E. Sathyanarayanan v. Intercorp Associates

V. Gopala Gowda, J.:— These writ petitions with the consent of learned counsel for the parties, were heard on merits at the preliminary hearing stage and the cases are listed today in the orders list for dictating orders.

2. The first respondent is common in all these petitions. The second respondent in all these petitions are different nationalised banks. The legal questions involved in all these petitions are similar, therefore, all these petitions are clubbed together and disposed of by this common order.

3. The petitioners in all these petitions are seeking for issuance of a writ of mandamus to the second respondent-nationalised banks to settle the amount/debt of the petitioners due to their respective banks by calculating the amount in accordance with the guidelines issued by the RBI represented by its chief manager by his circular dated May 27, 1999. Further, the petitioners have sought for issuance of a direction to the first respondent to enforce the guidelines referred to supra and monitor its implementation by all the nationalised banks and to take appropriate action against all those bankers who are refusing to follow the guidelines issued by him under the provisions of the Banking Regulation Act, 1949 (in short “B.R Act”), urging various legal contentions.

4. Learned counsel appearing on behalf of the petitioners have contended that the second respondent-banks in all these petitions are bound to follow the guidelines and policy determined by the Reserve Bank of India in terms of section 21 of the Banking Regulation Act, 1949; and that they are not discharging their statutory duties as they are refusing to accept the proposals given by the petitioners for final settlement of their debt due to the banks in terms of the guidelines referred to above; that their refusal to accept the proposals given by the petitioners would amount to hostile discrimination in not extending the said benefit to them, when the same has been extended to others (such persons names are not disclosed in these petitions to whom such benefits have been extended by the banks).

5. Further it is urged, that the action of the second respondent in not accepting the proposals for full and final settlement of their debts due to them would affect the fundamental rights guaranteed to them under articles 14, 19 and 21 of the Constitution of India. In support of their submissions, Sri S.N Murthy, learned counsel appearing for the petitioner in the first petition has placed strong reliance upon the judgment of the apex court reported in State Bank of Patiala v. Harbans Singh, [1994] 81 Comp Cas 486 : (1994) 3 SCC 495 and another judgment of the Supreme Court reported in Corporation Bank v. D.S Gowda, ILR 1991 KAR 2234 : [1994] 81 Comp Cas 842; the Division Bench judgment of this court reported in Bank of India v. Karnam Ranga Rao, [1988] 64 Comp Cas 477 : ILR 1985 KAR 4282. Further Sri Kasturi, learned counsel for some of the petitioners has placed reliance upon the judgment of the Andhra Pradesh High Court reported in Venkateswara Rice and Flour Mill v. Union Bank of India, [1988] 63 Comp Cas 483; Sri M.R Nagaraj has placed reliance upon the judgment of the apex court reported in Canara Bank v. P.R.N Upadhyaya, [1998] 94 Comp Cas 569 : [2001] 1 BC 28 (SC) in support of the contention that the law has been laid down by the apex court holding that the guidelines issued by the Reserve Bank of India have got statutory force and, therefore, they are binding upon the second respondent nationalised banks in all these petitions and as such it is urged that the action of the second respondent-banks in not accepting the proposals given by the petitioners as one time settlement for want of time is contrary to the provisions of the Banking Regulation Act, 1949 Scheme, guidelines and policy determined by the Reserve Bank of India and the law laid down by the apex court, this court and the Andhra Pradesh High Court in the cases referred to supra and as such they have sought for issuance of a writ of mandamus to the respondents-banks in all these petitions as prayed.

6. To consider the case of the petitioners, it is necessary and relevant for this court to extract the provisions of section 21 and section 21A of the Banking Regulation Act, 1949, which provisions of the Act read as hereunder:

“Power of Reserve Bank to control advances by banking companies.—(1) Where the Reserve Bank is satisfied that it is necessary or expedient in public interest (or in the interests of depositors) (or banking policy) so to do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular, and when the policy has been so determined, all banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy as so determined.

(2) Without prejudice to the generality of the power vested in the Reserve Bank under sub-section (1), the Reserve Bank may give directions to banking companies, either generally or to any banking company or group of banking companies in particular, as to—

(a) the purposes for which advances may or may not be made;

(b) the margins to be maintained in respect of secured advances;

(c) the maximum amount of advances or other financial accommodation which, having regard to the paid-up capital, reserves and deposits of a banking company and other relevant considerations, may be made by that banking company to anyone company, firm, association of persons or individual;

(d) the maximum amount up to which, having regard to the considerations referred to in clause (c), guarantees may be given by a banking company on behalf of any one company, firm, association of persons or individual; and

(e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given.

(3) Every banking company shall be bound to comply with any directions given to it under this section.

21A. Rates of interest charged by banking companies not to be subject to scrutiny by courts.—Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be reopened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.”

7. I have perused the guidelines produced in one Writ Petition No. 11556 of 2001 as per annexure D dated May 27, 1999, upon which much reliance is placed by learned counsel for the petitioner. It is issued by the Chief General Manager of the Reserve Bank of India addressed to the chairman and managing director to all public sector banks, in which certain guidelines for constitution of the settlement advisory committees, guidelines for settlement of debts due to the above said banks, etc., are clearly mentioned. Now the question for consideration for this court in these writ petitions is as to whether the said guidelines have been issued by the Reserve Bank of India in terms of the provisions of section 21 of the Banking Regulation Act of 1949.

8. 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 in particular and when the policy has been determined all 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 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 guidelines 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 reliance 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 the Banking Regulation Act, 1949. In all these cases, it is an undisputed fact that at the instance of the second respondent-nationalised banks, the Debt Recovery Tribunal already constituted under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (in short called RDD, BS and FI, Act, 1993) has determined the debts due from the petitioners after giving opportunity to the parties by conducting enquiries as provided under the provisions of the (RDD, BS and FI Act) and Rules framed thereunder and has issued recovery certificates in favour of some of the respondent-banks in accordance with the provisions of the above said Act and Rules. In respect of some of the petitioners the applications filed by respective banks before the respective Debt Recovery Tribunals for determination of the debt amount due are still pending consideration. In respect of these petitioners, it is an undisputed fact that the loans have been obtained by them from their respective banks by executing the loan agreements in favour of their respective nationalised banks with certain terms and conditions regarding the mode of payment of loan amount and rate of interest payable upon the borrowed amount and they have also executed collateral security documents mortgaging the solvent immovable properties for security of the loan amounts advanced in favour of the petitioners by them with their respective banks. The terms and conditions regarding repayment and payment of interest, penal interest of the loan amount borrowed by the petitioners has been agreed by them based on the banking policy which has been framed and laid down under the Banking Regulation Act, 1949. In the case of petitioners Nos. 1 and 4 recovery certificates have already been issued by the Debt Recovery Tribunals. The said order/recovery certificates are not challenged by them either before the appellate authority or before this court. In respect of the above-said petitioners, the recovery certificates are required to be executed by the respective respondent-banks and recover the debt amount due from them. It is an undisputed fact that all these petitioners/debtors have furnished collateral securities to their respective respondents-banks by executing necessary documents towards the loan amounts availed of by them. As I have already recorded a finding with reference to the provisions of sections 21, 21A and 35 of the Banking Regulation Act, 1949, and the circular holding that the guidelines referred to in these cases is not the policy which has been determined by the Reserve Bank of India in compliance with the requirement under the provisions of section 21 and section 35 of the Banking Regulation Act in relation to the loan amounts lent by the banking companies to the petitioners.

9. Apart from the said undisputed facts, there is no existing legal right accrued in favour of the petitioners to demand the respondent-nationalised 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 nationalised banks to enforce the same against the petitioners/debtors as per the terms and conditions of the loan agreements. Therefore, the question of issuing a writ of mandamus as prayed for in their favour against the respondent-banks to accept their proposal for one time settlement is contrary to the determination of the rights of the parties with regard to the principal loan amount borrowed by them from their respective banks and the rate of interest upon the said amount as the same would amount to modification of the award or recovery certificates issued by the Debt Recovery Tribunals issued in favour of some of the petitioners terms and conditions of loan agreements and depriving the vested statutory rights conferred upon the banks for determination of the exact debts due from each one of the petitioners along with the agreed rate of interest amount in respect of the other persons whose applications are pending and the other banks, which shall not be done by the nationalised banks or by this court, as the same would be contrary to the banking policy and the recovery certificates issued by the competent Debt Recovery Tribunal in exercise of its quasi-judicial power determining the rights of the parties require to be enforced against them. Therefore, the guidelines issued by the chief manager of the RBI upon which much reliance is placed by the petitioners cannot supersede the determination of the rights of the parties under the provisions of the RDD, BS and FI Act of 1993 and Rules with reference to the debt amount borrowed by the petitioners and contrary to the rights of the nationalised banks and the statutory obligations cast upon the debtors to repay the debt amount on the basis of the agreement entered into and executed in favour of the respective banks with regard to the payment of principal amount and the rate of interest. Therefore, they cannot come before this court placing reliance upon the guidelines contained in the circular on the ground that the guidelines are the policy matters issued by the RBI, even though the circular is not issued by the RBI as defined under the provisions of the Reserve Bank of India Act, 1934. None of the petitioners have produced documents to show that the guideline is the policy determined in terms of section 21 of the Banking Regulation Act of 1949. Learned counsel for the petitioners submitted that the petitioners are unable to get and produce the policy determined by the RBI under section 21 of the Banking Regulation Act of 1949 and that therefore they have impleaded the first respondent-RBI. The petitioners who have approached this court seeking the relief must produce necessary documents and ask the appropriate relief. Merely because the RBI is made a party in the absence of production of the relevant documents to show that the guidelines issued is the policy determined by it in terms of section 21 of the Banking Regulation Act with regard to the settlement of the loans which have been advanced in favour of the petitioners, this court cannot examine the same and need not issue notice to the RBI and call upon them to produce the policy framed by it. In the first case counsel for the RBI has appeared pursuant to the notice served upon it, but learned counsel for the petitioner neither stated that policy is determined under section 21 of the Banking Regulation Act for one time settlement of the debt amount by the debtors nor produced the same. On the other hand, the chief general manager who has, signed the guidelines referred to supra does not refer to the order passed by the RBI in terms of sections 21 and 35 of the Banking Regulation Act. Therefore, I have recorded a finding that there is no policy determined by the RBI as required under sections 21 and 35 of the Banking Regulation Act either for waiving the rate of interest or principal amount from the debtors as stated in the circular giving guidelines. The chief manager cannot amend the valid loan agreements and collateral security agreements executed by the debtors in favour of the banks that would amount to depriving the vested statutory rights conferred upon the banks under the provisions of the RDD, BS and FI Act of 1993 for determination of the debts due from the debtors on the basis of the terms and conditions contained in the agreements executed by the petitioners in favour of the banks, which is not permissible in law.

10. The reliance placed upon the judgment of the apex court in the case of Corporation Bank v. D.S Gowda, ILR 1991 KAR 2234 : [1994] 81 Comp Cas 842, Canara Bank v. P.R.N Upadhyaya, [1998] 94 Comp Cas 569 : [2001] 1 BC 28 (SC) and State Bank of Patiala v. Harbans Singh, [1994] 81 Comp Cas 486 : (1994) 3 SCC 495 and the Division Bench judgment of this court in Bank of India v. Karnam Ranga Rao, [1988] 64 Comp Cas 477 : ILR 1985 KAR 4282 and also the judgment of the Andhra Pradesh High Court reported in Venkateswara Rice and Flour Mill v. Union Bank of India, [1988] 63 Comp Cas 483 are all the cases wherein reference is made to the circulars, directions, and the notifications issued by the RBI; Banking Ombudsman appointment; with regard to the memorandum of rate fixed by the RBI and the interest rate attracted under section 21A of the Banking Regulation Act and the questions that arose for consideration in those cases was as to whether the interest rates fixed by the RBI is excessive and in the case of Corporation Bank, [1994] 81 Comp Cas 842, the apex court has considered the “special circumstance” as per section 3(1) of the Explanation of the Mysore Usurious Loans Act, 1923. In the Canara Bank's case, [1998] 94 Comp Cas 569 (SC), the provisions of sections 21, 35 and 35A of the Banking Regulation Act, 1949, and the circulars and notifications issued by the RBI was considered. In all these cases, the apex court, the Division Bench of this court and the Andhra Pradesh High Court have not considered in detail regarding the determination of the policy in terms of sections 21 and 35 of the Banking Regulation Act, 1949. Further the apex court in the case of Bangalore Medical Trust v. B.S Muddappa, (1991) 4 SCC 54 : AIR 1991 SC 1902 considered provisions of section 35 and section 65 of the Bangalore Development Authority Act of 1976, with regard to the power of the Government in issuing a direction as contemplated under the said provisions of the BDA Act at paragraph 52 of the judgment, the Supreme Court has succinctly laid down the law explaining what is the power of the State Government, under sections 35 and 65 of the Act to issue directions to the BDA for effective implementation of the BDA Act of 1976 as hereunder (page 1923):

“Section 65 the overall power reserved in Government to give such directions to the authority as it considers expedient for carrying out any purpose of the Act was another provision relied to support an order which is otherwise unsupportable. An exercise of power which is ultra vires the provisions in the statute cannot be attempted to be resuscitated on general powers reserved in a statute for its proper and effective implementation. The section authorises the Government to issue directions to ensure that the provisions of law are obeyed and not to empower it itself to proceed contrary to law. What is not permitted by the Act to be done by the authority cannot be assumed to be done by State Government to render it legal. An illegality cannot be cured only because it was undertaken by the Government. The section authorises the Government to issue directions to carry out purposes of the Act. That is the legislative mandate should be carried out. And not that the provision of law can be disregarded and ignored because what was done was being done by the State Government and not the authority. An illegality or any action contrary to law does not become in accordance with law because it is done at the behest of the Chief Executive of the State. No one is above law. In a democracy what prevails is law and rule and not the height of the person exercising the power.”

11. In view of the clear pronouncement of law by the apex court in the abovesaid case, and this court has already recorded a finding with regard to section 21 of the Banking Regulation Act of 1949, that there is no policy determined by the RBI for either waiving or reducing interest rate payable upon the debt amount by them. The apex court in the aforesaid cases referred to supra upon which much reliance placed the petitioners counsel in support of their cases has not examined regarding the settlement of the debt/loan amount due to the banks, which have been advanced to the petitioners, and the loans have been advanced on the basis of the banking policy framed by the RBI under the provisions of the Banking Regulation Act, 1949, at the rates specifically agreed to by the petitioners with regard to the rate of interest and penal interest, payable upon the principal amount and, therefore, the decisions referred to above are of no assistance to the facts of the petitioners in these petitions. Hence, the legal contentions urged by learned counsel for the petitioners that cases referred to supra are applicable to the facts of these cases is wholly untenable in law, devoid of merits and they are misplaced. If the contention of the petitioners is accepted in the absence of the policy required to be determined by the RBI under sections 21 and 35 of the Banking Regulation Act of 1949, the banking policy for lending money to the petitioners will be adversely affected thereby the banking policy, depositors interest and public interest would suffer to the greater extent. Therefore, the petitioners have no existing legal right for issuance of a writ of mandamus to the second respondent-banks in all these petitions. Hence, there is no corresponding statutory duty cast upon the banks for consideration of the representations of the petitioners for one time settlement waiving of either the rate of interest or the penal interest as the banks are not helpless to determine such policy in exercise of its power under the provisions of sections 21 and 35 of the Banking Regulation Act. The object of the RDD, BS and FI Act of 1993 is to see that the rights of the parties are required to be determined and thousands of crores of rupees due from the debtors to the nationalised banks and the same is required to be recovered by them as expeditiously as possible in the interest of common man which is the paramount consideration for the RBI and the nationalised banks. If the guidelines as contained in the circular are accepted, the laudable object of the banks nationalisation under the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, will be defeated. Therefore, this court cannot issue a writ as prayed for by the petitioners as it will defeat the banking policy framed by the Union of India in respect of the nationalised banks, as some of the banks were nationalised under the provisions of the Act of 1970 referred to supra by the Union of India in the larger interest of the common man of the country in exercise of its legislative power to achieve the constitutional objects as enshrined under the Directive Principles of the State Policy enumerated under Part IV of the Constitution of India to distribute the material resources of the country to the needy people of the country to bring the social order in the society under the good governance of the country as required in the Constitution of India.

12. For the reasons stated above the petitions are liable to be dismissed. Accordingly, the petitions are dismissed with costs of Rs. 5,000 in each one of the writ petitions payable to the Chief Minister's Gujarat Earthquake Relief Fund within four weeks from the date of receipt of a copy of this order.