Government organizations can impose high penal interest: National commission

Radhika Devi had applied to the Uttar Pradesh Awas Avam Vikas Parishad, the housing development board constituted by the UP state government for a residential accommodation. On October 17,1988, she was allotted a flat costing Rs82,939.
The flat was sold on hire purchase basis, for which she was required to pay 216 EMI instalments of Rs815 per month, totalling Rs 1,76,040.
The agreement provided that in addition to the interest payable for hire purchase, additional interest at 18% per annum would be payable in case of default in timely payment of the installments.
Although Devi paid the entire amount, there were delays in making timely payment for which the board demanded interest. As Devi did not pay the amount, the board issued a recovery certificate asking the collector to recover the interest component of Rs 1,21,537 as arrears of land revenue.
Devi filed a complaint before the district forum questioning the demand for the additional interest amount. She averred she had paid the EMI instalments and also Rs 6,685 toward interest. The board defended its entitlement to claim penal interest in accordance with the hire purchase agreement.
The forum allowed Devi’s complaint. It quashed the demand for the additional interest of Rs 1,21,537, and also ordered a refund of Rs 6,685. The board challenged this order before the UP State Commission which accepted its contention, set aside the forum’s order and dismissed the complaint.
Devi then filed a revision before the National Commission. It perused details of the instalments due and the payments made, which revealed that Devi had defaulted in making timely payments. In respect of Devi’s contention that 18% penal interest was highly exorbitant, the National Commission observed the board is a public sector undertaking and is not motivated by commercial considerations, so it cannot be equated with a private builder. The provision of penal interest is necessary to put pressure on the purchasers to pay the installments in time which is necessary to enable the board to function effectively.
Accordingly, by its order dated July 23, 2019 delivered by Justice V K Jain, the National Commission dismissed Devi’s revision petition, holding that the board’s demand was justified and the recovery certificate was valid in view of the terms of the hire purchase agreement.
(The author is a consumer activist and has won the Government of India’s National Youth Award for Consumer Protection. His email is jehangir.gai.columnist@outlook.in )