1

STATE CONSUMER DISPUTES REDRESSAL COMMISSION,

U.T., CHANDIGARH

Appeal No. : 65 of 2018

Date of Institution : 05.04.2018
Date of Decision : 22.05.2019

Jasmer Singh, Age 54 years, son of Late Mohinder Singh R/o Village Churheri, P.O. Pabhat, District Mohali, Punjab.

…….Appellant/Complainant.

Versus

The Branch Manager, Fullerton India Credit Co. Limited, SCO 141-142, 1st Floor, Sector 8-C, Chandigarh.

...Respondent/Opposite Party.

Appeal under Section 15 of the Consumer Protection Act, 1986 against order dated 13.02.2018 passed by District Consumer Disputes Redressal
Forum-I, U.T. Chandigarh in Consumer Complaint No.11 of 2016.

BEFORE: JUSTICE JASBIR SINGH (RETD.), PRESIDENT.

MRS. PADMA PANDEY, MEMBER.

MR. RAJESH K. ARYA, MEMBER.

Argued by:

Sh. B. K. Duggal, Advocate for the appellant.

Er. Sandeep Suri, Advocate for the respondent alongwith Sh. Bhupinder Tanwar, Sr. Manager (Legal) of the Company.

PER RAJESH K. ARYA, MEMBER

The appellant/complainant has filed this appeal against order dated 13.02.2018 passed by District Consumer Disputes Redressal Forum-I, U.T., Chandigarh (in
short ‘the Forum’ only), vide which, complaint bearing No.11 of 2016 filed by him (appellant/complainant) was dismissed leaving the parties to bear their own costs.

2. Before the Forum, it was case of the complainant that he took a personal loan of Rs.62,392/- from the Opposite Party on 14.10.2011, which was to be repaid in
36 EMIs of Rs.3,213/- each. It was further stated that even after repayment of the entire loan, when the Opposite Party continued to deduct the installments from his
account, the complainant approached the Opposite Party to stop deducting the amount, to issue NOC and to refund the excessive amount already deducted. It was further
stated that instead of doing the needful, the Opposite Party dilly dallied the matter on one pretext or the other. It was further stated that left with no option, the complainant
served a legal notice dated 02.12.2015 upon the opposite party, but to no avail. Hence, a consumer complaint was filed before the Forum.

3. The opposite party, in its reply, stated that the loan was repayable in 48 equal monthly installments of Rs.3,213/- each and not in 36 months as alleged by the
complainant. It was further stated that the complainant had issued standing instructions for the debit of the amount from his account which was being done. It was further
stated that once all the installments are paid, the Company shall stop instructions for the purposes of debit of any account. It was further stated that neither there was any
deficiency, in rendering service, on the part of the opposite party nor it indulged into any unfair trade practice. The remaining averments, were denied, being wrong.

4. The parties led evidence in support of their case.

5. After going through the evidence on record and submissions of Counsel for the parties, the Forum dismissed the complaint, as referred to above.

6. Feeling aggrieved, the instant appeal, has been filed by the appellant/complainant.

7. We have heard the Counsel for the parties and, have gone through the evidence, and record of the case, carefully.

8. Counsel for the appellant/complainant submitted that the impugned order passed by the Forum cannot be supported from any angle being based on conjectures
and surmises. It was further submitted that the Forum did not consider the facts as the appellant/complainant exhibited all the relevant documents as well as loan
agreement, which proved that the appellant/complainant had already paid the entire loan amount and rather paid excessive amount. It was vehemently argued that charging
of interest at such an exorbitant rate i.e. 47% on the loan amount is highly detrimental to the interest of the appellant/complainant and is also against the settled law on the
subject. The appellant/complainant pathetically argued that charging of exorbitant rate of 47% compounded monthly made his financial position worse as despite
repaying a total amount of Rs.1,28,520/-, which is more than double the principal loan amount of Rs.62,392/- taken from the respondent/opposite party and still the
respondent/opposite party is claiming Rs.22,143.29 as due/outstanding from the borrower/ appellant/complainant. It was also argued that charging of much higher interest
rate by the respondent/opposite party, which is a Non-Banking Financial Company, is an unfair trade practice on the part of the respondent/opposite party. It was argued
that the respondent/opposite party failed to adopt Fair Practice Code issued by Reserve Bank of India (in short ‘RBI’). It was further submitted that at various times, RBI
advised the NBFCs, as the respondent/opposite party is, to regulate the interest rates and the rate of interest beyond the certain level has been held to be excessive. It was
further submitted that charging of interest by the respondent/opposite party at such a higher rate can neither be sustainable nor be conforming to normal financial practice.
It was prayed that the appeal be allowed and the impugned order dismissing the complaint be set aside and the respondent/opposite party be directed to refund the excess
amount charged from the appellant/complainant.

9. On the other hand, Counsel for the respondent/opposite party submitted that the sanctioned loan amount was to be repaid by the appellant/complainant in 48
EMIs of Rs.3,213/- each. It was argued that against 48 EMIs, the appellant/complainant had remitted 40 EMIs and 8 EMIs totaling to the tune of Rs.27,704/- are still due
to be paid by him. It was further argued that interest was charged on daily basis with monthly rest on the outstanding principle balance in accordance with the loan
agreement. It was further argued that as per loan summary schedule to the loan agreement, rate of interest was 47% per annum compounded with monthly rest and delayed
payment charges plus applicable taxes and/or other statutory levies, cheque/ECS dishonor charges, loan processing fee/charges, documentation fee/charges and
prepayment charges were also reflected in the said document, which was duly signed by the appellant/complainant. It was argued that the respondent/opposite party has
given each and every information relating to loans, interest, penal interest/late payment charges, processing/documentation and other charges etc. on its website.

10. It is not in dispute that an amount of Rs.62,392/- was disbursed by the respondent/opposite party out of the total sanctioned principal loan amount of Rs.69,300/-
and Loan Agreement dated 30.09.2011 was executed between the appellant/complainant and the respondent/opposite party.

11. As per the appellant/complainant, the said loan amount was to be repaid in 36 monthly equated installments of Rs.3,213/- each, whereas, according to the
respondent/opposite party, it was to be repaid in 48 months. To settle this controversy, we may first refer to Payment Schedule at Page 44 of Forum’s record. Perusal of
 2
said document shows that the first installment was to start from 05.11.2011 and the last installment was payable on 05.10.2015, which period comes to 48 months. Further,
the above fact stands corroborated from Statement of Account (Annexure C-3) and Loan Summary Schedule to the Loan Agreement, wherein, the tenure of loan has been
mentioned as 48 months. Therefore, the loan was to be repaid in 48 months and not 36 months as alleged by the appellant/complainant.

12. Now coming to the issue of charging excess amount from the appellant/complainant, it may be stated here that shockingly, the respondent/opposite party is
charging interest @47% per annum compounded with monthly rest, which is too much to digest by anyone. No doubt, the respondent/opposite party is NBFC and RBI
instructions are duly applicable on the respondent/opposite party. It may not be out of place to mention here that as per RBI guidelines issued to commercial banks and to
NBFCs, the RBI has directed them not to increase the interest rate at their own accord when loans are given at floating rate of interest. In the instant case, though the
interest at which the loan was sanctioned/disbursed i.e. 47% is not at floating rate yet it cannot be accepted, if we look to the RBI instructions. Charging of interest at such
a high rate is inhumane. We would like to extract below the portion of Statement of Account i.e. Pay Details, to show unfair trade practice on the part of the
respondent/opposite party:-

Delayed Penal Other

Principal Interest Total Prepayments
Charges Interest Charges
Paid 47,945.24 80,574.76 0.00 0.00 0.00 1,28,520.00 0.00
Dues 21,793.63 0.00 0.00 349.66 0.00 22,143.29 0.00

13. Perusal of Statement of Account reveals that against the disbursed loan amount of Rs.62,392/-, the appellant/complainant has already paid an amount of
Rs.1,28,520/- till 23.02.2015 and still 8 installments are due to be paid by him. The appellant/complainant has already paid more than double the disbursed loan amount
and still the respondent/opposite party is demanding 8 more installments of Rs.3,213/- i.e. Rs.25,704/-. We have no hesitation to say that the respondent/opposite party did
not feel any indignity in peeling the skin of the appellant/complainant, which act of its is against humanity and social well being. Not only this, perusal of statement of
account also reveals that the respondent/opposite party charged Rs.3,000/- as Fullerton India Privilege Program Membership Fee and Rs.3,500/- towards Sampoorna
Suraksha Premium, which was wrong and arbitrary. There is nothing on record to show that any consent of the appellant/complainant was ever sought for Privilege
Program Membership or Sampoorna Suraksha granted and details whereof were never explained to the appellant/complainant. The respondent/ opposite party did not even
feel it appropriate to inform the appellant/complainant qua above before disbursing the loan amount or at the time of applying for the loan. Nothing of this kind was
mentioned in the application form submitted by the appellant/complainant for personal loan. He was compulsorily made to become the member of the club, of which he
did not avail any benefit. A poor consumer i.e. the appellant/complainant, a class IV employee who had come forward to raise loan for marriage of his daughter was made
a member of the premium club and he was illegally burdened with Rs.3,000/- towards fee of the club. Not only above, to further compound the woes of the
appellant/complainant, the respondent/opposite party arbitrarily and illegally charged interest @47% on the aforesaid club fee as well as on primary amount of Rs.3,500/-
taken by the respondent/opposite party from the disbursed amount, which was not his request also. That is why, the resultant balance is inflated, which could not be
adjusted out of the installments paid by the appellant/complainant. Therefore, these charges were arbitrarily levied upon the appellant/complainant. The loan was taken by
the appellant/complainant for his daughter in September 2011. We can say with all our concern that marrying a daughter for a poor consumer is always a challenge, when
his earnings are only from hand to mouth. This can very well be judged in the case of the appellant/complainant, who opted to take personal loan from the
respondent/opposite party just to marry his daughter and such an exorbitant interest rate of 47% was charged by the respondent/opposite party.

14. Not only in this case but also to safeguard the interest of the consumers at large, the main concern of this Commission is as regards charging of such an
exorbitant rate of interest by NBFCs while granting personal loans etc.

15. Counsel for the respondent/opposite party argued that rate of interest charged by banking companies cannot be subject to scrutiny by Courts. To say so, he
referred to Section 21A of Banking Regulation Act, 1949, which reads thus:-

“[21A. Rates of interest charged by banking companies not to be subject to scrutiny by courts.— Notwithstanding anything con­tained in the
Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company
and its debtor shall not be re-opened by any court on the ground that the rate of interest charged by the banking company in respect of such
transaction is excessive.]”

16. It may be stated here that we are not reopening any transaction between a banking company and its debtor but our prime concern is regarding charging of higher
rate of interest by NBFCs, which is unreasonable.

17. Vide its instructions/letters issued from time to time, Reserve Bank of India expressed its concern qua charging of excessive interest by NBFCs.

18. On 24.05.2007, on complaints being received by RBI qua charging of excessive interest by NBFCs, it (RBI) wrote to all the NBFCs including RNBCs, inter-
alia, as under:-

“2. Though interest rates are not regulated by the Banks, rates of interest beyond a certain level may be seen to be excessive and can neither be
sustainable or be conforming to normal financial practice.”

19. Boards of NBFCs were advised to lay out appropriate internal principles and procedures in determining interest rates and processing and other charges and it
was also directed to keep in view the guidelines indicated in the Fair Practices Code about transparency in respect of terms and conditions of the loans.

20. Not only this, vide subsequent letter dated 02.01.2009, Reserve Bank of India, in continuation of its letter dated 24.05.2008, in order to regulate the credit
system of the country to its advantage, in exercise of powers conferred under Section 45L of Reserve Bank of India, 1934 issued 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 gradation 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 rates 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.”

21. Thus, RBI advised all the NBFCs to lay out appropriate internal principles and procedures in determining interest rates and processing and other charges.

22. Not only above, the Hon’ble National Consumer Disputes Redressal Commission, New Delhi in the case of Awaz and others Vs. Reserve Bank of India,
decided on 24.10.2007, observed as under:-

“From the various circulars issued by the RBI, it appears that the RBI repeatedly emphasized that usurious rates of interest cannot be charged by the banks but it appears
that there is no control on this issue and the banks/non-banking financial institutions are exploiting the situation and the concerned officers of RBI appear to be unaware of
the same.

We would add that under the Consumer Protection Act, charging of such rates of interest would amount to exploitation of the borrowers needs and to a large extent
amount to unfair trade practice.”

23. As such, despite clear-cut advisory on the subject of the RBI, there are some NBFCs, which are still charging very excessive rate of interest, as in the presence
case i.e. 47%.

24. Still after paying so much amount, the loan account of the appellant/complainant has not been liquidated. The respondent/opposite party is still charging the
same interest @47% and is flaunting the norms and guidelines issued by RBI from time to time. It reminds us of the era of Money-lenders (Sahukars) or Village
Mahajans, whose modus-operandi has always been exploitative and nowhere was this more true than in tribal areas where, interest rates were shockingly high. They used
to charge very high interest rates on small loan amounts. We have no hesitation to call the respondent/opposite party, in the instant case, as Sahukar, who is lending money
and charging usurious interest.

25. When enquired during arguments from the parties, it transpired that the respondent/opposite party is still charging the same rate of interest i.e. 47% per annum
compounded with monthly rest and delayed payment charges plus applicable taxes despite the fact that the matter is pending adjudication before this Commission, which
showed their highhandedness and zeal to extort as much money as it can from the poor innocent consumers i.e. the appellant/complainant who took personal loan of
Rs.62,392/- for getting his daughter married. The respondent/opposite party did not even think that how the appellant/complainant, who is taking personal loan to marry
his daughter, would repay the said amount that too, when such an unfair rate of interest is being charged from him, which is totally illegal and against the guidelines issued
by RBI from time to time to charge reasonable rate of interest. It may also be stated here that the clauses qua charging of interest @47% are totally one sided and against
the interest of the appellant/complainant. It also did not take care of the interest of the appellant/complainant and as such, said clause in the agreement is void abinitio.
 3
Recently, the Hon’ble Supreme Court of India has in the case of Pioneer Urban Land & Infrastructure Ltd. Vs. Govindan Raghavan, Civil Appeal No.12238 of 2018
decided on 02.04.2019 held that incorporation of one-sided clauses in a builder-buyer agreement constitutes an unfair trade practice as per Section 2(r) of the Consumer
Protection Act, 1986. The Bench was considering an appeal against the order of Hon’ble National Consumer Disputes Redressal Commission, New Delhi wherein it was
held that the clause relied upon by the builder to resist the refund claims made by the co0mplainant buyer, were wholly one sided, unfair and unreasonable and could not
be relied upon. The Hon’ble Apex court held in Paras 6.7 and 7 of the judgment as under:-

“6.7 A term of a contract will not be final and binding, if it is shown that the flat purchasers had no option but to sign on the dotted line, on a
contract framed by the builder. The contractual terms of the Agreement dated 08.05.2012 are ex-facie one sided, unfair and unreasonable. The
incorporation of such one-sided clauses in an agreement constitutes an unfair trade practice as per Section 2(r) of the Consumer Protection Act, 186
since it adopts unfair methods or practices for the purpose of selling the flats by the Builder.

7. In view of the above discussion, we have no hesitation in holding that the terms of the Apartment Buyer’s Agreement dated 08.05.2012 were
wholly one-sided and unfair to the Respondent – flat Purchaser. The Appellant – Builder could not seek to bind the Respondent with such one-sided
contractual terms.”

Therefore, in view of law settled by Hon’ble Supreme Court of India, one sided clauses have no binding force on the appellant/complainant.

26. Not only above, the Hon’ble National Consumer Disputes Redressal Commission in the case of India Bulls Housing Finance Ltd. & Anr. Vs. Boota Singh
Sidhu, Revision Petition No.2884 of 2017 decided on 17.11.2017 has clearly held that certain clauses in the loan agreement which are apparently not in conformity with
the RBI guidelines, constitute unfair trade practice and such an agreement itself becomes voidable as certain provisions of the agreement are against the law of the land. In
the said case, the Hon’ble National Commission also took notice of RBI directions, whereby the NBFCs were advised to regulate the interest rate and the rate of interest
beyond the certain level was held to be excessive, which could neither be sustainable nor conforming to normal financial practice. Thereafter, against aforesaid order dated
17.11.2017, India Bulls Housing Finance Ltd. & Anr. filed SLP before the Hon’ble Supreme Court of India, which was withdrawn on 23.04.2018 with permission to file
the review application before the Hon’ble National Commission. Accordingly, a Review Application bearing No.134 of 2018 was filed before the Hon’ble National
Commission on 01.05.2018 against aforesaid order dated 17.11.2017, which was dismissed by the Hon’ble National Commission vide order dated 02.11.2018.

27. Further in the case of Fortuna Foundation and Engineers and Consultants Pvt. Ltd. Vs. RBI and Anr., W.P.(C) 1161/2010 decided by High Court of Delhi
on 28.10.2013, it was observed as under:-

“While regulating the credit system of the country to its advantage, the RBI cannot ignore the interests of the borrowers from Non-Banking
Financial Companies and if it is satisfied that a particular Non-Banking Financial Company, is charging interest at unreasonable rates or it is levying
charges which are not called for or the extent of such charges are levied by the financial institution concerned is unreasonable, the RBI would be
very much within its jurisdiction in issuing appropriate direction(s) to the financial institution concerned to modify its rate of interest or charges as
the case may be. In a case where RBI finds that some charge being levied by the financial institution on its borrowers is wholly unjustified and
uncalled for, it can direct such a financial institution to refrain from levying such charges. The RBI in exercise of its powers under Section 45L of
the RBI Act, will also be justified in directing the financial institution concerned to refund the unreasonable interest and/or other charges, if any,
recovered by it from its borrowers, provided the RBI is satisfied that issue of such a direction is necessary to regulate the credit system of the
country to its advantage. For the purpose of enabling it to take appropriate decision in this regard the RBI can call for such information from a
financial institution as is deemed necessary in this regard.”

28. It appears that there is no ready alternative to the rapacious usurer. That is not until and unless decision-makers start thinking about the problem seriously,
there will never be an alternative to the pernicious money-lenders like the respondent/ opposite party.

29. When we specifically asked the Counsel for the respondent/ opposite party to justify charging of interest @47% per annum compounded with monthly rest on
the amount of loan raised by the appellant/complainant and how the respondent/opposite party arrived at such an exorbitant interest rate, the respondent/opposite party
filed affidavit of its Sh. Ajay Sharma, Manager Legal wherein it was stated that the rate of interest is not 47% on monthly compounded basis but it is on monthly reducing
basis as is required by RBI. It was further stated that rate of interest fixed on various components of loan to be given are also mentioned in the website. It was further
stated that the interest rate rationale policy of the respondent/opposite party for determining interest rates, processing & other charges is available at its website. It was
further stated that by giving waiver of 2% in IRR (Interest) on IRR as per Grid of 49.00% and further by taking processing fee waiver of 3.5%, the IRR was offered at
47%.

30. The contents of the affidavit are totally vague. The Counsel for the respondent/opposite party miserably failed to explain that how the respondent/opposite party
calculated interest at 47% and why it was not a figure below than that. The interest could be charged at say 12.50% to 16%, which the nationalized banks like State Bank
of India are charging and why at 47% only in the case of the appellant/complainant. It may be stated here that NBFCs have to be transparent and the rate of interest and
manner of arriving at the rate of interest to different categories of borrowers should be clearly explained to the borrower or customer in the application form and
communicated explicitly in the sanction letter etc.

31. However, Reserve Bank of India does not specify any interest rate nor any ceiling rate. It does specify guidelines of Fair Practices Codes and where complaints
are received, these are examined within the parameters of the guidelines.

32. It is need of the hour that RBI should step into and conduct forensic audit of the respondent/opposite party, which is a NBFC and fix a cut of rate, beyond which,
NBFCs cannot charge interest to the detriment of the borrower/consumer as cost of funds in the present low interest rate regime cannot be so high.
33. It may be stated here that qua charging of illegal and excessive interest rates, the Madras High Court in the case of Ar. Jeyarhuthran vs

34. Charging such an exorbitant rate of interest @47% on a personal loan of a poor employee for the marriage of his daughter is a shylockian act on the part of the
respondent/opposite party. This harsh hardhearted conduct of the respondent/opposite party is explicit from the fact that even after repaying an amount of Rs.1,28,520/-,
which is more than double the disbursed loan amount of Rs.62,392/-, still the respondent/opposite party is demanding eight more installments i.e. Rs.25,204/- from the
appellant/complainant.

35. Thus, in our considered opinion, charging of excessive interest, which goes totally against the norms and observations made by the Reserve Bank of India vide
guidelines/notifications issued from time to time stating that reasonable interest rate should be charged, the respondent/opposite party indulged into unfair trade practice.
Now it is high time, we expect that the Reserve Bank of India should step in to secure the interest of poor consumers and tighten the knot of such free giants, on whom
nobody seems to have any control and who are charging exorbitant rates of interest whatever they like.

36. We, therefore, recommend Reserve Bank of India, which is a prime body to regulate the financial advisories in our Country:-

(a) To conduct forensic audit of the respondent/ opposite party and its branches and fix a cut of rate, beyond which, NBFCs cannot go in charging
interest;

(b)To impose heavy cost on respondent/opposite party and such like NFBCs, which are still charging exorbitant rates of interest from poor
consumers, totally against the guidelines issued by RBI on Fair Practice Code and reasonable rate of interest.

(c) To take punitive action including cancellation of license, if required, against the respondent/opposite party and also such like NBFCs, who are
still flaunting RBI Norms.

37. Thus, in our considered opinion, the respondent/ opposite party is liable to refund the amounts of Rs.3,000/- and Rs.3,500/- charged towards Fullerton India
Privilege Program Membership Fee and Sampoorna Suraksha Premium and interest charged thereon @47% to the appellant/complainant.

38. For indulging into unfair trade practice and causing mental agony and physical harassment to the appellant/complainant, the appellant/complainant is also held
entitled to compensation of Rs.70,000/-. The respondent/opposite party has been fleecing numerous borrowers with such exorbitant rates, as has been done in the case of
the present appellant/complainant. Not only in the past but presently also, the respondent/opposite party has been charging a very high rate of interest from the
appellant/complainant. When we had a glance at the website of the respondent/opposite party, we were shocked to see that still they are charging up to 49% interest rate on
personal loans. The respondent/opposite party is still continuing with unfair trade practice despite numerous guidelines issued by RBI from time to time clarifying that the
NBFC should charge reasonable rate of interest. For fleecing numerous consumers like the appellant/complainant, we are of the concerted view, that the
respondent/opposite must be burdened with exemplary cost. We impose an amount of Rs.4,00,000/- upon the respondent/opposite party as exemplary cost, out of which,
an amount of Rs.2,00,000/- will be paid to PGIMER, Chandigarh to be further deposited in the Poor Patient Welfare Fund (PPWF) and the remaining amount of
Rs.2,00,000/- will be deposited in Consumer Legal Aid Account No.32892854721 maintained by this Commission.

39. In view of the foregoing discussion, the appeal is allowed and the impugned order dismissing the complaint is set aside. Consequently, the complaint is partly
allowed and the respondent/opposite party is directed as under:-
 4
(i) To refund the amounts of Rs.3,000/- & Rs.3,500/- charged towards Fullerton India Privilege Program Membership Fee and Sampoorna
Suraksha Premium and interest @47% charged thereon and credit the same in the Personal Loan Account of the appellant/complainant within a
period of 30 days from the date of receipt of certified copy of this order, failing which the aforesaid amounts shall carry penal interest @10% per
annum with effect from respective dates of payments made till actual realization.

(ii) To issue ‘No Due Certificate” to the appellant/complainant against his loan account, without charging any further amount/installment w.e.f
01 May 2019 onwards, within a period of 30 days from the date of receipt of certified copy of this order after closing the loan account.

(iii) To pay an amount of Rs.70,000/- to the appellant/complainant on account of mental agony & physical harassment and indulgence into unfair
trade practice and Rs.22,000/- towards litigation expenses, within a period of 30 days from the date of receipt of certified copy of this order, failing
which the aforesaid amounts shall carry interest @10% per annum from the date of filing the complaint before the Forum till actual realization.

(iv) To pay an amount of Rs.2,00,000/- to PGIMER, Chandigarh towards discharge of its corporate social responsibility, which shall further be
deposited in the Poor Patient Welfare Fund (PPWF) maintained by PGIMER, Chandigarh within 30 days from the date of receipt of certified copy
of this order, failing which the same will carry interest @10% p.a. from the date of default i.e. after expiry of period of 30 days till its deposit.

(v) To deposit Rs.2,00,000/- in the “Consumer Legal Aid Account” No.32892854721, maintained with the State Bank of India, Sector 7-C,
Madhya Marg, Chandigarh in the name of Secretary, Hon’ble State Commission UT Chandigarh within 30 days from the date of receipt of certified
copy of this order, failing which the same will carry interest @10% p.a. from the date of default i.e. after expiry of period of 30 days till its deposit.

40. Certified copies of this order, be sent to the parties, free of charge.

41. Certified copy of this order be also sent to the Governor, Reserve Bank of India (RBI), New Central Office Building, Shahid Bhagat Singh Road, Fort Mumbai,
Maharashtra – 400 001 and also to Regional Director, Reserve Bank of India (RBI), Central Vista, Sector 17, Chandigarh - 160 017 and be emailed on their email IDs i.e.
governor@rbi.org.in and rdchandigarh@rbi.org.in respectively.

42. The file be consigned to Record Room, after completion

Pronounced.

22.05.2019.

[JUSTICE JASBIR SINGH (RETD.)]

PRESIDENT

(PADMA PANDEY)

MEMBER

(RAJESH K. ARYA)

MEMBER

Ad
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 5
Page 1 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

2017 SCC OnLine NCDRC 1957

In the National Consumer Disputes Redressal Commission†

(BEFORE PREM NARAIN, PRESIDING MEMBER)

India Bulls Housing Finance Ltd. and Another … Petitioner(s);

Versus
Boota Singh Sidhu and Another … Respondent(s).
Revision Petition No. 2884 of 2017‡
Decided on November 17, 2017
Advocates who appeared in this case:
Ms. Kanika Agnihotri, Advocate Ms. Sneha J., Advocate for the Petitioner;
Mr. Shubham Bhalla, Advocate for the Respondent.
ORDER
1. This revision petition has been filed by the petitioner India Bulls Housing Finance
Ltd. & anr., against the order dated 02.03.2017 of the State Consumer Disputes
Redressal Commission, Punjab, (in short ‘the State Commission’) passed in First
Appeal No. 391 of 2014.
2. Brief facts of the case are that the petitioner changed the number of EMIs for
repayment of loan taken by the respondent/complainant. It was alleged by the
complainant that the bank has taken unilateral decision without taking consent of the
complainant. The complainant filed a complaint bearing No. CC 340 of 2013 before the
District Consumer Disputes Redressal Forum, Bathinda, (in short ‘the District Forum’).
The case was contested by the opposite parties/petitioner on the ground that the
number of EMIs can be changed by the bank as per the agreement entered between
the parties. The District Forum after considering the submissions of both the parties
allowed the complaint vide its order dated 13.01.2014 as under:—
“10. Therefore in view of what has been discussed above we are of the
considered opinion that there is deficiency in service on the part of the opposite
parties. Hence this complaint is accepted with Rs. 10,000/- as cost and
compensation against the opposite parties. The opposite parties are directed to seek
the consent from the complainant regarding the increase in the number of
instalments or he wants the amount of EMI to be increased. After seeking his
consent, the opposite parties will reschedule the number of installments and
amount of EMI after adjusting the amount already paid by the complainant in his
loan account and fix the rate of interest as agreed in the loan agreement as per RBI
guidelines and furnish him the full detail regarding the increase/decease rate of
interest since the date of disbursement of the loan till this order.
The compliance of this order be done within 45 days from the date of receipt of
the copy of this order.”
3. Aggrieved by the order of the District Forum, the opposite parties/petitioners
herein preferred an appeal bearing No. 391 of 2014 before the State Commission,
which was dismissed vide its order dated 02.03.2017.
4. Hence the present revision petition.
5. The learned counsel for petitioners mentioned that there is a provision in the loan
agreement that the loaner institution can increase or decrease the number of EMIs
based on the prevailing interest rate and for that no consent of the loanee is required.
The learned counsel stated that both the fora below have not appreciated this fact that
the court or forum cannot rewrite the agreement in this regard. Learned counsel
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 6
Page 2 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

further submitted that where the provision for floating interest/instalments is there in
the agreement, it can be unilaterally changed without the consent of the loanee.
Learned counsel stated that this view has been upheld by the Hon'ble Supreme Court
in judgment of Indian Bank v. Blue Jaggers Estates Ltd., (2010) 8 SCC 129 : AIR
2010 SC 2980, wherein it has been observed:
“16. The argument of the learned counsel for the respondents that the rate of
interest is unconscionable, expropriatory and contrary to law also merits rejection
because at no stage the respondents had questioned the terms on which loan and
other financial facilities were extended by the appellant. That apart, after having
enjoyed those facilities for more than one decade, the respondents cannot turn
around and raise an argument based on the judgments of this Court in Central
Inland Water Transport Corporation v. Brojo Nath Ganguly, (1986) 3 SCC 156 and
Delhi Transport Corporation v. D.T.C. Mazdoor Congress, 1991 Supp (1) SCC 600. It
must be remembered that the respondents were not in a position of disadvantage
vis-à-vis the appellant. If they so wanted, the respondents could have declined to
avail loan and other financial facilities made available by the appellant. However,
the fact of the matter is that they had signed the agreement with open eyes and
agreed to abide by the terms on which the loan, etc. was offered by the appellant.
Therefore, the doctrine of unconscionable contract cannot be invoked for frustrating
the action initiated by the appellant for recovery of its dues.
6. Learned counsel for the petitioner further cited the judgment of Hon'ble Supreme
Court in Syndicate Bank v. R. Veeranna, (2003) 2 SCC 15 : AIR 2003 SC 2122,
wherein it has been observed:
“6. We have carefully considered the submissions made by the learned counsel
for the parties. The trial court rejected the claim of the plaintiff as regards the
interest on the grounds that there was absolutely no record to show that at any
time the defendants agreed to pay any higher rate of interest than the agreed rate
on the said three loans taken by them. We must point out at once that this
observation of the trial court runs contrary to the very agreements Ex. P-I, P-5 and
P-11. Further, the acknowledgements made by the defendants in 1978 also indicate
that the defendants acknowledged their liability of the amount due and the amount
had been calculated on the basis of the enhanced rate of interest. Observations of
the trial court that the Bank arbitrarily increased the rate of interest and charged
the higher rate also do not stand to the reason in the light of the evidence placed
on record including the afore-mentioned documents. In our view, the trial court was
wrong in saying that the interest could not be enhanced without the consent of the
defendants on the face of the agreements to Ex. P-1, P-5 and P-11. The rate of
interest was enhanced as per the agreement between the parties and there was no
question of taking separate consent from the defendants again.”
7. Learned counsel for the petitioners further stated that the petitioners have not
filed the present revision petition for the cost of Rs. 10,000/- but have filed to
challenge the order of the fora below in respect of the consent to be obtained from the
loanee, when the agreement does not provide for any such consent.
8. Learned counsel for the petitioners states that there is delay of 71 days in filling
the present revision petition and the same may be condoned. The application for
condonation of delay has been filed, which reads as below:—
“4. That the Petitioner herein was under the bonafide belief that a free copy of
the impugned order would be received by the Petitioner, however, the same was
not furnished. After the passage of reasonable time, the Petitioner Company applied
for certified copy of the impugned Order dated 02.03.2017, which was only received
by the Petitioner on 07.06.2017. It is submitted that as the same were received in
the midst of summer vacation, therefore the same could only be considered once
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 7
Page 3 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

the winter vacation were over. When the said Order was evaluated by the legal
department of the Petitioner subsequent to which it was decided that the said Order
deserved to be challenged having failed to consider the facts of the case and apply
the law as it is prevailing today to the said facts.
5. In furtherance of the said decision, the Petitioner instructed its counsels to
draft a Revision to challenge the said decision. Accordingly the counsel drafted an
Appeal and sent the same to the Appellant for verifications and approval on
20.08.2017. The Appellant conveyed certain corrections in the said draft on
28.08.2017 and the same were to be incorporated in the draft.
9. Learned counsel for the respondent stated that revision is highly time barred and
no proper explanation for delay has been given and therefore, the revision petition be
dismissed only on this count.
10. Learned counsel appearing on behalf of the respondent/complainant states that
he opposes the admission of the revision petition. He states that the District Forum
has only asked the opposite parties/petitioners to take the consent from the
complainant for increasing the number of installments. He further states that
complainant has no objection in giving this consent. The order of the District Forum is
not causing any prejudice to the petitioners as the learned counsel for the petitioners
has already accepted that petitioners have not filed this revision petition for waiving of
the cost of Rs. 10,000/- and complainant is already giving consent. So nothing
remains.
11. It was further stated that both the fora below have given concurrent findings
and the scope under the revision petition is quite limited in such cases. Cost of Rs.
10,000/- is very petty amount and does not require to be dealt with at the level of
National Commission.
12. I have given a thoughtful consideration to the arguments advanced by the
learned counsel for the parties and have examined the record.
13. It is admitted that the EMIs were increased by 120 to 141 without the consent
of the complainant. The District Forum has basically decided that the EMIs could not
have been increased by the opposite party without the consent of the complainant and
that is why it has asked to take the consent of the complainant for increased number
of EMIs. The capacity to pay the amount of EMI and span of repayment are interlinked
and persons in different circumstances may choose different sets of EMI instalment
and the span for repayment.
14. A perusal of the order of the State Commission reveals that the State
Commission has extensively discussed various notifications and circulars of Reserve
Bank of India (RBI) and has given a finding that these circulars were not followed by
the petitioners. The following observations of the State Commission are relevant:—
“As per the RBI guidelines to commercial banks and to Non-banking financial
Companies (NBFCs), it is stated that these institutions will not be able to enhance
the interest rate when the loan was sanctioned at floating rate of interest without
giving a written intimation to the borrower and without obtaining written consent of
the borrower. If written consent is obtained, then only commercial banks are
permitted to enhance the floating rate of interest. As per equity, these instructions
of RBI issued to commercial banks will also be applicable to all the financial
institutions, who are financing the consumers being a company falling under the
category of non-banking financial companies. The RBI vide its direction No.
RBI/2006-07/414 dated 24.05.2007 has issued instructions to all non-banking
financial companies including residuary non-banking companies about the matter of
complaints of charging excessive interest rate by NBFCs as back as 24.05.2007.
They were advised to regulate the interest rates and the rate of interest beyond the
certain level may be seen to the excessive and can neither be sustainable nor be
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 8
Page 4 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

conforming to normal financial practice. Thereafter, RBI has issued another circular
addressed to all NBFCs vide its master Circular No. RBI/2011-12/470 dated
26.03.2012. As per this, master circular guidelines on Fair Practices Code (FPC) for
all NBFCs were laid down. In this circular, there is a mention of the guidelines
issued by the RBI, vide its master Circular dated 24.05.2007. We have perused the
master circular, which was downloaded from our computer to decide the present
case at our end. As per the guidelines, an intimation was issued by RBI vide
notification No. DBBS/204/CGM(ASR)-2009 dated 22.01.2009. As per this
guideline, the rate of interest should be annualised so that the borrower is aware
about the exact rate to be charged in his account by NBFCs. As per the directions,
disclosures are to be given in the loan agreements/loan card. As per these
directions on loan agreement, following instructions shall be disclosed:—
i) All the terms and conditions of the loan,
ii) that the pricing of the loan involves only three components viz; the interest
charge, the processing charge and the insurance premium (which includes the
administrative charges in respect thereof),
iii) That there will be no penalty charged on delayed payment,
iv) That no security deposit/margin is being collected from the borrower.
Further as per the loan card, the following directions have been enumerated,
which are as under:—
c. The loan card should reflect the following details as specified in the Non-
Banking Financial Company-Micro Finance Institutions (Reserve Bank) Directions,
2011.
(i) The effective rate of interest charged
(ii) All other terms and conditions attached to the loan
(iii) Information which adequately identifies the borrower and
(iv) Acknowledgments by the NBFC-MFI of all repayments including instalments
received and the final discharge.
(v) The loan card should prominently mention the grievance redressal system set
up by the MFI and also the name and contact number of the nodal officer.
(vi) Non —credit products issued shall be with full consent of the borrowers and
fee structure shall be communicated in the loan card itself.
(vii) All entries in the Loan Card should be in the vernacular language.
12. From perusal of this circular, it is evident that the interest rate was to be
charged in one year being annually and not on monthly basis as is agitated by the
present appellant before the District Forum. However, we have noted from the reply
that the interest rate was increased once after 01.08.2011 on 01.08.2013 to the
extent of rate from 17.50 to 18%, but then we fail to understand then how another
rate of interest was raised from 18% to 18.50% from 01.09.2012 that too with a
backdate change, the increased rate of interest applied to the loan account was
raised from 14.50 to 15.25% p.a. We also observe that the terms and conditions
are printed in a small font, which are not easily readable.”
15. From the perusal of the above observations of the State Commission, it is
construed that some of the provisions of the agreement are not inconsonance with the
RBI guidelines and whatever provisions are there they have not been implemented.
Accordingly, the clause relating to Amortization in the Schedule ‘B’ of the agreement
clearly states that:
“(a) Save and except as provided under (b) below for administrative convenience
the EMI amount is intended to be kept constant irrespective of variations in the
Adjustable Interest Rate and therefore the number of EMIs is likely to vary on
account of the variance in the Adjustable rate of interest No intimation shall be
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 9
Page 5 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

given by IFSL as to further or other or reduced number of EMIs required to be paid

by the Borrower upon each any change in the Adjustable Interest Rate. Provided
however that the Borrower shall be intimated of the information as to the
applicable/applied Adjustable Interest Rate during the preceding financial year on
an annual basis, within such time at the end of the financial year as IFSL may
determine”.
16. RBI guidelines clearly provides that interest rate will be changed only annually.
Even if interest rate is changed many times during the year it only be informed on
annual basis as per the clause mentioned above. The State Commission has found that
petitioners have changed interest rate many times within a year, whereas, the RBI
circular provides only for change of such interest rate annually. RBI/2011-12/53,
DBOD No. Dir. BC. 5/13.03/2011-12, dated July 1, 2011 addressed to commercial
banks states the following:—
“2.4 Floating Rate of Interest on Loans
2.4.1. Banks have the freedom to offer all categories of loans on fixed or floating
rates, subject to conformity to their Asset-Liability Management (ALM) guidelines.
The methodology of computing the floating rates should be objective, transparent
and mutually acceptable to counter parties. The Base Rate could also serve as the
reference benchmark rate for floating rate loan products, apart from external market
benchmark rates. The floating interest rate based on external benchmarks should,
however, be equal to or above the Base Rate at the time of sanction or renewal.
This methodology should be adopted for all new loans. In the case of existing loans
of longer/fixed tenure, banks should reset the floating rates according to the above
method at the time of review or renewal of loan accounts, after obtaining the
consent of the concerned borrower/s.”
17. From the above it is clear that RBI has clearly issued directions to all
commercial banks that in case of floating rate of interest the consent of the borrower
should be obtained. It is true that the petitioners are not a commercial bank but it is a
NBFC. However, the principle laid down by the RBI so far as consumer is concerned
cannot be diluted in case of NBF company. Moreover, the District Forum has only
ordered that consent of the borrower be obtained for either increased number of EMIs
or same number of EMIs with increased installment amount. Amortization clause of
schedule B only provides for increase or decrease in number of EMIs, however, it does
not provide for same number of EMIs with changed instalment amount. Natural justice
demands that the consumer must have right to either change the number of EMIs due
to change in the interest rate or to change instalment amount to keep the same
number of EMIs. From this perspective the order of the District Forum seems perfectly
in order. Amortization clause of schedule B is only an unfair trade practice as borrower
will come to know the change in the interest rate only at the end of the year and even
at that time when the petitioners think it appropriate to inform. Even in the instruction
issued to the NBFC vide circular No. RBI/2006-07/138 DNBS (PD) CC No.
80/03.10.042/2005-06, dated 28.09.2006, it has been instructed that the change in
the interest rate and charges should be effected only prospectively, whereas in the
present case amortization clause provides that the changes made during the financial
year should be communicated to the borrower at the end of the financial year. Thus,
this clause clearly contravenes the RBI guidelines issued by this circular.
18. From the above examination it is clear that there are certain clauses in the loan
agreement which are apparently not in conformity with the RBI guidelines, however,
these clauses constitute unfair trade practice on the part of the petitioners. Also the
agreement itself becomes voidable as certain provisions of the agreement are against
the law of the land.
19. In the light of the above discussion, I do not find any illegality, material
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 10
Page 6 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

irregularity or jurisdictional error in the order dated 02.03.2017 of the State

Commission which calls for any interference from this Commission. Accordingly,
Revision Petition No. 2884 of 2017 is dismissed at the admission stage.
———
† New Delhi Bench
‡
(Against the Order dated 02/03/2017 in Appeal No. 391/2014 of the State Commission Punjab)

Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/
notification is being circulated on the condition and understanding that the publisher would not be liable in any manner by reason of any mistake
or omission or for any action taken or omitted to be taken or advice rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/
rule/ regulation/ circular/ notification. All disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The
authenticity of this text must be verified from the original source.
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 11
Page 1 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

2007 SCC OnLine NCDRC 77 : [2007] NCDRC 77 : (2008) 1 CPJ 319 (NC)

National Consumer Disputes Redressal Commission New Delhi

(BEFORE M.B. SHAH, PRESIDENT AND RAJYALAKSHMI RAO, MEMBER AND ANUPAM DASGUPTA,
MEMBER)

Consumer Complaint No. 51 of 2007

Awaz and Others … Complainant;
Versus
Reserve Bank of India & Ors. … Opposite Parties.
Revision Petition No. 1913 of 2004 (From the order dated 06.05.2004 in A No.
1706 of 2003 of the State Commission, Madhya Pradesh)
D.C.M. Financial Services Ltd. … Petitioner;
Versus
Mukesh Rajput and Another … Respondent.
Consumer Complaint No. 51 of 2007, Revision Petition No. 1913 of 2004 (From
the order dated 06.05.2004 in A No. 1706 of 2003 of the State Commission,
Madhya Pradesh)
Decided on October 24, 2007
In C.C. No. 51 of 2007
For the Complainant: Mr. Mayur R. Shah, Advocate
For Opp. Party No. 1: Mr. H.S. Parihar, Advocate for RBI
For Opp. Party No. 2: Mr. Mahip Datta and Mr. Anil Kumar, Advocates
For Opp. Party No. 3: Mr. Alok Tripathi, Advocate
For Opp. Party No. 4: Ms. Neha Cowshish and Mr. Rahul Malhotra, Advocates
For Opp. Party No. 5: Mr. Ajay Monga, Advocate with Ms. Nidhi Das, A/R and Mr.
J.K. Mittal, Advocate as Amicus Curiae
In R.P. No. 1913 of 2004
For the Petitioner: Mr. Dhruv Kumra, Advocate for Mr. Sachin Chopra, Advocate
For the Respondent: Ms. Indu Malhotra, Sr. Advocate as Amicus Curiae
ORDER
Various States have enacted laws controlling charging of exorbitant rate of interest
by the money-lenders. But, it is apparent that there is no restriction with regard to
charging of usurious rate of interest by the Banks or Non-banking financial institutions
in their money lending activity. There is also challenge to various unjustified demands
such as Processing Fee, etc., and the principle of DAMDUPAT is not made applicable.
Hence, complaint is filed before this Commission under the Consumer Protection Act,
so as to protect the consumers from unjustified exploitation of their needs.
CONSUMER COMPLAINT NO. 51 OF 2007
This complaint is filed by Registered Trust, namely, ‘Awaz’ and consumer
organization, viz., ‘Jagrut Nagrik’ and one Pradeep Kumar Thakur, against the (i)
Reserve Bank of India (RBI), (ii) HSBC, (iii) American Express Bank Ltd., (iv) Citibank
and (v) Standard Chartered Bank (Credit Card Division) contending that various
commercial banks are indulging in unfair trade practice by charging usurious interest
on the loans advanced by the Banks as well as on the amounts payable under credit
cards.
It is pointed out that:
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 12
Page 2 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

(i) on credit cards, the banks are charging interest roughly at the rate of 36% per
annum;
(ii) they are charging various financial charges, such as, late payment fee of Rs.
200/- to Rs. 500/- despite the decision of the Apex Court that penal interest
cannot be capitalized and no interest can be charged on penalty;
(iii) the banks are charging transaction fee of 2.5% for cash advance against credit
card, ATM, etc. - this is over and above the interest at the rate of 2.95% per
month on credit facility; and
(iv) late fee of 30% of the minimum due is being charged up to Rs. 500/- per
month, if the credit card bill is not paid by the due date.
Various other aspects are pointed out and a prayer is made that the banks may be
restrained permanently from charging excessive rate of interest and service charges de
hors ceiling prescribed under the RBI guidelines/circulars. Prayer is made for refund of
the excessive interest charged on the credit cards by the respondent commercial
banks.
When the Notice was issued, learned counsel appearing on behalf of RBI, after
obtaining instructions, submitted that the RBI had not issued any guidelines
restricting the banks from charging any given rate of interest. Further, in the affidavit
dated 3.10.2007, it has been stated that—
“Further, it may be emphasized that the frame to fix lending rates without reference
to BPLR and regardless of loan were granted in 9 specific cases which include loans
for purchase of consumer durables, non-priority sector personal loans including
credit card dues and loans covered by refinance schemes of term lending
institutions”.
REVISION PETITION NO. 1913 OF 2004
When this Revision Petition came up for hearing, it was contended on behalf of the
petitioner, DCM Financial Services Ltd., that the petitioner was charging interest at the
rate of 3% per month. In that Revision Petition, we had issued Notice to the Central
Government. In response to the Notice, on 7.12.2006, Sr. Advocate, Mr. R.V. Sinha,
on behalf of the Union of India submitted that the RBI had to control the rate of
interest charged by the non-banking financial institutions and, at present, no
maximum limit for interest had been fixed by the RBI and hence the interest is
recovered by non-banking financial institutions on the basis of contract. In view of the
aforesaid submission, in our order dated 7.12.2006, we observed as under:
“Prima facie, this stand by the Central Government appears to be without
considering the reality of life. Consumers who are in absolute need are having no
bargaining capacity and are forced to pay interest which is unjustifiable,
unreasonable and coercive. In the present case, interest at the rate of 36% per
annum is sought to be recovered. There must be some control on such banking and
financial institutions with regard to the rate of interest and to protect the
consumers, some regulations are required to be framed. In a welfare state, the
financial institutions cannot be permitted to take advantage of the financial
weakness of the consumers and enrich themselves. If this is permitted, the whole
purpose of the Consumer Protection Act would be frustrated.”
Thereafter, the matter was adjourned to 29.1.2007. Subsequently, learned counsel
on behalf of Union of India submitted that Central Government has adopted certain
policies with regard to the rate of interest by the banks and the same would be filed
along with affidavit.
Finally, on 1.5.2007, after hearing the learned counsel for the Union of India and
the representative of the RBI, we passed the following order:
“Fortunately, various States have passed orders restricting money lenders from
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 13
Page 3 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

charging interest beyond a particular limit. But, today a statement is made by the
learned counsel appearing on behalf of the Union of India — Finance Department
that they have not issued any directions to Non-Banking Financial Companies
(NBFCs) restricting the rate of interest. He states that it is a matter of contract
between the parties and a needy person is left at the mercy of such financial
institutions as there is no law to the effect that the NBFCs cannot charge interest
beyond a particular rate. On behalf of the RBI, it has been stated that they have not
issued any circular restricting the rate of interest by the NBFCs or the Banks.
From the stand taken by the Union of India and the RBI, prima facie, it appears that
the Union of India and the RBI have given green signal to the NBFCs or the Banks
to charge rate of interest depending upon the vulnerable circumstances of the
borrower. A needy person can be exploited without any restriction. In our view, this
is against the spirit and object of the Consumer Protection Act and may amount to
unfair trade practice.
Learned counsel for the Union of india also pointed out that RBI has issued
guidelines on Fair Practices Code for NBFCs vide Circular dated 28.9.2006. Prima
facie, it appears that RBI endorses that charging of interest at the rate of 36% p.a.
and above would not be considered by them as unfair trade practice, otherwise, the
Fair Practices Code for NBFCs would have certainly included that charging interest
beyond a particular rate would be considered to be unfair trade practice.
Learned counsel for the Union of india further states that even with regard to the
loan granted by the Banks, there is no restriction with regard to the rate of interest
beyond Rs. 2 lakhs. He further submitted that in absence of any Rules or Act, RBI
cannot restrict recovery of exorbitant rate of interest from the consumers.
It appears that consumers are left at the mercy of exploiters. Considering the fact
that there is apparent exploitation by the NBFCs and also by certain Banks by
charging interest, which may be termed as shylockian interest or usury practice, the
matter requires serious consideration as consumers in this country are required to
be fully protected against such unfair trade practices as per the provisions of the
Consumer Protection Act.
We appoint Ms. Indu Malhotra, Advocate, [59, Lawyers Chamber, Supreme Court of
India, New Delhi; Tel. (Mob.) 9810026757] as amicus curiae to assist us in this
matter.”
The matter was then adjourned to 18.9.2007 to see that the RBI takes appropriate
steps for controlling the usurious interest rates charged by the commercial banks and
non-banking financial institutions.
On that day, the learned amicus curiae pointed out various circulars issued by the
RBI while exercising powers under Section 45L of the Reserve Bank of India Act,
providing that usurious rate of interest cannot be charged. She also produced on
record the Policy Statement of RBI for the year 2007-2008.
We note that, unfortunately, this was not brought to our notice by the concerned
officers of the RBI who appeared on various dates. From the various circulars issued by
the RBI, it appears that the RBI repeatedly emphasized that usurious rates of interest
cannot be charged by the banks but it appears that there is no control on this issue
and the banks/non-banking financial institutions are exploiting the situation and the
concerned officers of RBI appear to be unaware of the same.
We would add that under the Consumer Protection Act, charging of such rates of
interest would amount to exploitation of the borrowers' needs and to a large extent
amount to unfair trade practice.
In this set of circumstances, there is no alternative but to issue summons to
responsible officers of the RBI. Registry is directed to issue summons to (i) Chief
General Manager, Department of Non-banking Financial Companies and (ii) Chief
 SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 14
Page 4 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

General Manager, Department of Banking Operations of the RBI, to remain personally

present on 10.12.2007.
Stand over to 10th December 2007 at 2.30 PM.
Meantime, the commercial banks, which have not filed their written version, shall
file the same.
———
Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/
notification is being circulated on the condition and understanding that the publisher would not be liable in any manner by reason of any mistake
or omission or for any action taken or omitted to be taken or advice rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/
rule/ regulation/ circular/ notification. All disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The
authenticity of this text must be verified from the original source.
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 15
Page 1 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 16
Page 2 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 17
Page 3 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 18
Page 4 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 19
Page 5 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 20
Page 6 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 21
Page 7 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 22
Page 8 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 23
Page 9 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 24
Page 10 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 25
Page 11 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 26
Page 12 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 27
Page 13 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 28
Page 14 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 29
Page 15 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 30
Page 16 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 31
Page 17 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 32
Page 18 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 33
Page 19 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 34
Page 20 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 35
Page 21 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 36
Page 22 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 37
Page 23 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 38
Page 24 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 39
Page 25 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 40
Page 26 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 41
Page 27 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 42
Page 28 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 43
Page 29 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 44
Page 30 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 45
Page 31 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 46
Page 32 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 47
Page 33 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 48
Page 34 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 49
Page 35 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 50
Page 36 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 51
Page 37 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 52
Page 38 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 53
Page 39 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
 54

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 1 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
 55

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 45 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
 56

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 46 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
 57

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 47 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
 58

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 48 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
 59

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 52 Wednesday, October 16, 2024
Printed For: Hitarth Dixit, Rajiv Gandhi National University of Law
SCC Online Web Edition: https://www.scconline.com
© 2024 Eastern Book Company. The text of this version of this judgment is protected by the law
declared by the Supreme Court in Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1 paras 61, 62 &
63.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 60
Page 1 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

Reserve Bank of India

[Noti. No. RBI/2023-24/53]
Dated August 18, 2023

RESERVE BANK OF INDIA

RBI/2023-24/53
DoR.MCS.REC.28/01.01.001/2023-24
All Commercial Banks (including Small Finance Banks, Local Area
Banks and Regional
Rural Banks, excluding Payments Banks)
All Primary (Urban) Co-operative Banks
All NBFCs (including HFCs) and
All India Financial Institutions (EXIM Bank, NABARD, NHB, SIDBI
and NaBFID)
Madam/Dear Sir,
Fair Lending Practice - Penal Charges in Loan Accounts
Reserve Bank has issued various guidelines to the Regulated Entities
(REs) to ensure reasonableness and transparency in disclosure of penal
interest. Under the extant guidelines, lending institutions have the
operational autonomy to formulate Board approved policy for levy of
penal rates of interest. It has been observed that many REs use penal
rates of interest, over and above the applicable interest rates, in case of
defaults/non-compliance by the borrower with the terms on which
credit facilities were sanctioned.
2. The intent of levying penal interest/charges is essentially to
inculcate a sense of credit discipline and such charges are not meant to
be used as a revenue enhancement tool over and above the contracted
rate of interest. However, supervisory reviews have indicated divergent
practices amongst the REs with regard to levy of penal interest/charges
leading to customer grievances and disputes.
3. On a review of the practices followed by REs for charging penal
interest/charges on loans, the following instructions are issued for
adoption.
(i) Penalty, if charged, for non-compliance of material terms and
conditions of loan contract by the borrower shall be treated as
‘penal charges’ and shall not be levied in the form of ‘penal
interest’ that is added to the rate of interest charged on the
advances. There shall be no capitalisation of penal charges i.e.,
no further interest computed on such charges. However, this
will not affect the normal procedures for compounding of
interest in the loan account.
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 61
Page 2 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

(ii) The REs shall not introduce any additional component to the
rate of interest and ensure compliance to these guidelines in
both letter and spirit.
(iii) The REs shall formulate a Board approved policy on penal
charges or similar charges on loans, by whatever name called.
(iv) The quantum of penal charges shall be reasonable and
commensurate with the non-compliance of material terms and
conditions of loan contract without being discriminatory within
a particular loan/product category.
(v) The penal charges in case of loans sanctioned to ‘individual
borrowers, for purposes other than business', shall not be
higher than the penal charges applicable to non-individual
borrowers for similar non-compliance of material terms and
conditions.
(vi) The quantum and reason for penal charges shall be clearly
disclosed by REs to the customers in the loan agreement and
most important terms & conditions/Key Fact Statement (KFS)
as applicable, in addition to being displayed on REs website
under Interest rates and Service Charges.
(vii) Whenever reminders for non-compliance of material terms
and conditions of loan are sent to borrowers, the applicable
penal charges shall be communicated. Further, any instance of
levy of penal charges and the reason therefor shall also be
communicated.
(viii) These instructions shall come into effect from January 1,
2024. REs may carry out appropriate revisions in their policy
framework and ensure implementation of the instructions in
respect of all the fresh loans availed/renewed from the effective
date. In the case of existing loans, the switchover to new penal
charges regime shall be ensured on next review or renewal
date or six months from the effective date of this circular,
whichever is earlier.
4. The above instructions are issued under Sections 21, 35-A and 56
of the Banking Regulation Act, 1949, Sections 45-JA, 45-L and 45-M of
the Reserve Bank of India Act, 1934, and Section 30-A of the National
Housing Bank Act, 1987 and shall be updated in the relevant Master
Directions/Master Circulars of the applicable REs. The list of
amendments to the Master Directions/Master Circulars has been
provided in the Annex.
5. These instructions shall, however, not apply to Credit Cards,
External Commercial Borrowings, Trade Credits and Structured
Obligations which are covered under product specific directions.
Yours faithfully,
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 62
Page 3 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

(Santosh Kumar Panigrahy)

Chief General Manager
Encl: As above
Annex
I. Amendments to the relevant Master Directions
Para No. Existing Section Amended Section
A. Master Direction - Reserve Bank of India (Interest Rate on
Advances) Directions, 2016
dated March 03, 2016
5 Banks shall formulate a Board deleted
approved policy for charging
penal interest on advances
which shall be fair and
transparent. The rate of penal
interest shall be decided after
taking into account incentive to
service the debt and due regard
to genuine difficulties of
customers.
Provided that no penal interest deleted
shall be charged on advances
mentioned in the circular
RPCD.Plan.BC.15/04.09.01/2001
-02 dated August 17, 2001, as
amended from time to time.
B. Master Direction - Non-Banking Financial Company - Non-
Systemically Important
Non-Deposit taking Company (Reserve Bank) Directions, 2016 dated
September 1, 2016
29 Applicable NBFCs shall convey in Applicable NBFCs shall
writing to the borrower in the convey in writing to the
vernacular language as borrower in the
understood by the borrower by vernacular language as
means of sanction letter or understood by the
otherwise, the amount of loan borrower by means of
sanctioned along with the terms sanction letter or
and conditions including otherwise, the amount
annualised rate of interest and of loan sanctioned
method of application thereof along with the terms
and keep the acceptance of and conditions
these terms and conditions by including annualised
the borrower on its record. As rate of interest and
complaints received against method of application
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 63
Page 4 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

NBFCs generally pertain to thereof and keep the

charging of high interest/penal acceptance of these
interest, applicable NBFCs shall terms and conditions
mention the penal interest by the borrower on its
charged for late repayment in record. As complaints
bold in the loan agreement. received against NBFCs
generally pertain to
charging of high
interest/penal charges,
applicable NBFCs shall
mention the penalties
charged for late
repayment in bold in
the loan agreement.
(New Penalty, if charged, for non-compliance of material terms
section and conditions of loan contract by the borrower shall be
inserted) treated as ‘penal charges’ and shall not be levied in the
Penal form of ‘penal interest’ that is added to the rate of
Charges interest charged on the advances. There shall be no
in Loan capitalisation of penal charges i.e., no further interest
Accounts computed on such charges. However, this will not affect
the normal procedures for compounding of interest in the
loan account.
The REs shall not introduce any additional component to
the rate of interest and ensure compliance to these
guidelines in both letter and spirit.
The REs shall formulate a Board approved policy on penal
charges or similar charges on loans, by whatever name
called.
The quantum of penal charges shall be reasonable and
commensurate with the non-compliance of material terms
and conditions of loan contract without being
discriminatory within a particular loan/product category.
The penal charges in case of loans sanctioned to
‘individual borrowers, for purposes other than business',
shall not be higher than the penal charges applicable to
non-individual borrowers for similar non-compliance of
material terms and conditions.
The quantum and reason for penal charges shall be clearly
disclosed by REs to the customers in the loan agreement
and most important terms & conditions/Key Fact
Statement (KFS) as applicable, in addition to being
displayed on REs website under Interest rates and Service
Charges.
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 64
Page 5 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

Whenever reminders for non-compliance of material terms

and conditions of loan are sent to borrowers, the
applicable penal charges shall be communicated. Further,
any instance of levy of penal charges and the reason
therefor shall also be communicated.
These instructions shall come into effect from January 1,
2024. REs may carry out appropriate revisions in their
policy framework and ensure implementation of the
instructions in respect of all the fresh loans
availed/renewed from the effective date. In the case of
existing loans, the switchover to new penal charges
regime shall be ensured on next review or renewal date or
six months from the effective date of these instructions,
whichever is earlier.

C. Master Direction - Non-Banking Financial Company-Systemically

Important Non—
Deposit taking Company and Deposit taking
Company (Reserve Bank) Directions, 2016
dated September 1, 2016
29 Applicable NBFCs shall convey in Applicable NBFCs shall
writing to the borrower in the convey in writing to the
vernacular language as borrower in the
understood by the borrower by vernacular language as
means of sanction letter or understood by the
otherwise, the amount of loan borrower by means of
sanctioned along with the terms sanction letter or
and conditions including otherwise, the amount
annualised rate of interest and of loan sanctioned
method of application thereof along with the terms
and keep the acceptance of and conditions
these terms and conditions by including annualised
the borrower on its record. As rate of interest and
complaints received against method of application
NBFCs generally pertain to thereof and keep the
charging of high interest/penal acceptance of these
interest, applicable NBFCs shall terms and conditions
mention the penal interest by the borrower on its
charged for late repayment in record. As complaints
bold in the loan agreement. received against NBFCs
generally pertain to
charging of high
interest/penal charges,
applicable NBFCs shall
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 65
Page 6 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

mention the penalties

charged for late
repayment in bold in
the loan agreement.
(New section inserted) Penal Penalty, if charged, for
Charges in Loan Accounts non-compliance of
material terms and
conditions of loan
contract by the
borrower shall be
treated as ‘penal
charges’ and shall not
be levied in the form of
‘penal interest’ that is
added to the rate of
interest charged on the
advances. There shall
be no capitalisation of
penal charges i.e., no
further interest
computed on such
charges. However, this
will not affect the
normal procedures for
compounding of
interest in the loan
account.
The REs shall not
introduce any
additional component
to the rate of interest
and ensure compliance
to these guidelines in
both letter and spirit.
The REs shall formulate
a Board approved
policy on penal charges
or similar charges on
loans, by whatever
name called.
The quantum of penal
charges shall be
reasonable and
commensurate with the
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 66
Page 7 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

non-compliance of
material terms and
conditions of loan
contract without being
discriminatory within a
particular loan/product
category.
The penal charges in
case of loans
sanctioned to
‘individual borrowers,
for purposes other than
business', shall not be
higher than the penal
charges applicable to
non-individual
borrowers for similar
non-compliance of
material terms and
conditions.
The quantum and
reason for penal
charges shall be clearly
disclosed by REs to the
customers in the loan
agreement and most
important terms &
conditions/Key Fact
Statement (KFS) as
applicable, in addition
to being displayed on
REs website under
Interest rates and
Service Charges.
Whenever reminders for non-compliance of material terms and
conditions of loan are sent to borrowers, the applicable penal charges
shall be communicated. Further, any instance of levy of penal charges
and the reason therefor shall also be communicated.
These instructions shall come into effect from January 1, 2024. REs
may carry out appropriate revisions in their policy framework and
ensure implementation of the instructions in respect of all the fresh
loans availed/renewed from the effective date. In the case of existing
loans, the switchover to new penal charges regime shall be ensured
on next review or renewal date or six months from the effective date
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 67
Page 8 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

of these instructions, whichever is earlier.

D. Master Direction - Non-Banking Financial Company - Housing
Finance Company (Reserve Bank) Directions, 2021 dated February
17, 2021
74.2 HFCs shall transparently disclose HFCs shall
to the borrower all information transparently disclose
about fees/charges payable for to the borrower all
processing the loan application, information about
the amount of fees refundable if fees/charges payable
loan amount is not for processing the loan
sanctioned/disbursed, pre- application, the amount
payment options and charges, if of fees refundable if
any, penal interest/penalty for loan amount is not
delayed repayment, if any, sanctioned/disbursed,
conversion charges for switching pre-payment options
loan from fixed to floating rates and charges, if any,
or vice-versa, existence of any penal charges for
interest reset clause and any delayed repayment, if
other matter which affects the any, conversion
interest of the borrower. In charges for switching
other words, HFCs must disclose loan from fixed to
‘all in cost’ inclusive of all floating rates or vice-
charges involved in versa, existence of any
processing/sanctioning of loan interest reset clause
application in a transparent and any other matter
manner. It should also be which affects the
ensured that such charges/fees interest of the
are non-discriminatory. borrower. In other
words, HFCs must
disclose ‘all in cost’
inclusive of all charges
involved in
processing/sanctioning
of loan application in a
transparent manner. It
should also be ensured
that such charges/fees
are non-discriminatory.
75.2 HFCs shall convey in writing to HFCs shall convey in
the borrower in the vernacular writing to the borrower
language or a language as in the vernacular
understood by the borrower by language or a language
means of sanction letter or as understood by the
otherwise, the amount of loan borrower by means of
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 68
Page 9 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

sanctioned along with all terms sanction letter or

and conditions including otherwise, the amount
annualized rate of interest, of loan sanctioned
method of application, EMI along with all terms
Structure, prepayment charges, and conditions
penal interest (if any) and keep including annualized
the written acceptance of these rate of interest, method
terms and conditions by the of application, EMI
borrower on its record. Structure, prepayment
charges, penal charges
(if any) and keep the
written acceptance of
these terms and
conditions by the
borrower on its record.
76.2 The HFCs shall give notice to the The HFCs shall give
borrower in the vernacular notice to the borrower
language or a language as in the vernacular
understood by the borrower of language or a language
any change in the terms and as understood by the
conditions including borrower of any change
disbursement schedule, interest in the terms and
rates, penal interest (if any), conditions including
service charges, prepayment disbursement schedule,
charges, other applicable interest rates, penal
fee/charges etc. HFCs should charges (if any),
also ensure that changes in service charges,
interest rates and charges are prepayment charges,
effected only prospectively. A other applicable
suitable condition in this regard fee/charges etc. HFCs
should be incorporated in the should also ensure that
loan agreement. changes in interest
rates and charges are
effected only
prospectively. A
suitable condition in
this regard should be
incorporated in the loan
agreement.
80.1 The Board of each HFC shall The Board of each HFC
adopt an interest rate model shall adopt an interest
taking into account relevant rate model taking into
factors such as cost of funds, account relevant
margin and risk premium and factors such as cost of
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 69
Page 10 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

determine the rate of interest to funds, margin and risk

be charged for loans and premium and
advances. The rate of interest determine the rate of
and the approach for gradation interest to be charged
of risk and rationale for charging for loans and advances.
different rate of interest to The rate of interest and
different categories of borrowers the approach for
shall be disclosed to the gradation of risk and
borrower or customer in the rationale for charging
application form and different rate of
communicated explicitly in the interest to different
sanction letter. The Board of the categories of borrowers
HFC shall also have clearly laid shall be disclosed to
down policy for penal the borrower or
interest/charges (if any). customer in the
application form and
communicated
explicitly in the
sanction letter. The
Board of the HFC shall
also have clearly laid
down policy for penal
charges (if any).
80.3 The rate of interest and penal The rate of interest
interest (if any) must be must be annualised
annualised rate so that the rate so that the
borrower is aware of the exact borrower is aware of
rates that would be charged to the exact rates that
the account would be charged to
the account.
81 Though interest rates are not Though interest rates
regulated by the Bank, rates of are not regulated by
interest beyond a certain level the Bank, rates of
may be seen to be excessive interest beyond a
and can neither be sustainable certain level may be
nor be conforming to normal seen to be excessive
financial practice. HFCs shall lay and can neither be
out appropriate internal sustainable nor be
principles and procedures in conforming to normal
determining interest rates and financial practice. HFCs
processing and other charges shall lay out
(including penal interest, if appropriate internal
any). In this regard the principles and
directions in the Fair Practices procedures in
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 70
Page 11 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

Code about transparency in determining interest

respect of terms and conditions rates and processing
of the loans are to be kept in and other charges
view. HFCs are also advised to (including penal
put in place an internal charges, if any). In this
mechanism to monitor the regard the directions in
process and the operations so as the Fair Practices Code
to ensure adequate transparency about transparency in
in communications with the respect of terms and
borrowers. conditions of the loans
are to be kept in view.
HFCs are also advised
to put in place an
internal mechanism to
monitor the process
and the operations so
as to ensure adequate
transparency in
communications with
the borrowers.
(New Penalty, if charged, for non-compliance of material terms
section and conditions of loan contract by the borrower shall be
inserted) treated as ‘penal charges’ and shall not be levied in the
Penal form of ‘penal interest’ that is added to the rate of
Charges interest charged on the advances. There shall be no
in Loan capitalisation of penal charges i.e., no further interest
Accounts computed on such charges. However, this will not affect
the normal procedures for compounding of interest in the
loan account.
The REs shall not introduce any additional component to
the rate of interest and ensure compliance to these
guidelines in both letter and spirit.
The REs shall formulate a Board approved policy on penal
charges or similar charges on loans, by whatever name
called.
The quantum of penal charges shall be reasonable and
commensurate with the non-compliance of material terms
and conditions of loan contract without being
discriminatory within a particular loan/product category.
The penal charges in case of loans sanctioned to
‘individual borrowers, for purposes other than business’,
shall not be higher than the penal charges applicable to
non-individual borrowers for similar non-compliance of
material terms and conditions.
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 71
Page 12 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

The quantum and reason for penal charges shall be clearly

disclosed by REs to the customers in the loan agreement
and most important terms & conditions/Key Fact
Statement (KFS) as applicable, in addition to being
displayed on REs website under Interest rates and Service
Charges.
Whenever reminders for non-compliance of material terms
and conditions of loan are sent to borrowers, the
applicable penal charges shall be communicated. Further,
any instance of levy of penal charges and the reason
therefor shall also be communicated.
These instructions shall come into effect from January 1,
2024. REs may carry out appropriate revisions in their
policy framework and ensure implementation of the
instructions in respect of all the fresh loans
availed/renewed from the effective date. In the case of
existing loans, the switchover to new penal charges
regime shall be ensured on next review or renewal date or
six months from the effective date of these instructions,
whichever is earlier.
82.3 HFCs shall provide information HFCs shall provide
on interest rates, common fees information on interest
and charges (including penal rates, common fees
interest, if any) through putting and charges (including
up notices in their branches; penal charges, if any)
through telephone or help-lines; through putting up
on the company’s website; notices in their
through designated staff/help branches; through
desk; or providing service telephone or help-
guide/tariff schedule. lines; on the
company’s website;
through designated
staff/help desk; or
providing service
guide/tariff schedule.
85.9 Display of various key aspect Display of various key
such as service charges, interest aspect such as service
rates, Penal interest (if any), charges, interest rates,
services offered, product penal charges (if any),
information, time norms for services offered,
various transactions and product information,
grievance redressal mechanism, time norms for various
etc. is required to promote transactions and
transparency in the operations grievance redressal
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 72
Page 13 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

of HFCs. HFCs shall follow the mechanism, etc. is

instructions on “Notice Board”, required to promote
“Booklets/Brochures”, transparency in the
“Website”, “Other Modes of operations of HFCs.
Display” and on “Other Issues” HFCs shall follow the
as per Annex XII. instructions on “Notice
Board”,
“Booklets/Brochures”,
“Website”, “Other
Modes of Display” and
on “Other Issues” as
per Annex XII.
II. Instructions in addition to the paragraphs of the related
Master Circulars
E. Master Circular-Management of Advances - UCBs dated July 25,
2023
Para No. Existing Paragraph Additional instructions
that shall apply
Penalty, if charged, for
non-compliance of
material terms and
conditions of loan
contract by the
borrower shall be
treated as ‘penal
charges’ and shall not
be levied in the form of
‘penal interest’ that is
added to the rate of
interest charged on the
advances. There shall
be no capitalisation of
penal charges i.e., no
further interest
computed on such
charges. However, this
will not affect the
normal procedures for
compounding of
interest in the loan
account.
The REs shall not
introduce any
additional component
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 73
Page 14 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

to the rate of interest

and ensure compliance
to these guidelines in
both letter and spirit.
The REs shall formulate
a Board approved
policy on penal charges
or similar charges on
loans, by whatever
name called.
The quantum of penal
charges shall be
reasonable and
commensurate with the
non-compliance of
material terms and
conditions of loan
contract without being
discriminatory within a
particular loan/product
category.
The penal charges in
case of loans
sanctioned to
‘individual borrowers,
for purposes other than
business', shall not be
higher than the penal
charges applicable to
non-individual
borrowers for similar
non-compliance of
material terms and
conditions.
The quantum and
reason for penal
charges shall be clearly
disclosed by REs to the
customers in the loan
agreement and most
important terms &
conditions/Key Fact
Statement (KFS) as
applicable, in addition
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 74
Page 15 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

to being displayed on
REs website under
Interest rates and
Service Charges.
Whenever reminders
for non-compliance of
material terms and
conditions of loan are
sent to borrowers, the
applicable penal
charges shall be
communicated.
Further, any instance of
levy of penal charges
and the reason therefor
shall also be
communicated.
These instructions shall
come into effect from
January 1, 2024. REs
may carry out
appropriate revisions in
their policy framework
and ensure
implementation of the
instructions in respect
of all the fresh loans
availed/renewed from
the effective date. In
the case of existing
loans, the switchover to
new penal charges
regime shall be
ensured on next review
or renewal date or six
months from the
effective date of these
instructions, whichever
is earlier.
F. Master Circular - Customer Service in Banks dated July 1, 2015
Paragraph Levy of service charges Penalty, if charged, for
6 non-compliance of
material terms and
conditions of loan
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 75
Page 16 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

contract by the
borrower shall be
treated as ‘penal
charges’ and shall not
be levied in the form of
‘penal interest’ that is
added to the rate of
interest charged on the
advances. There shall
be no capitalisation of
penal charges i.e., no
further interest
computed on such
charges. However, this
will not affect the
normal procedures for
compounding of
interest in the loan
account.
The REs shall not
introduce any
additional component
to the rate of interest
and ensure compliance
to these guidelines in
both letter and spirit.
The REs shall formulate
a Board approved
policy on penal charges
or similar charges on
loans, by whatever
name called.
The quantum of penal
charges shall be
reasonable and
commensurate with the
non-compliance of
material terms and
conditions of loan
contract without being
discriminatory within a
particular loan/product
category.
The penal charges in
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 76
Page 17 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

case of loans
sanctioned to
‘individual borrowers,
for purposes other than
business', shall not be
higher than the penal
charges applicable to
non-individual
borrowers for similar
non-compliance of
material terms and
conditions.
The quantum and
reason for penal
charges shall be clearly
disclosed by REs to the
customers in the loan
agreement and most
important terms &
conditions/Key Fact
Statement (KFS) as
applicable, in addition
to being displayed on
REs website under
Interest rates and
Service Charges.
Whenever reminders
for non-compliance of
material terms and
conditions of loan are
sent to borrowers, the
applicable penal
charges shall be
communicated.
Further, any instance of
levy of penal charges
and the reason therefor
shall also be
communicated.
These instructions shall
come into effect from
January 1, 2024. REs
may carry out
appropriate revisions in
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 77
Page 18 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

their policy framework

and ensure
implementation of the
instructions in respect
of all the fresh loans
availed/renewed from
the effective date. In
the case of existing
loans, the switchover to
new penal charges
regime shall be
ensured on next review
or renewal date or six
months from the
effective date of these
instructions, whichever
is earlier.
G. Master Circular - Loans and Advances - Statutory and Other
Restrictions dated July 1, 2015
Para Guidelines on Fair Practices The quantum and
graph 2.5 Code for Lenders reason for penal
charges shall be clearly
disclosed by REs to the
customers in the loan
agreement and most
important terms &
conditions/Key Fact
Statement (KFS) as
applicable, in addition
to being displayed on
REs website under
Interest rates and
Service Charges.
Whenever reminders
for non-compliance of
material terms and
conditions of loan are
sent to borrowers, the
applicable penal
charges shall be
communicated.
Further, any instance of
levy of penal charges
and the reason therefor
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd. 78
Page 19 Wednesday, October 16, 2024
Printed For: Mohit Khandelwal
SCC Online Web Edition: https://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

shall also be
communicated.

———
Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/
regulation/ circular/ notification is being circulated on the condition and understanding that the publisher would not be
liable in any manner by reason of any mistake or omission or for any action taken or omitted to be taken or advice
rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/ notification. All
disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The authenticity of
this text must be verified from the original source.
Customer Care | Grahak
Grahak Setu
Setu िहं दी Net Banking
79

Search

Interest Rates | Deposit Rates |

Loan Schemes - Interest Rates |
SBI NRI Services - Interest Rates
Show More 

Interest
Interest Rates
Rates

Home Loan

8.50%*
8.50%* p.a.
p.a. onwards
onwards
w.e.f. 05.04.2024
Penal
Penal Interest
Interest &
& Other
Other
Charges
Charges ***TTT&
&
&CC
CAA
App
ppp
pllly.
y.
y.

Penal
Penal Interest
Interest &
& Other
Other Charges
Charges

Penal Interest & Other Charges

Penal Interest will not be charged for loans up to Rs 25000. For
Loans above Rs.25000/- , if the irregularity exceeds EMI or
Installment amount, for a period of one month ,then penal
interest would be charged @2% p.a.(over and above the
applicable interest rate) on the overdue amount for the period of
default. If part installment or part EMI remains overdue, then
penal interest should not be levied. Other Charges (if any) will be
as per actual.

Auto
Auto Loans
Loans
Pre-Payment Penalty
Pre-payment penalty @ 1% + GST to be levied quarterly on the
prepaid amount if prepaid within 2 years from the date of
disbursement

Foreclosure Charges
Foreclosure charges @ 3% + GST on Theo balance to be levied
only if closed within 2 years from the disbursement of loan.

Last Updated On : Monday, 24-02-2020

 80

Penal Charges for various kinds of non-compliances of terms & conditions of sanction of credit facilities (Applicable w.e.f 01.04.2024)

Sr. Nature of Non-compliance Quantum of Penal Charge

No
1 Delayed payment of dues including Sanction amount Penal charges
Principal, Interest, Service charges, Bills
overdue etc., in the case of Priority Sector Up to Rs. 25,000/- NIL
Loans.
Above Rs. 25,000/- & up to Rs. 1% p.a. on the amount of default.
2 lakh.

Above Rs. 2 lakh 2% p.a. on the amount of default

In the case of eligible priority sector loans to Self Help Groups (SHGs)/ Joint
Liability Groups (JLGs), this limit of Rs. 25000/- will be applicable per member and
not to the group as a whole.

2 Delayed payment of dues including Sanction amount Penal charges

Principal, interest, service charges, bills
overdue etc. in the cases of other than Up to Rs. 10,000/- NIL
priority Sector Loans.
Above Rs. 10,000/- 2% p.a. on the amount of default.

3 Delayed payments in case of TOD/ Excess/ 2% p.a. for period extended beyond the due date of regularization of TOD/ Excess/ Ad
Ad-hoc limit sanctioned. hoc limit for the default amount.

4 Delayed / non- submission of Stock & Book 2% p.a. on the outstanding balance of fund based working capital facility of the
Debts statement. borrower for the default period.
____________________________________________________________________________________________________________________________________________

Bank of Baroda , C-34, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051, India.

Ph: 91 22 6698 5000 / Web: www.bankofbaroda.com

 81

Sr. Nature of Non-compliance Quantum of Penal Charge

No
5 Delayed /non- submission of QIS. • 1% p.a. on outstanding balance of fund-based working capital for delayed/ non-
submission in respect of existing accounts as well as fresh sanctions for the
default period.
• 0.25% p.a. on outstanding balance of non-fund based facility subject to a
cap of Rs. 1 lakh per month for borrowers who enjoy exclusive NFB limits.
• Where the borrower is enjoying both FB & NFB limits, penal charge shall be 1%
p.a. on outstanding balance of fund based working capital and 0.25% p.a. (Cap
of Rs. 1 lakh on NFB limit) on outstanding balance of non-fund based facility
for the default period.

6 Delay in submission of Audited Financial 2% p.a. on the outstanding balance of credit facilities of the borrower for the default
Statements. period (except exempted category).
7 Penal charges for non- submission of all the Loan/ Limit (FB+NFB) Amount of charges
required financial papers/ other documents/
any relevant information before one month Not exceeding Rs. 10 Nil
review due date of the borrower’s account/s. lakhs
Above Rs. 10 lakhs 1% p.a. on the outstanding balance of credit
but not exceeding facilities of borrower up to the due date of
Rs. 7.50 crore. renewal and thereafter 1.50% p.a. till the date of
submission.
Above Rs. 7.50 crore. 1% p.a. on the outstanding balance of credit
facilities of borrower up to the due date of
renewal and thereafter 2% p.a. till the date of
submission.

____________________________________________________________________________________________________________________________________________

Bank of Baroda , C-34, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051, India.

Ph: 91 22 6698 5000 / Web: www.bankofbaroda.com

 82

Sr. Nature of Non-compliance Quantum of Penal Charge

No
8 Non-compliance in carrying out of External
Credit Rating of our eligible exposure.

9 Breach in Financial Covenants as per

sanction terms & condition.
10 Non-Submission of documents as per
sanction terms.
11 Non-Closure of Current Accounts as per 2% p.a. on the outstanding balance of credit facilities of borrower for the default
sanction terms. period.
.
12 Non-compliance in security perfection as per
sanction terms.

13 Delay in Creation of Mortgage / Extension of

Mortgage (except permitted in sanction).

14 Any other breaches/ non- compliance in

material terms of sanction
Note:

• Penal charges will be applied on a monthly basis and calculated for the actual period of non-compliance.
• Penal charges are to be applied solely to overdue payments (instalments and/or interest/ service charges etc.), for the period they
remain unpaid beyond their due date. Penal charges will be calculated based on the actual number of days of default. However, penal
charges will be debited on a monthly basis.
• GST on penal charges will be applicable as per the extant guidelines of the Bank.
• Penal charges shall not exceed 2% of the outstanding balance/amount of default (as the case may be) of credit facilities of borrower,
irrespective of the number of non-compliance instances.
____________________________________________________________________________________________________________________________________________

Bank of Baroda , C-34, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051, India.

Ph: 91 22 6698 5000 / Web: www.bankofbaroda.com

 83

PENAL CHARGES ON ADVANCES W.E.F 01.04.2024

Broadly, the trigger events where penal charges may be levied are as under:
a) Default in repayment of loans;
b) Irregularities in cash credit / Overdraft accounts;
c) Non-payment of demand bills on presentation and non- acceptance/non-payment of
usance bills on due dates;
d) Overdue bills either not debited in case of ODD or where Drawing Power is not
reduced in case of Advance against Bills for Collection bills (ABC bills);
e) Non-submission of stock statements;
f) Non Submission of documents for review/renewal;
g) Excess borrowings arising out of excess current assets;
h) Non-submission of information under the Quarterly Monitoring System (QMS) as per
the terms & conditions of sanction;
i) Non creation/perfection of Security as per Terms and conditions of sanction;
j) Non Compliance of Terms & Conditions of sanctions (other than specified above); and
k) Non submission of external rating by eligible borrowers.
Penal charges for the period of default is to be levied as under:
I. On the amount of default/irregularity
(i) For any one of trigger events stated at point no. (a) to (d) above: 2.00% p.a.

(ii) For two or more trigger events stated at point no. (a) to (d) above: 3.00% p.a.

II. On the total outstanding

(i) For one or more trigger events stated at point no. (e) to (j) above: 2.00% p.a.

Note for I and II: If the trigger events are a combination of point (a) to (d) and point (e)
to (j) then penal charges shall be capped at 4% p.a., i.e., 2% on the default/irregularity
and 2% on the outstanding amount.

III. For trigger event stated at point (k): 1.00% p.a. on the Limit sanctioned (FB+NFB) or
actual outstanding (for term loans/EMI based facility) as the case may be.
 84

EXEMPTIONS FROM LEVYING OF PENAL CHARGES

Penal charges should not be levied in the following areas:
a. All advances up to ₹25000/-.
b. Advances by way of reconstruction or nursing assistance to sick units in cases at
para 2 (except point (i)). Thus, non-submission of QMS statements would attract
penal charges as per the terms & conditions of sanction.
c. Sick industrial units which remain closed.
d. Advances against deposits, life insurance policies & Government securities/gold
where the drawings are within the available value of the security.