RAJESH MONGA Vs HOUSING DEVELOPMENT FINANCE CORPORATION LIMITIED & ORS. ON 4 MARCH,2024
Civil Appeal No. 1495/2023
Bench- M.M. Sundresh, A.S. Bopanna
Before the Supreme Court, New Delhi
Date of order: 4.03.2024
Parties
Appellant: Rajesh Monga
Respondent: Housing development finance corporation limited & Ors
Laws and Acts Involved
- Consumer Protection Act,1986
- Contracts Act,1872
- Banking And Finance Law
Facts
The appellant Rajesh Monga was in need of a home loan in 2005. Respondent No.2 and Respondent No.3 being the employees of Respondent No.1- Housing development financing corporation (in short HDFC) approached the appellant during August 2005. The appellant was exploring the option of securing loans from other financial institutions as well. But the respondent No.2 and respondent no.3 being the direct sale agent and the resident manager of respondent no.1convinced the appellant that the rate of interest charged by the respondent no.1 on home loan was lesser than what was being charged by ICICI bank through email dated 05.10.2005 from respondent no.2 to contend that a comparison was provided the rate of interest offered by respondent no.1 was cheaper. Not only was the rate of interest charged cheaper, respondent no.2 on behalf of respondent no.1 had also assured that the rate of interest charged will be based on the prime lending rate of the Reserve bank of India (in short RBI). Based on these representations the appellant has applied for home loan of Rs.3,50,000/- (Rupees Three crores and fifty lakhs) from the respondent no.1, which was sanctioned and the loan agreement on 11.01.2006 was entered into. The loan amount was disbursed to DLF universal ltd., in installments between January 2006 to December 2007. As per the loan agreement, interest at 7.25% per annum and margin of 3.5% per annum was provided. The rate of interest was raised to 8.35%, despite there was no change in prime lending rate by RBI during 11.01.2006 to 01.05.2006 the appellant has complainant contracting the respondent no.2 and other officers but there were no reliefs, instead respondent no.1 has raised the rate of interest to 8.25% to 9.25% and again to 10.5% through there was no change made by RBI. Therefore, the appellant has issued a legal notice dated on 27.09.2007 demanding to return the interest amount which was charged over and above 7.5% per annum. The respondent no.1 vide their reply to the notice dated 09.10.2007 contended that the appellant through the agreement opted for ‘adjustable rate of interest’, as such rate of interest was varying as per the retail lending rate of respondent no.1 but the national consumer disputes redressal commission (in short NCDRC), which ruled against the appellant, that’s the reason the appellant has come to supreme court.
ISSUE RAISED
- Whether the order by NCDRC was correct.
- Whether the adjustable interest rate under the agreement was linked exclusively to RBI’S prime lending rate or could be modified as per HDFC’s prime lending rate.
- Whether the pre-contractual assurances contradicted the enforceability of the signed agreement.
- Whether the respondent’s conduct constituted an unfair trade practice under the Consumer Protection Act, 1986.
CONTENTION
Appellant
- The appellant argued that HDFC, through an email dated October 5,2005 assured him that the interest rate adjustment would follow RBI’s prime lending rate.
- is a pre-contractual assurance which HDFC failed to fulfill.
- And also emphasized that pre-contractual representations should govern the contractual interpretation.
- The appellant had the option of securing loan from other banks and that being misled by the email sent by the respondent no.2 that the earlier representation will constitute unfair trade practices.
- The appellant seeks for the damages which he got while paying more interest on the loan.
- The appellant contended that as a consumer, he was entitled to relief for being misled, citing various precedents like Texco marketing ltd v. TATA AIG General Insurance Co. Ltd.
Respondent
- The respondent emphasized that the appellant voluntarily signed the agreement explicitly outlining that the interest rate would vary as per HDFC’s prime lending rate
- The respondent argued that pre-contractual communications were irrelevant once the terms were contractually agreed upon.
- The respondent contended that as a non-banking financial company (in short NBFC), its policy governed the rate adjustments, making them independent of RBI’s prime lending rate.
- Respondents also highlighted the lack of substantive proof of unfair trade practices or inducement.
RATIONALE
The supreme court disclosed that there are circumstances where certain aspects were contained in the agreement in question, but a contention was raised contrary to the same and the court has rejected such contention and NCDRC has the obligation to make things right but they failed to do so. The supreme court said that the intention of the parties and any correspondence exchanged between the parties as a prelude to the transaction before executing the agreement will be relevant to know the intention of the parties and should be given the effect.
The court recognized HDFC’s discretion to fix the interest rates under its RBI’s prime lending rate as per the agreement. The court also clarified that allegations of unfair trade practices must be substantiated with evidence beyond subjective reliance on assurances.
DEFECTS OF LAW
The first and foremost defect is the contract terms were not clear, agreed, overriding pre-contractual negotiations or representations. The intentions of the parties must be set as the conditions for the contract which has not been made in this contract causing the damage to appellant. The consumer grievances must have some evidence to prove the misrepresentation or unfair trade practices. and there is a banking defect or law defect saying that the contract has to be written form and it should have the transparency of teams clearly stated by the both parties while the contract is made. And once the payment has been made by the appellant or person with higher interest can’t be asked back. And if the bank has the right to increase the interest rate without consulting the consumer or borrower.
INFERENCE
The decision given by the supreme court in this case reaffirms the sanctity of written agreement in consumer and banking contracts, it shows the importances of the borrowers to understand the contractual terms. There should be transparent and unambiguous contract clauses that take precedence over any prior verbal or email communication. The terms should be legally bound by the bankers like HDFC once the borrower accepts the terms of the agreement. There should be clarity in the pre-contractual agreement. And the court said the executed agreement are completed and appellant cannot seek refund of the amount paid with the higher interest rate asked by respondent no.1.
CONCLUSION
In the overview, all the facts and issues raised in this case and the judgment given by the supreme court by the hon’ble bench is correct and lead the importance of written form of pre-contractual agreements and the importance and how one is said to be misleading or can be charged for unfair trade practices only when there are evidences. The court emphasizes that discussing and the interpretation of the terms when discussed before entering the contract the party’s intention once agreed should be taken as the conditions and there has to be legally bonded and must be fulfilled.
But all the obligations can’t be on only one party. Both parties should have to follow the conditions and terms of the contract once the agreement is made. And in banking the borrower has the obligation to understand the terms and if there is a change or any issue regarding the agreement the borrower can’t claim or seek to the court for unfair trade practices causing damage to the reputation of the bank. The borrower can only seek damage for unfair trade practices only when they have the evidence against it. In my view the duty releases on both the parties to create a lawful contract.
MANSI SINGH
PENDAKANTI LAW COLLEGE,HYD