Vijaya Bank vs K. Bangara Raju & 2 Ors

Avm J. Rajendra, Avsm Vsm (Retd.), Presiding Member

The present First Appeal has been filed under Section 19 of the Consumer Protection Act, 1986 (“the Act”) against the Order dated 07.02.2017 passed by the learned State Consumer Disputes Redressal Commission, Karnataka at Bangalore (“the State Commission”), in Consumer Complaint No. CC/281/2010, wherein the Complaint filed by the Complainants (Respondents herein) was allowed.

There was a delay of 242 days in filing the instant appeal. For the reason stated in the application for condonation of delay, the delay is condoned.

For convenience, the parties involved in this Appeal will be referenced as per their identification in the Complaint originally filed before the Ld. State Commission. K. Bangara Rahu, K. B. Geetha & K.B. Ashok Raju are identified as the Complainants. While the M/s. Vijaya Bank Rep. by its Chairman & The Assistant General Manager are referred as the Opposite Party Nos. 1 & 2 (OP No. 1 & 2).

The brief relevant facts of the case, as per the Complainant are that the he availed a housing loan of Rs. 1,90,00,000/- from OP No. 1 Bank on 07.01.2006 to acquire residential property No. 5 situated at 15th Cross, JP Nagar 5th Phase, Bangalore for total consideration of Rs.238.68 Lakhs and the said loan which is repayable with interest at the rate of 7.75% per annum which is 3.25% below the OP’s Bank Prime Lending Rate of interest.. Subsequently, in 2008 the BBMP (Bangalore Bruhat Mahanagara Palike) had proposed road widening in the area which encompasses the property intended to be acquired. Thus, Complainant No. 1 addressed a letter dated 30.10.2008 to OP No. 1 and sought guidance as regards disposal of the property and exploring an alternative site. A response was received on 03.11.2008, advising him to sell the site and close loan account by paying applicable pre-closure charges, without any penalty. Based on this advice, they entered into a sale agreement with a buyer on 04.06.2009 and corresponded with OP No. 2 not to levy any penalty for loan closure. Though the sale deed was to be executed on or before 30.06.2009, it was delayed due to expectations that BBMP may withdraw the notification for land acquisition. Later, the property was sold, and the buyer credited Rs.235 Lakhs to Complainant No. 1's SB Account with OP-1 bank on 29.07.2009. It was alleged by the Complainant that OP-1 charged substantial interest difference of Rs.45,92,554.71 between actual and commercial interest, debited from Complainant No. 1's account on 29.07.2009. This interest difference was for the period from 01.04.2009 to 04.01.2010. Moreover, amount so debited was not credited to the housing loan account and it is not reflected in the statement dated 04.08.2009. Further contentions arose regarding additional interest charged unjustly, amounting to Rs.2,40,775 beyond the contracted interest. The total interest difference was stated to be Rs. 45,02,554.71 plus the additional interest, contended to be charged excessively by OPs. Despite efforts by Complainants seeking reimbursement, no favorable resolution was reached, leading them to approach the Banking Ombudsman, Bangalore, on 26.05.2010. The Banking Ombudsman, however, did not give any relief and omitted reference to the clear commitment made by OP-1 vide letter dated 03.11.2008, permitting property sale and loan closure without pre-closure charges. The Complainant further alleged that the interest rate agreed at the rate of 7.75% per annum. It was unilaterally enhanced to 9.75% within 13 months and further increased during six months from 01.07.2008 to 11.01.2009. Moreover, on 01.09.2008, the Complainants were informed about the increasing in BPLR from 13.50% p.a. to 14.00% p.a. and the consequent increase in the rate of interest on the loan account from 11.25% to 11.75% p.a. from 08.08.2008. Similarly, on 14.11.2008, Complainants also received another letter informing about the decrease in the interest from 14% to 13.25% per annum and the consequent decrease in the rate of interest on loan amount from 11.75% to 11% per annum from 10.11.2008. Being aggrieved by the act of Vijaya Bank in charging Rs.48,33,329.71 as additional interest at the additional rate of interest of Rs.5.75%. p.a. over and above the legitimately chargeable housing loan interest, constituting deficiency of service, unfair trade practice, negligence etc., the Complainant filed Consumer Complaint No. 281 of 2010 on 22.11.2010, before the learned State Commission and prayed for direction to the OP bank to refund the said amount charged and collected from Complainant as difference of actual and commercial interest along with interest  @18% p.a. on the said amount from 29.07.2009 and Compensation of Rs.25,00,000/- etc.

The OPs filed their reply before the State Commission and admitted sanctioning the loan to the Complainants on 31.10.2005. They highlighted that the loan sanctioned @ interest of 7.75% per annum (floating), was specifically intended for the purchase of a site, subject to the condition that the borrower must construct a house within three years from the date of purchase or date of availing loan i.e. 07.01.2006. The OPs pointed out Clause 3 and 16 of the Articles of Agreement signed by the Complainant which provides absolute discretion to the bank to charge additional interest or other charges based on certain events. The OPs alleged that the Complainants, as per the initial undertaking, were required to complete the construction of the building by 07.01.2009. Although they submitted an approved building plan, with approval of competent authority dated 25.11.2006, no efforts were made to complete the building till 2008. The Complainants violated the sanction conditions, resulting in a breach of contract, thereby losing the identity of the housing loan. According to RBI Master Circular dated 01.07.2008 guidelines and bank's stipulations, bank finance for plot purchases mandate a declaration from the borrower to construct house within a specified period. The Complainants' failure to adhere to this led to a loss of the housing loan identity, justifying the imposition of a higher interest rate. The OPs emphasized that housing loans are offered at lower rates to support national housing policies and address housing shortages. However, the Complainants deviated from commitment to constructing the house, causing the loan to lose its housing loan character, necessitating higher interest rate. The OPs thus sought dismissal of the complaint, refuting any contrary claims made by the Complainant in the complaint.

The learned State Commission partly allowed the complaint with the following Order: -

“ORDER.

The above complain is partly allowed directing the OPs to refund the sum of Rs.48,33,329.71 lakhs to the complainants with interest at the rate of 8% per annum from the date of withdrawal letter / adjusting the loan amount from SB account of the Complainant No. 1 till realization.”

Being aggrieved by the impugned order dated 07.02.2017, the Appellant /OP Bank filed this present Appeal no. 2288 of 2017 with the following prayer:

“a. Admit and allow the appeal;

b. Set aside the Impugned judgment and order dated 07.02.2017 passed by the Ld. Karnataka State Consumer Dispute Redressal Commission, Bangalore; and

c. Any other or further relief which this Hon'ble Commission may deem fit In the Interest of justice, In favour of the Appellant ad against the Respondents.;

In the Appeal, the Appellant mainly raised the following issues:

a.  The State Commission failed to acknowledge that the Respondents initially sought relief from Banking Ombudsman, which was dismissed on substantive grounds. They engaged in forum shopping by not approaching the Appellate Authority, Customer Service Department, Reserve Bank of India after the dismissal of their complaint under Clause 13(d) of Banking Ombudsman Scheme, 2006.

b. The State Commission's oversight as regards housing loan of Rs. 190 lakhs sanctioned to the Respondents on 31.10.2005 for purchasing a plot for Rs. 238.68 lakhs, on conditional that they will construct a house within three years from the date of plot purchase. The loan was subsequently released on 07.01.2006.

c. The State Commission failed to consider that although the loan was availed on 07.01.2006 and the building plan was approved on 25.11.2006, the Respondents made no efforts to commence construction until 2008. This suggests that they utilized public funds for property acquisition without adherence to conditions.

d. The State Commission failure to recognize the RBI circular, empowers bank to charge a higher interest rate in cases where the borrower fails to construct the house. There was deceit by the Respondents. While representing to the bank they indicated that no acquisition proceedings were underway.

e. The State Commission's disregard for the conditional nature of the consent granted by the Appellant to the Respondents. This consent required the Respondents to apply for a fresh loan. Failure to comply would contradict the understanding between the parties. The Appellant argued against the contention that it unconditionally allowed them to dispose of the property for an unjustified windfall profit at the expense of public funds.

f. The State Commission's oversight of the property schedule mentioned in the Agreement to Sell dated 04.06.2009, indicating the extent of the mortgaged property to the Appellant bank as 5400 sq. ft. This establishes that until the date of sale, there was no acquisition or construction by the Respondents.

In response to notice on memo of Appeal, the Respondents/ Complainants filed their reply contending that the Appellant, while challenging the impugned order, selectively produced documents without providing all those relevant, to mislead and manipulate the case in their favour. Further, in their statement of objection, they reiterated the case's factual background and included all the documents that were previously filed before the State Commission.

The learned Counsel for the Appellant/OP Bank reiterated key grounds of appeal. He drew the attention to specific clauses in the Agreement and asserted that there was no requirement of notice for changes in interest rates and that the bank had discretion to charge additional interest, based on various conditions, particularly in the case of borrower default or breach of agreement terms. He pointed that despite the loan being approved in 2006 and the building plan in 2006, the construction was not initiated until 2008. They also referred to the sale agreement between the Respondent and the buyer, which indicated no acquisition by BBMP and the sale of the entire mortgaged property without depreciation in value. He argued that they breached the loan conditions, disqualifying them from claiming benefits of a housing loan. The judgment, directing refund along with interest overlooked these crucial aspects.

The learned Counsel for the Respondents/Complainants reiterated the facts of the case emphasizing the discrepancy in the Appellant Bank's actions concerning the loan agreement terms. They argued that as per the loan agreement, the penalty for pre-closure was limited to 1% of the outstanding balance. However, the bank treated the loan differently and charged an exorbitant amount contrary to their representation in a prior letter to the Respondents. Despite numerous attempts to seek resolution, the Respondents received no favorable response. The Counsel highlighted the subsequent approach to the Banking Ombudsman, where despite certain points raised, the Respondents' incapacitation due to hospitalization led to an unfair dismissal of their complaint. Further, in the impugned order, the State Commission found the Appellant's charging of a commercial rate unjustified, especially when the loan agreement stipulated a pre-closure charge of only 1%. Further, the State Commission also found that the Respondents had every intention to put up construction by availing of the house loan which was evident from the sanction plan obtained by them which was valid for a period of three years since it was first given, being the time in which the construction was to be made, and hence treating the house loan as a commercial one by charging a higher rate of interest was not justified.

The learned Counsel for the Respondents/ Complainants relied on the order of this Commission dated 17.11.2017 in Revision Petition No.2884 of 2017 titled India Bulls Finance Ltd. vs Boota Sidhu that charging higher interest rate by altering the number of EMIs without the consent of the Loanee is not permissible. Similarly, in the present case, charging of higher rate of interest amount to altering the number of EMIs which, without the consent of the Respondents herein is not permissible and amounts to unfair trade practices. They have also placed reliance on the judgement dated 08.06.2015 of the Hon'ble Punjab State Commission in First Appeal No.877 of 2013 titled ICICI Bank Limited vs Pankaj Goyal wherein it was held that the increase of floating rate of interest arbitrarily without any notice to the consumer was held to be unfair. Thus, the current appeal filed by the Appellant bank is baseless and without merits and hence is liable to be dismissed with costs.

I have examined the pleadings and associated documents placed on record and rendered thoughtful consideration to the arguments advanced by the learned Counsels for both the parties.

The primary issue in this case revolves around the alleged discrepancy in the imposition of a higher interest rate by the Appellant Bank. The Respondents/ Complainants contended that the bank charged an interest rate higher than what was initially agreed upon in the loan agreement. This discrepancy led to a substantial financial burden on the Respondents upon pre-closure of loan account, despite the terms of the agreement specifying a much lower pre-closure charge. The dispute also involves interpretation of the loan agreement clauses and whether the bank's actions, such as changing the interest rate without explicit consent, constituted unfair trade practices or breach of contract. Ultimately, the key contention involves whether the Appellant Bank's imposition of a higher interest rate was justifiable or amounted to unfair trade practice of the Respondents.

In this regard, it is an admitted position that the Complainants availed housing loan of Rs.1,90,00,000 from OP bank on 07.01.2006 for total sale consideration of Rs.238.68 lakhs for the said land in question. The rate of interest agreed was 7.75% per annum (floating). As per the said loan sanction, the Complainant was required to complete the construction within three years from the date of purchase of the site. The Complainant accordingly took necessary actions and got the plan approved form the BBMP on 25.11.2006, valid for two years.

It is the contention of the Complainant that, in the meanwhile, the BBMP proposed widening of the road during the year 2009, and an area of 18.29 mtrs X 10.25 mtrs measuring 187.47 Sq. Mtrs of the said plot was scheduled to be acquired by BBMP, leaving only 314.22 Sq Mtrs out of 501.69 Sq. Mtrs.

After this development, the Complainants approached the OPs vide letter dated 30.10.2008, explaining the circumstances in which they are placed, proposed acquisition of the property by BBMP for widening the road and requested for advise with regard to disposal of the said residential site and scope for going for an alternate site to build the house. The OP-2 replied on 03.11.2008 permitting the Complainant to sell the site and to close the loan account by paying applicable pre-closure charges and thereafter to submit the fresh proposal for housing loan. The Bank granted permission to the Complainants to sell the property on 03.11.2008 and the period of 3 years from the date of purchase was not yet expired. Based on the response dated 03.11.2008, the Complainants sold the property in question on 04.06.2009 for Rs.235 lakhs and deposited to the SB account of Complainant No. 1 with OP-2 bank.

It is an admitted position that the Complainant purchased the site on 07.01.2006. In pursuance of the purpose for which loan was taken, they obtained the sanction plan to construct the building well within time. The said loan has to be repaid in 240 EMI of Rs.1,56,000. Further in case of pre-closure of the entire loan before 240 months, the OPs are entitled for pre-closure charge at 1%. However, in terms of letter of sanction dated 31.10.2005, the OPs is entitled to collect excess 1% interest on the remaining balance as on the date of pre-closure. As per terms and conditions stipulated, it was stated that penalty of 1% on the balance outstanding for prepayment /pre-closure/switched over to other banks within 5 years of availing shall be levied.

Towards justifying delay in construction of the building in the site, the Complainants brought on record the notification the BBMP issued under section 14-B of Karnataka Town and Country Planning Act, 1961 for widening the road from Silk Board Junction to Mysore Road. It covers the road on which the site of the Complainants is located. Clearly, the circumstances so emerged are beyond the scope and control of the Complainants who have been exposed to substantial disadvantage and inconvenience and, in any case they did not commit breach of any condition agreed upon while obtaining the loan. With due consideration of the facts and circumstances, it became rather impossible for them to complete the construction as per approved plan. They have also notified these circumstances upfront to the OPs and sought guidance. In these circumstances, the reasons stated by the OPs for resorting to charging commercial rate of interest on housing loan availed by the Complainant are untenable and such action verges to unfair trade practice of the Complainants.

In view of the foregoing discussion, I am of the considered view that the Order of the learned State Commission does not require any interference and, therefore, upheld. Consequently, the F.A. No. 2288 of 2017 is dismissed.

All pending Applications, if any, stand disposed of accordingly.

The Registry is directed to release the statutory deposit amount, if any due, in favour of the Appellant, after compliance of the orders of the learned State Commission.