Banks can't withhold loan on flimsy ground

The District Commission concluded that raising a doubt about the validity of the NOC at such a belated stage could not be permitted

Jayprakash Kushwaha was interested in purchasing a 414 square foot flat in Nalla Sopara, which was owned by Rahul Lokhande. The total agreed consideration for the flat was Rs 4 lakh.

Prior to finalising the deal, Kushwaha approached Bank of Baroda for a loan of Rs 3.13 lakh. The bank informed him that he would have to mortgage the flat in its favour and apply for the loan after executing a registered agreement. The bank issued a pre-sanction letter on February 8, 2007. The agreement for the purchase of the flat was registered on March 12, 2007.

According to the agreement, Kushwaha made a down payment of Rs 87,000 and agreed to pay the balance amount of Rs 3.13 lakh by taking a bank loan.

After receiving the registered agreement, Kushwaha applied for the loan, along with all the required documents, including the no-objection certificate (NOC) issued by the co-operative housing society. He paid the loan processing fee and even executed a mortgage deed for the flat in the bank’s favour. The bank issued a loan approval letter on April 12, 2007, agreeing to disburse the amount to Lokhande, the seller.

The loan, however, was not disbursed. Upon inquiry, Kushwaha was told that his file was missing and that the amount would be disbursed after it was traced.
 

As the bank failed to take any action, Kushwaha filed a complaint before the Thane District Consumer Commission. The bank contended that the society’s NOC was a false and fabricated document as it did not bear the signature of either the society’s president or its secretary. It argued that in the absence of a valid NOC, Lokhande had no right to sell the flat to Kushwaha, and so the loan could not be disbursed. Lokhande contested the complaint, contending that he was needlessly caught in a dispute between Kushwaha and the bank. The housing society did not contest the case.

The District Commission observed that Kushwaha had complied with all the requirements for loan sanction, and the bank had issued the loan sanction letter only after verifying that the entire documentation was in order.

Prior to filing the consumer complaint, Kushwaha had legal notices issued. Therein he had recorded the reason given by the bank that the loan could not be disbursed as the file was not traceable. The bank had failed to respond to the legal notices.

The District Commission pointed out that if the documents were not in order, the loan would have been cancelled, but no such cancellation letter had been issued. It concluded that raising a doubt about the validity of the NOC at such a belated stage after approving and sanctioning the loan could not be permitted. It found the bank guilty of carelessness, negligence and deficiency in service and ordered it to disburse the loan.

The bank challenged the order, but the Maharashtra State Commission also dismissed its appeal.

The National Commission upheld the decision of the District Commission and observed that the bank’s refusal to disburse the amount to the seller would infringe upon Kushwaha’s legal rights as the buyer of the flat. The National Commission concluded that the bank had rightly been held liable for deficiency in service.

Accordingly, by its order of March 3, 2023, delivered by Justice Sudip Ahluwalia for the Bench, along with Binoy Kumar, the National Commission dismissed the bank’s revision petition and upheld the order passed by the District Commission in Kushwaha’s favour.

The writer is a consumer activist