Policy decision on rate of interest by banks can't come under jurisdiction of Consumer Commission: SC

New Delhi: The Supreme Court has said a policy decision pertaining to the rate of interest, and trade practices carried out by the banks across the country, is a regulatory function within the specific statutory domain of the Reserve Bank of India and cannot come under the purview of judicial scrutiny by the National Consumer Disputes Redressal Commission.

A bench of Justices Bela M Trivedi and Satish Chandra Sharma set aside the NCDRC's July 7, 2008 judgment that had unilaterally held that any interest above 30 per cent per annum on credit card dues as usurious and unfair trade practice.

"We are also of the considered view, that an endeavour to cap the rate of interest charged by banks and dictating the need for a Benchmark Prime Lending Rate, drawing parallels with other economies across the world, whilst failing to trust the prudence of the Reserve Bank of India which has been entrusted with the fundamental responsibility of regulation of the monetary system and banking business is unwarranted," the bench said.

The court said the decision by the Commission is also contrary to the legislative intent of section 21A of the Banking Regulation Act and is an encroachment upon the domain of the Reserve Bank of India.

"We are of the considered opinion to re-agitate the terms and conditions of credit card facilities provided by the banks, and re-write the terms thereof, including the rates of interest charged by the banks, is exorbitant, however reasonable, is an attempt by the National Commission to constitute a new contract, which is impermissible in law," the bench said.

The court allowed appeals by Hongkong and Shanghai Banking Corporation, Citibank, American Express Banking Corporation, Standard Chartered Bank, Housing Development Finance Corporation against the NCDRC's order on a complaint by 'Awaz', a voluntary organisation.

In its judgment on December 20, 2024, the bench held the administrative policy decisions of banks, do not constitute provisions or facilities of banking, which may come under the umbrella of ‘service’, defined under section 2(1)(o) of the Consumer Protection Act, 1986.

The bench also pointed out the rate of interest, charged by the banks, determined by the financial wisdom and directives issued by the Reserve Bank of India, and is duly communicated to the credit card holders from time to time, cannot be in any manner unconscionable or unilateral.

"The credit card holders are duly educated and made aware of their privileges and obligations, including timely payment and levying of penalty on delay," it said.

The court noted the pre-conditions of ‘deceptive practice’ and unfair method’ are manifestly absent in present context.

"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 said.

Even on merits, the bench noted, the Reserve Bank of India, has made it clear before the court that there exists no material on record, to establish that any bank has acted contrary to the policy directives issued by the regulator.

"Even otherwise, there is not even a single averment so as to establish how the charging of rates of interest upon the default by credit card holders, without a standardised rate, is usurious and constitutes an unfair trade practice. The mere inflation in the rates of interest cannot be construed as a practice, intended to cause loss or injury," the bench said.

The appellant banks contended the decision by the Commission was against the mandate of the Constitution and the legislative intent of the Reserve Bank of India Act, 1934.

The original complaint filed by NGO Awaz not only fails to meet the criterion of a complaint u/s 12 r/w 13 of the Consumer Protection Act, 1986, but is a public interest litigation, guised as a consumer dispute which could not have been entertained by the Commission, being beyond its inherent jurisdiction, they said.

The NGO maintained the rates of interest charged by the banks from its credit cardholders is usurious and exploitative in nature.

The court, however, said for condemning an act as an unfair trade practice, the key is to examine the ‘modus operandi’ i.e. whether there is any false statement or misrepresentation, or deception. In the present context, the pre-conditions of ‘deceptive practice’ and unfair method’ are manifestly absent, it said.

In the case, the court also said the Commission had no jurisdiction to re-write the said terms of the contract entered between the banks and the credit cardholders, which the parties have mutually agreed to be bound by.

The court emphasised that the RBI is the prime regulator and the decision-making authority for the economic or financial decisions of the Indian economy.

"Any endeavour by the National Commission or any other Court/Tribunal to decide at the behest of the RBI cannot be termed to be just, fair and equitable," it said.

The court also declared the Commission had no jurisdiction to either entertain a complaint, having vague, ambiguous allegations and no cause of action, and further also had no jurisdiction to assume the jurisdiction of the Reserve Bank of

India, or act or decide or regulate on its behest, any monetary decision or policy.

"We are thus, of the considered opinion that the challenge by the complainants that the guidelines issued by the RBI are arbitrary and not in public interest, is wholly without basis," the bench said.

The court held in the case, the Commission has assumed jurisdiction and expertise over the RBI, whilst observing that a ceiling on the rates of interest, is the purported solution to the alleged exploitation of credit card holders.

"It has made observations, that are contrary to the legislative intent of Section 21A of the Banking Regulation Act, 1949 that provides for a statutory bar on any court/tribunal to re-open transactions, that the rate of interest charged by the banking company in respect of such transaction is excessive," the court said.