Allowed

State Bank of India v. Mohd. Saleem Sodha

Rajasthan HC17 Feb 2022CW/296/2019

Case brief

AI extract

What is this about?

Petitioners challenged the Permanent Lok Adalat's order granting debt relief on a home loan. The High Court held that the Lok Adalat lacked jurisdiction as interest rates fall under banking legislation and SARFAESI Act. The court quashed the Lok Adalat order but directed the bank not to charge penal rates, permitting only standard loans. Key subjects: Banking regulation, SARFAESI Act, contract law

What did the court decide?

The impugned order of the Permanent Lok Adalat dated 08.10.2018 is quashed. The petitioner-bank is directed to not charge any penal or commercial rate of interest on the home loan but may charge usual

State Bank of India Vs Mohd. Saleem Sodha — Pension and Retirement Benefits | Rajasthan HC (2022)

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(1 of 6)

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[CW-296/2019]

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HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR

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S.B. Civil Writ Petition No. 296/2019

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State Bank Of India, Rasmecc, Samata Nagar, Bikaner Through Its Assistant General Manager.

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State Of Rajasthan, Gangasahar Road Branch, Bikaner Through Its Branch Manager.

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----Petitioners

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Versus

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Mohd. Saleem Sodha S/o Sh. Babu Khan Muslim, Lane No. 6, Dhobi Talai, Bikaner.

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Learned Permanent Lok Adalat, Bikaner.

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----Respondents

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For Petitioner(s) : Mr. Deepak Vyas for Mr. Jagdish Vyas For Respondent(s) : Mr. Moti Singh

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HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI

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Order

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17/02/2022

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In wake of instant surge in COVID-19 cases and spread of its highly infectious Omicron variant, abundant caution is being maintained, while hearing the matters in Court, for the safety of all concerned.

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The petitioner has preferred this petition claiming for the following reliefs:-

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“With the above submissions, it is therefore, most humbly and respectfully prayed that this writ petition may kindly be allowed and by way of an appropriate, writ, order or direction the impugned judgment and award dated 08.10.2018 (Anx.7) passed by the learned Permanent Lok Adalat, Bikaner in PLA Case No.83/2018 may kindly be quashed and set aside and

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(2 of 6)

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consequently the petition filed by the respondentapplicant may kindly be dismissed.”

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Learned counsel for the petitioner-Bank at the outset raises an objection to the impugned order of the Permanent Lok Adalat on the ground that Section 21A of the Banking Regulation Act, 1949 deals with the prohibition of the judicial forums to deal with the re-opening of bank loan issues, as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter to refer as 'SARFAESI Act') has provided his own remedy.

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Learned counsel for the petitioner-Bank referred to the judgment rendered by Hon'ble Supreme Court in State Bank of India Vs. Yasangi Venkateswara Rao reported in AIR 1999 SC 896 , the relevant portion of the judgment reads as under:-

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“The High Court in the second appeal, even without an issue being framed to this effect, entertained the plea regarding the validity of the said Section and observed as follows :

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"Considering the fact that grant of debt relief has always been treated in our country as a legislative subject to be passed upon by the regional Governments alone and that the words "Relief of agricultural indebtedness" were specially added by our Constitu-tion to enable the State Legislatures to alleviate the suffering of the farmers from their agricultural indebtedness and that the Constituent Assembly had deliberately rejected an amendment moved seeking to transfer this item to the concurrent list, I hold that Section 21-A of the Banking Companies Regulation Act which forbids the Courts from reopening the bank loans on the ground of excessive interest is not a law enacted by the Parliament with respect to the item of Banking."

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The learned Additional Solicitor General contends that the aforesaid observation of the High Court is not correct. He also submits that the High Court had erred in observing that "normally where security offered by the debtor is good and adequate as it is in a case of mortgage of property, the Courts will hold charging of compound interest to be excessive."

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We are unable to understand as to how the High Court could come to the conclusion that the Parliament had no jurisdiction to enact Section 21-A . There can be no doubt that Section 21-A deals with the question of the rate of interest which can be charged by a banking company. Entry 45 of List I of the Seventh Schedule clearly empowers the Parliament to legislate with regard to banking. The enactment of Section 21-A was clearly within the domain of the Parliament. The said Section applies to all types of loans which are granted by a banking company, whether to an agricul-turist or a non-agriculturist, and, therefore, reference by the High Court to Entry 30 of List II was of no consequence. In our opinion, the said Section 21-A had been validly enacted.

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We also find it difficult to agree with the observation of the High Court that normally when a security is offered in the case of mortgage of property, charging of compound interest would be regarded as excessive. Entering into a mortgage is a matter of contract between the parties. If the parties agree that in respect of the amount advanced against a mortgage compound interest will be paid, we fail to understand as to how the court can possibly interfere and reduce the amount of interest agreed to be paid on the loan so taken. The mortgaging of a property is with a view to secure the loan and has no relation whatsoever with the quantum of interest to be charged. ”

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Learned counsel for the petitioner-Bank further submits that the Permanent Lok Adalat was not having any jurisdiction. Learned counsel for the petitioner also submits that the home loan was taken in accordance with the agreement, which is Annexure-1 dated 10.10.2011 and according to which, the loan on floating interest rate basis was to be charged, which was as per the prevailing SBAR.

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Learned counsel for the petitioner-Bank further submits that as per the agreement, the respondent-applicant was to construct a house within a period of two years. To fortify his conditions, learned counsel for the petitioner-Bank has shown the Annexure-H of the loan agreement, which is Annexure-2 of the writ petition.

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Learned counsel for the petitioner-Bank further submits that as soon as the respondent-applicant is defaulted in the condition mentioned in the loan agreement, which is Annexure-H, the petitioner-Bank was free to impose usual rate of interest being a common loan. Learned counsel for the petitioner-Bank further submits that the applicability of SARFAESI Act ought not to have been ignored by the learned Permanent Lok Adalat.

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Learned counsel for the respondent, however, submits that he had taken the plot, which had an old room and in fact had obtained the said loan only for the purpose of construction the home. Learned counsel for the respondent further submits that there is no commercial use of the said plot. Learned counsel for the respondent also submits that the objection of Section 21A of the Act of 1949 was not taken by the petitioner in his reply before the Permanent Lok Adalat. Learned counsel for the respondent

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(5 of 6)

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further submits that the petitioner-Bank is not entitled to charge any commercial or penal rate.

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Learned counsel for the respondent has taken this Court to Annexure-R/1/2, in which, the purpose of the plot is marked as purchase of plot for construction of a house.

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This Court, after seeing the record of the case and hearing the submissions made by learned counsel for the parties, is of the opinion that the Permanent Lok Adalat cannot regulate the Bank rate interest or go into the loans, as it is a specialized arena for which the SARFAESI Act has been framed. Though Permanent Lok Adalat has also mentioned the judgment of State Bank of India (Supra) in para 12 of its order, but has not correctly dealt with it. The interference made by the Permanent Lok Adalat in the present matter is not called for, looking into the conjoint reading of the judgment passed by the Hon’ble Apex Court and the purport of the Section 21A of the Act of 1949, as well as the SARFAESI Act as a whole.

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The factual aspect of the case also reflects that the respondent failed to make any construction of home within a period of two years, as per the Annexure-H, which was one of the conditions of the agreement, which he knowingly entered into, and thus, he was required to abide by the conditions which he had entered into in the agreement with open eyes.

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In light of the aforesaid observations, the present writ petition is allowed and the impugned order of the permanent Lok Adalat dated 08.10.2018 is quashed and set aside, however, petitioner-Bank is directed to not to charge any penal or commercial rate of interest, but they shall be free to charge their

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(6 of 6) [CW-296/2019]

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usual interest for normal loan other than the home loan, in case the respondent-applicant continues to pay his regular EMI’s in accordance with law.

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All pending applications also stand disposed of accordingly.

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(DR.PUSHPENDRA SINGH BHATI),J.

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38-/sudheer//-

State Bank of India v. Mohd. Saleem Sodha

Case brief

What is this about?

What did the court decide?

State Bank of India v. Mohd. Saleem Sodha

Case brief

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