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bhairab dass mall (proprietor)     12 October 2009

breach of contract by state financial corporation

a proprietorship firm takes a loan from one State Financial Corporation. Loan agreement and agreement for hypothecation executed. Rate of interest as per agreements 17.5%. both agreements contains a clause: " Borrower will have to pay interest at the rate fixed by corporation from time to time and intimated to borrower". Rtae of interest did go down considerably after availment of loan. corporation fixing lower rates for other borrowers, but not giving this facility to the borrower who has already availed the loans. is corporation justified in not allowing the benefit to the existing borrower.


 6 Replies

adv. rajeev ( rajoo ) (practicing advocate)     12 October 2009

If ther is an agreement to pay the interest on the loan, fixing of rate of interest for the borrowers will not be restrospective it is always prospective.  If the change of rate of interest benefit is given to the existing borrowers, then u can claim.

N.Ramakrishnan (Advocate/ Senior Partner)     12 October 2009

Dear Bhairab,

Please read the terms of the loan agreement in detail and see whether you have agreed for a fixed rate or floating rate of interest. If it is fixed rate, you cannot seek the benefit of the reduction in the interest rate and if it is floating rate, you can defenitely demand the benefit.

If the agreement is silent on the above, then it has to be construed that the interest prevailing at the time of granting the loan is the contracted rate and you are bound to pay the same even if a lesser rate is offered to fresh borrowers. You do not have a legal right to demand a lesser rate on this ground.


N.Ramakrishnan, ADV 


Amardeep Srivastava (Senior Law Officer)     12 October 2009

Dear Bhairab

Clauses like the one you have quoted are generally part of the standard agreement and actual interest rate is inserted thereafter. In such a situation your contractual rate of interest would be 17.5% only. Even if both are 2 seperate caluses in the agreement, then also unless a lower interest rate is fixed for the existing borrowers, they do not get any right to demand a lower rate.


A.P.Manoranjan (ADVOCATES & LEGAL ADVISORS)     12 October 2009

Dear Mr.Bhairab Das,

State Financial Corporation cannot reduce interest rates with retrospective effect.this is also similar to Commercial banks who follows RBI guidelines in this regard.

G.H. SUBBU (Advocate)     13 October 2009


Since SFCs are getting funds from Primary Lenders like IDBI etc. with a fixed rate of interest and they charge interest rate over and above the primary lenders int rate.  If the borrowers pay the loan amount or not SFC will pay their loan to the primary lenders.  Hence they will not reduce the int rate for the existing borrowers, like other commercial banks.

Theja (Lawyer)     29 October 2009

Dear Experts,

The clause says that the Borrower shall pay the interest at the rate fixed by the corporation from time to time and intimated to the borrower. However, the rate of interest is defined as 17.5%. Doesn't it mean that the interest rate is 17.5% and the same may be amended by the corporation from time to time. Please clarify.

But, from the alnguage of the clause it is clear that the clause does not convey any right to the borrower to claim any lower rate of interest.

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