Punjab

Ludhiana

CC/20/223

Daljit Singh - Complainant(s)

Versus

Hero Fincorp Ltd. - Opp.Party(s)

V.K.Gupta Adv.

27 Nov 2024

ORDER

DISTRICT CONSUMER DISPUTES REDRESSAL COMMISSION, LUDHIANA.

                             Consumer Complaint No:  223 dated 07.10.2020.                                       Date of decision: 27.11.2024. 

 

Daljit Singh Proprietor M/s. JagatSukh Industries, Plot No.1, Passi Nagar, Passi Chowk, Village Phullanwal, Pakhowal Road, Ludhiana.                                                                                                                          ..…Complainant

                                                Versus

1. Hero FinCorp Ltd., Corporate Office: 09, Basant Lok, Vasant Vihar, New Delhi-110057 through its Managing Director/Chairman.
2.  Hero FinCorp Limited, Feroze Gandhi Market, Ludhiana through its branch Head/Manager.                                                                                                                                                     …..Opposite parties 

Complaint Under Section 35 of the Consumer Protect Act.

QUORUM:

SH. SANJEEV BATRA, PRESIDENT

MS. MONIKA BHAGAT, MEMBER

 

COUNSEL FOR THE PARTIES:

For complainant             :         Sh. Vijay Kumar Gupta, Advocate

For OP1                         :         Exparte.

For OP2                         :         Ms. Shalini Joshi, Advocate.

 

ORDER

PER SANJEEV BATRA, PRESIDENT

1.                Shorn of unnecessary details, the facts of the case are that the complainant is the Proprietor of M/s. JagatSukh Industries, which is a small scale unit being run by him for earning his livelihood. The complainant availed the secured loan credit facilities which are reproduced as under:-

(A) Loan Against Property (LAP) of Rs.1,16,60,000/- (Rs. One Crore Sixteen Lakh Sixty Thousands only)

(B) Loan Against Property (LAP) of Rs.41,00,000/- (Rs Forty One Lakhs Only)

According to the complainant, these loans carried interest @12.10% per annum to be repayable in 144 equated monthly installments of Rs.2,07,951/- each. The complainant  in order to secure the repayment of the said credit facilities,  created equitable mortgage of property comprised of Khasra No.244/4, Khata No.297/307, Khasra No.243/6, Khata No.655/667 as per jamabandi for the year 2007-2008 situated at Village Phullanwal, Tehsil and District Ludhiana. The complainant further stated that since he was not satisfied with the services of the OPs especially as they were charging higher rate of interest and unreasonable hidden charges, as such, on his request, the said credit facilities were taken over by Capital First Limited Bank and the entire outstanding dues were paid to the OPs and the loan accounts were closed by them. However, the OPs illegally and in an unauthorized manner added an amount of Rs.8,20,646.68P as foreclosure charges along with interest on termination and applicable tax on foreclosure charges. The said amount was deposited with the OPs by Capital First Limited Bank including Rs.1,67,18,284/- vide CMS disbursement cheque No.072097 dated 03.10.2018.  The complainant further stated that the OPs had no right or authority to make demand or accept the foreclosure charges which amounts to adoption of unfair trade practice on the part of the OPs. Even the OPs threatened not to release the accounts and the property documents to Capital First Limited Bank in case the unwarranted foreclosure charges are not paid, which they paid to the OPs under protest and compelling circumstances. According to the complainant, the OPs have charged foreclosure charges against the instructions of Reserve Bank of India as they cannot charge any foreclosure charges/pre-payment penalties on loan sanctioned to individual borrowers. The complainant many times requested the OPs to refund the illegally charged amounts with interest but to no effect. The complainant sent a legal notice dated 31.07.2020 upon the OPs but no response was given by the OPs. Hence this complaint, whereby the complainant has prayed for issuing directions to the OPs to pay pre-payment/foreclosure charges of Rs.8,20,646.68P along with interest @18% per annum from 30.10.2018 and also to pay compensation of Rs.2,00,000/-.

2.                Upon notice, none appeared on behalf of OP1 despite service and as such, OP1 was proceeded against exparte vide order dated 05.01.2021.

3.                Upon notice, OP2 appeared and filed written statement. OP2 stated that the complaint is not legally maintainable. Under the column brief facts of the case, OP2 stated that the complainant approached them for availing loan against property for business expansion for he along with co-applicant signed the loan agreements. Thereafter, OP2 sanctioned a loan of Rs.1,16,60,000/- on 22.07.2016 vide loan agreement No.HCFLUDLBT00000924047 and Rs.41,00,000/- vide loan agreement No.HCFLUDLTU00000942376 and the same was disbursed to the complainant and other co-applicant. They created an equitable mortgaged their property comprised in Khasra No.244/4, Khata No.297/307, Khasra No.243/6, Khata No.655/667, as per the Jamabandi for the year 2007-2008, situated at Phullanwal, Ludhiana in favour of OP2. OP2 further stated that the sanction letter dated 29.06.2016 was duly signed by the complainant and other co-applicant, where it was specifically mentioned at point No.7 that the loan was sanctioned for the purpose of business expansions. The said Point No.7 is reproduced as under:-

                   “7. Purpose B.T. of CC Limit and Top up for business                                       expansion

And the same way the wording of the said Clause in sanction letter dated 29.06.2016 having reference No.1156080 with regard to loan account No.HCFLUDLTU00000942376 for the sum of Rs.41,00,000/- as given below:

7. Purpose for balance transfer from Union Bank of India

So, the loans by the complainant availed being authorized person of his firm Jagat Sukh Industries, Jagat Sukh Overseas, Jagat Sukh Products (India) for the business purpose and the company/OP has rightly charged foreclosure charges from the complainant.”

OP2 further stated that the Borrower namely Jagat Sukh Industries, Jagat Sukh Overseas, Jagat Sukh Products India had along with co-borrowers namely Sukhpal Vir Singh, Jagatjit Singh, Dapinder Kaur in the capacity of Co-Borrowers had approached the OP for availing loan against property from the OP. It is evident that the borrower of the aforesaid loan facility is not an individual persons but a Body Corporate. That thus the said condition of RBI vides circular no. 399/03.10.42/2014-15 has been wrongly placed reliance upon by the complainant. Moreover, the complainant along with other applicant had signed loan agreement and loan sanctioned letters and loan were also availed by the complainant expansion. The reserve bank for of business India vide circular dated 02.08.2019 clarified that banks shall not charge foreclosure charges/prepayment penalties on any floating rate terms loan sanctioned, for purpose other than business, to individual borrowers with or without co- applicant (s). So, in view of this the OP has rightly charge foreclosure charges as given below manner mentioned in the sanctioned letter dated 29.06.2016 which is given below:-

Transaction	Charges (in Rs.)
16. Foreclosure/Pre-payment Charges	No payment allowed within 12 months from the disbursal date After 12/48 Months prepayment penalty 4% (Plus applicable service tax) will be applicable. After 48 months till loan closure prepayment penalty 2% (Plus applicable service tax) will be applicable.

 

OP2 further stated that the loan was sanctioned to the Borrowers in strict adherence to the terms and conditions envisaged in the sanction letter dated 29.06.2016. The complainant and other applicant signed the loan agreements and they are having contractual obligations to perform their part of contract.                        On merits, OP2 reiterated the crux of averments made in column brief facts of the case. OP2 has denied that there is any deficiency of service and has also prayed for dismissal of the complaint.

4.                In evidence, the complainant tendered his affidavit as Ex. CA and reiterated the averments of the complaint. The complainant also placed on record documents i.e. Ex. C1 is the copy of cheque of Rs.1,67,18,284/- issued by Capital First Limited in favour of Hero Fincorp Ltd., Ex. C2 is the copy of  sanction letter dated 29.06.2016 of Rs.1,57,60,000/-, Ex. C3 is the copy of foreclosure statement dated 24.10.2018 of loan account No.HCFLUDLBT00000924047, Ex. C4 is the copy of foreclosure statement dated 24.10.2018 of loan account No.HCFLUDLTU00000942376, Ex. C5 is the copy of account statement of account No.HCFLUDLTU00000942376, Ex. C6 is the copy of account statement of account No.HCFLUDLBT00000924047, Ex. C7 is the copy of Aadhar Card of the complainant, Ex. C8 is the copy of Udyog Aadhar Memorandum and closed the evidence.

5.                On the other hand, the counsel for OP2 tendered affidavit Ex. RA of Sh. Johney Verma, authorized person of OP2 along with documents i.e. Ex. R1 is the copy of resolution, Ex. R2 is the copy of loan agreement of amount of Rs.1,16,60,000/-, Ex. R3 is the copy of loan agreement of amount of Rs.41,00,000/-, Ex. R4 is the copy of sanction letter of loan of Rs.1,57,60,000/-, Ex. R5 is the copy of sanction letter of loan of Rs.14,20,000/- and closed the evidence.

6.                We have heard the arguments of the counsel for the parties and also gone through the complaint, affidavit and annexed documents as well as written statement, affidavit and documents produced on record by both parties.

7.                Admittedly, the complainant Daljit Singh being the Proprietor of M/s. JagatSukh Industries along with co-borrowers namely Sukhpalbir Singh, Jagatjit Singh, Dapinder Kaur, M/s. JagatSukh Products and M/s. JagatSukh Overseas (Non-complainants) availed BT of CC Limit and Top Up loan for business expansion of Rs.1,57,60,000/- vide sanction letter dated 29.06.2016 Ex C1 = Ex R4 at the rate of 12.10% per annum. The complainant along with co-borrowers namely Sukhpalbir Singh, Jagatjit Singh, Dapinder Kaur, M/s. JagatSukh Products and M/s. JagatSukh Overseas (Non-complainants) also got transferred a loan for balance transfer from Union Bank of India of Rs.14,20,000/- vide sanction letter dated 29.06.2016 Ex. R5 at the rate of 11% per annum. Both these loans were repayable in 144 monthly installments of Rs.2,07,951/- and Rs.17,801/- respectively. The sanction letters Ex. C2 + Ex R4 and Ex R5 which bears the signatures of the complainant and other co-borrowers along with stamps of JagatSukh Industries, JagatSukh Overseas, JagatSukh Products. The complainant got transferred the said loans with Capital First Bank from the OPs and the OPs accepted the request of the complainant vide foreclosure statements Ex C3 and Ex C4. The details of the outstanding amount as per foreclosure statement Ex. C3 is given hereunder:-

S. No.	Particulars	Amount (in INR)
1.	Principal O/s.	10,587,730.00
2.	Foreclosure Charges @4% on outstanding Principal	423,509.20
3.	Interest on Termination	107,381.00
4.	Late Payment Charges	4,100.83
5.	Cheque/RCS bouncing charges	1,755.00
6.	Applicable Tax on foreclosure charges @18%	76,231.66
7.	Excess Amount Less	0.00
8.	TDS Recoverable	0.00
9.	FR /issuance charges	1,180.00
	Net Recoverable	11,201,887.69

Further the details of the outstanding amount as per foreclosure statement Ex. C4 is given hereunder:-

S. No.	Particulars	Amount (in INR)
1.	Principal O/s.	3,723,174.14
2.	Foreclosure Charges @4% on outstanding Principal	148,926.97
3.	Interest on Termination	37,791.00
4.	Late Payment Charges	865.58
5.	Cheque/RCS bouncing charges	1,755.00
6.	Applicable Tax on foreclosure charges @18%	26,806.85
7.	Excess Amount Less	0.00
8.	TDS Recoverable	0.00
9.	FR /issuance charges	1,180.00
	Net Recoverable	3,940,499.54

 Now the complainant has challenged the levying of foreclosure charges by the OPs on pre-payment of outstanding loan amounts as he claimed to have obtained the loan for earning his livelihood.  

8.                The point of issue that arises for consideration is that whether levying of foreclosure charges by the OPs is justifiable or not?

9.                The matter in controversy revolves around the application of the circular/notification issued from time to time.

“Letter dated July 22, 2016 issued by National Housing Bank addressed to all Registered Housing Finance Companies with regard to levying of foreclosure charges/pre-payment penalty – Clarification.

“Please refer to our Circulars NHB(ND)/DRS/Policy Circlar-63/2014-15 and 66/2014-15 dated August 14, 2014 and September 3, 2014, respectively, in terms of which, inter-alia, all floating rate term loans sanctioned to individuals borrowers by the Housing Finance Companies (HFCs), are exempted from any foreclosure charges/prepayment penalties.

2. It has come to our notice some of the HFCs continue to levy foreclosure charges/pre-payment penalties on term loan sanctioned to individual borrowers under different nomenclatures, such as loan origination cost, loan maintenance cost, etc. This is in contravention of the provisions of the Circulars referred to above. We clarify that these provisions apply to all term loans sanctioned only to individual borrowers.

3. Further, the issue relating to applicability of the aforesaid Circulars to a Sole Proprietorship Concern/Firm or an HUF, as a borrower/co-borrower has also been examined in the light of complaints/representations received by us. We clarify that the intent and spirit of the circular is to protect the interest of the individual borrowers. Therefore, a Sole Proprietorship Concern/Firm or an HUF, as borrower or co-borrower will not be treated as an individual borrower for the purpose of these circulars……”

“Policy Circular dated 03.09.2014 issued by the National Housing Bank to all registered Housing Finance Companies with regard to levying of foreclosure charges/prepayment penalties on floating rate term loans-Clarification.

“Please refer to our Circular NHB(ND)/DRS/Pol. Circular No.63/2014 dated August 14, 2014 advising HFCs not to charge foreclosure charges/pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect.

Enquiries are being received with regard to the applicability of the said Circular on floating rate term loans sanctioned prior to August 14, 2014 and in cases where a company, firm, etc. is a co-borrower.

2. The issues have been examined by us. It is clarified that the provisions of the said Circular are applicable in respect of all floating rate term loans sanctioned to individual borrowers by HFCs, irrespective of the date of sanction, and prepaid on or after August 14, 2014. The provisions of the said Circular cover both part as well as full pre-payments.

3. Further, the applicability of the said Circular is on foreclosure charges/pre-payment penalties in respect of all floating rate term loans sanctioned to individual borrowers. Loan in which company, firm, etc. is a borrower or co-borrower, therefore, is excluded from its purview.”

 

10.              Therefore, in the above said clarification circulars issued by the National Housing Bank, it has been mandated that the bank shall not charge foreclosure charges/pre-payment penalty on any floating rate term loan sanctioned for purposes other than business, to individual borrowers or co-borrowers.  In the present case, the OPs have charged floating interest @12.10% as is mentioned in the sanction letters Ex C1=R4. Further the OPs have charged fixed interest @11% per annum  as is mentioned in the sanction letter Ex. R5. As per schedule mentioned in loan agreement Ex. C1 = Ex. R4 under the column (7) Purpose, the purpose of loan has been mentioned as “BT of CC limit and Top-up for business expansion”.  As such, the complainant obtained the loan from the OPs for the purpose of business expansion and also for commercial concern and not for personal use by him. It is evident that the said loan facilities were required by the complainant for the purpose of "business expansion", Loan was availed by the complainant along with co-borrowers namely Sukhpalbir Singh, Jagatjit Singh, Dapinder Kaur, M/s. JagatSukh Products and M/s. JagatSukh Overseas (Non-complainants). It is also evident from the record, that the complainant was not carrying on the business for merely to earn his livelihood, but for earning huge profits by engaging himself in different kinds of business activities.

11.              Further it is desirable that issue regarding the maintainability of the complaint may be adjudicated. Section 2(7) of the Consumer Protection Act, 2019 defines the word “consumer”, which reads as under:-

“Consumer” means any person who:-

(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment, when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

(ii)hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and include any beneficiary of such service other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person, but does not include a person who avails of such service for any commercial purpose.”

Explanation. -For the purposes of this clause, -

(a) the expression "commercial purpose " does not include use by a person of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment;

 (b) the expressions "buys any goods " and "hires or avails any services " includes offline or online transactions through electronic means or by teleshopping or direct selling or multi-level marketing;”

Further the Hon’ble Supreme Court of India in "Lilavati Kirtilal Mehta Medical Trust Vs. Unique Shanti Developers and others", Civil Appeal No.12322 of 2016, decided on 14.11.2019, reported in 2020 (2) Supreme Court cases 265, summarized the board principles for determining the nature and purpose of activity/transaction. The relevant extract reads as under:-

“7. To summarize from the above discussion, though a straightjacket formula cannot be adopted in every case, the following broad principles can be culled out for determining whether an activity or transaction is 'for a commercial purpose':

1. The question of whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case. However, ordinarily, 'commercial purpose' is understood to include manufacturing/industrial activity or business-to-business transactions between commercial entities.
2. The purchase of the good or service should have a close and direct nexus with a profit-generating activity.
3. The identity of the person making the purchase or the value of the transaction is not conclusive to the question of whether it is for a commercial purpose. It has to be seen whether the dominant intention or dominant purpose for the transaction was to facilitate some kind of profit generation for the purchaser and/or their beneficiary.
4. If it is found that the dominant purpose behind purchasing the good or service was for the personal use and consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, the question of whether such a purchase was for the purpose of 'generating livelihood by means of self employment' need not be looked into."

12.              Although the complainant has stated in para No.2 of the complaint that he is running M/s. JagatSukh Industries for earning his livelihood which deals in manufacturing of agricultural and forestry machinery and equipment as well as manufacturing of spraying machinery for agricultural use as mentioned in Udyog Aadhar Memorandum Ex. C8. It is evident from the record that it is the complainant is the principal borrower and others are just the co-borrowers. It was the loan against property sanctioned and disbursed for business purpose. The complainant being the proprietor carries the business of M/s. JagatSukh Industries. The dominant purpose for availing loan was directly linked to commercial activities by the complainant for his firm. The loan was obtained such a huge loans from the OPs and such loans are obtained not for simply to earn livelihood but exclusively for generation of large scale profits. Apparently, the loan was availed for commercial purpose and the complainant does not qualify to be called as “Consumer” within meaning of Section 2(7) of the Consumer Protection Act.

                   Further reference can be made to  Civil Appeal No. 5858 of 2015 Rohit Chaudhary & another Vs M/s. Vipul Ltd.  decided on 06.09.2023 by the Hon’ble Supreme Court of India and while reiterating the law laid down in Lilavati Kirtilal Mehta Medical Trust Vs. Unique Shanti Developers and others (Supra) the Hon’ble Supreme Court of India has made the following observations:-

“Consumer Protection Act, 1986; Section 2(1)(d) - ‘consumer’ - ‘commercial purpose’ - A person buying goods either for resale or for use in large-scale profit-making activity, will not be a ‘consumer’ entitled to protection of the Act - If the dominant purpose of purchasing the goods or services is for a profit motive and the said fact is evident from the record, such purchaser would not fall under the ambit of ‘consumer’, as defined under Section 2(1)(d) of the Act.

                  

As such, by applying the ratio of the above cited case, it is our considered view that the complaint is not maintainable and same deserves dismissal.

13.              As a result of above discussion, the complaint is hereby dismissed being devoid of any merits. However, there shall be no order as to costs. Copies of order be supplied to parties free of costs as per rules. File be indexed and consigned to record room.      

14.              Due to huge pendency of cases, the complaint could not be decided within statutory period.

 

 

(Monika Bhagat)                              (Sanjeev Batra)               Member                                         President  

 

Announced in Open Commission.

Dated:27.11.2024.

Gobind Ram.