Summary
The Supreme Court set aside the National Consumer Disputes Redressal Commission's ruling that banks charging credit card holders interest above 30% p.a. on delayed payment commit an unfair trade practice, holding that the complaint by consumer trusts was not maintainable, that fixing or capping interest rates lies in the Reserve Bank of India's statutory domain and is barred from court scrutiny by Section 21A of the Banking Regulation Act, 1949, and that disclosed contractual interest terms involve no deception amounting to an unfair trade practice.
Issues
- Whether the complainant trusts had locus to file a representative consumer complaint before the National Commission.
- Whether the National Commission could interfere with banking operations and interest-rate policy falling within the statutory domain of the Reserve Bank of India.
- Whether the National Commission could fix a ceiling of 30% p.a. on interest charged to credit card holders for delayed or partial payment in the absence of any RBI directive.
- Whether the National Commission's order impermissibly rewrote the contract between banks and cardholders.
- Whether charging interest as permitted by RBI circulars, without a prescribed ceiling, constitutes an unfair trade practice.
Provisions considered
- Sections 2(1)(d), 2(1)(m), 12(1)(b) and 13(6), Consumer Protection Act, 1986The Court held that a representative complaint requires prior permission under the Order I Rule 8 CPC procedure incorporated by Section 13(6), read into Section 12(1); here permission was sought only after judgment was reserved and never granted. Following Pratibha Pratisthan v. Canara Bank, a trust is not a 'person' under Section 2(1)(m) and so not a consumer. (¶¶ 40, 41, 42, 43, 44)
- Section 2(1)(o), Consumer Protection Act, 1986The Court held that banks' administrative policy decisions on rates of interest are not banking facilities falling within 'service', but a regulatory matter within the RBI's domain beyond the National Commission's scrutiny. (¶ 46)
- Section 2(1)(r) (unfair trade practice), Consumer Protection Act, 1986Applying the ingredients in Colgate Palmolive v. MRTP Commission, the Court held that an unfair trade practice turns on the modus operandi of false statement, misrepresentation or deception in promoting goods or services; banks disclosing their interest terms in the Most Important Terms and Conditions used no deceptive or unfair method. (¶¶ 51, 67, 68, 69, 70)
- Section 21A, Banking Regulation Act, 1949The provision bars any court from reopening a transaction between a banking company and its debtor on the ground that the interest rate is excessive. The Court held the Commission's declaration that interest above 30% p.a. is usurious contrary to this bar, notwithstanding the Commission's claim that it was only examining unfair trade practice; following Central Bank of India v. Ravindra, interference is permissible only for breach of RBI directions. (¶¶ 11, 50, 51, 52)
- Sections 21 and 35A, Banking Regulation Act, 1949The RBI's power to determine advances policy and issue binding directions in the public interest or in the interest of banking policy gives its circulars statutory force; the Court held the RBI alone frames this mandate, courts only check abuse of that authority, and the RBI cannot be directed to impose an interest cap. (¶¶ 34, 48, 49, 52, 58, 60, 71)
Held
- A representative consumer complaint cannot be maintained without prior permission under the Order I Rule 8 CPC procedure prescribed by Section 13(6) of the Consumer Protection Act, 1986, which is read into Section 12(1); an application filed after arguments concluded and never decided does not cure the defect. A trust is not a 'person' and hence not a consumer, per Pratibha Pratisthan v. Canara Bank, which remains the law despite a pending reference. (¶¶ 42, 43, 44)
- The complaint disclosed no deficiency in service, was a public interest litigation in the guise of a consumer dispute, and was effectively brought on behalf of one cardholder whose claim fell outside the National Commission's pecuniary jurisdiction; directions must rest on material and evidence, not bald averments. (¶¶ 45, 47)
- Interest-rate policy is a regulatory function of the Reserve Bank of India, whose directions and circulars have statutory force and are treated as an extension of the statute. Courts may only examine whether that authority is abused and must not take over the expert regulator's task or substitute their views on economic policy. (¶¶ 46, 48, 49, 56, 57, 58, 59)
- The National Commission's holding that interest above 30% p.a. is usurious and an unfair trade practice runs contrary to Section 21A of the Banking Regulation Act, 1949 and encroaches on the RBI's domain; under Central Bank of India v. Ravindra, courts may interfere where interest contravenes RBI directions, but not on the ground that it is excessive under general law. (¶¶ 50, 51, 52, 53)
- A statutory authority exercising delegated legislative power cannot be directed to make a particular subordinate law; hence the RBI cannot be directed to cap interest on credit card dues, and its directions, not shown to be arbitrary, mala fide or unreasonable, cannot be condemned. (¶¶ 60, 61, 71)
- Contractual terms between parties are not open to judicial scrutiny unless arbitrary, discriminatory, mala fide or actuated by bias. Where the interest and charges were disclosed to informed cardholders before cards were issued, the National Commission could not rewrite the terms, including the interest rate, as that would create a new contract. (¶¶ 62, 63, 64, 65)
- Charging interest on default in accordance with RBI directions and disclosed terms involves no misrepresentation or deception and is not an unfair trade practice; a high rate by itself does not show a practice intended to cause loss or injury, and interest so determined and communicated is not unconscionable or unilateral, though the Commission may set aside genuinely unfair contracts. (¶¶ 68, 69, 70)
Result
Appeals allowed; the National Commission's judgment of 07.07.2008 in Complaint Case No. 51 of 2007 set aside; no order as to costs.