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Judgment
Avm J. Rajendra, Avsm Vsm (Retd.), Presiding Member
The Appellant filed the instant Appeal under section 19 of the Consumer Protection Act, 1986, (the Act”), against the Order dated 05.03.2019 passed by the learned State Consumer Disputes Redressal Commission, Karnataka. (“State Commission”) in Consumer Complaint No. 483 of 2015, wherein the State Commission dismissed the Complaint.
As per report of the Registry, there is a delay of 182 days in filing the present Appeal. For the reasons stated in IA/16469/2019, the delay is condoned.
For convenience, the parties in the present matter are being referred to as per position held in the Consumer Complaint.
Brief facts of the case, as per the Complainant which is a private hospital and research centre, is that it is a private limited company. The Complainant availed a "Loan Against Property” (Commercial) from OP and was sanctioned a loan of Rs 3,50,00,000 vide letter dated 14.11.2011 from OP. In October, 2013, Complainant decided to shift the said loan to India Bulls. Complainant alleged that the OP had obtained its signatures on loan documents without disclosing the contents or providing any opportunity to review or understand the terms. It is the case of the complainant that it had been charged excessive administrative fees to the tune of Rs. 1,93,025, processing fees amounting to Rs. 1,75,000, service tax of Rs. 18,025 and pre-closure charges of Rs. 14,08,437, which included foreclosure penalty, thereby constituting a deficiency in service. It was also alleged that the OP had charged a floating rate of interest in disregard Reserve bank of India (RBI) guidelines. Their application to the ombudsman was rejected, which led to the filing of the present complaint.
In response to the complaint before the State Commission, OP denied all the allegations and asserted that the present matter was purely contractual and commercial, as it was a Loan Against Property for a commercial property, i.e. Pristine Hospital, Bangalore, thus they could not be treated as a consumer under the Act. The complaint was barred by limitation as it was filed more than two years after the cause of action arose. The complaint warranted dismissal for not including necessary parties, specifically the co-applicants for loan transaction, namely V Balachandra, Jaiyamahdev Prasad Manjunath, and Guhanandhan Laxminarayan. Additionally, the allegations did not constitute a deficiency in service under Section 2(1)(g) of the Act, 1986, as the demand for repayment aligned with the terms agreed upon by the parties. It was submitted that the claim was also barred by the principles of waiver, estoppel and acquiescence, as they had accepted and executed the loan terms, including the foreclosure charges and administrative fees. Their claim that it was misled or forced to sign blank documents was unsubstantiated, particularly given that the loan documents were duly signed and the terms were explained and understood by them. Further, their status as a company precluded it from being treated as an individual borrower, especially concerning the waiver of foreclosure charges, which was applicable only to individual home loans as per the RBI guidelines.
The learned State Commission vide order dated 05.03.2019 dismissed the complaint with the following observations:
“It is the main contention of the Opposite Party that the contents of the documents were not explained to them and their signatures were taken on the loan agreement hurriedly and as such it is not binding on the complainant. At the outset it has to be mentioned that complainant is a private limited company registered before the Registrar of the Company. In the circumstances, the contention of the complainant that they did not see the terms of the agreement at the time of taking 3.50 crores loan for their hospital appears to be strange and it cannot be accepted on the face of the record for the reason that the representatives of the hospital have signed on the loan documents as a Director of the hospital. Therefore, this cannot be accepted at all. Ex. C34 is the sanctioned letter wherein the bank has stated about the type of interest as floating one. In the circumstances, there is no term regarding floating interest as contended by the complainant cannot be accepted. Further, the sanctioned letter also indicates that the amount was to be repaid at equated monthly instalments and the EMI is Rs.5,22,587=60 is evident on the fact of the sanctioned letter. It also refers to the terms of loan agreement signed between the complainant and the Opposite Party. Ex.C7 letter issued to the complainant makes it clear that if the borrower are a co-borrower is a non-individual, pre-payment charges would be applicable in view of RBI Circular as narrated therein Therefore, the contention of the complainant that guidelines of RBI are not followed by the Opposite Party cannot be accepted. The Circular relied upon by the complainant has referred to in Ex. C7 is only in respect of the home loan. The present loan is not a home loan, but, taken for the purpose of hospital which is a commercial one. In the circumstances, the contention of the complainant that recovery of the Foreclosure charges by the Opposite Party bank is against the directions of the RBI as well as home loan also cannot be accepted. Moreover, the terms in between the parties supports the same. The terms in between the parties also supports the recovery of administrative charges as well as processing charges and service tax is recovered by the Opposite Party bank. Therefore, the whole case of the complainant is contrary to the terms and conditions of the loan agreement in between the parties. Under these circumstances, the relief claimed by the complainant is beyond the terms of the loan agreement cannot be entertained. Thus, the complaint is devoid of merits as well as the part of the claim is barred by law of limitation as such deserves to be dismissed. Hence, the following;
ORDER
The complaint is dismissed. No costs.
Forward free copies to both the parties.”
Being aggrieved by the impugned order dated 05.03.2019 passed by the Ld. State Commission, Complainant (Appellant herein) filed this present Appeal no. 2009 of 2019 seeking to:
a.) allow the present Appeal; and/or;
b.) set aside the impugned judgment and order dated 05.03.2018 passed by the Hon'ble State Commission in Complaint Case No. CC/483/2015 and/or;
c) pass such other and further order or orders as this Ld. Commission may deem fit and proper in the facts and circumstances of the case.”
In the grounds of the instant appeal, the Appellants have mainly contended the following:
A. The State Commission failed to recognize that the OP charged an exorbitant administrative fee of Rs. 1,93,025/- for processing the loan, in violation of banking industry and failed to note that the OP Bank’s policy guidelines for home and mortgage loans, there is no processing charges for home loans and a maximum of Rs. 2,000 + service tax could be charged for mortgage loans.
B. The State Commission overlooked that the OP had imposed a pre-closure charge of 4.944%, contrary to RBI guidelines and the National Housing Finance. A pre-closure charge of 2.472% was applied to a similar loan in a different case. This differential rates without proper provision in the loan scheme amounted to a deficiency in service and an unfair trade practice.
C. The State Commission failed to consider that RBI circular vide RBI/2011-12/589/DBOD/DIR/BC/107/13.03.00/2011-12 dated 05.06.2012 barred charging of pre-closure charges or pre-payment penalties on home loans with a floating interest rate.
D. The cause of action arose when the OP charged administrative fees of Rs.1,93,025 on 26.11.2011 and pre-closure charges of Rs.14,08,438 on 03.01.2014, both of which were contrary to the RBI circular dated 05.06.2012.
E. The State Commission incorrectly applied the circular dated 07.05.2014, which pertained to a period later. The circular applicable is the one dated 05.06.2012, which expressly barred pre-closure charges on floating rate home loans.
F. The State Commission failed to recognize that, according to the National Housing Bank’s letter NHB(ND)/DRS/Policy Circular No. 63/2014-15 dated 14.08.2014, banks are not permitted to charge foreclosure/prepayment fees on floating rate term loans.
G. The precedent in Karnataka Power Transmission Corporation & Ors. v. Ashok Iron Works Pvt. Ltd. & Ors. [(2009) 3 SCC 240], which confirmed that a company fell under the definition of "person" within the Act, 1986. The State Commission failed to note that the loan in question was not a home loan as it was taken for hospital purposes. The borrowers could include both individual and non-individual entities such as private companies, which were eligible for home loans.
In his arguments, the learned Counsel for Appellant/Complainant reiterated the grounds of appeal and asserted that the home loan facility was utilized solely for the construction of a building, and thus should not be classified as a commercial activity. A home loan for personal construction does not equate to engaging in commercial activity. The OP should not impose charges that are not levied by other institutions, especially major home loan providers. It was because of the deductions by the OP that the complainant decided to shift the loan to India Bulls in October 2013. The learned counsel maintained that the complainant, in acquiring the home loan, qualified as a consumer since the loan was for personal use rather than for generating profit. The availing of the loan did not have a direct nexus with profit-making activities and therefore falls under the protection afforded to consumers. He relied on Pawan Hans Limited Vs. New India Assurance Company Ltd. (FA No. 967 of 2019) which held that the term "consumer" included individuals who acquired services for personal use, not for commercial gain. Further, they referenced the Supreme Court ruling in Shrikant G. Mantri Vs. Punjab National Bank (2022) 5 SCC 42, which clarified that the determination of whether a transaction was for a commercial purpose depended on the dominant intention behind the transaction. If the primary intent was personal use or livelihood rather than profit generation, the transaction fell within the scope of consumer protection laws. He also relied on the Supreme Court's decision in National Insurance Co. Ltd. Vs. Harsolia Motors (2023 SCC OnLine SC 409), which affirmed that services related to commercial activities could still be considered under the Act, provided the primary intent was not for profit-making. He asserted that use of home loan for personal construction should not have been classified as a commercial activity, and the imposition of non-standard charges by the respondents was unjustified.
On the other hand, the learned Counsel for the Respondent/OP argued that the State Commission had rightly held that the relief claimed by the Complainant was beyond the terms of the loan agreement and, therefore, could not be entertained. He asserted the finding of the State Commission in dismissing the Complaint holding that the RBI circular applied only to loans advanced to individuals and that, since the complainant was a non-individual (commercial entity), it was liable to pay foreclosure charges. The finding of the State Commission that the prepayment charges had been collected strictly in accordance with the terms of the loan agreement is accurate.
I have examined the pleadings and associated documents placed on record and rendered thoughtful consideration to the arguments advanced by learned counsels for both the parties.
It is undisputed that the Complainant/Appellant is a multi-speciality hospital that obtained a commercial loan against property amounting to Rs. 3,50,00,000 in 2011, with a tenure of 10 years, and that the loan was prematurely closed in October 2013. The main issue to be determined is whether the Complainant Hospital qualifies as a consumer under the Act? If so, whether there was any deficiency in service by the OP towards the Complainant, and to what extent.
Upon reviewing the pleadings on record, it is clear that the complainant is inherently a commercial entity and the loan advanced was for construction of Hospital which is a commercial activity. There is no indication that the Complainant engaged in the business for self-employment or for livelihood. Also, I find no error in the learned State Commission’s conclusion that the Complainant’s claim that the loan agreement documents were not explained and that their signatures were obtained hastily, thereby rendering the agreement non-binding, lacked merit. It is important to note that the Complainant is a private limited company, and under the circumstances, their claim of being unaware of the terms of the loan agreement, despite taking a loan of Rs. 3.50 Cr for the hospital, cannot be accepted. The representatives of the hospital, acting as Directors, duly signed the loan documents. Thus, the relationship between the Complainant and the OP is strictly “business to business’’ and the transaction clearly falls within the ambit of a ‘commercial purpose.’ Consequently, in our view the Complainant does not qualify as a consumer eligible for relief from any Commission established under the Act. Therefore, the questions whether the Complainant is entitled to a refund of administrative charges by the OP and whether the RBI Circular dated 03.01.2014 can be applied retrospectively are not issues for adjudication by this Commission. The Complainant is granted liberty to seek legal remedies by approaching an appropriate forum with jurisdiction to decide these matters.
Consequently, First Appeal No. 2009 of 2019 is disposed of accordingly. There shall be no order as to costs. All pending Applications, if any stand disposed of accordingly.