DISTRICT CONSUMER DISPUTES REDRESSAL COMMISSION ERNAKULAM

Dated this the 27th day of June 2024
                                                                      Filed on: 26/06/2018

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

C.C. No: 271/2018

COMPLAINANT

1. M/s. Sudheems Silk Collections, KMC XIV 522 523, Kothamangalam, 686691 (Represented by its Managing Partner, Mr. Sharath Jacob, S/o. Late Jacob Thomas, residing at Kalarickal house, Kozhippilli, Varapetty, Kothamangalam, 686691). Ernakulam
2. Mr. Sharath Jacob, S/o. Late Jacob Thomas, Kalarickal house, Kozhippilli, Varapetty, Kothamangalam, Ernakulam-686691
3. Sonia Jacob, D/o. Jacob, Kalarickal house, Kozhippilli, Varapetty, Kothamangalam, Ernakulam-686691
4. Divya Sharath, W/o. Sharath Jacob, Kalarickal house, Kozhippilli, Varapetty, Kothamangalam, Ernakulam-686691

(Rep. by Adv. R. Pradeep, 3^rd Floor, The Esplenade, Convent Jn., Ernakulam 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, 6^th 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.

(Rep. by Adv. E.K. Jose, Muvattupuzha 686661)

FINAL ORDER

D.B. Binu, President:

1. 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 first complainant is a partnership firm, and the second, third, and fourth complainants are partners of the first complainant firm. They became customers of the opposite parties by availing of financial services offered by the opposite parties, thus making them consumers as defined under the Consumer Protection Act, 1986. The first opposite party is a private sector banking company, with the second and third opposite parties being its regional and branch heads respectively.

On August 9, 2016, the first complainant, as the principal borrower, and the other complainants, as co-obligants, availed a loan of Rs. 125 Lakhs from the first opposite party through its Kothamangalam branch. The loan was for business purposes, to earn their livelihood through self-employment, with a floating interest rate of 12.92% and an MCLR rate of 9.52%. The facility was for 30 months, repayable in monthly instalments, and included a clause for prepayment charges of 2% of the balance outstanding/drawing power, or the amount of prepayment for the number of days remaining until the next reset date. This term was designed by the opposite parties to limit the complainant's bargaining power and restrict trade practices.

Later, the complainants found the interest rates charged by the opposite parties to be higher than those of other financial institutions and decided to close the loan through a takeover by Canara Bank Limited. The loan was closed on December 30, 2017. Despite directives from licensing authorities, the opposite parties charged a prepayment penalty of Rs. 2,50000 and an additional Rs. 45,000 as GST. The complainants argue that the prepayment penalty clause is anti-competitive, restricts their bargaining power, and constitutes an unfair trade practice. They claim the penalty was collected without any loss to the opposite parties, who had already gained interest advantages.

The complainants seek the commission's direction to stop the opposite parties from levying prepayment charges and engaging in anti-competitive agreements. They request Rs. 3,17,125 as damages, which includes the prepayment penalty, GST, and interest at 18% per annum from 26/06/2018. They also request the award of costs for this petition and any other relief deemed just by the commission.

2. Notice:

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

3. Version of the Opposite Parties:

Federal Bank Ltd., a banking company incorporated under the Companies Act, with its registered head office in Aluva, Kerala, and a branch office in Kothamangalam, submitted its version. The Assistant Vice President and Branch Head at Kothamangalam, Leo, who is conversant with the facts of the case, signed this version. The opposite party claims that the commission has no jurisdiction as the dispute is not a consumer dispute under the Consumer Protection Act. They state that the definitions of 'Complainant,' 'Complaint,' 'Consumer Dispute,' 'Consumer,' and 'Service' under the Act do not cover the present dispute, rendering the complainants not consumers and the controversy not a consumer dispute. The opposite party contends that the complaint is frivolous and intended to extract money. They assert that they have acted within the law, under the Reserve Bank of India's control. The opposite party states that the complaint should be dismissed for non-joinder of necessary parties and that the complainants should have approached the Banking Ombudsman or a civil court. They cite Section 10 of the Indian Contract Act, stating that all agreements are contracts made by the free consent of competent parties, for a lawful object, and are not void.

The opposite party admits that the first complainant is a partnership firm, and the second complainant is the managing partner with the third and fourth complainants as partners. They acknowledge that the first complainant availed a loan of Rs. 33 lakhs, with the other complainants as co-obligants, but deny that it was a property power loan or for self-employment purposes. The interest rate was fixed through negotiation, resulting in a one-year MCLR + 2.90% rate. They maintain that the prepayment penalty of 2% was agreed upon by the complainants at the time of the loan agreement, and any dispute should be taken to a civil court. The opposite party denies that the interest charged was exorbitant and asserts that it was in line with RBI guidelines. They acknowledge the loan was taken over by Canara Bank but deny any directive from licensing authorities to forbear from charging prepayment penalties. They state that the prepayment penalty and GST were legally collected as per the loan agreement and deny that the collection of these charges constitutes an unfair trade practice. The opposite party asserts that the complainants benefited from the reduced interest rate at the time of availing the loan. They deny having a dominant position over the complainants, who are described as a leading business firm in Kothamangalam. The opposite party contends that the prepayment penalty was legally collected due to the premature closure of the loan, causing a contractual breach and loss to the bank. They state that the loan agreement's terms are binding and the complainants cannot unilaterally claim them as unfair trade practices. The opposite party concludes by requesting the commission to dismiss the complaint with costs.

4. Evidence:

The complainants did not submit a proof affidavit but filed three documents, marked as Exhibits A1 to A3.

• 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.

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 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 complainants 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 first complainant is a partnership firm, and the second, third, and fourth complainants are its partners. They availed financial services from the opposite parties, a private sector banking company, and its regional and branch heads. On 09-08-2016, the complainants took a Rs. 125 lakh "Property Power" loan from the Kothamangalam branch for business purposes, with a floating interest rate of 12.92% and an MCLR rate of 9.52%. The loan, under account number 10085500008635, was repayable in a lump sum over 30 months.

The complainants argue that the contract terms, including a 2% prepayment charge, were dictated by the opposite parties to restrict their bargaining power. After some time, they decided to close the loan through Canara Bank due to high-interest rates. On 30-12-2017, they were charged Rs. 2,50,000 as prepayment charges and Rs. 45,000 as GST. The complainants claim this is anti-competitive and an unfair trade practice, resulting from the opposite parties' dominant position.

The complainants seek Rs. 3,17,125 with 18% interest per annum as compensation.

The opposite parties argue that the commission has no jurisdiction over the dispute as it is not a consumer dispute under the Consumer Protection Act. They suggest the complainants should have approached the Banking Ombudsman or a civil court since the prepayment charges were collected as per the valid loan agreement. They also state that the loan was for business purposes, not personal, and that the interest rate was negotiated.

The opposite parties deny charging exorbitant interest and assert that the prepayment penalty was legally collected. They claim the complainants breached the contract by prematurely closing the loan, causing a loss to the bank. They maintain that the complainants benefitted from a reduced interest rate and cannot now allege unfair trade practices.

The complainants have provided several documents, including letters and notices related to the case. The opposite parties assert that the loan agreement terms, including prepayment charges, are binding and that the complainants should seek redress in a civil court. They argue that the case does not fall under the Consumer Protection Act and request the complaint be dismissed.

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

In the case of Sebastian Joseph v. Governor, Reserve Bank of India & Ors., cited in 2019 ICO 1233, the High Court of Kerala observed that the waiving of foreclosure penalty applies only to natural persons and not to partnership firms or companies. In the present case, the complainant is a partnership firm that availed the loan for business purposes.

                              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 complainants 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 complainants. The opposite parties request the commission to dismiss the complaint with costs.

The complainants 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 complainant argues that the facility they availed was for business purposes related to their firm's self-employment and livelihood. The opposite parties contend that the commission lacks jurisdiction because the dispute does not qualify as a consumer dispute under the Consumer Protection Act. They assert that the complainants are not consumers as defined by the Act since the loan was for commercial purposes. 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, including services for commercial purposes. Additionally, if the commercial use is by the purchasers themselves for the purpose of earning their livelihood through self-employment, such purchasers of goods would still be considered 'consumers' under the Act. Therefore, the complainants, having availed financial services, fall 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 for the purpose of earning his livelihood by means of self-employment is considered a consumer under the Consumer Protection Act.

B. Deficiency in Service or Unfair Trade Practice: The complainants argue 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 complainants 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 clearly stipulated in the loan agreement. The loan agreement in question included a clause for prepayment charges, which the complainants 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 complainants. The complainants' 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, 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 complainants should have included the RBI in their complaint.

Conclusion:

The commission finds that the complainants are consumers under the Consumer Protection Act, 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 dominant position.

                           We have decided not in favour of the complainant on the issues No. 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 complainants are not entitled to any relief. No cost.

Pronounced in the Open Commission this 27th 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.

Opposite party’s Exhibits

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.

Despatch date:

By hand:     By post                                                  

kp/

CC No. 271/2018

Order Date: 27/06/2024