Banks cannot indefinitely defer loan applications and must decide them within a reasonable period.

The petitioner, proprietor of M/s Prabhu Engineering Works at Raghunathpur, Buxar, applied under the Prime Minister’s Employment Generation Programme (PMEGP), a credit-linked subsidy scheme administered by the Ministry of Micro, Small and Medium Enterprises, Government of India, for a loan of ₹10,00,000.

The loan was sanctioned by the Khadi and Village Industries Commission, Bihar, on 14 August 2018.

Subsequently, the petitioner sought additional financial assistance from Punjab National Bank and alleged that, pursuant to an assurance by the Branch Manager, she transferred ₹1,50,000 to the bank.

However, the bank neither sanctioned nor rejected the application, keeping it pending since 2019.

The bank’s counter-affidavit stated that there had been approval for sanctioning the loan, but that approval alone did not confer any right upon the petitioner until formal sanction was issued.

Whether the petitioner could claim a direction from the High Court compelling Punjab National Bank to sanction the requested loan under the PMEGP scheme.

Whether the bank’s prolonged failure to either sanction or reject the loan application warranted a direction to process the application and pass an appropriate order in accordance with law.

The Court applied the principle that sanction of a loan falls within the bank’s discretionary commercial and administrative domain and must be determined on the basis of the documents and eligibility materials submitted by the applicant.

Mere approval or recommendation for sanction does not create an enforceable right to disbursement or formal sanction of the loan; formal sanction remains necessary.

However, the bank cannot keep a loan application pending indefinitely and is required either to process and sanction the loan or to reject it by passing an appropriate order in accordance with law.

No specific statutory provision or judicial precedent was cited in the judgment.

The Court declined to compel the bank to sanction the loan because sanction was within the bank’s discretion and the petitioner had no vested right arising merely from the alleged approval.

Nevertheless, the bank’s failure to take a final decision since 2019 was held to be improper.

Without entering into the merits of the petitioner’s eligibility or the loan application, the Court balanced the bank’s discretionary authority with its obligation to take a timely and reasoned decision by directing the bank either to process the application or to pass an appropriate order in accordance with law.

It directed the Punjab National Bank authorities to either process the petitioner’s loan application or pass an appropriate order in accordance with law within two months from receipt of the order.

The writ petition was accordingly disposed of.