Rattan Lal Bharadwaj vs Magma Financial Corporation Ltd

Dinesh Singh, Member

This Appeal has been filed under Section 19 of The Consumer Protection Act, 1986, hereinafter referred to as the 'Act', impugning the Order dated 03.05.2019 in C.C. No. 931 of 2018 passed by The State Consumer Disputes Redressal Commission, Punjab, hereinafter referred to as the 'State Commission'.

The Appellant herein, Mr. Rattan Lal Bhardwaj, was the Complainant before the State Commission, and is hereinafter being referred to as the 'Complainant'.

The Respondents herein, Magma Financial Corporation Limited, were the Opposite Parties No. 1 and No. 2 before the State Commission, and are hereinafter being referred to as the 'Financial Corporation'.

On 27.09.2019, we heard the learned Counsel for the Complainant, Mr. S. R. Bansal, Advocate on admission in the Circuit Bench at Chandigarh. The Order was reserved.

The Complainant filed an 'Application for permission to advance further remaining arguments (Re-hearing)', being I.A. No. 19540 of 2019. We heard the learned Counsel for the Complainant, Mr. S. R. Bansal, Advocate on the said I.A. on 18.12.2019 in Bench No. 1 at New Delhi.

The Appeal has been filed with self-admitted delay of 55 days. We have perused the Application for Condonation of Delay. The reasons for delay, as stated in paras 1 to 6 of the said Application, point towards managerial inefficiency and perfunctory and causal attitude to the law of limitation, they are illogical and absurd in explaining convincingly and cogently the delay in filing the Appeal.

Sufficient cause to explain the delay is not visible.

However, in the interest of justice, to provide fair opportunity to the Complainant, and to settle the matter on merit, the delay is condoned.

The case taken by the Complainant before the State Commission was that the Complainant along with 5 other co-borrowers took a loan from ICICI Bank Ltd.

The Complainant and the 5 other co-borrowers got the loan transferred to an NBFC, GE COUNTRYWIDE Consumer Financial Services Limited, hereinafter being referred to as 'GE Financial Services'.

A loan agreement was entered into by the Complainant and the 5 other co-borrowers with GE Financial Services on 13.04.2006 for a loan of Rs. 61,70,000/- with interest at the rate of 9.5% per annum and equated monthly instalments of Rs.64,429/- payable in 180 months commencing from 07.06.2006 and ending on 07.05.2021 (15 years).

The rate of interest was periodically re-visited by GE Financial Services, with the equated monthly instalments kept undisturbed.

Effective from 01.01.2011 the rate of interest was increased to 11.66% per annum payable in 228 months commencing from 07.06.2006 and ending on 07.05.2025 (19 years), with the equated monthly instalments retained undisturbed at Rs. 64,429/-.

The Complainant and the 5 other co-borrowers regularly paid the equated monthly instalments to GE Financial Services.

A deed of assignment was entered into between GE Financial Services and the Financial Corporation, the Respondent herein, whereby the assets and liabilities of GE Financial Services were taken over by the Financial Corporation.

The Complainant and the 5 other co-borrowers then regularly paid the equated monthly instalments to the Financial Corporation.

The Complainant sent a legal notice to the Financial Corporation on 08.03.2017.

A Complaint alleging 'deficiency in service' and 'unfair trade practice' was filed by the Complainant before the State Commission on 29.11.2018. The other 5 co-borrowers were not co-complainants.

The principal grievances of the Complainant were that:

one: On his taking a loan from ICICI Bank Ltd., officials of GE Financial Services "approached" him and "pressed" him to avail loan from it by "convincing" him that the rate of interest will remain 1% less than the "market rate" and the rate being charged by other banks.

two: The Financial Corporation unilaterally and arbitrarily increased the rate of interest and enhanced the period of repayment from time to time.

three: The Financial Corporation violated RBI's directions on 'Regulation of excessive interest charged by NBFCs' as notified by Notification No. DNBS. 2004 / CGM (ASR) - 2009 dated 02.01.2009, hereinafter being referred to as the 'RBI Notification'.

four: The Financial Corporation did not provide relevant and material information of his loan to him.

five: Without the consent of the Complainant, the loan was taken over from GE Financial Services by the Financial Corporation.

We note that the State Commission heard both sides, appraised the evidence, and dismissed the Complaint.

We further note that the State Commission decided the preliminary issues of pecuniary jurisdiction, limitation and mis-joinder of parties in favour of the Complainant and dismissed the Complaint by deciding the substantive dispute on merit.

We furthermore note that the State Commission weighed the evidence and dealt with the substantive matter in dispute by passing a reasoned Order.

The Complainant entered into the loan agreement with GE Financial Services with eyes open. The loan agreement dated 13.04.2006 was signed by the Complainant as well as by the 5 other co-borrowers.

No evidence has been adduced by the Complainant before the State Commission that the officials of GE Financial Services "approached" him and "pressed" him to avail loan from it by "convincing" him that the rate of interest will remain 1% less than the "market rate" and the rate being charged by other banks.

The rate of interest of 9.5% with 180 equated monthly instalments of Rs.64,429/- commencing from 07.06.2006 and ending on 07.05.2021 (15 years) was known to the Complainant when he entered into the loan agreement with GE Financial Services.

It was also known to the Complainant, when he entered into the loan agreement, that the loan agreement contained an explicit and categorical provision, being clause 2.2.1, which inter alia allowed for adopting 'New Interest Rate'. The said clause 2.2.1 is reproduced below:

"2. Rate of Interest

2.1 The Borrower shall pay the Company interest ("Interest") on the Loan at the rates and in the manner mentioned below from the date of disbursement of the Loan till the repayment of the Loan in full:-

(i) For such period from the date of disbursement of the Loan as is mentioned at Item No.(7) of the Schedule ("the Initial Interest Period") the Borrower shall pay Interest on the outstanding Loan amount at the rate mentioned at item No. (8) of the Schedule with monthly rests.

(ii) For the balance period of the Loan after the expiry of the Initial Interest Period, the Borrower shall pay Interest on the outstanding Loan amount at the New Interest Rate (as defined in Clause [(iii)] below) with monthly rests in the manner mentioned hereunder:-

(a) The Company shall determine the New Interest Rate which is to be applicable on and from the expiry of the Initial Interest Period. The Company shall thereafter apply the New Interest Rate to the principal amount of the Loan then outstanding and, on the basis thereof, recompute the amount and/or period of the EMIs (as defined in Clause [3.1] below) for the balance period in accordance with the Company's norms for computing EMIs. The Company shall recompute the EMIs as per its norms in such manner that the amount of each EMI remains the same as the existing EMIs and the number of balance EMIs is decreased or Increased appropriately to account for the repayment of the principal Loan amount and payment of Interest at the New Interest Rate. Provided that if, on account of such recomputation as aforesaid, the repayment period of the Loan and Interest extends beyond 11 years from the date of disbursement of the Loan or the retirement age for salaried or self-employed persons (as applicable to the Borrower) as per the Company's norms prevailing at the relevant time then the amount of each EMI shall be increased appropriately such that the principal Loan amount and Interest at the New Interest Rate are repaid/paid to the Company within the 11 year period or before the retirement age mentioned above, whichever is earlier.

(b) The aforesaid recomputation and determination will be done and communicated by the Company to the Borrower three months prior to the expiry of the Initial Interest Period, and shall be binding on the Borrower.

(iii) "New Interest Rate" shall mean the rate of interest which is equal to the GE Countrywide's Home Equity Published Rate of Interest prevailing three months prior to the expiry of the Initial Interest Period".

The enhancement in the period of repayment was a natural consequence of the equated monthly instalments being kept constant when increasing the rate of interest.

The Complainant paid monthly instalments from 07.06.2006 onwards. He did not object or agitate for a period of over 10 years, till he sent a legal notice on 08.03.2017.

He instituted his Complaint before the State Commission in November 2018 i.e. after over 12 years from June 2006 (i.e. the month from which the monthly repayments commenced) and after over 7 years from February 2011 (i.e. the month from which the rate of interest was last increased by GE Financial Services).

The RBI Notification referred to by the Complainant reads as below:

Notification No. DNBS.204/ CGM (ASR)-2009 dated January 2, 2009

The Reserve Bank of India, on being satisfied that for the purpose of enabling to regulate the credit system of the country to its advantage, it is necessary so to do, in exercise of powers conferred under Section 45 L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby issues the following Directions to NBFCs:

a) The Board of each NBFC shall adopt an interest rate model taking into account relevant factors such as, cost of funds, margin and risk premium, etc. and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.

b) The rate of interest and the approach for gradation of risks shall also be made available on the Web-site of the companies or published in the relevant newspapers. The information published in the website or otherwise published should be updated whenever there is a change in the rates of interest.

c) The rate of interest should be annualized rates so that the borrower is aware of the exact rates that would be charged to the account.

The RBI Notification allows for determining the rate of interest, taking into account the relevant factors.

We may first say that arbitrary anyhow increase in the rate of interest, without reason, without rational consideration of the relevant factors, in violation of the RBI Notification, or of any other RBI direction(s), could, in the facts and context of a particular case, constitute 'deficiency in service' and / or 'unfair trade practice' under the Act, independent and separate of the culpability and accountability to the RBI.

In the case at hand however no evidence has been adduced by the Complainant to show that the GE Financial Services / Financial Corporation took arbitrary anyhow decision(s) to increase the rate of interest in violation of the RBI Notification. It is also relevant that the increase in rate of interest was made prospective (and was not retrospective).

The RBI Notification also mandates that the rate of interest should be intimated to the borrowers and also put in the public domain.

We may say that non-disclosure of increase in rate of interest to the borrowers and to the general public at large could, in the facts and context of a particular case, constitute 'deficiency in service' and / or 'unfair trade practice' under the Act, independent and separate of the culpability and the accountability to the RBI.

In the case at hand however the evidence on record shows that the increase in the rate of interest was intimated to the Complainant. Also, the Complainant continued to pay monthly instalments as per the increased rate of interest, which on the face of it itself shows that the increase was in his knowledge. No evidence has been adduced that the increase in the rate of interest was not put in the public domain.

We may further say that not providing relevant and material information to the borrower-'consumer' regarding his loan would attract the provisions of the Act, irrespective of whether or not any guidelines or directions from the RBI or any other regulatory authority mandate the same, it being reasonable, just and logical that the 'consumer' should know the relevant and material information of his loan as a matter of his Consumer Rights.

In the case at hand it is however noted that the relevant and material information of his loan was regularly provided to the Complainant.

The State Commission has aptly dealt with these aspects in para 15 of its Order:

- - -. Ex. C-4 is the loan account ledger dated 19.03.2009 issued by GE Money for customer name Rattan Lal Bhardwaj in which all the details regarding the loan account No. HFPC00000070 have been categorically mentioned including the loan amount, original tenor, disbursal date, interest rate, principal amount, interest amount, future principal, future interest etc. Even in the final interest statement Ex. C-5, which has been duly acknowledged by the complainant that this intimation was sent to hi on 28.07.2009, clearly gives the details of the finance availed by him against his loan account number. Furthermore, Ex. C-6 dated 30.08.2010 is another final interest statement of similar nature issued by GE Money to the complainant giving a breakup of the principal amount and interest amount and principal and interest realized in detail. Ex. C-7 placed on record by the complainant is the letter written by GE Money to the complainant with regard to the revision of terms and conditions of home equity loan account No. HFPC00000070 and the relevant portion regarding the rate changed and higher loan tenure is mentioned. The relevant portion is reproduced as under:-

"It is our endeavour to keep you updated about your loan account at all times. Due to increase in cost of funds, benchmark floating reference rate for GE Money Financial Service Pvt. Ltd. has been increased by 0.75% with effect from 1st of January 11, which will lead to an increment in your rate of interest resulting in higher loan tenure. This will be effective, February '11 Equated Monthly Instalment (EMI) onwards.

The Revised terms of your loan are mentioned as below:

New Interest Rate 11.66

New Tenure 228"

The OPs have also placed on record Ex. R-1 along with the complaint which is the interest statement dated 09th April, 2007 final interest statement dated 28.07.2009, interest statement for the period of 01.04.2007 to 31.03.2008, account statement dated 30.08.2010 to rebut the contention of the complainant that he was never supplied with any account statement or information regarding any revision in tenure of the loan period modification in EMI. The OPs have also placed on record Ex.R-2 and Ex.R-3 which are the complete statement of account and amortization schedule in respect of the said loan account wherein the complete break up of the interest and principal is given to support their contention. It has also been pleaded by the OPs that such statement of accounts could have also been taken by the complainant at any time on payment of requisite charges if he so desired. From all the pleadings evidence and arguments raised before us, we are of the opinion that the complainant cannot take this plea at this stage that he was not informed by the OPs regarding the revision and modification in his loan agreement.

In his legal notice of 08.03.2017, in para 3, it has been averred that " - - - without any consent of our client, loan sanctioned and granted by GE Money was taken over by your company whereas there is no agreement by our client with your company but still as a good customer our client had been issuing the cheques of monthly instalments - - -".

However, there is an explicit and categorical provision in the loan agreement, being clause 9, Assignment, which allows that "The Company shall be entitled to sell, assign, securities or transfer the Company's rights and obligations under this Agreement and any security in favour of the Company to any person(s) of the Company's choice in whole or in part and in such manner and on such terms as the Company may decide, without reference or intimation to or consent of the Borrower or any other person. Any such sale, assignment, securitization or transfer shall conclusively bind the Borrower.- - -".

To sum up, we notice that [a] no evidence has been adduced to show that officials of GE Financial Services "approached" the Complainant and "pressed" him to avail loan from it by "convincing" him that the rate of interest will remain 1% less than the "market rate" and the rate being charged by other banks, [b] no evidence has been adduced to show that the GE Financial Services took arbitrary anyhow decisions to increase the rate of interest, [c] the increase in the rate of interest was in accordance with an explicit and unequivocal clause in the loan agreement, [d] the enhancement in the period of repayment was a natural consequence of keeping the monthly instalments constant, [e] the increase in the rate of interest was intimated to the Complainant, [f] information as relevant and material was provided to the Complainant on a regular basis and [g] it was written upfront in the loan agreement that the GE Financial Services could assign its assets and liabilities (to the Financial Corporation in this case).

Very significantly, we note that the Complainant has placed nothing on record to show that he has been singled out for discrimination or has been differently treated from other similarly situate persons by the Financial Corporation.

Sequel to the above discussion, the case of the Complainant fails.

We, however, make it clear that the Complainant's case fails on the basis of the evidence produced before the State Commission and in specific respect of the allegations of 'deficiency in service' and 'unfair trade practice' under the Act (only).

We have not entered into the arena per se of violation or otherwise of RBI's guidelines and directions.

The examination in respect of the RBI Notification has been limited to the evidence adduced by the Complainant on this count (only) and confined to the scope and ambit of the Act (only).

Accordingly, the critique made herein in no manner affects the Complainant's right to make his grievances with the central bank, the RBI, or any other regulatory authority concerned. Conversely, it also in no manner affects the Financial Corporation's culpability and accountability to the RBI or any other regulatory authority concerned.

To state the obvious, our examination, limited to the scope and ambit of the Act, in no manner affects or impinges on the regulatory functions and authority of the RBI under The Reserve Bank of India Act, 1934 or of any other regulatory authority working in its assigned domain.

With the afore examination and observations, the Appeal is dismissed.