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Synopsis

The Kerala High Court on Tuesday ruled that banks cannot deny education loans to students solely on the basis of their low CIBIL score (Credit Score calculated by Credit Information Bureau (India) Limited).

The single judge bench of Justice PV Kunhikrishnan remarked that students are the nation-builders of the future, and thus a humanitarian approach is very important for the banks.

“While considering Education Loan application, a humanitarian approach is necessary from the Banks. Students are the nation-builders of tomorrow. They have to lead this country in future. If there is a low CIBIL score for a student, the Education loan application ought not to have been rejected by Bank,” the court said.

In the present case, the petitioner, Noel Paul Fredy is a 23-year-old student, who completed his course on May 31, 2023. He also obtained a job in Oman. He had availed two loans, one of them was overdue for Rs, 16,667.

Senior Advocate K.K. Chandran Pillai representing the Bank submitted that as per the CIBIL score, the petitioner's score was only 560. Further, Pillai stated that the petitioner had availed of two loans and one loan was overdue, due to which the CIBIL score was low. Furthermore, he also opposed granting the interim order stating that it will be against the scheme framed by the Indian Banks Association as directed by the Reserve Bank.

Pillai also submitted that the Credit Information Companies Act, 2005, the Credit Information Companies Rules, 2006 and the Circulars issued by the State Bank of India prohibits the disbursement of loan in such situation.

Advocate George Poonthottam appearing for the petitioner argued that unless the amount is received immediately, the petitioner will be in trouble. Further, Poonthottam stated that the petitioner had an offer for a job in a Multi-National Company. Therefore the petitioner will be able to clear the entire loan amount, he assured.

After hearing both parties, Justice Kunhikrishnan noted the facts and arguments of the parties and stated that the respondents shall disburse the loan to the College of the petitioner forthwith.

The court also added that the Banks may be hyper-technical, but a court of law cannot ignore the ground realities.

“Here is a case, where the petitioner obtained a job offer too. Banks may be hyper-technical, but a court of law cannot ignore the ground realities. Therefore, I am of the considered opinion that the respondents shall disburse the loan to the College of the petitioner forthwith,” the court added.

The court directed the Bank to sanction and disburse the Education loan of Rs. 4,07,200 to the college on behalf of the petitioner.

However, the bench also stated that the respondents are free to file a counter affidavit.

Case Title: Noel Paul Fredy v. State Bank of India & Anr.

Statute: Credit Information Companies Act, 2005, Credit Information Companies Rules, 2006