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: 2 0.12.2024

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

(Special Original Jurisdiction)

[3329]

FRIDAY ,THE TWENTIETH DAY OF DECEMBER

TWO THOUSAND AN D 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 COUN SEL)

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,

5

th

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 5

th

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 5

th

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 5

th

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 5

th

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 3

rd

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 5

th

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 3

rd

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 2

nd

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 2

nd

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 Welfare

1

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 5

th

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 Responden t 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, 5

th

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. Custodian

2

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 Thomas

3

(2) Phoenix ARC Private Ltd. V. Vishwa Bharati Vidya Mandir

4

(3) ICICI Bank Ltd. V. Lakshminarayanan

5

(4) Universal Hospital A1 AIN LLC v. Yes Bank Ltd.,

6

(5) Ramakrishna mission v. Kago Kunya

7

(6) Anil Kumar Rastogi v. State of U.P

8

14. Learned Standing Counsel for Respondent No.2 submits that Clause

2.3 of Facility Agreement entered between the Petitioner and 3

rd

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 5

th

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, 5

th

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 2

nd

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 2

nd

Respondent formulated a

comprehensive scheme i.e., Integrated Ombudsman Sc heme, 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 5

th

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 India

9

. He also relied upon the judgment of Madras High

Court in Marg Limited v. Karaikal Port Private Ltd

10

. 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 5

th

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

20

OTS 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

21

placed 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

23

company, 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

24

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

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 2

nd

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 2

nd

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

Writ Petition Nos.5426 of 2024

NOTE: LR copy to be marked

Date :20.12.2024

krk

158