Interest Rate Matter Of NBFC Policy, Loan Receiver Can't Object To Interest Rate After Repaying Amount : Supreme Court

The Supreme Court on Monday (March 4) held that once the person has availed the loan at the agreed rate of interest, then after paying out the loan amount along with the decided rate of interest, he can't claim back refund of the interest amount alleging that the higher rate of interest is charged by the Non-Banking Financial Company ("NBFCs") than fixed by the RBI.

The Bench comprising Justices A.S. Bopanna and M.M. Sundresh stated that deciding on the rate of interest on lending and recovery is a matter of policy. Therefore the NBFCs have the right to decide the rate of interest on the lending and recovery of money.

“In the instant case, at the outset, it is to be noted that the respondent No.1 being a NBFC and as a corporate body would be bound by its policies and procedures with regard to lending and recovery. In that regard, the applicability of the rate of interest to be charged is also a matter of policy and cannot be case-specific unless the individual agreement entered into between the parties indicate otherwise.”, the Judgment authored by Justice A.S. Bopanna said.

The Court noted that once the parties to the loan agreement i.e., the lender and receiver decide that the applicable rate of interest to the loan amount would be as per the rate of interest decided by the NBFC, then the beneficiary of the loan amount/receiver shall be bound to payout the loan amount as per the rate of interest decided by the NBFC.

Background

In short, the appellant/loan receiver availed a housing loan from respondent no.1/NBFC. According to the appellant, the email communication sent by respondent no.2/sales agent of NBFC assured the appellant that the rate of interest would be charged based on the Prime Lending Rate of RBI.

Based on such representations the appellant is stated to have applied for a home loan of Rs.3,50,00,000/ (Rupees Three Crores and Fifty Lakhs) from respondent No.1, which was sanctioned, and the loan agreement was entered into.

As per the loan agreement, interest at 7.25% p.a and a margin of 3.5 % per annum was provided. Though this was the position, the grievance of the appellant is that respondent No. 1 revised the rate of interest to 8.25 %, despite RBI not having changed the Prime Lending Rate.

The Appellant having repaid the loan amount with interest as per the terms of the agreement, thereafter sought a refund of the amount paid to the respondent no.1/NBFC on the note that the NBFC hasn't charged the rate of interest as fixed by the RBI but has charged as per the rate of interest decided by it.

The National Consumer Dispute Redressal Commission (“NCDRC”) held that the appellant is bound by the terms and conditions of the agreement dated 11.01.2006, while the respondent was bound by various instructions of the Reserve Bank of India ('RBI' for short), at the time of signing the agreement dated 11.01.2006. Hence the complaint filed by the appellant was dismissed. The appellant is therefore before the Supreme Court.

Once Contract Comes Into Existence, Precontractual Correspondence Loses Its Significance

It was contended on behalf of the appellant that email correspondence done between the appellant and respondent no.2 should be given effect to and not the agreement as the email correspondence discloses the true intention that the rate of interest shall be based on Primary Lending Rate fixed by the RBI.

Rejecting such contention, the Supreme Court observed that the appellant could not benefit from the pre-contractual correspondence to contend that the email sent from respondent no.2 stated that the appellant would be charged based on Primary Lending Rate fixed by the RBI because once the agreement is entered between the parties then it is not open to the appellant to deny the rate of interest decided in the contract i.e., pre-contractual correspondence will lose its significance once the contract comes into existence.

“It was held that while English jurisprudence is clear on the aspect of precontractual correspondence losing its significance once the contract comes into existence..”, the court said

On perusing the loan agreement, the Court found that the 'Rate option' is 'Adjustable', which discloses that, what was opted is an Adjustable Rate of Interest, which will depend on the increase or decrease of the rate of interest.

The Court noted that the appellant should be wise and careful while entering into a contract.

“At the threshold, it can be noted that the appellant is not an illiterate person to take the benefit of the precedents relied upon. On the other hand, when it is contended that the appellant had the option of securing loan from other banks and that being misled by the email had entered into the transaction, would by itself indicate that the appellant was worldly wise. In such circumstance when the parties have signed the agreement dated 01.11.2006, the terms agreed therein would bind the parties and the email exchanged between the parties cannot override the policy decisions of the respondent No.1 institution.”

Objection Regarding Rate of Interest Can't Be Raised Once Receiver Has Acquiesced by Signing the Agreement

“Having executed the agreement; having agreed to the terms and conditions; having received the loan amount, the appellant cannot raise any objection for the first time when the rate of interest was increased after having acquiesced by signing the agreement. Further, the appellant having repaid the loan amount with interest as per the terms of agreement cannot make out a grievance in hindsight and seek refund of the amount paid.”, the Supreme Court observed.

Conclusion

The Supreme Court held that no error has been committed by the NCDRC so as to call for interference, thus dismissed the appeal.

“Therefore, if all these aspects of the matter are kept in perspective and the order passed by the NCDRC is perused, we are of the view that no error has been committed so as to call for interference. Accordingly, the appeal is dismissed with no order as to costs.”

Counsel For Appellant(s) Mr. Vikas Singh, Sr. Adv. Mr. Varun Singh, Adv. Mr. Nitin Saluja, AOR Mr. Akshay Dev, Adv. Mr. Mohammad Atif Ahmad, Adv. Ms. Deepika Kalia, Adv. Ms. Shivani Luthra Lohiya, Adv. Ms. Pinky Dubey, Adv. Ms. Vaishnavi, Adv. Mr. Keshav Khandelwal, Adv. Mr. Pankaj Kumar Modi, Adv. Ms. Pranya Madan, Adv.

Counsel For Respondent(s) Ms. Tushita Ghosh, AOR

Case Details: RAJESH MONGA VERSUS HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED & ORS., CIVIL APPEAL NO.1495 OF 2023

Citation : 2024 LiveLaw (SC) 186

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