Hyderabad District Commission Holds SREI Equipment Finance Co Liable For Failure To Issue No Objection Certificate Despite Loan Repayment

Brief Facts:

The Complainant had availed a loan of ₹ 27,37,771/- to purchase a JCB from Srei Equipment Finance Limited (“Srei Equipment”). This loan was repayable in 46 EMIs of ₹ 66,600/- each. The Complainant regularly paid the 46 EMIs, totalling ₹ 30,63,600/-, through HDFC Bank and closed the loan account. Despite this, Srei Equipment did not issue a no objection certificate or a no due certificate required to delete the hypothecation entry in the registration certificate.

The Complainant approached Srei Equipment multiple times for these certificates but received no response. The branch then closed without any notice. This non-closure negatively impacted the Complainant's CIBIL score, causing significant hardships. The Complainant later discovered that his files were moved to Srei Equipment's other office in Hyderabad. He approached this office but again received no response.

Subsequently, the Complainant received a legal notice from Srei Equipment, demanding ₹ 11,23,216/- for a previous loan availed by him to purchase an executor. Upon inquiry, an employee informed the Complainant that since he failed to repay the first loan, Srei Equipment prevented the issuance of the loan closure letter for the second loan as well.

The Complainant argued that both the loans were independent and that withholding the no objection certificate and loan closure letter for the first loan due to the alleged pending amount for the second loan was legally invalid. He requested the necessary documents through a letter and a legal notice but received no response. Feeling aggrieved, he filed a consumer complaint in the District Consumer Disputes Redressal Commission-III, Hyderabad, Telangana (“District Commission”).

Srei Equipment argued that after the initiation of insolvency proceedings against it, all claims and issues were governed by the National Company Law Tribunal (NCLT), Kolkata's binding resolution plan. It emphasized that any claims existing outside the resolution plan cannot be revisited post-approval, as this would contradict the Insolvency and Bankruptcy Code. Furthermore, the complaint was time-barred and not within the limitation and jurisdiction, thus, should be dismissed summarily.

Observations by the Commission:

The District Commission observed that the matter was about the non-issuance of a No Objection Certificate (NOC) and No Due Certificate after the Complainant paid all EMIs for a vehicle loan to Srei Equipment. It was not a monetary claim or recovery as a creditor or stakeholder of the company. Srei Equipment argued that according to the Insolvency and Bankruptcy Code, a moratorium during the Corporate Insolvency Resolution Process (CIRP) included a stay on all pending and new legal proceedings against it. However, the District Commission noted that the moratorium ceased with the NCLT order.

The District Commission noted that the Complainant was neither a creditor nor a stakeholder of the company but sought an NOC and No Due Certificate after repaying the vehicle loan. He had made all EMI payments under the first loan, and the records showed full repayment. Despite repeated requests, Srei Equipment did not issue the required certificates, causing hardship to the Complainant.

The District Commission found that Srei Equipment breached its contractual obligations by failing to issue the certificates. This failure constituted a deficiency of service and unfair trade practices. Therefore, the District Commission directed Srei Equipment to issue the required No Objection Certificate, No Due Certificate, and Loan Closure Letter for the Complainant's loan account. Additionally, it was directed to pay Rs. 25,000/- as compensation and Rs. 5,000/- for litigation costs.

Case Title: Ileni Prabhakar Reddy vs M/s Srei Equipment Finance Limited and Anr.

Case No.: C.C. No. 166 of 2023

Date of Pronouncement: June 14th, 2024