Pre-Payment Charges Can't Be Imposed By Bank Without Giving Prior Information Of The Same: Orissa High Court

"…there is also no evidence that the referred circular was disclosed as attachment to the sanction letter. In facts and circumstances above, Court is satisfied that the object of transparency in grant of credit facilities, required to be fulfilled by the guidelines issued by the Reserve Bank of India, were not fulfilled in this case. Imposition of pre-payment charges therefore cannot be sustained."

Brief facts:

The petitioners challenged communication dated 7^th February 2022 by which the respondent bank informed the petitioners about debit of pre-payment charges for closure of credit facilities. They alleged that the sanction letter did not include any such term and thereby, challenged the same as an unfair practice as per guidelines issued by the Reserve Bank of India (RBI).

Contentions of the Petitioners:

Mr. G.M. Rath, advocate for the petitioners, made a reference to circular dated 6th March, 2007 issued by the RBI laying down the 'Guidelines on Fair Practices Code for Lenders'. He submitted that there was clear guideline including comprehensive information on, inter alia, pre-payment option. The RBI further issued circulars dated 25th November, 2008 and 12th November, 2010. He pointed out to the sanction letter and argued that there is only reference to processing charges at Rs. 350 per 1 lakh or part thereof and in addition, goods and services tax (GST).

He also submitted that the circular was not disclosed along with the sanction letter and by circular dated 12th November 2010, the RBI provided additional guidelines of the information to 'also' be uploaded in the website of the bank. He stressed that petitioners were made to know about the said charged neither through the application form nor by sanction letter. Therefore, he urged that the Court should strike down the pre-payment charges imposed by the bank.

Contentions of the Respondent:

Mr. K.M.H. Niamati, advocate on behalf of the bank submitted that the sanction letter contained reference to circular under processing charges. In that circular, it has been provided that pre-payment charges will be applicable. Therefore, the petitioners cannot argue that the information was not available. He argued further, in terms of the last referred circular dated 12th November, 2010, the referred circular was uploaded to and available on the respondent bank's website.

Decision of the Court:

The Court held that nothing from the counter was brought to notice which will indicate pre-payment charges to be imposed. Neither the information provided in loan application to petitioner nor the sanction letter indicated so, except the circular referred against entry of processing charges.

There was also no evidence that the circular was disclosed as attachment to the sanction letter. Hence, the Court held that the object of transparency in grant of credit facilities, required to be fulfilled by the guidelines issued by the Reserve Bank of India, were not fulfilled in this case. Therefore, imposition of pre-payment charges could not be sustained and accordingly, struck down.

Case Title: M/s. Salubrity Biotech Ltd. & Anr. v. Bank of Baroda, Vadodara & Ors.

Case No.: W.P.(C) No. 6998 Of 2022

Order Dated: 12 April 2022

Coram: Justice Arindam Sinha

Counsel for the Petitioners: Mr. G.M. Rath, Advocate

Counsel for the Respondents: Mr. K.M.H. Niamati, Advocate

Citation: 2022 Live Law (Ori) 43