the sum of Rs.2,00,000/-, but illegally retained the amount of Rs.54,893.50NP without any rhyme or reason and the OP is liable to refund the same with interest. The counsel for the complainants has further contended that the OP has further wrongly deducted a sum of Rs.48,945/- on account of insurance premium charges whereas no insurance policy was given to the complainants and the said amount of Rs.48,945/- is also refundable. Apart from this, the OP has illegally charged the processing fee 2% and another 2% on account of foreclosure charges. According to the counsel for the complainants, the foreclosure charges could not be charged on loan against the property in the case of individual borrower. Therefore, the acts of the OP in deducting the foreclosure charges is wrong and illegal and amounts not only to deficiency of service, but also to unfair trade practice.  The counsel for the complainants has requested that the OP be made to refund the aforesaid amounts with interest, cost and compensation to the complainant.

8.                On the other hand, the counsel for the OP has argued that the complainants do not fall within the definition of consumer as the loan in question was not obtained by the complainants in individual capacity and it was in fact sanctioned to the HUF firm of the complainants, which they have not arrayed as party in this case and on this ground alone, the complaint is liable to be dismissed. The counsel for the OP has further contended that in the entire complaint, the complainants have not alleged that they have availed loan for the purpose of business or commercial activity for earning self employment. Counsel for the OP has further argued that the processing fee, foreclosure charges and insurance charges have been charged as per the terms and conditions of the loan agreement and the complainants could not be heard harping that the same are not leviable. In support of his arguments, counsel for the OP has relied upon ICICI Home Finance Company Limited Vs Bhim Sen Lekhra in 2016(3) C.P.R. 456 whereby it has been held by Hon’ble National Consumer Disputes Redressal Commission, New Delhi that if the complainant has filed the com-plaint singly and other co-applicants have not been arrayed as party, the complaint is not maintainable due to nonjoinder of necessary parties. The counsel for the OP has further relied upon Mahesh Kumar Vs Shubhankar Marketing Pvt. Ltd. & others in 2016(2) CLT 552 whereby it has been held by the Hon’ble National Commission that if the complainant has no-where stated in the complaint that he was carrying on the business for the purpose of self employment, he cannot be said to be covered under the definition of consumer. It has further been argued by the counsel for the OP that the circular dated 14.07.2014 issued by the Reserve Bank of India is not applicable to the instant case as the said circular is applicable to the individual borrower only, whereas in the instant case, the loan has been advanced to the firm. In the light of contentions and law laid down in the case law relied upon by him, counsel for the OP has urged for the dismissal of the complaint.

9.                We have weighed the contentions raised by the counsel for the parties and have also gone through the record carefully.

10.              Firstly, it has been contended on behalf of the OP that the complaint has been not filed by all the loanees and therefore, it is liable to be dismissed on account of non-joinder of necessary parties. In this regard, the counsel of the OP has also relied upon the law laid down in ICICI Home Finance Company Limited Vs Bhim Sen Lekhra (Supra). However, in our considered view, the contentions raised on behalf of the OP does not seem to be tenable. In this regard, it is worth pointing out that in the loan application Ex. R2, placed on the record by the OP itself, the names of the loanees are mentioned as Ramesh Kumar Verma and co-applicant Luxmi Verma. The present complaint has also been filed by these two loanees only. The loan application Ex. R2 is also shown to have been signed by the complainants Ramesh Kumar Verma and Luxmi Verma only.

11.              The counsel for the OP has pointed out that in the loan agreement Ex. R3, a stamp of M/s. Bajrang Kheti Bari Centre, Ramesh Kumar Verma and Sons HUF has been affixed and Ramesh Kumar Verma is shown to have signed as Karta of a HUF. It has also been pointed out by the counsel for the OP that neither M/s. Bajrang Kheti Bari Centre nor Ramesh Kumar Verma & Sons HUF has been made a party in this case, who are also the signatories to the loan agreement. Therefore, the complaint is liable to be dismissed for non-joinder of the parties. However, in our considered view, the plea raised by the counsel for the OP cannot be accepted as correct considering the facts that in the loan application Ex. R2, the names of the loanees are mentioned as Ramesh Kumar Verma and Luxmi Verma only. Even if there is a firm known as M/s. Bajrang Kheti Bari Centre, on behalf of the said firm also, complainant Ramesh Kumar has signed the loan agreement. The said firm is not alleged to be a limited company, which might have separate legal entity different than that of complainant Ramesh Kumar Verma. Therefore, on the basis of this minor technicality, the complainants cannot be non-suited. Since Ramesh Kumar Verma has signed on behalf of the firm, the necessary inference is that he is the proprietor of the firm. In WP No.5521(W) of 2017 Devinder Surana Vs Bank of Baroda and others decided on 12.12.2018, it has been held by the Hon’ble Calcutta High Courts that a natural person and his sole proprietorship firm are the same legal entity as the liability of the sole proprietorship firm is that of the natural person carrying on business under its name. The sole proprietorship firm of a natural person and the natural person owning the firm does not enjoy the benefit of separate legal entity as they are the one and same legal entity. Therefore, taking into consideration all these circumstances, the complainants cannot be said to be not maintainable on account of the fact that the concerned firm has not been joined as a party in this case. Accordingly, the objections raised by the counsel for the OP is hereby repelled.

12.              By way of this complaint, the complainant has sought as many as three reliefs. Firstly, it has been alleged that an amount of Rs.14,00,000/-  was disbursed to the complainants on 20.02.2014 and the remaining amount of Rs.1,49,81,662/- was disbursed on 07.04.2014. However, prior to the disbursement of the entire loan amount, the OP withdrew a sum of Rs.2,38,972/-  on 05.04.2014 itself when the amount of Rs.1,49,81,662/- had not been disbursed. When the OP was confronted with this, the OP refunded the amount of Rs.2,00,000/-, but still illegally charged the remaining amount of Rs.54,893.50NP, which was not refunded or adjusted. The OP has not rebutted these facts in the written statement. In para No.2 of the written statement, it stands admitted that an amount of Rs.14,00,000/- was released to the complainant on 20.02.2014. It has further been claimed that since the complainants had not submitted the security documents, the remaining amount of Rs.1,49,81,662/- was disbursed only on 05.04.2014 and the installment of Rs.2,38,972/- was also charged on 05.04.2014. In para No.3 of the written statement, it has further been admitted that the complainants were returned the amount of Rs.2,00,000/- on proportionate basis and the complainants are not entitled to any further refund.

13.              From the pleadings and evidence on record, it stands established that on 05.04.2014 when the OP charged interest of Rs.2,38,972/-, they had disbursed just a sum of Rs.14,00,000/- on 20.02.2014. A sum of Rs.2,38,972/- cannot be the interest on amount of Rs.14,00,000/-. Admittedly, a sum of Rs.2,00,000/-was refunded. Still amount of Rs.38,972/- cannot be said to be the interest amount on amount of Rs.14,00,000/- for the period from 20.02.2014 to 05.04.2014. Therefore, the entire amount of Rs.2,38,972/- was liable to be refunded, as there appears to be no justification for charging the same. The installments of the installments are supposed to due payable only after entire loan amount has been disbursed. Therefore, the OP is liable to refund the amount of Rs.38,972/-.

14.              By way of this complaint, the complainants have further claimed that a sum of Rs.48,945/- was deducted by the OP on account of insurance premium, but no insurance policy was ever supplied by the OP to the complainant. Even the particulars of the insurance policy have not been given to the complainant. On the other hand, in para no.4 of the written statement, the OP has claimed that the amount of Rs.48,495/- was deducted on account of the insurance policy and the property of the complainants was insured with Cholamandalam MS Insurance and one time premium of Rs.48,945/-  was paid in respect of entire period of 12 years of the loan and the policy documents were duly supplied to the complainants. The complainants have not filed any rejoinder denying that the insurance policy documents were not supplied to them. As per clause 14 of the loan agreement ex. R3, the borrower was liable to get mortgaged property fully insured. Since the complainants have not filed any replication/rejoinder to controvert the averments made in the written statement, an adverse inference has to be drawn against them. Accordingly, the complainants cannot be held entitled to a sum of Rs.48,945/-.

15.              It has further been claimed by the complainants that the OP has illegally charged 2% processing fee amounting to Rs.3,87,600/-, which was not payable as per the written contract between the parties. It has also been claimed that the OP has also charged a sum of Rs.7,29,388.16NP as foreclosure charges whereas, according to guidelines of Reserve Bank of India, no such amount is chargeable. The processing fee as well as the foreclosure charges are liable to be refunded to the complainants. In para no.7 of the written statement filed by the OP, it is mentioned that as per the terms of the loan incorporated in the loan agreement and sanction letter, which was duly signed by the complainants, an amount of Rs.2,88,518/-  was charged on account of administrative charges as well as service tax and this amount was not refundable. In clause 3 of the loan agreement Ex. R3, it is explicitly mentioned that the processing fee/services charges shall be payable as mentioned in the schedule of the terms, which will not be refundable. In the schedule attached with the loan agreement, which is also duly signed by the complainants, it is mentioned that the processing fee of Rs.3500/- and administrative fee @ 1.5 + taxes would be charged. In the sanction letter Ex. R4 also, it is mentioned that the administrative charges would be non refundable. Keeping in view the terms and conditions of the loan agreement Ex. R3, the OP was entitled to processing fee and administrative charges and it cannot be said that same have been illegally charged by the OP is liable to be refund the same.

16.              Lastly, it has been claimed in the complaint that the OP has illegally charged the amount of Rs.7,29,388.16NP on account of foreclosure charges, though as per the guidelines of Reserve Bank of India no such amount could be charged. In this regard, the counsel for the OP has relied upon ICICI Home Finance Company Limited Vs Bhim Sen Lekhra (Supra), whereby it has been held that since the complainants and other co-applicants have signed the loan agreement, they are bound by the terms and conditions of the loan agreement and as such, pre-closure penalty imposed by the concerned bank cannot be termed as illegal and deficiency of service. In this regard, it has been pointed out by the counsel for the OP that as per the loan agreement Ex. R3 and the terms and conditions incorporated in sanction letter Ex. R4, the complainants were liable to pay the pre-payment charges @4%. The counsel for the OP has further contended that as per the law laid down in the above cited case also, the complainants were liable to pay prepayment charges and the same have not been illegally charged, as claimed by them and further that no case of refund of foreclosure charges is made out.

17.              On the other hand, the counsel for the complainant has argued that as per the circular dated 05.06.2012 issued by the Reserve Bank of India, the OP cannot be allowed to charge any pre-payment or foreclosure charges. In support of his contentions, the counsel for the complainants has relied upon DCB Bank Ltd. Vs Ram Paul Bajaj I(2021) CPJ 47 (Punjab) whereby it has been held by Hon’ble State Consumer Disputes Redressal Commission, Punjab that vide circular dated 05.06.2012 issued to all such commercial banks, the banks were not permitted to charge foreclosure charges/pre payment charges on home loans on floating interest rate basis. Thereafter, another circular dated 14.07.2017 was issued wherein it has been clarified that NBFCs shall not charge foreclosure charges/pre-payment penalties on all floating rate term loans sanctioned to individual borrowers with immediate effect.

18.              We have thoughtfully considered the above contentions raised by the counsel for the parties with regard to levy of foreclosure/pre-payment charges.

19.              In this regard, it is pertinent to refer to the observation made in DCB Bank Ltd. Vs Ram Paul Bajaj (Supra), which are as under:-

“13. It is an admitted fact that the loan of the complainant is less than Rs.50 Lacs i.e. Rs.26,00,000/-. It is also an admitted fact that there was no default in repayment of installments. Only fault of the complainant is that he is making the entire payment well in advance. It needs to be noticed that Banks are waiving the loan of lacs of rupees of the persons, who are not even paying the installments of loan and rescheduling the loan account as per their convenience and the person who is regularly paying the installments and making repayment of the balance loan amount, is burdened with penalty of foreclosure charges i.e. 4% of the outstanding amount along with service tax (GST) @18%, which is apparently unfair trade practice on the part of OPs and is not sustainable in the eyes of law. So far as pre-payment/foreclosure charges are concerned, RBI has firstly issued Circular No. RBI/2011-12/589 DBOD No. Dir. BC. 107 / 13.03.00/2011-12 dated 5.6.2012 to all the Scheduled Commercial Banks under which it was decided that the bank will not be permitted to charge foreclosure charges/pre-payment penalties on Home Loans on floating interest rate basis and thereafter issued Circular No. RBI/2014-15/121 DNBS (PD).CC.No.399/03.10.42/ 2014-15 dated 14.7.2014 in which reference to letter/Circular No. DNBS (PD) CC No. 80/03.10.042/2005-06 dated 28.9.2006 has been given, in which it has been mentioned that as a measure of customer protection and also in order to bring in uniformity with regard to prepayment of various loans by borrowers of banks and NBFCs, it is advised that NBFCs shall not charge foreclosure charges/pre-payment penalties on all floating rate term loans sanctioned to individual borrowers with immediate effect. Learned counsel for the appellants could not rebut any of the above said Circulars vide which Banks/NBFCs are restricted to charge pre-payment charges from the loanees. Law on the said subject also supports the contention of the respondent that Bank is not entitled to raise penalty on payment of loan amount in advance. In this regard, we find support from the judgment of the Calcutta High Court, which relates to the similar issue as in this case also proprietorship firm obtained the loan from the Bank of Baroda and in the said case question raised was whether sole proprietorship firm cannot be considered to be an individual borrower. After discussing the point, the Calcutta High Court held in the said W.P. No.5521 (W) of 2017 “Devendra Surana Vs. Bank of Baroda & Ors.”, decided on 12.12.2018, that a natural person and sole proprietorship firm are the same legal entity as liability of the sole proprietorship firm is that of the natural person carrying on business under its name. The sole proprietorship firm of a natural person and the natural person owning the firm do not enjoy the benefit of being treated as separate legal entities. They are the one and the same legal entity.

14. Another question that loan in question is Business Loan and transaction is commercial in nature and complainant does not fall within the definition of ‘consumer’ is also discussed in the above said judgment. The relevant part of the judgment is reproduced as under:-

 “Reserve Bank of India, when it is advising the banks, by its circular dated May 7, 2014, not to charge any foreclosure charges/prepayment penalties on all floating term loans sanctioned to individual borrowers, with immediate effect, it is not distinguishing between an individual borrower who has obtained the term loan for business exploitation or otherwise. Term loans are granted by banks, both for purchasing a home as also for commercial activities. There being no such distinction in the circular dated May 7, 2014, I am not minded to read the definition of 'consumer' as obtaining in the Consumer Protection Act, 1993 into such circular. They operate in different spheres.”

15. In another part of the judgment, the Court has observed that the demand of foreclosure charges by the Banks is contrary to the circulars/instructions of the Reserve Bank of India and held as under:-

“In the facts of the present case, the petitioner having foreclosed the credit facilities enjoyed by the petitioner from the respondent no. 1 in October 2016, such foreclosure is governed by the circular dated May 7, 2014 issued by Reserve Bank of India. With effect from May 7, 2014 therefore, the respondent no.1 is not entitled to charge any foreclosure charges/prepayment penalties on floating rate term loan sanctioned to individual borrower such as the petitioner. The foreclosure happening subsequent to the circular dated May 7, 2014, the demand of the respondent no. 1 for foreclosure charges/prepayment penalties, is contrary to such circular, and therefore is without any basis.”

20.              In view of what has been observed and held in the afore-cited judgment, it is abundantly clear that after the issuance of the circular dated 14.07.2014 by the Reserve Bank of India, the banks or NBFCs cannot charge foreclosure charges/pre-payment penalties on all floating term loans sanctioned to individual borrowers. It has further been held that the circular is applicable on all floating terms loans sanctioned to the individual borrower and it does not distinguishing between an individual borrower who has obtained the term loan for business exploitation or otherwise. It has also been made clear that with effect from 07.05.2014, the banks/NBFCs are not entitled to charge any foreclosure charges/prepayment penalties on floating rate term loan sanctioned to the individual borrower. The necessary inference is that even if the loan has been taken prior to 07.05.2014 and the foreclosure takes place subsequent to issuance of the circular, the circular would be applicable. In the instant case also, the foreclosure charges have been imposed by the OP on 12.11.2015, as is evident from the account statement Ex. R5, placed on record by the OP itself. Therefore, the OP was not entitled to impose the foreclosure/pre-payment charges of Rs.7,26,696/-. In the above cited judgment, it has also been observed that the banks are unreasonably charging foreclosure amount as the consumer is bound to pay more first in terms of interest portion in the initial months of the payments and later he is made to pay in terms of pre-payment charges, if he decides to foreclosure for better options and this practice is fleecing the consumers and also it is not generating any economic value to the development and restrict the consumers to exercise the right of freedom to choose other bank for loan. In the given circumstances, in our considered view, the OP is liable to refund the prepayment charges of Rs.7,29,388.16NP to the complainants.

21.              As a result of above discussion, the complaint is partly allowed with an order that the OP will refund the amount of Rs.38,972/- as well as pre-payment charges of Rs.7,29,388.16 to the complainant along with interest @8% per annum from the date of filing of the complaint till the date of actual payment. The OP shall further pay a consolidated sum of Rs.10,000/- (Rupees Ten Thousand only) on account of compensation and litigation expenses to the complainant. The compliance of the order shall be made within a period of 30 days from the date of the receipt of the copy of this order. Copies of order be supplied to parties free of costs as per rules. File be indexed and consigned to record room.+

22.              Due to rush of work and spread of COVID-19, the case could not be decided within statutory period.

                             (Jyotsna Thatai)                              (K.K. Kareer)

                    Member                                           President

Announced in Open Commission.

Dated:04.06.2021.

Gobind Ram.