BEFORE THE DISTRICT CONSUMER DISPUTES REDRESSAL FORUM AT BANGALORE URBAN

 08^th DAY OF SEPTEMBER 2015

O R D E R

SRI. P.V SINGRI, PRESIDENT

The complainant has filed this complaint U/s.12 of the Consumer Protection Act, 1986 against the Opposite Party (herein after referred as OP) with a prayer to set aside the current rate revision performed on account of rate reset clause and for direction to make such revisions prospectively with an option for the complainant to pay entire outstanding balance and seek termination of loan together with compensation of Rs.40,000/- and litigation cost of Rs.10,000/-.

2. The brief averments made in the complaint are as under:

The complainant approached OP Bank for house construction loan in their personal banking branch at Jayanagar.  After due verification, he was sanctioned a loan of Rs.35,00,000/- on 20.10.2005 repayable in 180 equated monthly instalments and the loan carried fixed rate of interest of 7.25% p.a at monthly rests on daily reducing balance.  The complainant was prompt in paying his EMI over 8 years period from 2006 to 2014 and made payment of Rs.8,51,000/- by July 2011.  That while the outstanding balance was less than Rs.12,00,000/- as on April 2014, the OP sent a letter dated 10.04.2014 to complainant in which it was informed about incorrect interest rates in its system since 2008 and that interest for the difference period shall be recalculated with applicable rate of interest for being debited to the housing loan directly.  The complainant was also requested to visit the office of OP for further clarifications.  The complainant surprised by the said letter sent an mail to OP on 23.05.2014 expressing shock over the incident and sought details on the charges.  The OP Bank in its reply mail dated 26.05.2014 attributed the interest rate revision to the 3 years reset clause contained in the loan sanction letter and offered to calculate and inform the arrears of interest shortly.  Thereafter, the OP sent a letter dated 12.06.2014 giving the details of the interest rate changes and computed the interest differential as Rs.5,40,000/-.  That the said interest differential was termed as a beneficial offer on account of considering floating rate of interest which was better than Rs.8.7 lakhs under the fixed rate option.  The complainant sent a mail dated 13.07.2014 expressing the huge burden caused by the OP Bank’s action and requested for suitable relief.

Despite the attempt by the complainant to explain the terms of the loan sanction letter which allows the alteration of interest rate was committed to be performed prospectively only, the OP stuck with stand of demanding Rs.5.40 lakhs as interest rate differential.  During his discussions with officers of OP Bank on 02.08.2014 he was informed about the system error the resultant interest charges.  In line with the provisions contained in loan sanction letter which makes the complainant eligible to request the Bank for termination of the loan if the borrower is not agreeable for revised interest so fixed, he sent a mail on 11.08.2014 expressing his desire to close the loan by paying the actual outstanding Rs.11,00,000/- and proposed few other options.  However, all these attempts to convince the OP did not yield any result and it finally stated in its email dated 18.08.2014 that no waiver was possible and the account cannot be closed without clearing the interest portion.

The action of the OP Bank has come totally shock to the complainant as he has been regularly approaching the Bank right since 2009 to enquire about the revised interest rates on account of Reset clause but the OP had not acted for more than 5 years and suddenly comes up with a huge debit.  The terms in page-1, clause-3 of the sanction letter under the heading “Fixed Rate of Interest” allows the OP Bank to perform “interest rate reset at the end of every three years”.  This clause gives an option to the OP Bank to increase the rate only at the end of every third year and not in between the three year cycles.  Hence, by not revising the interest rate at the end of each third year, the OP Bank becomes incapacitated to revise the interest rate in 2014 on account of reset clause.

Though the OP possesses the right to revise the interest rate in the event of major volatility in interest rate from the period of the agreement, but such revision can only be applied prospectively.  Thus, revising interest rate on a retrospective basis is against the terms of loan sanction document as agreed between the parties.  While the RBI actively promotes a scenario of healthy competition of commercial banks in home loan products through its various measures, the OPs action of revising interest rate retrospectively after more than 5 years is against the Consumer’s interest.  The complainant continued with the housing loan of the OP and did not consider opportunities with other competitive lenders because of the 7.25% beneficial rate he enjoyed.  During the period 2009 to 2014, there were multiple offers from other Bank’s but the OP lured the complainant over the loan period with its competitive rate, literally curtailing all possible avenues and now slapping a huge burden.  By modifying the rates retrospectively the OP had put the complainant in a situation wherein he miserably missed the opportunity to utilize cheaper funds for his home loan repayment.

For the aforesaid reasons the complainant prays for an order by setting aside the current rate revision performed on account of rate reset clause and to issue directions to OP Bank barring any such revisions till the end of next third year i.e., 07.01.2015 and for further direction for interest rates revision on account of major volatilities in interest rates prospectively with an option to complainant to pay entire outstanding balance and seek termination of loan and compensation of Rs.40,000/- for mental agony and litigation expenses of Rs.10,000/-.

3. In response to the notice issued the OP appeared through their advocate and filed their version contending in brief as under:

It is true that the complainant was sanctioned a home loan of Rs.35,00,000/- with interest at the rate of 7.25% p.a on daily reducing balance at monthly rests, subject to interest rate reset at the end of every 3 years on the basis of fixed interest rates prevailing then.  The complainant was not prompt in paying the EMI’s as per the terms of the loan agreement.  As per the terms of the loan agreement, rate of interest for the first 3 years is 7.25% p.a., for the next 3 years, it is at 12.25% p.a and thereafter it is at 13.25% p.a.  Necessary letter was addressed to the complainant in this regard.  In reply to the mail dated 23.05.2014 OP sent a reply on 26.05.2014 stating that, Reset clause after 3 years is applicable to the loans sanctioned between 17.08.2005 to 01.03.2006.  Later the complainant was sent a letter dated 12.06.2014 giving the clarification sought for by him and further calling upon him to opt for conversion of account to the floating rate of interest on 07.01.2009 by paying 0.50% of outstanding amount towards conversion fee.

The complainant sent a e-mail on 11.08.2014 expressing his desire to close the loan account by paying the actual outstanding balance with other proposed options but the proposal put forth were not acceptable by the OP therefore the same was not agreed and a mail dated 18.08.2014 was sent to complainant informing the same.  The complainant without paying the arrears arising out of re-calculation of interest on reset cannot be permitted to close the account.  The reset of the interest has been done as per the terms of the loan sanction to the complainant.  The OP Bank is not debarred from recovery of arrears of interest, if at all the correct rate of interest was not applied in his loan account.  There is no illegality or irregularity in the said demand made by the OP Bank for payment of interest recalculated as per the reset clause.  Due to mistake in the system the interest charged was at lower rate and not switched over to the floating rate after expiry of fixed rate of interest term.  The complainant is not a Consumer as defined under the Consumer Protection Act, 1986.  Therefore, this Forum has no jurisdiction to entertain this complaint.  There is no deficiency of service on the part of OP and the allegations regarding such deficiency in service made in the complaint are false and baseless.

For the aforesaid reasons, OP Bank prays for dismissal of the complaint.

4. On the rival contention of both the parties, the points that arise for our determination in this case are as under:

        5. The complainant to substantiate the allegations made in the complaint filed his affidavit evidence and also written arguments.  The OP Bank in support of the averments made in their version filed the affidavit of their Chief Manager, Rajesh Bagora by way of evidence.  The OP Bank also submitted their written arguments.  Both the parties have filed documents in support of their respective contentions.

6. Perused the materials placed on record including allegations made in the complaint, the version, affidavit evidence of both the parties, documents and the written submissions.

7. Our answer to the above issues are as under:

REASONS

8.  It is not in dispute that the complainant approached the OP Bank for house construction loan and after satisfying as to the need of the complainant the OP Bank sanctioned a loan of Rs.35,00,000/- to the complainant on 20.10.2005 in the loan account bearing No.30024150149.  In pursuance of the sanction of the loan, the complainant executed a loan agreement, the copy of which is at Exhibit-1.  It is also not in dispute that the complainant was required to repay the said loan amount in 180 equated monthly instalments at a fixed rate of interest 7.25% at monthly rests on daily reducing balance.  The said rate of interest was subject to interest rate reset at the end of every 3 years on the basis of fixed interest rate prevailing then.  As could be seen from the statement of accounts as well as the other material placed on record, the complainant was regular in paying EMIs in terms of the loan agreement dated 20.10.2005.  Despite the interest rate reset at the end of every three years, the OP Bank did not cause any change in the rate of interest and continued to charge fixed rate of interest at 7.25% p.a as agreed initially till April 2014.

9. The OP Bank by their letter dated 10.04.2014, the copy of which is at Exhibit-2 informed the complainant that the rate of interest to be charged to the loan account of the complainant should have been fixed rate of interest at 7.25% subject to interest rate reset at the end of every three years on the basis of their fixed interest rate applicable then.  In the said letter it was further informed that accordingly, in the 1^st three years the rate of interest should be 7.25%, next three years–13.00% p.a and after that 13.25% p.a as per sanction terms is applicable to the loan account of the complainant, however, the rate of interest applied to the loan account of the complainant was incorrect since 27.11.2008 in CBS.  Therefore, the Bank will be recalculating the interest for the difference period with applicable rate of interest and the same will be debited to the housing loan account shortly.  In their letter dated 12.06.2014, the copy of which is Exhibit-3, the OP Bank gave certain clarifications as to the change in the rate of interest at the end of every three years.  For better understanding the relevant portion in the said letter is reproduced as under;

“ The loan was first disbursed on 07.01.2006 and accordingly interest rate reset was due on 07.01.2009.  The prevailing fixed rate on that date was 12.25% p.a and the next reset was on 07.01.2012 when the prevailing fixed rate was 13.25% p.a for the next three years, which is being charged to the account at present as advised to you earlier.

We have worked out the differential amount since 07.01.2009 to 30.04.2014 as per the agreed terms and the amount works out Rs.8,71,445/- which we have to debit to your above loan account.

In the mean time there was an option for you to convert the account to the floating rate interest on 07.01.2009 by paying 0.50% of outstanding amount as conversion fee.  Further you had an option to switch over to current rate of interest on 20.03.2012 as per the Banks scheme by paying 1% of outstanding as switch over fee.  If we consider that you have opted for both these beneficial offers, the interest differential works out Rs.5,39,787/-”.

10. Before deciding as to the volatility calculation made by the OP Bank in pursuance of the reset clause it is better to look into the terms and conditions of the loan sanction letter dated 20^th October 2005.  Clause-3 of the loan sanction letter deals with the fixed rate of interest and the relevant portion reads us under:

Interest on the loan will be charged at 7.25 percent per annum on daily reducing balance at monthly rests, subject to interest rate reset at the end of every three years on the basis of our fixed interest rates prevailing then.  In the event of a default in payment or any irregularity in account, the Bank reserves the right to levy the higher rate of interest as it deems fit.  SBI may at its discretion stipulate the periodicity of computation of interest.  Further, SBI may at its sole discretion alter the rate of interest suitably and prospectively in the event of major volatility in interest rates during the period of the agreement.  Thenceforth the rate of interest varied as aforesaid shall be applicable to the loan.  SBI shall be the sole judge to determine whether such conditions exists or not.  If the borrower is not agreeable to the revised interest rates so fixed, the Borrower shall request SBI, within 15 days of receipt of the notice intimating change in interest rates from SBI, to terminate the loan and shall repay the loan and any other amount due to SBI in full and final settlement in accordance with the provisions of this Agreement relating to prepayment”.

11. As per the clause-3 of the loan agreement the loan sanctioned to the complainant carries fixed rate of interest at 7.25% p.a at monthly rests on daily reducing balance.  Admittedly the OP Bank has charged the said fixed rate of interest as mentioned in the agreement for the first three years.  However, the first revision of interest though was due on 07.01.2009, the OP Bank did not propose to revise the interest rate and continued to charge the same rate of interest at 7.25% p.a.  The second reset of the interest was due on 07.01.2012, however again the OP Bank did not propose to change the rate of interest and continued to charge interest at the rate of 7.25% only.

12. As per clause-3 of the loan agreement, the OP Bank at its sole discretion alter the rate of interest suitably and prospectively in the event major volatility in the interest rates during the period of the agreement.  However, it is evident that the OP Bank did not resort to this particular provision of clause-3 to alter rate of interest since there was no major volatility in interest rates during relevant period of the loan agreement.

13. However, suddenly without prior notice, the OP Bank through their letter dated 10.04.2014 informed the complainant that the rate of interest for the first three years should be at 7.25% p.a and for next three years-13.00% p.a and thereafter at the rate of 13.25% p.a as per the terms of sanction letter.  Admittedly nowhere in the sanction letter, the OP Bank has been empowered to change the rate of interest to 13.00% p.a for the next three years and to charge the interest at 13.25% p.a thereafter.  It is further mentioned in the said letter that the rate of interest applied to the loan account of the complainant was incorrect and that the OP Bank also recalculating the interest for the difference period with applicable rate of interest.

14. As per clause-3 of the loan agreement the OP Bank is not entitled to charge enhanced rate of interest retrospectively.  If at all for any reason, the OP Bank is altering the rate of interest it shall be prospectively only and not retrospectively.  It is submitted on behalf of the OP Bank that due to error in the system the appropriate interest was not charged at the end of 1^st three years of loan and subsequently at the end of every three years.  As per the terms and conditions of the loan agreement, the OP Bank has absolutely no powers to change the rate of interest without prior notice to the complainant and in violation of the terms and conditions of the loan agreement.

15. The OP Bank has not invoked the reset clause at the end of every three years in case of loan account of the complainant.  The OP Bank in pursuance of the interest clause entitled to reset the interest at the end of every three years subject to the interest rate then prevailing in their Bank.  However, the said clause does not give right to the OP Bank to revise the right of interest at any other point of time.  Since the loan was sanctioned on 07.01.2006, the interest reset could have been done on 07.01.2009 and then on 07.01.2012 the next interest rate reset was due only from 07.01.2015.  The OP Bank having missed the first two occasions for reset of the interest cannot suddenly reset the rate of interest at their whims and fancy.  The OP Bank has no power to reset the rate of interest in violation of the terms and conditions of the loan agreement and without adhering to clause-3 of the loan agreement.  Any default in payment or irregularity in loan account will invite high rate of interest as deemed fit by OP Bank.  Since the complainant is prompt in paying his EMIs the OP Bank has no power to charge higher rate of interest.  Even if there is any occasion to alter the rate of interest it shall be prospectively which means the retrospective change in rate of interest is not at all allowed.

16. The loan agreement contains a clause which gives an option to the borrower to request the Bank within 15 days of receipt of notice of revised rate of interest, to terminate the loan by repaying entire outstanding loan amount and any other amount due to the Bank in full and final settlement in accordance with the terms of the loan agreement relating to prepayment.  Since the complainant was never informed about the revision of interest at the end of every three years he was deprived of an opportunity either to accept the revision of interest or to terminate the loan account in terms of provisions relating to prepayment.  The complainant in his complaint as well as in his sworn statement pointed out that he had better options to move his loan to other Banks who were offering better interest rate as compared to the revision of interest now made by the OP Bank.  Thus looking from any angle the OP Bank cannot harass or victimize the complainant by revising the rate of interest at their whims and fancy on the pretext that there is certain error in their system.  If at all there is any error in the system, the OP Bank alone shall bear the responsibility of such error and cannot burden the complainant with higher rate of interest.

17. The OP took up a contention that the complainant is not a ‘Consumer’ as defined under the Consumer Protection Act, 1986 and therefore cannot invoke sec.12 of C.P Act, 1986 to file the present complaint.  The Hon’ble Supreme Court and the Hon’ble National Commission in umpteen number of cases have held that in a case like this, the borrower of a Bank is ‘Consumer’ and has every right to approach the Consumer Disputes Redressal Forum complaining deficiency in service, if any, on the part of the Bank.  Therefore, the contention of the OP Bank that the complainant is not a ‘Consumer’ is not well-founded.

18. Thus looking from any angle the OP Bank is not at all justified in revising the rate of interest other than as per the reset clause provided in the loan agreement.  Therefore, we are of the considered opinion that the OP Bank has to be directed not to revise/alter the rate of interest except in accordance with reset clause.  Certainly the OP Bank is not entitled to alter the rate of interest with effect from 27.11.2008 as stated in their letter dated 10.04.2014.  The conduct of OP Bank in revising/altering the rate of interest invoking the reset clause in violation of the terms of loan agreement amounts to deficiency in service on their part.  However, the OP Bank is at liberty to revise the rate of interest only in accordance with the reset clause with prospective effect.  Therefore, we are of the opinion that the complaint deserves to be allowed.  Having regard to the facts and circumstances of the case, we are of the opinion that the following order is sufficient to meet the ends of justice.  In the result, we proceed to pass the following:     

  O R D E R

The complaint filed by the complainant U/s.12 of the Consumer Protection Act, 1986 is allowed holding that the OP Bank is not entitled to recover the interest differential worked out in a sum of Rs.5,39,787/-.  The OP Bank is at liberty to revise the rate of interest as per reset clause prospectively only. 

The OP Bank is further directed to pay a compensation of Rs.10,000/- to the complainant for hardship and mental agony suffered by him due to deficiency in service on their part together with litigation cost of Rs.5,000/-.

The OP shall comply the order passed by this Forum within six weeks from today.

Furnish free copy of this order to both the parties.

(Dictated to the Stenographer, got it transcribed and corrected, pronounced in the Forum on this 08^th day of September 2015)

MEMBER                            MEMBER                    PRESIDENT

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