High Court Cannot Expand Definition Of 'Individual Borrower' To Grant Waiver Of Foreclosure Charges: Madras High Court

S Manoharan, the sole proprietor of Murugan Idli Shop, had contended that he falls under the category of individual borrower and thus is entitled to avail the benefit of waiver of foreclosure charges. He relied on circulars issued by the RBI in 2014 and 2019 through which the RBI directed banks not to charge foreclosure charges/pre payment penalties on floating rate term loan issued to individual borrowers.

Justice SM Subramaniam noted that Manoharan had signed the loan documents as the sole Proprietor of Murugan Idli Shop and thus the loan was in fact borrowed by Murugan Idli Shop. Thus, Manoharan, who had filed the petition as the sole proprietor of Murugan Idli Shop could not be considered as an “individual borrower” within the meaning of the circular issued by the Reserve Bank of India, the bench said.

"If at all the definition of “individual borrowers” within the meaning of the circular is to be expanded, it is to be considered only by the Reserve Bank of India within the provisions of the Statute and certainly, the High Court cannot expand the scope of the definition of the “individual borrowers”, so as to grant waiver of foreclosure charges / pre-payment penalties, which is otherwise agreed upon to be paid by the petitioner by signing the loan document," the court said.

In response to Manoharan's petition, the RBI contended that the entity could not be construed as an “individual borrower” and that it would fall within the category of Small Medium Enterprise (SME). Thus, it was not eligible to avail the benefit of waiver of foreclosure charges, the RBI said.

The bank authorities informed the court that Manoharan had entered the loan agreement by accepting all the terms and conditions. Now, he could not turn around and claim for waiver of foreclosure charges when the loan documents specifically provided for charging foreclosure penalty, it said.

The court noted that the seal affixed on the loan documents was that of “Murugan Idli Shop”. 

"The loan was sanctioned in the name of the proprietary concern, which being the legal entity, the petitioner would not fall under the category of “individual borrower” as per the Reserve Bank of India Circular of the year 2014. If at all any other dispute exists between the parties regarding the terms and conditions of the loan, it is for the petitioner to raise it before the appropriate Forum," said the court.

Case Title: S Manoharan v. Reserve Bank of India and others

Citation: 2023 LiveLaw (Mad) 92