CUTTACK: In a significant ruling, the Orissa High Court has held that a bank cannot convert a borrower’s right to mobility into a chargeable commodity and struck down the imposition of foreclosure charges on an MSME unit whose loan had already been taken over by another lender.
The judgment by the single judge bench of Justice SK Panigrahi came in response to a petition filed by a private poultry unit in Berhampur. The petitioner firm Maa Tarini Poultry Pvt Ltd had initially availed a term loan of Rs 1.80 crore from the main branch of Indian Bank in Berhampur. Later, opting to shift its credit facilities, the unit approached HDFC bank in the city for takeover of its loan accounts. After clearing all outstanding instalments, the private bank formally took over the petitioner’s loan on May 26, 2024, and the borrower discharged the entire dues in full.
However, despite the complete repayment, the nationalised bank raised a four per cent foreclosure charge, treating the transfer as premature loan closure. The bank also refused repeated requests to return the petitioner’s original title deeds, property documents and collateral securities.
The court noted that despite repeated and bona fide requests, the nationalised bank refused and neglected to take any action or even respond to the petitioner’s communication. With the documents withheld and no relief forthcoming, the petitioner moved the high court on August 14.
Justice Panigrahi observed that the borrower had produced sufficient proof of payment and that the bank had shown no credible justification for retaining the documents. The judge termed the bank’s conduct arbitrary and violative of the petitioner’s proprietorial rights. Allowing the writ petition, court held that the petitioner was entitled to waiver of the foreclosure charges. It directed the bank to forthwith release the petitioner MSME’s property documents along with all other allied documents without insisting on payment of such charges. Justice Panigrahi also directed the bank to file a compliance affidavit within a month, allowing the petitioner to seek further directions in case of non-compliance.
Justice Panigrahi stressed that foreclosure and prepayment penalties deter borrowers from repaying loans early or shifting lenders. Such charges, he noted, stifle competition, force customers to remain tied to a particular bank and impose an unwarranted restriction on freedom of trade and choice of consumer.