Terms of contract override sales pitch

The SC said that Monga could not be allowed to question the interest rate after having acquiesced by signing the loan agreement

Rajesh Monga wanted a home loan and was considering the various options available. The officials of Housing Development Finance Corporation (HDFC) told Monga that the rate of interest would fluctuate as it would be governed by the Prime Lending Rate (PLR) fixed by the Reserve Bank of India (RBI). HDFC also sent an email giving a comparative chart to convince Monga that its rate was better than what some other lenders were offering.
 

On the basis of representations made, Monga opted for HDFC and availed a loan of Rs 3.5 crore, which was disbursed to builder DLF Universal in instalments between January 2006 and December 2007. Prior to the disbursal of the loan, an agreement was executed between Monga and HDFC, which stated that the loan was being sanctioned at 7.25 per cent per annum. This rate would be adjustable depending on its own PLR.
 

HDFC revised the rate of interest to 8.25 per cent even though RBI had not made any change in the PLR. He represented to the bank that higher interest was being levied, which was inconsistent with the terms of the contract. However, no relief was granted. On the contrary, the interest rate was later hiked to 8.75 per cent, then to 9.25 per cent, and finally to 10.5 per cent, without any corresponding change in the RBI’s PLR.
 

Aggrieved, Monga had a legal notice issued to HDFC. He demanded a refund of the interest charged in excess of the agreed rate of 7.5 per cent per annum. The lender replied that the loan was issued with an adjustable interest rate, and the hike

in interest was correctly levied in consonance with HDFC’s own retail lending rate.
 

Monga filed a complaint before the National Consumer Disputes Redressal Commission, challenging the imposition of a higher rate of interest. The Commission noted that the crux of the dispute was whether an adjustable rate of interest would apply only when the rate of interest was altered by the RBI or whether it could be altered by HDFC when it revised its own retail lending rate.
 

The Commission observed that HDFC is a non-banking financial company and not a bank. So, it would be entitled to frame its own policies with regard to lending and recovery. It further noted the agreement defined “adjustable rate of interest” as the rate which would be announced by HDFC from time to time as its retail prime lending rate. So, the Commission concluded that HDFC had the right to revise the interest rate based on its own retail lending rate, regardless of the PLR fixed by the RBI.
 

As regards the pre-loan correspondence, the Commission observed that it would not be relevant as Monga was educated and had entered into a contract that was unambiguous and clear about the manner of levying the interest. The National Commission dismissed Monga’s complaint, who then appealed to the Supreme Court (SC).
 

The apex court observed that there was no misrepresentation in the pre-loan correspondence and endorsed the view that the correspondence exchanged between the parties cannot override the contract executed subsequently. It also confirmed that HDFC, a finance company, was entitled to formulate its own policy. The SC concluded that Monga could not be allowed to question the interest rate after having acquiesced by signing the loan agreement. Accordingly, by its order of March 4, 2024, delivered by Justice A S Bopanna for the Bench along with Justice M M Sundresh, the SC dismissed Monga’s appeal.

The writer is a consumer activist