2024 (2) TMI 245 - HC - Indian Laws

Change in the interest rate during the period of loan against guidelines of the Reserve Bank of India - illegally charging thousands of rupees as yearly charges - no opportunity of submitting objection was granted to the petitioner - violation of principles of natural justice - HELD THAT - It was incumbent on the bank not to charge usurious interest, including processing and other charges. An appropriate ceiling should also be fixed on interest including processing and other charges that are levied on such loans and the same should be suitably publicized. In this case, though it is clear that variable rate of interest has been charged by the bank, but the same has not been accepted by the petitioner/customer. Further, the bank on its own had charged annual maintenance charges which was not even agreed upon by the petitioner - The respondent no.5-bank failed to provide and adopt a transparent method of charging of the interest. It has been pointed out that the respondent-bank did resort to an arbitrary methodology. As per the guidelines given by the RBI, any change in that rate cannot be applied to the customers without notice to him and without his consent. Surprisingly, RBI had been issuing guidelines but has done nothing for the implementation of the same. They have just been a mute spectator allowing the banks to charge arbitrarily a very high rate of interest - Even if the benefit of doubt is given to the bank that they are free to charge the interest rate but it is duty of the RBI to see that the customers are not inconvenienced by huge rate of interest charged by the banks. The order dated 17.6.2020 clearly mentioned that no objection by the complainant was received by the Banking Ombudsman but later, under the RTI sought by the petitioner, the Banking Ombudsman admitted that no opportunity for submitting the objection was granted to the petitioner. Even the impugned order of closure of petitioner s complaint by the Banking Ombudsman is a non speaking order and only a formatted order, which has been passed mechanically, without application of mind. The impugned order dated 17.6.2020 passed by the Banking Ombudsman (respondent no.4) is set aside and the matter is relegated back to the Banking Ombudsman to decide the same, after giving due opportunity of hearing to the parties by passing a speaking order - petition allowed by way of remand.

Summary

Issues Involved:
1. Jurisdiction of the High Court over a private bank.
2. Arbitrary and unilateral changes in interest rates by the bank.
3. Imposition of annual maintenance charges by the bank.
4. Banking Ombudsman's failure to provide procedural fairness.

Summary:

Jurisdiction of the High Court over a Private Bank:
The objection raised by the private bank (respondent no.5) regarding the jurisdiction was dismissed. The court held that the relief sought by the petitioner pertains to quashing the order passed by the Ombudsman under the Banking Regulation of RBI Circulars, which comes under Article 12 of the Constitution, thus making the writ maintainable.

Arbitrary and Unilateral Changes in Interest Rates:
The petitioner took a loan of 9 lacs rupees at an interest rate of 12.5% per annum, which was variable. Despite this, the bank charged interest rates between 16-18% without the petitioner's consent. The court found that the bank failed to provide any rationale for the higher interest rates and did not follow the RBI guidelines, which require the methodology of computing floating rates to be "objective, transparent and mutually acceptable to counter parties."

Imposition of Annual Maintenance Charges:
The bank unilaterally imposed annual maintenance charges on the petitioner's loan account, which was not agreed upon in the original loan agreement. The court held that the bank's action was unjustified as it was not mutually accepted by the petitioner.

Banking Ombudsman's Procedural Fairness:
The Banking Ombudsman failed to provide the petitioner with a copy of the bank's reply and did not give him an opportunity to file objections. The court noted that the impugned order was a non-speaking and formatted order, passed mechanically without application of mind. It was observed that the Banking Ombudsman did not follow the procedure laid down in Clause 11(2) and 11(3) of the Banking Ombudsman Scheme, 2006.

Conclusion:
The impugned order dated 17.6.2020 passed by the Banking Ombudsman was set aside. The matter was remanded back to the Banking Ombudsman to decide afresh after giving due opportunity of hearing to the parties and passing a speaking order. The Banking Ombudsman was directed to decide the petitioner's complaint within three months from the date of production of a certified copy of this order. The writ petition was accordingly allowed.