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Issues Involved:
1. Authority to charge premium for prepayment/foreclosure of the loan account. 2. Liability of petitioners to pay 2% premium on the outstanding balance of the amount. Summary: Issue 1: Authority to Charge Premium for Prepayment/Foreclosure of the Loan Account The petitioners borrowed a loan of Rs. 1 crore from the respondent-Corporation for developing a touring unit/Hotel in Karkala Town and entered into a Deed of Hypothecation dated 20.09.2003. The petitioners challenged the respondent's communication dated 15.07.2005, which required a 2% premium for foreclosure/prepayment of the loan account, claiming it was arbitrary and without jurisdiction. The respondents argued that the premium was necessary to mitigate the risk of loss due to the falling interest regime, as the Corporation borrows funds from institutions like SIDBI at high rates and lends them at fixed rates. The Court noted that the hypothecation deed explicitly required prior approval and allowed the Corporation to stipulate terms for prepayment, including the imposition of a premium. The Court held that the Corporation has the authority to levy a prepayment/foreclosure premium as per the terms agreed upon in the hypothecation deed and u/s 37 of the Indian Contract Act, 1872, and Sections 24 and 25 of the State Financial Corporations Act, 1951. Issue 2: Liability to Pay 2% Premium on the Outstanding Balance of the Amount The Court examined whether the petitioners were liable to pay the increased 2% premium as per the Circular dated 14.05.2005. It was found that at the time of availing the loan in September 2003, the applicable prepayment premium was 1%. The Court concluded that the petitioners are governed by the terms and conditions, including the premium rate, that were in force when the loan was sanctioned. The Circular dated 14.05.2005, which increased the premium to 2%, could not be applied retrospectively to the petitioners' loan account. Therefore, the petitioners are liable to pay only a 1% premium on the outstanding balance of the loan amount. Order: 1. It is declared that the petitioners are liable to pay a 1% premium on the advanced payment/foreclosure of their loan account with the respondent-Corporation. 2. The respondent-Corporation is directed to close the loan account of the petitioners on payment of a 1% premium on the outstanding loan balance amount being prepaid/foreclosed. If the petitioners have already paid a 2% premium, they are entitled to a refund of 1% from the Corporation. The writ petition is disposed of accordingly, with no costs.
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