BEFORE THE DISTRICT CONSUMER DISPUTES REDRESSAL FORUM-I, U.T. CHANDIGARH

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1.        Vikas Jain son of late Shri Amrit Lal Jain, aged about 52 years.

2.        Smt. Kanta Jain widow of Shri Amrit Lal Jain, aged about 72 years.

3.        Smt. Sushma Jain wife of Shri Vikas Jain, aged 47 years; and

4.        Ankit Jain son of Shri Vikash Jain, aged 22 years

All residents of House No.24, Sector 7, Panchkula.

5.        M/s Classic Centre through its Partner Shri Vikas Jain son of late Shri Amrit Lal Jain, SCO No.33, Sector 17-E, Chandigarh.

….…Complainants

V E R S U S

1.  M/s Reliance Capital Limited through its Managing Director (Reliance Consumer Finance Division), having its registered office at Block ‘H’, 1^st Floor, Dhirubhai Ambani Knowledge City, Koparhairane, Navi Mumbai 400710.

2.  M/s Reliance Capital Limited (Reliance Consumer Finance Division) through its Branch Manager, having its Branch Office at SCO 309-310, 1^st Floor, Sector 35-B, Chandigarh 160022.

                                        ..…Opposite Parties

CORAM:         SH.RAJINDER SINGH GILL, PRESIDING MEMBER

                MRS. MADHU MUTNEJA, MEMBER

Argued by: Sh. Neeraj Sobti, Adv. for complainants.

Sh. S.S. Chatrath, Adv. for OPs

PER MRS. MADHU MUTNEJA, MEMBER

                The Complainants have filed the complaint against the OPs alleging deficiency in service on account of foreclosure charges charged by them. 

2.             The complainants had applied for and availed of a housing loan from the OPs.  The OPs had sanctioned Rs.2,37,00,000/- to the complainants for the purchase of H.No.28, Sector 7, Panchkula.  The interest had been fixed at Rs.11.90% p.a. on floating basis.  The loan was subject to payment of 204 equated monthly installments (EMIs).  It was further agreed between the parties that the OPs shall take over the vehicle loan of a BMW Car, which was continuing with ICICI Bank.  At the time of finalization of the loan, it was agreed between the parties that the OPs will charge 2.35% less interest than the prevailing PLR (Prime Landing Rate).  Further, it was agreed that in case of foreclosure of loan account, no foreclosure charges will be charged.  The complainants had issued post-dated and un-dated cheques to the OPs against the said disbursed loan.  Thereafter, the complainants requested the OPs many times to take over the BMW Car loan and to increase the loan from Rs.2.37 Crore to Rs.3.00 Crores and also to reduce the interest rate to 9.75% p.a., however, the OPs did not comply with their request.

                The complainants thereafter shifted their loan from OPs to AXIS Bank, who agreed to grant loan to the complainants at 9.75% p.a.  The complainants thereafter requested the OPs to close the loan account and to release the conveyance deed of the plot.  On foreclosing the loan, the OPs charged Rs.11,70,829/- as foreclosure charges which amounted to 5% of the loan amount.  The complainants then requested the OPs to refund this amount since it had been illegally charged.  On non compliance by the OPs, the complainants have filed the instant complaint alleging unfair trade practice on the part of OPs and praying for refund of Rs.11,70,829/- along with interest @18% p.a.

3.             After admission of the complaint, notice were sent to the OPs.

                The OPs in their reply have admitted the facts of the case.  They have submitted that the loan granted to the complainants was on floating rate of interest.  As per the loan agreement, in case of cancellation of loan within one year, the OPs could claim foreclosure charges from the complainants/ loanees. 

                Further, they have submitted that there was no agreement between them and the complainants to take over the auto loan as alleged by the complainants.  The OPs have contended that as per the loan agreements floating rate of interest and the PLR are to be decided by the lender.  As per sanction letter, the PLR of the OP was 14.25%, hence the complainants were required to pay interest at 11.90% p.a. which was 2.35% less than the PLR as per the terms of the agreement.  As the complainants got his loan account closed within 12 months from the date of sanction of the loan, the foreclosure charges were charged accordingly.  The OPs have prayed that the complainants are not entitled to any relief against them and therefore, the complaint should be dismissed.

4.             Parties led evidence in support of their contentions.

5.             We have heard the ld.Counsel for the parties and have also perused the record.    

6.            It is evident from the loan agreement that the complainants have opted for floating rate of interest.  Further, with regard to charging of foreclosure charges by the OPs, it is pertinent to mention here that in the loan agreement it has been laid down at Clause 2.1(b) that the borrower shall have to pay foreclosure charges as may be stipulated by RCL.  Moreover, in the letter dated 26.8.2008 issued by the OPs and duly accepted & signed by the complainants, it has been mentioned that the rate of interest would be 11.90% p.a. (Floating). 

7.            However, the simple point involved in this complaint is regarding the levy of foreclosure charges by the OPs which according to the complainants is totally illegal and against the terms and conditions of the agreement (Annexure C-1) executed between the parties.  Annexure C-4 is the copy of the letter dated 9.6.2009 sent to the complainants by the OPs bank regarding details of the amount payable towards the prepayment of loan in which the principal outstanding amount is shown as Rs.23,416,597.67, interest for the month Rs.32,289.21 and foreclosure charges of Rs.11,70,829.88 @ 5% at Outstanding Principal.  The ld. counsel for the complainants contended that due to the act and conduct of the OPs he was forced to pay an amount of Rs.11,70,829/- as the OPs declined to release the conveyance deed.

8.            It has been contended by the ld. counsel for the OPs that as per para 2.9 under the heading “Prepayment of the loan”, the OPs were entitled to fees on full and final prepayment on the amount prepaid and on all amounts tendered by the borrower towards the prepayment of the loan from the date of final prepayment.  As per clause B (vi) (h) of the Schedule attached with the loan agreement (Annexure C-1) under the heading Amortization of Loan the prepayment charges have been described as 5% for the 1^st year and thereafter @ 5% + service tax. However, the OPs through Annexure C-4 demanded from the complainants Rs.11,70,829.88 as “foreclosure charges” @ 5% at Outstanding Principal. A perusal of the copy of terms and conditions shows that there was no such term between the parties to demand or to pay “foreclosure charges”. This demand of Rs.11,70,829.88 is, therefore, unreasonable and beyond the agreement. 

9.              As per  Collins Concise Dictionary Third  Edition at page 496 defines ‘foreclose’ as under :-

“Foreclose – closes, -closing, -closed

1. Law. to deprive (a mortgagor, etc.) of the right to redeem (a mortgage or pledge). 2. to shut out; bar. 3. to prevent or hinder……… -foreclosure n.”

10.          Mitra’s Legal & Commercial Dictionary Fifth Edition 1990 at page 323 defines ‘foreclosure’ as a legal term which implies that the relief given be equity against forfeiture of the security is withdrawn. The effect of foreclosure is that the conditional conveyance in a mortgage becomes absolute and the property mortgaged vests absolutely in the mortgagee. 

11.            The Law Lexicon  by P Ramanatha Aiyar 2nd Edition 1997 at page 744 defines ‘foreclosure’ as follows :-

                        “Foreclosure in theory, at least, is merely a decree determining the equitable right of a mortgagor to redeem after the mortgagee‘s estate has become absolute at law. [See Bonham v. Necomb, (1806 1 Vern 232; 23 ER 435; Sampson v. Pattison, (1842) 1 Hare 533; 66 ER1143; 58 RR 178; Carter v. Wake, (1877) 4 Ch D 605.]  The term is also loosely applied to any of the various methods statutory or otherwise, known in different jurisdictions, of enforcing payment of the debt secured by a mortgagee, by taking and selling the mortgaged estate.”

12.            The prepayment fees and foreclosure charges are, therefore, not interchangeable words.  The OPs could be entitled to prepayment charges but in the present case no prepayment charges were assessed or demanded by the OPs. They have rather charged foreclosure charges @ 5% on the outstanding amount which the complainants are not liable to pay at all.  Moreover, since the complainants as per  the terms and conditions of the loan were to pay only prepayment charges whereas in Annexure C-4 the amount demanded is foreclosure charges @ 5% which again shows that it is not the prepayment fees. In the absence of the agreement demanding foreclosure charges, we are of the opinion that the amount of Rs.11,70,829.88 has been illegally demanded from the complainants.

13.            We are, therefore, of the firm view that the OP are not entitled to foreclosure charges.  As per the terms and conditions placed on record by the OPs themselves, they were entitled only to prepayment charges. Hence, the demand of Rs.11,70,829.88 was illegal and contrary to law which has been made by the OP by adopting an unfair trade practice. 

14.            We have come across a number of cases in which the OP bank is demanding foreclosure charges though there is no such agreement between the parties to pay the same.  This Forum has already passed many orders against banks to stop this unfair trade practice.  There are number of customers who are being harassed by the OP banks by demanding foreclosure charges which in view of the agreement could not have been demanded.  We are, therefore, of the opinion that the OPs should be penalized to pay Rs.20,000/- as penalty for adopting this unfair trade practice of demanding foreclosure charges and not releasing the conveyance deed of the property.

15.            In view of the above discussion, we are of the opinion that the present complaint be allowed. The same is accordingly allowed. The OPs are directed to pay/refund Rs.11,70,829.88 (say Rs.11,70,830/-) received by them as foreclosure charges.  They must also pay Rs.20,000/- as penalty and Rs.5,500/- as litigation expenses to the complainant.  This order be complied within thirty days from the date of receipt of copy of this order failing which the OPs would be liable to pay the entire decreed amount alongwith penal interest @ 12% per annum besides the cost of litigation from  the date of filing of the present complaint i.e. 27.1.2010 till the amount is actually received by the complainants. 

                Certified copies of this order be sent to the parties free of charge.  The file be consigned.