HONGKONG AND SHANGHAI BANKING CORP. LTD.   [APPELLANT(S)]  Vs.

AWAZ & ORS.    [RESPONDENT(S)]

CIVIL APPEAL NO. 5273 OF 2008

(SATISH CHANDRA SHARMA, J.)

The Supreme Court of India overturned a judgment by the National Consumer Disputes Redressal Commission (NCDRC), which had declared interest rates above 30% per annum on credit card dues as an unfair trade practice. The NCDRC’s ruling was challenged by several banks, including the Hongkong and Shanghai Banking Corporation (HSBC), which argued that the Commission had overstepped its jurisdiction by capping interest rates and interfering in banking policy.

A bench comprising Justice Bela M. Trivedi and Justice Satish Chandra Sharma emphasized that setting a cap on interest rates charged by banks was unwarranted and beyond the purview of the NCDRC. The Court highlighted that regulatory oversight of monetary policies and banking operations is exclusively entrusted to the Reserve Bank of India (RBI) under the Banking Regulation Act. By attempting to dictate interest rates and draw global parallels, the NCDRC had encroached upon the RBI’s statutory domain, which is responsible for ensuring public interest and managing the banking system.

The case originated from a complaint filed by “Awaz,” a consumer association, which alleged that interest rates between 36% and 49% per annum on credit card defaults constituted unfair trade practices and violated RBI directives. The NCDRC had earlier held that charging such high rates and compounding interest on monthly rests was exploitative and constituted an unfair practice. However, the banks contended that the RBI is the sole authority to determine the reasonableness of interest rates and that the courts and tribunals are barred under Sections 21A and 35A of the Banking Regulation Act from reopening transactions on this basis.

The Supreme Court clarified that administrative policy decisions of banks, including the determination of interest rates, do not fall under the definition of “service” as outlined in Section 2(1)(o) of the Consumer Protection Act, 1986. Such decisions are regulatory functions within the RBI’s purview and cannot be subjected to judicial scrutiny by consumer forums like the NCDRC. The Bench further noted that the NCDRC’s unilateral decision to declare interest rates above 30% as usurious and unfair contradicted the legislative intent of Section 21A and constituted an encroachment upon the RBI’s domain.

The Court also observed that consumers were aware of the terms and conditions, including interest rates, at the time of obtaining credit cards. As the complainant had not raised objections with the RBI, the NCDRC’s intervention was deemed inappropriate. The Court remarked that the NCDRC lacked jurisdiction to regulate or decide on monetary policies and dismissed the complaint, which it found to be vague and without a valid cause of action. In its judgment, the Supreme Court reiterated the importance of respecting the RBI’s autonomy in regulating banking policies. It concluded that judicial bodies must refrain from interfering in areas designated for regulatory authorities, particularly when it comes to economic policy decisions. As a result, the Supreme Court allowed the appeals by the banks and set aside the NCDRC’s judgment, reinforcing the RBI’s exclusive role in overseeing the banking sector and interest rate regulations.