Axis Bank Faces Penalty for Failing to Issue Loan Closure Certificate After Settlement
The Axis Bank branch in Hubballi has been directed by the Dharwad District Consumer Disputes Redressal Commission to pay both penalty and compensation for allegedly failing to issue a loan-closure certificate to borrowers even after they had substantially repaid their housing loan through a One-Time Settlement agreement.
Background of the Consumer Complaint
The case originated from a complaint filed by Dharwad residents Shivaji Ghatge and Ratna Ghatge, who had availed a housing loan from Axis Bank by mortgaging their property. When their loan repayments became irregular, the bank classified their account as a non-performing asset and initiated recovery proceedings, including steps to auction their mortgaged property. Recovery proceedings were also initiated through the tahsildar's office.
The One-Time Settlement Agreement
During this recovery stage, both parties entered into a formal One-Time Settlement agreement. According to the terms of this settlement, the borrowers were required to pay Rs 33.6 lakh to the bank. In return, Axis Bank was supposed to issue a loan-closure certificate and return all original property documents to the borrowers.
The complainants successfully paid Rs 31.6 lakh and specifically agreed that the remaining Rs 2 lakh, which was available in their savings account with the same bank, would be adjusted toward the loan account to complete the settlement.
Technical Error Leads to Bank Withdrawal from Settlement
However, due to what the bank described as a technical error, the Rs 2 lakh amount was not transferred from the savings account to the loan account as agreed. Citing this technical failure, Axis Bank withdrew from the OTS agreement and restarted full loan recovery proceedings against the borrowers.
Challenging this action, the borrowers approached the Dharwad District Consumer Disputes Redressal Commission in February 2023, alleging deficiency in service under consumer protection laws.
Consumer Commission's Detailed Observations
After conducting a detailed hearing and examining all evidence, the consumer commission made several key observations:
- The borrowers had substantially complied with the One-Time Settlement terms by paying Rs 31.6 lakh
- The borrowers had specifically authorized the adjustment of the remaining Rs 2 lakh from their savings account
- The bank's decision to withdraw from the settlement citing technical reasons was unjustified
- This withdrawal amounted to deficiency in service under consumer protection laws
Commission's Directives to Axis Bank
The commission issued clear directives to Axis Bank:
- The bank must adjust Rs 2 lakh from the borrowers' savings account within one month
- Immediately after this adjustment, the bank must issue the loan-closure certificate
- The bank must return all original property documents to the borrowers
- If technical issues prevent the transfer, the borrowers can directly pay Rs 2 lakh, after which the bank must immediately issue the closure certificate and return all documents
The commission emphasized that the bank's actions constituted a clear deficiency in service and ruled in favor of the borrowers, directing Axis Bank to pay both penalty and compensation for their failure to honor the settlement agreement and issue the crucial loan-closure documentation.
