Andhra Pradesh High Court – Amravati
Komaravolu Siva Rama Hari Prasad, vs Union Of India on 20 December, 2024
HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
WRIT PETITION Nos. 5426, 21624,, 21584, 21623, 21631, 14370, 14386,
14387, 14367, 14383, 14356, 15630, 14376, 15818, 14378, 14393, 14362,
14369, 14355, 15633, 14381, 14372, 14363, 14374, 14391, 14354 & 14361
of 2024
Between:
Bhavani Vikram Joshi, ...PETITIONER
AND
Union Of India and Others ...RESPONDENT(S)
DATE OF JUDGMENT PRONOUNCED: 20.12.2024
SUBMITTED FOR APPROVAL:
HON'BLE SRI JUSTICE VENKATESWARLU NIMMAGADDA
1. Whether Reporters of Local newspapers Yes/No
may be allowed to see the Judgments?
2. Whether the copies of judgment may be Yes/No
marked to Law Reporters/Journals?
3. Whether Their Ladyship/Lordship wish to Yes/No
see the fair copy of the Judgment?
________________________________
VENKATESWARLU NIMMAGADDA, J
2
*HON'BLE SRI SRI JUSTICE VENKATESWARLU NIMMAGADDA
+W.P.Nos. 5426, 21624,, 21584, 21623, 21631, 14370, 14386, 14387,
14367, 14383, 14356, 15630, 14376, 15818, 14378, 14393, 14362, 14369,
14355, 15633, 14381, 14372, 14363, 14374, 14391, 14354 & 14361 of
2024
%20.12.2024
# Bhavani Vikram Joshi .. Petitioner
And
$ Union Of India and Others.
.. Respondents
<GIST:
>HEAD NOTE:
! Counsel for petitioner: Sri JADA SRAVAN KUMAR
.
Counsel for respondents: Ms. M UMA DEVI (CENTRAL GOVT COUNSEL
Sri P BADRINATH
? CASES REFERRED:
1. 2021 INSC 427=MANU/SC/0580/2021
2. 1997 (10) SCC 488
3. (2003) 10 SCC 733
4. (2022) 5 SCC 345
5. (2009) 1 CTC 22
6. MANU/GJ/2345/2022
7. 2019 (16) SCC 303
8. 2006 (63) ALR 591
9. AIR 2008 (NOC) 1207 (A.P) = 2009 AIHC (NOC) 74 (A.P)
10. MANU/TN/4532/2021
3
APHC010101112024
IN THE HIGH COURT OF ANDHRA PRADESH
AT AMARAVATI [3329]
(Special Original Jurisdiction)
FRIDAY ,THE TWENTIETH DAY OF DECEMBER
TWO THOUSAND AND TWENTY FOUR
PRESENT
THE HONOURABLE SRI JUSTICE VENKATESWARLU NIMMAGADDA
WRIT PETITION Nos. 5426, 21624,, 21584, 21623, 21631, 14370, 14386,
14387, 14367, 14383, 14356, 15630, 14376, 15818, 14378, 14393, 14362,
14369, 14355, 15633, 14381, 14372, 14363, 14374, 14391, 14354 & 14361
of 2024
Between:
Bhavani Vikram Joshi, ...PETITIONER
AND
Union Of India and Others ...RESPONDENT(S)
Counsel for the Petitioner:
1. JADA SRAVAN KUMAR
Counsel for the Respondent(S):
1. M UMA DEVI (CENTRAL GOVT COUNSEL)
2. P BADRINATH
The Court made the following:
COMMON ORDER:
–
The instant Writ Petitions are filed under Article 226 of the
Constitution of India by the Petitioners for following relief:
4
“..to issue an appropriate writ order or direction particularly one in the
nature of writ of Mandamus declaring the action of the respondents Nos. 2
to 4 in deducting the Pre-EMIs (Equated Monthly Installments) from the
housing loan account of the petitioner herein vide Account
No.LBVJW00003232001 despite there is a clear violation of Master
Circular of Reserve Bank of India guideline No.7.6 vide its No. DCBR.BPD
(PCB). MC No.9/09.22.010/2015, DATED 01.07.2015 and without
observing fact that the builder / respondent No.5 has committed default
either in completing the construction or making payment to the respondent
banker is as illegal, arbitrary and violation of Fundamental Rights of the
petitioner guaranteed under Articles 14, 15, 21 and 300A of the Indian
Constitution and consequently direct the respondents No. 2 to 4 not to
deduct the future EMIs in respect of the loan account
LBVJW00003232001 without proceedings for recovery from the
respondent No.5 and pass”
2. Since the relief claimed in all the Writ Petitions and party
Respondents are one and the same, this Court inclined to decide the issue
by way of this Common Order.
3. The facts in W.P.No.5426/2024 are taken to render this Common
Order.
(a) The case of the Petitioner herein is that the Petitioner availed
sanctioned loan amount of Rs.71,83,902/- for purchase of a flat No.4151 in
a housing project namely “Ramakrishna Venuzulla” constructions by
Ramakrishna Housing Constructions Limited. Out of which an amount of
Rs.51,09,902/- already disbursed on 19.12.2016. The schedule of
repayment by way of equal monthly instalments of the subject housing loan
is 180 months. The Petitioner also entered an agreement of sale dated
29.11.2016 and also entered a tripartite agreement between the Petitioner,
5th Respondent developer and respondent bank.
5
(b) The further case of the Petitioner herein is that the respondent
bank contrary to the Master Circular dated 01.07.2015, issued by the
Reserve Bank of India disbursed the loan amounts without observing the
stages of the construction and burdened the Petitioner. As per Circular
Clause-3 deals with quantum of loan wherein Clause-(f) reiterates that
Banks are advised that disbursal of housing loans sanctioned to individuals
should be closely linked to the stages of construction of the housing project /
houses and upfront disbursal of amounts should not be made in cases of
incomplete / under construction / green field housing project.
(c) Even though the Clause is clear and specific in the present case,
the respondent banks disbursed 70% of the loan, in fact the construction
becomes standstill since 2019 and deducting EMIs from the Petitioner /
borrower’s accounts which is contrary to the terms of the Master Circular as
well as the conditions of the tripartite agreement. As per guideline No.7(6)
of the Circular dated 01.07.2015 without observing the fact that the 5th
respondent builder had committed default either in building construction or
in making payments even after receipt of representation the Respondents 2
to 4 not initiated any steps against the 5th Respondent as contemplated.
(d) As per the tripartite agreement if the possession of the residential
flat could not been delivered within the time stipulated by the developer, it
would be the responsibility of the developer to pay the EMI in favour of the
6
Bank on behalf of the borrower till handing over the possession of the
residential unit / flat to the Petitioner / Purchaser. But in the present case
the respondent banks not initiated any steps against the 5th respondent but
deducting the EMIs from the account of the Petitioner even though the
construction of the residential flats stalled in mid-way. As such, handing
over of the possession of the Flat / Unit to the Petitioner does not arise.
(e) It is further case of the Petitioner that all similarly situated buyers /
purchasers of the flats at subject project were formed an association and
issued a common notice on 20.12.2021 calling upon the 5th Respondent as
well as Respondent Bank to return the entire amounts received from them
by way of installments so far along with interest @ 24% and also Rs.5
Crores towards damages. For which the 3rd respondent bank issued reply
notice denying the claim of the association and also stated that as per the
tripartite agreement entered by the Petitioner with the developer and Banks,
the Petitioner is entitled to initiate appropriate action as per the terms of the
agreement.
(f) The Petitioner and similarly situated persons also approached
National Consumer Commission vide CC.Nos.119, 121, 128 of 2022 for
refund of total principle amount paid by them and the same are pending for
consideration. Therefore, the inaction on the part of the Respondents 2 to 4
in recovering EMIs amounts from the 5th Respondent as per the terms of the
7
agreement who is in default in handing over the possession who agreed for
payment of installments to the banks is assailed in the present Writ Petition.
4. The 3rd Respondent herein filed counter affidavit as well as vacate
stay petition in the present Writ Petition and also in batch of Writ Petitions
contending thus:
(a) The Respondent Bank is a private company incorporated and
constituted under the Companies Act, 1956 and as Banking Company as
defined in Section 5 of the Banking Regulation Act, 1949. The Respondent
Bank does not perform any sovereign functions, nor does it exercise any
authority over a third person. The nature of the activity conducted by
Respondent Bank is that of a commercial undertaking which receives
deposits from individuals, advances loans and undertakes other ancillary
monetary transactions for profits. Respondent Bank is merely a private
limited company carrying out the business of banking as a scheduled bank.
It is neither a State nor its agency or instrumentality. Furthermore, it is not
carrying out any statutory or public duty, as envisaged under Article 12 of the
Constitution of India. Therefore, Respondent Bank cannot be considered a
State and is consequently not amenable to the writ jurisdiction of this Hon’ble
Court.
8
(b) The deduction of Pre-EMIs is in line with the Facility Agreement,
Tripartite agreement, and an Undertaking entered into by the petitioner with
the answering respondent on 13.12.2016. The RBI circular that has been
referred to is not applicable in the present case and to the answering
respondent, as the circular is only applicable to Urban Co-operative banks-
ICICI Bank is a scheduled commercial bank. Furthermore, as per clause 2.3
of the Facility Agreement, the petitioner has consented to not hold answering
respondent responsible for any delay in the construction/giving possession
of the property by the developer/builder. Therefore, petitioner cannot claim
that the answering respondent cannot deduct pre-EMIs just because the
builder has not completed the construction/handed over the possession. As
per Clause 2- Undertaking dated 13.12.16, the Petitioner undertook to
unconditionally pay EMIs in case the developer stops the payment of EMIs
to ICICI Bank. Further, Clause 3 of Undertaking dated 13.12.16- the
Petitioner undertook to pay the entire facility/due amount, irrespective of
whether the Petitioner has been given the possession of residential unit, flat
or house.
(c) This Hon’ble Court should note that the Facility Agreement
between the Petitioner and the Bank clearly records that the Bank is not
responsible for any delay in construction / handing over possession of the
9
Project. The categorical representation given by the Complainant in Clause
2.3 is reproduced below:
“The Borrower/s shall not hold the Lender responsible for any delay in the
construction/giving possession of / completion of the Property (ies) by the
developer/promoter/builder/society to the Borrower/s, or for quality, condition
or fitness of construction of the Property (ies) even if the Lender may have
approved / sanctioned any facilities to such developer / promoter / builder/
Development Authority or given to Borrower’s any information about such
promoter/property/builder/Development Authority.”
(d) It is further submitted that as per Clause 2- Undertaking, the
Petitioner undertook to unconditionally pay EMIs in case the developer stops
the payment of EMIs to the answering respondent. As per Clause 3-
Undertaking, the petitioner undertook to pay the entire facility/due amount,
irrespective of whether the Petitioner has been given the possession. The
answering Respondent cannot be held responsible for the inordinate delay at
the end of the developer and the same was agreed by the petitioner /
borrower under the Facility Agreement (Clause 2.3)
(e) The allegations that answering respondent deviated from the
guidelines of RBI and other authorities are denied in toto. The Petitioner has
made baseless allegations without any evidence, and they are put to strict
proof of the same. The answering respondent has followed all the guidelines
and done their due diligence prior to disbursing the amount. The amount was
disbursed post assessing the stages of construction and the
petitioner/customer has requested the bank to release the funds in favor of
10
the builder and the same can be verifiable to disbursement request forms.
The Petitioner/borrower has undertaken the legal obligation to pay back the
money that is due to the answering respondent in case the developer stops
paying the EMIs. The obligation of the Petitioner/borrower to pay back the
money to the answering respondent is unconditional and independent and
does not depend on the possession handover or if the developer stops the
payment of EMIs. The inability of the developer to handover the possession
cannot be attributed to the answering respondent and the Petitioner cannot
be absolved of his legal obligation to pay back the loan amount to the
answering respondent. The answering respondent’s right to recover the
money from the Petitioner / borrower as per the mutually agreed terms and
conditions of the transaction documents cannot be termed as coercive.
5. Learned counsel for the Petitioner submits that the Respondent Nos.2
to 4 not adhered to guideline No. 7.6 of Master Circular dated 01.07.2015
wherein it is clearly and categorically observed that the disbursing of the
housing loan sanctioned to individuals should be closely linked to the stages
of construction of the housing project / houses and upfront disbursal should
not be made in cases of incomplete / under-construction / green field
housing projects.
11
6. While so, departing from the mandatory clause of the guideline of the
Master Circular of the 2nd Respondent, the Respondents 3 and 4 banks
herein without adhering to the guidelines even though the subject property
is incomplete or under-construction even after lapse of period of completion
as per the tripartite agreement / facility agreement is contrary to the said
guidelines / clause.
7. The Master Circular of the 2nd Respondent which is purely meant for
housing finance to all the scheduled and commercial banks, more
particularly Respondents 3 and 4 herein. Clause-3 reiterating the contents
as stated above. As such, the guidelines mentioned in the subject Circular
are mandatory in nature in the event of default in applying the said clause
Respondents 2 and 3 are not entitled to recover the EMIs from the
Petitioner. For which Petitioner relied upon the judgment rendered by the
Delhi High Court in W.P (C) No.6774 of 2021 titled as Hridesh Kumar
Pathak v. Bank of Maharashtra and W.P (C) No.10759 of 2021 being
Jayanta Kumar Mishra and another v. Union of India, wherein the
Division Bench has, by way of interim orders, restrained the banks/HFCs
from taking coercive steps against the petitioners/home buyers.
8. Learned counsel for the Petitioner further reliance is placed on a
recent decision of the Apex Court in Supertech Ltd vs Emerald Court
12
Owner Resident Welfare1 wherein, after noticing the plight of the
homebuyers, the Court has directed the developer to refund the entire
amount with interest.
9. He further submits that in the similar set of facts the Hon’ble Delhi
High Court in Ashish Tiwari vs. Union Bank of India has dealt the issue of
deduction of pre-EMIs and has directed the respondent bank authorities not
to take any coercive steps against the petitioner therein.
10. Therefore, learned Counsel for the Petitioner finally submits that the
Respondents 2 to 4 are not entitled to recover any amount from the
Petitioner hereinafter and they shall recover the amounts from the 5th
Respondent who committed default in completion of the project and not
handed over the possession of the respective flats. Therefore, the Writ
Petition is liable to be allowed.
11. Learned Standing Counsel for Respondent No.2 Sri S.
Satyanarayana Murthy and Sri P. Badrinath, learned Counsel for
Respondent Nos.3 and 4 submits that the present Writ Petition ought to
have dismissed in limini with exemplary costs and the reliefs sought herein
are arisen out of private and contractual disputes entered between the
Petitioner, 5th Respondent and Banks herein. Irrespective of pay of the
1
2021 INSC 427=MANU/SC/0580/2021
13
Petitioner the adjudication of terms of the contract among the parties cannot
be subjected to extraordinary jurisdiction under Article 226 of the
Constitution of India. Guideline No.7.6 of Circular dated 01.07.2015 is
meant primarily for Urban Cooperative Banks but not scheduled commercial
banks but the Circular dated 01.07.2015 which meant for scheduled banks
is applicable to the Respondent Nos.2 and 3 herein. Clauses in Circular
dated 01.07.2015 are in directory in nature but not mandatory. As such, the
same cannot be enforceable under extraordinary jurisdiction under Article
226 of the Constitution of India.
12. It is settled proposition of law that non-compliance with an RBI
Circular does not result in invalidation of underlying contract as held in Bank
of India Finance Ltd. V. Custodian2 wherein it is held that even if the
Petitioner can successfully demonstrate that disbursal was in violation of
applicable RBI Circulars, that will not affect the underlying Facility
Agreement. As defaulting borrowers, the Petitioners do not have any locus
standi to challenge the vires of the Facility Agreement.
13. It is well settled preposition of law that a writ jurisdiction cannot be
invoked against private bodies much less in respect of contractual disputes
between the parties as held by Hon’ble Apex Court in catena of judgments.
2
1997 (10) SCC 488
14
He relied upon the following judgments rendered by the Hon’ble Apex Court
as well as this Court:
(1) Federal Bank Ltd. Vs. Sagar Thomas3
(2) Phoenix ARC Private Ltd. V. Vishwa Bharati Vidya Mandir4
(3) ICICI Bank Ltd. V. Lakshminarayanan5
(4) Universal Hospital A1 AIN LLC v. Yes Bank Ltd.,6
(5) Ramakrishna mission v. Kago Kunya7
(6) Anil Kumar Rastogi v. State of U.P8
14. Learned Standing Counsel for Respondent No.2 submits that Clause
2.3 of Facility Agreement entered between the Petitioner and 3rd
Respondent Bank clearly demonstrates that the bank is not responsible for
any delay in the construction / giving possession of / completion of the
properties by the developer / promoter / builder / society to the borrower/s or
for quality, condition or fitness of construction of the property even if the
lending bank may have approved / sanctioned any facilities to such
developer. Therefore, the Respondent Nos.2 and 3 cannot be made liable
for the default committed by the 5th respondent. As per the undertaking
executed by the Petitioner on 24.10.2016 in favour of the bank indicates that
in case of a non-payment or untimely payment of monies by the developer
within the referred period, the borrower / petitioner agrees and undertakes to
pay the said monies on its behalf promptly without any protest or demur, as
and when requested by the Bank. The Petitioner also undertakes to repay
3
(2003) 10 SCC 733
4
(2022) 5 SCC 345
5
(2009) 1 CTC 22
6
MANU/GJ/2345/2022
7
2019 (16) SCC 303
8
2006 (63) ALR 591
15
the facility loan / loan sanctioned as per the agreed terms and conditions
irrespective of possession of the property handed over by the developer.
15. Therefore, the Petitioner cannot canvas that the Respondent No.2 not
monitored the Circulars effectively against the Respondent Nos.3 and 4
having agreed for the payment of EMIs even in the case of default on the
part of the developer. The relief claimed by the Petitioner in the present Writ
Petitions are born out of private and contractual disputes among them i.e.,
the Petitioner, 5th Respondent and Respondent Nos.2 and 3 banks. As
such, the contractual obligations / disputes cannot be enforced by way of
extraordinary jurisdiction under Article 226 of the Constitution of India. The
Circulars issued by the 2nd Respondent are only guiding factor to the banks
while formulating their lending policy but it cannot be strictly made
applicable for every factual circumstances. More over the Circulars are
directory in nature but not mandatory as claimed by the Petitioner. To
adjudicate these disputes and contractual obligations arising out of the
contracts and undertakings, the 2nd Respondent formulated a
comprehensive scheme i.e., Integrated Ombudsman Scheme, 2021.
Therefore, the Petitioners are entitled to invoke the jurisdiction on the
subject scheme. In fact the Petitioners herein are already approached
National Consumer Commission, Delhi against the 5th Respondent and
16
others for refund of the total principle amount paid by them and the same
are pending for consideration.
16. Therefore, having invoked the alternative jurisdiction for refund of the
amount, the Petitioners cannot be permitted to file present Writ Petition
parallelly by twisting some other relief for the same cause of action arising
out of the same contract. Therefore, the Writ Petition is liable to be rejected
in view of settled rule laid down by this Hon’ble Court in Meeran Minerals v.
Central Bank of India9. He also relied upon the judgment of Madras High
Court in Marg Limited v. Karaikal Port Private Ltd10. Therefore, in view of
ratio ruled by this Court as well as Madras High Court the Writ Petition is
liable to be dismissed.
17. Heard Ms. Krishna Deepthi, learned counsel representing Sri Jada
Sravan Kumar, learned counsel for the Petitioners, Sri S. Satyanarayana
Murthy, learned Standing Counsel for Respondent No.2 and Sri P.
Badrinath, learned counsel for Respondents 3 and 4. There is no
representation for Respondent No.5.
18. On perusal of the material placed on record, it appears that the relief
claimed by the Petitioner is born out of the Facility Agreement entered
between the Petitioner and Respondents and later undertakings and loan
9
AIR 2008 (NOC) 1207 (A.P) = 2009 AIHC (NOC) 74 (A.P)
10
MANU/TN/4532/2021
17
agreements. All these agreements are contractual in nature binding
between them. The whole contentions raised by the Petitioner either born
out of agreement or out of Circular dated 01.07.2015. The guideline /
clause of 7.6 of Circular dated 01.07.2015 relied by the Petitioner is meant
for rural / urban cooperative banks but not commercial banks but another
Circular which was with same terms issued to the scheduled banks which is
applicable to the Respondents 2 and 3 herein. Except canvassing by the
Petitioner that Clause 3(f) of the Circular dated 01.07.2015 was not adhered
by the Respondents 2 and 3 and disbursed the loan contrary to the Circular
and therefore the said inaction on the part of the Respondents 2 and 3
cannot be permitted to recover EMIs from the Petitioners is contrary to the
terms of the Facility Agreement as well as indemnified undertakings
executed by the Petitioner.
19. More over, the subject Circular dated 01.07.2015 is only a guiding
factor for respective banks to make a policy or to observe the care and
caution while lending towards housing projects. Therefore, the entire terms
of the Circular are directory in nature therefore in the event of violation is not
amenable to the extraordinary jurisdiction under Article 226 of the
Constitution of India. In fact, the Petitioner herein agreed in all terms for
payment of EMIs and also even in the case of default on the part of 5th
18
Respondent by duly executing Facility Agreement as well as undertakings
as substantiated by the learned counsel for Respondent banks.
20. As contended by both learned Standing Counsel, the relief claimed by
the Petitioner in the present Writ Petitions which is purely a private and
contractual dispute among them (between petitioner and respondents) is not
amenable to the extraordinary jurisdiction under Article 226 of the
Constitution of India is liable to be accepted and sustainable in view of the
ratio ruled by Hon’ble Apex Court as extracted below:
(a) In Federal Bank Ltd‘s case (Supra 3) Hon’ble Apex Court held
thus:
“33. For the discussion held above, in our view, a private company carrying
on banking business as a scheduled bank, cannot be termed as an
institution or company carrying on any statutory or public duty. A private
body or a person may be amenable to writ jurisdiction only where it may
become necessary to compel such body or association to enforce any
statutory obligations or such obligations of public nature casting positive
obligation upon it. We don’t find such conditions are fulfilled in respect of a
private company carrying on a commercial activity of banking. Merely
regulatory provisions to ensure such activity carried on by private bodies
work within a discipline, do not confer any such status upon the company
nor puts any such obligation upon it which may be enforced through issue of
a writ under Article 226 of the Constitution. Present is a case of disciplinary
action being taken against its employee by the appellant Bank.
Respondent’s service with the bank stands terminated. The action of the
Bank was challenged by the respondent by filing a writ petition under Article
226 of the Constitution of India. The respondent is not trying to enforce any
statutory duty on the part of the Bank. That being the position, the appeal
deserves to be allowed.
(b) In Phoenix ARC Private Ltd‘s case (Supra 4) Hon’ble Apex Court
held thus:
19
“18.Even otherwise, it is required to be noted that a writ petition against the
private financial institution – ARC – appellant herein under Article 226 of the
Constitution of India against the proposed action/actions under Section
13(4) of the SARFAESI Act can be said to be not maintainable. In the
present case, the ARC proposed to take action/actions under
the SARFAESI Act to recover the borrowed amount as a secured creditor.
The ARC as such cannot be said to be performing public functions which
are normally expected to be performed by the State authorities. During the
course of a commercial transaction and under the contract, the bank/ARC
lent the money to the borrowers herein and therefore the said activity of the
bank/ARC cannot be said to be as performing a public function which is
normally expected to be performed by the State authorities. If proceedings
are initiated under the SARFAESI Act and/or any proposed action is to be
taken and the borrower is aggrieved by any of the actions of the private
bank/bank/ARC, borrower has to avail the remedy under the SARFAESI
Act and no writ petition would lie and/or is maintainable and/or entertainable.
Therefore, decisions of this Court in the cases of Praga Tools
Corporation (supra) and Ramesh Ahluwalia (supra) relied upon by the
learned counsel appearing on behalf of the borrowers are not of any
assistance to the borrowers.”
(c) In ICICI Bank Ltd‘s case (Supra 5) the Madras High Court held as
follows:
“17. In the present case also, as the appellant-Bank of Madura Ltd., is a
private Company, carrying on private banking business and not carrying on
any statutory or public duty, no “Writ Petition” under Article 226 of the
Constitution of India is maintainable against the appellant-Bank of Madura
Ltd. Merely because the Bank has made provisions to grant “pension” on
VRS, under the relevant Pension Scheme, the same cannot be a ground to
hold that the Bank is performing a public duty or public function. Hence, the
first question is answered in the negative against the respondent-Writ
Petitioner and in favour of the appellant-Bank of Madura Ltd. (now ICICI
Bank Ltd.)”
(d) In Meeran Minerals‘s case (Supra 9), this Court observed as
under:
“2. The Writ Petition is filed for a Writ of Mandamus declaring the impugned
letter dated 3.3.2006 issued by the 1st respondent bank to the petitioners as
violation of Mandatory Guidelines under OTS 2005 of the 2nd respondent
illegal, discriminatory, indiscrete and contrary to Sections 21 and 35 A of the
Banking Regulation Act, 1949 and also violation of fundamental rights
guaranteed under Articles 14 and 21 of the Constitution of India and
consequently directing the 1st respondent bank to receive amount under
20OTS 2005 Scheme from the petitioners for full and final settlement of their
dues and pass such other suitable orders.
8. In the counter affidavit filed by the 2nd respondent, Reserve Bank of
India, a preliminary objection had been raised that the Writ Petition itself is
not maintainable. It is averred that the Reserve Bank of India (the bank), a
body corporate constituted by Section 3 of the Reserve Bank of India Act
1934 to regulate the issue of Bank notes and keeping of the reserves with a
view to securing monetary stability in India and to operate the currency and
credit system of the country to its advantage. The Bank is the sole note
issuing authority. Bank notes issued by the Bank are legal tender
under Sections 22 and 39 of the Reserve Bank of India Act. The Bank
regulates and controls the money in the country. The Bank also acts as
statutory banker to the Government of India and all State Governments and
also manages their public debts. The Bank regulates and supervises
commercial banks and cooperative banks in the country. The Bank
exercises various powers and discharge various statutory functions
under Foreign Exchange Management Act, 1999, Banking Regulation Act,
1949, Reserve Bank of India Act, 1934 etc. Further it is averred that the
Bank issued guidelines dated 3rd September 2005 in exercise of the powers
conferred under Section 36 of the Banking Regulation Act, 1949 to public
sector banks at the request of Government of India. It is also stated that the
public sector banks are governed by statutes constituting them like State
Bank of India Act, 1955, State Bank of India (Subsidiary Banks) Act,
1959, Banking Companies (Acquisition and Transfer of Undertakings) Act,
1970 and Banking Companies (Acquisition an Transfer of Undertakings)
Act, 1980. Board of Directors of public Sector Banks is appointed by Central
Government in consultation with Reserve Bank. Public Sector banks
constitute a different and dinstinct class by themselves. In terms of Section
18 of State Bank of India Act, 1955 and Section 8 of Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970/1980, its subsidiary
banks and other nationalized banks are governed by the directions issued
by the Central Government in consultation with Governor, Reserve Bank of
India. The Government of India, Ministry of Finance prepared a policy
packet for stepping up credit to small and medium enterprises (SMEs) and
placed the same before the Parliament on 10th August, 2005. The
Government forwarded the policy paper vide letter dated 11th August, 2005
to Reserve Bank of India and other public sector banks requesting therein to
take all necessary steps to follow the policy in letter and spirit. The policy
paper in paragraph 5 provided inter alia, as under:
One time settlement scheme to apply to small scale NPAs account in the
books of the bank as on March 31, 2004 will be introduced. The scheme will
be in force up to March 31, 2006.
A copy of the letter dated 11th August, 2005 of Ministry of Finance is
enclosed to the Counter Affidavit. As requested by the Government of India,
the Reserve Bank vide letter RPCD PLNF.BC No. 31/06.02.31/20 dated
19th August, 2005 issued the policy package for stepping up credit to SMEs
to Chairman/Managing Director of all public sector banks. As the policy was
21placed by the Government before the Parliament and was addressed to
public sector bank, the same was considered for issuance to public sector
banks. One time settlement scheme was formulated by the Reserve Bank
on the basis of statement made by the Finance Minister before the
Parliament on 10th August, 2005 in the policy paper submitted for stepping
up credit to SMEs and the Reserve Bank issued guidelines on one time
settlement scheme for SME account vide RPCD.PLNFS.BC. No.
39/06.02.31/2005-06 dated 3rd September, 2005. Para 4 of the said
guideline specifically provide that any deviation from the above settlement
guidelines for any borrower shall be made only by the Board of Directors.
These guidelines have not been issued under Section 35A of the Banking
Regulation Act, 1949, therefore, they are directory in nature and each bank
has to apply its decision in individual cases. The respondent No. 2 relied on
the decisions of the Supreme Court in Joseph Kuruvilla Vellukunnel v.
Reserve Bank of India , which is popularly known as Palai Central
Bank case. In paragraph 45 of the Judgment, the Supreme Court has
observed, inter alia, as under:
In view of the history of the establishment of the Reserve Bank as a Central
Bank of India, its position as a banker’s bank, its control over banking
companies and banking in India, its position as the issuing bank, its power
to license banking companies and cancel their licenses and the numerous
other powers, it is unanswerable that between the Court and the Reserve
Bank, the momentous decision to wind up a tottering or unsafe banking
company in the interest of the depositors, may reasonably be left to the
Reserve Bank. No doubt, the Court can also, given the time, perform this
task. But the decision has to be taken without delay, and the Reserve Bank
already knows intimately the affairs of banking companies and has had
access to their books and accounts. If the Court were called upon to take
immediate action, it would almost always be guided by the opinion of the
Reserve Bank. It would be impossible for the Court to reach a conclusion
unguided by the Reserve Bank if immediate action was demanded. But the
law which gives the same position to the opinion of the Reserve Bank is
challenged as unreasonable. In our opinion, such a challenge has no force.
In Corporation Bank v. D.S. Gouda the Supreme Court in paras 16 and 21
of the Judgment has observed as under:
16. As pointed out earlier, under the Banking Regulation Act, wide powers
are conferred on the Reserve Bank to enable it to exercise effective control
over all banks. Sections 21 and 35A enable it to issue directives in public
interest to regulate the charging of interest on loans or advances made from
time to time. It is in exercise of this power that it issued the Circulars
referred to earlier fixing the rates of interest to be charged from borrowers.
The Corporation Bank was nationalized with effect from 11.7.1980. Since
the suit in question was filed in 1978 it was governed by the said guidelines
which prescribed a minimum rate of 12.5% per annum. Any bank which
committed a breach of the directives was liable to be penalized under
Section 47-A. A bank could ignore the directive on pain of being penalized.
Therefore, before issuing guidelines or directives the Reserve Bank must be
taken to have given serious thought to the nature of directives to be issued.
22
21. It was further contended that the rates of interest prescribed by the
Reserve Bank take into consideration the true financial and economic policy
of the country and operate as benchmarks against which private lending
parties are supposed to adjust and compare their own rates of interest and,
therefore, the Court should ordinarily show reluctance to interfere in such
matters as it may have the effect of disturbing the economic policy
meticulously framed and implemented in the country. We find considerable
substance in this line of reasoning, particularly where the minima and the
maxima are prescribed by the Reserve Bank In Peerless General Finance
and Investment Co. Ltd., and Anr. v. Reserve Bank of India , has observed
as under:
Reserve Bank of India which is banker’s bank is a creature of statute. It has
large contingent of expert advice relating to the matters affecting the
economy of entire country and nobody can doubt the bona fides of the
Reserve Bank, in issuing the impugned directions of 1987. The Reserve
Bank plays an important role in the economy and financial affairs of India
and one of its important functions is to regulate banking system in the
country.
The Supreme Court has further observed:
Courts are not to interfere with economic policy, which is the function of
experts. It is not the function of the Courts to sit in judgment over the
matters of economic policies and it must necessarily be left to the expert
bodies.
In B.O.I. Finance Ltd. v. Custodian the Supreme Court has observed in
paragraphs 25 to 27 as under:
Section 21 of the Banking Regulation Act, and Sub-section (2) in particular,
entitles the Reserve Bank of India to give directions to the banking
companies with regard to the matters specified in the said section. Sub-
section (3) provides that every banking company shall be bound to comply
with any directions given to it under the said Section. Section 35-A(1) also
contains the power of the Reserve Bank of India to give directions and the
same reads as under:
35-A(1) Where the Reserve Bank is satisfied that –
(a) in the public interest; or (aa) in the interest of banking policy; or
(b) to prevent the affairs of any banking company being conducted in a
manner detrimental to the interests of the depositors or in a manner
prejudicial to the interests of the banking company; or
(c) to secure the proper management of any banking company generally; it
is necessary to issue directions to banking companies generally or to any
banking company in particular, it may, from time to time, issue such
directions as it deems fit, and the banking companies or the banking
23company, as the case may be, shall be bound to comply with such
directions;
There can obviously be no doubt, as is evident from the plain reading of the
said provisions that the directions issued under Sections 21 and 35-A are
binding on the banking companies. Section 36(1)(a) and 1(b), on which
reliance is placed, reads thus:
36(1) The Reserve Bank may –
(a) caution or prohibit banking companies generally or any banking
company in particular against entering into any particular transaction or
class of transactions and generally give advice to any banking company;
(b) on a request by the companies concerned and subject to the provisions
of (Section 44-A) assist as intermediary or otherwise, in proposals for the
amalgamation of such banking companies.
Referring to Section 36(1)(a), we find that it empowers the Reserve Bank to
‘caution or prohibit’ the banking companies from entering into any particular
type of transaction or generally to give advice to the said banking
companies. This provision not only enables the Reserve Bank to assume an
advisory role but it also gives it the power to prohibit a banking company
against entering into any particular transaction/s or class of transactions.
The use of the words ‘caution or prohibit’ in Section 36(1)(a) clearly implies
that when the Reserve Bank of India prohibits the banking companies from
entering into any particular transaction, then such a direction which is issued
would be binding on the banks and has to be complied with. While the
Reserve Bank of India has the power under Section 36(1)(a) of the Act to
give advice or to caution the banking companies which may not be binding
on the banking companies, but when the Reserve Bank prohibits the
banking companies against their entering into any particular transaction or
class of transactions, the said prohibition has to be regarded as being
binding. The power to prohibit, given by Section 36, will be meaningless if it
was not meant to be binding on the banking companies.
In E. Sathyanaryayana v. R.B.I. (Karn) (2002) 112 Company Cases 272,
while considering the guidelines issued by Reserve Bank of India on 27
May, 1999 for constitution of Settlement Advisory Committees and
guidelines for settlement of debts due to nationalized banks, the Karnataka
High Court on page 276 observed as under:
Section 21 of the Act referred to above contemplates that if the RBI is
satisfied that it is necessary or expedient for it in public interest or in the
interest of depositors or banking policy to it and to determine the policy in
relation to the advance of loans to the persons to be followed by the banking
companies as the case may be shall be bound to follow the policy to be
determined. By perusing the guidelines mentioned in the circular issued by
the Chief General Manager of RBI, it is not mentioned as to whether the RBI
is satisfied and found that it is expedient in public interest or in the interest of
depositors or in the interest of the banking policy to accept the said
24guidelines issued by the Chief General Manager. By reading the entire
document of the circular produced by the petitioners and the so called
guidelines purported to have been issued by the RBI it is clear that the
petitioners have not shown that the said guidelines have been issued by the
RBI as defined under the Reserve Bank of India Act of 1934, except
contending that the Chief General Manager of RBI, who is the competent
authority under the provisions of the Act has issued the circular. Even in the
said circular, it is not disclosed that the same has been issued by him either
in the interest of the public or the depositors or the banking policy. In this
view of the matter, this Court has to record a finding and hold that the
guidelines contained in the circular referred to above upon which much
relevance is placed upon by the petitioners counsel placing reliance upon
the judgments of the Apex Court, this Court and Andhra Pradesh High Court
are not the guidelines issued in terms of Section 21 of Banking Regulation
Act, 1949.
The Court has further observed as under-
Apart from the said undisputed facts, there is no existing legal right accrued
in favour of the petitioners to demand the respondent nationalized banks in
these petitions to enforce the guidelines against them upon which they are
relying and there is no corresponding statutory obligation to be performed by
the respondent banks. On the other hand, the petitioners/debtors are bound
by the loan agreement entered into with the respective nationalized banks to
enforce the same against the petitioners/debtors as per the terms and
conditions of the loan agreements.
In Mono Caps (India) v. State Bank of India and Ors. (2004) 122 Company
Cases 517, the Delhi High Court has observed as under:
The question whether guidelines would apply to cases where decrees have
been passed, had been considered by the High Court of Bombay, in Writ
Petition No. 973 of 2003 titled Chemosyn Ltd. v. Union Bank of India. The
Reserve Bank of India clarified the position with regard to the guidelines:
These guidelines do not cover the cases where decrees have already been
passed. The objective of the RBI guidelines is to provide a fast track
channel of recovery of NPAs. Whereas in the case of decreed debts, the
banks can straightaway execute the same and recover their dues. In the
case of decreed debts the question of compromise/settlement does not
arise”. This approach has a rationale inasmuch as the cases in which
decrees have been obtained, the bank can straightaway execute the same
and recover the dues. It would therefore be seen that the circulars are
directory in nature and do not have the status of guidelines issued in terms
of Section 21 of the Banking Regulation Act, 1949.
In Sardar Prem Singh v. Bank of Baroda, decided on 24.2.2004, 2004(3)
CCC 205, the Division Bench of Allahabad High Court has observed in
paras 4 and 5 as under:
25
4. Granting one time settlement is really re-scheduling of the loan, and only
the bank can do that. This Court under Article 226 of the Constitution cannot
direct for one time settlement. The Court can only interfere when there is
violation of law, but no such violation has been pointed out.
5. Learned Counsel for the petitioner has referred to the guidelines of the
Reserve Bank of India for recovery of non-performing assets mentioned in
the letter of respondent No. 1, dated 24.8.2000 (Annexure 1 to the petition).
In our opinion these guidelines are only for the internal guidance of the
Banks and the Financial Institutions, but a party who has taken the loan
cannot derive any benefit from these guidelines, and these guidelines of the
Reserve Bank of India do not confer any right on a party which has taken
the loan to get one time settlement. These guidelines are purely execute
instructions and not statutory directions. Hence no right can be claimed by
any one on their basis.
It is also averred that the averments made in the affidavit filed in support of
the Writ Petition are not true and correct and specifically denied the
averments made therein and several further averments had been made in
paragraphs 20 to 30 and in the light of the specific stand taken, the
dismissal of the Writ Petition had been prayed for.
12. In the light of the specific stand taken by the 2nd respondent in the
counter affidavit as well, there cannot be any doubt whatsoever that these
guidelines specified supra are not enforceable in a Court of law and a Writ
of Mandamus or suitable directions on the strength of which cannot be
issued.
14. Further strong reliance had been placed on the decision of the Madras
High Court in Tamil Nadu Industrial Investment Corporation Ltd. v. Millenium
Business Solutions Pvt. Ltd. and Anr. 2005-1-L.W.58 (DB) wherein the
Division Bench after referring to decisions in Calcutta Gas Co. v. State of
West Bengal ; Bihar Eastern Gangetic Fishermen Co-operative Society Ltd.,
v. Sipahi Singh ; Lekhraj Satramdas Lalvani v. Deputy Custodian-cum-
Managing Officer ; Dr. Rai Shivendra Bahadur v. The Governing Body of the
Nalanda College ; Dr. Umakant Saran v. State of Bihar ; M/s.
M.M.Accessories, Jogi Ram Puri Road, Naziabad and Anr. v. M/s. U.P.
Financial Corporation, Kanpur and Anr. (2002) 46 Allahabad Law Reporter
261; Rama Muthuramalingam v. Deputy Superintendent of Police, Tiruvarur
District and Ors. ; Haryana Financial Corporation and Anr. v. Jagdamba Oil
Mills and Anr. ; Mahesh Chandra v. Regional Manager, UPFC ; Gajraj Jain
v. State of Bihar and Ors. and Chairman and Managing Director, SIPCOT,
Madras and Ors. v. Contromix Pvt. Ltd., and Anr. observed as under:
In our considered opinion it is not proper for the Court to interfere in such
matters relating to recovery of loans. Such matters are contractual in nature
and writ jurisdiction is not the proper remedy for this. A writ lies when there
is an error of law apparent on the face of the record, or there is violation of
law. No writ lies merely for directing one time settlement or for directing
rescheduling of the loan or for fixing instalments in connection with the loan.
26
It is only the bank or the financial institution which granted the loan which
can re-schedule it or fix one time settlement or grant instalments. The Court
has no right under Article 226 of the Constitution to direct grant of one time
settlement or for re-scheduling of the loan, or to fix instalments. No
doubt Article 226 on its plain language states that a writ can be used by the
High Court for enforcing a fundamental right of for ‘any other purpose’.
However, by judicial interpretation the words ‘any other purpose’ have been
interpreted to mean the enforcement of any legal right or performance of
any legal duty. In the present case, the writ petitioner has really prayed for a
mandamus to the Corporation to grant it a one time settlement, but no
violation of any law has been pointed out. In our opinion, no such
mandamus can be issued in this case, and hence the writ petition should not
have been entertained. A mandamus is issued only when the petitioner can
show that he has a legal right to the performance of a public duty by the
party against whom the mandamus is sought.
The Court should exercise judicial restraint and not interfere with the matters
which do not pertain to its proper domain. A loan is granted in terms of the
contract, and grant of one time settlement or re-scheduling of the loan
amount is really a modification of the contract, which can only be done by
mutual consent of the parties, vide Section 62 of the Contract Act, 1872.
The Court cannot alter the terms of the contract.
Before parting with the case we would like ti mention that recovery of tens of
thousands of crore rupees of loans of banks and financial institutions has
been held by up Court orders under Article 226 proceedings which were
really warranted. However, much sympathy a Court may have for a party, a
writ Court must exercise its jurisdiction on well settled principles, and not on
mere sympathy or compassion. No doubt, there may be hardship to a party,
but unless violation of law is shown, the Court cannot interfere. Holding up
recoveries of loans by unwarranted Court orders is causing incalculable
harm to our economy, since unless the loan is recovered a fresh loan
cannot be granted to needy persons.
15. In the light of the views expressed by the learned Judge of the Madras
High Court, where similar question arose for consideration and also the view
expressed by the learned Division Bench of the Madras High Court and also
in the light of the several decisions which had been referred to even in the
counter affidavit of the 2nd respondent and the specific stand taken by the
2nd respondent-Reserve Bank of India, coupled with the stand taken by the
1st respondent in this regard, this Court is thoroughly satisfied that these
guidelines are not enforceable guidelines in a Court of law and no Writ of
Mandamus can lie to enforce such guidelines.”
(e) In Marg Limited’s case (Supra 9) the Madras High Court observed
thus:
27
“66. In exercise of writ jurisdiction, this Court would certainly not get involved
in the commercial disputes entirely arising from the private relationship driven
by commercial consideration and issue any command as that would amount
to injudicious intrusion and invasive transgression into the defined areas of
conflict governed by mutual rights, liabilities and obligations. If the doors of
public law are to be thrown open for matters like the present one, it would
only lead to opening the pandora’s box and all the private disputes would find
a back door entry and have recourse to writ jurisdiction as a easier option for
serving private ends. Such scenario would eventually lead to dilution of the
essence of the writ jurisdiction namely, serving public interest.”
21. It is further observed that the Petitioner already approached National
Consumer Commission, New Delhi for refund of the entire principle amount
paid by him which is also pending for consideration. More over the
Petitioner also can avail the alternative remedy before the Integrated
Ombudsman which is an effective alternative remedy as per the scheme
envisaged by the 2nd Respondent in the year 2021 U/s 35A of the Banking
Regulation Act, 1949 also Section 45L of the Reserve Bank of India Act,
1934.
22. In view of the principle laid down by the Hon’ble Apex Court as well as
this Hon’ble Court and Petitioner also invoked alternative remedy before the
National Consumer Commission which is pending and relief claimed by the
Petitioner is purely born out of private and contractual disputes which is not
amenable to the jurisdiction of this Court, the present Writ Petition is liable to
be rejected granting liberty to the Petitioner to approach an effective another
alternative remedy as per the Integrated Ombudsman Scheme, 2021
formulated by the 2nd Respondent, before the Hon’ble Bank’s Ombudsman.
28
23. In view of foregoing discussion, the Writ Petitions are hereby
dismissed as not maintainable. However the Petitioners are at liberty to
invoke alternative jurisdiction as stated above. No costs.
As a sequel, interlocutory applications if any pending in these Writ
Petitions, shall stand closed.
______________________________________
JUSTICE VENKATESWARLU NIMMAGADDA
Date:20.12.2024
krk
29
THE HONOURABLE SRI JUSTICE VENKATESWARLU NIMMAGADDA
158
Writ Petition Nos.5426 of 2024
NOTE: LR copy to be marked
Date :20.12.2024
krk