1.       This revision has been filed under section 21(b) of The Consumer Protection Act, 1986 in challenge to the Order dated 08.12.2011 of the State Commission in appeal no. 93 of 2010 arising out of the Order dated 21.08.2008 of the District Commission in complaint no. 84 of 2006.

2.       Heard the learned counsel for the complainant (the petitioner herein) and for the financial institution (the respondents no.2 and no. 3 herein).

No one appears for the insurance co. (the respondents no.1, no.4, no. 5 and no. 6 herein).

Perused the record including inter alia the Order dated 21.08.2008 of the District Commission, the impugned Order dated 08.12.2011 of the State Commission and the petition.

3.  Brief facts, as evincing from the appraisals made by the two fora below, are that the complainant was a borrower in house building loan account no. 240005834 (the loan was taken in 1997). He had taken 03 insurance policies, for Rs. 50,000/-, Rs. 1,00,000/- and Rs. 1,00,000/-, which had been assigned to the financial institution. His wife was a borrower in a separate house building loan account no. 240007177, in which he i.e. the complainant was the guarantor (this loan was taken in 1998). His wife had taken separate insurance policies in her own name and assigned the same to the financial institution. On 28.07.2005 he gave written instructions to surrender the policies and to credit their surrender values into his loan account no. 240005834. The surrender value of the first policy amounting to Rs. 30,841/- was received by the financial institution on 22.10.2005, and credited into his loan account. The surrender value of the second policy amounting to Rs.38,524/- was received on 15.11.2005, and also credited into his loan account. The surrender value of the third policy amounting to Rs. 92,316/- was received on 30.11.2005, but was credited into the loan account no. 240007177 of his wife which was contrary to his instructions. The District Commission found this to be deficiency in service and directed the financial institution to adjust the said surrender value of Rs. 92,316/- of the third policy towards the loan account no. 240005834 of the complainant as on 30.11.2005 i.e. as on the date on which the amount was received by the financial institution and to credit the excess if any into the loan account no. 240007177 of the wife as on 30.11.2005. The State Commission however found nothing wrong with the financial institution adjusting the surrender value of the third policy in his wife’s account and dismissed the complaint.

4.   Learned counsel for the complainant submits that explicit written instructions made by the complainant were patently violated by the financial institution. As the surrender value of the third policy was not credited into his loan account, his account could not be liquidated and he was put to loss and injury. The submission is that the financial institution was not entitled to unilaterally and subjectively go contrary to his written instructions. The further submission is that the status which would have obtained if the surrender value of the third policy had been credited into his loan account at the relevant date ought to be restored along with equitable compensation for the mental agony and physical harassment and reasonable cost for the protracted unwarranted litigation.

5.   Learned counsel for the financial institution submits that both accounts, the loan account of the complainant as well as the loan account of his wife, were classified as NPA. After payment of the surrender values of the first two policies into his loan account, the complainant’s loan account came out of NPA and became regular. Since his wife’s loan account was also classified as NPA and since he was a guarantor therein, the surrender value of the third policy was paid into his wife’s account and consequently the said account also came out of NPA and became regular. The submission is that as the complainant’s wife’s loan account was in default and the loan advanced to her was classified as NPA and the complainant was the guarantor therein, the financial institution took the right decision to bring that account too out of NPA. The further submission is that the said decision was financially beneficial to the complainant also because it reduced the financial burden on his wife’s loan wherein he was the guarantor and as such was also liable.

6.   In rebuttal learned counsel for the complainant argues that the decision was taken one-sidedly and without any authority. The financial institution’s intention was to bring both accounts out of NPA, the interest or otherwise of the complainant was not a relevant consideration. The complainant wanted to get his account liquidated and to be free from liability and tension on that count. By going in for pre-mature surrender the complainant had to forego ancillary benefits which would have accrued on his policies on their maturity in the normal course. He submits that in absolute terms the quantum of the amounts involved in the two loans was not very high, and the complainant wanted to ensure that one of the loans i.e. his own loan was duly liquidated. The further submission is that as far as his own interest was concerned, the complainant himself was the best judge of his case. 

7.   The position appears to be quite clear. Written instructions to surrender the three policies and to credit the surrender values into his loan account were given by the complainant. The instructions were unambiguous and could lead to no other interpretation to the contrary. The insurance co. acted accordingly. It sent the surrender values of the policies to the financial institution for crediting into the complainant’s loan account. However after receiving the surrender values of the three policies the financial institution credited the first two into the complainant’s loan account in the normal wont but in respect of the third policy it took a unilateral decision without any authority to credit the same into his wife’s loan account.

8.   Learned counsel for the financial institution then argues that in case of default in repayment clause 6 (f) of the applicable terms and conditions of the loan entitled the financial institution to surrender the policy / ies without any notice and to apply the same in a manner it thought fit either towards the principal or the interest or any other amount due or payable before filing a suit. The submission is that the financial institution was within its rights to take the decision of crediting the surrender value of the third policy into the loan account of the complainant’s wife.

9.   In rebuttal learned counsel for the complainant argues that this condition of the loan was applicable on the borrower alone i.e. on the complainant’s wife alone, and not on the guarantor i.e. not on the complainant. In the normal and usual wont of its functioning the financial institution does not suddenly apply the surrender value of a guarantor’s policy towards the borrower’s loan to bring it out of NPA. The submission is that the complainant was differently treated from other similarly placed guarantors.

10. It is seen that the State Commission has also relied on clause 6(f) of the terms and conditions of the loan. The relevant extract of its appraisal is reproduced below for reference:

      7.  The appellants further rely on Clause (f) of Sec 6 of the Terms and Conditions stated in the Loan Offer Letter which reads as follows:

“In the event of the entire loan becoming immediately payable under the provisions contained herein (whether or not the due date has elapsed) or in the event of your failure to pay any interest / EMI / premia within the days of grace from the due date or in the event of your failure to maintain the said policy/ies in full force and effect or in the event of any breach of any of the conditions contained herein, then the company, without prejudice to its rights to immediate payment of the principal money or part thereof shall be entitled to surrender policy/ies without giving any notice to you of its intention to do so and to receive the amount of such surrender value and apply the same in a manner the company thinks fit either towards the principal amount or the interest or any other amount due or payable hereunder, before filing a suit.”

Though the above condition does not directly deal with the point in issue, from the above condition in the instant case, it is implied that the guarantor’s / complainant’s assets or policies available with the opposite parties can be adjusted against the loan account of the borrower / his wife.

Clause 6(f) of the terms and conditions of the loan as stated in the loan offer letter is quoted in the State Commission’s appraisal that has been reproduced above.

Plainly, the said condition of the loan, as contained in the loan offer letter, is intended for the borrower, and not for the guarantor. The State Commission itself admits that the said condition does not “directly deal with the point in issue”. But it then goes on to say that “it is implied that” the “guarantor’s” “policies available” with the financial institution “can be adjusted against the loan account of the borrower”. However there is nothing on record to show that the guarantor also came under the purview of this condition of loan on the basis of his guarantee to the loan. As such the District Commission has rightly held that this condition did not empower the financial institution to credit the surrender value of the complainant’s policy into his wife’s loan account. Learned counsel for the financial institution has not been able to explain at all as to how the guarantor was also covered by this condition. Neither has he been able to show that it was ever  the policy of the financial institution, adopted uniformly and objectively, to surrender a guarantor’s policy/ies and apply the surrender value/s to the borrower’s loan in order to bring it out of NPA.

11.     In the absence of any evidence or explanation to show that the guarantor’s policies could also be suo motu applied or utilized against the borrower’s loan to bring it out of NPA, it is quite apparent that this contention raised on behalf of the financial institution fails on the face of it. And it is also quite evident that the District Commission has appreciated this condition correctly but the State Commission has manifestly erred on this count.

12.     Notwithstanding the afore, for the sake of discussion, even if clause 6(f) of the terms and conditions empowered the financial institution to surrender the guarantor’s policies and to apply them towards the borrower’s loan to bring it out of NPA (though this is not borne out by the evidence adduced), such decision by its very nature was required and expected to be taken in a normal course, having regard to the necessities of the case at hand. That is to say, such decision was required to be taken objectively as and when in the facts of the concerned loan such decision became warranted in the ordinary progression. Here it is not as if the financial institution had itself taken an objective decision to surrender his policies and apply the amounts towards either or both of the loans. The complainant himself had initiated the process in order to liquidate his loan. But then the financial institution of its own took a unilateral decision to divert the surrender value of the third policy towards his wife’s loan though the surrender was made on the complainant’s own initiative towards his own loan and even though the policies were not assigned against his wife’s loan (for which his wife had assigned her own policies). This fine, nevertheless crucial, distinction is materially relevant. It cannot be erroneously concluded that the financial institution had the discretion to segregate the amounts and to distribute them between the two loans without first satisfying in its entirety the complainant’s account as per his instructions. The context of clause 6(f) even if extrapolated on the guarantor would require that such power to the financial institution be exercised independently in the normal course and not in a whimsical or arbitrary manner when the complainant himself had initiated the process of surrender and that too with specified purpose and objective.

13.     Thus, looking at it either way, the defence of clause 6(f) fails miserably.

14.     Learned counsel for the financial institution has not been able to satisfy at all that its decision was not a unilaterally subjective or one-sided act undertaken quirkily with the sole intention to take its other loan out of NPA and with complete disregard to the steps taken by the complainant on his own to get his loan liquidated. On the other hand there is weight in learned counsel for the complainant’s argument that the consumer’s request to liquidate his loan could not have been violated ex parte in the way and manner as the financial institution has done in the present facts and circumstances.

15.     It is relevant that in any case the complainant could not escape his ultimate liability in respect of the second loan i.e. his wife’s loan in which he was the guarantor and he would as such be liable for any action for recovery etc. as may be taken by the financial institution in the normal course of things. But this can no way mean that his explicit written instructions given on his own could be violated by the financial institution at its subjective discretion.  

16.     It is thus evident that the District Commission has appreciated the facts and evidence in the correct perspective and has rightly ordered the financial institution to restore the status quo ante. The State Commission on the other hand appears to have mis-appreciated the facts and evidence and misconstrued the applicability of clause 6(f) of the terms and conditions of the loan. As such its impugned Order cannot sustain.

17.     It also appears just and conscionable to award reasonable compensation and cost of litigation. This matter relates to the year 2005. It has been in protracted litigation for a period of more than one and a half decade. As such, it appears appropriate that the compensation for mental agony and physical harassment be enhanced to Rs. 50,000/- and the cost of litigation also be enhanced to Rs.50,000/- in place of Rs.15,000/- and Rs 1,000/- respectively ordered by the District Commission.

18.     It may be added that the one-sided capricious violation of the written instructions contains ingredients of both ‘deficiency’ within the meaning of section 2(1)(g) and ‘unfair trade practice’ within the meaning of section 2(1) (r) of the Act 1986. The latter necessitates caution and advice.

19.     Sequel to the above, the revision petition is disposed of with the following directions:

(i)  The impugned Order dated 08.12.2011 of the State Commission is set aside.

(ii)  The findings of the District Commission are upheld. Its order to restore the status quo ante i.e. to credit the surrender value of the third policy into the complainant’s loan account and to credit the excess if any into his wife’s loan account as on 30.11.2005 i.e. the date on which the said amount was received by the financial institution from the insurance co. is sustained. Its award is modified to the extent that the compensation shall be Rs. 50,000/- and the cost of litigation shall be Rs. 50,000/- in place of Rs.15,000/- and Rs 1,000/- respectively.

(iii) In addition, a cost of Rs. 50,000/- is imposed on the financial institution through its chief executive (i.e. the chairman or managing director or director in-charge of its day-to-day affairs or the director in-charge of the subject-matter, whichever member of the board of directors he may be) with stern advice of caution in respect of the unfair & deceptive acts as shown in this case which manifestly fall within the definition of ‘unfair trade practice’. The same shall be deposited in the ‘consumer legal aid account’ of the District Commission.

(iv) The award made by the District Commission, as partially modified herein in respect of compensation and cost, shall be complied with within six weeks. In case of failure or omission in compliance within the stipulated period the District Commission shall forthwith undertake execution, for ‘enforcement’ and for ‘penalty’, as per the law.

20.   The Registry is requested to send a copy each of this Order to the parties in the petition and to their learned counsel immediately. The stenographer is also requested to upload this Order on the website of this Commission immediately.