Kangra District Commission Holds SBI Liable For Unreasonably Penalizing Customers Without Issuing Prior Notification

Brief Facts:

Mr Narendra Prem Chand Rana and Mrs Richa Rana (“Complainants”) jointly applied for a house loan under the SBI Realty Home Loan scheme from the State SBI of India (“SBI”), intending to purchase land and construct a house. SBI sanctioned a loan of Rs. 40,00,000/-, for a plot acquired at Rs. 50,00,000/-, subsequently mortgaged to SBI. The construction of the house was completed in the year 2017, accompanied by a valid completion certificate issued by a competent architect, which was promptly furnished to SBI. The Complainants engaged in consistent and proactive communication with SBI regarding the completion certificate, a document under consideration by the Department of Town and Country Planning. This certificate, delayed due to the pandemic, was eventually provided to SBI in May 2022. SBI authorities were purportedly aware that the house was completed within the stipulated timeframe, but due to the circumstances outlined above, the completion certificate was not promptly furnished.

Notably, SBI did not make any demands for a completion certificate from 2017 until 2021. It was only in 2021, upon SBI's request for the completion certificate, that the Complainants submitted the required documentation in May 2022. Surprisingly, later, SBI levied a substantial penal interest of Rs. 9,52,993/- in the Complainants' account statement without providing any prior explanation for this exorbitant charge. Even after communications with SBI, the Complainants didn't receive any satisfactory reply. Thereafter, the Complainants filed a consumer complaint in the District Consumer Disputes Redressal Commission, Kangra, Himachal Pradesh (“District Commission”).

In response to the complaint, SBI raised preliminary objections regarding jurisdiction, maintainability, cause of action, and locus standi. It disputed the nature of the loan, distinguishing between a house loan and the SBI Realty Home Loan Scheme. According to SBI, the SBI Realty Home Loan Scheme was specifically for purchasing residential plots with a requirement to construct within five years, and the Complainants were expected to be aware of Town and Country Planning Regulations. SBI argued that the Complainants applied for permission belatedly after acquiring the plot and did not construct the residential building within the stipulated period, violating the terms and conditions of the loan agreement, as evidenced by the completion certificate.

Observations by the Commission:

The District Commission referred to the Memorandum of Loan Agreement for Home Loan, specifically Annexures C-3 and C-7, delineated the terms and conditions, including a floating interest rate and provisions for penal interest in case of payment default or irregularities in the account. The District Commission noted that penal interest was initiated without any default or specific irregularity on the part of the Complainants. Further, the District Commission also noted that SBI didn't communicate the reason for the stationing of the penal interest.

The District Commission further held that despite the completion certificate issued by the architect and corroborating evidence from the Himachal Pradesh State Electricity Board, SBI demanded the certificate after six years and didn't issue a prior notification to the Complainants. Therefore, the District Commission held SBI liable for a gross deficiency in service and for imposing an unnecessary penalty without due process.

Consequently, the District Commission directed SBI to refund the penalty amount of Rs. 9,52,993/-, along with penal interest recovery interest of Rs. 34,639/-. It also directed SBI to pay a compensation of Rs 1,00,000/- to the Complainants and pay Rs 15,000/- for litigation costs incurred by them. SBI was also directed to pay the Complainants Rs. 25,000/- to the Complainants on account of punitive damages.

Case Title: Narendra Prem Chand Rana and another vs The Branch Manager, State SBI of India

Case No.: Consumer Complaint No.-29/2023

Advocate for the Complainant: Abhishek Gupta

Advocate for the Respondent: Dinesh Sharma

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