NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
Reserve Bank of India & Ors. Opposite Parties
(from the order dated 06.05.2004 in A No.1706 of 2003 of the State Commission, Madhya Pradesh)
Mukesh Rajput and Another Respondent
MRS RAJYALAKSHMI RAO, MEMBER
MR ANUPAM DASGUPTA, MEMBER
In C.C. No. 51 of 2007
For the Complainant : Mr.Mayur R. Shah, Advocate
For Opp.Party No.1 : Mr.H.S. Parihar, Advocate for RBI
For Opp.Party No.2 : Mr.Mahip Datta and Mr.Anil Kumar,
For Opp.Party No.3 : Mr.Alok Tripathi, Advocate
For Opp.Party No.4 : Ms.Neha Cowshish and Mr.Rahul
For Opp.Party No.5 : Mr.Ajay Monga, Advocate with
Ms.Nidhi Das, A/R
In R.P. NO. 1913 OF 2004
Mr.Sachin Chopra, Advocate
For the Respondent : Ms. Indu Malhotra, Sr. Advocate as
Various States have enacted laws controlling charging of exorbitant rate of interest by the money-lenders. But, it is apparent that there is no restriction with regard to charging of usurious rate of interest by the Banks or Non-banking financial institutions in their money lending activity. There is also challenge to various unjustified demands such as Processing Fee, etc., and the principle of DAMDUPAT is not made applicable. Hence, complaint is filed before this Commission under the Consumer Protection Act, so as to protect the consumers from unjustified exploitation of their needs.
CONSUMER COMPLAINT NO. 51 OF 2007
This complaint is filed by Registered Trust, namely, Awaz and consumer organization, viz., Jagrut Nagrik and one Pradeep Kumar Thakur, against the (i) Reserve Bank of India (RBI), (ii) HSBC, (iii) American Express Bank Ltd., (iv) Citibank and (v) Standard Chartered Bank (Credit Card Division) contending that various commercial banks are indulging in unfair trade practice by charging usurious interest on the loans advanced by the Banks as well as on the amounts payable under credit cards.
It is pointed out that :
(i) on credit cards, the banks are charging interest roughly at the rate of 36% per annum ;
(ii) they are charging various financial charges, such as, late payment fee of Rs.200/- to Rs.500/- despite the decision of the Apex Court that penal interest cannot be capitalized and no interest can be charged on penalty ;
(iii) the banks are charging transaction fee of 2.5% for cash advance against credit card, ATM, etc. - this is over and above the interest at the rate of 2.95% per month on credit facility; and
(iv) late fee of 30% of the minimum due is being charged up to Rs.500/- per month, if the credit card bill is not paid by the due date.
Various other aspects are pointed out and a prayer is made that the banks may be restrained permanently from charging excessive rate of interest and service charges de hors ceiling prescribed under the RBI guidelines/circulars. Prayer is made for refund of the excessive interest charged on the credit cards by the respondent commercial banks.
When the Notice was issued, learned counsel appearing on behalf of RBI, after obtaining instructions, submitted that the RBI had not issued any guidelines restricting the banks from charging any given rate of interest. Further, in the affidavit dated 3.10.2007, it has been stated that -
Further, it may be emphasized that the frame to fix lending rates without reference to BPLR and regardless of loan were granted in 9 specific cases which include loans for purchase of consumer durables, non-priority sector personal loans including credit card dues and loans covered by refinance schemes of term lending institutions.
REVISION PETITION NO. 1913 OF 2004
When this Revision Petition came up for hearing, it was contended on behalf of the petitioner, DCM Financial Services Ltd., that the petitioner was charging interest at the rate of 3% per month. In that Revision Petition, we had issued Notice to the Central Government. In response to the Notice, on 7.12.2006, Sr.Advocate, Mr.R.V. Sinha, on behalf of the Union of India submitted that the RBI had to control the rate of interest charged by the non-banking financial institutions and, at present, no maximum limit for interest had been fixed by the RBI and hence the interest is recovered by non-banking financial institutions on the basis of contract. In view of the aforesaid submission, in our order dated 7.12.2006, we observed as under :
Prima facie, this stand by the Central Government appears to be without considering the reality of life. Consumers who are in absolute need are having no bargaining capacity and are forced to pay interest which is unjustifiable, unreasonable and coercive. In the present case, interest at the rate of 36% per annum is sought to be recovered. There must be some control on such banking and financial institutions with regard to the rate of interest and to protect the consumers, some regulations are required to be framed. In a welfare state, the financial institutions cannot be permitted to take advantage of the financial weakness of the consumers and enrich themselves. If this is permitted, the whole purpose of the Consumer Protection Act would be frustrated.
Thereafter, the matter was adjourned to 29.1.2007. Subsequently, learned counsel on behalf of Union of India submitted that Central Government has adopted certain policies with regard to the rate of interest by the banks and the same would be filed along with affidavit.
Finally, on 1.5.2007, after hearing the learned counsel for the Union of India and the representative of the RBI, we passed the following order:
Fortunately, various States have passed orders restricting money lenders from charging interest beyond a particular limit. But, today a statement is made by the learned counsel appearing on behalf of the Union of India Finance Department that they have not issued any directions to Non-Banking Financial Companies (NBFCs) restricting the rate of interest. He states that it is a matter of contract between the parties and a needy person is left at the mercy of such financial institutions as there is no law to the effect that the NBFCs cannot charge interest beyond a particular rate. On behalf of the RBI, it has been stated that they have not issued any circular restricting the rate of interest by the NBFCs or the Banks.
From the stand taken by the Union of India and the RBI, prima facie, it appears that the Union of India and the RBI have given green signal to the NBFCs or the Banks to charge rate of interest depending upon the vulnerable circumstances of the borrower. A needy person can be exploited without any restriction. In our view, this is against the spirit and object of the Consumer Protection Act and may amount to unfair trade practice.
Learned counsel for the
Learned counsel for the
It appears that consumers are left at the mercy of exploiters. Considering the fact that there is apparent exploitation by the NBFCs and also by certain Banks by charging interest, which may be termed as shylockian interest or usury practice, the matter requires serious consideration as consumers in this country are required to be fully protected against such unfair trade practices as per the provisions of the Consumer Protection Act.
We appoint Ms.Indu Malhotra, Advocate, [59, Lawyers
Chamber, Supreme Court of India,
The matter was then adjourned to 18.9.2007 to see that the RBI takes appropriate steps for controlling the usurious interest rates charged by the commercial banks and non-banking financial institutions.
On that day, the learned amicus curiae pointed out various circulars issued by the RBI while exercising powers under Section 45L of the Reserve Bank of India Act, providing that usurious rate of interest cannot be charged. She also produced on record the Policy Statement of RBI for the year 2007-08.
We note that, unfortunately, this was not brought to our notice by the concerned officers of the RBI who appeared on various dates. From the various circulars issued by the RBI, it appears that the RBI repeatedly emphasized that usurious rates of interest cannot be charged by the banks but it appears that there is no control on this issue and the banks/non-banking financial institutions are exploiting the situation and the concerned officers of RBI appear to be unaware of the same.
We would add that under the Consumer Protection Act, charging of such rates of interest would amount to exploitation of the borrowers needs and to a large extent amount to unfair trade practice.
In this set of circumstances, there is no alternative but to issue summons to responsible officers of the RBI. Registry is directed to issue summons to (i) Chief General Manager, Department of Non-banking Financial Companies and (ii) Chief General Manager, Department of Banking Operations of the RBI, to remain personally present on 10.12.2007.
Stand over to
Meantime, the commercial banks, which have not filed their written version, shall file the same.
( M.B. SHAH)
/sra/ 24,25 / Court-1