Can the banks still demand foreclosure charge?
K.K.Ganguly
(Querist) 24 August 2012
This query is : Resolved
One of my client wanted to foreclose his loan account but the Bank did not respond. Now his account has become NPA & the bank has initiated SARFAESI Proceedings. In the notice u/s13(2) of SARFAESI ACT,2002, the bank has demanded Rs.26,542/- towards foreclosure charge.
I had read some where that RBI has directed all Banks to stop collecting foreclosure charge.
My question is
1) Can Banks still levy foreclosure charges from defaulting borrowers?
2) If not then from which date & against which circular foreclosure charges have been barred to be levied on the defaulting borrowers or the borrowers who want to foreclose their loan accounts.
Thanks in advance.
c.p.s. ramachary
(Expert) 25 August 2012
Dear Mr Ganguly,
According to Sec.67 of T.P.Act foreclosure is right of mortgagee and not the right of mortgagor. If you mean foreclosure of loan it should be called as 'pre-closure' of loan account.This right of the borrower might have been recited in the loan documents. You have to verify the same. If there is no such recital, in the loan documents the bank has to accept the pre-closure of the loan account without insisting for preclosure charges or any demur. The pre-closure charges would be 2% of the balance amount remained unpaid in the loan account. This condition would be waived as a matter of right of the borrower on completion of the period agreed upon by the parties in the loan documents. Even if your client is defaulter of loan it makes no difference if he wish to close the account and there can not be any bar for exercise of this right. Bank cannot resort to foreclosure action under Sec.67 of T.P.Act when the borrower prefers for pre-closure of the loan account. The bank cannot claim preclosure charges while resorting to action under SARFAESI Act.Though RBI has instructed all the banks to waive pre-closure charges of 2% against home loan of remaining outstanding amount but still few banks denies on waiving any charges. RBI has done a press release on 17-Apr http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=26314) wherein they have declared that banks should not charge fore-closure penalty, however, they are yet to issue any circular to any bank to this effect.
Bank is supposed to accept the borrower's request. The borrower may deposit the balance amount of loan amount without paying the pre-closure charges specified in your query. If the bank refuses, the borrower can complain to Banking Ombudsman or "The Banking Codes and Standards Board of India (BCSBI)" for redressal(IBA acts as help desk in these matters) and also contest the demand of the bank under Sec 17 after the stage under Sec. 13(4)of the ACT.
K.K.Ganguly
(Querist) 25 August 2012
Thank you sir. Immensely helped. I am obliged.
RAJU O.F.,
(Expert) 27 August 2012
For a balance of less than Rs.1,00,000/- due, bank cannot take proceedings under SARFAESI Act.
