Case BriefsHigh Courts

Karnataka High Court: Suraj Govindraj J., dismissed the writ petition on grounds of maintainability.

The facts of the case are such that the petitioner is a not for profit company registered under Section 8 of the Companies Act 2013 with the object of working in the areas of governance and in transparency. The Respondents 2 and 3 being directors of various companies were carrying on non-banking financial business without registration and hence had committed offences under Section 45 IA of the RBI Act. A private complaint was filed by the petitioner seeking direction to the RBI to initiate proceedings against respondents for offences under Section 45 IA r/w 58B (4A) of the RBI Act. The Magistrate dismissed the complaint stating that the prayer sought in the complaint is only a direction to the RBI to take cognizance and investigate and the representation submitted earlier was still pending with the Governor of the RBI for consideration whose status is unknown and hence no direction can be issued to the Governor of the RBI. Aggrieved by the said dismissal present petition was filed for setting aside the impugned order and restore the private complaint.

Counsel for the petitioners submitted that the proceedings filed before the Delhi High Court are different from the one filed before the Magistrate and the prayer sought for is also different. It was further submitted that there is no order which can operate as res judicata as the present writ petition is not one under Article 226 but is more under Article 227 of the Constitution of India seeking for supervisory jurisdiction as also one under Section 482 of CrPC to exercise inherent power to set aside the order passed by the Magistrate.

Counsel for the respondents submitted that the relief sought for in the complaint is identical to that sought for in the writ petition and as complaint itself was not maintainable therefore the present petition will not be maintainable as well. It was further submitted that PIL was filed and later withdrawn and hence once the proceeding has been filed making allegations and the same is withdrawn, the filing of the present writ petition is barred. It was also submitted that the claim of the petitioner is hit by res judicata and hence the petitioner cannot reagitate the same.

The Court relied on judgment Sarguja Transport Service v. State Transport Appellate Tribunal (1987) 1 SCC 5 and observed that the allegations made and prayer sought in private complaint or PIL is as regards the alleged violation by respondents of Section 45 IA punishable under Section 58 B (4C) of the RBI Act. Thus it cannot be disputed that the relief sought is one and the same though by legal and linguistic gymnastics they have been worded differently. It was further observed that “clever drafting and or subterfuge resorted to in such drafting would not take away the fact that the allegations made in all three proceedings are one and the same.”

 The Court held that in the present case the grievance of the petitioner being the same in all the proceedings, the actions sought also being the same i.e. for the RBI to take necessary action against the respondents hence the present writ petition is not maintainable in view of the various orders passed by the High Court and also the withdrawal made by the petitioner of the PIL.

In view of the above, the writ petition was dismissed.[India Awake for Transparency v. Azim Hasham Premji, 2021 SCC OnLine Kar 200, decided on 18-01-2020]


Arunima Bose, Editorial Assistant has put this story together.

Case BriefsHigh Courts

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

Case BriefsSupreme Court

Supreme Court: Holding the Reserve Bank of India [RBI] Circular issued on 12.02.2018 ultra vires Section 35AA of the Banking Regulation Act, 1949, the bench of RF Nariman and Vineet Saran, JJ directed,

“all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular.”

Salient features of the RBI Circular

  • restructuring in respect of borrower entities de hors the Insolvency and Bankruptcy Code, 2016 can only occur if the resolution plan that involves restructuring is agreed to by all lenders, i.e., 100 per cent concurrence.
  • With respect to debts with an aggregate exposure of INR 2000 crore and over on or after 01.03.2018, if default persists for 180 days from 01.03.2018, or if the date of first default is after 01.03.2018, then 180 days calculated with effect from that date, lenders shall file applications singly or jointly under the Insolvency Code within 15 days from the expiry of the aforesaid 180 days.

“In short, unless a restructuring process in respect of debts with an aggregate exposure of over INR 2000 crore is fully implemented on or before 195 days from the reference date or date of first default, the lenders will have to file applications as financial creditors under the Insolvency Code.”

Power to issue the RBI Circular

The Court noticed that the sources of power for issuance of the aforesaid circular have been stated to be Section 35A of the Banking Regulation Act read with the Central Government’s circular dated 05.05.2017, Sections 35AA and 35AB of the said Act, and Section 45L of the Reserve Bank of India Act, 1934.

Section 35A of the Banking Regulation Act

“When resolution through the Code is to be effected, the specific power granted by Section 35AA can alone be availed by the RBI. When resolution de hors the Code is to be effected, the general powers under Sections 35A and 35AB are to be used. Any other interpretation would make Section 35AA otiose.”

Explaining that ‘default’ would mean non- payment of a debt when it has become due and payable and is not paid by the corporate debtor, the Court said that what is important to note is that it is a particular default of a particular debtor that is the subject matter of Section 35AA.

“It must also be observed that the expression “issue directions to banking companies generally or to any banking company in particular” occurring in Section 35A is conspicuous by its absence in Section 35AA. This is another good reason as to why Section 35AA refers only to specific cases of default and not to the issuance of directions to banking companies generally, as has been done by the impugned circular.”

Section 45L of RBI Act

The Court noticed that the impugned RBI circular nowhere said that the RBI has had due regard to the conditions in which and the objects for which such institutions have been established, their statutory responsibilities, and the effect the business of such financial institutions is likely to have on trends in the money and capital markets.

“There is nothing to show that the provisions of Section 45L(3) have been satisfied in issuing the impugned circular.”

Severing Non-Banking institutions from Banking Institutions

The impugned RBI circular applied to banking and non-banking institutions alike, as banking and non-banking institutions are often in a joint lenders’ forum which jointly lend sums of money to debtors. Such non-banking financial institutions are, therefore, inseparable from banking institutions insofar as the application of the impugned circular is concerned.

“It is very difficult to segregate the non-banking financial institutions from banks so as to make the circular applicable to them even if it is ultra vires insofar as banks are concerned.”

Ruling

“the impugned circular will have to be declared as ultra vires as a whole, and be declared to be of no effect in law.”

[Dharani Sugars and Chemicals Ltd. v. Union of India, 2019 SCC OnLine SC 460, decided on 02.04.2019]