Sanctions compliance scrutiny by authorised dealer bank upheld where disclosures raised serious transaction-risk concerns.

A writ petition against an Authorised Dealer Category-I bank was held maintainable where the challenge alleged arbitrariness in the exercise of a public law function. The petitioner was not non-suited for alleged suppression, because the disputed Iranian nexus formed part of the substantive controversy and the relevant materials were before the Court. The bank had authority under FEMA and the facility agreement to seek further declarations, scrutinise sanctions-related concerns, and refuse processing when the petitioner's disclosures raised compliance doubts. Its refusal was upheld as non-arbitrary and non-mala fide, with no procedural impropriety shown, so writ interference was declined.

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Issues: (i) Whether the writ petitions were maintainable against an Authorised Dealer Category-I Bank; (ii) whether the petitioner was liable to be non-suited for suppression of material facts; (iii) whether the bank had authority under the FEMA-RBI framework and the facility agreement to scrutinize sanctions-related concerns and refuse processing of the transactions; and (iv) whether the impugned refusal was arbitrary, irrational, mala fide or otherwise amenable to interference under Article 226.

Issue (i): Whether the writ petitions were maintainable against an Authorised Dealer Category-I Bank.

Analysis: The bank, though private, was acting in the capacity of an Authorised Dealer under the foreign exchange regulatory framework. The challenge was founded on arbitrariness in the exercise of a function having a public law element. Contractual relations did not, by themselves, exclude judicial review where the impugned action was tested on constitutional standards.

Conclusion: The writ petitions were maintainable.

Issue (ii): Whether the petitioner was liable to be non-suited for suppression of material facts.

Analysis: A litigant invoking writ jurisdiction must make full disclosure, but every omission or disputed factual assertion does not warrant rejection at the threshold. The alleged Iranian nexus was itself part of the substantive controversy and the materials relied upon by the bank were placed before the Court for scrutiny.

Conclusion: The petitioner was not to be non-suited on that ground.

Issue (iii): Whether the bank had authority under the FEMA-RBI framework and the facility agreement to scrutinize sanctions-related concerns and refuse processing of the transactions.

Analysis: Section 10(5) of the Foreign Exchange Management Act, 1999 obliges an authorised person to obtain declarations and information sufficient to satisfy itself that the transaction will not involve contravention or evasion of the Act or the directions issued thereunder. The facility agreement also contained continuing sanctions-compliance representations and expressly reserved a right in favour of the bank to refuse processing of transactions that violate or may violate sanctions obligations. On receipt of information raising serious concerns about the accuracy of the petitioner's declarations, the bank was entitled to undertake enhanced scrutiny and decline to proceed.

Conclusion: The bank possessed the requisite authority.

Issue (iv): Whether the impugned refusal was arbitrary, irrational, mala fide or otherwise amenable to interference under Article 226.

Analysis: The bank did not act mechanically. It sought clarifications, afforded opportunity to explain, undertook compliance review, and acted within the contractual and regulatory framework. No material was shown to establish mala fides, collateral purpose, procedural unfairness, or perversity in the decision-making process. The Court did not find it necessary to conclusively determine the underlying factual controversy regarding the origin and routing of the goods.

Conclusion: The impugned refusal did not suffer from arbitrariness, mala fides or procedural impropriety warranting interference.

Final Conclusion: The challenge failed on merits because the bank's decision was supported by the statutory duties of an authorised dealer and by the express sanctions-related terms of the parties' agreement, leaving no ground for writ interference.

Ratio Decidendi: An authorised dealer bank, when confronted with declarations and subsequent information raising sanctions-related compliance concerns, may lawfully undertake enhanced scrutiny and refuse to process the transaction if the declarations are not satisfactorily reinforced, especially where the underlying contract expressly reserves such a right.

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