Madras High Court: High Court Cannot Expand Definition Of ‘Individual Borrower’ For Granting Waiver of Foreclosure Charges

The Madras High Court in the case S Manoharan v. Reserve Bank of India and others observed and has stated that it has clearly been defined “individual borrower” by the Reserve Bank Of India as per law, only the RBI could consider the expanding the scope of the definition and the same cannot be consider by the High Court.
The Court was hearing a PIL filed by famous food chain Murugan Idli Shop’s proprietor.
It has been contended by the sole proprietor of Murugan Idli Shop, S Manoharan that he falls under the category of individual borrower and he is being entitled for availing the benefit of waiver of foreclosure charges. He also relied on the circulars which are issued by the RBI in 2014 and 2019 through which it has been directed by the RBI to the banks not to charge foreclosure charges or pre-payment penalties on floating rate term loan being issued to individual borrowers.
The bench headed by Justice SM Subramaniam noted that the loan documents have been signed by Manoharan as the sole Proprietor of Murugan Idli Shop and thus the loan was being borrowed by Murugan Idli Shop. Thus, Manoharan, who had filed the plea as the sole proprietor of Murugan Idli Shop could not be considered as an “individual borrower” within the meaning of the circular issued by the Reserve Bank of India.
The bench stated that if all the definition of “individual borrowers” which being within the meaning of the circular is to be expanded, the same is to be considered only by the Reserve Bank of India within the provisions of the Statute and certainly, thus, the High Court cannot expand scope of the definition of the “individual borrowers”, so as to grant waiver of foreclosure charges or for the pre-payment penalties, which being otherwise agreed upon to be paid by the petitioner by signing the loan document.
It has also been contended by the RBI in response to the plea of Manoharan’s that the entity could not be construed as an “individual borrower” and that the same would fall within the category of Small Medium Enterprise. Therefore, the RBI stated that it was not eligible for availing the benefit of waiver of foreclosure charges.
It has also been informed by the Bank authorities to the court that Manoharan had entered into the loan agreement by accepting all the terms and conditions in the agreement. Manoharan could also turn around and claim for waiver of foreclosure charges when it has specifically been provided in the loan documents for charging foreclosure penalty.
Further, it has been noted by the court that the seal which is affixed on the loan documents was that of “Murugan Idli Shop”.
The bench observed that the loan was being sanctioned in the name of the proprietary concern, which being the legal entity and the petitioner would not fall under the category of “individual borrower” as per the circular issued by Reserve Bank of India in year 2014. However, if there being any other dispute exists between the parties with regard to the terms and conditions of the loan, it is for the petitioner to raise it before the appropriate Forum.

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