South-West Delhi District Commission Holds DCB Bank Liable For Wrongfully Charging Foreclosure Fee For Individual Loan

Brief Facts:

The Complainant sought an extension of a home loan amounting to 85 Lakh from the Karol Bagh Branch of DCB Bank (“Bank”). The loan, secured against a property in New Delhi, featured repayment terms of 180 EMIs of Rs. 91,341/- each, commencing from December 4, 2017, until November 4, 2032. Despite the absence of foreclosure charges specified for individual borrowers in the terms, the Complainant incurred a 4% foreclosure fee upon requesting early settlement. Despite numerous attempts to address the issue with the Bank, the Complainant received no satisfactory response. Consequently, feeling aggrieved, the Complainant approached the District Consumer Disputes Redressal Commission-VII, South-West Delhi (“District Commission”), and filed a consumer complaint against the Bank.

In its defence, the Bank contended that the loan in question was classified as a business loan rather than a home loan. According to the terms and conditions of the sanction letter and in line with RBI circular guidelines, foreclosure charges are permissible for business loans. The Bank argued that despite being an individual borrower, the Complainant was considered part of a broader category of borrowers due to the inclusion of co-obligants and co-borrowers, which comprised the Complainant, his wife, and their firm named 'Gupta Vijay K. and Co.'. As the loan was deemed commercial, the imposition of foreclosure charges was justified.

Observations by the District Commission:

The District Commission held that the RBI circular stated that banks are prohibited from charging foreclosure fees on floating-rate term loans sanctioned to individual borrowers. It held that the Bank did not adequately justify how the sanctioned loan was classified as a business loan, especially considering it was not solely granted to the firm. The Complainant and his wife, both partners in the firm, were recipients of the loan, indicating its individual nature rather than for business purposes.

Therefore, the District Commission held the Bank liable for deficiency in service and unfair trade practices. Consequently, the District Commission directed the Bank to refund the amount of Rs. 388,951.93/- to the Complainant along with interest at 10% per annum from the date of filing the complaint until its realization. Additionally, the Bank was directed to pay Rs. 50,000/- as compensation and litigation charges to the Complainant.

Case Title: Vijay Kumar Gupta vs DCB Bank Limited