LEEJO JOHNEY V. UNION OF INDIA

WP(C)/12360/2020

AI Insights

The case involves Leejo Johney, an engineer seeking an education loan from Union Bank of India to pursue an MBA at the University of Glasgow. The bank refused to accept the collateral security offered by the petitioner, citing new guidelines that disallow open plots as collateral due to the co-obligant's adverse credit history. The petitioner challenged this decision, arguing that the bank's refusal was arbitrary and violated constitutional provisions. The court examined the bank's guidelines, the nature of the collateral, and the credit history of the co-obligants before concluding that the bank's decision was reasonable and not arbitrary.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721589 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 30-07-2020
• Assessment Year: misc
• Other Referred Cases: W.P.(C) No.10968/2020
• Laws Referred To: Article 14 of the Constitution of India
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: P VIJAYAKUMAR; C MURALIKRISHNAN
• Assessee Lawyers: DINESH MURIKAN
• Keywords: Collateral security; Education loan; Adverse credit history; Open plot; Bank guidelines

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE N.NAGARESH THURSDAY, THE 30TH DAY OF JULY 2020 / 8TH SRAVANA, 1942 WP(C).No.12360 OF 2020(T) PETITIONER: LEEJO JOHNEY, S/O.JOHNEY FERNANDEZ, A-3, ST.JUDE APARTMENTS, CHAVADIMUKKU, SREEKARYAM P.O., THIRUVANANTHAPURAM DISTRICT, PIN-695017. BY ADV. SRI.DINESH MATHEW J.MURIKAN RESPONDENTS: 1 UNION OF INDIA, REPRESENTED BY THE FINANCIAL SECRETARY, MINISTRY OF FINANCE, DEPARTMENT OF FINANCIAL SERVICES, JEEVAN DEEP BUILDING, PARLIAMENT STREET, NEW DELHI-110001. 2 RESERVE BANK OF INDIA, CONSUMER EDUCATION AND PROTECTION DEPARTMENT, 1ST FLOOR, AMAR BUILDING, SIR P.M.ROAD, MUMBAI-400001, REPRESENTED BY ITS CHIEF GENERAL MANAGER. 3 UNION BANK OF INDIA, REGIONAL OFFICE, STATUE, THIRUVANANTHAPURAM DISTRICT, PIN-695001, REPRESENTED BY ITS REGIONAL MANAGER. 4 THE REGIONAL MANAGER, UNION BANK OF INDIA, REGIONAL OFFICE, STATUE, THIRUVANANTHAPURAM DISTRICT, PIN-695001. WP(C) No.12360/2020(T) :2: 5 THE BRANCH MANAGER, UNION BANK OF INDIA, KUMARAPURAM BRANCH, KUMARAPURAM P.O., THIRUVANANTHAPURAM DISTRICT, PIN-695011. BY ADV. SHRI.P.VIJAYAKUMAR, ASG OF INDIA R5 BY ADV. SRI.C.MURALIKRISHNAN (PAYYANUR) SC - SRI. ABRAHAM GEORGE JACOB THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 30.07.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) No.12360/2020(T) :3: J U D G M E N T ~ ~ ~ ~ ~ ~ ~ ~ ~ Dated this the 30th day of July, 2020 The petitioner, who is an Engineer holding B.Tech (Mechanical Engineering), desires to pursue MBA Course at University of Glasgow, UK. The petitioner is aggrieved by the refusal of the 3rd respondent-Bank in not accepting collateral security offered by him for education loan. 2. The petitioner received an offer of admission from University of Glasgow on 08.05.2020 for admission to MBA Course. The total education expenses would come to 49,32,400 GBP (₹46,85,780/-). The petitioner was awarded a scholarship of 8000 GBP (₹7,44,000/-). 3. The petitioner applied for education loan of ₹40,00,000/- from Kumarapuram Branch of the 3rd respondent-Bank on 11.05.2020. The petitioner contends WP(C) No.12360/2020(T) :4: that he holds a very high CIBIL score. The petitioner's parents stood as co-obligants as well as guarantors to the loan. Property of an extent of 44 cents, having market value of ₹3 Crores, was offered as collateral security. The said property already stands mortgaged to the 3rd respondent for availing a term loan and education loan for the sister of the petitioner. The outstanding towards the said loan is only ₹20,00,000/-. The petitioner's mother is an aided school teacher drawing ₹56,000/- per month. His father as a businessman also earns ₹50,000/- per month. 4. However, the Bank authorities refused to sanction loan on the ground that as per the new guidelines of the Union Educational Scheme, open plot cannot be accepted as collateral security. The Bank authorities further stated that the co-applicant is having adverse credit history. It is aggrieved by the said stand of respondents 3 to 5 that the petitioner is before this Court. 5. The counsel for the petitioner argued that refusal of the Bank to accept open plot as security is unsustainable. WP(C) No.12360/2020(T) :5: In the guidelines of the Bank, there is no prohibition for accepting open land as collateral security. The respondents cannot impose a condition that open land cannot be accepted as collateral security. Such condition offends Article 14 of the Constitution of India. 6. The learned counsel for the petitioner further argued that the Union of India had directed Banks to give education loan liberally to students who want to pursue higher studies. Refusal of the Bank to accept the collateral security offered by the petitioner, is therefore illegal. The petitioner has to submit documents for processing Visa. The delay on the part of respondents 3 to 5 to consider the application of the petitioner for education loan is adversely affecting processing of Visa at the UK Embassy, Chennai. The counsel for the petitioner urged that respondents 3 to 5 may be directed to accept the collateral security offered by the petitioner forthwith and sanction loan. 7. As regards the unsatisfactory credit scores of the co-applicant, the learned counsel for the petitioner pointed WP(C) No.12360/2020(T) :6: out that in the judgment of this Court in W.P.(C) No.10968/2020, it has been held that unsatisfactory credit scores of the parents cannot be a ground to reject an education loan in view of the fact that the repayment capacity of the petitioner after his education should be the deciding factor. On this ground also, respondents 3 to 5 are not justified in withholding sanction of loan. 8. On the other hand, the learned Standing Counsel appearing for respondents 2 to 5 argued that the father of the petitioner as co-obligant has offered his property as collateral security. But, the said co-obligant has adverse credit history and therefore, the Bank cannot accept the open plot as collateral security. However, the petitioner is at liberty to substitute co-applicants and security in order to avail the loan. 9. The learned Standing Counsel pointed out that the Bank, based on their prudent business principles and commercial practice, has decided not to accept open plot as security. This restriction was introduced in the month of WP(C) No.12360/2020(T) :7: March, 2020 only. Therefore, even though the Bank had sanctioned loans accepting open plot as security earlier, they cannot do so now. 10. The learned Standing Counsel contended that sanction of loan is a matter of contract and commercial decision of a financial institution. The sanction of loan depends of various parameters including financial discipline and credit history of the borrower. Taking into all aspects, the Bank has taken a decision which cannot be termed as arbitrary or illegal. The writ petition is therefore liable to be dismissed. 11. Heard the learned counsel for the petitioner, learned ASGI appearing for the 1st respondent and learned Standing Counsel representing respondents 3 to 5. 12. The petitioner's application is for education loan. Education loan is a priority sector, made so by the Government of India and the Reserve Bank of India in consultation with Indian Banks' Association, with a view to help the needy and meritorious students in India for WP(C) No.12360/2020(T) :8: pursuing their education in India and abroad. Therefore, such applications are liable to be considered keeping in mind the said perspective. 13. However, the transaction involved is loan transaction and the Banks are entitled to prescribe such reasonable conditions for grant of education loan. While prescribing the conditions, the banks are entitled to state that the credit history of the co-obligant should be good and the property offered as security should be acceptable to the Bank. 14. True that this Court has held in the judgment in W.P.(C) No.10968/2020 that unsatisfactory credit scores of parents of the petitioner cannot be a ground to reject an education loan in view of the fact that the payment capacity of the petitioner after his education should be the deciding factor as per the Scheme for granting education loan. Therefore, the petitioner is entitled to state that adverse credit history of his parents/co-obligants cannot be a reason to deny him sanction of loan. WP(C) No.12360/2020(T) :9: 15. But, that alone may not help the petitioner. Respondents 3 to 5 have insisted that open land is not acceptable as security. The Bank has taken such a position in view of the amendments made to their requirements in March, 2020. The Banks being financial institutions, are entitled to make their own guidelines and rules for ensuring that properties mortgaged are of such a nature that the Banks can recover the amounts easily, in case of deliberate default by the loanees. 16. Even in Ext.R5(c) Educational Loan Scheme for pursuing Higher Education in India and abroad, issued by the Indian Banks' Association, they have stated that tangible collateral security should not only be of suitable value but also should be acceptable to the Bank. Respondents 3 to 5 have adopted the said Scheme. Therefore, the Bank is justified in demanding that the property offered should not be open plot. This being a material condition affecting the capability of the Bank to recover the loan amount in the event of default, this Court cannot, in exercise of its power WP(C) No.12360/2020(T) :10: under Article 226 of the Constitution of India, give any direction to the Bank to ignore such conditions and grant loan to the petitioner. However, if the petitioner can substitute collaterals by offering property which is acceptable to respondents 3 to 5, the said respondents shall consider the application of the petitioner for education loan. With the said observations, the writ petition is dismissed. Sd/- N. NAGARESH, JUDGE aks/04.08.2020 WP(C) No.12360/2020(T) :11: APPENDIX PETITIONER'S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE B.TECH DEGREE CERTIFICATE ISSUED FROM THE UNIVERSITY OF KERALA DATED 06.01.2017. EXHIBIT P2 TRUE COPY OF THE EMAIL SENT FROM THE UNIVERSITY OF GLASGOW TO THE PETITIONER DATED 26.5.2020. EXHIBIT P3 TRUE COPY OF THE EMAIL SENT FROM THE UNIVERSITY OF GLASGOW TO THE PETITIONER INFORMING THE PETITIONER GRANTING SCHOLARSHIP DATED 19.6.2020. EXHIBIT P4 TRUE COPY OF THE INCOME TAX RETURN ACKNOWLEDGEMENT OF THE PETITIONER. EXHIBIT P5 TRUE COPY OF THE CIBIL SCORE OF THE PETITIONER. EXHIBIT P6 TRUE COPY OF THE EMAIL RECEIVED FROM THE 5TH RESPONDENT BY THE PETITIONER DATED 25.5.2020. EXHIBIT P7 TRUE COPY OF THE RELEVANT PAGES OF THE GUIDELINES OF EDUCATIONAL LOAN ISSUED BY THE INDIAN BANK ASSOCIATION DOWNLOADED FROM THE INTERNET EXHIBIT P8 TRUE COPY OF THE RELEVANT PAGES OF THE GUIDELINES OF EDUCATIONAL LOAN MAINTAINED BY THE UNION BANK OF INDIA DOWNLOADED FROM THE INTERNET RESPONDENTS' EXHIBITS: EXHIBIT R5(A) TRUE COPY OF THE REPLY MAIL DATED 25.05.2020 SENT BY 5TH RESPONDENT TO PETITIONER. EXHIBIT R5(B) TRUE COPY OF THE DEMAND NOTICE DATED WP(C) No.12360/2020(T) :12: 30.07.2019 ISSUED BY 5TH RESPONDENT. EXHIBIT R5(C) TRUE COPY OF THE MODEL EDUCATIONAL LOAN SCHEME FOR PURSUING HIGHER EDUCATION IN INDIA AND ABROAD 2012 EXHIBIT R5(D) TRUE COPY OF THE MODEL EDUCATIONAL LOAN SCHEME FOR PURSUING HIGHER EDUCATION IN INDIA AND ABROAD (2015) "