Fortuna Foundation And Engineers ... vs Rbi And Anr
2013 Latest Caselaw 4936 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

%                              Judgment reserved on   : 22.10.2013
                               Judgment pronounced on : 28.10.2013
+      W.P.(C) 1161/2010

       FORTUNA FOUNDATION AND ENGINEERS AMD
       CONSULTANTS PVT LTD                ..... Petitioner
                         Through: Mr Vivek Madhok, Adv.
                         versus
       RBI AND ANR                                      ..... Respondent
                         Through: Mr Ramesh Babu, Ms Swati Setia and
                         Mr Srinjoy Banerjee, Advs. for respondent No.
                         1. Mr Tanmaya Mehta and Mr Arnav Kumar,
                         Adv for respondent No. 2
CORAM:
HON'BLE MR. JUSTICE V.K. JAIN
V.K. JAIN, J.

The petitioner before this Court took a loan of Rs 175 lakhs from

respondent No. 2-India Bulls Financial Services Limited on 10.05.2008.

With effect from 01.07.2008, respondent No. 2 increased its Prime

Lending Rate (PLR) by 1.5% though the other banks/financial companies

have stated to have increased their PLR by 0.5%. As a result, the rate at

which interest was payable by the petitioner to respondent No. 2

increased to 18.5% per annum. The petitioner, therefore, opted for

foreclosure of the said loan. While allowing foreclosure of the loan,

respondent No. 2 charged a sum of Rs. 7,30,832.84/- from the petitioner

towards foreclosure charges. The aforesaid amount was calculated at the

rate of 4.41% of the loan amount. The petitioner made a complaint to

respondent No.1-Reserve Bank of India against respondent No.2-India

Bulls Financial Services, seeking its intervention in exercise of the

powers conferred upon RBI under Section 45K of RBI Act. Instead of

itself taking any action on the complaint, the RBI forwarded the same to

respondent No. 2 for redressal.

2. While forwarding the complaint of the petitioner to respondent

No.2, RBI informed it that it had not laid down any maximum rate of

interest on loans and advances provided by non-banking financial

companies though it had advised the Board of Directors of such

companies to formulate appropriate interest rules and procedures to

determine the interest rates and other fee, etc. It was further stated that

rate of interest and other fee on the loans provided by such companies are

determined in accordance with agreement entered with mutual consent

between the company and the borrower. Vide communication dated

30.10.2009, respondent No. 2 informed the petitioner that the loan availed

by it was at a floating rate of interest linked with the Prime Lending Rate

of the company and, therefore, change in PLR influences the rate of

interest as per the terms and conditions of the loan agreement. It was

further stated in the said communication that the terms and conditions of

the loan, including foreclosure charges, were duly explained to it before

execution of the loan documents which it had signed after duly

understanding the same.

3. Being aggrieved from the aforesaid action of RBI, the petitioner is

before this Court, seeking the following relief:-

"(i) to issue a writ, order or direction in the nature of mandamus commanding respondent no.1 to exercise his power under section 45-K of the Reserve Bank of India Act, 1934 as amended by the Reserve Bank of India (Amendment) Act, 2006 AND to fix the rate of interest, foreclosure charges and to make the terms and conditions with regard to loan as just, fair, proper and reasonable for non- banking financial companies including respondent no. 2 in the matter of the petitioner.

(ii) to quash impugned order dated 11.09.2009 passed by respondent No. 1 and to direct respondent no. 1 to pass reasoned order on the complaint dated 31 July 2009 of the petitioner.

(iii) to quash the order dated 30.10.2009 passed by respondent no. 2 and to direct respondent no. 2 to return the excessive foreclosure charges taken from the petitioner i.e. 7,30,832.84/- on the loan of Rs 175 lakhs expeditiously.

(iv) to issue any other suitable order or direction which this Hon'ble Court may deem fit and proper

in the circumstances of the case may deem fit and proper in the circumstances of the case may kindly be pleased to pass in favour of the petitioner and

(v) allow this petition with cost and special cost."

4. In its counter-affidavit, respondent No. 1-Reserve Bank of India

has stated that in order to regulate the credit system of the country to its

advantage and in exercise of the powers conferred upon it by Section 45L

of the RBI Act, it had issued a circular dated 01.07.2009, prescribing the

broad guidelines on fair practices that are to be framed and approved by

the Board of Directors of all the Non-Banking Financial Companies and

that the power to issue directions under Section 45K of the Act cannot be

issued in the matter of grant of loans by such companies. It is further

stated in the counter-affidavit that RBI has not fixed any particular rate of

interest and other terms and conditions for grant of loan and has left the

same to the agreement between the parties.

5. Vide order dated 17.7.2012, this Court noticing the grievances of

the petitioner and lack of jurisdiction with the Banking Ombudsman to

deal with the complaint against Non-Banking Financial Companies

observed that NBFCs are operating in an unregulated field. The Court

took note of a communication dated 24.5.2007 sent by the RBI to all the

NBFCs to frame appropriate internal guidelines in the matter of loans

advanced by them and called upon the RBI to ascertain as to why if at all

there had been no compliance of the said circular by respondent No.2. It

was further directed that if such guidelines are already framed the same

may be placed on record.

6. In its additional affidavit, respondent No.1-RBI has stated that

pursuant to its circular dated 24.05.2007, respondent No.2-company

passed a Resolution dated 06.06.2007, adopting the policy on interest

rates/charges, etc. and the said Resolution is in tune with the provisions of

the aforesaid circular dated 24.05.2007, whereby such companies are

advised to lay out appropriate internal principles and procedures to

determine interest rates and processing and other charges. It is further

stated in the additional affidavit that respondent No.1 has been complying

with the instructions contained in its circular dated 28.09.2006.

7. In its counter-affidavit, respondent No.2 has stated that the

complaint made by the petitioner against it has already been adjudicated

by RBI, which has passed an order dated 11.09.2009 in this regard. It is

further stated that respondent No.2 had acted strictly in accordance with

the terms and conditions settled between the parties and no fundamental,

contractual or other right of the petitioner has been violated. It is further

stated that the contract contains a clause giving it right to alter the rate of

interest and in view of the aforesaid clause in the contract between the

parties, the petitioner cannot make a complaint in this regard.

8. Vide its additional affidavit dated 21.9.2012 respondent No.2

placed on record certain documents including the Fair Practices Code,

intimation of the said Code to the RBI, copy of the minutes whereby

revised policy on interest rates/charges, etc. was adopted by the said

respondent, copy of the resolution dated 28.3.2012 adopting the revised

Fair Practices Code, copy of the resolution dated 8.5.2012 approving and

ratifying the revised and modified Fair Practices Code, copy of the letter

informing the RBI about adoption of the said Code, as also the print outs

from its website showing availability of the Fair Practices Code. The

respondent No.2 also placed on record a copy of the minutes of the

meeting of the Board of Directors dated 6.6.2007 along with the draft

policy on interest rate and other charges.

9. Section 45K of the Reserve Bank of India Act, 1934 on which

reliance is placed by the petitioner applies only to the deposits received

and not to the loans advanced by the Non-Banking Financial Companies.

Therefore, the reliance upon the said Section by the petitioner is wholly

misplaced. It is Section 45L of the RBI Act, which empowers the RBI to

call for information from financial institutions and give directions to them

in relation to conduct of their business, which would include the loans

advanced by such companies. To the extent it is relevant the aforesaid

Section reads as under:

"45L. Power of Bank to call for information from financial institutions and to give directions. - (1) If the Bank is satisfied for the purpose of enabling it to regulate the credit system of the country to its advantage it is necessary so to do, it may-

(a) require financial institutions either generally or any group of financial institutions or financial institution in particular, to furnish to the Bank in such form, at such intervals and within such time, such statements, information or particulars relating to the business of such financial institutions or institution, as may be specified by the Bank by general or special order;

(b) give to such institutions either generally or to any such institution in particular, directions relating to the conduct of business by them or by it as financial institutions or institution.

(2) Without prejudice to the generality of the power vested in the Bank under clause (a) of sub-section (1), the statements, information or particulars to be furnished by a financial institution may relate to all or any of the following matters, namely, the paid-up capital, reserves or other liabilities, the investments whether in Government securities or otherwise, the persons to whom, and the purposes and periods for which, finance is provided and the terms and conditions, including the rates of interest, on which it is provided."

It would, thus, be seen that before issuing directions in terms of the

said Section, the RBI needs to be satisfied that it is necessary to do so, for

the purpose of regulating the credit system of the country, to its

advantage. The directions can be general in nature given to all the

financial institutions and they may also be issued to an individual

financial institution. Therefore, if a complaint is received by the RBI

against a financial institution, and on examination of the said complaint it

is satisfied that it would be necessary, to enable it to regulate the credit

system of the country to its advantage, to give directions to financial

institutions is general or to a particular financial institution, in the matter

of grant of loans, such directions can validly be issued by RBI to all the

financial institutions or to the concerned financial institution, as the case

may be. While regulating the credit system of the country to its

advantage, the RBI cannot ignore the interests of the borrowers from

Non-Banking Financial Companies and if it is satisfied that a particular

Non-Banking Financial Company, is charging interest at unreasonable

rates or it is levying charges which are not called for or the extent of such

charges are levied by the financial institution concerned is unreasonable,

the RBI would be very much within its jurisdiction in issuing appropriate

direction(s) to the financial institution concerned to modify its rate of

interest or charges as the case may be. In a case where RBI finds that

some charge being levied by the financial institution on its borrowers is

wholly unjustified and uncalled for, it can direct such a financial

institution to refrain from levying such charges. The RBI in exercise of

its powers under Section 45L of the RBI Act, will also be justified in

directing the financial institution concerned to refund the unreasonable

interest and/or other charges, if any, recovered by it from its borrowers,

provided the RBI is satisfied that issue of such a direction is necessary to

regulate the credit system of the country to its advantage. For the purpose

of enabling it to take appropriate decision in this regard the RBI can call

for such information from a financial institution as is deemed necessary

in this regard.

11. In the case before this Court, as would be evident from the letter

dated 11.9.2009 written by the RBI to respondent No.2, the complaint

received from the petitioner was simply forwarded to respondent No.2 for

redressal of its grievance along with an intimation to the petitioner that

the bank had not fixed any upper ceiling on the interest rates charged by

Non-Banking Financial Companies and interest and other charges are

settled by way of mutual agreement between the lender and the borrower.

No attempt was made by the RBI to examine whether the rate of interest

being charged and foreclosure charges, if any, being recovered by

respondent No.2, considering the interest rates and foreclosure charges

being charged by other financial institutions, were unreasonable or not.

Considering that there is no institution such as Banking Ombudsman to

entertain complaints made against Non-Banking Financial Companies,

the RBI, instead of simply forwarding the complaint of the petitioner to

respondent No.2 for redressal, ought to have examined it on merits to

determine whether, considering the interest rate being charged from the

borrowers and foreclosure charges being recovered by respondent No.2

from them, the matter required interference by way of issue of directions

under Section 45L of the RBI Act or not. No such exercise, however,

was undertaken.

12. In the absence of an NBFC Ombudsman the RBI instead of

endorsing the complaint to the NBFC against whom it is made, should

call for requisite information from the NBFC concerned and then

examine the complaint with a view to decide whether the complaint

warrants exercise of powers under Section 45L of the RBI Act or not.

Though, such an exercise is likely to result in extra work for the RBI

officials, it would be in public interest to bear this additional workload so

as to address genuine complaints against NBFCs, so long as no other

grievance redressal mechanism is available to the borrowers and

depositors of NBFCs.

13. For the reasons stated hereinabove, the writ petition is disposed of

with a direction to respondent No.1/Reserve Bank of India to examine the

complaint of the petitioner on merits and decide whether any direction in

terms of Section 45L of the RBI Act is necessary or not. It goes without

saying that if any direction in terms of Section 45L is found necessary,

the RBI shall forthwith issue such directions to respondent No.2. The

decision on the complaint of the petitioner shall be taken within eight (8)

weeks from today and conveyed to it within one (1) week thereafter.

The writ petition stands disposed of. No orders as to costs.

V.K.JAIN, J OCTOBER 28, 2013 bg/ b'nesh