Banking operations including interest rates entrusted to RBI and not with consumer forums

Case Citation

Court Name: Supreme Court of India
Case Title: Hongkong and Shanghai Banking Corporation Ltd. v. Awaz & Ors.
Case Number: Civil Appeal No. 5273 of 2008
Date of Judgment: December 20, 2024
Judges: Justice Bela M. Trivedi and Justice Satish Chandra Sharma

Facts of the Case
This case arises from a common judgment and order passed by the National Consumer Disputes Redressal Commission (NCDRC), Delhi. The NCDRC had held that the charging of interest by banks at rates exceeding 30% per annum on credit card dues constitutes an unfair trade practice. The appellants, including Hongkong and Shanghai Banking Corporation Ltd., Citibank, and other major banks, challenged this decision, asserting that determining interest rates is a function exclusively within the Reserve Bank of India’s (RBI) domain. They also contended that the NCDRC lacked the jurisdiction to intervene in banking operations, which are regulated by the Banking Regulation Act, 1949.

Contentions of the Appellant
The appellants argued that:

1. The regulation of interest rates falls under the exclusive domain of the RBI, as per Sections 21A and 35A of the Banking Regulation Act, 1949.
2. The NCDRC overstepped its jurisdiction by attempting to cap interest rates, violating the statutory authority of the RBI.
3. The original complaint did not meet the criteria for a consumer dispute and was instead a public interest litigation disguised as a consumer case.
4. The terms and conditions of credit card usage, including interest rates, were transparently communicated to customers.
5. Charging interest on credit card dues was in compliance with RBI circulars, which granted banks discretion to determine interest rates based on market forces.

Contentions of the Respondent
The respondents contended that:

1. The banks were charging exorbitant and exploitative interest rates on credit card dues, amounting to unfair trade practices under the Consumer Protection Act, 1986.
2. The RBI had failed to regulate these rates adequately, necessitating intervention by the consumer commission.
3. The unilateral terms imposed by the banks constituted unconscionable contracts.
4. A benchmark interest rate ceiling should be established to protect consumers from usurious practices.

Issues on This Judgment

1. Whether the NCDRC has the jurisdiction to regulate interest rates charged by banks.
2. Whether the charging of interest rates exceeding 30% per annum constitutes an unfair trade practice.
3. Whether the original complainants had the locus standi to file a consumer complaint.
4. Whether the contractual terms between banks and credit cardholders could be interfered with by the NCDRC.

Observations/Findings/Analysis of the Supreme Court
The Supreme Court found that regulation of interest rates is exclusively under the purview of the RBI, as per statutory provisions. The NCDRC acted beyond its jurisdiction by attempting to set a cap on interest rates and by encroaching upon the RBI’s domain. The original complaint failed to meet the requirements of the Consumer Protection Act and was more akin to a public interest litigation. The contractual terms between the banks and credit cardholders, being transparently communicated and agreed upon, could not be unilaterally altered by a judicial or quasi-judicial body. The charging of interest rates above 30% per annum does not automatically constitute an unfair trade practice unless there is evidence of deceptive or misleading conduct by the banks.

Principles Laid Down by the Court

1. The regulation of banking operations, including interest rates, is a legislative function entrusted to the RBI and not within the purview of consumer forums.
2. Consumer protection laws cannot override specialized statutory frameworks governing financial institutions.
3. Contracts freely entered into by parties cannot be re-written by courts unless they are proven to be unconscionable or contrary to public policy.
4. The jurisdiction of consumer forums must be exercised within the boundaries of the Consumer Protection Act, without encroaching on the domain of regulatory bodies.

Final Order
The Supreme Court set aside the NCDRC’s judgment and held that:

1. The appeals filed by the banks were allowed.
2. The NCDRC’s directions on capping interest rates and labeling rates above 30% per annum as unfair trade practices were quashed.
3. No costs were imposed on either party.

Importance of This Judgment to Society
This judgment underscores the importance of maintaining institutional boundaries and respecting the specialized functions of regulatory bodies like the RBI. By reinforcing the RBI’s exclusive authority over banking operations, the ruling safeguards the stability and predictability of financial markets. It also highlights the need for consumer forums to operate within their jurisdiction, ensuring that their decisions do not inadvertently disrupt regulatory frameworks.