Justice for all: When ‘debt’ traps go beyond debt

We seethe with indignation at the sight of a chronic defaulter sporting a fancy jacket sauntering around in a foreign land. The same banks that tuck their tails behind their legs when it comes to recovering public money from these big  borrowers, bare their fangs while dealing with ordinary citizens and  relatively smaller  businessmen. And how. There is a new and  disturbing trend of public sector banks and financial institutions delaying and even refusing to release mortgages and return property title deeds of  borrowers even after the repayment of loans.  

In the last few weeks, I’ve come across at least three such cases in Chennai. One of them is downright shocking and possibly the pattern of tormenting innocent borrowers. An entrepreneur took a house construction loan of close to Rs 7 crore on a fixed rate of interest from a public sector finance company. The terms were  subsequently altered to a floating rate of interest for which the borrower was slapped with almost Rs 4 lakh as ‘Rate of Interest Migration Charges’. A nationalised bank then offered him a better deal and took over the loan, effecting an NEFT transfer of about six and a half crore rupees, based on the amortization chart of the primary lender. This credittransfer was reflected in the borrower’s account statement only after a  fortnight. So where was the money hiding all this while? No idea yet.  It gets worse.

Even after the NEFT transfer, the housing finance company sends the borrower an inflated amount due of  Rs 15 lakh towards loan  prepayment charges. When asked for a break up, the amount mysteriously reduced to Rs 50,000 in a week! Such demands for prepayment charges on floating interest rate loans are patently illegal and are a violation of a circular issued by the Reserve Bank of India in 2014.  A legal notice to the NBFC elicited no reply but it led to a revision of the total amount payable to about Rs 6 lakh.

In an outrageous twist, changing the tune from prepayment, the NBFC back dated a letter to the borrower, exposed by the postal seal, claiming an increase in interest rate and a consequent  extension of the Equated Monthly Installments (EMIs). This is three months after the repayment of the loan!  As the loan was repaid, the borrower closed the bank account from which standing Electronic Clearing Service (ECS)  instructions were used for payment of EMIs.

The NBFC’s lawyers sent a template notice to the borrower demanding payment of the two extended EMIs and threatening imprisonment for dishonour of electronic funds transfer under Section 25(1) of the Payment and Settlement Systems Act, 2007! Legal adventurism? Under clause (1) (a) of the statutory provision cited, an existing debt or liability is the most basic ingredient for the Act to kick in. That does not arise after the nationalised bank’s NEFT transfer months ago. Such vexatious cases, if filed, are liable to be quashed under Section 482 of the Code of Criminal Procedure (CrPc).

This is how such public sector banks and institutions harass honest borrowers. Ombudsmen appear to be toothless mice. What happened to the RBI’s Fair Practices Code for Lenders, 2008? What happened to RBI’s warning in 2010 against levying charges without prior disclosure? What happened to RBI’s clear prohibition of prepayment charges on floating rate loans circulated in 2014? What happened to the separate Ombudsman Scheme for Non Banking Financial Companies (NBFCs) 2018 for redressal of complaints against NBFCs registered with RBI under Section 45-IA of the RBI Act, 1934?

What are the legal remedies of  the borrower? A complaint to the Ombudsman for Non Banking Finance Companies (NBFCs) under Section 8(h) of the Scheme in the prescribed format, predictably, led to passing the buck to the National Housing Bank under an inexplicable technicality. A Consumer Case can
easily be filed for deficiency in service and unfair trade practices under Sections 2(1)(g) and 2(1)(r) of the Consumer Protection Act. But this will drag on for 3 to 5 years. Meanwhile, the borrower has sleepless nights wondering if his property documents have been lost or  stolen? The National Consumer Disputes Redressal Commission in C.L. Khanna Vs Dena Bank had held that “there is clear deficiency on the part of the bank in not returning the title deeds.”

What if the collateral was fraudulently mortgaged by unscrupulous NBFC officials? If that is the case, the borrower can file a criminal complaint under Sections 406, 407 and 420 of the Indian Penal Code (IPC) for criminal breach of trust and cheating against the concerned NBFC officials. Can you imagine the plight of such honest borrowers who return the last rupee with interest while high profile crooks travel the world with impunity?

(The writer is an advocate at the Madras high court, columnist & author)