Paisalo Loan Case: High Court Hammers Hidden Proceedings, Sets Date For Arbitration
Paisalo Digital extended three loans totaling Rs. 12 crores to the trust. The loans carried an interest rate of 17% per annum and were repayable in 60 monthly installments.
The Delhi High Court on Wednesday referred a dispute between Paisalo Digital Ltd. and Sat Priya Mehamia Memorial Education Trust to arbitration. The case involves allegations of Paisalo Digital charging exorbitant interest rates and the trust defaulting on a significant loan.
Paisalo Digital extended three loans totaling Rs 12 crore to the trust. The loans carried an interest rate of 17% per annum and were repayable in 60 monthly installments. The trust defaulted on its obligations, prompting Paisalo Digital to recall the loan and initiate legal proceedings, including invoking the SARFAESI Act.
However, the SARFAESI proceedings were disposed of by the district magistrate. This prompted Paisalo to approach the Delhi High Court requesting to invoke arbitration proceedings between the parties and also to get interim relief.
The company sought court intervention to prevent the trust from selling off properties that were used as security for the loan it had granted. The objective was to ensure that Paisalo could still pursue the recovery of the loan amount.
As a result, the court issued an interim order placing a status quo on the properties in question, thereby prohibiting any further action regarding their disposal until the matter was resolved.
In the meantime, the trust informed the court about the SARFAESI Act proceedings that had not been disclosed by the company, Paisalo Digital. The court noted that Paisalo Digital had failed to disclose this information. As a consequence, the court imposed costs of Rs. 5 lakh on Paisalo for concealing this fact.
On the other hand, the court found that the SARFAESI Act proceedings being rejected did not mean that arbitration could be invoked and appointed an arbitrator and directed negotiations between the parties, with the first arbitration hearing scheduled for May 15, 2024.
The trust has alleged that Paisalo Digital has been charging exorbitant interest rates, estimated to be around 125% per annum, on the loans provided. The lender has said that the due payable amount by the trust as of December 27 stood at Rs 76.7 crore. This includes the principal amount of Rs 12 crore and late fees worth Rs 54.72 crore.
Against this, the trust has agreed to pay Rs 21.95 crore.
"...it is directed that Respondent No.1 shall deposit a sum of Rs.21.95 crores with the worthy Registrar General of this Court, which shall be kept in the form of FDR (fixed deposit receipt) on auto renewal mode," the court said in its order.
The said deposit shall be made within 90 days of the order. The deposit shall be subject to further orders passed below, and to the final decision in the arbitration proceedings, the court said.
The remaining amount will be decided through arbitration, where Delhi High Court has appointed retired Supreme Court Judge UU Lalit as the sole arbitrator.
"The question as to whether such charging of late fee is conscionable and in accordance with law, is also an issue, which may be raised before the Arbitral Tribunal," the high court said in its order.
