2006 (2) TMI 289 - HC - Companies Law

Dismissal of Writ Petition: Legal Notice Valid, NPA Classification Correct

The court dismissed the writ petition, affirming the legality and jurisdiction of the notice under section 13(2) of the Act, the correct classification of ... Maintainability of writ against a private bank - private bank not a 'State' under Article 12 - Non-Performing Asset classification and prudential norms - challenge to notice under section 13(2) of the SARFAESI Act - appeal under section 17 of the SARFAESI ActMaintainability of writ against a private bank - private bank not a 'State' under Article 12 - Writ under Article 226 is not maintainable against the private bank; the bank is not a 'State' or an authority performing public functions within Article 12. - HELD THAT: - The Court rejected the contention that the bank's regulatory control by statute or RBI renders it amenable to writ jurisdiction. Relying on established principles that mere regulation or licensing does not convert a private commercial banking company into State or an instrumentality discharging public functions, the Court held that a private scheduled bank cannot be treated as performing public duties enforceable by mandamus under Article 226. Consequently the writ petition against the bank is not maintainable and the petitioner cannot seek relief by way of writ against the Company carrying on banking business. [Paras 6, 7, 11, 12]Writ petition dismissed as not maintainable against the private bank; the bank is not a 'State' under Article 12 and mandamus cannot be issued to it.Non-Performing Asset classification and prudential norms - challenge to notice under section 13(2) of the SARFAESI Act - appeal under section 17 of the SARFAESI Act - Whether the SOD advance is an NPA and whether the bank was justified in initiating proceedings under section 13 of the Act was not finally adjudicated by the writ court and is to be considered by the appellate authority under section 17. - HELD THAT: - The Court noted the definition of NPA in the prudential norms (90 days overdue norm from 31-3-2004) and observed that the annexed notice indicated the loan availed on 11-9-2003 and continuing accrual of interest, supporting an inference of non-payment. Nevertheless, the Court declined to decide the substantive question on merits in writ jurisdiction against a private bank and directed that such disputes regarding classification as NPA and the validity of action under the SARFAESI Act are to be raised and adjudicated before the appellate authority constituted under section 17 of the Act. The petitioner was accordingly granted liberty to file an appeal under section 17. [Paras 4, 5, 6, 13]Substantive challenge to classification of the advance as NPA and validity of action under section 13 is not decided by the writ court and is left to be raised before and decided by the section 17 appellate authority; petitioner given liberty to prefer such appeal.Final Conclusion: Writ petition dismissed as not maintainable against the private bank; the petitioner may seek remedy by filing an appeal under section 17 of the SARFAESI Act to challenge classification and enforcement proceedings. Issues Involved:1. Legality and jurisdiction of the notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act).2. Classification of the Special Over Draft Facility (SOD) as a Non-Performing Asset (NPA).3. Maintainability of the writ petition against a private bank under Article 226 of the Constitution of India.Detailed Analysis:1. Legality and Jurisdiction of the Notice under Section 13(2) of the Act:The petitioner, father-in-law of the proprietor of the second respondent concern, contested the notice issued by the first respondent bank under section 13(2) of the Act, arguing that the action was illegal and without jurisdiction. The petitioner claimed that the Act did not apply to the recovery proceedings related to the SOD availed by the second respondent. The court examined the notice and found that the second respondent had defaulted on the loan repayment, leading to the issuance of the notice under section 13(2) and subsequent action under section 13(4) of the Act. The court concluded that the first respondent bank did not act illegally in issuing the notice.2. Classification of the Special Over Draft Facility (SOD) as a Non-Performing Asset (NPA):The petitioner argued that the first respondent had not classified the SOD facility as an NPA according to the Reserve Bank of India's norms. The court referred to section 2(6) of the Act and the prudential norms outlined in the Reserve Bank's Master Circular, which define an NPA as an asset where interest and/or principal instalments remain overdue for more than 90 days. The court noted that the second respondent had not repaid any amount or instalment since availing the loan on 11-9-2003, thus justifying the classification of the SOD as an NPA. The court determined that the first respondent's actions were in accordance with the Act and the prudential norms.3. Maintainability of the Writ Petition Against a Private Bank:The court addressed the issue of whether a writ petition under Article 226 of the Constitution of India was maintainable against the first respondent, a private bank. The court cited precedents, including the Supreme Court's judgment in Federal Bank Limited v. Sagar Thomas, which held that private banks, despite being regulated by the Reserve Bank of India, do not perform public functions or duties and are not considered 'State' under Article 12 of the Constitution. Consequently, a writ petition against such entities is not maintainable. The court concluded that the first respondent, being a private bank, did not discharge public functions and therefore, the writ petition was not maintainable.Conclusion:The court dismissed the writ petition, holding that the notice under section 13(2) of the Act was legally and jurisdictionally valid, the SOD facility was correctly classified as an NPA, and the writ petition against the private bank was not maintainable. The petitioner was advised to seek recourse through an appeal under section 17 of the Act before the competent authority.