Interpretation of plot loan foreclosure penalty clause.

Skeptical optimist (Querist) 28 February 2016 This query is : Resolved
The contract for PLOT loan has a penalty clause, which states "At request of the borrower for prepayment, HFC may, in its sole discretion and on such terms may levy 2% prepayment charge". It does not state 2% of what amount. After paying EMIs for more than 3 years, while initiating loan foreclosure, Housing Finance Company (HFC) is demanding '2% of disbursed loan amount'; whereas I think each of EMIs paid, serviced 'loan principal' amount to some extent. Hence foreclosure penalty shall be '2% of principal outstanding as on date of foreclosure'. Please guide, whether my interpretation is correct.

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Guest (Expert) 28 February 2016
Mr. Pseudonymous "Skeptical optimist"

Your pseudonimous name suggests that you want to remain anonymous, while seeking opinion of experts.

Anyway, but an optimit can never skeptical, but the scope of misinterpretation cannot be overruled on his part.

What you have said is your own interpretation, which can be right or wrong also.

Since you have not reproduced the relevant clause of agreement on foreclosure, how do you expect that your interpretation should be confirmed by the experts that your interpretation is correct or not?

So, if you want opinion of the experts about correctness of your interpretation, reproduce the extact of the clause of agreement on foreclosure by revealing your identity also. Otherwise, this is your academic query. If not, I may suggest you to follow your own advice, which you gave the other day in response to some other query in the forum section, as given below:

"Why don't you approach the NHB to initiate penal action as per NHB Act; for functioning as rogue HFC? This will help create pressure on given HFC. Although at NCDRC portal, you will find more judgements against NBFCs under purview of NHB, in comparison to entities under RBI purview. And this means there exists scope for NHB to improve upon the way it regulates...," where you can subtitute the name of your own bank in place of the HFC.
[REF Link: http://www.lawyersclubindia.com/forum/details.asp?mod_id=118083&offset=1#.VtKVsUDxpkE]

Skeptical optimist (Querist) 28 February 2016
Dear Sir,

Thanks for your time.

I wish to humbly submit, verbatim clause updated in above query.

If majority of Experts suggest that penalty shall be 2% of 'outstanding principal on date of foreclosure'; then it will make sense to approach National Housing Bank (NHB) for justice. Hence this request for interpretation of relevant penalty clause.

Have a great day.

Guest (Expert) 28 February 2016
HFC may, in its "SOLE DISCRETION" and "ON SUCH TERMS" may levy 2% prepayment charge, may be taken as the criteria, unless you get such part of that term quashed through court of law.

Skeptical optimist (Querist) 28 February 2016
Dear Sir,

For sake of clarity, I hereby re-articulate the issue:

1. I have no problem with requirement to pay foreclosure penalty.

2. I just wish guidance as to what 'base amount' ought to be considered for calculation of '2%' foreclosure penalty amount; Is it 2% of 'disbursed loan amount' OR 2% of 'outstanding principal on date of foreclosure'?

Thanks.