IN THE HIGH COURT OF JUDICATURE AT PATNA Letters Patent Appeal No.1815 of 2011 In Civil Writ Jurisdiction Case No. 9479 of 2010 With Interlocutory Application No. 8199 of 2011 In Letters Patent Appeal No.1815 of 2011 ====================================================== Chandeshwar Prasad Singh, son of Late Ramashray Singh, Resident of Pakari (In front of Old Post Office), P.S.-Ara Nawada, District-Bhojpur. .... .... Petitioner/Appellant Versus 1. The State Bank of India through its Chairman. 2. The Chairman, State Bank of India, Central Office, State Bank Bhawan, Madam Cama Road, Nariman Point, Mumbai-400021, Maharastra. 3. The Chief General Manager, State Bank of India, West Gandhi Maidan, Patna-800001. 4. The Branch Manager, State Bank of India, Station Road, Ara, District- Bhojpur. 5. Sri Shekhar Kumar Thakur, son of Sri Baleshwar Thakur, Resident of Village-Kabir Chak, P.S.-Donal Chak, District-Darbhanga, the then Personal Banking Manager, S.B.I. Station Road, Ara Branch, District- Bhojpur. .... .... Respondents/Respondents ====================================================== Appearance : For the Appellant : Mr. Hari Shankar Roy, Advocate For the Respondents : Mr. Kaushlendra Kumar Sinha, Advocate Mr. Sunil Kumar Singh, Advocate ====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE BIRENDRA PRASAD VERMA ORAL ORDER (Per: HONOURABLE THE CHIEF JUSTICE) Patna High Court LPA No.1815 of 2011 (2) dt.01-12-2011 2 / 6 2 2. 01-12-2011 Interlocutory Application No. 8199 of 2011: The delay of 52 days occurred in filing the Letters Patent Appeal is condoned. Interlocutory Application stands disposed of. Letters Patent Appeal No.1815 of 2011: With the consent of the learned advocates, the Appeal is heard and decided today. Feeling aggrieved by the judgment and order dated 25th August 2011 passed by the learned single Judge in above C.W.J.C. No. 9479 of 2010, the writ petitioner has preferred this Appeal under Clause 10 of the Letters Patent. Learned advocate Mr. Hari Shankar Roy has appeared for the appellant. Of the several reliefs prayed in the writ petition, the only issue which is pressed before us is the manner of interest charged by the respondent State Bank of India during moratorium period. The appellant and his son Sarwesh Chandra had, under the loan agreement dated 12th December 2003, borrowed an education loan of Rs. Two lacs from the respondent State Bank of India (hereinafter referred to as „the Bank‟) for the purpose of higher education of the son Sarwesh Chandra. Under the terms and conditions of the loan agreement, the appellant was not liable to pay the amount of interest during the moratorium period. After completion of the moratorium period, the amount of interest accrued during the moratorium period was liable to be added to the principal amount. According to the loan agreement, the monthly instalments for repayment of loan would be determined on the basis of such composite amount (the principal amount + the amount of interest accrued during the moratorium period). Such amount was liable to be repaid in 84 equated monthly instalments Patna High Court LPA No.1815 of 2011 (2) dt.01-12-2011 3 / 6 3 after the completion of the moratorium period. It appears that under the loan agreement the appellant was required to start repayment of loan amount from July 2007, which he failed to comply. Instead, he started the repayment of amount of monthly instalments from March 2008. It is the grievance of the appellant that the monthly instalment of Rs.4,000/- was altered by the Bank and the Bank unilaterally withdrew a sum of Rs.5,500/- from the account of the appellant. Feeling aggrieved, the appellant approached this Court under Article 226 of the Constitution. The learned single Judge has held that the Bank had acted in accordance with the loan agreement and has dismissed the writ petition. Learned advocate Mr. Hari Shankar Roy has appeared for the appellant. He has relied upon the Education Loan Scheme of the Reserve Bank of India. He has submitted that the actual course of education and one year thereafter or six months from the date of employment, whichever is earlier, is considered to be a “repayment holiday/repayment moratorium”. During the said period, the borrower is charged simple interest and not the compound interest normally the banks charge. He has submitted that in case of the appellant the Bank has charged compound interest for the period of moratorium also. Learned advocate Mr. Kaushlendra Kumar Sinha has appeared for the Bank. He has contested the Appeal. He has relied upon the loan agreement (annexures-C and D to the counter affidavit filed by the Bank in the writ petition). He has submitted that under the loan agreement in case of default in payment of instalments the Bank is entitled to recover penal interest @ 2% per annum over the agreed interest rate. We quite appreciate the right of the Bank to charge penal interest for default in repayment of loan amount. However, Patna High Court LPA No.1815 of 2011 (2) dt.01-12-2011 4 / 6 4 nothing in the loan agreement indicates that in case of default of repayment of the loan amount the Bank shall be entitled to charge compound interest during the repayment moratorium. The relevant Clause 4 reads as under: “4. Repayment: The loan is to be repaid in Equated Monthly Instalment in 84 months after commencement of repayment. The repayment instalment will commence 1 year after the course period of 48 months or completion of the course or after 6 months of getting a job, whichever is earlier. You should advise the bank once the course is completed or a job has been secured. The amount of equated monthly instalment will be fixed at the time of commencement of repayment by also adding the interest accrued during the repayment holiday period to the principal amount. Your liability to the bank will be extinguished only when the outstanding in the loan account becomes Nil, on payment of residual amount, if any. The amount of equated monthly instalments and the number of EMI may change depending upon the change in rate of interest, at the sole discretion of the Bank.” Learned advocate Mr. Kaushlendra Kumar Sinha has failed to point out any term or condition of the loan agreement which enables the Bank to recover compound interest during the moratorium period/repayment moratorium. On the contrary, we find that clause 3 of the agreement which deals with the rate of interest provides for certain concessions in case the borrower pays the interest during the moratorium period. Patna High Court LPA No.1815 of 2011 (2) dt.01-12-2011 5 / 6 5 To us, it appears that the Reserve Bank of India has devised a special scheme for education loan whereunder for the course period and for one year thereafter, the borrower is not supposed to repay any part of the loan amount; the repayment schedule commences only after the education is completed. Further during the education period and one year thereafter (the moratorium period) simple interest is charged. The amount of simple interest, if not paid during the moratorium period, is added to the principal amount to work out the monthly instalments and the period of repayment of loan amount. Neither the scheme framed by the Reserve Bank of India nor the terms and conditions of the loan agreement provides for charging compound interest during the moratorium period; not even in case of failure or default in repayment of loan amount or any of the equated monthly instalments. In our view, in absence of any specific covenant enabling the Bank to charge compound interest during the period of moratorium, the Bank is not justified in charging compound interest for the moratorium period. In the present case though the appellant raised a specific plea that the Bank had calculated compound interest during the moratorium period; the statement is not denied by the Bank nor has the Bank made specific assertion that what the Bank charged during the moratorium period was a simple interest at the agreed rate. In absence of such denial or the assertion we have but to hold that the Bank had in charging compound interest during the moratorium period acted highhandedly. Such an action of the Bank is neither supported by the scheme framed by the Reserve Bank of India nor by the terms and conditions of the loan agreement. In the aforesaid circumstances, the Appeal is allowed. The impugned judgment and order dated 25th August 2011 passed Patna High Court LPA No.1815 of 2011 (2) dt.01-12-2011 6 / 6 6 by the learned single Judge in C.W.J.C. No. 9479 of 2010 is set aside. C.W.J.C. No. 9479 of 2010 is allowed to the extent that the respondent State Bank of India will charge a simple interest at the agreed rate for the moratorium period commencing from July 2003 and ending in June 2007. The Bank will re-compute the amount of interest accrued during the period of moratorium as aforesaid and work out the amount due at the end of the period of moratorium. The said exercise will be completed by the Bank within three weeks from today. After re-computation of the amount due, as aforesaid, the bank will immediately inform the appellant accordingly. On the basis of the computation of amount due and the amount already paid by the appellant, the Bank will, if required, reschedule the equated monthly instalments. Such reschedulement will be made latest by 31st January 2012 in consonance with the terms and conditions of the loan agreement. The appellant will be informed and will be provided with the statement of accounts prepared in compliance with the directions issued in this order within one week from the reschedulement of the equated monthly instalments. We clarify that we have not expressed any opinion on the Bank‟s right to recover penal interest for default in repayment of loan amount or of any of the equated monthly instalments. Pawan/- (R.M. Doshit, CJ) (Birendra Prasad Verma, J)