Binding RBI settlement guidelines cannot be applied discriminatorily by a public sector bank under the equality mandate.

RBI directions issued under the Banking Regulation Act, 1949 bind banking companies, and a public sector bank cannot depart from a uniform one-time settlement policy in a discriminatory manner. The Court held that the settlement guidelines were intended as non-discretionary instructions, with only limited deviation permitted by the Board of Directors, and that the bank had itself invoked the scheme against the appellants. As a State instrumentality under Article 12, it was required to apply the settlement framework consistently and could not introduce a security-value criterion that undermined its equality-based operation. The impugned judgment was set aside, and the appellants were entitled to consideration of their proposal under the RBI guidelines.

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Issues: Whether the Reserve Bank of India guidelines on one time settlement were binding on the respondent bank, and whether the bank could depart from those guidelines in a discriminatory manner while dealing with the appellants' proposal for settlement.

Analysis: The statutory scheme of the Banking Regulation Act, 1949 confers on the Reserve Bank of India power to determine banking policy and issue binding directions to banking companies. The guidelines for one time settlement were issued as uniform, non-discretionary instructions for public sector banks and expressly contemplated only limited deviation by the Board of Directors. The respondent bank had itself acted on those guidelines and invited the appellants to submit a proposal under the scheme. A public sector bank, being "State" within Article 12, could not apply the scheme in a manner inconsistent with the equality mandate, nor could it introduce a criterion based on the value of securities so as to defeat the non-discriminatory character of the RBI framework.

Conclusion: The RBI guidelines were binding on the respondent bank, and the bank's refusal to settle the account on the terms of the scheme was unsustainable. The challenge to the Tribunal's order failed, and relief was due to the appellants.

Final Conclusion: The impugned judgment was set aside and the appellants were entitled to consideration of their settlement proposal in accordance with the RBI guidelines, without discriminatory departure from the scheme.

Ratio Decidendi: Directions issued by the Reserve Bank of India under the Banking Regulation Act, 1949 have binding force on banking companies, and a public sector bank cannot depart from a uniform settlement policy in a manner that offends Article 14 of the Constitution of India.

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