Allowed

Bindu Harikumar v. the Csb Bank Ltd.

Kerala HC6 Dec 2021WP(C)/14746/2021

Case brief

AI extract

What is this about?

The High Court of Kerala, erasing the adverse impact of a One Time Settlement on a guarantor's credit score conducted without notice, directed banks to update the credit report. The petitioner, denied a home loan due to the guarantor's low rating caused by the settlement, was granted relief to restore eligibility.

What did the court decide?

1st respondent to update Credit Report ignoring the education loan transaction; 3rd respondent to revise Credit Score within 7 days; 2nd respondent to consider loan application thereafter.

Bindu Harikumar Vs the Csb Bank Ltd. — Pension and Retirement Benefits | Kerala HC (2021)

¶1

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶2

PRESENT

¶3

THE HONOURABLE MR.JUSTICE N.NAGARESH

¶4

MONDAY, THE 6^TH DAY OF DECEMBER 2021 / 15TH AGRAHAYANA, 1943

¶5

WP(C) NO. 14746 OF 2021

¶6

PETITIONER:

¶7

BINDU HARIKUMAR, AGED 47 YEARS, W/O.HARIKUMAR.V.M, HARRENDRAM, MAMBRA.P.O, CHERIYANAD-689508.

¶8

BY ADVS. SRI.RINNY STEPHEN CHAMAPARAMPIL SRI.ASHA ELIZABETH MATHEW

¶9

RESPONDENTS:

¶10

1 THE CSB BANK LTD., (FORMERLY: THE CATHOLIC SYRIAN BANK LIMITED) CHERIYANAD BRANCH, REPRESENTED BY ITS BRANCH MANAGER, PADINJARE NAKOLAKAL BUILDING, CHERIYANAD, CHENGANNUR TALUK-689508.

¶11

2 THE STATE BANK OF INDIA, KOLLAKADAVU BRANCH, REPRESENTED BY ITS BRANCH MANAGER, S & S TOWERS, KOLLAKADAVU, CHENGANNUR TALUK-690509.

¶12

3 TRANSUNION CIBIL LIMITED, (FORMERLY: CREDIT INFORMATION BUREAU (INDIA) LIMITED, REP. BY ITS DIRECTOR, ONE WORLD CENTRE, TOWER 2A, 19TH FLOOR, SENAPATI BAPAT MARG, ELPHINSTONE ROAD, MUMBAI-400013.

¶13

BY ADVS. R1 BY SRI.MADHU RADHAKRISHNAN R2 BY SRI.T.SETHUMADHAVAN (SR.) R3 BY SRI.C.AJITH KUMAR R2 BY SRI.PREETHI. P.V. R2 BY SRI.M.V.BALAGOPAL

¶14

THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 06.12.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

¶15

WP(C).No.14746/2021

[CR]

JUDGMENT

Dated this the 06^th day of December, 2021

¶20

The petitioner along with her husband, who is a Jawan working with the Border Security Force, applied for a home top-up loan from the 2^nd respondent. The said application is not entertained by the 2^nd respondent on the ground that the credit rating of the petitioner's husband is low.

¶21

The petitioner applied for a home top-up loan from the 2^nd respondent-Bank. The petitioner's husband was a guarantor to an Educational Loan granted by the 1^st respondent-Bank. The loanee to the Educational Loan defaulted and the said account became NPA. Subsequently, the 1^st respondent-Bank entered into One Time Settlement

¶22

WP(C).No.14746/2021

¶23

¶24

with the said loanee. The petitioner's husband was not a party to the settlement nor was given any notice of settlement.

¶25

However, as the said Educational Loan was settled

¶26

for a lower amount than the actual amount due to the 1^st respondent-Bank, the Credit Ratings of the loanee as well as the petitioner's husband, who was a guarantor, went down. As a consequence, the 2^nd respondent-Bank has denied home top-up loan to the petitioner and her husband.

¶27

The learned Standing Counsel for the 3^rd respondent- TransUnion CIBIL Limited submitted that they are acting on the basis of reports given by the Banks and if proper information and reports are received, they can alter Credit Ratings in accordance with their rules.

¶28

The learned Standing Counsel for the 2^nd respondent-Bank submitted that as long as the Credit Score of the petitioner's husband is low, they cannot sanction additional home loan by way of top-up to the petitioner.

¶29

WP(C).No.14746/2021

¶30

¶31

The learned Standing Counsel for the 1^st respondent submitted that in view of the rules prevailing, since the One Time Settlement with the loanee of the Educational Loan was for a lower amount, the Credit Ratings of the Educational loanee as well as the guarantors thereto, will remain low to that extent.

¶32

I have heard the learned counsel for the petitioner

¶33

and the respective Standing Counsel appearing for respondents 1 to 3.

¶34

The petitioner's husband, was a guarantor to an Educational Loan disbursed by the 1^st respondent. The 1^st respondent settled the said loan account on receiving a reduced amount from the Educational loanee under a One Time Settlement. It is an admitted position that the petitioner's husband had no notice of the settlement and was not a party to the One Time Settlement. In such circumstances, can a

¶35

One Time Settlement agreement entered into by the 1^st respondent-Bank with its debtor, without notice to the

¶36

WP(C).No.14746/2021

¶37

¶38

petitioner who was a guarantor, reduce the Credit Score of the petitioner?

¶39

Credit Scoring is a system which enables a Credit Institution to assess the credit worthiness and capacity of a borrower to repay his loan and advances and discharge his other obligations in respect of credit facility availed or to be availed by him. Credit Rating is an opinion of a recognised Credit Rating Company on the relative credit worthiness of a borrower. It is an informed opinion on the relative degree of risk associated with timely payment of principal and interest on a debt instrument. In India, the regulatory frame work of Credit Information Companies can be found in the Credit Information Companies (Regulation) Act, 2005.

¶40

The Act, 2005 is intended to regulate Credit Information Companies, whose function is to collect, process and collate credit information of borrowers of Credit Institutions. In discharge of that function, whether a Credit Institution or Credit Information Company, can gather/share

¶41

WP(C).No.14746/2021

¶42

¶43

information and give Credit Scores to a person who is not a borrower himself but who has stood as a Guarantor to a loan, is the issue arising in this case. If the answer is 'No”, then it will raise serious questions relating to right to privacy of citizens, who are not debtors themselves, but who have stood as Guarantors to loans/advances made by Credit Institutions.

¶44

Section 14, Chapter V of the Credit Information Companies (Regulation) Act, 2005 enables Credit Information Companies to collect information on financial standing of the borrowers of the Credit Institutions and to provide Credit Scoring to its specified users. The Credit Information Companies can collect and provide such information, only in respect of borrowers of Credit Institutions.

¶45

The term “borrower” is defined in Section 2(b) of the Act, 2005. Borrower means any person who has been granted loan or any other Credit facility by a Credit Institution and includes a Client of a Credit Institution. Since a Client is also brought within the ambit of the term “borrower”, the implication

¶46

WP(C).No.14746/2021

¶47

¶48

is that any ordinary account holder of a Credit Institution, though he has not obtained any loan or credit facility of a Bank/Credit Institution, will be treated as a “borrower” for the purpose of the Act, 2005, since an ordinary account holder is also a Client of the Credit Institution.

¶49

In this case, the petitioner's husband stood as a guarantor to an educational loan advanced by the 1^st respondent-Bank. No one has a case that the petitioner's husband hold any account, loan account or otherwise, with the 1^st respondent-Bank. Therefore, the question is whether the 1^st respondent-Bank can provide or share any Credit Information relating to the petitioner with the 3^rd respondentCredit Information Company.

¶50

As states earlier, the term “borrower” for the purpose of Act, 2005 would include a Client of the Bank/Credit Institution also. The term “Client” is also defined in Section 2(c) of the Act, 2005 to include “a guarantor or person who proposes to give guarantee or security for a borrower of a

¶51

WP(C).No.14746/2021

¶52

¶53

Credit Institution”. In view of Section 2(c)(i) of the Act, 2005, a guarantor to a loan advanced by the Credit Institution will also be a Client of that Credit Institution. As the term “borrower” under Section 2(b) would include a “Client”, a person who has stood as a guarantor to a loan, would also be a “borrower” of the Bank. Since a Guarantor is deemed to be a Client of the Bank and since Client of a Bank falls within the definition of borrower, under Section 14 of the Act, 2005, a Credit Institution or a Credit Information Company will be statutorily justified in gathering or sharing credit information relating to a Guarantor and in giving Credit Scores in respect of the Guarantor, even though the Guarantor has not availed any credit facility from the Credit Institution.

¶54

The question then arising is whether a Credit Institution which has settled a loan account under OTS, under an agreement with a loanee, without notice to the Guarantor, can provide information which will lower the Credit Score of the Guarantor?

¶55

WP(C).No.14746/2021

¶56

¶57

The fundamental right to a life worthy of human dignity, is embedded in our Constitutional frame work. Human dignity is the recognition that human being possess a special value intrinsic of humanity. Dignity of identity is tied to the integrity of a person. Perceptions on the trustworthiness and creditworthiness of a citizen is an important facet of his dignity and integrity. Therefore, any action by State or any consequence resulting from the operation of any statute, unjustly and adversely affecting the creditworthiness of a citizen, would offend the fundamental right guaranteed to the citizen under Article 21 of the Constitution.

¶58

Credit and debt are becoming increasingly important cornerstone of Indian economy. Citizens shoulder the burden of debt to fuel economy, but many a time they themselves get crushed by its weight. When a Credit Institution advances a loan to a citizen, it is a reflection of the fact that the Credit Institution treats the citizen as a creditworthy person. When an advance or loan is denied by a

¶59

WP(C).No.14746/2021

¶60

¶61

Credit Institution, it not only denies funds to the citizen, but also shatters the creditworthiness of the individual. Any such action therefore should stand the test of arbitrariness.

¶62

In the present case, the petitioner's husband was a guarantor to an educational loan advanced by the 1^st respondent-Bank. The loan repayment was defaulted and the 1^st respondent-Bank closed the loan account on the basis of an OTS arrived at between the Bank and the loanee. The petitioner had no notice and was not a party to the settlement between the Bank and the loanee. The facts being so such an agreement between the Bank and the loanee cannot adversely affect the creditworthiness of the petitioner. If the 3^rd respondent has given a lower Credit Score to the petitioner based on that settlement, the same is liable to be corrected, the failure of which will be a travesty of justice.

¶63

In the circumstances, this writ petition is disposed of, directing the 1^st respondent to update the Credit Report/Credit Score in respect of the petitioner's husband

¶64

WP(C).No.14746/2021

¶65

¶66

ignoring the education loan transaction to which the petitioner's husband was a guarantor. The revised Credit Report in respect of the petitioner shall be forwarded by the 1^st respondent to the 3^rd respondent within a period of 15 days. On receipt of such an updation/report, the 3^rd respondent shall make necessary changes in the Credit Score in respect of the petitioner's husband, within a further period of seven days. Once the Credit Score of the petitioner's husband is revised by the 3^rd respondent as directed above, the 2^nd respondent shall consider the Ext.P6 application submitted by the petitioner for home top-up loan, in accordance with law.

¶67

Sd/- N. NAGARESH JUDGE

¶68

¶69

WP(C).No.14746/2021

¶70

¶71

APPENDIX OF WP(C) 14746/2021

¶72

PETITIONER'S EXHIBITS:

¶73

Exhibit P1	A TRUE COPY OF THE SERVICE CERTIFICATE DATED 06/04/2021 ISSUED FROM FTR HQ B S F
Exhibit P2	A TRUE COPY OF THE PAY SLIP OF SRI.HARIKUMAR.V.M, ISSUED BY THE
	DIRECTORATE GENERAL, BSF FOR THE MONTH OF MARCH 2021
Exhibit P3	A TRUE COPY OF THE CERTIFICATE DATED 25/4/2020 ISSUED TO THE PETITIONER'S HUSBAND
Exhibit P4	TRUE COPY OF LAND TAX RECEIPT DATED
	15/4/2021 ISSUED BY VILLAGE OFFICER, CHERIYANAD
Exhibit P5	TRUE COPY OF POSSESSION CERTIFICATE
	DT.16/4/2021 BY THE VILLAGE OFFICER, CHERIYANAD
Exhibit P6	TRUE COPY OF SBI HOME LOAN APPLICATION DT.30/4/2021 BEFORE 2ND RESPONDENT
Exhibit P7	A TRUE COPY OF THE CERTIFICATE DATED 25/06/2021 ISSUED BY THE 1ST RESPONDENT
Exhibit P8	A TRUE COPY OF CREDIT REPORT OF THE PETITIONER'S HUSBAND IN WEBSITE OF 3RD RESPONDENT
Exhibit P9	TRUE COPY OF THE REPRESENTATION DATED 01/07/2021 BY PETITIONER BEFORE 1ST RESPONDENT
Exhibit P10	TRUE COPY OF REPRESENTATION DATED 01/07/2021 BY PETITIONER BEFORE 1ST RESPONDENT
Exhibit P11	TRUE COPY OF THE REPLY DATED 16/07/2021 ISSUED BY THE 1ST RESPONDENT.
Exhibit P12	A TRUE COPY OF THE REPLY LETTER DATED 20/11/2021 SENT TO THE 3RD RESPONDENT.
Exhibit P13	A TRUE COPY OF THE POWER OF ATTORNEY EXECUTED BY THE PETITIONERS HUSBAND IN FAVOUR OF THE PETITIONER.

¶74

WP(C).No.14746/2021

¶75

¶76

Exhibit P14 A TRUE COPY OF THE INDIAN BANK ASSOCIATION'S MODEL EDUCATION LOAN SCHEME FOR PURSUING HIGHER STUDIES IN INDIA AND ABROAD.

¶77

RESPONDENTS' EXHIBITS:

¶78

EXHIBIT R3(a) TRUE COPY OF THE LETTER DATED 13.07.2021 ISSUED BY THE 3RD RESPONDENT TO THE PETITIONER.

¶79

Bindu Harikumar v. the Csb Bank Ltd.

Case brief

What is this about?

What did the court decide?

Bindu Harikumar v. the Csb Bank Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Parties & counsel

Coram

Case details

Similar cases

Minnu Rosy Varghese, Vs the Regional Officer, Central Board of Secondary Education

Mariya Constructions Vs Kerala Water Authority

George Mathew Vs State of Kerala

Reena Sebastian, Vs Shanthimadom Builders and Developers

T.Aravindan Menon Vs Shanthimadom Builders and Developers

Energy Development Co. Ltd. Vs State of Kerala