Madras HC | Is writ petition maintainable against Asset Reconstruction Co. which is assigned debts by nationalised banks? Is there element of public duty and obligation to follow RBI Circulars? HC decides

Madras High Court: V. Parthiban, J., expressed that plea of public interest in a private loan transaction is only a mask to conceal for petitioners’ interest with a view to obstruct the enforcement of contractual obligation.

Instant petition was filed against the letter of respondent calling upon the petitioner company to forthwith pay Rs 1995,05,17,808 within 7 days failing which, further action would be taken including revocation of Restructuring Agreement entered into between the parties.

Analysis, Law and Decision

What is challenged in the instant petition?

The dispute is between private entities. A communication dated 30-04-2021 issued by the fourth respondent, a private company (an Asset Reconstruction Company), against the petitioner invoking certain clauses in terms of restructuring agreement of loan between the contesting parties, was challenged.

With respect to the issue of maintainability of writ against a private person or private legal entity, the legal position was no more res integra, as various decisions of the Supreme Court and High Court held that the issuance of the writ could not be denied merely because it sought to be issued against a private person or private entity.  Hence, the Court observed that,

“…this Court does not wish to open up any fresh vista on the rudimentary understanding of the progressive expansion of public law jurisdiction in matters where the Court finds interplay of private interest and public duty.”

 The judicial endeavour is appreciation of the relationship of the parties, their mutual rights and obligations within the private and commercial framework and in that relationship collaterally or concomitantly any public duty is imposed, or public interest is involved to bring the dispute arising from such relationship within the mischief of writ jurisdiction of the Court or not?

Petitioner’s primary contention was that, the 4th respondent which stepped into the shoes of consortium of initial lenders namely 9 nationalised banks failed to implement and comply with the Reserve bank of India circulars before issuing the impugned communication. In view of such a contention, it was stated that when there was a duty cast upon the banks and the financial institutions which admittedly included the 4th respondent, failure to follow the circulars amounted to abdicating its public duty enjoined upon them and in that view of the matter, a command ought to be issued by the Court by way of a Writ for their compliance.

Judicial Scrutiny

In a contractual relationship purely governed by commercial consideration, enforcing the terms of contract/agreement by one party as against the other could be subjected to judicial scrutiny under writ jurisdiction of the Court, is a knotty question and the answers are not be found on any definite legal principles or defined contours of factual circumstances.

Elaborating the above, it was stated that as a consequence of the march of law the judicial review is directed against the action, decision making process and not concerned with identity of the body as such.

High Court observed that the circular dated 27-03-2020 which appeared to be the fulcrum of the petitioner’s submission for maintaining the writ petition began with the preamble that certain regulatory measures had been initiated and announced by the Reserve Bank of India for schedule of payment due to Covid-19 crisis.

The said circular envisaged granting of moratorium that all payments due between March 2020 and May, 2020 would be shifted by 3 months extending the period of the payment to August 2020. The circular, while delineating the policy, permitted the financial institutions to consider grant of the benefit of moratorium. The circular also envisages exemption from the benefit in regard to the loan accounts being declared as NPA.

Further, in the said circumstances, admittedly individual financial institutions were given latitude and discretion to take a call in regard to the extension of the moratorium benefit to its borrowers.

Entitlement of the petitioner as to the benefit fell squarely within the framework as between the 4th respondent and petitioner.

When the relationship is founded on the Commercial and the contractual terms and understanding, the extension of the benefit of the moratorium by one party in favour of the other party, is dependent on various facts to be taken into consideration within the private and contractual precincts of such relationship.

Bench expressed that,

If this Court were to investigate into the disputed areas of understanding between the private parties, it would certainly amount to pitch forking a public law jurisdiction into a private dispute arising under a valid contractual relationship between the parties.

High Court stated that merely because RBI Circulars were issued during the pandemic crisis, it cannot change or transform the core character of the relationship of the parties and assume the coloration of public interest.

Bench expressed that it does not find any public character attached to the relationship of the parties. Transaction between them was plainly commercial without a tinge or shade of public function involved.

Further, the Court did not see any public duty imposed on 4th respondent that is referable in the context of complying with certain provisions contained in the enactments like Industrial Disputes Act, Minimum Wages Act, the Factories Act or the Statutes relating to Pollution etc., or even certain duties which have been imposed by common law, custom, or even contract stretching the requirement in terms of the observation of the Supreme Court of India in Ramesh Ahluwalia v. State of Punjab, (2012) 12 SCC 331.

Public duty becomes enforceable only when there is legal compulsion for its adherence.

Court opined the following:

  • There was no compulsion imposed on 4th respondent to extend the benefit of moratorium, regardless of the nature of the default and nature of agreement between the parties.
  • In absence of any compulsion/obligation or legal mandate to follow a particular course of action, the right exercised by the 4th respondent within the 4 corners of the commercial agreements and the disputes arising thereof would certainly not come within the broad context of public law recourse.

Activities of Port: Public Interest?

It was submitted by 1st respondent Port that the activities with respect to 1st respondent Port substantially touch upon the public interest. Any disruption of its activities by the adverse action of 4th respondent would only lead to a short supply of essential goods and ultimately, would only undermine the public interest.

Employment was also provided by the 1st respondent to thousands of employees and the continuance of payments of salaries and other related obligations would also get affected as a consequence of respondent 4’s action.

Bench stated that no doubt Port activities are essential services to keep the public interest afloat, but the 1st respondent was again a private company. Its activities may touch upon the public interest, nevertheless, the petitioner cannot be allowed to craftily project the port activities for the purpose of hitching on the public interest bandwagon.

In High Court’s view, the petitioner attempted to stealthily subserve their private interest behind the facade of public interest citing port activities.

On a wafer-thin legal basis, contending RBI circulars being not followed, the writ petition was sought to be maintained. Court stated that such slender premise is not good enough to maintain the writ petition in the circumstances of the case. 

In view of the Supreme Court decision in Central Bank of India v. Ravindra, (2002) 1 SCC 367, it was observed that where transactions concerned are not squarely governed by the RBI Circulars, in that case, such circulars are to be treated as standards to judge whether the action taken by the private Banks is opposed to any public policy. Hence, the petitioner cannot compel the Court to issue a command, namely Mandamus and more so, Writ of Certiorari.

Facts in the case of Bombay High Court’s decision in TransconIconica (P) Ltd. v. ICICI Bank, 2020 SCC Online Bom 626, are identical to the present matter. In the said matter directions were passed.

In Karnataka High Court’s decision of Velankani Information Systems Ltd. v. Ministry of Home Affairs, 2020 SCC Online Kar 835, the challenge was to the action initiated by a private bank and the challenge principally was on the ground that Bank did not follow RBI Circular.

The Court found that the Bench in the above decision delved pervasively into the factual disputes and held that petitioner was entitled to the moratorium protection and in that context, RBI was directed to enforce the recovery package as contained in the RBI Circular and consequently the action initiated by the private lending institution came to be set aside.

Further, the Court remarked that it is unable to follow the above judgment.

In the present matter, the very entitlement of the benefit of a moratorium was being questioned seriously and the Court was also of prima facie view that there appears to be a substantial force in the submissions of 4th respondent. Therefore, the applicability of the RBI circular itself being an unsure case of the petitioner, question of maintaining the petition would necessarily fail on that plank.

“… already stretched boundaries of writ jurisdiction for advancing the bonafide constitutional goals cannot be further stretched to bring all private disputes within the fold of judicial review.”

 Concluding the decision, Bench held that in exercise of writ jurisdiction, the 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.

In view of the above discussion, petition was dismissed. [Marg Limited v. Karaikal Port (P) Ltd., 2021 SCC OnLine Mad 2585, decided on 2-07-2021]

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