Bank's unilateral alteration of contract terms without borrower’s assent deemed invalid; SBI directed to refund Rs. 83.41 lakh with interest.
In a significant ruling, the Delhi High Court has directed the State Bank of India (SBI) to refund Rs. 83,41,632 to M/s. Campari Exports Pvt. Ltd, a medium enterprise, after it was found that the bank wrongfully deducted foreclosure charges during the premature closure of a loan account. The court noted that the bank's deduction was based on a circular that came into effect after the last renewal of the loan agreement and without any specific agreement from the borrower.
Presided over by Justice Jasmeet Singh, the case revolved around the premature closure of Campari Exports' loan account, which was initially sanctioned with a limit of Rs. 54.54 crores. The petitioner was forced to close the account due to a steep hike in loan interest rates from 8.75% to 17.25% by SBI. At closure, SBI deducted foreclosure charges amounting to Rs. 83.41 lakh, citing a circular dated February 24, 2023, which imposed a 2% charge on pre-closed accounts, effective from April 1, 2023.
The court pointed out that the circular was not effective at the time of the last loan renewal on March 24, 2023, and thus could not legally bind the petitioner. Justice Singh emphasized the importance of mutual agreement in contractual terms, stating that the alteration of contract terms unilaterally via a website notification is not binding without the borrower’s explicit consent.
Additionally, the court distinguished the present case from the Supreme Court's ruling in Union of India v. Krupanidhi Education Trust, where pre-closure charges were part of the original agreement and the circular was notified before the agreement's execution.
The judgment highlighted that the contractual terms must be clear, unambiguous, and fully understood by both parties to be valid. Consequently, the unilateral imposition of foreclosure charges was deemed an alteration of the contract, which is not permissible without the borrower’s agreement.
SBI has been directed to refund the deducted amount within four weeks, failing which it will attract an interest rate of 9% per annum. The decision underscores the necessity for banks to adhere strictly to contractual terms and the legal requirement for clear communication and agreement on any alterations.
Bottom Line :
Banking - Loan foreclosure/pre-payment charges - Bank cannot levy foreclosure charges when arrangement letters/renewals contained no specific clause for such charges and bank circular relied upon became effective after the last renewal - Subsequent unilateral alteration of contractual terms through website notification is not binding without specific agreement of borrower.
Statutory provision(s): Contract Act, 1872, Article 226 of the Constitution of India
M/s. Campari Exports Pvt. Ltd v. State Bank of India, (Delhi) : Law Finder Doc id # 2991169
