The Supreme Court had last week set aside the apex consumer forum’s decision directing banks not to charge penal interest of more than 30% on credit card users who default in paying the dues within the stipulated time Or delay.
The court held that the July 7, 2008 decision of the National Consumer Disputes Redressal Commission (NCDRC) lacked jurisdiction to deal with the matter, which was a private contract between the credit card user and the banks. The top court said credit card holders are largely educated people who are aware of their obligations for timely payment and penalties in case of delays. The discretion to charge the quantum of interest was left to the banks by the Reserve Bank of India (RBI), which is the statutory authority regulating the banking business.
The court ruled that the NCDRC decision would be unsustainable on three fronts – law, policy and contract.
Although the Commission’s order was not in force after it was stayed by the apex court in February 2009, the court’s decision should be understood in the context of how the matter came before the Commission, the arguments put forward by the RBI and the banks and the statutory framework that gave rise to the matter. Controls.
‘No inappropriate behaviour’ The case before the NCDRC was filed by two NGOs – Awaaz and Jagrat Nagrik – in a representative capacity, based on the illustrative case of a man named Pradeep Thakur, a Citibank credit card holder, against whom a claim was made. Rs 90,000 was charged by the bank as additional interest.
Both the NGOs claimed that banks in general are charging interest at the rate of 36% to 49% per annum from credit card users for not making timely payments. He argued that, prima facie, such excessive interest amounts to usury and the RBI has not taken action despite receiving several complaints. It was further argued that keeping in mind the prime lending rates fixed by various banks, the RBI should issue a circular directing that the interest rates should not be unreasonable.
The Consumer Protection Act, 1986 under which the NCDRC has been constituted seeks to protect consumers from “unfair trade practices”. Under Section 2(r) of the Act, unfair trade practice means any practice which adopts an unfair means or any unfair or deceptive practice in promoting the sale, use or supply of any goods.
The Commission held that charging interest rates exceeding 30% from credit card holders on delay or default in payment is an unfair trade practice. It further said that penal interest can be charged only once for a period of default and should not be capitalized.
Only RBI and Citibank were present before the commission. After hearing the arguments, the NCDRC concluded that charging annual interest rates ranging from 36% to 49% is “excessive” and amounts to exploitation of borrowers and is usurious.
The commission’s decision was challenged in the top court by private banks – HSBC, Citibank, American Express and Standard Chartered, with an intervention filed by HDFC.
The banks argued that NGOs cannot file consumer complaints and the case brought before the Commission was a public interest litigation (PIL) in the form of a consumer dispute. He submitted that the only case taken up by the Commission was that of a credit card user who was victimized 90,000 interest. As per Section 21(A) of the Consumer Protection Act, NCDRC can consider only the above claims 1 crore. On this basis only, the banks said that the Commission has been barred from considering the complaint. Further, not all banks were given notice to consider the complaint in a representative capacity.
The top court held that Awaaz is a trust which cannot be treated as a “person” for filing the complaint. A bench of Justices Bela M Trivedi and Satish Chandra Sharma observed that the complaint failed to disclose any “deficiency in service” and agreed that the complaint was a PIL in the guise of a consumer dispute.
Holding that the policy decision on interest rates falls within the regulatory domain of the RBI, the court ruled that the Commission cannot assume the jurisdiction of the RBI by considering a complaint based on vague allegations and no cause of action. “Attempts to limit the rate of interest charged by banks and require a benchmark prime lending rate (BPLR), while drawing parallels with other economies around the world, have failed to vindicate the prudence of the RBI, To whom the responsibility has been assigned. The top court said, the fundamental responsibility of regulation of the monetary system and banking business is inappropriate.
The banks got a clean chit as the court said that the banks had not made any misrepresentations to defraud the credit card holders in any way. “In the present context, the prerequisites of ‘deceptive practice’ and ‘unfair method’ are clearly absent,” the court ruled.
The final decision is of RBI The Banking Regulation Act of 1949 places restrictions on courts to investigate interest rates charged by banks. As a policy matter, the RBI told the court that as part of the liberalization of the economy and consequent deregulation of interest rates, the RBI issued various circulars, the last of which was in July 2007, which stated: “Credit card dues in the nature of are non-priority sector personal loans, and as such, banks are free to set the interest rate on credit card outstanding without reference to their BPLR and regardless of the size.
The 1949 Act introduced a specific bar in Section 21A, which stated, “No court shall reopen any transaction between a banking company and its debtor on the ground that the amount taken by the banking company in respect of such transaction is the rate of interest.” Excessive.”
The banks relied on this provision along with Section 35A of the same Act. Which gives RBI the power to issue instructions to banks. These directions may be directed to public interest, banking policy, securing the interests of depositors or ensuring proper management of a banking company, which banks are bound to follow.
In this legal framework, the RBI told the court that it or the Commission had no material to establish violation of any of its policy directions by banks. Therefore, it said, the question of directing the RBI to take action against any bank does not arise. Also, the banking regulator further said that in the light of Section 21A of the Act, the question of imposing any cap on the interest rate does not arise. The RBI told the court that interest rates on advances are determined by individual banks as per their internal policies approved by their boards of directors, subject to regulatory guidelines issued by the RBI from time to time.
The top court order relied on these legal parameters, and said: “The unilateral decision of the NCDRC that any interest exceeding 30% per annum is usury is contrary to the legislative intent of Section 21A and encroaches on the domain of the RBI . ,
It even refused to appreciate the Commission’s comments accusing the RBI of leaving the issue of setting interest rates to the “complete discretion of the banks”. The court said, “The interest rates charged by banks, determined by the financial wisdom and instructions issued by the RBI, and duly communicated to credit card holders from time to time, should not be in any way unreasonable or one-sided.” Can. Credit card holders are duly educated and made aware of their privileges and obligations, including timely payment and late penalties.”
It held that the Commission exceeded its jurisdiction to review laws and circulars, a power given only to the Supreme Court and High Courts. The court accepted the RBI’s argument that the Commission was bound to accept the policy as valid without questioning the central bank’s decision not to impose any limit.
binding terms of contract The terms and conditions for charging interest rates or other fees are part of a contract between the credit card user and the banks. The banks argued that the terms of the contract were duly communicated to all customers through a standard set of conditions for credit card issuance and usage.
These set of terms define the responsibilities of the card issuer and the cardholder, and include information on fees, charges applicable to credit cards, finance charges and withdrawal limits, and are provided with each monthly billing statement. The banks argued that the customer was aware of these conditions as well as the provision of interest on delayed payment. He objected to the Commission replacing itself as regulator of banking systems and rewriting the terms of the contract.
The top court agreed with this view, noting, “The Commission has created the conditions for the terms of the contract agreed between the parties, even as it has positioned itself as the guardian of the terms and conditions between the parties.” Has been replaced in.” ,
The court held that when a party to a contract disputes the binding nature of a signed document, it is that person’s job to make a case. “Therefore, NCDRC has no jurisdiction to re-write the said terms of the contract,” the bench said.
While it may be true that customers who are lured into purchasing credit cards may become forever indebted to banks, the Court’s decision shows how even matters of private contracts covered by the law Cannot be ignored. public interest.
