Foreclosure premium may be contractually valid, but later enhancements cannot apply retrospectively to earlier loan accounts.

A contractual clause requiring prior written approval for premature repayment authorised the lender to impose a foreclosure premium on loan prepayment, as the borrower remained bound by the agreed terms and the corporation could protect itself against loss from early closure of fixed-rate lending. However, a later circular increasing the premium from 1% to 2% could not be applied retrospectively to a loan sanctioned under the earlier regime. The HC therefore confined liability to the earlier 1% premium and held that any excess amount collected was refundable.

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Issues: (i) Whether the respondent Corporation had authority to levy premium on prepayment or foreclosure of the loan account on the outstanding loan balance. (ii) Whether the petitioners were liable to pay 2% premium or only the premium applicable when the loan was sanctioned.

Issue (i): Whether the respondent Corporation had authority to levy premium on prepayment or foreclosure of the loan account on the outstanding loan balance.

Analysis: The loan documents contained a clause barring premature repayment except with the Corporation's prior written approval and on such terms and conditions as it might stipulate. The Court held that the petitioners were bound by that contractual term. It also noted that the Corporation functioned on business principles under the State Financial Corporations Act, 1951, borrowed funds at prevailing rates, and could suffer loss if a fixed-rate loan was foreclosed during a falling interest regime. In that background, charging a foreclosure premium was treated as within the Corporation's authority.

Conclusion: Yes. The Corporation had authority to levy a prepayment or foreclosure premium.

Issue (ii): Whether the petitioners were liable to pay 2% premium or only the premium applicable when the loan was sanctioned.

Analysis: The petitioners had obtained the loan when the applicable circular permitted prepayment premium only up to 1%. A later circular increasing the premium to 2% was held not to apply retrospectively to the petitioners' loan account. The Court applied the principle that a subsequent administrative change affecting financial liability cannot operate retrospectively in the absence of authority to do so.

Conclusion: The petitioners were liable to pay only 1% premium, not 2%.

Final Conclusion: The writ petition succeeded to the extent that the foreclosure premium was restricted to 1%, and any excess amount collected was refundable.

Ratio Decidendi: A contractual clause permitting foreclosure only on terms stipulated by the lender can authorise levy of foreclosure premium, but a later enhancement of that premium cannot be applied retrospectively to transactions governed by an earlier circular.

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