Orissa High Court: Banks Cannot Penalise Borrowers for Switching Lenders or Prepaying Loans

The Orissa High Court held that banks cannot impose foreclosure or prepayment charges that restrict a borrower’s freedom to switch lenders or repay loans early.

The Court said such penalties violate binding RBI directions and undermine fair banking practices by discouraging mobility in the credit market. It was observed that contractual terms inconsistent with RBI rules stand nullified in law.

The Court also directed Indian Bank to return all original title deeds to the petitioner after finding no justification for withholding documents despite full repayment.

The Court said the bank’s conduct was arbitrary and contrary to borrowers’ rights.

[Maa Tarini Poultries Pvt Ltd v. Indian Bank & Ors]