2003 (7) TMI 581 - HC - Companies Law

Summary

Issues involved:
Appeal under clause 15 of the Letters Patent against the judgment dismissing writ petition, dispute regarding credit rating for interest rate on Cash Credit Account, jurisdiction of Banking Ombudsman, non-observance of Reserve Bank directives on interest rates.

Analysis:
1. The appeal was filed against the judgment dismissing a writ petition regarding the credit rating for the interest rate on a Cash Credit Account. The dispute was focused on whether the bank observed the guidelines of the Reserve Bank of India while conducting the credit rating exercise. The Ombudsman had framed four issues, but the controversy remained only about issue No. 1 related to credit rating.

2. The Ombudsman, after deliberations, noted that credit rating is a significant part of credit appraisal, and banks have the freedom to adopt their methods and procedures for credit rating. The dispute arose when the Ombudsman declined to intervene in the matter of credit rating, stating it was related to the bank's credit decision and not within his jurisdiction.

3. The counsel for the appellant argued that the Ombudsman should have looked into the dispute as per the provisions of the Banking Ombudsman Scheme, 1995, which allows complaints concerning non-observance of Reserve Bank directives on interest rates to be examined by the Ombudsman. On the other hand, the respondent bank's counsel contended that credit rating is a matter related to the bank's credit decision and not subject to Ombudsman's intervention.

4. The Court analyzed the relevant provisions of the Banking Ombudsman Scheme, 1995, which empower the Ombudsman to consider complaints related to non-observance of Reserve Bank directives on interest rates. The Court emphasized that if a borrower disputes the credit rating assigned by the bank, the Ombudsman should examine whether the rating is reasonable based on repayment records and RBI guidelines.

5. The Court acknowledged that while banks have the freedom to assess creditworthiness, interest rates are governed by RBI guidelines. The Ombudsman can review past records, such as credit ratings for previous periods, and determine if they are reasonable or arbitrary. If the credit rating is found to be arbitrary, the Ombudsman can provide appropriate relief to the complainant.

6. Consequently, the Court partially allowed the appeal and directed the Banking Ombudsman to reconsider the issue of credit rating for the years 1994-95 and 1995-96 in light of the observations made in the judgment. The decision highlighted the Ombudsman's authority to intervene in cases of non-observance of RBI directives on interest rates concerning credit ratings.