Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOs. 4970-4971 OF 2009
[Arising out of SLP (C) No. 5249-5250 of 2008]
M/s Sardar Associates & Ors. …Appellants
Versus
Punjab & Sind Bank & Ors. …Respondents
J U D G M E N T
S.B. SINHA, J :
1. Leave granted.
2. Source of power on the part of the Reserve Bank of India to issue
circulars and guidelines as regards one time settlement is the question
involved herein. It arises out of a judgment and order dated 1.02.2008
passed in Review Petition No. 7 of 2008 and order dated 21.11.2007 passed
by a Division Bench of the Punjab and Haryana High Court in C.W.P. No.
8267 of 2007 whereby and whereunder an order dated 13.04.2007 passed by
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the Debt Recovery Appellate Tribunal, Delhi (for short “the Appellate
Tribunal”) directing the respondent – bank to settle the case of the appellants
herein in terms of the said guidelines as applicable at the time of declaring
the account as Non Performing Assets (NPA) and not to recover the said
amount in terms of the judgment and recovery certificate dated 23.11.2006
issued by the Debts Recovery Tribunal – II, Chandigarh (for short “the
Tribunal”) in Appeal No. 26 of 2007, was set aside.
3. Bereft of all unnecessary details, the fact of the matter reads as under:
Appellants herein as also the Performa respondent Nos. 2 to 11 along
with one Smt. Darshan Kaur (since deceased) obtained the facilities for grant
of loan for a sum of Rs. 3, 54,50,000/- for business purposes which was
being carried out by them under the name and style of M/s. Sardar
Associates Limited, appellant No. 1 herein. The said amount was sanctioned
and disbursed from time to time. Indisputably, the appellant No. 2 and the
Proforma respondent Nos. 2 to 11 as also the said Smt. Darshan Kaur stood
as guarantors. Appellant Nos. 1 and 2 as also Proforma respondent Nos. 5
and 7 also mortgaged their properties in favour of the respondent – Bank by
way of security to the said amount. Defaults having been made in
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discharging their liabilities, their assets were declared as NPA as per the
guidelines issued by the Reserve Bank of India.
4. A proceeding was initiated by the respondent – Bank purporting to be
under Section 13(2) of the Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (for short “the 2002
Act”) for recovery of the said amount together with interest upon due service
of a notice in terms of Sub-section (4) of Section 13 thereof. The total
amount of claim laid before the Tribunal by the bank as against the debtors
was Rs. 4,16,85,443.62 inclusive of interest upto 31.07.2003. The said
application was allowed by the Tribunal whereagainst an appeal was
preferred before the Appellate Tribunal.
5. Indisputably, pursuant to the judgment and order of the Tribunal, a
recovery certificate was issued for recovery of a sum of Rs. 4,16,58,581.62
along with pendent lite and future interest at the rate of 12% p.a. with
quarterly rests from the date of filing of the application till realization.
It is at that stage, the appellant No. 1 approached the respondent –
bank for settlement of their disputes purported to be in terms of the
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guidelines issued by the Reserve Bank of India. They made an offer for a
one time settlement for a sum of Rs. 345.31 lakhs. The said proposal,
however, was not accepted by the respondent – Bank.
6. Respondent – Bank issued a circular bearing No. 176 dated
18.10.2005. Questioning the validity of the said circular, the appellant No.
1 filed a writ petition before the High Court contending that the same was
contrary to the guidelines issued by the Reserve Bank of India insofar as the
same relates to the scheme for one time settlement for the Small and
Medium Enterprises. A prayer was also made therein that the respondent –
Bank be directed to settle the matter as per the RBI guidelines. The said writ
petition was dismissed only on the premise that the appellant No. 1 had not
disclosed therein that it had already approached the Tribunal for recovery of
the amount in question.
7. A special leave petition filed thereagainst which was marked as SLP
(C) No. 21134 of 2006 was, however, dismissed by this Court on
31.01.2007.
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8. Appellants approached the Appellate Tribunal in terms of Section 21
of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(for short “the 1993 Act”). The appeal was entertained. Respondent – Bank
also preferred an appeal before the Appellate Tribunal claiming pendent lite
and future interest at the rate of 16.50% with quarterly rests instead of 12%
p.a. as had been granted by the Tribunal in its order dated 23.11.2006. The
Appellate Tribunal by a judgment and order dated 13.04.2007, dismissed the
appeal preferred by the respondent – Bank and allowed that of the appellants
and the Performa Respondent Nos. 2 to 11 directing the respondent – Bank
to make one time settlement in terms of the guidelines issued by the Reserve
Bank of India as was prevailing at the relevant time.
9. We must, however, place on record that the Appellate Tribunal
affirmed the judgment as also the validity of the recovery certificate dated
23.11.2006.
10. It furthermore permitted the appellants and the Proforma Respondent
Nos. 2 to 11 to sell the secured properties for clearing the dues in terms of
one time settlement scheme and ordered that such an exercise must be
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completed within a period of four months during which period the bank was
restrained from taking any coercive steps against them.
11. Respondent – Bank filed writ application thereagainst which by
reason of the impugned judgment has been allowed. Appellants filed a
review application before the High Court which has been dismissed.
12. Dr. Abhishek Manu Singhvi, learned senior counsel appearing on
behalf of the appellants would contend that the scheme in relation to one
time settlement having been issued by the Reserve Bank of India in exercise
of its statutory power conferred upon it under Section 21 of the Banking
Regulation Act, 1949 (for short “the 1949 Act”), the impugned judgment
cannot be sustained.
The learned counsel in this behalf has furthermore drawn our attention
to various correspondences exchanged by and between the parties to urge
that the respondent – Bank entertained the said application asking for
proposal from the appellants and, thus, they are estopped and precluded from
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contending that the Board of Directors of the respondent – Bank themselves
had made a scheme which was required to be followed.
13. Mr. I.P. Singh, learned counsel appearing on behalf of the respondent
- Bank, on the other hand, urged:
(i) The Appellate Tribunal committed a serious illegality in issuing
the directions upon the bank to undertake implementation of
scheme of one time settlement in terms of the guidelines issued
by the Reserve Bank of India as no such prayer was made in the
memo of appeal.
(ii) The respondent – Bank in law was entitled to make a deviation
from the guidelines issued by the Reserve Bank of India.
(iii) Only in terms of the guidelines issued by the Board of Directors
of the respondent – Bank the relaxation was to be granted to the
extent of 30% wherefor the extent of the value of NPA was
required to be considered and keeping in view of the fact that
the amount available with the Bank was more than sufficient to
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wipe off the debts, the bank was not bound to accept the one
time settlement.
(iv) The Appellate Tribunal had no jurisdiction to declare the
guidelines issued by the bank to be a nullity particularly when
no such case was made out in the memo of appeal nor the
appellants had pleaded the same. The purpose and object for
which the RBI guidelines were issued was for realization of the
loan amount from chronic defaulters.
(v) The guidelines issued by the Reserve Bank of India were not in
terms of Section 21 of the 1949 Act but were in terms of
Section 35A thereof and, thus, the same was not binding on the
banks.
14. The Reserve Bank of India is a statutory authority. It exercises
supervisory power in the matter of functionings of the Scheduled Banks.
The matter relating to supervision of Scheduled Banks is also governed by
the Reserve Bank of India Act. For the aforementioned purpose, the
Reserve Bank is entitled to issue guidelines from time to time.
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15. The Parliament also enacted the 1949 Act to consolidate and amend
the law relating to banking.
Section 5(l) of the 1949 Act defines “Reserve Bank” to mean the
Reserve Bank of India constituted under Section 3 of the Reserve Bank of
India Act, 1934.
By reason of various provisions of the 1949 Act, the Reserve Bank is
empowered to control and supervise the functioning of the Scheduled Banks.
The 1949 Act also provides for power of the Reserve Bank to control
advances by banking companies in terms of Section 21 of the 1949 Act
which reads as under:
“21 - Power of Reserve Bank to control advances
by banking companies
(1) Where the Reserve Bank is satisfied that it is
necessary or expedient in the 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.
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(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 any one 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.”
16. A bare perusal of the aforementioned provision would clearly show
that the Reserve Bank of India is entitled to formulate the policies which the
banking companies are bound to follow. Sub-section (3) of Section 21 of
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the 1949 Act clearly mandates that every banking company shall be bound
to comply with the directions given to it in terms thereof. Section 35A of
the 1949 Act, which was inserted by the Banking Companies (Amendment)
Act, 1956, empowers the Reserve Bank to issue directions inter alia in the
interest of banking policy. Section 36 of the 1949 Act also provides for
further powers and functions of the Reserve Bank of India; clause (d) of
Sub-section (1) whereof reads as under:
“36. Further powers and functions of Reserve
Bank – (1) The Reserve Bank may-
(a) *
(b) *
(c) *
(d) at any time, if it is satisfied that in the public
interest or in the interest of banking policy or for
preventing the affairs of the banking company
being conducted in a manner detrimental to the
interests of the banking company or its depositors
it is necessary so to do, by order in writing and on
such terms and conditions as may be specified
therein-
(i) require the banking company to call a meeting
of its directors for the purpose of considering any
matter relating to or arising out of the affairs of the
banking company; or require an officer of the
banking company to discuss any such matter with
an officer of the Reserve Bank;
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(ii) depute one or more of its officers to which the
proceedings at any meeting of the Board of
directors of the banking company or of any
committee or of any other body constituted by it;
require the banking company to give an
opportunity to the officers so deputed to be heard
at such meetings and also require such officers to
send a report of such proceedings to the Reserve
Bank;
(iii) require the Board of directors of the banking
company or any committee or any other body
constituted by it to give in writing to any officer
specified by the Reserve Bank in this behalf at his
usual address all notices of, and other
communications relating to, any meeting of the
Board, committee or other body constituted by it;
(iv) appoint one or more of its officers to observe
the manner in which the affairs of the banking
company or of its offices or branches are being
conducted and make a report thereon;
(v) require the banking company to make, within
such time as may be specified in the order, such
changes in the management as the Reserve Bank
may consider necessary.”
17. We may, however, place on record that the Parliament, in its wisdom,
inserted Section 36A of the Act by the Banking Companies (Amendment)
Act, 1959 in terms whereof some of the provisions of the 1949 Act were not
to be applied to certain banking companies.
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18. Indisputably, the guidelines were issued by the Reserve Bank of India
by reason of a letter dated 3.09.2005 addressed to the Chairman/ Managing
Director of all public sector banks. It clearly refers to a circular dated
19.08.2005 issued by the Reserve Bank of India in terms whereof it was
directed that one time settlement scheme for recovery of NPA below Rs. 10
crore was laid down. The said letter was issued pursuant to the
aforementioned circular in terms whereof one time settlement scheme was
formulated for recovery of NPA below Rs. 10 crores. It was categorically
stated therein that the same was required to be implemented by all public
sector banks. The guidelines issued were to provide a simplified, non-
discretionary and non-discriminatory mechanism therefor in SME sector. It
was categorically stated that all public sector banks shall uniformly
implement these guidelines.
19. Respondent – Bank concededly is a public sector bank. It was,
therefore, bound by the said guidelines.
Salient features of the guidelines are as under:
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“(c) The guidelines will cover cases on
which the banks have initiated action
under the Securitization and
Reconstruction of Financial Assets
and Enforcement of Security Interest
Act, 2002 and also cases pending
before Courts/DRTs/BIFR subject to
consent decree being obtained from
the Courts/DRTs/BIFR”
XXX XXX XXX
(ii) Settlement Formula amount
a) NPAs classified at Doubtful or Loss
as on March 31, 2004.
The minimum amount that should be
recovered in respect of compromise
settlement of NPAs classified as
st
doubtful or loss as on 31 March 2004
would be 100% of the outstanding
balance in the account as on the date
on which the account was categorized
as doubtful NPA.
b) NPAs classified as sub-standard as
st
on 31 March, 2004 which became
doubtful or loss subsequently:
The minimum amount that should be
recovered in respect of NPAs
st
classified as sub-standard as on 31
March, 2004 which became doubtful
or loss subsequently would be 100%
of the outstanding balance in the
account as on the date on which the
account was categorized as doubtful
NPAs plus interest at existing Basic
st
Prime Lending Rate from 1 April,
2004 till the date of final payment.”
(iii) Payment
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The amount of settlement arrived at in
both the above cases, should
preferably be paid in one lump sum.
In cases where the borrowers are
unable to pay the entire amount in one
lump sum, at least 25% of the amount
of settlement should be paid upfront
and the balance amount of 75%
should be recovered in installments
within a period of one year together
with interest at the existing Prime
Lending Rate from the date of
settlement up to the date of final
payment.
XXX XXX XXX
(V) Non-discretionary treatment:
Banks shall follow the above
guidelines for one time settlement of
all NPAs covered under the scheme,
without discrimination and a monthly
report on the progress and details of
settlement should be submitted by the
concerned authority to the next high
authority and their Central Office.
Banks may go for wide publicity and
also give notice January 31, 2006 to
the eligible defaulting borrowers to
avail of the opportunity for one time
settlement of their outstanding dues in
terms of these guidelines. Adequate
publicity to these guidelines through
various means must be ensured.
XXX XXX XXX
4. Any deviation from the above
settlement guidelines for any
borrower shall be made only by the
Board of Directors.”
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The said circular letter was issued by the Chief General Manager of
the Reserve Bank of India. The High Court in its impugned judgment inter
alia was of the opinion that he had no authority therefor.
20. Before, however, adverting to the question as to whether the Board of
Directors of the respondent –Bank could deviate from the aforementioned
guidelines and, if so, to what extent, we may notice the following
correspondences, which was exchanged by the parties hereto, so as to enable
us to consider as to whether the respondent – Bank had itself applied the said
guidelines in case of the appellants or not.
21. We may notice that the respondent – Bank appears to have accepted
the said guidelines as is evident from the letter dated 24.11.2005 by the
respondent Bank to the appellants in the following terms:
“As per head office guidelines, one time settlement
scheme for recovery of NPA accounts upto 10
crores has been formulated. Your account also
falls within this scheme. As the said scheme is
Non-discretionary, you are advised to come
forward for settlement of your account as per terms
& conditions of the scheme”
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Clauses 4.1 and 4.2 read as under:
“4.1 NPAs classified as Doubtful or Loss as on
st
31 March 2004:
The minimum amount that should be
recovered in respect of compromise settlement of
st
NPAs classified as doubtful or loss as on 31
March, 2004 would be 100% of the outstanding
balance in the account as on the date on which the
account was categorized as doubtful NPA.
st
4.2 NPAs classified as sub-standard as on 31
March, 2004 which became doubtful or loss
subsequently:
The minimum amount that should be recovered in
respect of NPAs classified as sub-standard as on
st
31 March, 2004 which became doubtful or loss
subsequently would be 100% of the outstanding
balance in the account as on the date on which the
account was categorized as doubtful NPAs plus
interest at existing Basic Prime Lending Rate from
st
1 April, 2004 till the date of final payment.”
Under the heading “Non-Discretionary Treatment”, the bank stated:
“7.1 RBI has advised that the guidelines for
compromise settlement of NPAs in SME sector are
non-discretionary and non-discriminatory.
Therefore, if the borrower fulfills the eligibility
criteria for consideration of OTS under these
guidelines then amount of OTS will be determined
strictly in terms of Clause No.4.1 and 4.2 above
irrespective of any other factor.”
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22. Furthermore, the respondent – Bank in its letter dated 1.12.2005,
stated:
“Please refer our letter regarding the above
mentioned policy of R.B.I. We are again
enclosing herewith the photocopy of the policy.
You are requested to come forward as per policy
for settlement of the account at your earliest.”
The respondent – Bank yet again in its letter dated 01.03.2006, stated:
“This is in continuation of our letter dated
17.02.2006 on the above subject. Please note the
OTS scheme of RBI is valid upto 31.03.2006 as
such please send your request well within the last
date so that the proposal may be put up to the
competent authority.”
23. It is on the aforementioned premise, the merit and purport of the
correspondences exchanged between the parties must be considered. The
said correspondences clearly show that the respondent – Bank had resorted
to the guidelines issued by the Reserve Bank of India alone and pursuant to
or in furtherance of the offer made by the bank, a proposal came to be made
by the appellants in terms of its letter dated 2.03.2006; the relevant portion
whereof reads as under:
“2. As per RBI guidelines, the minimum
amount that shall be recovered in respect of one
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time settlement of NPAs classified as doubtful of
loss as on march 31, 2004 will be 100% of the
outstanding balance in the account as on the date
on which the account was categorized as doubtful
NPA. As the outstanding balance in our account
as on March 31, 2004 was Rs.285.38 lacs, the
settlement amount in respect on one time
settlement of our account works out to be
Rs.283.38 lacs as per RBI guidelines, out of which
we have already deposited a sum of Rs.26.76 lacs
(including Rs.25.00 lacs in Third Party No lien
account subject to the condition that the said
amount shall be appropriated by the bank only
after approval of compromise proposal submitted
by us plus Rs.1.76 lacs in instalments). Hence we
are unable to understand how you have worked out
the minimum recoverable amount to be Rs.370.49
lacs.
3. RBI guidelines on OTS for SME account
nowhere links the amount that shall be recovered
with the fair market value of the security charged
to the bank. The fair market value of security is
just an assessment of the market value of the
security and not the actual value of the security.
4. RBI guidelines are very clear for one time
settlement of dues for SME accounts with
outstanding of Rs.10.00 crore or less before March
31, 2004, that those account should be settled at
principal amount.
5. NPAs classified as doubtful as on March
2004 are settling their accounts as per these
guidelines. We also seek justice and deserve the
right to settle our account strictly as per RBI
guidelines, which are non-discretionary and non-
discriminatory in nature. Its worth while to
mention here that other nationalized bank in
country are settling NPAs as per guidelines of
RBI.
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However, to avoid any further litigations and to
show our sincere intentions to settle the account,
we are even ready to pay the interest for 2 years, as
per your instructions and categorization, upto the
time when the account was first categorized as
“doubtful” by bank.
Therefore, we request you to consider our proposal
for one time settlement at Rs.345.31. The
proposed amount of Rs.345.31 lacs has been
arrived at as the amount which would have been
outstanding in our account on the date when our
account was categorized “doubtful” for the first
time, i.e., by adding interest for 2 years at PLR
Rs.59.93 lacs on the amount of Rs.285.38 lacs
which was outstanding in our account as on the
date when our account was categorized as non
performing asset.”
24. Such a proposal was made bona fide. It was within the framework of
the guidelines issued by the Reserve Bank of India.
25. It is not necessary to place on record the further correspondences
exchanged between the parties although our attention has been drawn thereto
in terms whereof the appellants had all along been making sincere efforts to
one time settlement within the parameters of the guidelines issued by the
Reserve Bank of India.
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26. It may be true that the appellants filed a writ petition before the
Punjab and Haryana High Court which was dismissed on the ground of
suppression.
In Arunima Baruah v. Union of India and Ors. [(2007) 6 SCC 120] the
question involved was how far and to what extent suppression of fact by way
of non- disclosure would affect a person's right of access to justice which is
a human right.
It was held:
“21. Ubi jus ibi remedium is a well-known
concept. The court while refusing to grant a relief
to a person who comes with a genuine grievance in
an arguable case should be given a hearing. (See
Bhagubhai Dhanabhai Khalasi.) In this case,
however, the appellant had suppressed a material
fact. It is evident that the writ petition was filed
only when no order of interim injunction was
passed. It was obligatory on the part of the
appellant to disclose the said fact.
22. In this case, however, suppression of filing
of the suit is no longer a material fact. The learned
Single Judge and the Division Bench of the High
Court may be correct that, in a case of this nature,
the Court’s jurisdiction may not be invoked but
that would not mean that another writ petition
would not lie. When another writ petition is filed
disclosing all the facts, the appellant would be
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approaching the writ court with a pair of clean
hands, and the Court at that point of time will be
entitled to determine the case on merits having
regard to the human right of the appellant to access
to justice, and keeping in view the fact that judicial
review is a basic feature of the Constitution of
India.”
It was opined:
“12. It is trite law that so as to enable the court
to refuse to exercise its discretionary jurisdiction
suppression must be of material fact. What would
be a material fact, suppression whereof would
disentitle the appellant to obtain a discretionary
relief, would depend upon the facts and
circumstances of each case. Material fact would
mean material for the purpose of determination of
the lis, the logical corollary whereof would be that
whether the same was material for grant or denial
of the relief. If the fact suppressed is not material
for determination of the lis between the parties, the
court may not refuse to exercise its discretionary
jurisdiction. It is also trite that a person invoking
the discretionary jurisdiction of the court cannot be
allowed to approach it with a pair of dirty hands.
But even if the said dirt is removed and the hands
become clean, whether the relief would still be
denied is the question.”
[See also S.J.S. Business Enterprises (P) Ltd. v. State of Bihar and
Others (2004) 7 SCC 166]
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27. The said order of the Punjab and Haryana High Court dated
21.11.2006 again indisputably has been affirmed by this Court. But, in our
opinion, the same by itself did not preclude the appellants to approach the
Appellate Tribunal. The jurisdiction of the appellate tribunal is co-extensive
with the powers of the Tribunal. The memo of appeal filed by the appellants
before the Tribunal clearly shows that the contentions with regard to the
enforcement of the aforementioned provisions had been made therein.
28. It is, therefore, not correct to contend that no pleadings were made for
the purpose of enforcing the RBI guidelines in respect of one time
settlement.
29. It may be that no specific prayer was made but the same, in our
opinion, keeping in view the provisions of the 2002 Act, did not preclude the
Appellate Tribunal to consider the offer of the appellants. The Appellate
Tribunal in terms of the provisions of the Act like the original Tribunal is
interested only in recovery of the amount. While doing so, it, in our
considered opinion, has the requisite jurisdiction to consider the prayer made
by a debtor for one time settlement particularly in view of the fact that the
same is within the purview of One Time Settlement Scheme of the Reserve
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Bank of India. If a public sector bank is otherwise bound by any guidelines
issued by the Reserve Bank of India, we see no reason as to why the same
cannot be enforced in terms of the provisions of the Act by the Tribunal and
consequently by the Appellate Tribunal. It is not a case where the appellants
had prayed for quashing of a policy decision taken by the respondent –
Bank. The question which arose for consideration before the Appellate
Tribunal as also before the High Court was as to whether offer having been
made by the bank to the appellants herein, it could have turned around and
contend that only because the appellants had furnished security to the extent
of Rs. 11 crores, the same by itself would entitle it to take recourse to a
discriminatory treatment. The answer to the said question must be rendered
in the negative.
30. We may notice that the offer made by the appellants in terms of the
RBI guidelines for one time settlement was Rs. 3,45,31,000/-, however,
keeping in view the fact that the respondent – Bank had a better security
available to it demanded a sum of Rs. 4.92 crores.
31. The Board of Directors of the Bank itself had accepted the guidelines.
It, however, in its own guidelines, stated:
25
“II.3 After calculation of the MRA as per point II.1
and II.2 above, due consideration to Securities
available charged in the case is to be given, in case
of secured and partially secured assets. In these
accounts, MRA is to be calculated as under:
MRA = 70% of the value of securities as per
valuation certificate, issued in terms of Law
Circular No. 171.”
32. Does it satisfy the non-discriminatory clause laid down by the Reserve
Bank of India and accepted by the Reserve Bank is the question. While
making a deviation, the Board of Directors of a public sector bank could not
have taken recourse to a policy decision which is per se discriminatory.
Respondent – Bank is a ‘State’ within the meaning of Article 12 of the
Constitution of India apart from the fact that it is bound to follow the
guidelines issued by the Reserve Bank of India.
33. If, therefore, the broad policy decisions contained in the guidelines
were required to be followed, the power of the Board of Directors to make
deviation in terms of Clause 4 thereof would only be in relation to some
minor matters which does not touch the broad aspects of the policy decision
and in particular the one governing the non-discriminatory treatment. In a
case of this nature, we are satisfied that the respondent – Bank is guilty of
26
violation of the equality clause contained in the Reserve Bank of India
guidelines as also Article 14 of the Constitution of India.
34. The fact that the appellants were defaultors is not in dispute. It is also
not in dispute that it comes within the purview of the Small and Medium
Enterprises sector.
35. It is furthermore not in dispute that the respondent – Bank itself had
made an offer to accept the proposal of the appellants in regard to
enforcement of one time settlement pursuant to the RBI guidelines.
Indisputably, it was all along aware that the amount of securities was lying
with it. It is only pursuant thereto the directions had been issued by the
Tribunal
36. The question as to whether the guidelines issued by the Reserve Bank
of India are binding or not now stands concluded by reason of a Constitution
Bench Judgment of this Court in Central Bank of India v. Ravindra and
Others [(2002) 1 SCC 367] in the following terms:
“55… (5) The power conferred by Sections 21
and 35-A of the Banking Regulation Act, 1949 is
27
coupled with duty to act. The Reserve Bank of
India is the prime banking institution of the
country entrusted with a supervisory role over
banking and conferred with the authority of issuing
binding directions, having statutory force, in the
interest of the public in general and preventing
banking affairs from deterioration and prejudice as
also to secure the proper management of any
banking company generally. The Reserve Bank of
India is one of the watchdogs of finance and
economy of the nation. It is, and it ought to be,
aware of all relevant factors, including credit
conditions as prevailing, which would invite its
policy decisions. RBI has been issuing
directions/circulars from time to time which, inter
alia, deal with the rate of interest which can be
charged and the periods at the end of which rests
can be struck down, interest calculated thereon and
charged and capitalised. It should continue to issue
such directives. Its circulars shall bind those who
fall within the net of such directives. For such
transaction which are not squarely governed by
such circulars, the RBI directives may be treated as
standards for the purpose of deciding whether the
interest charged is excessive, usurious or opposed
to public policy.”
37. Yet again in Corporation Bank v. D.S. Gowda and Another [(1994) 5
SCC 213], this Court held:
“17…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 35-A
enable it to issue directives in public interest to
regulate the charging of interest on loans or
advances made from time to time…”
28
38. We may, however, notice that a Division Bench of this Court without
noticing the decision of the Constitution Bench in Central Bank of India
(supra) in Oriental Bank of Commerce v. Sunder Lal Jain and Another
[(2008) 2 SCC 280] opined as under:
“8. A perusal of the aforesaid revised guidelines
issued by Reserve Bank of India on 29-1-2003 for
compromise settlement of chronic non-performing
assets (NPAs) of public sector banks will show
that the same will be applicable and will cover
NPAs classified as substandard as on 31-3-2000
which have subsequently become doubtful or loss.
The revised guidelines have no application where
the NPAs have not been classified as substandard
as on 31-3-2000. It is not in dispute that the
account of the respondents was a performing
account between 1-4-2000 and 31-3-2001.
According to the records of the Bank, the account
was consigned to protest bill account on 15-10-
2001 and was declared as NPA as per prudential
norms of RBI on 31-3-2001. The respondents
contested the case before DRT and did not admit
their liability. No such plea was raised that their
account had become NPA as on 31-3-2000 before
DRT. Therefore, the revised guidelines issued by
Reserve Bank of India on 29-1-2003 for
compromise settlement of chronic non-performing
assets (NPAs) of public sector banks were not at
all applicable to the facts and circumstances of the
case and no direction could be issued to declare the
respondents’ account as NPA from 31-3-2000.”
29
39. Judicial discipline mandates the bench comprising of two Judges to
follow the judgments of the Constitution Bench having regard to Article 141
of the Constitution of India.
40. If in terms of the guidelines issued by the Reserve Bank of India a
right is created in a borrower, we see no reason as to why a writ of
mandamus could not be issued. We would assume, as has been contended
by Mr. Singh, that while exercising its power under Article 226 of the
Constitution of India, the High Courts may or may not issue such a direction
but the same, in our opinion, by itself, would not mean that the High Court
would be correct in interfering with an order passed by the Appellate
Tribunal which was entitled to consider the effect of such one time
settlement.
41. The question pertaining to the present matter is regarding whether or
not a circular issued by a statutory body for the governance and regulation of
certain agreements confers a legal right upon the aggrieved party in case of
non-compliance or complete and absolute deviation from the said guidelines
by the body formulating such circulars. Alternately, can the aggrieved party,
then, claim its right of judicial review under Article 32 or 226 to quash the
30
said circular in case of discriminatory application of such rules/guidelines so
mentioned in the circular.
42. In Union of India and Anr. v. Azadi Bachao Andolan and Anr [(2004)
10 SCC 1], it was held that a circular issued by the Central Board of Direct
Taxes(CBDT) was not inconsistent with the provisions of the Income-Tax
Act and was valid and efficacious. The assessing officers chose to ignore
the guidelines and hence the CBDT was justified in issuing “appropriate
guidelines” under Circular No. 789. The said Circular does not in any way
crib, confine or cabin the powers of the assessing officers with regard to any
particular assessment. It merely formulates broad guidelines to be applied in
the matter of assessment of the assesses covered by the provisions of the
Indo – Mauritius Double Taxation Avoidance Convention, 1983.
43. In Commissioner of Income Tax v. Anjum M.H. Ghaswala and Ors.
[(2002) 1 SCC 633], it was pointed out that the circulars issued by CBDT
under Section 119 of the Income Tax Act have statutory force and would be
binding on every income-tax authority although such may not be the case
with regard to press releases issue by the CBDT for information of the
public.
31
44. In UCO Bank v. CIT [(1999) 4 SCC 599], this Court opined that “the
circulars as contemplated therein cannot be adverse to the assessee.” Thus,
the authority which wields the power for its own advantage when required to
wield it in a manner it considers just by relaxing the rigour of the law or in
other permissible manners as laid down in Section 119. The power is given
for the purpose of just, proper and efficient management of the work of
assessment and in public interest.
45. In BSNL & anr. v. BPL Mobile Cellur Ltd. & ors. [2008 (8) SCALE
106], it was held that “the direction contained in the said circular letters are
relevant for the officers who are authorised not only to grant licenses but
also enter into contracts and prepare bills. The circular letters having no
statutory force undoubtedly would not govern the contract”.
A distinction, thus, must be made between statutory and non-statutory
guidelines. A distinction must also be made between the circular which are
relevant but not binding on the third parties and which are imperative in
character.
32
46. As regards the Reserve Bank of India guidelines, it was the direction
of the Appellate Tribunal that the Respondent-Bank should settle the case of
the appellants under the RBI guidelines through a One Time Settlement and
should invite a proposal for settlement and recovery of the agreed amount.
47. The Appellate Tribunal in passing its order followed the dicta laid
down in Constitution Bench judgment in Central Bank of India (supra),
wherein it was held that:
“.....RBI directive have not only statutory flavour,
any contravention thereof or any default in
compliance therewith is punishable under sub-
section (4) of S. 46 of the Banking Regulation Act,
1949” .
48. We, therefore, are of the opinion that the impugned judgment cannot
be sustained. It is set aside accordingly. The appeals are allowed.
However, in the facts and circumstances of the case, there shall be no order
as to costs.
……………………………….J.
[S.B. Sinha]
..…………………………..…J.
[Deepak Verma]
33
New Delhi;
July 31, 2009