Date of filing: 31.08.2013.
Date of disposal: 06.01.2014.
BEFORE THE DISTRICT CONSUMER DISPUTES REDRESSAL FORUM - II:
VIJAYAWADA, KRISHNA DISTRICT
Present: Sri A. M. L. Narasimha Rao, B.Sc., B. L., President
Sri S. Sreeram, B.A., B.Com., B.L., Member
Monday, the 06th day of January, 2014
C.C.No.153 of 2013
Between:
1. Balarama Sarma, S/ (late) Rama Rao, Hindu, Aged about 65 years, Private Employee, R/o.D.No.42-10-8, Opp: Ganaganamma Temple, Dabakottula Bazar, Singh Nagar, Vijayawada.
2. K. Santha Kumari, W/o Balarama Sarma, Hindu, Aged about 58 years, Housewfie, R/o.D.No.42-10-8, Opp: Ganaganamma Temple, Dabakottula Bazar, Singh Nagar, Vijayawada.
….. Complainants
And
The Chief Manager, Andhra Bank, Main Branch, R.R. Apparao Street, I Town, Vijayawada – 1.
. … Opposite Party.
This complaint coming on before the Forum for final hearing on 26.12.2013, in the presence Sri K. Adinarayana Sarma, advocate for complainants; Sri Y. Rama Krishna, advocate for opposite party and upon perusing the material available on record, this Forum delivers the following:
O R D E R
(Delivered by Hon’ble President Sri A. M. L. Narasimha Rao,)
1. This complaint is filed under Section 12 of Consumer Protection Act, 1986 for a direction to the opposite party to return a sum of Rs.3,09,000/- being the amount received by the opposite party after the death of one of the co-obligants and interest thereon, to pay Rs.2,00,000/- towards damages and to appropriate the debt from the insurer.
2. The averments of the complaint in brief are as follows:
The 1st complainant aged about 65 years approached the opposite party for home loan of Rs.15,00,000/-. The opposite party advised the complainant to include other members of the family as joint borrowers and to act as co-obligants as the 1st complainant is in advanced age. Accordingly the complainant, his wife and his son agreed to act as joint borrowers and signed the relevant papers for a loan of Rs.14,45,000/- sanctioned by the opposite party on 21.1.2012. The opposite party had recovered a sum of Rs.5,543/- as premium for the policy and debited the complainant’s account with that amount. The complainant’s son who is one of the co-obligants died in a motor vehicle accident on 21.4.2012. After receiving motor accident insurance claim that amount was credited to the loan account. The complainant has no knowledge about the benefit of waiving the loan amount in the event of death of any of the borrowers and the balance amount if any is to be recovered from the insurance company. The opposite party neither informed nor advised nor suggested of the said benefit. Later the opposite party insisted for discharge of pending debt. The complainants have informed about the death of the co-obligant to the opposite party on 10.6.2013 through a notice. The opposite party sent reply with denials. The complainants received some documents under RTI Act and issued a rejoinder notice on 19.8.2013. As per the norms of Reserve Bank of India its mandatory for every nationalized bank to get insurance policy for safety of the secured debt irrespective of the consent of the borrowers. The opposite party has an obligation to get the policy raised before disbursement of loan. It is necessary for the bank to insist the presence of bank for the policy. The mere presence of a clause in the terms and conditions does not amount to the borrower having knowledge as the document will be with the bank. Such clause does not protect the bank from discharging the duties. As the opposite party did not disclose about the benefit of policy for the secured debt and as the bank did not insist for such policy there is deficiency in service on the part of the opposite party. So the amount paid by the complainants to the credit of the loan account has to be returned. Therefore the present complaint is filed.
3. The opposite party filed version admitting the sanction of loan and the complainants and their son standing as co-obligants and further stating as follows:
The opposite party had deducted premium sum of Rs.5,543/- on 21.2.2012 towards property insurance of mortgage property against earthquakes, fire and shock etc., after compliance of due formalities and to the knowledge of the complainants. The insurance company issued standard fire and special perils policy. The premium deducted was meant for property insurance and not for life risk coverage. According to clause 17 terms and conditions of loan the property shall be insured for fire, earthquake etc., and related expenses will be at borrowers cost. According to clause-19 liability insurance of the property to be done as per the options of the borrower at the cost of borrower duly submitting the relevant information. Life insurance of principal borrower is optional as per the scheme of sanction communication dated 21.1.2012. The officers of the bank were to act as per the circulars passed by the management of the bank. Circular No.041 dated 20.5.2010 deals with the subject of liability insurance of housing, education and vehicle loans. It also stipulates that the scheme is optional and not compulsory and intended borrowers have to submit consent cum authorization and simple health declaration form to join the scheme. It is the look out of the principal borrower either to opt for life insurance or not. There is no compulsion to take such policy. The complainant and other co-applicants did not opt for life insurance in respect of housing loan. So the opposite party bank dispensed with such life insurance policy, it being optional. There are no RBI guidelines directing the opposite party bank to refuse sanction of loan to a borrower who does not opt for life insurance. There is no negligence or absence of due diligence or deficiency of service on the part of the opposite party bank. They acted as per the terms and conditions of sanction communication and banking circulars. The complainant is not entitled to any amount. The opposite party is not liable to pay any amount.
4. The 1st complainant filed his affidavit and it is received as deposition of PW-1. The opposite party filed affidavit of its Chief Manager which is received as deposition of DW-1. Exs.A1 to A15 are marked on behalf of the complainant and Exs.B1 to B4 are marked on behalf of the opposite party.
5. Heard the arguments advanced by the learned counsel for both the parties.
6. The points that fall for determination are:
- Whether there is any deficiency in service on the part of the opposite party as regards the loan transaction between the complainants, their son and the bank?
- Whether the complainants are entitled to the amounts claimed?
Point No.1:
7. The parties are not in dispute as regards the factum of sanctioning loan of Rs.14,45,000/- to the complainants 1 and 2 and their son as joint borrowers. The statement of account Ex.A7 shows the names of complainants 1 and 2 and their son Satya Siva Kumar as joint holders. Loan was disbursed on 21.1.2012. A sum of Rs.5,543/- was withdrawn towards insurance premium and debit entry was made in statement of account of the complainants and their son. The complainants have not given information as to the purpose for which the said insurance premium was debited. However the opposite party says that it is in respect of insurance of the property which was given as security as its mandatory to insure the secured property. In that regard the opposite party filed Ex.B3 ‘standard fire and special perils policy’ which shows that the property i.e., building in respect of which the loan was sanctioned was insured for a sum of Rs.15,00,000/- and total sum of Rs.5,543/- was received as premium for the period of insurance from 21.1.2012 to 20.2.2022. So the premium collected was not in respect of any life risk of the borrowers.
8. The complainants admitted that they were not aware of any benefit of insurance covering life of the borrowers pending loan. According to the complainant they came to know long subsequent to contracting loan that there is a benefit of life insurance coverage for the borrowers and that the bank did not disclose such benefit to the complainants. On the other hand the opposite party states in its version that the 1st complainant and other co-applicants have not opted for life insurance in the house loan transaction and the opposite party bank had dispensed with such life insurance policy. The opposite party refers to Clause 19 of the terms and conditions of the policy contained in pages 3 and 4 of Ex.B1. Clause 19 reads as follows:
“Liability insurance of the property to be done as per the option of the borrower at the cost of borrower duly submitting relevant information”.
This condition does not say if it relates to life coverage or death security in the event of risk to life of borrowers. The words of ‘liability insurance of property’ does not give any indication that it refers to insurance of debt liability in the event of risk to life of the borrower. That apart this clause is not contained in the application for sanction of loan. The 1st page of Ex.B1 shows that it is a communication of sanction dated 21.1.2012. In the same letter reference is noted as the application of 1st complainant dated 21.1.2012. The application filed by the complainants or all the borrowers is not produced by the opposite party. It is certainly with the opposite party. If it is produced it would be known whether there is any specific mention made as to the option available to the borrowers regarding insurance of debit liability in case of life risk to the borrowers. Unless such option is shown in the application the borrower cannot be expected to exercise option of such benefit.
9. The learned counsel for the opposite party relies upon Ex.B2 circular dated 20.5.2010 issued by head office of Andhra Bank. According to this circular Andhra Bank had switched over to tie up with M/s India First Life Insurance Company Limited with effect from 1.5.2010 and branches will continue to cover all new accounts and existing uncovered housing, education and vehicle loan accounts with the said insurance company. It further contains the salient features of ‘loan liability insurance’ to housing loan, education loan and vehicle loans. According to these features the liability in the loan amounts will be paid by the insurance company in the event of death of borrower and the scheme is optional and not compulsory and intending borrowers have to submit all “consent cum authorization and simple health declaration form” to join the scheme. A list of annexures at the end of Ex.B2 includes consent cum authorization letter and group credit life – member form – simple declaration of good health. One of the annexures noted is introduction letter by branch manager for referring the borrower to the diagnostic center for medical examination. When such detailed procedure involved the bank is expected to include not only a mere provision for exercising the option but also the relevant forms attached to the loan application form.
10. The bank at the time of obtained application for loan would certainly secure the details as to the mortgaged property for the purpose of insurance coverage. Unless the details are furnished to the borrower along with loan application form and unless the relevant forms to cover loan liability are provided the borrower cannot have the knowledge of such benefit available to the borrowers. The learned counsel for the opposite party states that it is for the borrower to choose either to ask for the benefit of loan liability in case of life risk and it is not for the bank to secure their consent for such loan liability of insurance option.
11. Banking is one of the services covered by definition of services under Section 2 (1) (o) of Consumer Protection Act. In a loan transaction the bank and the borrower are entering into a contract as regards amount paid as loan, the security offered the mode of repayment and the discharge. When the loan itself is taken as a product and when the bank is in the exclusive knowledge of the liability involved and benefits attached to such product, it is the duty of the bank to disclose them to the other contacting party i.e., the borrower before securing consent for that transaction. The bank cannot be heard to say that it is not their duty to inform the borrower about the loan liability insurance facility. It is here to be noted that the facility is available by virtue of internal bank circular and not by virtue of any government order or RBI guidelines so that it may be in the knowledge of the prospective borrower. Therefore there was a duty cast on the bank to inform the borrower about the availability of loan liability insurance facility. Handing over terms and conditions of the loan subsequent to sanction of loan is not satisfactory fulfillment of such requirement.
12. The bank no doubt argues that they disclosed the availability of loan insurance facility to the borrowers and they did not opt for it. There is no material in support of such statement. The complaints say that they were not aware of such benefit available. As observed above if a genuine offer was made it should have been incorporated in the loan application form and the relevant forms for loan liability insurance must have been attached to the loan application form. When it is not done we cannot readily accept the statement of the opposite party that the complainants were informed about the availability of such facility. Therefore we have no hesitation in concluding that there is deficiency on the part of the bank in the manner of entering into loan transaction.
Point No.2:
13. When there is deficiency in service on the part of the opposite party the complainants are entitled to benefit. The benefit shall ordinarily be proportionate to the loss they sustained or disadvantage they had. The complainants openly states that they entered into loan transaction without knowledge of the loan liability facility. So loan liability facility is not an agreed benefit covered by the concluded contract. Then the complainants cannot ask for total advantage of such facility. The failure on the part of the bank is non-disclosure of availability of facility which would have given some benefit to the borrowers. The complainant’s son who was a joint borrower died about two months after taking house loan from the opposite party. The terms and condition of the policy for loan liability insurance are not produced by either party. Only Ex.B2 is available in that regard. How far the benefit is available in case of joint holders is not clearly stated. It is not known if entire insurance amount will be paid by the insurance company in the event of death of even one of several borrowers or a proportionate amount would be paid by the insurance company. Therefore only a lump sum amount may be awarded as compensation in view of the deficiency in service on the part of the bank. In view of the facts, huge amount is involved in the loan transaction, three persons taking loan as joint applicants and one of the applicants expiring within two months after taking loan we feel it proper to grant a reasonable sum of Rs.50,000/- as compensation and to award Rs.3,000/- as costs. The complainant is not entitled to all the amounts as claimed and also not entitled to get total discharge from the loan liability.
14. In the result this complaint is allowed in part and the opposite party is directed to pay a sum of Rs.50,000/- (Rupees fifty thousand only) towards compensation for deficiency in service and Rs.3,000/- towards costs to the complainants 1 and 2. The amounts awarded shall be paid within one month from the date of order of this Forum. In default of payment of the awarded amount and costs, they shall carry interest at the rate of 9% p.a., from the date of the order till realization. The complaint for rest of the reliefs is dismissed.
Dictated to steno, N. Hazarathaiah, transcribed by him, corrected by me and pronounced by us in the open Forum, this the 06th day of January, 2014.
PRESIDENT MEMBER
Appendix of evidence
Witnesses examined
For the complainant: For the opposite party:
Balarama Sarma – PW-1. The Chief Manager of OP- DW-1;
(by affidavit) (by affidavit)
Documents marked
On behalf of the complainant:
Ex.A1 Original copy of death certificate.
Ex.A2 10.06.2013 Copy of legal notice got issued by complainants to OP.
Ex.A3 07-07-2003 Copy of reply got issued by OP to complainants counsel.
Ex.A4 08.08.2013 Photocopy of information obtained by the complainant from OP under RTI.
Ex.A5 19.08.2013 Copy of notice got issued by complainants to OP and postal acknowledgements.
Ex.A6 03.10.2012 Photocopy of letter issued by complainant to OP.
Ex.A7 27.05.2013 Photocopy of statement of account.
Ex.A8 16.07.2013 Photocopy of letter issued by complainant to OP.
Ex.A9 22.04.2012 Photocopy of FIR.
Ex.A10 Photocopy of inquest report.
Ex.A11 22.04.2012 Photocopy of post-mortem report.
Ex.A12 Photocopy of cremation notification form.
Ex.A13 21.04.2012 Photocopy of treatment summary.
Ex.A14 21.09.2013 copy of rejoinder got issued by complainant to OP.
Ex.A15 18.02.2013 Photocopy reply legal notice got issued by OP to complainant’s counsel.
On behalf of the opposite party:
Ex.B1 20.01.2012 Attested copy of loan application.
Ex.B2 20.05.2010 Attested copy of circular.
Ex.B3 Attested copy of Standard Fire and Special Perils Policy.
Ex.B4 17.09.2013 Photocopy of rejoinder got issued by OP.
PRESIDENT
