New Delhi: Faulting the National Consumer Disputes Redressal Commission (NCDRC) for “appropriating” the jurisdiction of another authority, the Supreme Court set aside its 16-year-old decision that capped the interest amount banks could charge customers for failing to pay their credit card dues within the deadline fixed in the terms of their contract.
On 20 December, a bench of justices Bela M. Trivedi and Satish Chandra Sharma said that NCDRC’s “unwarranted” intervention in the matter amounted to a rewriting of the contract between the banks and credit card holders and declared it legally impermissible.
“The decision of the National Commission to unilaterally hold that any interest above 30% p.a. is usurious, is in contrary to the legislative intent and is an encroachment upon the domain of the Reserve Bank of India (RBI),” the SC held.
The verdict came on a batch of appeals filed by various banks challenging the correctness of the 2008 NCDRC decision that declared charging of interest rates beyond 30 percent by banks as “unfair trade practice”.
The banks contended that the RBI is the exclusive authority to regulate Indian banking system under the Banking Regulation Act.
‘Beyond NCDRC’s jurisdiction’
In the SC’s view, the NCDRC’s action was a unilateral “re-agitating the terms and conditions” of credit card facilities provided by the banks—which was beyond its jurisdiction.
Moreover, the contract between banks and “well-informed” and “educated” cardholders expressly stipulates the terms and conditions. And since necessary information about fees, and charges applicable to credit cards, credit and cash withdrawal limits is provided in the agreement, it is known to the consumers and is not something NCDRC could have scrutinised.
Apart from challenging NCDRC’s decision on the grounds that it lacked authority, the banks claimed the rates of interest formulated by them conform with the RBI’s directions and none of their practices adopted ran contrary to the central bank’s circulars.
In its preliminary objection, the banks also questioned the locus standi (legal standing) of the organisation, Awaz, which claimed to represent consumers and on whose plea the NCDRC delivered the 2008 judgment.
Awaz defended the commission’s decision, arguing that a high and unchecked rate of interest on credit card dues constitutes unfair trade practice under the Consumer Protection Act of 1986. According to the NGO, the banks were levying interest rates on credit cards in excess of their Benchmark Prime Lending Rate (BPLR) on credit limit of less than Rs 2 lakh.
During the proceedings, the RBI clarified it had no material to establish that any of the banks acted contrary to its policy directives. There was no question of directing any cap on the rate of interest since the interest on advances are determined by individual banks as per their internal policies, approved by their Board of Directors and subject to regulatory guidelines.
RBI asserted that only the Supreme Court and high courts have the power to judicially review statutory instruments.
After careful consideration of all the arguments, the top court defined the term service under the Consumer Protection Act (CPA) that did not constitute “administrative policy decisions of banks, which it held is a regulatory function falling within the statutory domain of the RBI.” Therefore, such decisions cannot come under the purview of NCDRC.
“It is the Reserve Bank of India alone which enacts the mandate for the banks. In this sphere, the only function of the Courts is to examine that the lawful authority is not abused, and not to appropriate itself the task entrusted to that authority,” the bench said.
By holding that ceiling on the rate of interest is a purported solution to the alleged exploitation of credit card holders, the NCDRC, SC said, had assumed the expertise of the RBI. Its observations are contrary to the legislative intent of the Banking Regulation Act that provides for a statutory bar on courts or tribunals from reopening transactions, including reviewing the rate of interest charged by a bank.
‘Customers are aware of terms & conditions’
NCDRC’s attempt to decide at the behest of RBI was declared as unjust, unfair and non-equitable. Without delving deeper into the “actuarial principles” adopted by the RBI in issuing directives to the banks on the issue of charging interest, SC observed RBI must have acted with prudence while giving space to the financial institutions to decide on the rate of interest.
One of its directions includes “educating customers on the implication of paying only the minimum amount due” on credit cards, the court noted.
Terms of a contract executed between two parties are open to judicial scrutiny unless it is arbitrary, discriminatory, mala fide or actuated by bias, the court explained. They cannot be struck down because one of the two parties feels they are unfair or illogical.
The commission’s endeavour to cap the rate of interest charged by the bank was unwarranted because the pre-conditions for “deceptive practice” and “unfair method,” requiring an action under the Consumer Protection Act, are “manifestly arbitrary.”
“The Banks have in no manner made any misrepresentation, to deceive the credit card holders. Upon availing the facility of the credit cards, the customers are made aware of ‘the most important terms and conditions’, including the rate of interest, that shall be charged by the Banks,” the bench held.
(Edited by Sanya Mathur)
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