Bank write-off of bad debts against reserves remains an accounting exercise and does not extinguish recovery rights.

A bank's write-off of non-performing assets against reserves was treated as an internal accounting adjustment to clean up the balance sheet, not as an extinguishment of the underlying debt. The bank's right to recover dues from borrowers remained intact, and any recoveries could still be pursued through legal proceedings. The Reserve Bank's approval was not shown to be illegal, arbitrary, mala fide, or contrary to the Banking Regulation Act, and the supervisory provisions relied on had no bearing on the challenge. Writ interference was therefore unavailable, as no specific statutory breach was established.

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Issues: Whether the Reserve Bank of India acted illegally or without statutory authority in permitting the bank to write off non-performing assets against its reserves, and whether the write-off could be interfered with in writ jurisdiction.

Analysis: The write-off of bad debts was treated as an internal accounting exercise undertaken to clean up the balance sheet. It did not extinguish the bank's right to recover the dues from borrowers, and recoveries, if any, could still be pursued through legal proceedings. The statutory scheme of the Banking Regulation Act did not show any breach by the Reserve Bank in granting approval, and the provisions relied upon concerning advance policy, licence cancellation, returns, audit, inspection, other supervisory powers, and reconstitution or amalgamation were held to have no bearing on the challenge. The Court also noted that, as a matter of practice, banks may seek Reserve Bank approval before appropriating reserves for such write-off, and the tax consequence under the Income-tax Act supported the accounting treatment.

Conclusion: The challenge failed. The approval for write-off was not shown to be illegal, arbitrary, mala fide, or contrary to statute, and the relief sought in writ jurisdiction was not available.

Final Conclusion: The decision affirms that a bank's write-off of NPAs against reserves is an accounting measure that does not bar recovery, and the Reserve Bank's approval in the absence of statutory violation cannot be interdicted.

Ratio Decidendi: A write-off of bad debts against reserves is an internal accounting adjustment that does not affect the underlying debt or recovery rights, and judicial interference is unwarranted unless a specific statutory breach, arbitrariness, or mala fides is shown.

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