The Supreme Court, in the appeals from the National Consumer Disputes Redressal Commission’s ( NCDRC ) judgment in a case involving the imposition of high interest rates by banks on credit cardholders, ruled that RBI holds exclusive authority over matters related to banking operations, including the determination of interest rates.
The bench of Justices Bela M. Trivedi and Satish Chandra Sharma ruled that the contract terms between the banks and credit cardholders cannot be rewritten by the National Consumer Disputes Redressal Commission ( NCDRC ) if parties are mutually agreed to be bound by.
The appellants, including major foreign banks like Hong Kong Shanghai Corporation, Citibank, American Express Banking Corporation, Standard Chartered Bank, challenged the NCDRC’s ruling that charging interest rates exceeding 30% per annum and capitalizing penal interest constituted unfair trade practices.
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The appellants argued that the Reserve Bank of India (RBI) has exclusive authority to regulate interest rates under the Banking Regulation Act, 1949, and that the NCDRC had overstepped its jurisdiction.
They contended that the complaint did not qualify as a consumer dispute but resembled public interest litigation, as the complainants sought a ceiling on interest rates and the refund of over ₹5 crores in excessive charges.
On the other hand, the respondents, a consumer association, argued that the banks’ interest rates violated RBI guidelines and were exploitative. They claimed that the charges, including hidden fees and compounded interest, were unfair and unreasonable, falling within the scope of services under the Consumer Protection Act, 1986. They also referred to recommendations for amending the Indian Contract Act to address unfair contract terms, asserting that the National Commission had the jurisdiction to adjudicate such matters.
The Reserve Bank of India (RBI) asserted its authority to regulate interest rates under the Banking Regulation Act, emphasizing that banks are allowed to set their own rates within regulatory guidelines. The RBI also maintained that its circulars and directives provided the necessary framework for determining interest rates and that the National Commission had no jurisdiction to interfere with this regulatory function.
The Supreme Court, after hearing both sides, identified key issues: whether the respondents had the locus standi to approach the NCDRC, whether the NCDRC had the jurisdiction to interfere with banking operations regulated by the RBI, and whether the NCDRC could unilaterally impose a ceiling on interest rates.
The Court concluded that the complainants (here it is the respondents) failed to meet the legal requirements to file the complaint in a representative capacity and that the complaint was more of a public interest litigation.
The bench observed that “When a party to the contract disputes the binding nature of the signed document, it is for him to prove the terms, in the contract, or circumstances in which he came to sign the documents, need to be established20. Hence, the National 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.”
In addition it was stated that “It is correct to say that the National Commission has been duly empowered under the statute to set aside unfair contracts, which may symbolise a single will or are unilaterally dominant or incorporate terms which are unfair and unconscionable. However, the rate of interest, charged by the banks, determined by the financial wisdom & 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 & levying of penalty on delay.”
It also agreed that the issue of interest rates fell under the RBI’s domain, and the National Commission had no authority to impose a ceiling on them.
The Court stated that judicial intervention in economic policies was limited and that the RBI’s discretion in regulating banking operations should not be undermined by the National Commission.
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