In a recent decision by the Mysore District Consumer Forum (dated 11-11-09 in Complaint No. CC/09/278), a person who had complained about being charged excessive interest rates has not only been denied compensation but also fined for filing a frivolous complaint. This judgment seems contrary to law.
H.N. Nagendra had pledged ornaments with Manapuram Finance and Leasing Limited and borrowed Rs. 5,700. When he was late on his payments, he was charged compound interest on the outstanding amount. Nagendra filed a complaint before the Mysore District Forum saying that the demand of compound interest is illegal and contrary to the Money Lenders Act.
During the hearings before the forum, the finance company produced a document signed by Nagendra in which he had agreed to pay 24% interest on the loan and 3% overdue interest. It argued that when the complainant had agreed to pay interest at these rates, he could not contend contrary to it and he was bound by the terms and conditions of the contract.
The District Forum agreed with the finance company and said that there was no deficiency in service by it. It decided that Nagendra had filed a frivolous complaint and fined him Rs. 1000 for doing so.
But the decision of the Forum seems to fly against the law. Karnataka Money Lenders Act, 1961 makes charging interest at a rate higher than the rate fixed by the Karnataka State Government a criminal offence punishable by imprisonment of upto three months.
There is another law, Karnataka Prohibition of Charging Exorbitant Interest Act, 2004, which makes the penalty harsher by extending it to a limit of three years. The maximum interest rate fixed by Karnataka Government is 15% maximum for secured loans and 18% maximum for unsecured loans. Since, Nagendra's loan was secured with ornaments, the finance company could not have charged more than 15% interest without violating the law. Sec. 28(2) of the PCEI Act also says "Notwithstanding anything contained in any law for the time being in force, no agreement between a money-lender and a debtor for payment of interest at a rate exceeding the maximum rate fixed by the State Government under sub-section (1), shall be valid and no Court shall in any suit to which this Act applies award interest exceeding the said rates". So the contract signed by Nagendra in which he agreed to pay 24% interest and 3% overdue interest was not valid and the finance company still could not charge more than 15% interest. It appears that the District Forum did not consider this fact. So it was not correct in upholding the argument of the finance company. In light of the two laws mentioned above, Nagendra's complaint was valid and was not frivolous.