BEFORE THE CONSUMER DISPUTES REDRESSAL FORUM,

ERNAKULAM.

Date of filing : 09/04/2012

Date of Order : 31/03/2014

Present :-

Shri. A. Rajesh, President.

Shri. Sheen Jose, Member.

Smt. V.K. Beena Kumari, Member.

C.C. No. 226/2012

Between

And

O R D E R

A. Rajesh, President.

1. The facts of the complainant's case are as follows :-

On 28-11-2009, the complainant availed an NRI housing loan of Rs. 21 lakhs from the opposite party agreeing to repay the same with interest at the rate of 9% p.a. At the time of availing the loan, the opposite party made to believe the complainant that the account can be closed at any time without any surcharge or penalty for the premature closure of the loan account. On 30-12-2011, the complainant approached the opposite party for closure of the loan account. The opposite party collected Rs. 39,886/- towards pre-closure penalty apart from the actual outstanding loan amount. Time and again, the complainant approached the opposite party to get the pre-closure penalty refunded to which there was no positive response. Thus, the complainant is before us seeking direction against the opposite party to refund the pre-closure charges together with compensation and costs of the proceedings.

2. The version of the opposite party is as follows :-

The complainant had availed a housing loan for Rs. 21 lakhs on 28-11-2009. As per the repayment schedule, the amount has to be repaid in 180 equated monthly instalments of Rs. 21,300/- each. The interest applicable was 9% p.a. or such other rates that may be fixed from time to time. The complainant closed the loan account prematurely on 30-12-2011. The complainant was allowed to close the loan account on debiting Rs. 39,886/- towards prepayment charges. Out of this, Rs. 3,725/- was towards service tax. As per the loan agreement entered into between the complainant and the opposite party, it is clearly stated that the borrower shall pay the bank, the prepayment charges at the rate of 2% balance outstanding in the loan account or the drawing power whichever is higher as on that day. The opposite party charged Rs. 39,886/- towards prepayment charges on the basis of the terms of the agreement executed between the parties. There is no deficiency in service on the part of the opposite party as alleged.

3. The power of attorney of the complainant was examined as PW1. Exts. A1 to A3 were marked on the side of the complainant. The witness for the opposite party was examined as DW1 and Exts. B1 and B2 were marked on their side. Heard the learned counsel for the parties.

4. The points that arose for consideration are as follows :-

1. Whether the complainant is entitled to get refund of the pre-closure charges from the opposite party?

2. Whether the opposite party is liable to pay compensation and costs of the proceedings to the complainant?

5. Point No. i. :- It is not in dispute that the complainant availed a housing loan of Rs. 21 lakhs from the opposite party on 28-11-2009. It is also not in dispute that the complainant and the opposite party entered into Ext. B1 Federal Housing Scheme agreement on 28-11-2009 itself. Admittedly on 30-12-2011, the complainant pre-closed the loan account and the opposite party collected Rs. 39,886/- towards prepayment charges.

6. According to the complainant, at the time of execution of Ext. B1 agreement, the opposite party specifically stated that they will not charge any amount at the time of pre-closure of loan account. On the contrary, the opposite party vehemently contended that they are entitled to levy prepayment charges as per clause 37 in Ext. B1. The learned counsel relied on the decision rendered by the Hon'ble Kerala State Consumer Disputes Redressal Commission in M/s. HDFC Bank Ltd. Vs. Navas. K.H. & Another CDJ 2011 Ker SCDRC 026.

7. Clause 37 in Ext. B1 reads as follows :-

“The borrower(s) hereby agree and undertake that notwithstanding anything contained herein, in the event of the loan being repaid before the due date for payment prescribed herein above or being take over by any other Banks/financial institutions, the Borrower(s) shall pay pre-payment charges forthwith at 2% of the balance outstanding in the loan account or the DP whichever is higher as on date.”

8. Ext. A2 is the circular issued by the Reserve Bank of India dated 05-06-2012, which reads as follows :-

“Home Loans–Levy of fore-closure charges/ pre-payment penalty.

Please refer to our circular DBOD No. Dir. BC. 56/13.03.00/2006-2007 dated February 2, 2007 on reasonableness of bank charges.

2. In this context, attention is invited to paragraphs 81 to 83 of the Monetary Policy Statement 2012-13 announced on April 17, 2012 with regard to home loans on floating interest rates. The Committee on Customer Service in banks (Chairman: M. Damodaran) had observed that foreclosure charges levied by banks on prepayment of home loans are resented upon by home loan borrowers across the board especially since banks were found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario. As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source.

3. The removal of foreclosure charges/prepayment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and competition among banks will result in finer pricing of the floating rate home loans. Though many banks have in the recent past voluntarily abolished pre-payment penalties on floating rate home loans, there is a need to ensure uniformity across the banking system. It has, therefore, been decided that banks will not be permitted to charge foreclosure charges/pre-payment penalties on home loans on floating interest rate basis, with immediate effect.”

9. In Ext. A2, the Reserve Bank of India categorically stated that levying of foreclosure charges amounts to restrictive practice on the part of the banks. Though, the opposite party contended that Ext. A2 circular has no retrospective effect and so the circular is not applicable in the instant case, we are not to agree with the said contention of the opposite party, especially since the Hon'ble Kerala State Consumer Disputes Redressal Commission held in The Branch Manager, Weizman Homes Ltd. & Another Vs. T.P. Narayanan Pisharady (FA No. 674/2005 decided on 30-08-2010) as follows :-

“We find that the entire loan amount has been repaid by the complainant. The loan amount with interest has been paid by 2 years after availing the loan. Hence, we find that no loss is occasioned to the opposite parties/appellants. It appears that the condition with respect to the pre-closure charges is an unreasonable one. In fact, repayment of outstanding loan amounts early should be encouraged. The complainant has repaid the loan amount with scheduled equated monthly instalments at one instant. Hence, there can be no loss at all to the appellants. The person availing loan has no other go but to sign on the dotted line. Hence levying pre-closure charges contending that it is a condition in the agreement as done by the appellant is not at all justifiable. The above condition in the loan agreement cannot be said to be with the consent of the complainant. Levying pre-closure charges amounts to unfair trade practice.”

In view of Ext. A2 circular issued by the Reserve Bank of India and the categorical pronouncement of the Hon'ble Kerala State Commission, we are only to hold that the levying of foreclosure charges from the housing loan borrower amounts not only to deficiency in service, but also to unfair trade practice. In the instant case, the opposite party is liable to refund the foreclosure charges collected from the complainant with interest from the date of complaint till realisation. In view of the above, the citation submitted by the opposite party has no relevance, which need not be discussed.

10. Point No. ii. :- The primary grievance of the complainant having been met sufficiently, we refrain from awarding any compensation and costs of the proceedings. Rejected hence.

11. In the result, we partly allow the complaint and direct that the opposite party shall refund the foreclosure charges of Rs. 39,886/- (Rupees Thirty nine thousand eight hundred and eighty six only) to the complainant with interest at the rate of 12% p.a. from the date of complaint till realisation.

The order shall be complied with, within a period of thirty days from the date of receipt of a copy of this order.

Pronounced in the open Forum on this the 31^st day of March 2014.

Sd/- A. Rajesh, President.

Sd/- Sheen Jose, Member.

Sd/- V.K. Beena Kumari, Member.

Forwarded/By Order,

Senior Superintendent..

A P P E N D I X

Complainant's Exhibits :-

Opposite party's Exhibits :-

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