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TMI Blog2007 (8) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... of the premium on the advanced payment/foreclosure account is necessary. Petitioners have called in question the said communication at Annexure 'C' in this writ petition. Petitioners have also sought for a declaration that the decision to levy 2% premium on the advanced payment/foreclosure of the account is arbitrary and illegal and without jurisdiction and to quash the letter dated 30.05.2000 in No. KSFC BO 2005-06/638 as per Annexure 'A'. Petitioners have further sought for closure of the account without levy of any premium on the advanced payment/foreclosure of the account. 2. I have heard the learned Counsel for the parties. 3. Sri K.M. Nataraj, learned Counsel appearing for the petitioners would contend that the decision of the respondents to levy 2% penalty/premium on the advanced payment/foreclosure of the account is arbitrary and without jurisdiction. It is further contended that the respondents are not entitled to levy the penalty/premium for foreclosure of the account in the absence of any agreement to that effect and that the decision of the respondents to levy the premium/penalty is illegal and unauthorised. 4. On the other hand, learned Counsel appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instalments of ₹ 90,000/ - Next 23 monthly instalments of ₹ 1,10,000/- Next 24 monthly instalments of ₹ 1,35,000/- Last 12 monthly instalments of ₹ 1,65,000/- the first of such instalments being paid on the 10th day of the 5th quarter from the date of the first release/disbursement to the said term loan/principal sum in terms of the sanction communication letter No. KSFC/U/BO/1998/03-04 dated 12.09.03 issued by the Corporation to the Borrower and such quarterly instalments and on such dates as may be fixed by the Corporation and to be communicated by the Corporation to the Borrower from time to time. (b) Shall pay interest at the rate of 14.25% percent per annum on the said term loan/principal sum or the balance thereof remaining unpaid for the time being from the date thereof and shall be calculated and charged with quarterly rests, such interest to be paid on the 10th day of March, 10th day of June, 10th day of September, and 10th day of December in each year (IF SIDBI/IDBI) do not sanction refinance in this case, then the Corporation will charge the interest at 19.25% p.a. and enhanced rate of interest 21.75% p.a. in case of default of either Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o contentions arise for consideration in this writ petition. They are: (i) Whether the respondents have authority to charge premium for prepayment/foreclosure of the loan account on the outstanding loan balance amount ? (ii) If it is held that the respondents have such a power whether the petitioners are liable to pay 2% premium on the outstanding balance of the amount ? 11. Re. Point No. (i): It is not in dispute that the Corporation borrows funds from the Small Industries Development Bank of India (SIDBI) and also from other financial institutions at the then prevailing interest rate and lends the same to the entrepreneurs. The loan sanctioned bear a fixed rate of interest and being a term loan are contracted to be repaid over a period of time. Likewise, the respondent - Corporation also makes commitment with its lenders. The interest rates charged to the borrower is fixed irrespective of whether there is an increase or decrease in interest rates in the general banking sector. In a falling interest regime, in the event of foreclosure of loan, the same amount can be further lent at a lower rate only. In order to protect against this risk, a foreclosure premium is charged on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer loss. To overcome this situation, if a premium is charged on the outstanding loan being prepaid, the same cannot be found fault with. I am of the considered view that the Corporation has the power and authority to levy prepayment/foreclosure premium. 14. Re. Point No. (ii): Now, let me consider the second point with regard to the rate of prepayment/foreclosure premium the petitioners are liable to pay. Admittedly, petitioners have availed the financial assistance in September 2003 and the hypothecation deed was entered on 20.09.2003. When the petitioners availed the loan, the Corporation was charging prepayment premium upto a maximum of 1% on the outstanding loan account. By a Circular dated 14.05.2005 the said premium was increased to 2%. The question is whether the amended circular is applicable to the loan account of the petitioners. My answer to the said question is in the negative. Petitioners are governed by the Circular, which was in force when they availed the financial assistance. No doubt, Clause 14 states that foreclosure is subject to prior approval in writing of the Corporation and subject to such terms and conditions as may be stipulated by the Corporation in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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