The Supreme Court of India, on December 20, 2024, delivered a significant judgment in Hongkong and Shanghai Banking Corp. Ltd. v. Awaz & Ors. (Civil Appeal No. 5273/2008 & others), setting aside a July 7, 2008, order of the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC had held that charging interest rates ranging from 36% to 50% per annum on overdue credit card payments constituted an unfair trade practice under the Consumer Protection Act, 1986, and imposed a cap of 30% per annum on such rates.

The NCDRC, in its 2008 ruling, characterized the imposition of high interest rates as "usurious and exploitative," highlighting the stark imbalance in the bargaining power between banks and credit card holders. It observed that consumers, often enticed by aggressive marketing strategies, had no real choice but to accept the terms dictated by banks to access credit card facilities.

The Commission further stated that terms requiring consumers to pay disproportionately high sums as compensation for default amounted to unfair trade practices under the Consumer Protection Act, 1986. It stated that:

1. Penal interest could be levied only once for a single default and could not be capitalized.
2. Charging interest with monthly rests was inherently unfair.
3. Banks should not adopt the highest rates prevalent in emerging economies but should align their rates with those in developed nations, such as the United States and the United Kingdom.

To substantiate its findings, the NCDRC conducted a comparative analysis of credit card interest rates across jurisdictions:

• United States and United Kingdom: Rates ranged from 9.99% to 17.99%.
• Australia: Rates ranged from 18% to 24%.
• Hong Kong SAR: Rates ranged from 24% to 32%.
• Emerging Economies (Philippines, Indonesia, Mexico): Rates ranged from 36% to 50%.

The NCDRC concluded that interest rates exceeding 30% per annum were unjustifiable, imposing a cap on such charges and ruling that any rate above this threshold would amount to an unfair trade practice.

A Bench comprising Justice Bela M. Trivedi and Justice Satish Chandra Sharma set aside the NCDRC’s findings, allowing the batch of civil appeals filed by various banks. The Court unequivocally held that the regulation of interest rates falls exclusively within the domain of the Reserve Bank of India (RBI), the statutory authority empowered to oversee banking operations.

The Supreme Court held that the NCDRC lacked the statutory authority to impose a cap on interest rates, as the regulation of such financial terms is beyond the scope of the Consumer Protection Act, 1986. The Court observed that interest rates are determined based on multifaceted economic considerations, including risk evaluation and recovery probabilities, which are under the exclusive purview of the RBI.

The Bench delineated the intricacies involved in setting interest rates, noting that such decisions require specialized expertise and policy deliberations, which consumer forums are not equipped to undertake.

The judgment affirmed the autonomy of banks to structure their financial products, including interest rates, subject to RBI’s regulatory oversight. The Court emphasized that judicial or quasi-judicial forums should not encroach upon this domain without legislative backing.

While the Court acknowledged the importance of safeguarding consumers from exploitative practices, it emphasized that such interventions must be guided by statutory or regulatory mandates. It clarified that consumer protection forums could adjudicate individual grievances but could not unilaterally alter systemic banking policies.

Mr. Abhishek Manu Singhvi, Senior Advocate, briefed by Mr. Sanjay Gupta, Managing Partner at SNG & Partners, and Mr. Ateev Mathur, Partner, along with other counsel, represented the appellant banks in the matter.

Report to be updated after the judgment is uploaded.

Case Title: Hongkong and Shanghai Banking Corp. Ltd. v. Awaz & Ors.

Case No.: Civil Appeal No. 5273/2008 & others

Bench: Justice Bela M. Trivedi and Justice Satish Chandra Sharma