Supreme Court: NBFC Policy Governs Interest Rates, Loan Receiver Cannot Challenge after Repayment

Supreme Court: NBFC Policy Governs Interest Rates, Loan Receiver Cannot Challenge after Repayment

The Supreme Court has ruled that individuals who have borrowed at an agreed interest rate cannot later seek a refund of interest payments by alleging that the Non-Banking Financial Company (NBFC) charged a rate higher than that set by the Reserve Bank of India (RBI). Once the loan has been taken and repaid with the agreed interest, such claims for interest refunds are not permissible.

The Bench, comprising of Justices A.S. Bopanna and M.M. Sundresh, affirmed that determining the interest rate on lending and recovery is a matter of policy. Consequently, NBFCs possess the authority to establish interest rates for lending and money recovery.

The Court observed that if both parties involved in the loan agreement, namely the lender and borrower, agree that the interest rate applicable to the loan amount will be determined by the NBFC, then the borrower must repay the loan amount along with the interest at the rate set by the NBFC.

The appellant received a housing loan from respondent No. 1, an NBFC. He claimed that an email communication from respondent No. 2, a sales agent of the NBFC, assured him that the interest rate would be based on the prime lending rate of the RBI.

Relying on these representations, the appellant applied for a home loan of Rs. 3,50,00,000 from respondent No. 1, which was subsequently sanctioned, and a loan agreement was entered into.

According to the terms of the loan agreement, the interest rate was set at 7.25% per annum, with a margin of 3.5% per annum. However, the appellant's grievance arises from respondent No. 1's decision to revise the interest rate to 8.25%, despite no change in the prime lending rate by the RBI.

After repaying the loan amount with interest as per the terms of the agreement, the appellant subsequently sought a refund from respondent No. 1. The basis of this request was the allegation that the NBFC had not adhered to the interest rate fixed by the RBI but instead charged an interest rate determined by itself.

The National Consumer Dispute Redressal Commission (NCDRC) ruled that the appellant is obligated to adhere to the terms and conditions outlined in the agreement dated 11.01.2006. Simultaneously, the respondent was held to be bound by the diverse instructions issued by the Reserve Bank of India at the time of entering into the agreement dated 11.01.2006. As a result, the complaint filed by the appellant was dismissed, leading to the appellant seeking recourse before the Supreme Court.

Dismissing such argument, the Supreme Court noted that the appellant cannot rely on pre-contractual correspondence to assert that the email from respondent no. 2 indicated that the appellant would be charged based on the Primary Lending Rate set by the RBI. Once the agreement is concluded between the parties, the appellant is bound by the interest rate specified in the contract. Therefore, pre-contractual correspondence loses its relevance once the contract is finalized.

The Court, while observing that the appellant is educated, therefore he cannot claim ignorance of legal precedents, said, “At the threshold, it can be noted that the appellant is not an illiterate person to take the benefit of the precedents relied upon. On the other hand, when it is contended that the appellant had the option of securing loan from other banks and that being misled by the email had entered into the transaction, would by itself indicate that the appellant was worldly wise. In such circumstance when the parties have signed the agreement, the terms agreed therein would bind the parties, and the email exchanged between the parties cannot override the policy decisions of the respondent No. 1 institution.”

The Court emphasized that the appellant should have raised any concerns about being misled or facing unfair trade practices at the time of signing the agreement. Having executed the agreement, agreeing to its terms and conditions, received the loan amount, and subsequently repaying the loan in accordance with the agreed-upon terms, the appellant cannot raise objections regarding the increase in the rate of interest.

Additionally, the Court addressed the appellant's claim that he was lured by respondent No. 2 through email and suffered a loss, asserting that there was no evidence to support these contentions. The Court highlighted the absence of material or evidence demonstrating that the appellant had explored obtaining financial assistance from other institutions.

Taking all these factors into account, the Court concluded that there was no error in the order passed by the NCDRC.