Sole proprietors challenged foreclosure charges levied on prepayment of a term loan, contending the RBI 2014 circular barring such charges covers individual borrowers including proprietorship concerns. The court held the 2019 clarificatory circular was not retrospective and directed refund of the foreclosure amount with interest.
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF SEPTEMBER, 2024
BEFORE
THE HON'BLE MR JUSTICE K V ARAVIND WRIT PETITION NO. 47837 OF 2018 (GM-RES)
BETWEEN:
AGED ABOUT 47 YEARS,
RESIDING AT NO.726, CMH ROAD,
INDIRANAGAR,
BANGALORE - 560 038.
Digitally signed by VALLI MARIMUTHU Location: High Court of Karnataka
SON OF LATE B.J. RAMNANI, AGED ABOUT 57 YEARS, RESIDING AT NO.726, CMH ROAD,
INDIRANAGAR,
BANGALORE - 560 038.
…PETITIONERS
(BY SRI ROHIT V.R., ADVOCATE FOR SRI UDITA RAMESH., ADVOCATE)
AND:
CONSUMER EDUCATION AND
PROTECTION CELL, 10/3/8 NRUPATHUNGA ROAD, BANGALORE - 560 001, THROUGH ITS ASST. GENERAL MANAGER.
(AMENDED VIDE COURT ORDER DATED 25.05.2023)
…RESPONDENTS
(BY SRI. NITIN PRASAD., ADVOCATE FOR R1; SRI. K.V. LOKESH., ADVOCATE FOR R2)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF CONSTITUTION OF INDIA PRAYING TO DIRECT THE R-1 TO GIVE EFFECT TO ITS CIRCULAR DATED 14.07.2014 AT ANNEXURE-D DNBS(PD).CC NO.399/03.10.42/2014-15 AND DIRECT THE R-2 TO REFUND THE AMOUNT OF RS.16,49,711.95/- WITH INTEREST AT THE RATE 18% PER ANNUM.
THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN B GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE K. V. ARAVIND
ORAL ORDER
Heard Sri Rohit V.R., learned counsel for Sri Udita Ramesh, learned counsel for the petitioners, Sri Nitin Prasad, learned counsel for respondent No.1 and Sri K.V. Lokesh, learned counsel for respondent No.2.
Ramesh, learned counsel appearing for the petitioners submits that foreclosure amount is levied in terms of the letter dated 14.07.2014 issued by Reserve Bank of India. It is submitted that the said communication is not applicable to loan sanctioned to individual borrowers. Learned counsel further submits that the loan borrowed though for the proprietary concern business, the loan in favour of the petitioner No.1 is to be considered as individual borrowing. It is submitted that levy of foreclosure charges is not leviable on the individual borrowing though for the business purpose or its proprietary business. In support of his submission learned counsel relies on the judgment of the Delhi High Court in Raj Kumar Kohli Vs. Reserve Bank of India 2019 SCC Online Del 10850 and judgment of Calcutta High Court in Devendra Surana Vs. Bank of Baroda 2019 1 WBLR (CAL 202).
5.1 Learned counsel would submit that the circular is clarificatory and has to be read along with the circular dated 14.02.2014.
refers only to "Individual Borrowers" and is silent on the purpose of the loan.
under:-
"24. According to me, the Circular would be applicable even to the last loan account which has a sanctioned limit of Rs.600 lakhs. The reason why I say so is that a proprietorship concern is not a juridical entity, which is separate from its proprietor. It is not in dispute that the petitioner No.1 is the proprietor of the proprietorship concern which goes by the name 'India Sales
Corporation'. Petitioner No.2 is the wife of petitioner No.1, who is concededly, a coborrower.
25. Furthermore, if I were to accept the stand of the respondents, then, one would have to insert the word s in para 2 of the Circular which would have to hold out that loans sanctioned to individual borrowers for business purpose were not entitled for waiver of foreclosure charges. Admittedly, there is no such exception provided in the Circular. The scope and ambit of the Circular, bereft of intensive ambiguity, would have to be construed from its plain language. The language of the Circular is unambiguous. It states in no uncertain terms that NBFC's shall impose foreclosure charges/prepayment penalties on all floating rate loans sanctioned to individual borrowers. As observe above, a proprietorship concern is nothing but an alter ego of the individual owner.”
10. Similarly, Calcutta High Court in the case of
Devendra Surana (supra) held as herein below,
"18. A natural person and his sole proprietorship firm are the same legal entity. The liability of the sole proprietorship firm is that of the natural person carrying on business under its name. The sole proprietorship firm of a natural person and the natural person owning the firm do not enjoy the benefit of being treated as separate legal entities.
19. They are the one and the same legal entity. In the facts of the present case,
although the loan was sanctioned in the name of a sole proprietorship firm, the natural person owning the sole proprietorship firm is liable. In law, therefore, the respondent No.1 sanctioned credit facility to a natural person, albeit in the name of the sole proprietorship firm owned by such natural person."
order:-
ORAL ORDER
(i) The writ petition is allowed-in-part.
Sd/(K V ARAVIND) JUDGE
CR List No.: 1 Sl No.: 0
2 issues framed by the court
Whether foreclosure charges levied on a loan to a sole proprietorship are barred by the RBI circular dated 14.07.2014 applicable to individual borrowers.
Whether the RBI clarificatory circular dated 02.08.2019 applies retrospectively to a 2017 levy.
Colour shows how this judgement treated each authority
Raj Kumar Kohli Vs. Reserve Bank of IndiaRelied on¶9
Raj Kumar Kohli Vs. Reserve Bank of India 2019 SCC Online Del 10850 · Who else cites this
Devendra Surana Vs. Bank of BarodaRelied on¶10
Devendra Surana Vs. Bank of Baroda 2019 1 WBLR (CAL 202)
2 provisions across 2 enactments
Smt. Sangeeta Vijay Ramnani
Shri Vijay B. Ramnani
Reserve Bank of India, Consumer Education and Protection Cell
IDFC First Bank Ltd
K V Aravind
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
