TMI Blog1998 (8) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... king to pay interest at the rate of 5% above the Reserve Bank of India rate of interest with minimum rate of interest @ 14% per annum compounded quarterly. So far as the loan granted on 21.2.1986 is concerned, respondent no.3 executed a Demand Promissory Note, undertaking to pay interest at the rate of 7.5% above the Reserve Bank of India rate of interest with minimum rate of interest @ 17.5% per annum compounded quarterly. A similar Demand Promissory Note was also executed by respondent no.3 in respect of the loan dated 22.2.1991 undertaking to pay interest at the rate of 7.5% above the Reserve Bank of India rate of interest with minimum rate of interest @ 17.5% per annum compounded quarterly. The two loans granted in the year 1980 and 1986 were, after repayment, closed in 1988 and 1989 respectively. Interest in respect of those loans had been debited at the contractual rate with quarterly rests. The appellant bank also debited interest with quarterly rests in respect of the loan of Ts. Two lacs and irrespective of the higher contractual rate of interest, the bank debited interest only at the rate of 15% per annum in view of its Head office Circular No. 379/90 and No. 90/91. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the charging of interest can be entertained keeping in view Section 21 A of the Banking Regulation Act; 4.Whether the bank is justified to charge inte[[rest over and above the contractual rate; AND 5.Charging of interest on quarterly compounding basis. Since, there is no controversy raised before us as regards the first three issues, we are relieved of the necessity to deal with those three issues. Dealing with issue No.4, the learned Ombudsman opined: As regards thee fourth Point that the bank charged interest to the loan accounts in excess of the contracted rate and that too at quarterly rests. It has faild to substantiate and establish that the interest charged in the accounts was in conformity with the Reserve Bank of India directions more specifically the R.B.I. Circular No. DBOD.NO.BL.B.C.60/22.01.0003/94 dated 17.5.1994. As per this circular it is clear that the bank can charge interest only at a rate contracted at the time of sanction of the loan and h=the bank is not entittled to very the rate of interest whomover there to vary the ratte of interest rate for term loands. I therefore, hold this point in favour of the complainant. While dealing wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to the direction issued by the Reserve Bank of India dated March 7, 1976 and submitted that according to that communication, advances granted by banks to landlords for purpose of construction/renovation of premises for its use were required to be treated as Term Loans and charged interest acordingly and that this position and been further clarified by the Reserve Bank of India through its circular dated April 18, 1991, wherein it was stated that the minimum rate of interest on loans advanced to landlords for the premises leased out to the banks should be at the rate of 15% per annum. It was submitted that communication dated April 18, 1991 read with the earlier communication of March 13, 1976, April 1, 1991 and March 7, 1986 clearly indicated that in the case of loan advanced to the landlord forr construction/renovation of premises to be taken by the banks on lease/rent, the banks were entitled to charge interest at the minimum rate of 15% per annum compounded with quarterly rests. [ Learned counsel also submitted that insofar as the judgement in State Bank of Patiala Vs. Harbans Singh, (1994) 3 SCC 495, is concerned, that did not referr to, much less consider and discuss, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer and consequently a lower rate of interest on loans appears to be justifiable than in the case of overdrafts and cash credits. The expression term loan has been defined in the same book as follows:- Term Loan - Where a loan is granted for a fixed period exceeding one year and is repayable according to a schedule of repayment, as against on demand and at a time, it is known as a term loan . Where the period exceeds one year but not, say 5 to 7 years, it is commonly known as a medium-term loan; a loan with longer repayment schedule is known as long-term loan. A term loan is generally granted for fixed capital requirements, although such loans for working capital are not unknown, and are supposed to be repaid out of future earnings of the fixed assests in particular and of the borrower in general. It therefore requires a proper and more sustained appraisal of various factors commected with the proposition than an ordinary commercial demand loan. Thus, the opinion of the learned Ombudsman to the effect that circulars of the Reserve Bank of India which permitted charge of interest at quarterly rests applies only to term loans for Commercial purposes and not to the loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) of the letter relied on by the bank (Ex. P-7) as extracted earlier. It would indicate that in respect of commercial loans, they appear to have intended to charge quarterly rest. The Reserve Bank at nowhere indicated that the term loans given to the landlords for construction of the buildings to lease back to the commercial banks should be intended to be charged with interest with quarterly rest. On the other hand, they have reduced sufficiently from time to time even the lending rate of interest in favour of landlords/lessors. (Emphasis ssupplied) The judgement in Harbans Singh s case therefore, proceeded on the facts as pleaded by the parties, in the absence of relevant material, which apparently were not brought to the notice of the court. That judgement must, therefore, be considered as confined to the facts of that particular case and not to be an exposition of law based on various circular/directions and notifications issued by the Reserve Bank of India which have statutory force with regard to the meaning of term loan or charge of interest from the landlords with quarterly rests. Learned counsel for the parties before us, did not dispute that there have been mor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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