Shri. Vijay B Ramnani vs. Reserve Bank Of INDIA
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The petitioners, Shri. Vijay B Ramnani and Smt. Sangeeta Vijay Ramnani, pre-closed a loan availed from Indiabulls Consumer Finance Limited (Respondent No. 2). Respondent No. 2 levied foreclosure charges of 5% of the borrowed amount, later reduced to 2.5% at the petitioner's request. The petitioners contended this was contrary to Reserve Bank of India (RBI) circulars dated 14.07.2014 and 01.07.2015. They sought a refund of Rs. 13,79,648.84 towards foreclosure charges, Rs. 2,48,336.80 as GST at 18% on these charges, and Rs. 1,96,600.48 as additional penalty for the period between 03.04.2019 to 08.04.2019, along with interest. They also sought to quash an email communication dated 09.02.2021 from the RBI.
Held
The Court allowed the writ petition. It held that a co-ordinate bench had previously ruled in a similar case (Smt. Sangeeta Vijay Ramnani & another vs. Reserved Bank of India & another in WP NO.47837/2018) that borrowers are entitled to the benefit of RBI circulars. The Court found that Respondent No. 2 was levying foreclosure charges which were not permissible in terms of the RBI circulars at Annexures-F and G. The Court reasoned that Respondent No. 2's action of levying high foreclosure charges was an attempt to dissuade borrowers from prepaying loans, which is not in the interest of the economy. The Court also acknowledged the petitioner's grievance regarding the appropriation of EMIs, noting that banks might be collecting interest for the entire loan tenure in the initial period. The Court quashed the RBI's email communication dated 09.02.2021 (Annexure-W). A writ of mandamus was issued directing Respondent No. 1 (RBI) to give effect to its circulars and direct Respondent No. 2 to refund the foreclosure charges, GST, and penalty, along with 18% interest per annum. The RBI was also directed to initiate action against Respondent No. 2 for non-compliance within 30 days.
Key Issues
1. Whether the petitioners are entitled to a refund of foreclosure charges and associated GST and penalty levied by Respondent No. 2, in light of the RBI circulars dated 14.07.2014 and 01.07.2015? 2. Whether the RBI (Respondent No. 1) is obligated to enforce its circulars against financial institutions that do not comply with them? Petitioner's Arguments: The petitioners argued that the foreclosure charges levied by Respondent No. 2 were contrary to the RBI circulars (Annexures-F and G), which they contended entitled borrowers to the benefit of these circulars. They further argued that the calculation of Equated Monthly Installments (EMIs) was skewed, with initial payments predominantly covering interest, leading banks to discourage prepayment. They sought a refund of the disputed amounts and interest. Respondent's Arguments: The judgment does not record specific arguments from Respondent No. 2. For Respondent No. 1 (RBI), the court noted that it was required to take action against banks not complying with its circulars.
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Cause title — parties, addresses and appearances
ORAL ORDER
The petitioners are before this Court seeking for the following reliefs: i. To issue a writ of Mandamus or any other appropriate writ or order directing the R1 to give effect to its circular dated 14.07.2014 at Annexure- F circular dated 11.7.201 at Annexure-G and direct NC: 2025:KHC:16585 the R2 to refund the amount of Rs.18,24,84.1/- (Rupees Eighteen Lakhs Twenty Four Thousand Five Hundred and Eighty Six and One Paisa only) i.e., Rs. 13,79,648.84/- (Rupees Thirteen Lakhs Seventy Nine Thousand Six Hundred and Forty Eight and Eighty Four Paisa only) towards foreclosure charges and Rs. 2,48,336.80 being GST at rate of 18% on the foreclosure charges and Rs.1,96,600.48 (Rupees One Lakhs Ninety Six Thousand Six Hundred and Forty Eight Paisa only) as additional penalty for the period between 03.04.2019 to 08.04.2019, along with interest at the rate of 18% p.a. and ii. Issue a writ of certiorari or other appropriate writ or order quashing the email communication dated 09.02.2021 by R1 (Annexure-W) or such other further relief/s as this Hon’ble Court may deem fit in the circumstances of the case.
The grievance of the petitioner is that the petitioner having prepclosed the loan availed from respondent No.2, respondent No.2 levied foreclosure charges at the rate 5% of the barrowed amount which was subsequently reduced to 2.5% at the request of the petitioner, which the petitioner contends it is contrary to the circular issued by respondent No.1- RBI at Annexure-F and G. It is in that background, that the petitioners are before this Court seeking for the aforesaid reliefs. NC: 2025:KHC:16585
A co-ordinate bench of this Court has delt with a similar aspect vide its order dated 17.09.2024 in Smt.Sangeeta Vijay Ramnani & another vs. Reserved Bank of India & another in WP NO.47837/2018 categorically stating that the borrower would be entitled to the benefit of the circular/s which have been issued by the RBI.
In that view of the matter, I am of the considered opinion that the above writ petition would have to be allowed and a further directions to be issued to the Reserve Bank of India to take action against the Banks, Financial Institutions and/or the like who do not comply with the circular issued by the RBI in terms of the applicable law.
In the present case, the petitioner being a good borrower has come forward to repay the loan before its due date and it is this action on part of the petitioner which is sought to be misused by respondent No.2 by levying foreclosure charges. It would only mean that respondent No.2 does not NC: 2025:KHC:16585 want the petitioner to make prepayment of the loan amounts and make such payment as per the tenure of the loan. The reason for the same according to the counsel for the petitioner is that the Bank is happier to have an existing customer pay the interest amount till the tenure of the loan is completed rather that spend money on acquiring a new customer. His submission is also that the manner of calculation of the Equated Monthly Installment is also skewed in favour of the bank since all the initial EMI’s are predominantly adjusted towards interest and very less amount is adjusted towards Principal, as such the Bank insist of the payments to be made as per the schedule. In this case the Petitioner realizing that most of the payments are going towards the interest wanted to preclose the same so as not to make payment of unnecessary interest.
Respondent No.2 ought to have been happy to receive the loan amount at the earlier time than that it was due. The respondent No.2 by making NC: 2025:KHC:16585 applicable foreclosure charges of 5% is essentially trying to dissuade any borrower from prepaying the loan which is not in the interest of the economy or the Country but is only in the interest of the Ban/financial institutions.
This aspect having been brought to the notice of the RBI, it was but required for the RBI to have taken action against the respondent No.2 for levying foreclosure charges which respondent No.2 was not entitled to in terms of the aforesaid circulars at Annexure-F and G.
It was also required for the RBI to have considered this aspect of appropriation of Interest and Principal in the EMI payments so as to bring about a level playing field, If the contention of the learned counsel for the Petitioner is correct the Bank or financial institution cannot collect the interest for the entire tenure of the loan in the initial period and thereafter appropriate the EMI’s towards Principal due. This appears to be a genuine Grievance on part of the NC: 2025:KHC:16585 Petitioner which would have to be looked into and a proper guideline for appropriation of Principal and interest, which is equitable to both the borrower and lender would have to be issued after a study thereof by the concerned experts at the RBI.
In that view of the matter, I pass the following; ORDER i. The writ petition is allowed. ii. A certiorari is issued, a email communication dated 09.02.2021 by respondent No.1 at Annexure-W is quashed. iii. A mandamus is issued, directing respondent No.1 is directed to give effect to the circular dated 14.07.2014 at Annexure-F, circular dated 11.7.201 at Annexure-G and direct the R2 to refund the amount of Rs.18,24,84.1/- (Rupees Eighteen Lakhs Twenty Four Thousand Five Hundred and Eighty Six and One Paisa only) i.e., Rs. 13,79,648.84/- (Rupees Thirteen Lakhs NC: 2025:KHC:16585 Seventy Nine Thousand Six Hundred and Forty Eight and Eighty Four Paisa only) towards foreclosure charges and Rs. 2,48,336.80 being GST at rate of 18% on the foreclosure charges and Rs.1,96,600.48 (Rupees One Lakhs Ninety Six Thousand Six Hundred and Forty Eight Paisa only) as additional penalty for the period between 03.04.2019 to 08.04.2019, along with interest at the rate of 18% p.a. iv. Respondent No.1-RBI is directed to initiate such action as his permissible under law against respondent No.2 for not having complied with the circular at Annexure-F and G within 30 days from the date of receipt of the copy of this order. (SURAJ GOVINDARAJ) JUDGE
SR List No.: 1 Sl No.: 59
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.