On Fluctuation In Rate Of Interest, Whether Banks Are Under Obligation To Inform Borrowers & Furnish Yearly Loan Statements: SC Seeks RBI’s Response

• (a)Whether there are any circulars or instructions which mandate furnishing/supply of documents executed by the parties at the time when the loan or guarantees are given or extended? Do the circulars/instructions state the manner and mode by which documents would be furnished?
• (b)In case of fluctuation in the rate of interest, whether the banks/financial institutions are under an obligation to inform the borrower(s) in writing about the change?
• (c)Whether the banks/financial institutions are required to furnish yearly statements of the loan account with details?

A bench of Justice Sanjiv Khanna and Justice S.V.N Bhatti thus also observed, “We further direct that the impugned judgment will not be treated as a precedent. Pending proceedings under the Recovery of Debts and Bankruptcy Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 will continue in accordance with law”.

Advocate Divyanshu Sahay appeared for the petitioner and AOR Rahul Gupta appeared for the respondent.

In the matter, before the High Court the original petitioner- Guru Nanak Engineering Works, an MSME Unit (herein the respondent) contented that the respondent Bank was not providing documents relating to rate of interest it charged, however, trusting the Bank, whatever demands were raised, the petitioner was paying the same.

It was further averred that the rate of interest kept varying from 11.25% to 16%, and the Bank was not providing any information to the petitioner on what basis such interest was being levied, and accordingly it stopped dealing with the Bank for some time.

Resultantly, the bank served a demand notice issued under Section 13(2) of the SARFAESI Act, 2002 demanding 46,93,061/- informing the petitioner that it's account was classified as Non Performing Asset (NPA).

The High Court, after considering the relevant submissions had observed, “Since the stand of the petitioner is that the Bank had already charged 20,70,941.85 between the period 2006 to 2020 as per the CA certificate Annexure P-61 dt.15.09.2020 reflecting the excess interest charged by the petitioner upto that date, and the Bank has not shown how it is justified in charging interest at 16% + 2% penal interest, and we are satisfied that petitioner was overcharged interest by the Bank , it is held that the said sum of 20,70,941.85 ps. was wrongly and excessively charged from the petitioner by the respondent-Bank without authority to do so, and the Bank is directed to adjust the same against the outstanding amount claimed by it within a period of four weeks from the date of receipt of certified copy of this order”.

Accordingly, while directing the Bank to pay costs of Rs 1,00,000 to the petitioner, the bench had allowed the petition while setting aside the notice issued under Section 13(2) of the SARFAESI Act, 2002, Further directed the respondents to classify the account of the petitioner as "standard" and inform the CIBIL accordingly

The sum of 20,70,941.85 ps. was further held to have been wrongly and excessively charged from the petitioner by the respondent-Bank without authority to do so, and the Bank was directed to adjust the same against the outstanding amount claimed within four weeks.

Noting the above chain of events, the Supreme Court thus issued notice, returnable in the month of January 2024. Further issued notice to the unserved proforma respondent, Reserve Bank of India (RBI) and Ministry of Micro, Small and Medium Enterprises.

The bench further directed the contempt proceedings to remain stayed, till the next date of hearing.

Cause Title: Branch Manager, Punjab National Bank & Ors. v. Guru Nanak Engineering Works & Ors.

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