Campari Exports PVT. LTD And Anr vs. State Bank Of INDIA And Ors

Facts

The petitioner, M/s. Campari Exports Pvt. Ltd., a medium enterprise, had a loan facility with Respondent No. 1, State Bank of India (SBI). The petitioner prematurely closed the loan account due to SBI hiking the interest rate from 8.75% to 17.25%. The petitioner sought the release of property documents and objected to foreclosure charges levied by SBI. Initially, the petitioner claimed Rs. 98,43,126/- as foreclosure charges, which was later amended to Rs. 83,41,632/- (excluding GST). The petitioner argued that the loan arrangement letters, dated 18.02.2022, 20.12.2022, and 24.03.2023, did not contain specific provisions for foreclosure charges. SBI relied on a circular dated 24.02.2023, effective from 01.04.2023, which stipulated pre-payment charges of 2.00% of the prepaid amount. The petitioner contended this circular came into effect after the last renewal of the loan facility.

Held

The Court held that the foreclosure charges levied by the State Bank of India were not valid. The primary reason was that the loan arrangement letters, which formed the concluded contract between the parties, did not contain any specific provision for foreclosure charges. The Court noted that the SBI circular dated 24.02.2023, which stipulated the 2.00% pre-payment charges, was effective from 01.04.2023. This date was subsequent to the last renewal of the loan facility by the petitioner on 24.03.2023. Therefore, the circular could not be applied retrospectively to impose charges that were not part of the original or renewed contract. The Court found that imposing such charges without specific agreement constituted an alteration of the contract terms, putting the petitioner at a disadvantage. The judgment relied upon by SBI, Union of India vs. Krupanidhi Education Trust, was distinguished as it involved pre-closure charges that were part of the agreement and notified before the agreement date. The Ombudsman's decision was also deemed not relevant as it pertained to deficiency of service, not alteration of contract terms. The Court directed SBI to refund Rs. 83,41,632/- to the petitioner within 4 weeks, with interest at 9% per annum if not paid within the stipulated time. The argument based on an extant policy for transferring loan facilities was rejected as the policy was neither annexed nor brought to the Court's notice.

Key Issues

1. Whether the foreclosure charges of Rs. 83,41,632/- levied by the State Bank of India are valid and binding on the petitioner, considering the terms of the loan arrangement letters and the effective date of the relevant circular? (Question of law and mixed fact and law, turning on contract law and the interpretation of loan agreements and circulars). Petitioner's Arguments: The petitioner argued that the loan arrangement letters, which constitute the concluded contract, did not contain any specific provision for foreclosure charges. They contended that the SBI circular dated 24.02.2023, which stipulated the 2.00% pre-payment charges, became effective only from 01.04.2023, which was after the last renewal of the loan facility on 24.03.2023. Therefore, the circular could not be applied retrospectively to alter the terms of the existing contract without specific agreement. They relied on the principle that contract terms must be clear and unambiguous. Revenue/State's Arguments: SBI argued that the loan arrangement letters contained a clause stating "further other charges as notified by the bank from time to time on its official website and other media." They relied on their circular dated 24.02.2023, which stipulated pre-payment charges of 2.00% of the prepaid amount, and submitted that this was a modification of terms notified to the petitioner. SBI also relied on the judgment in Union of India vs. Krupanidhi Education Trust and Another (2021) 18 SCC 318 to support the binding nature of loan agreements and pre-payment charges. They also referred to an Ombudsman order dated 26.02.2024 stating no deficiency in their action.