DISTRICT CONSUMER DISPUTES REDRESSAL COMMISSION ERNAKULAM

Dated this the 27^th  day of June 2024

                                                                      Filed on: 12/06/2018

PRESENT
Shri. D.B. Binu,                                            President
Shri. V. Ramachandran,                               Member
Smt. Sreevidhia T.N.,                                   Member

C.C. No: 254/2018

Complainant:

Mr. Sharath Jacob, aged 41 years, S/o. Late Jacob Thomas, Kalarickal house, Kozhippilli, Varapetty, Kothamangalam, Ernakulam-686691

(By Adv.R.Pradeep, 3^rd Floor, ‘The Esplanade’, Convent Jn, Kochi-11)

Opposite Parties:

1. The Federal Bank Limited, Registered office, Federal Towers, Aluva, Pin-683101 represented by its Managing Director.
2. The Regional Manager, The Federal Bank Limited, Regional Office, 6th floor, Federal Towers, Marine Drive, Ernakulam, Pin-682031.
3. The Branch Manager, The Federal Bank Limited, P.B. No: 4, Valiyapalli Buildings, Cheriyapallithazhum, Kothamangalam- Pin-686691.

(ops 1 to 3 rep. by Adv.E.K.Jose, Muvattupuzha, Pin-686 661)

FINAL ORDER

D.B. Binu, President:

A brief statement of facts of this complaint is as stated below:

The complaint is filed under Section 12 of the Consumer Protection Act, 1986. The complainant, a businessman and customer of the opposite parties, availed a personal loan from the first opposite party, a private sector banking company, through its Kothamangalam branch on 09-08-2016. The loan, identified by account number 1008760011790, was for personal needs with a floating interest rate of 12.92%. The repayment was structured over 120 monthly installments of Rs. 1629 each.

Later, finding the interest rates exorbitant compared to other financial institutions, the complainant decided to close the loan through a facility arranged by Canara Bank, which was done on 30-12-2017. However, the opposite parties charged a prepayment penalty of Rs. 105833 and an additional Rs. 19050 as GST, despite regulatory directions against such charges.

The complainant asserts that the prepayment penalty is an anti-competitive practice, unfair trade practice, and an abuse of the dominant position by the opposite parties. The complainant seeks damages of Rs. 124883 with 18% interest per annum from 31-12-2017, totalling Rs. 134883 as of now, due to the unfair trade practice. The cause of action dates is 09-08-2016, 30-12-2017, 23-02-2018, and 12-03-2018, all within the jurisdiction of the Kothamangalam Taluk.

The complainant prays for the forum to:

1. Direct the opposite parties to stop the unfair trade practice of levying prepayment charges.
2. Pay Rs. 134883 as damages with 18% interest per annum from the petition date to full realization.
3. Award the costs of the petition and any other relief deemed just.

2. Notice:

The Commission sent notices to the opposite parties, who subsequently appeared and submitted their versions.

3. Version of the Opposite Parties:

The opposite party, a banking company with its registered office in Aluva, Kerala, and a branch in Kothamangalam, denies all allegations except what is explicitly admitted in the complaint. Represented by Leo, the Assistant Vice President and Branch Head of the Kothamangalam Branch, the bank asserts that the complaint is misconceived, groundless, and outside the jurisdiction of the Consumer Protection Act.

The opposite party argues that the dispute is not a consumer dispute under the Consumer Protection Act, as the complainant is not a consumer and the issue does not pertain to a consumer dispute. The bank suggests that the complainant should have approached the Banking Ombudsman or a civil court.

The bank states that the loan availed on 09-08-2016 was a "Property Power" loan of Rs. 75,00,000 for business purposes, not a personal loan. The interest rate was 12.92%, and the terms, including a 2% prepayment penalty, were negotiated and agreed upon by the complainant.

The bank contends that the prepayment penalty and additional GST were legally collected as per the loan agreement, which the complainant was fully aware of and agreed to. The opposite party denies any unfair trade practices or anticompetitive agreements.

The bank emphasizes that the loan agreement, including the terms for prepayment charges, was legally binding and that the complainant breached the contract by prematurely closing the loan. The bank asserts it sustained a loss due to this premature closure.

The bank maintains that the interest rate was competitive and set following Reserve Bank of India guidelines. It denies any exorbitant interest rates compared to similar financial institutions.

The bank highlights that the complainant is a leading businessman in Kothamangalam, suggesting that he holds a dominant position, not the bank. The bank stated that the complainant benefitted from the reduced interest rates and cannot now claim the terms were unfair.

The bank stated that the complainant is not entitled to the claimed amount of Rs. 1,34,883/- and denies any cause of action against the opposite party. The bank requests the complaint be dismissed and asserts that all actions taken were within legal and contractual bounds.

The opposite parties conclude by requesting the commission to dismiss the complaint with costs.

4. Evidence:

The complainant did not submit a proof affidavit but filed four documents, marked as Exhibits A1 to A4.

• Exhibit A1: Copy of the letter issued by the 3rd Opposite Party on 01-01-2018.
• Exhibit A2: Copy of lawyer notice issued on 23-02-2018.
• Exhibit A3: Copy of reply on 12-03-2018.
• Exhibit A4: Copy of the account statement of loan account.

The opposite parties submitted a proof affidavit along with two documents, marked as Exhibits B1 and B2.

• Exhibit B1: The copy of the Power of Attorney.
• Exhibit B2: The Term Loan Agreement dated 09-08-2016 entered into between the complainant and the opposite party.

5. Points for Analysis:

i) Whether the complaint is maintainable or not?
ii) Whether there is any deficiency in service or unfair trade practice from the side of the opposite party to the complainant?
iii) If so, whether the complainant is entitled to any relief from the side of the opposite party?
iv) Costs of the proceedings, if any?

6. Analysis and Legal Reasoning:

The issues mentioned above are considered together and are answered as follows:

The complainant initiated legal action to seek redress for the deficiencies in service and the engagement in unfair trade practices by the opposite parties.

Argument Notes filed by Sri. E.K. Jose, Counsel for the Opposite Parties

           The complainant, a businessman, is a customer of the opposite parties. The first opposite party is a private sector banking company, and the second and third opposite parties are its regional and branch heads, respectively.

The complainant, along with his family members as co-obligates, availed of a loan from the first opposite party through its Kothamangalam branch on 09-08-2016. The complainant contends that the facility was a "Property Power" loan for personal needs, with a floating interest rate of 12.92%. The loan, identified by account number 1008760011790, was repayable over 120 months in equated monthly installments of Rs. 1,11,629, including interest, costs, expenses, levies, and other charges. The complainant claims that the terms of the contract were dictated by the opposite parties, including a clause for prepayment charges at 2% of the balance outstanding, which he argues was intended to restrict his bargaining power.

Later, the complainant decided to close the loan through a facility arranged by Canara Bank due to the exorbitant interest rates charged by the opposite parties. On 30-12-2017, the loan was closed, and the complainant was charged a prepayment penalty of Rs. 1,05,833 along with an additional sum of Rs. 19,050 as GST. The complainant argues that the term for levying the prepayment penalty is anti-competitive and an unfair trade practice, resulting from the abuse of the opposite parties' dominant position.

The complainant seeks the realization of Rs. 1,34,883 with 18% interest per annum from the opposite parties, along with other reliefs.

The opposite parties filed their defence, arguing that the commission has no jurisdiction over the dispute as it is not a consumer dispute under the Consumer Protection Act. They contend that the complaint is misconceived and groundless. They also argue that the Reserve Bank of India should have been made a party to the complaint as it controls advances by banking companies.

The opposite parties assert that the complainant should have approached the Banking Ombudsman or a civil court, as the prepayment charges were collected as per the Loan Agreement. They state that the loan availed on 09-08-2016 was a "Property Power" loan for business purposes, not personal needs, with an interest rate of 12.92%. The terms, including the 2% prepayment penalty, were negotiated and agreed upon by the complainant.

The opposite parties deny any unfair trade practices or exorbitant interest rates, asserting that the interest rate was set according to Reserve Bank of India guidelines. They argue that the complainant, a leading businessman in Kothamangalam, benefitted from the reduced interest rates and cannot now claim the terms were unfair.

The opposite parties maintain that the prepayment penalty was legally collected, as stipulated in the loan agreement, and that the complainant breached the contract by prematurely closing the loan, causing a loss to the bank. The opposite parties requested the complaint be dismissed, asserting all actions were within legal and contractual bounds.

The opposite parties assert that the loan agreement was a valid contract made with free consent for a lawful object. They deny the complainant's claims of high interest rates and argue that the terms, including prepayment charges, were agreed upon by the complainant. They maintain that the prepayment penalty was legally collected and not an unfair trade practice.

          In the case at hand, the complainant has breached the contract with the opposite parties by closing the loan before the agreed period of 120 months. The loan was prematurely closed and subsequently taken over by Canara Bank. This principle was reiterated by the Honourable Calcutta High Court in the case of Sppl Hotels Pvt. Limited (M/s) and Another v. Allahabad Bank and Others, 2018 KHC 4156. It was observed in this case that prepayment interest is not a penalty but a part of the agreed terms, which the petitioner must adhere to.

              Unfair Trade Practice has been defined in the case General Motors (India) Limited v. Ashok Ramnik Lal Tolat and Another, 2014 KHC 4655. The basic ingredients of unfair trade practice are:

a. There must be a trade practice within the meaning of Section 2(u) of the Monopolies and Restrictive Trade Practices Act.

b. The use or supply of any goods or the provision of any services.

c. The trade practice should fall within the ambit of one or more of the categories enumerated in Clause (1) to (5) of Section 36A.

d. The trade practice should cause loss or injury to the consumers of goods or services.

e. The trade practice under Clause (1) should involve making a statement, whether orally or in writing, or by visible representation.

                The opposite parties argue that the complainant breached the contract by prematurely closing the loan, causing financial loss. They contend that the prepayment penalty is a standard term included in loan agreements as per RBI guidelines and was agreed upon by the complainant. The opposite parties request the commission to dismiss the complaint with costs.

The complainant did not submit a proof affidavit and argument notes before the commission.

                   We have meticulously considered the detailed submissions of both parties and thoroughly reviewed the entire record of evidence, including the argument note filed by the Opposite Parties.

A. Maintainability of the Complaint: The opposite parties contend that the commission lacks jurisdiction because the dispute does not qualify as a consumer dispute under the Consumer Protection Act. He asserts that the complainant is not a consumer as defined by the Act. However, according to Section 2(1)(d) of the Consumer Protection Act, 1986, a consumer is any person who buys goods or avails services for consideration. Therefore, the complainant, having availed financial services, falls within the definition of consumers under the Act. In Laxmi Engineering Works v. P.S.G. Industrial Institute (1995) 3 SCC 583, The Hon’ble Supreme Court held that a person who buys goods for consideration and uses such goods to earn his livelihood through self-employment is considered a consumer under the Consumer Protection Act.

B. Deficiency in Service or Unfair Trade Practice: The complainant argues that the prepayment penalty clause is anti-competitive and restricts their bargaining power, constituting an unfair trade practice. They allege that the opposite parties abused their dominant position. However, the opposite parties contend that the prepayment penalty was agreed upon by the complainant at the time of the loan agreement and was collected legally. In the case of Central Bank of India v. Ravindra (2001) 7 SCC 1, The Hon’ble Supreme Court held that prepayment charges are valid contractual terms, provided they are stipulated in the loan agreement. The loan agreement in question included a clause for prepayment charges, which the complainant agreed to. Additionally, the RBI Guidelines allow banks to impose prepayment charges to compensate for the potential loss of interest income.

C. Contractual Obligation and Loss: The opposite parties argue that the prepayment penalty is a standard term included in loan agreements as per RBI guidelines and was agreed upon by the complainant. The complainant's premature closure of the loan constitutes a breach of contract, causing financial loss to the bank. As per Section 10 of the Indian Contract Act, of 1872, agreements made with free consent for lawful consideration and object are valid contracts. The prepayment penalty clause was a part of the agreed terms, and its enforcement does not constitute an unfair trade practice. In Union Bank of India v. M/s Krupanidhi Educational Trust and Another (2021 KHC 4364), The Hon’ble Supreme Court held that once a loan agreement is signed, it becomes a concluded contract binding on both parties, including prepayment charges.

D. Non-Joinder of Necessary Parties: The opposite parties also argue that the complaint is bad for non-joinder of necessary parties, specifically the Reserve Bank of India (RBI), which regulates banking practices. The RBI's role in regulating prepayment charges implies that the complainant should have included the RBI in their complaint.

Conclusion:

The commission finds that the complainant is a consumer under the Consumer Protection Act, of 1986. However, the prepayment penalty clause was a valid and agreed-upon term in the loan agreement, consistent with RBI guidelines. The opposite parties legally collected the prepayment charges, and there is no evidence of unfair trade practices or abuse of the dominant position.

            We have decided not in favour of the complainant on the issues (ii) to (iv) mentioned above. After careful consideration, we found that the case presented by the complainant is meritless. As a result, the following orders have been issued.

ORDER

The complaint is dismissed. The commission concludes that there was no deficiency in service or unfair trade practice by the opposite parties. The complainant is not entitled to any relief. No cost.

Pronounced in the Open Commission this 27^th  day of June 2024.

Sd/-

D.B. Binu, President

Sd/-

V. Ramachandran, Member

Sd/-

Sreevidhia T.N, Member

Forwarded/By Order

Assistant Registrar

APPENDIX

Complainant’s evidence

• Exhibit A1: Copy of the letter issued by the 3rd Opposite Party on 01-01-2018.
• Exhibit A2: Copy of lawyer notice issued on 23-02-2018.
• Exhibit A3: Copy of reply on 12-03-2018.
• Exhibit A4: Copy of the account statement of loan account.

The opposite parties evidence.

• Exhibit B1: The copy of the Power of Attorney.
• Exhibit B2: The Term Loan Agreement dated 09-08-2016 entered into between the complainant and the opposite party.

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