M/S.Rajalakshmi Spinners vs. The Senior Branch Manager

Held

The Court held that the demand for pre-closure charges by the first respondent was not entirely unsustainable, but the calculation method was incorrect. While the sanction letter did not explicitly contain a clause for pre-closure charges, the Court acknowledged that as per Reserve Bank of India guidelines, banks are entitled to claim pre-closure charges to compensate for future interest. However, the Court found that the calculation of 2% pre-closure charges on equated monthly installments was erroneous. Instead, it should have been calculated on the total outstanding loan amount. The Court determined that the correct pre-closure charges, including 18% GST, amounted to Rs. 10,54,313/-. Since the petitioner had already deposited the full demanded amount of Rs. 49,18,926/-, the Court directed the first respondent to refund the excess amount of Rs. 38,64,613/- along with interest at 6% per annum from the date of deposit. The writ petition was partly allowed.

Facts

The petitioner, M/s. Rajalakshmi Spinners Private Limited, a yarn manufacturing company, had availed several loans from the Bank of Baroda (respondent 1). Upon switching its credit facilities to the State Bank of India (respondent 3), which sanctioned a sum of Rs. 25 crores, the petitioner requested pre-closure of its loans with the Bank of Baroda. The Bank of Baroda demanded pre-closure charges of Rs. 49,18,926.76/-. The petitioner challenged this demand by way of a writ petition, arguing that the loan agreements did not stipulate pre-closure charges. The Court had directed the petitioner to deposit the demanded amount, which it did. The petitioner contended that the calculation of pre-closure charges was incorrect and not supported by any statutory mandate.

Key Issues

1. Whether the demand for pre-closure charges by the first respondent is legally sustainable, considering the absence of such a clause in the sanction letter or loan agreement, and if the demand is supported by any statutory mandate? 2. Whether the calculation of pre-closure charges at 2% on equated monthly installments is correct, or if it should be calculated on the total outstanding loan amount, as per the petitioner's contention? Petitioner's arguments: The petitioner argued that the sanction letter and loan agreement did not contain any clause for pre-closure charges, and therefore, the demand was illegal and not supported by any statutory mandate. They also contended that even if pre-closure charges were permissible, the calculation by the first respondent was erroneous, as it was based on equated monthly installments rather than the total outstanding loan amount. The petitioner relied on Reserve Bank of India guidelines, suggesting that pre-closure charges should be 2% of the total outstanding amount to compensate for future interest. Revenue/State's arguments: The judgment does not record any specific arguments made by the respondents (Bank of Baroda and its Assistant General Manager) regarding the legality of pre-closure charges or their calculation method.