Ori HC | Are private banking companies discharging banking services amenable to writ jurisdiction? HC analyses

Orissa High Court: Biswajit Mohanty J., dismissed the petition being non-maintainable.

The facts of the case are such that the petitioner took loan from opposite party 1, a Non-Banking Financial Company i.e. NBFC recognized by Reserve Bank of India and is understood as such under the provisions of the SARFAESI Act, 2002. The petitioner is paying its EMI regularly, however, due to high-interest rate i.e. 12% on a floating basis approached the ICICI Bank Home Loan for taking over of the existing loan with the opposite parties which was later sanctioned by the ICICI Bank. However, the opposite party 2 vide an email declined the request of foreclosure of loan account on the ground that since the loan is under lock-in period, the aforesaid loan cannot be closed. Aggrieved by the same, the present writ petition has been filed for issuance of direction to the opposite parties to foreclose its loan account with the opposite party.

The present issue is regarding maintainability of the writ petition as the opposite party is a private banking company. On being queried the same, Counsel Mr Pal brought the attention of the Court towards the fact is a non-banking financial institution recognized by the Reserve Bank of India and is a financial institution as understood under the provisions of the SARFAESI Act and as such amendable to the jurisdiction of the Court.

Maintainability of the writ petition vis-a vis Opposite Party i.e. Private Banking Company

RBI ACT, 1934

A reading of Sub-Section (c), (e) & (f) of Section 45-I of the Reserve Bank of India Act, 1934 show that a nonbanking financial company/institution mainly deals with advancing of loans, acquisition of share, stock, bonds, debentures and marketable securities, letting or delivering of goods to a hirer under a hire purchase agreement, carrying on insurance business, managing & supervising of chits and collecting monies in lumpsum by way of sale of units and awarding prizes and gifts etc. All these make it clear that non-banking financial companies deal with ordinary commercial activities having no monopoly status. Therefore, such activities cannot be classified as discharging of public function/public duties/statutory duties.

SARFAESI Act, 2002

Chapter-II of the SARFAESI Act, 2002 deals with regulation of securitization and reconstruction of financial assets of banks and financial institutions. Section 12 of the Act deals with power of Reserve Bank to determine policy and issue directions which are in public interest or to regulate financial system of the country. Thus, merely because opposite party 1 is understood as financial institution under the SARFAESI Act and merely because R.B.I. also regulates its activities, it cannot be said that it is discharging public duties.

The Court further relied on judgment titled Federal Bank Ltd. v. Sagar Thomas, (2003) 10 SCC 733 and stated that

“A writ petition under Article 226 of the Constitution of India may be maintainable against (i) the State (Govt.); (ii) Authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or positive obligation of public nature (viii) a person or a body under liability to discharge any function under any Statute, to compel it to perform such a statutory function.”

The Court further observed that banking is a kind of profession and a commercial activity and the primary motive behind it is to earn returns and profits. It works like any other private company in the banking business having no monopoly status. These companies have been voluntarily established for their own purpose and interest but their activities are kept under check so that their activities may not go way ward and harm the economy in general. Merely because the Reserve Bank of India lays the banking policy in the interest of the banking system or in the interest of monetary stability, it does not mean that private companies carrying on the business of banking, discharge any public function or public duty. Non-banking financial companies only indulge in ordinary business or commercial activities which cannot be described as akin to governmental function.

In view of the authoritative pronouncement and observations laid above, the court held that these private companies would normally not be amenable to the writ jurisdiction unless these violate statutory provisions. When there is no violation of any statutory provisions, a writ may not be issued at all.

Note: No pleadings were made to show that either the opposite party 1 is a “State” within the meaning of Article 12 of the Constitution of India or is under an obligation to discharge any statutory function.

 In view of the above, petition dismissed.[Radhakrishna v. Aditya Birla Finance Ltd., 2020 SCC OnLine Ori 189, decided on 03-04-2020]


Arunima Bose, Editorial Assistant has put this story together

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