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Issues: Whether the Banking Ombudsman could disregard Reserve Bank of India circulars and directions while determining the interest chargeable on loans advanced to landlords for construction or renovation of premises leased to the bank, and whether such loans could be treated as outside the category of term loans for the purpose of charging interest with quarterly rests.
Analysis: Directions and circulars issued by the Reserve Bank of India under the Banking Regulation Act, 1949 have statutory force and are binding on banks as well as on the Ombudsman functioning under the Scheme. The expression "term loan" is a banking concept denoting a loan granted for a fixed period repayable according to a schedule, and it is not controlled by the purpose for which the loan is advanced. The Ombudsman erred in confining the expression to loans for commercial purposes and in relying on an earlier decision without considering the relevant Reserve Bank circulars and directions that were not placed before the Court in that case. Since the complaint had to be examined in the light of the full set of applicable Reserve Bank directions, the award made without such consideration could not stand.
Conclusion: The award was unsustainable, the complaint was required to be reconsidered afresh in the light of the relevant Reserve Bank of India circulars and directions, and the appeal succeeded.
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