Failure To Provide Proportionate Interest Subsidy, Bangalore District Commission Holds Central Bank Of India Liable

Brief Facts:

Mr K.S. Govindarama Rao (“Complainant”) availed a house construction loan of Rs. 25,00,000/- under the loan account in the scheme of PMAY EWS & LIG. The Complainant received part of the loan, in instalments of Rs. 5,00,000, Rs. 1,00,000, Rs. 5,00,000, and Rs. 4,100,000, respectively, through the branch of the Central Bank of India. The Complainant, initially making regular EMI payments, faced job loss due to COVID-19, leading to a cessation of loan repayments. The bank instructed the Complainant to pay the remaining instalments to qualify for the PMAY subsidy. To fulfil this, the Complainant sold his old house, paid the entire loan amount, and requested the release of the entitled subsidy. However, the bank, instead of releasing the subsidy, issued a letter, stating the loan was fully closed on 27.09.2021, with no dues.

In response, the Complainant sent a legal notice demanding the subsidy. The bank did not comply. Feeling aggrieved, the Complainant approached the Additional District Consumer Disputes Redressal Commission-II, Bangalore (“District Commission”) and filed a consumer complaint against the bank.

The bank argued that the complaint was an attempt to avoid legal liabilities, harass it, and lacked a cause of action. It denied the Complainant's allegations, asserting that the Complainant did not provide accurate factual details and has no entitlement to the subsidy, having foreclosed the loan. It argued that the Complainant, having closed the loan, was not eligible for the PMAY subsidy. It further claimed that the Complainant suppressed facts about owning another property to benefit from the HUDCO and did not provide evidence of selling the old house.

Observations by the District Commission:

The District Commission noted that the scheme details revealed that the interest subsidy under the Credit Linked Subsidy Scheme for Middle Income Group (CLSS for MIG) was 4% per annum for MIG-I. As per the terms of the draft Memorandum of Understanding (MOU), in the event of loan pre-closure, the lender was obligated to recover the interest subsidy credited in the home loan account on a proportionate basis, refunding the amount to the borrower after deducting 10% for administrative expenses.

The District Commission held that the Complainant was entitled to the interest subsidy in proportion to the loan term. There was no substantive evidence provided by the Complainant to support the claim that the bank compelled him to pre-close the loan. It noted that the Complainant's pleadings indicate irregular EMI payments, prompting the bank to request up-to-date payments for considering the interest subsidy under the PMAY Scheme. Instead of addressing the outstanding payments, the Complainant chose to pre-close the loan, rendering him ineligible for the PMAY interest subsidy. However, as per the MOU, the District Commission held that the Complainant was entitled to the proportionate interest subsidy during the loan term.

The District Commission held the bank liable for deficiency in services for not considering the proportionate interest subsidy during the loan tenure. Accordingly, the District Commission held that the Complainant was entitled to the proportionate interest subsidy. The District Commission also directed the bank to pay a compensation of Rs. 5,000/- and litigation cost of Rs. 2,500/- to the Complainant.

Case Name: K.S. Govindarama Rao vs Central Bank of India

Case Title: 168/2023 

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