IN THE HIGH COURT AT CALCUTTA

Civil Appellate Jurisdiction

(Appellate Side)

BEFORE:

The Hon’ble Justice Ravi Krishan Kapur

And

The Hon’ble Justice Chaitali Chatterjee (Das)

MAT 743 of 2026

IA No.CAN/2/2026

South Indian Bank Limited

Vs.

Propello Innovations Private Limited & Ors.

In

WPA 25431 of 2024

With

COT 56 of 2026

Propello Innovations Private Limited & Anr.

Vs.

South Indian Bank Limited & Anr.

For the appellant bank : Mr. Prabal Kumar Mukherjee, Senior Advocate

Mr. Anirban Pramanick, Advocate

For the respondent no.1/ : Mr. Deepan Sarkar, Advocate

writ petitioner/borrower Mr. Shahrukh Raja, Advocate

Ms. Deepti Priya, Advocate

For the Reserve Bank of India : Mr. Utpal Bose, Senior Advocate

Mr. D. K. Kundu, Advocate

Mr. Arjun Basu, Advocate

Ms. Aditi Biswas, Advocate

Heard on : 15.07.2026

Judgment on : 07.08.2026

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Ravi Krishan Kapur, J:

1. This is an appeal against an order dated 26 February 2026 where the

Learned Single Judge has held that the appellant bank had violated the

Fair Lending Practice Penal Charges in Loan Accounts Guidelines dated 18

August 2023 (Guidelines) issued by the Reserve Bank of India (RBI).

2. The respondent no. 1 is a Micro Small and Medium Enterprise. The

respondent no.2 is a director of the respondent no.1 company. In or about

2013, the borrowers had availed of credit facilities from the appellant bank.

Subsequently, in 2020 the loans were restructured on the pretext of the

borrowers facing severe financial crisis due to global downturn and

stoppage of LOUs. The credit facilities sanctioned by the appellant bank

were further renewed in 2020 on the pretext of Covid-19. In the meantime,

diverse correspondence ensued between the parties where the borrowers

had also requested for grant of Emergency Credit Loan Guarantee Scheme

(ECLGS) by RBI. Later, the borrowers requested for reduction in the rate of

interest including penal interest. In or about November 2023, the renewal

sanction order was granted by the appellant bank increasing the rate of

interest on the accounts maintained by the borrowers. By an e-mail dated

19 June 2024, the appellant bank notified the borrowers of an impending

declaration as a Non Performing Asset (NPA). On 28 June 2024, the

appellant bank requested the borrowers to deposit funds to service their

accounts in order to keep them outside the ambit of being declared as NPA.

On 28 and 29 June 2024, the borrowers deposited money in their

accounts. Thereafter, the accounts of the borrower were debited by the

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appellant bank on account of penal interest. On 8 July 2024, the borrowers

received a communication from the appellant bank inter alia declaring their

accounts as NPA. In this background, the writ petition was filed assailing

the debiting of penal interest and additional interest which it is alleged is

contrary to the Guidelines and consequentially challenging the declaration

of the accounts of the borrowers as NPA.

3. On 7 August 2024, the appellant had issued a notice under section 13(2) of

the Securitisation and Reconstruction of Financial Assets and Enforcement

of Security Interest Act, 2002 (the Act) which was responded to under

section 13(3)(A) by the borrower on 8 January 2026 long after expiry of the

statutory period to respond to such notice. Admittedly, after the filing of the

present writ petition, the appellant bank has also taken symbolic

possession under section 13(4) of the Act. The borrower has filed an

application under section 17 of the Act before the Debts Recovery Tribunal

(DRT) which is still pending.

4. The primary grievance of the borrowers is against the classification of their

accounts as NPA. It is contended that the appellant bank had arbitrarily

levied and debited penal interest and additional interest on penal charges

without granting any prior intimation or opportunity to the borrowers

which is contrary to the Guidelines. It is also contended that despite

submitting several proposals for restructuring, the appellant bank has

neglected to consider the same and has proceeded to recover their dues

and had also issued a recall notice invoking the bank guarantee demanding

payment of Rs. 9 crores.

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5. By the impugned order, the Learned Single Judge after recording the

submissions of the parties arrived at a finding that the appellant bank had

violated the Guidelines by realizing amounts from the accounts of the

borrowers as penal interest in violation of clause 3 (vii) of the Guidelines

and in effect, stalled the entire recovery proceedings. On the aspect of

maintainability, it was found that since the challenge in the writ petition

was against the Guidelines, the writ petition was maintainable.

6. On behalf of the appellant bank, it is contended that the writ petition was

not liable to be entertained and should have been dismissed on the ground

that the borrowers had a statutory alternative remedy under the Act.

7. On behalf of the borrowers, it is contended that the borrowers were seeking

enforcement of their statutory obligations and the writ petition was

maintainable. The violation of the Guidelines which had statutory force and

had been issued in public interest were binding on the appellant bank. The

consequential classification of the borrowers as a NPA was arbitrary and

unlawful and could not have been adjudicated in a proceeding under

section 17 of the Act. On merits, it is contended that the loan account had

been active since 2013. Three additional loans were granted in 2020.

During the interregnum, there was an amount in excess of Rs.10 crores

which had been paid by the borrowers. The debiting of the borrowers

amount with penal charges was not in accordance with the Guidelines and

was liable to be treated as illegal. The debit in lieu of penal interest was the

actual cause for the shortfall leading to the NPA status. The bank had

unlawfully and illegally charged a higher rate of interest than the

sanctioned rate. The bank has also failed to consider the different

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settlement proposals which have been submitted by the borrowers. In such

circumstances, the appeal was liable to be dismissed and the cross-appeal

filed by the borrowers against the impugned order inasmuch as it did not

interfere with the classification of the borrowers as NPA be allowed. In

support of such contentions, reliance was placed on the decisions in Olive

Tree Retail Private Limited and Another vs. South Indian Bank Limited and

Another 2023 SCC OnLine Cal 2397, Federal Bank Ltd. v. Sagar Thomas

(2003) 10 SCC 733 and Central Bank of India v. Ravindra, (2002) 1 SCC

367.

8. Loans by financial institutions are granted from public money generated at

the taxpayer’s expense. Such loans do not become the property of the

person taking the loan, but retain their character of public money given in

a fiduciary capacity as entrustment by the public. Timely repayment by the

borrower ensures liquidity to facilitate loan to another in need by

circulation of the money and cannot be permitted to be blocked by frivolous

litigation by those who can afford the luxury of the same. [State Bank of

Travancore v. Mathew K.C., (2018) 3 SCC 85 at para 15].

9. The Act is a complete Code in itself. It provides for expeditious recovery of

dues which have arisen out of loans granted by financial institutions and

also provides for a remedy of appeal under section 18 before the Appellate

Tribunal. The DRT is clothed with wide range of powers including the

power to set aside an illegal order and grant consequential reliefs including

repossession and payment of compensation and costs.

10. The power of the High Court to exercise jurisdiction under Article 226 of

the Constitution is discretionary and equitable. It must be exercised in a

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judicious and reasonable manner. The only discretion which the law

recognizes is discretion in accordance with law. The foundation of a writ

petition is the infringement of a legal right which necessarily depends on

unblameworthy conduct of the person seeking relief. (ITC Ltd. v. Blue Coast

Hotels Ltd., (2018) 15 SCC 99 at para 54).

11. In United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 it has been

held as follows:

“42. There is another reason why the impugned order should be set aside.

If Respondent 1 had any tangible grievance against the notice issued

under Section 13(4) or action taken under Section 14, then she could have

availed remedy by filing an application under Section 17(1). The

expression “any person” used in Section 17(1) is of wide import. It takes

within its fold, not only the borrower but also the guarantor or any other

person who may be affected by the action taken under Section 13(4) or

Section 14. Both, the Tribunal and the Appellate Tribunal are empowered

to pass interim orders under Sections 17 and 18 and are required to

decide the matters within a fixed time schedule. It is thus evident that the

remedies available to an aggrieved person under the SARFAESI Act are both

expeditious and effective.

43. Unfortunately, the High Court overlooked the settled law that the High

Court will ordinarily not entertain a petition under Article 226 of the

Constitution if an effective remedy is available to the aggrieved person and

that this rule applies with greater rigour in matters involving recovery of

taxes, cess, fees, other types of public money and the dues of banks and

other financial institutions. In our view, while dealing with the petitions

involving challenge to the action taken for recovery of the public dues, etc.

the High Court must keep in mind that the legislations enacted by

Parliament and State Legislatures for recovery of such dues are a code

unto themselves inasmuch as they not only contain comprehensive

procedure for recovery of the dues but also envisage constitution of quasi-

judicial bodies for redressal of the grievance of any aggrieved person.

Therefore, in all such cases, the High Court must insist that before availing

remedy under Article 226 of the Constitution, a person must exhaust the

remedies available under the relevant statute.

44. While expressing the aforesaid view, we are conscious that the powers

conferred upon the High Court under Article 226 of the Constitution to

issue to any person or authority, including in appropriate cases, any

Government, directions, orders or writs including the five prerogative writs

for the enforcement of any of the rights conferred by Part III or for any

other purpose are very wide and there is no express limitation on exercise

of that power but, at the same time, we cannot be oblivious of the rules of

self-imposed restraint evolved by this Court, which every High Court is

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bound to keep in view while exercising power under Article 226 of the

Constitution.

45. It is true that the rule of exhaustion of alternative remedy is a rule of

discretion and not one of compulsion, but it is difficult to fathom any

reason why the High Court should entertain a petition filed under Article

226 of the Constitution and pass interim order ignoring the fact that the

petitioner can avail effective alternative remedy by filing application,

appeal, revision, etc. and the particular legislation contains a detailed

mechanism for redressal of his grievance.

55. It is a matter of serious concern that despite repeated pronouncement

of this Court, the High Courts continue to ignore the availability of

statutory remedies under the DRT Act and the Sarfaesi Act and exercise

jurisdiction under Article 226 for passing orders which have serious

adverse impact on the right of banks and other financial institutions to

recover their dues. We hope and trust that in future the High Courts will

exercise their discretion in such matters with greater caution, care and

circumspection.”

12. There are innumerable decisions which have reiterated and re-emphasized

the above principle i.e. that if an effective alternative statutory remedy is

available to a person, the Court should not entertain a petition under

Article 226 of the Constitution. This Rule is to apply with greater rigour in

matters involving recovery of dues of banks and other financial institutions

which deal with public money. Legislation enacted by Parliament for

recovery of dues are a Code in themselves inasmuch as they contain a

comprehensive procedure for recovery of the dues including an appellate

mechanism. Thus, it is best to ensure that a person must exhaust the

remedies available under the statute before approaching the Writ Court.

(Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, Union Bank of

India v. Panchanan Subudhi, (2010) 15 SCC 552, Kanaiyalal Lalchand

Sachdev v. State of Maharashtra, (2011) 2 SCC 782, Sri Siddeshwara

Cooperative Bank Ltd. v. Ikbal, (2013) 10 SCC 83, Agarwal Tracom (P) Ltd. v.

Punjab National Bank, (2018) 1 SCC 626, State Bank of Travancore v.

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Mathew K.C., (2018) 3 SCC 85, South Indian Bank Limited and Ors vs

Naveen Mathew Philip and Anr. (2023)17 SCC 311, Celir LLP v. Bafna Motors

(Mumbai) (P) Ltd., (2024) 2 SCC 1) and PHR Invent Educational Society vs.

UCO Bank (2024) 6 SCC 579.

13. The indisputable facts of this case would reveal that a notice under section

13(2) had been issued on 17 August 2024. On 8 January 2026, the

borrowers had under section 13(3)(A) of the Act belatedly responded to

such notice. The appellant bank had also initiated action under section 13

(4) of the Act and symbolic possession of the secured assets was taken. On

10 January 2026, notices were issued by the appellant bank and a paper

publication was made. Subsequently, an application under section 17 of

the Act being SA 522 of 2026 was filed by the borrowers before the DRT

praying for the following reliefs:-

a. The Notice dated 07.08.2024 issued by the Defendants to the

Applicants under Section 13(2) of the SARFAESI Act, 2002, Possession

Notice dated 08.01.2026 issued by the Defendants under Section 13(4) of

SARFAESI Act, 2002, Paper Publication dated 10.01.2026 published in The

Echo of India in English about Possession Notice, Paper Publication if any

published in Bengali newspaper about Possession Notice and all past and

future steps and measures that have already been taken or that may be

taken in future by the Defendant under SARFAESI Act and SARFAESI Rules

2002 against the Applicants or in respect of the properties of the Applicants

as described in Schedules A to E hereto be set aside and/or quashed.

b. An order of injunction be issued restraining the Respondents from

acting or acting any further pursuant to Notice dated 07.08.2024 issued by

the Defendants to the Applicants under Section 13(2) of the SARFAESI Act,

2002, Possession Notice dated 08.01.2026 issued by the Defendants under

Section 13(4) of SARFAESI Act, 2002, Paper Publication dated 10.01.2026

published in The Echo of India in English about Possession Notice, Paper

Publication if any published in Bengali newspaper about Possession Notice

and all past and future steps and measures that have already been taken

or that may be taken in future by the Defendants under SARFAESI Act and

SARFAESI Rules, 2002 against the Applicants or in respect of the properties

of the Applicants as described in Schedules A to E hereto.

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14. The point of maintainability has been addressed by the Learned Single

Judge as follows:

“The respondent bank has challenged the maintainability of the present

writ petition but this Court finds that the petitioners have challenged the

act of the bank on the allegation of violation of the conditions for Fair

Lending Practice-Penal Charges in Loan Accounts issued by the Reserve

Bank of India, thus this Court is of the view that the writ petition is

maintainable”.

15. In view of the trigger under sections 13(2), 13(3)(A), 13(4) and 17 of the Act

having been invoked this was simply not a case which should have been

entertained by the Writ Court. The borrowers had an alternative,

efficacious statutory remedy under the Act and had invoked the same. The

prayers in the application under section 17 of the Act indicate that the

notices under section 13(2) and 13(4) had been assailed before the DRT.

Significantly, the violation of the Circulars issued by the RBI was also a

ground in such application. This aspect of the matter has not been

addressed in the impugned judgment. The time consumed by the Trial

Court and now before this Court is nothing but ill designed and all this

while the borrowers have continued to enjoy the principal and the interest

on a staggering amount in excess of Rs. 10 crores. The cryptic manner in

which the point of maintainability of the writ petition has been addressed

by the Trial Court vitiates the impugned judgment. Courts casually and in

a cavalier manner entertain such writ petitions which only has a

deleterious impact on the recovery process. (South Indian Bank Ltd. v.

Naveen Mathew Philip, (2023) 17 SCC 311).

16. It is true that an alternative remedy by itself does not divest the High Court

of its power under Article 226 of the Constitution in an appropriate case,

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though, ordinarily a writ petition should not be entertained when an

efficacious alternate remedy is provided by law. The matter should have

rested here. However, for the sake of completeness, the points addressed by

the borrower are also dealt with.

17. During the course of hearing of this appeal, upon a query being raised by

this Bench as to whether the 2023 Guidelines were valid and subsisting, all

the parties feigned ignorance. It was only after three adjournments that the

RBI produced the 2025 Directions whereby the Guidelines and in

particular the Guideline dated 18 August 2023 had been categorically

withdrawn as on 28 November 2025 and has been absorbed in the RBI

Commercial Bank/Responsible Business Conduct Directions 2025

(Directions). By virtue of such Directions, the RBI had withdrawn with

immediate effect 9445 Circulars being Circulars or Instructions which have

now been consolidated in the new Directions, making the 2023 Guidelines

which is the subject matter of the writ petition and the bedrock of the

impugned judgment obsolete and redundant.

18. This vital and material fact had not been brought to the attention of the

Learned Single Judge nor was the same incorporated in the pleadings by

either of the parties including the appellant bank or the RBI. It is true that

the repeal and savings clause in the Directions (Rule 462) provides for the

Directions to be in addition to and not in derogation of any other law or

regulations for the time being (Rule 464). Nevertheless, there has been no

consideration of this aspect of the matter in the impugned judgment. This

is a glaring infirmity in the impugned judgment and makes the same

unsustainable. In this background, the entire premise of the writ petition

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and the resultant impugned judgment is fundamentally flawed and

erroneous.

19. The contention of the borrower that they have repaid at least Rs. 9.2 crores

out of Rs. 10.12 crores and this fact per se demonstrates good conduct of

the borrower is also misleading since the same does not account for the

interest component enjoyed for more than three decades by the borrower.

Interest is the lifeline of any business. As remarked “The principal is the

root. The interest the fruit. And the fruit is always the sweetest part”.

20. The question of the appellant not being amenable to Article 12 of the

Constitution of India has also not been addressed by the Trial Court. It is

true that a writ petition may be maintainable against a private authority for

enforcement of its statutory obligations of public nature (Anandi Mukta

Sadguru Shree Mukta Jeevandas Vandas Swami Suvarna Jayanti Mahotsav

Smarak Trust v. V.R. Rudani, (1989) 2 SCC 691 at paragraph 15-22 and

Federal Bank Ltd. v. Sagar Thomas, (2003) 10 SCC 733 at paragraph 33) .

However, there is a factual dispute as to whether this point had at all been

argued before the Learned Single Judge. The contention that the appellant

bank was a private bank and that it was not amenable to Article 12 of the

Constitution was disputed by the borrowers. In any event, this is an aspect

which requires both pleadings and particulars and cannot be undertaken

at this stage. Similarly, the question of whether the appellant bank had or

had not charged a higher rate of interest cannot be gone into in a

proceeding of this nature and is more suitably decided in an application

section 17 of the Act.

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21. Delay has a deleterious effect in such matters. The writ petition was filed

on 1 October 2024 and the borrower had for a considerable period of time

been enjoying interim reliefs. All this while the recovery proceedings have

been substantially impeded. Such litigation unnecessarily burdens our

overflowing dockets and is primarily initiated with the sinister purpose of

procrastinating the recovery process. The larger question which arises for

consideration is whether by interference in such matters, the Courts

actually end up resolving disputes or only exacerbate the recovery process

by creating further complications.

22. The contention of the borrowers that the appellant bank had failed to

consider the different proposals submitted by the borrowers is equally

misconceived. On the contrary, the facts reveal than an OTS proposal

submitted by the borrower had been accepted by the appellant bank on 30

August 2025. However, the borrowers had defaulted which resulted in

withdrawal of the same. “Approaching the Court for consideration of an

offer by a borrower has not only been frowned upon by the Hon’ble

Supreme Court but does not give the borrower any enforceable legal right

to approach the Writ Court.” (South Indian Bank vs. Rabin Mathew Philip,

(2023) 7 SCC 311 at paragraph 15). The repeated attempts of the borrowers

to seek permission to sell all their immovable properties without any

interference from the appellant bank is not only commercially imprudent

but also mischievous inasmuch as it usually does not fetch the true and

realizable value of such assets. In such circumstances, there is also no

equity which the borrower can claim in seeking a One Time Settlement. In

a society which is governed by the Rule of Law, citizens must be made to

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adhere to their consciously undertaken contractual obligations.

Aberrations have now become the Norm. And even the bald want a haircut

which the system merrily bestows on them.

23. The decision relied on by the borrowers in Olive Tree Retail (P) Ltd. v. South

India Bank Ltd. (Supra) is distinguishable and inapposite. There is no

vested right which any borrower has in having its proposal for a One Time

Settlement being considered. In the scheme of the Act, the remedy at the

stage of issuance of a section 13(2) notice lies in responding under section

13(3-A) and this is no reason to bypass the statutory mechanism. ( Devi

Ispat Limited and another vs. State Bank of India and others, (2014) 5 SCC

762 para 9). The ploy of impleading the RBI or any third party to wriggle

out of the folds of the Act and create an illusion of a cause of action is not

to be encouraged. This is not a ground nor the stage at which the recovery

proceedings are to be jettisoned or stultified. The contention of the

appellant bank that the borrowers have a remedy under the RBI/

Integrated Ombudsman Scheme, 2021 is flawed and rejected. The Scheme

is applicable only to services provided by a regulated entity and does not

include recovery of debts or the classifying of an account as NPA.

24. To conclude, in a world where obscurity is seen as a virtue and clarity a

vice we are best allowed to let sleeping doctrines lie. The admitted facts of

this case are that a loan was taken by a debtor which remains unpaid.

Regardless of the bristling questions of law and the unnaturally created

plea of natural justice, two questions which also require to be enquired of

in such matters are: Have you received the money? If yes, how and when do

you propose to repay the same? Bank defaulters are a bane to any healthy

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economy. There are a plethora of a reasons as to why the recovery

proceedings are delayed. One such reason is the lack of intent and

seriousness in pursuing the same. On occasions, the conduct of the bank

and financial institutions also evidence apathy and indifference whether

intentional or accidental. Then there is always the lurking doubt as to Who

is arguing Whose case? And how the deck has been stacked up in favour of

the borrower. To add, is the recourse to Courts which further delays

recovery. It is trite law that questions of legal rights and liability should be

resolved by application of the law and not by exercise of discretion. All of

this only enures to the benefit of the delinquent defaulter. The solution

being not to tinker in such commercial matters involving a lender and a

borrower when the legislature has provided a specific mechanism for

appropriate redressal. Needless to remind ourselves that the mantra is one

of ease of doing business and not ease of doing fraud. This is not to

undermine the recent legislative changes which have drastically reduced

the number of defaulters in the country. Ultimately, it is only “We The

People Of India” who suffer.

25. In view of the above, the appeal succeeds. MAT 743 of 2026 stands allowed.

CAN 2 of 2026 is disposed of. WP 25431 of 2024 stands dismissed on the

ground that borrowers have a statutory alternative efficacious remedy

under the Act. COT 56 of 2026 being the cross appeal filed by the borrower

also stands dismissed. It is made clear that all the points on merits are left

open to be adjudicated upon by the DRT without being influenced by this

order. In view of the kite flying exercise and abuse of process by the

borrowers, costs are assessed at Rs. 5 lacs to be paid to the appellant bank

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within a period of eight weeks from the date of this order. In default, the

same be included in the claim of the appellant bank against the borrowers

albeit without any interest.

(Ravi Krishan Kapur, J.)

I agree

(Chaitali Chatterjee Das, J.)