CREDIT CARD & HIGH RATE OF INTEREST: NOT A CONSUMER DISPUTE

 

CREDIT CARD & HIGH RATE OF INTEREST: NOT A CONSUMER DISPUTE

The Supreme Court has recently on 20^th December 2024 has categorically ascertained the details in respect of payment of interest by the credit card holder to the concerned bank/company in a matter captioned as HONGKONG AND SHANGHAI BANKING CORP. LTD. Versus AWAZ & ORS. CIVIL APPEAL NO. 5273 OF 2008. Whether the alleged excessive rate of interest shall fall within the domain of Consumer Protection Act 1986 or the amended Act? The bunch of appeals has arisen out of the common Judgment & Order dated 07.07.2008 passed by the National Consumer Disputes Redressal Commission, Delhi (NCDRC) in Complaint Case No. 51/2007 and Revision Petition No. 1913/2004.

 

The National Commission proceeded with the prima-facie view that the charging of interest at rates ranging from 36% to 49% p.a. is exorbitant and amounts to the exploitation of the borrowers/debtors and is usurious, had framed the following issues:

i. Whether the Reserve Bank of India (RBI) is required to issue any circular or guidelines prohibiting the Banks/Non-Banking Financial Institutions/money lenders from charging interest above a specific rate?

ii. (a) Whether banks can charge the credit card users interest at rates from 36% to 49% per annum if there is any delay or default in payment within the time specified?

(b) Whether interest at the above-stated rates amounts to charging usurious rates of interest?

 

The appellant (HSBCL) have challenged the correctness of the Impugned Order dated 07.07.2008, whereby the National Commission has held that the charging of interest at rates beyond 30% by the banks/non-banking financial institutions, from credit card holders, upon delay or default in payment, constitutes an unfair trade practice and that penal interest could be charged only once for one period of default and the same shall not be capitalized. The conclusive observation under challenge, passed by the National Commission is as under:

(i) Charging of interest rates in excess of 30% p.a. from the credit card holders by banks for the former’s failure to make full payment on the due date or paying the minimum amount due, is an unfair trade practice.

(ii) Penal interest can be charged only once for one period of default and shall not be capitalized.

(iii) Charging of interest with monthly rests is also an unfair trade practice.

The Appellants before the Supreme Court have assailed the aforesaid finding of NCDRC and have contended that determining the reasonability and ‘fixing of the maximum or the minimum rates of interest’, is the exclusive function of the RBI, a statutory authority responsible for the regulation of the Indian Banking system. It was submitted by the appellant that the observations of the NCDRC is in the teeth of the statutory bar under section 21 A & 35 A of the Banking Regulation Act, as it expressly bars courts/tribunals to re-open transactions between banks, on the question that the rates of interest are excessive and empowers the RBI to formulate directions, as befitting the public interest, proper management and banking policies of the country.

It was thus further contended that the order passed by the NCDRC have encroached the statutory domain of the RBI and that is against the mandate of the Constitution and contrary to the legislative intent of the Reserve Bank of India Act, 1934. It was also submitted that in the guise of public interest litigation (PIL) a consumer complaint was preferred and the same is not in consonance with the prescription of Complaint u/s 12 r/w 13 of the Consumer Protection Act, 1986 and as such the consumer complaint was wrongly entertained by NCDRC and the same is beyond its inherent jurisdiction.

The original complainants before the NCDRC, arrayed before the Supreme Court as Respondents nos. 1 to 3  before the NCDRC, have also preferred a cross-Appeal bearing CA. 6679/2008, against the Impugned Judgment dt. 07.07.2008 contending that the NCDRC has only partly allowed their complaint, and ought to have also adjudicated upon a benchmark restriction for the rates of interest charged by banks from credit card holders. It is contended that the rates of interest charged by the banks from its credit cardholders is usurious and exploitative in nature, and in contravention of the circulars issued by the Reserve Bank of India. The Complainants claim that they represent the public at large, as a voluntary consumer association voicing against the usurious rate of interest charged by the banks, which is a deficiency in service in banking and constitutes an unfair trade practice, in terms of the Consumer Protection Act, 1986.

 

It is argued on behalf of the Complainants that there ought to have been a Notification passed by the Reserve Bank of India, fixing a maximum ceiling rate of interest for all banks, and in pursuance thereto had approached the National Commission by filing the Consumer Complaint no. 51 of 2007. It was thus prayed that the Appellant be permanently restrained from charging excessive interest and service charges, de-hors the Prime Lending Rate, and the directions issued by the Reserve Bank of India. It was further prayed that all banks who have issued credit cards to the Respondent no. 3 and members of the Respondent no.1 be directed to refund the amount of interest, claiming the same to be more than Rs. 5 Crores.

 

Submissions of appellants/BANKS

(i)          It was submitted that the Appellant, and Respondent nos. 5, 6 and 7 are foreign banks carrying on the business of banking in India under the provisions of the Banking Regulation Act, 1949 and are scheduled commercial Banks as notified by the Reserve Bank of India. The allegations raised by the Complainant that the rate of interest, charged by banks from its credit card holders, constitutes an unfair trade practice, is erroneous. It was submitted that there is no whisper to suggest that adopting of any unfair methods, or deceptive means to promote the sale, use or supply of any goods or for providing any service. As banks have neither indulged in any unfair trade practice nor have done anything wrong so as to bring them within the trap of Section 2(r)(l)(i) to 2(r)(l)(x).

 

(ii)        The NCDRC has barely acted on the assumption that banks are indulging in unfair trade practices without any corresponding facts to that effect. The NCDRC has observed that rates of interest charged by banks is an unfair trade practice, while ignoring as to what are the scope of the definition under section 2(1)(r) of the Act. The assumption that alleged charging of  excessive interest being unfair trade practice in as much as the Banking Regulation Act, 1949 requires that the RBI shall discharge certain functions in the public interest and if the RBI does not discharge such functions, it would amount to unfair trade practice, is erroneous.

(iii)       The appellant had submitted that administrative policy decisions as regards the determination of interest on credit cards and the regulation of the banks are within the specific statutory domain of the RBI. The List I of Seventh Schedule of the Constitution of India had conferred upon the RBI, the powers of subordinate legislation to formulate directives, circulars, and administrative policies, having statutory force and being binding on all Banks from time to time1 Moreover, the Preamble of the Reserve Bank of India Act, 1934 enlists the endeavour of the RBI to " secure monetary stability in India, having a modern monetary policy framework to meet the challenge of an increasingly complex economy, while maintaining price stability is the endeavour of the Reserve Bank of India.

(iv)          The observations by the NCDRC that the rate of interest, in excess of 30% per annum is an unfair trade practice, is per se illegal and transgression to the domain of RBI and runs contrary to the legislative intent of the Banking Regulation Act, 1949.

(v)         The NCDRC can’t supplant itself as the regulator of the banking systems in the place of RBI, since, there is a clear bar under section 21A of the Banking Regulation Act, 1949. The section 21A and 35A of the Banking Regulation Act, 1949 are enabling provisions for the RBI and mandate it to give directions/guidelines to banks/banking companies, in the public interest. Section 21A in specific, creates an embargo upon courts/tribunals to re-open and adjudicate upon transactions on the ground that the rate of interest is excessive.

(vi)       The rates of interest on credit card dues are neither usurious nor do they constitute a practice that is unfair, arbitrary or unreasonable. The practice of charging any interest on credit cards dues is such that credit card generally carry an interest rate on an annualised basis (Annual Interest Rate-APR). The interest due is calculated only on unpaid balances. If any customer pays the entire amount due within the due date of payment, they are not charged any interest. The penalty or cost of such interest is incurred only, if there is default and that is necessary with a view to costs incurred by the bank of non-performing loans or bad debt and to meet acquisition costs etc and hence it is not unreasonable.

(vii)     The interest is charged by the bank in accordance with the circulars issued by the RBI and cannot be construed as unfair trade practice, as the interest is paid, only, by those who default in making payments of their credit-card bills, after having reaped the benefits of free credit for specified periods ranging between 17-55 days. Those, who do not make payment of the entirety of their dues on each bill, and then on the balance dues has to be saddled with the terms of payment. When the terms and conditions for charging of rates of interest or charges applicable thereto are duly informed to all customers by the bank and further when the customers are duly conveyed the standard set of conditions for the issuance and usage of credit cards and responsibilities of the card holders are duly defined and when all relevant information as regards fee, charges applicable on credit cards, finance charges and withdrawal limits are provided at the time of the generation of each monthly bank/billing statement, thus, no unfair trade practices could be alleged, more so, from the day one the customer is made aware, that, in the event of delay in making  payment, liability of interest payment shall arise.

COMPLAINANT’S VERSIONS

(i)          The terms and conditions laid down by the Banks, at the time of issuance of the credit cards, constitute a unilateral, and one-sided contract. The characteristics associated with a contract, such as freedom of contract and consensus are absent from such contracts, which makes such terms unfair and unconscionable. The term “unfair contracts” has been defined under section 2(46) of the Consumer Protection Act, 1986 and include all such contracts that have terms which cause significant change in the rights of such consumer. It is submitted that the unilateral terms of the banks, in charging such excessive rates of interest, is such an unfair contract.

(ii)   The banks have been charging rates of interest on credit cards in excess of their Benchmark Prime Lending rate (BPLR) on credit limits of less than Rs. 2 Lakhs, in contravention to the annual policy 2003- 2004.

(iii)          A person aggrieved by the excessive rates of interest cannot be rendered helpless and by virtue of section 2 of the Banking Regulation Act, 1949, the operation of other laws is not expressly barred. It is the grievance of the Complainants that since the person who opens a bank account with a Bank, is a consumer of the bank’s facilities, the provisions of Consumer Protection Act, 1986 and the Consumer Forums are the necessary medium for grievance redressal.

CONTENTIONS OF RBI

On behalf of the RBI, it is submitted that in terms of the regulatory guidelines issued vide Master Direction-Credit Card & Debit Card-Issuance and Conduct dated April 21, 2022 as on March 07, interest charged on credit cards shall be justifiable having regard to the cost incurred and the extent of return that could be reasonably expected by the card user. Moreover, it is also canvassed on behalf of RBI after placing reliance on L.Chandra Kumar vs Union of India & Ors. [1997] 3 SCC 261 that whereas the  Supreme Court under Article 32 and the High Courts’ under Article 226 of the Constitution of India  have the power of judicial review of statutory instruments. It is not within the executive domain of the National Commission to judicially review the circulars/directives and hold that the policy contained therein is invalid. The National Commission is bound to accept the policy contained in the circulars as valid and cannot question the policy decision of the Reserve Bank not to impose a ceiling on the rate of interest to be charged by the Banks on the credit card transactions.

                              FURTHER ANALYSIS

(1) The Supreme Court in a matter captioned as Keshav Lal Khemchang & Sons Pvt. Ltd & Ors. Vs Union of India [2015] 4 SCC 770 has held that the Parliament of India, under List I of the Seventh Schedule of the Constitution of India had conferred upon the Reserve Bank of India, the powers of subordinate legislation to formulate directives, circulars, and administrative policies, having statutory force and being binding on all Banks from time to time.

 

(2)  The Supreme Court in the Central Bank of India Vs Ravindran [2002] 1 SCC 367 has observed that “With effect from 15.2.1984, Section 21A has been inserted in the Act, which takes away power of the court to reopen a transaction between a banking company and its debtor on the ground that the rate of interest charged is excessive. The provision has been given an overriding effect over the Usurious Loans Act, 1918 and any other provincial law in force relating to indebtedness. According to Supreme Court all transactions, that may not be squarely governed by such circulars, the RBI directives may be treated as standards for the purpose of deciding whether the interest charged is excessive, usurious or opposed to public policy.

(3) The Supreme Court in Pratibha Pratisthan Vs Canara Bank (2017) 3 SCC 712 has held that a trust, whether registered under the Indian Trust Act, or the State Trust Registration Act, is not a person ‘person’ as defined under Section 2(1)(m) of the Consumer Protection Act, 1986, and & therefore not a consumer and consequently cannot invoke provisions or file a consumer dispute under the provisions of this Act

FINDING OF SUPREME COURT

The Supreme Court has held in Hongkong & Saanghai Banking Corporation (Supra) In Para no.59, 65, and 66 are as under:

“59. In addition, we are also of the considered view, that an endeavour to cap the rate of interest charged by banks and dictating the need for a Benchmark Prime Lending Rate, drawing parallels with other economies across the world, whilst failing to trust the prudence of the Reserve Bank of India which has been entrusted with the fundamental responsibility of regulation of the monetary system and banking business is unwarranted.

 

“65. Therefore, when a person signs a document which contains certain contractual terms, that normally parties are bound by such contract; it is for the parties to establish an exception in a suit. When a party to the contract disputes the binding nature of the signed document, it is for him to prove the terms, in the contract, or circumstances in which he came to sign the documents, need to be established20. Hence, the National Commission had no jurisdiction to re-write the said terms of the contract entered between the banks and the credit cardholders, which the parties have mutually agreed to be bound by”.

 

“66.     Even otherwise, it is not the case of the Complainants or as adjudicated by the National Commission, that the decision by the Reserve Bank of India, being a statutory authority whilst imposing interest acts contrary to public good, public interest, unfairly, unjustly and unreasonably, in its contractual, constitutional or statutory obligations”.

 

The Supreme Court in Homgkong & Saanghai Banking Corporation (Supra) has also referred to in para 67 as under:

67. In addition, thereto, in the case of Colgate Palmolive (India) Ltd. Vs MRTP Commission [2003] 1 SCC 129, had laid down five ingredients before a trade practice could be an “unfair trade practice”, as under:

(1) There must be a trade practice [within the meaning of Section 2(u) of the Monopolies and Restrictive Trade Practices Act].

(2) The trade practice must be employed for the purpose of promoting the sale, use or supply of any goods or the provision of any services.

(3) The trade practice should fall within the ambit of one or more of the categories enumerated in clauses (1) to (5) of Section 36A

(4) The trade practice should cause loss or injury to the consumers of goods or services.

(5) The trade practice under clause (1) should involve making a statement whether orally or in writing or by visible interpretation.

 

In para 69 therefore it is concluded as under:

 

“69. In the present context, the pre-conditions of ‘deceptive practice’ and unfair method’ are manifestly absent. The Banks have in no manner made any misrepresentation, to deceive the credit card holders. Upon availing the facility of the credit cards, the customers, are made aware of ‘the most important terms and conditions’, including the rate of interest, that shall be charged by the Banks. Even on merits, the Reserve Bank of India, has made it clear that there exists no material on record, to establish that any bank has acted contrary to the policy directives issued by the RBI. Even otherwise, there is not even a single averment so as to establish how the charging of rates of interest upon the default by credit card holders, without a standardized rate, is usurious and constitutes an unfair trade practice. The mere inflation in the rates of interest cannot be construed as a practice, intended to cause loss or injury”.

 

Therefore, the Supreme Court has held that the question of directing the RBI to act against any bank does not arise, in the facts and circumstances of the present case. Thus, it was also held that there is no question or need of any direction to the RBI to impose any cap on the rate of interest, either on the banking sector as a whole, or in respect of any one particular bank, contrary to the provisions contained in the Banking Regulation Act, and the circulars/directions issued thereunder. The order passed by the NCDRC in Awaz & Ors. Vs Reserve Bank of India was therefore set aside and appeal filed by the bank stands allowed.

                                           ------

                                  Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

                                 

ORDER XXX CPC- PROVISIONS FOR SUIT BY INDIGENT PERSONS

 

ORDER XXXIII CPC- PROVISIONS FOR SUIT BY Indigent personS

In the Courts of law, while filing suits of various nature, in terms of Courts Fee Act the ad valorem court fee is payable. However, a pauper or a person who have no means to pay the court fee, the provisions are contained in Order XXXIII of Code of Civil Procedure for enabling such person to prefer a suit without paying court fee. However, inquiry in this regard has to be conducted and only upon such inquiry if it is evident that the person raising plea by way of suit is indeed a pauper, then, such person or persons may be allowed to prefer a suit as indigent person.

The cornerstone of the Indian Constitution is equality and also to accord leverage to underprivileged so that access to legal recourse are not denied to them. In this context reference is necessary to free legal aid as enshrined in the Article 39- A of Constitution of India, entailing free Legal Aid and Equal Justice. What is significant in the context is that the provision for indigent person not only enables such person to have access to legal recourse, but at the same time, the aspect of revenue is also not compromised, in as much as, Order XXXIII itself while according opportunity to a person without adequate means to file a suit in courts of law, without paying court fees, also stipulates that if the indigent person is successful in a lis, the state can recover the court fees from the defendants or from the subject matter of the suit.

The term ‘indigent person’ finds mention in Order XXXIII, Rule 1 of the Code of Civil Procedure. The indigent person shall be the one who does not have sufficient means to pay the court fees as may be at the time of filing of a suit. The indigent person, in order to conform to the provision shall have no property worth ₹ 1,000, excluding bare essential items for livelihood. Therefore, by necessary implication, if a person is unable to pay court fees and lacks properties of substantial value, he may be declares as indigent person.

Before going further, the provision of Order XXX, Rule 1 may be reproduced herein:

                          FILING OF SUIT BY INDIGENT PERSON

Order XXX Rule 1 of CPC

1. Suits may be instituted by indigent person.

Subject to the following provisions, any suit may be instituted by an indigent person.

Explanation I- A person is an indigent person,-

(a) if he is not possessed of sufficient means (other than property exempt from attachment in execution of a decree and the subject-matter of the suit) to enable him to pay the fee prescribed by law for the plaint in such suit, or

(b) where no such fee is prescribed, if he is not entitled to property worth one thousand rupees other than the property exempt from attachment in execution of a decree, and the subject-matter of the suit. 

Explanation II-

Any property which is acquired by a person after the presentation of his application for permission to sue as an indigent person, and before the decision of the application, shall be taken into account in considering the question whether or not the applicant is an indigent person.

Explanation III-

Where the plaintiff sued in a representative capacity, the question whether he is an indigent person shall be determined with reference to the means possessed by him in such capacity.

Inquiry into the means of an indigent person

The Rule 1A of Order XXXIII CPC stipulates that inquiry shall have to be conducted for ascertaining a person to be an “indigent person” and the inquiry shall relate to whether a person is indeed an indigent person. The report is solicited in this regard and court may otherwise direct inquiry to be conducted or report submitted by the concerned officer may be accepted and/or finding by the courts may itself undertake the inquiry.

Contents of application

The Rule 2 of the Code contains specifics in this regard.

Every application for permission to sue as an indigent person shall contain the particulars required in regard to plaints in suits; a schedule of any movable or immovable property belonging to the applicant, with the estimated value thereof, shall be annexed thereto; and it shall be signed and verified in the manner prescribed for the signing and verification of pleadings.

The Rule 2 includes the procedure for filing of a suit. An indigent person is required to prefer an application before a court in order to seek permission for the same, without paying court fees. The applicant shall have to render complete description of the applicant and his financial status so as to demonstrate the inability of such person to pay court fee. The applicant is also required to specify a schedule of its assets-both moveable and immoveable. The plaint is also required to be filed in an ordinary manner.

Presentation of application

The Rule 3 of the Code prescribes that notwithstanding anything contained in these rules, the application shall be presented to the Court by the applicant in person, unless he is exempted from appearing in Court, in which case the application may be presented by an authorized agent who can answer all material questions relating to the application, and who may be examined in the same manner as the party represented by him might have been examined had such party attended in person:

Provided that, where there are more plaintiffs than one, it shall be sufficient if the application is presented by one of the plaintiffs.

Examination of applicant by the Court

The Rule 4 contains details in this regard. The rule contains as under:

(1) Where the application is in proper form and duly presented, the Court may, if it thinks fit, examine the applicant, or his agent when the applicant is allowed to appear by agent, regarding the merits of the claim and the property of the applicant.

(2) If presented agent, Court may order applicant to be examined by commission—

Where the application is presented by an agent, the Court may, if it thinks fit, order that the applicant be examined by a commission in the manner in which the examination of an absent witness may be taken.

Rejection of application.

The Court shall reject an application under Rule 5 of the Code, for permission to sue as an indigent person-
(a) where it is not framed and presented in the manner prescribed by rules 2 and 3, or

(b) where the applicant is not an indigent persons, or

(c) where he has, within two months next before the presentation of the application disposed of any property fraudulently or in order to be able to apply for permission to sue as an indigent person:

Provided that no application shall be rejected if, even after the value of the property disposed of by the applicant is taken into account, the applicant would be entitled to sue as an indigent person, or

(d) where his allegations do not show a cause of action, or

(e) where he has entered into any agreement with reference to the subject-matter of the proposed suit under which any other person has obtained an interest in such subject-matter, or

(f) where the allegations made by the applicant in the application show that the suit would be barred by any law for the time being in force, or

(g) where any other person has entered into an agreement with him to finance the litigation.

Notice of day for receiving evidence as regards applicant being indigent

Under Rule 6, if the Court sees no reason to reject the application on any of the grounds stated in rule 5, it shall fix a day (of which at least ten day’s clear notice shall be given to the opposite party and the Government pleader) for receiving such evidence as the application may adduce in proof of his being indigent and for hearing any evidence which may be adduced in disproof thereof.

Procedure at hearing: The Rule 7 contains the provision in this regard.

(1) On the day so fixed or as soon thereafter as may be convenient the Court shall examine the witnesses (if any) produced by either party, and may examine the applicant or his agent, and shall make a full record of their evidence.

(1A) The examination of the witnesses under sub-rule (1) shall be confined to the matters specified in clause (b), clause (c) and clause (e) of rule 5 but the examination of the applicant or his agent may relate to any of the matters specified in rule 5.

(2) The Court shall also hear any argument which the parties may desire to offer on the question whether, on the face of the application and of the evidence (if any) taken by the Court under rule 6 or under this rule, the applicant is or is not subject to any of the prohibitions specified in rule 5.

(3) The Court shall then either allow or refuse to allow the applicant to sue as an indigent person.

Procedure if application admitted

The Rule 8 contains details in this regard. Where the application is granted, it shall be numbered and registered, and shall be deemed the plaint in the suit, and the suit proceed in all other respects as a suit instituted in the ordinary manner, except that the plaintiff shall not be liable to pay any court-fee [or fees payable for service of process] in respect of any petition, appointment of a pleader or other proceeding connected with the suit.

Withdrawal of permission to sue as an indigent person

As per rule 9 of the Code, the Court may, on the application of the defendant, or of the Government pleader, of which seven days clear notice in writing has been given to the plaintiff, order that the permission granted to the plaintiff to sue as an indigent person be withdrawn-

(a)  if he is guilty of vexatious or improper conduct in the course of the suit;

(b) if it appears that his means are such that he ought not to continue to sue as an indigent person; or

(c) if he has entered into any agreement with reference to the subject-matter of the suit under which any other person has obtained an interested in such subject-matter.

Costs when indigent person succeeds.

As per rule 10 of the Code, where the plaintiff succeeds in the suit, the Court shall calculate the amount of court-fees which would have been paid by the plaintiff if he had not been permitted to sue as an indigent person; such amount shall be recoverable by the State Government any party order by the decree to pay the same and shall be a first charge on the subject-matter of the suit.

Procedure where indigent person fails.

The Rule 11 prescribes in what manner a plaintiff fails in the suit or the permission granted to him to sue as an indigent person has been withdrawn, or where the suit is withdrawn or dismissed,-

(a) because the summons for the defendant to appear and answer has not been served upon him in consequence of the failure of the plaintiff to pay the court-fee or postal charges (if any) chargeable for such service or to present copies of the plaint or concise statement, or

(b) because the plaintiff does not appear when the suit is called on for hearing, the Court shall order the plaintiff, or any person added as a co-plaintiff to the suit, to pay the court-fees which would have been paid by the plaintiff if he had not been permitted to sue as an indigent person.

Procedure where indigent persons suit abates.

The Rule 11 A contains that the suit abates by reason of the death of the plaintiff or of any person added as a co-plaintiff, then, the Court shall order that amount of court-fees which would have been paid by the plaintiff if he had not been permitted to sue as an indigent person shall be recoverable by the State Government from the estate of the deceased plaintiff.

State Government may apply for payment of court-fees.

The Rule 12 of the Code is significant, in as much as, the State Government shall have the right at any time to apply to the Court to make an order for the payment of court-fees under rule 10, rule 11 or rule 11A.

State Government to be deemed a party

As per rule 13 of the Code, all matters arising between the State Government and any party to the suit under rule 10, rule 11 rule 11A or rule 12 shall be deemed to be questions arising between the parties to the suit within the meaning of Section 47.

Recovery of amount of court-fees.

Where an order is made under rule 10, rule 11 or rule 11A, the court shall forthwith cause a copy of the decree or order to be forwarded to the Collector who may, without prejudice to any other mode of recovery, recover the amount of court-fees specified therein from the person or property liable for the payment as if it were an arrear of land revenue. The provisions finds mention in Rule 14.

Refusal to allow applicant to sue as indigent person to bar subsequent application of like nature

An order refusing to allow the applicant top sue as indigent person shall be a bar to any subsequent application of the like nature by him in respect of the same right to sue; but the applicant shall be at liberty to institute a suit in the ordinary manner in respect of such right;
Provided that the plaint shall be rejected if he does not pay, either at the time of the institution of the suit or within such time thereafter as the Court may allow, the costs (if any) incurred by the State Government and by the opposite party in opposing his application for leave to sue as an indigent person. The aforesaid stipulations are contained in rule 15 of CPC.

15A. Grant of time for payment of court-fee.

The Court may grant time to the plaintiff for payment of court fee, notwithstanding what are contained in rule 5, rule 7 or rule 15. The Court, while rejecting an application under rule 5 or refusing an application under rule 7, may grant time to the applicant to pay the requisite court-fee within such time as may be fixed by the Court or extended by it from time to time; and upon such payment and on payment of the costs referred to in rule 15 within that time, the suit shall be deemed to have been instituted on the date on which the application for permission to sue as an indigent person was presented.

17. Defence by an indigent person

As per rule 17, any defendant, who desire to plead a set-off or counter-claim, may be allowed to set up such claim as an indigent person, and the rules contained in this Order shall so far as may be, apply to him as if he were a plaintiff and his written statement were a plaint.

Power of Government to provide for free legal services to indigent persons

The Rule 18 of the Code prescribes this.

(1) Subject to the provisions of this Order, the Central or State Government may make such supplementary provisions as it thinks fit for providing free legal services to those who have been permitted to sue as indigent persons.

(2) The High Court may, with previous approval of the State Government, make rules for carrying out the supplementary provisions made by the Central or State Government for providing free legal services to indigent persons referred to in sub-rule (1), and such rules may include the nature and extent of such legal services, the conditions under which they may be made available, the matters in respect of which, and the agencies through which, such services may be rendered.

Appeals by Indigent Persons

The provision for appeal by an indigent person is contained in Order XLIV of the CPC. As per the said provision an indigent person may prefer an appeal without paying the requisite court fees in a similar manner that of the filing of a suit. The inquiry in appeal shall have to be conducted with regard to the appellant’s financial status, and the courts may accord permission to file the appeal without payment of Court fees However, in case, the court reject the application to prefer appeal as an indigent person that the concerned person shall, have to pay the court fees within stipulated time period. If fees are paid, the appeal may proceed in an ordinary way a specified time. If the fees are paid within time, the appeal may be proceeded with and in that event it will be construed that fee is duly paid from inception.

 

JUDICIAL PRECEDENTS

 

1.  Sushil Thomas Abraham  Vs. Skyline Build & Ors(2019) 3 SCC 415 -Civil Appeal No. 117 of 2019 (Arising out of SLP (C) No. 19516 of 2014)

Order 33 Rule 7(3) empowers the court to either allow or refuse to allow the applicant to sue as an indigent person. The Rule 9 of the code empowers the court to withdraw the permission granted Under Rule 7(3) at the instance of Defendant or State counsel, if any of the grounds set out in Clauses (a) to (c) is made out. Order 33 Rule 11 as amended by the State of Kerala inter alia provides that when the Plaintiff is dispaupered, the Court may order the Plaintiff to pay the requisite court fees within a time fixed by the Court.

In the Sushil Thomas (Supra) it is held that there is no bar in preferring appeal by the indigent person against the order by the trial court under Order 33 Rule 1 of the Code and an application/appeal Under Order 44 Rule 1 of the Code before the Appellate Court can be maintained. The recitation of Rule 3(1) and 3(2) of Order 44 is categorical, in as much as inquiry can be conducted even at the appellate stage as to whether the applicant is an indigent person or not?

It is relevant to point out that Clause (2) of Order 44 Rule 3 of the Code stipulates that if the applicant was declined the status of an indigent person by the trial court in the suit, then, in such an event the applicant in appeal is entitled to contend that he has become an indigent person since the date of decree appealed from and, hence, he will be entitled to prefer appeal as an indigent person. No doubt, the inquiry is required to be conducted in this stage as well.

2.      M. L. Sethi vs R. P. Kapur  AIR 1972 SUPREME COURT 2379,

The earlier judgment passed by the Supreme Court itself suggests that the application filed by the pauper under the suit by indigent person should itself be treated as suit and all the circumstances and procedure in an ordinary suit shall apply to the application/suit filed by the indigent person.

In Vijay Pratap Singh Vs Dukhharan Nath Singh & Anr [1962] S.C.R. Supp. 2,675 the Supreme Court has held that "the suit commences from the moment an application for permission to sue in forma pauperis as required by Order 33 is presented." If that be so, the provisions of rule 12 of Order 11 relating to discovery would in terms apply to proceedings under Order 33. There is also no reason why, if the provisions of Order 1, rule 10 relating to additions of parties, of Order 9 dealing with appearance of parties and consequence of non- appearance, and of Order 39 relating to temporary injunctions would apply to proceeding under Order 33, the provisions in Order 11 dealing with discovery of documents should not apply to, such proceedings.

                             COMPANY CAN SUE AS INDIGENT PERSON

3. Union Bank of India v. Khader International Construction-  Appeal (civil) 943 of 1993 Supreme Court

 

The aforesaid judgment reiterates that Order XXXIII of CPC is an enabling provision and it accords rights to the indigent person to prefer a suit without paying court fee , albeit in Case of dismissal of the suit, the state shall be entitled to recover the court fees from the plaintiff.

The Supreme Court referred to Lord Selborne in Pharmaceutical Society v. London and Provincial Supply Association, 5 Appeal Cases 857, observed :

"There can be no question that the word ’person’ may and ......prima facie does, in a public statute include a person in law; that is , a corporation, as well as a natural person. But although that is a sense which the word will bear in law, and which as I said, perhaps ought to be attributed to it in the construction of a statute unless there should be any reason for a contrary construction, it is never to be forgotten, that in its popular sense and ordinary use it does not extend so far”.

" Therefore, the word ’person’ has to be given its meaning in the context in which it is used. It refers to a person who is capable of filing a suit and this being a benevolent provision, it is to be given an extended meaning. Therefore, we are of the view that a public limited company, which is otherwise entitled to maintain a suit as a legal person, can very well maintain an application under Order XXXIII, Rule 1 CPC. We hold that the word ’person’ mentioned in Order XXXIII includes not only a natural person but other juridical persons also”

4. Smt. Lakshmi v. Vijaya Bank AIR 2011 KARNATAKA 89, 2011

The Karnataka High Court has held that the right to sue as an indigent person being a personal right cannot be extended to the legal heirs of indigent person. The legal heirs may continue with the suit, but not as indigent person, but as an ordinary suit by and ordinary person and thus requisite court fees shall have to be paid on the plaint.

                    5. Sumathy Kutty v. Narayani AIR 1973 Ker 19

The Kerala High Court has held that the real test for ascertaining a person to be indigent shall be to the effect that if the said person is able to liquidate his assets without any undue hassles or without delay, then he could not be held as indigent. Therefore, necessary inquiry is required to be conducted in this regard to verify the correctness of the assertions of the plaintiff who preferred the suit as indigent person.

As is evident from the aforesaid discussion and legal precedents, the provision for indigent person in the Code of Civil Procedure is an enabling provision so as to ensure that access to law is accorded to all strata of society, however, in order to be eligible to it, there are stringent prescription and only after inquiry to that effect and after recording satisfaction as regards the plaintiff or appellant as the case may be, being indigent, the application to file suit as indigent person could be allowed. However, after the disposal of the case, the recovery of court fee and its mechanism is also provided for sp that revenue to the state is not lost while ensuring equity, fair play and opportunity to all.  

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                                  Anil K Khaware

                          Founder & Senior Associate

Societylawandjustice.com