The case originated from a complaint filed by “Awaz,” a voluntary consumer association, alleging that banks charged exorbitant interest rates of 36% to 49% per annum on delayed payments by credit card holders. The National Consumer Disputes Redressal Commission (NCDRC) ruled that charging interest rates above 30% per annum constituted an unfair trade practice. It also directed that penal interest be charged only once per default period and prohibited its capitalisation. The banks challenged the decision, contending that interest rate regulation falls under the exclusive jurisdiction of the Reserve Bank of India (RBI), and NCDRC exceeded its jurisdiction while supplanting its own views with the view of experts like RBI.
Key Issues
- Jurisdiction of NCDRC
- Could the NCDRC interfere with interest rate regulation, a domain reserved for the RBI?
- Did the NCDRC have the authority to fix a ceiling on interest rates?
- Locus Standi of Complainants
- Did the complainants have legal standing to approach the NCDRC?
- Were the complainants’ grievances valid under the Consumer Protection Act, 1986?
- Validity of Interest Rates and Banking Practices
- Were the interest rates charged by the banks exploitative or in violation of RBI guidelines?
- Could such charges be deemed an unfair trade practice under consumer protection laws?
- Interference with Contracts:
- Could the terms of contracts between banks and credit card holders, including interest rates, be altered by the NCDRC?
Findings of the Supreme Court
Jurisdiction of the NCDRC
The Court held that the NCDRC exceeded its jurisdiction by regulating interest rates. Under Sections 21A and 35A of the Banking Regulation Act, only the RBI has the statutory authority to regulate interest rates and oversee banking practices. The NCDRC’s decision to cap interest rates at 30% per annum was an unauthorised intrusion into the RBI’s domain. The Court clarified that the RBI’s circulars and directives, which allow banks to determine credit card interest rates independently, have statutory force and cannot be overridden by consumer forums.
Locus Standi of Complainants
The Court opined that the complainants lacked locus standi as they were not “consumers” under the Consumer Protection Act, 1986. “Awaz” was a trust, and trusts are not recognised as “persons” or “consumers” under the Act.Further, it was observed that the complaint, filed in a representative capacity, did not comply with procedural requirements, such as obtaining permission from the NCDRC to act on behalf of a group under Section 12 read with 13 of the Consumer Protection Act, 1986.
Validity of Interest Rates and Banking Practices
The Court believed that the interest rates charged by banks were in accordance with RBI guidelines and market dynamics. The Court found no evidence of unfair trade practices or deceptive methods by the banks. Customers were made aware of the terms and conditions, including interest rates, through transparent disclosures at the time of issuance of credit cards.
Interference with Contracts
The Court emphasised that it is impermissible for judicial forums to rewrite or alter the terms of valid contracts unless they are proven to be arbitrary, discriminatory, or contrary to public policy. The interest rates, being part of the mutually agreed terms between banks and credit card holders, were binding. The NCDRC’s decision to unilaterally impose restrictions interfered with the freedom of contract.
Key Legal Principles Established
Exclusive Domain of RBI
The regulation of interest rates and banking operations is the sole prerogative of the RBI. Courts and consumer forums cannot interfere unless there is a clear violation of statutory provisions. Section 21A of the Banking Regulation Act explicitly prohibits courts from reopening transactions on the grounds of excessive interest rates.
Consumer Protection Act Limitations
Consumer forums cannot adjudicate public interest issues disguised as consumer disputes. Trusts are not recognised as consumers under the Act, and complaints filed without adhering to procedural requirements lack merit.
Contracts and Judicial Scrutiny
The courts cannot rewrite contracts or impose new terms on parties unless the terms are shown to be manifestly unfair or unconscionable. The Supreme Court upheld the validity of the contracts between banks and credit card holders, finding no evidence of coercion or unilateral dominance.
No Unfair Trade Practices
To qualify as an unfair trade practice, there must be evidence of deceptive methods or misrepresentation. The Court found that the banks had acted transparently and in compliance with RBI guidelines.
Conclusion
The Supreme Court overturned the NCDRC’s decision, allowing the appeals filed by the banks. It held that the NCDRC lacked jurisdiction to regulate interest rates or interfere in matters under the RBI’s regulatory domain. The complainants had no standing to file the case and failed to establish any unfair trade practices by the banks. The contracts between banks and credit card holders, including the interest rates charged, were valid and could not be judicially altered. The judgment reaffirms the RBI’s authority as the sole regulator of banking practices and limits the scope of consumer forums in such matters.
Impact of this Judgment
This judgment upholds the autonomy of the RBI in regulating the financial sector and sets a precedent for respecting the statutory boundaries of consumer forums and other judicial bodies. It ensures that banking operations remain governed by established regulatory frameworks rather than ad hoc judicial interventions.
Authors: Manisha Singh and Nisha Sharma
First Published by: Mondaq here