2025 (6) TMI 365 - CCI - Law of Competition

Anti-competitive practices - abuse of dominant position - arbitrarily increasing interest rates imposing hidden charges or manipulating loan terms to the detriment of the Informant - Section 3 of the Competition Act 2002 - HELD THAT - With regard to allegation of arbitrary increase in the rate of interest the Commission notes that banks tend to fix rates of interest on loans based on evaluation of various parameters like CIBIL score the viability of the project the rate of return risk parameters etc. Such evaluation varies from bank to bank consequently affecting the final derived rate of interest which is again highly variable and dependent on various benchmark rates announced by the RBI - The Commission also notes that the rate of interest on the Term Loan was changed from 16.20% p.a. to 14.20% p.a. with annual reset on the request of Informant by OP vide letter dated 14.09.2016 and was further revised from 14.20% p.a. to 11.00% p.a. with annual reset vide OP letter dated 06.03.2018. The above terms and conditions have been agreed upon by the Informant with the OP. Accordingly the Commission finds that the allegation against the OP regarding arbitrary changes in the interest rates is without merit. Further with respect to the allegation about imposition of back interest charges of Rs. 76, 75, 894/- on the Informant the Commission finds that the OP charged an interest rate of 11% from 04.09.2018 to 16.07.2020 but revised the same to 14.45% retrospectively for the said period on account of an error committed by it. It was specifically mentioned in the OP s letter dated 06.03.2018 that the rate of interest would be reset on annual basis. The Commission notes the same appears to be a dispute between the parties with respect to the agreed terms and conditions and does not fall under the purview of the Act. The Informant has alleged existence of anti-competitive agreements between the valuers and the OP so as to purposely bring securitized properties under SARFAESI proceedings which are then undervalued to facilitate easy selling in auction. The Commission notes that any bank under the provisions of the SARFAESI Act has a right of enforcement of its security interest if the borrower defaults in the repayment of loan or any instalment. The main aim of the SARFAESI Act is to enable banks and other financial institutions to auction properties to recover outstanding loan in the event of any default by the borrower. Further the Informant has not provided any evidence in support of this allegation. Hence no case of contravention of provisions of Section 3 of the Act is made out against the OP. Conclusion - The Commission is of the view that no prima facie case of contravention of Sections 3 and 4 of the Act is made out in the present matter. The Commission directs that the matter be closed forthwith under Section 26(2) of the Act. Appeal disposed off.

Summary

The core legal questions considered by the Commission in this matter are:

1. Whether the Opposite Party (OP), a public sector bank, engaged in anti-competitive agreements or practices violating Section 3 of the Competition Act, 2002, by arbitrarily increasing interest rates, imposing hidden charges, or manipulating loan terms to the detriment of the Informant.

2. Whether the OP abused its dominant position in the relevant market, defined as the market for the provision of banking and loan services in India, in contravention of Section 4 of the Competition Act, 2002.

3. Whether the OP's actions, including retrospective imposition of higher interest rates, withholding collateral documents to obstruct loan transfers, undervaluation of assets under SARFAESI proceedings, and charging interest on interest, constitute unfair trade practices or anti-competitive conduct.

4. Whether the Informant is entitled to interim reliefs and compensation for alleged losses caused by the OP's conduct.

Issue-wise detailed analysis:

Issue 1: Alleged Anti-Competitive Agreements and Practices under Section 3

The Informant alleged that the OP arbitrarily increased interest rates on various loans, imposed hidden charges, and retrospectively demanded back interest, thereby engaging in unfair trade practices violating Section 3 of the Competition Act. Further, the Informant claimed that the OP withheld collateral documents needed by competing lenders, obstructing loan transfers and suppressing competition. Additionally, the Informant alleged collusion between the OP and valuers to undervalue assets under SARFAESI proceedings to facilitate easy auctioning and eliminate competition.

The Commission examined the sanction letters and correspondence between the parties, noting that the loan sanction letter explicitly stated that interest rates were subject to review and change by the bank based on parameters such as Debt Service Coverage Ratio (DSCR), Debt/Equity ratio, repayment schedule, and other risk factors. The sanction letter also indicated that the interest rate was subject to periodic revision by the bank. The Commission found that the interest rate on the Term Loan was initially 16.20% p.a., later revised to 14.20% p.a., and subsequently to 11.00% p.a., with annual reset clauses, all agreed upon by the Informant.

Regarding the retrospective imposition of back interest, the Commission noted that the OP had acknowledged an error in resetting the interest rate but treated it as a contractual dispute between the parties rather than an anti-competitive practice. The Commission emphasized that such disputes over contractual terms do not fall within the ambit of the Competition Act.

On the allegation of withholding collateral documents, the Commission observed that banks typically retain collateral documents until the loan is fully repaid to safeguard their interests, and no evidence was presented to show that this practice was intended to suppress competition.

Concerning the alleged collusion with valuers under SARFAESI proceedings, the Commission noted that the SARFAESI Act empowers banks to enforce security interests and auction properties upon borrower default. The Informant failed to provide any substantive evidence of anti-competitive agreements or undervaluation conspiracy. Hence, the Commission found no merit in this allegation.

In sum, the Commission concluded that the allegations under Section 3 lacked evidentiary support and were largely contractual or procedural disputes outside the scope of competition law.

Issue 2: Abuse of Dominant Position under Section 4

The Informant contended that the OP, being the third largest nationalized bank with a substantial market share, held a dominant position in the relevant market and abused it by imposing unfair loan terms and interest rates.

The Commission analyzed the relevant market as the provision of banking and loan services in India. It noted that the OP ranked sixth among public sector banks with a market share of approximately 5.73%. The Commission identified the presence of numerous other banks, including large private and public sector banks such as HDFC, SBI, PNB, Bank of Baroda, Indian Bank, ICICI Bank, Central Bank of India, and Indian Overseas Bank.

This multiplicity of competitors indicated a competitive market environment where the OP could not independently determine market conditions or impose terms without competitive constraints. Therefore, the Commission held that the OP was not in a position of dominance in the relevant market. Without dominance, the question of abuse under Section 4 did not arise.

Issue 3: Application of SARFAESI Act and Related Allegations

The Informant alleged that the OP acted without following due process under the SARFAESI Act, appointed valuers unilaterally, undervalued assets, and used securitization proceedings to eliminate competition.

The Commission explained that the SARFAESI Act grants banks statutory rights to enforce security interests and recover dues by auctioning secured assets upon borrower default. The appointment of valuers and conduct of auctions are governed by the SARFAESI Act and related regulations. The Commission found no evidence that the OP's actions under SARFAESI were anti-competitive or violative of the Competition Act. These matters pertain to enforcement of security and recovery of dues, not competition law.

Issue 4: Reliefs and Interim Measures

The Informant sought interim reliefs restraining the OP from pursuing legal remedies for recovery, refund of amounts paid, waiver of penal interest and charges, and compensation for alleged losses.

The Commission observed that since no prima facie case of contravention of Sections 3 or 4 was established, no grounds existed to grant interim relief or compensation. The disputes raised were contractual or procedural in nature and did not warrant intervention under the Competition Act.

Significant holdings:

The Commission held that the relevant market is the provision of banking and loan services in India, characterized by multiple large players, negating the existence of dominance by the OP.

On the question of dominance, the Commission stated: "The existence of large number of players in the relevant market shows that the OP cannot operate independently in the market and cannot be considered to be in a position of dominance in the relevant market. Therefore, in the absence of dominance, the issue of abuse of dominance does not arise."

Regarding the interest rate changes, the Commission emphasized the contractual nature of the loan terms: "The loan was sanctioned at an interest rate of 16.20% p.a. ... the interest stipulated is subject to review by Bank ... and also further changes as may be decided by the bank ... The above terms and conditions have been agreed upon by the Informant with the OP. Accordingly, the Commission finds that the allegation against the OP regarding arbitrary changes in the interest rates is without merit."

On the retrospective back interest charges, the Commission noted: "The same appears to be a dispute between the parties with respect to the agreed terms and conditions and does not fall under the purview of the Act."

Concerning the SARFAESI-related allegations, the Commission concluded: "The Informant has not provided any evidence in support of this allegation. Hence, no case of contravention of provisions of Section 3 of the Act is made out against the OP."

Finally, the Commission concluded that no prima facie case under Sections 3 or 4 was made out and accordingly closed the matter under Section 26(2) of the Act, rejecting all reliefs sought by the Informant.