Neeraj Malhotra, an Advocate had complained to the CCI under section 19(1) (a) of Competition Act against 16 banking and non banking financial companies (Banks) for the levying of Prepayment Charges on the prepayment of amount of home loan taken. In his complaint, Neeraj pleaded before the CCI that apart from discontinuing these charges and a detailed investigation by the DG, a fine to be levied on all these Banks upto 10% of their average turnover for the last three preceding financial years.

The Director General (DG) investigated this issue and had summoned 16 Banks including SBI, ICICI, HDFC, PNB and others. The CCI today, in its 170-page majority judgment held:

The CCI in its decision also examined the existing home loan environment in India and a host of other issues before deciding on whether Banks colluded to abuse their dominant position in the market. The CCI framed 5 issues out of the DG’s investigation report to examine the allegation of abuse of dominance by these Banks in imposing prepayment charges on home loan closures. The three important issues out of the five issues discussed in the judgment by the CCI are:

1)    Whether and what kind of pre-payment charges are being levied by banks/HFCs in regard to home loans?

2)    Whether there is any agreement to impose prepayment charges among the opposite parties who are, in effect, supplying the service of home loans?

3)    Whether there is any agreement of the nature mentioned under sub section (3) of section 3 or existence of any effect of the nature mentioned under clauses (a) to (d) to sub section (3) of section 3 of the act or some “appreciable adverse effect on competition” in India in the context of sub section (3) of section 19 due to imposing of pre payment charges by some banks?

In its decision the CCI said, “there is a vibrant competition in the housing finance market i.e. the home loans market and no one bank can be held to be dominant so the question of abuse of dominance did not arise. As far as section 3 (3), there is no agreement which is currently subsisting because all banks are following different methods of practice and calculations etc. are different”.

The Delhi office of Amarchand Mangaldas represented HDFC, with a team led by Senior Partner Pallavi Shroff along with Shweta Shroff Chopra and Harman Sandhu. HDFC was one of the three Banks against whom Advocate Neeraj Sharma claimed to have instant information.

Speaking to Bar & Bench, Senior Partner Pallavi Shroff said, “It’s the first decision of the CCI and is indeed a well considered one where consumer interest and competition aspects have both been weighed appropriately. Personally I look forward to more considered decisions from the CCI”.

The Chairman of CCI, Dhanendra Kumar had recused from this matter in June this year citing himself to be a borrower from one of the Banks. Therefore the decision was made by a 6-member panel out of which, members PN Parashar and R Prasad dissented.

The CCI is keeping busy with several of its investigations. Currently the CCI is investigating 137 cases and recently commenced its investigation against 11 Realty companies after the housing loan scam.  

A copy of the 170-page order is available here.

Click here for the documents relating to Neeraj Malhotra Vs Deustche Post Bank Home Finance Ltd. & Ors.